<PAGE> 1
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
COMMISSION FILE NUMBER 1-10875
NOVACARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3247827
(State of incorporation) (I.R.S. Employer Identification No.)
1016 W. NINTH AVENUE, KING OF PRUSSIA, PA 19406
(Address of principal executive office) (Zip code)
Registrant's telephone number: (610) 992-7200
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 October 31, 1997, NovaCare, Inc. had 61,169,251 shares of common stock,
$.01 par value, outstanding.
<PAGE> 2
NOVACARE, INC. AND SUBSIDIARIES
FORM 10-Q - QUARTER ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
PART NO. ITEM NO. DESCRIPTION PAGE NO.
<S> <C> <C> <C>
I FINANCIAL INFORMATION
1 Financial Statements
- Condensed Consolidated Balance Sheets as of
September 30, 1997 and June 30, 1997 1
- Condensed Consolidated Statements of Operations
for the Three Months Ended September 30, 1997 and
1996 2
- Condensed Consolidated Statements of Cash Flows
for the Three Months Ended September 30, 1997 and
1996 3
- Notes to Condensed Consolidated Financial Statements 4-7
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
II OTHER INFORMATION
4 Submission of Matters to a Vote of Security Holders 13-14
6 Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
i
<PAGE> 3
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND JUNE 30, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
SEPTEMBER June 30,
30, 1997 1997
----------- -----------
ASSETS (UNAUDITED) (See Note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalent ......................................... $ 32,584 $ 22,716
Accounts receivable, net of allowances at September 30, 1997 and
at June 30, 1997 of $40,611 and $33,263, respectively.......... 281,995 256,477
Other current assets ............................................. 51,980 50,702
----------- -----------
Total current assets .......................................... 366,559 329,895
Property and equipment, net ...................................... 71,235 69,740
Excess cost of net assets acquired, net .......................... 596,652 568,027
Investments in joint ventures .................................... 12,922 12,719
Other assets, net ................................................ 36,409 33,923
----------- -----------
$ 1,083,777 $ 1,014,304
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of financing arrangements ...................... $ 19,032 $ 15,978
Accounts payable and accrued expenses .......................... 137,302 135,272
Income taxes payable ........................................... 10,593 5,069
----------- -----------
Total current liabilities .................................... 166,927 156,319
Financing arrangements, net of current portion ................... 373,004 326,700
Other ............................................................ 19,762 19,630
----------- -----------
Total liabilities ............................................ 559,693 502,649
----------- -----------
Minority interest in consolidated subsidiaries ................... 4,548 3,649
Commitments and contingencies ................................... -- --
Shareholders' equity:
Common stock, $.01 par value; authorized 200,000 shares,
issued 66,716 shares at September 30, 1997 and 66,630
shares at June 30, 1997 ...................................... 667 666
Additional paid-in capital ..................................... 260,985 259,915
Retained earnings .............................................. 302,564 292,340
----------- -----------
564,216 552,921
Less: Common stock in treasury (at cost), 5,582 shares at
September 30, 1997 and 5,590 shares at June 30, 1996 .. (44,680) (44,915)
----------- -----------
Total shareholders' equity ............................... 519,536 508,006
----------- -----------
$ 1,083,777 $ 1,014,304
=========== ===========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
1
<PAGE> 4
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1997 1996
------------- ------------
<S> <C> <C>
Net revenues ........................................ $ 356,698 $ 209,430
Cost of services .................................... 278,301 153,651
--------- ---------
Gross profit .................................... 78,397 55,779
Selling, general and administrative expenses ........ 45,472 32,808
Provision for uncollectible accounts ................ 5,111 5,259
Amortization of excess cost of net assets acquired .. 4,466 2,694
--------- ---------
Income from operations .......................... 23,348 15,018
Investment income ................................... 141 1,090
Interest expense .................................... (5,794) (3,168)
Minority interest ................................... (75) (44)
--------- ---------
Income before income taxes ...................... 17,620 12,896
Income taxes ........................................ 7,396 5,352
--------- ---------
Net income ...................................... $ 10,224 $ 7,544
========= =========
Net income per share ............................ $ .16 $ .12
========= =========
Weighted average number of shares outstanding ... 64,647 63,224
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
2
<PAGE> 5
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 10,224 $ 7,544
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Depreciation and amortization ...................................... 11,477 8,628
Minority interest .................................................. 75 44
Provision for uncollectible accounts ............................... 5,111 5,259
Deferred income taxes .............................................. -- (9)
Changes in assets and liabilities, net of effects from acquisitions:
Accounts and notes receivable .................................... (24,249) (12,364)
Other current assets ............................................. (2,109) (398)
Accounts payable and accrued expenses ............................ 747 2,075
Income taxes payable ............................................. 5,509 2,388
Other, net ....................................................... 68 (27)
--------- ---------
Net cash flows provided by operating activities .................. 6,853 13,140
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for businesses acquired, net of cash acquired ............... (22,939) (50,368)
Net additions to property and equipment .............................. (6,138) (3,552)
Other, net ........................................................... (533) (112)
--------- ---------
Net cash flows (used in) investing activities .................... (29,610) (54,032)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from financing arrangements ................................. 123,500 --
Payment of financing arrangements .................................... (91,415) (1,999)
Net proceeds from common stock issued ................................ 540 1,373
Payment for purchase of treasury stock ............................... -- (22,956)
--------- ---------
Net cash flows provided by (used in) financing activities ........ 32,625 (23,582)
--------- ---------
Net increase (decrease) in cash and cash equivalents ................. 9,868 (64,474)
Cash and cash equivalents, beginning of period ....................... 22,716 95,724
--------- ---------
Cash and cash equivalents, end of period ............................. $ 32,584 $ 31,250
========= =========
Supplemental disclosures of cash flow information:
Interest paid ...................................................... $ 2,785 $ 5,145
========= =========
Income taxes paid .................................................. $ 1,862 $ 3,683
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
3
<PAGE> 6
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(In thousands, except per share data)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of NovaCare,
Inc. (the "Company") are unaudited. The balance sheet as of June 30, 1997 is
condensed from the audited balance sheet of the Company at that date. These
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission and should be read in conjunction with
the Company's consolidated financial statements and the notes thereto for the
year ended June 30, 1997. Certain information and footnote disclosures
normally in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. In the opinion of Company management, the
condensed consolidated financial statements for the unaudited interim periods
presented include all adjustments (consisting of only normal recurring
adjustments) necessary to present a fair statement of the results for such
interim periods.
Operating results for the three-month period ended September 30, 1997 are
not necessarily indicative of the results that may be expected for a full
year or any portion thereof.
2. ACQUISITIONS
During the three months ended September 30, 1997 and 1996, the Company
acquired 18 and 13 outpatient businesses, respectively. In the first quarter
of fiscal 1997, the Company also acquired one business which provides
occupational health services. All acquisitions were accounted for as
purchases and, accordingly, the aggregate purchase price was allocated to
assets and liabilities based on their fair values at the date of acquisition.
The following unaudited pro forma consolidated results of operations of
the Company give effect to each of the acquisitions as if they occurred on
July 1, 1996:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net revenues ................................ $ 358,911 $ 315,787
Net income .................................. 10,301 9,154
Net income per share ........................ $ .16 $ .14
</TABLE>
The above pro forma information is not necessarily indicative of the
results of operations that would have occurred had the acquisitions been made
as of July 1, 1996, or the results which may occur in the future.
4
<PAGE> 7
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(In thousands, except per share data)
(Unaudited)
2. ACQUISITIONS (CONTINUED)
Information with respect to businesses acquired in purchase transactions
for the three months ended September 30, 1997 was as follows:
<TABLE>
<S> <C>
Cash paid (net of cash acquired) ...................... $ 19,339
Notes issued .......................................... 14,665
Other consideration ................................... 1,272
--------
35,276
Fair value of assets acquired, principally accounts
receivable and property and equipment ............... 3,601
---------
Cost in excess of fair value of net assets acquired ... $ 31,675
=========
</TABLE>
The results of operations of businesses acquired have been included in the
consolidated results of the Company from the effective date of each
acquisition.
3. FINANCING ARRANGEMENTS
Financing arrangements consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, June 30,
1997 1997
------------ -----------
<S> <C> <C>
Convertible subordinated debentures (5.5%), due January
2000 ................................................. $ 175,000 $ 175,000
$275,000 revolving credit facility (EuroDollar rate plus
0.5% to 1.125%), due November 28, 1999 ............... 148,500 109,600
Subordinated promissory notes (5% to 10%), payable
through 2007 ......................................... 66,330 56,859
Other .................................................. 2,206 1,219
--------- ----------
392,036 342,678
Less: current portion .................................. 19,032 15,978
---------- ---------
$ 373,004 $ 326,700
=========== =========
</TABLE>
The Company established a revolving credit facility with a syndicate of
lenders in fiscal 1996, which is collateralized by substantially all of the
Company's subsidiaries' common stock. On September 30, 1997, the credit
agreement was amended to increase the available line of credit from $190,000
to $275,000. As of September 30, 1997, $118,837 of the line of credit was
available after reduction for borrowings and letters of credit totaling
$7,663.
5
<PAGE> 8
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(In thousands, except per share data)
(Unaudited)
4. FINANCIAL DATA BY BUSINESS SEGMENT
Beginning in the second quarter of fiscal 1997, the Company has operated
in two service industries, rehabilitation services and employee services.
Rehabilitation services include: (i) providing rehabilitation therapy and
rehabilitation program consulting and management services on a contract basis
to health care institutions, primarily long-term care facilities; and (ii)
providing outpatient, orthotic and prosthetic and occupational health
rehabilitation services through a national network of patient care centers
and integrated delivery systems. Employee services are generally provided to
small and medium-sized businesses and are comprehensive, fully integrated
outsourcing solutions to human resource management, including payroll
management, workers' compensation, risk management, benefits administration,
unemployment services and human resource consulting services.
Income from operations by business segment is total net revenues less
operating expenses. In computing income from operations by business segment,
none of the following items has been added or deducted: other income,
interest expense or income taxes. Identifiable assets by segment are those
assets that are used in the Company's operations in each industry.
Employee services revenues and the related costs of wages, salaries, and
employment taxes pertaining to worksite employees are recognized in the
period in which the employee performs the services. Because the Company is at
risk for all of its direct costs, independently of whether payment is
received from its clients, and consistent with industry practice, all amounts
billed or billable to clients for gross salaries and wages, related
employment taxes, and health care and workers' compensation coverage are
recognized as revenue by the Company.
The Company's rehabilitation services segment is a client of the employee
services segment, resulting in the net revenues and total assets
eliminations.
Operating results and other financial data are presented for the principal
business segments of the Company as follows:
<TABLE>
<CAPTION>
REHABILITATION EMPLOYEE
SERVICES SERVICES ELIMINATION CONSOLIDATED
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 1997:
Net revenues ..................... $ 270,107 $ 266,757 $ (180,166) $ 356,698
Income from operations ........... 21,222 2,126 -- 23,348
Depreciation expense. ............ 6,793 218 -- 7,011
Net capital expenditures ......... 5,700 438 -- 6,138
AS OF SEPTEMBER 30, 1997:
Total assets ..................... $ 1,008,095 $ 104,160 $ (28,478) $ 1,083,777
</TABLE>
6
<PAGE> 9
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(In thousands, except per share data)
(Unaudited)
5. COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not have a
material adverse effect on the financial position or results of operations
of the Company.
Certain purchase agreements require additional payments if specific
financial targets and non-financial conditions are met. Aggregate contingent
payments in connection with these acquisitions at September 30, 1997 of
approximately $49,041 in cash and 129 shares of common stock have not been
included in the initial determination of cost of the businesses acquired
since the amount of such contingent consideration, if any, is not presently
determinable. For the three months ended September 30, 1997 and September 30,
1996, the Company paid $3,600 and $3,692 in cash, respectively, and issued 25
and 59 shares, respectively, of common stock in connection with businesses
acquired in prior years.
6. SUBSEQUENT EVENTS
One of the Company's subsidiaries, NovaCare Employee Services, Inc.
("NCES") has filed a registration statement with the Securities and Exchange
Commission to register for the sale of up to 5,000 shares of its common
stock (the "Offering"). NCES intends to use the net proceeds of the offering
to satisfy $17,500 of deferred purchase price obligations incurred in
connection with NCES acquisitions. It is intended that the remaining net
proceeds from the offering will be used to pay down debt under the Company's
credit facility.
Immediately subsequent to the consummation of the offering, NCES intends
to enter into a $25,000 three-year revolving credit agreement with a group of
financial institutions. The credit agreement, which has been fully
negotiated, will provide for interest at a variable rate, depending on
certain financial ratios, equal to (a) the EuroDollar rate plus a range of
1.375% to 2.50% or (b) the lead bank's prime rate plus a range of .125% to
1.25%. Loans made under the credit agreement will be collaterized by a pledge
of all of (i) NCES's interest in the common stock of its subsidiaries, (ii)
the assets of NCES and its subsidiaries and (iii) the Company's interest in
the common stock of NCES. The closing with respect to the credit agreement
will be subject to certain conditions, including (i) the ownership by the
Company following the Offering of at least 65% of all of the issued and
outstanding equity interests of NCES and (ii) the repayment by NCES of all
amounts due to the Company. In addition, the closing by financial
institutions which have committed to lend $15,000 of the facility is
contingent on the receipt by NCES of net proceeds of at least $40,000 from
the Offering and the closing by financial institutions which have
committed to lend the remaining $10,000 of the facility is contingent on the
receipt by NCES of net proceeds of at least $45,000 from the Offering. There
can be no assurance that the conditions precedent to the credit agreement
will be satisfied.
7
<PAGE> 10
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
In the first quarter of fiscal 1998, the Company experienced significant
growth through strategic acquisitions and growth in its existing businesses.
During the three months ended September 30, 1997 and 1996, the Company
purchased 18 and 13 outpatient businesses, respectively, and during the three
months ended September 30, 1996, one occupational health business. The
Company entered into the employee services industry through the acquisition
of one employee services business in October 1996 and three in February 1997.
Beginning in the second quarter of fiscal 1997, the Company has operated
in two service industries, rehabilitation services and employee services.
Rehabilitation services include (i) providing rehabilitation therapy and
rehabilitation program consulting and management services on a contract basis
to health care institutions, primarily long-term care facilities, and (ii)
providing outpatient, orthotic and prosthetic and occupational health
rehabilitation services through a national network of patient care centers
and integrated delivery systems. Employee services are generally provided to
small and medium-sized businesses and are comprehensive, fully integrated
outsourcing solutions to human resource management, including payroll
management, workers' compensation, risk management, benefits administration,
unemployment services and human resource consulting services. Effective
January 24, 1997, employee services were also provided to the rehabilitation
services segment of the Company.
The following are the results of operations for the three month periods
ended September 30, 1997 and 1996. Other operating expenses includes selling,
general and administrative expenses, provision for uncollectible accounts and
amortization of excess cost of net assets acquired.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
(TABLE IN THOUSANDS) 1997 1996
------------- -----------
<S> <C> <C>
NET REVENUES
Rehabilitation services .................... $ 270,107 $ 209,430
Employee services .......................... 266,757 --
Elimination ................................ (180,166) --
--------- ---------
TOTAL NET REVENUES ............... 356,698 209,430
GROSS PROFIT
Rehabilitation services .................... 74,037 55,779
Employee services .......................... 8,328 --
Elimination ................................ (3,968) --
--------- ---------
TOTAL GROSS PROFIT ............... 78,397 55,779
OTHER OPERATING EXPENSES ....................... 55,049 40,761
--------- ---------
INCOME FROM OPERATIONS ........... $ 23,348 $ 15,018
========== =========
</TABLE>
8
<PAGE> 11
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
Net revenues for the three months ended September 30, 1997 increased from
the prior year by $147.3 million, or 70.3%, to $356.7 million and gross
profit increased $22.6 million, or 40.6%, to $78.4 million, primarily as a
result of acquisitions and internal growth.
Other operating expenses increased $14.2 million from $40.8 million for
the three months ended September 30, 1996 to $55.0 million for the three
months ended September 30, 1997. The increased costs are associated primarily
with businesses acquired in fiscal 1997 and the first quarter of fiscal 1998,
as well as additional selling, general and administrative costs incurred in
the expansion of the Company's employee services business. As a percentage of
net revenues, other operating expenses decreased from 19.5% to 15.4% for the
same periods, respectively, due to efficiency of scale and cost containment
initiatives.
Depreciation expense increased to $7.0 million for the three months ended
September 30, 1997 from $5.9 million for the three months ended September 30,
1996 primarily due to the full year effect of assets acquired in fiscal 1997.
Amortization expense increased $1.8 million to $4.5 million from $2.7 million
for the same periods, respectively, principally as a result of businesses
acquired subsequent to September 30, 1996.
Interest expense, net of investment income, increased $3.6 million
compared with the prior period principally as a result of increased
borrowings in fiscal 1998 compared with fiscal 1997 as discussed under
"Liquidity and Capital Resources."
Income tax expense as a percentage of pretax income increased to 42.0% for
the three months ended September 30, 1997 from 41.5% for the three months
ended September 30, 1996. The increase in the income tax rate resulted
principally from the impact of nondeductible amortization of excess cost of
net assets acquired.
OPERATING RESULTS BY BUSINESS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
REHABILITATION SERVICES
Net revenues for the three months ended September 30, 1997 increased from
the prior year by $60.7 million, or 29.0%. Gross profit for the first quarter
of fiscal 1998 increased from the prior year by $18.3 million, or 32.7%.
Gross profit as a percentage of net revenues increased to 27.4% for the three
months ended September 30, 1997 from 26.6% for the three months ended
September 30, 1996.
The $60.7 million increase in net revenues resulted principally from: (i)
net revenues from businesses acquired, (ii) an increase in contract
rehabilitation net revenues resulting principally from new contract sales and
price increases, and (iii) an increase in outpatient net revenues
attributable to internal growth.
The $18.3 million increase in gross profit was primarily due to: (i)
acquisitions in fiscal 1997 and in the first quarter of fiscal 1998, (ii)
contract sales and price increases in contract rehabilitation, and (iii) an
increase in productivity in outpatient rehabilitation. The increase of 0.8%
in gross profit margin resulted principally from an increase in outpatient
rehabilitation productivity.
9
<PAGE> 12
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
EMPLOYEE SERVICES
The Company's employee services segment provides human resource management
services to third party clients and the Company's rehabilitation services
segment. In the first quarter of fiscal 1998, the Company's temporary
therapist staffing business was sold by rehabilitation services to employee
services. Intercompany activity is eliminated in consolidation.
Because the employee services segment commenced operations in the second
quarter of fiscal year 1997, all increases in net revenue, gross profit and
operating income relate to the acquisitions completed in fiscal year 1997,
and the addition of a contract with the Company's rehabilitation services
segment.
Results of operations for the three months ended September 30,
1997 compared to the three months ended June 30, 1997 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
(TABLE IN THOUSANDS) SEPTEMBER 30, June 30,
1997 1997
------------- -----------
<S> <C> <C>
NET REVENUES .................................... $ 266,757 $ 232,223
GROSS PROFIT .................................... 8,328 6,668
OTHER OPERATING EXPENSES ........................ 6,202 4,964
------------- -----------
INCOME FROM OPERATIONS .......................... $ 2,126 $ 1,704
============= ===========
</TABLE>
Comparing the first quarter of fiscal year 1998 to the fourth quarter of
fiscal year 1997, net revenues from third party clients increased to $86.6
million in fiscal 1998 from $76.9 million in fiscal 1997. This increase is
primarily attributable to an increase in the weighted average number of
worksite employees ("WSEs") to 20,313 from 16,656 during the same periods.
The increases in WSEs is due principally to the purchase of the temporary
staffing business and growth in new employees during the first quarter of
fiscal 1998. Net revenues from employee services provided to the Company's
rehabilitation services segment increased to $180.2 million in the first
quarter of 1998 from $155.4 million in the fourth quarter of fiscal 1997 due
principally to the payment of annual bonuses and an increase in WSEs.
Gross profit from third party clients increased to $4.3 million in the
first quarter of fiscal year 1998 from $3.2 million in the fourth quarter of
fiscal 1997. The increase is attributable primarily to internal growth and
the addition of the Company's temporary therapist staffing business. Gross
profit pertaining to the contract with the rehabilitation services segment
increased to $4.0 million in the first quarter of fiscal 1998 from $3.5
million in the fourth quarter of fiscal 1997 due principally to service fees
earned from the payment of annual bonuses and an increase in WSEs.
Overall, gross profit as a percentage of net revenues increased to 3.1%
for the first quarter of fiscal 1998 from 2.9% during the fourth quarter of
fiscal 1997 resulting principally from the inclusion of the temporary
staffing business which has a higher gross profit margin.
10
<PAGE> 13
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended September 30, 1997, the Company's cash and
cash equivalents increased by $9.9 million from $22.7 million to $32.6
million. The increase in cash and cash equivalents resulted principally from
a net increase in the Company's financing arrangements of $32.1 million and
cash provided by operations of $6.9 million, partially offset by payments to
acquire new businesses of $22.9 million and $6.1 million in payments for
additions to property and equipment.
Cash provided by operations decreased to $6.9 million for the three months
ended September 30, 1997 from $13.1 million for the three months ended
September 30, 1996. This decrease is due to an increase in accounts
receivable partially offset by increases in net income and depreciation and
amortization expense.
The Company used $6.1 million of cash for capital expenditures during the
first three months of fiscal 1998 compared with $3.6 million in the first
three months of fiscal 1997. Capital expenditures generally relate to the
costs incurred in connection with internally developed software, leasehold
renovations and equipment replacement needed for technological efficiency in
clinical and administrative activities in support of clinical programs and
outcomes, cost reduction initiatives and future growth plans.
The Company amended its credit facility on September 30, 1997 to increase
the line of credit to $275.0 million. As of September 30, 1997, $118.8
million of the credit facility was available after reduction of borrowings
and letters of credit of $7.7 million.
One of the Company's subsidiaries, NovaCare Employee Services, Inc.
("NCES") has filed a registration statement with the Securities and Exchange
Commission to register for the sale of up to 5,000,000 shares of its common
stock (the "Offering"). NCES intends to use the net proceeds of the offering
to satisfy $17.5 million of deferred purchase price obligations incurred in
connection with NCES acquisitions. It is intended that the remaining net
proceeds from the offering will be used to pay down debt under the Company's
credit facility.
Immediately subsequent to the consummation of the offering, NCES intends
to enter into a $25.0 million three-year revolving credit agreement with a
group of financial institutions. The credit agreement, which has been fully
negotiated, will provide for interest at a variable rate, depending on
certain financial ratios, equal to (a) the EuroDollar rate plus a range of
1.375% to 2.50% or (b) the lead bank's prime rate plus a range of .125% to
1.25%. Loans made under the credit agreement will be collaterized by a pledge
of all of (i) NCES's interest in the common stock of its subsidiaries, (ii)
the assets of NCES and its subsidiaries and (iii) the Company's interest in
the common stock of NCES. The closing with respect to the credit agreement
will be subject to certain conditions, including (i) the ownership by the
Company following the Offering of at least 65% of all of the issued and
outstanding equity interests of NCES and (ii) the repayment by NCES of all
amounts due to the Company. In addition, the closing by financial
institutions which have committed to lend $15.0 million of the facility is
contingent on the receipt by NCES of net proceeds of at least $40.0 million
from the Offering and the closing by financial institutions which have
committed to lend the remaining $10.0 million of the facility is contingent
on the receipt by NCES of net proceeds of at least $45.0 million from the
Offering. There can be no assurance that the conditions precedent to the
credit agreement will be satisfied.
11
<PAGE> 14
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company believes that the cash flows generated by the Company's
operations, together with its existing cash and availability of credit under
the credit facilities, will be sufficient to meet the Company's short-and
long-term cash needs.
CAUTIONARY STATEMENT
Except for historical information, matters discussed above including, but
not limited to, statements concerning future growth, are forward-looking
statements that are based on management's estimates, assumptions and
projections. Important factors that could cause results to differ materially
from those expected by management include reimbursement system changes,
including customer response to the change from cost-based reimbursement to
fee schedules and per diem payments, the number and productivity of
clinicians, pricing of payer contracts, management retention and development,
management's success in integrating acquired business and in developing and
introducing new products and lines of business, adverse Internal Revenue
Service rulings with respect to the employer status of employee services
businesses and the Company's ability to implement the employee services
business model.
12
<PAGE> 15
NOVACARE, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the three months ended September 30, 1997, the Company did not
submit any matters to a vote of security holders. On October 30, 1997, the
Company held its Annual Meeting of Stockholders for the fiscal year ended June
30, 1997. The following matters were submitted for vote:
1. The following individuals were nominated and elected to serve as the
directors of the Company:
Peter O. Crisp For: 50,391,570
Withhold Authority: 265,920
John H. Foster For: 50,410,763
Withhold Authority: 246,727
Timothy E. Foster For: 50,410,763
Withhold Authority: 246,727
E. Martin Gibson For: 50,410,763
Withhold Authority: 246,727
Siri S. Marshall For: 50,410,763
Withhold Authority: 246,727
James W. McLane For: 50,410,763
Withhold Authority: 246,727
Stephen E. O'Neil For: 50,410,763
Withhold Authority: 246,727
George W. Siguler For: 50,410,763
Withhold Authority: 246,727
Robert G. Stone, Jr. For: 50,409,763
Withhold Authority: 247,727
Daniel C. Tosteson, M.D. For: 50,409,763
Withhold Authority: 247,727
13
<PAGE> 16
NOVACARE, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION (CONTINUED)
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
2. The holders of 47,394,321 shares voted for, the holders of 3,043,150
shares voted against and the holders of 220,019 shares abstained with
respect to the approval of the grant to James W. McLane, President and
Chief Operating Officer of the Company of certain options to purchase
shares of the common stock, $.01 par value of the Company.
3. The holders of 50,489,172 shares voted in favor of, the holders of 54,868
shares voted against, and the holders of 113,450 shares abstained with
respect to the ratification of the selection of Price Waterhouse LLP,
independent certified public accountants, to serve as independent
accountants for the Company.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit
Number Exhibit Description Page Number
10(a) Revolving Credit Facility Agreement Twelfth Amendment as of
September 30, 1997 by and among NovaCare and certain of its
subsidiaries and PNC Bank, N.A., First Union National Bank,
Mellon Bank, N.A., NationsBank, N.A., CoreStates Bank, N.A.,
Fleet Bank, The Bank of New York, SunTrust Bank (Central
Florida) N.A., Bank One (Kentucky) N.A., The Fuji Bank,
Limited (New York Branch), Crestar Bank, Bank of Tokyo -
Mitsubishi Trust Company, and AmSouth Bank.
27 Financial Data Schedule
14
<PAGE> 17
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
NOVACARE, INC.
(REGISTRANT)
NOVEMBER 14, 1997 BY/S/ ROBERT E. HEALY, JR.
------------------------
ROBERT E. HEALY, JR.,
SENIOR VICE PRESIDENT,
FINANCE & ADMINISTRATION AND
CHIEF FINANCIAL OFFICER
BY/S/ BARRY E. SMITH
-------------------
BARRY E. SMITH,
VICE PRESIDENT,
CONTROLLER AND
CHIEF ACCOUNTING OFFICER
15
<PAGE> 18
Exhibit 10(a)
NOVACARE, INC.
1016 WEST NINTH AVENUE
KING OF PRUSSIA, PA 19406
September 30, 1997
PNC Bank, National Association,
as Agent
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Attn: Marcie Knittel, Vice President
RE: Twelfth Amendment to Credit Agreement (the "Twelfth
Amendment")
Dear Marcie:
We refer to that certain Credit Agreement, dated as of May 27,
1994, as amended (the "Credit Agreement"), by and among NovaCare, Inc.
("NovaCare") and certain of its Subsidiaries, the Banks party thereto and PNC
Bank, National Association, as agent for the Banks ("Agent"). Defined terms
used herein, not otherwise defined herein, shall have the meanings given to
them under the Credit Agreement as amended hereby.
The Borrowers and Guarantors, the Banks and the Agent hereby
desire to amend the Credit Agreement, as hereinafter provided.
The parties hereto in consideration of their mutual covenants
and agreements hereinafter set forth, and intending to be legally bound hereby,
covenant and agree as follows:
AGREEMENT
1. Amendment and Restatement.
Articles I through XI of the Credit Agreement are hereby amended and
restated in their entirety as of the date hereof to read as set forth on
Exhibit I hereto. (The cover page, opening paragraph and recitals to the
Agreement are also included in Exhibit I for convenience.) Upon the
effectiveness of this Twelfth Amendment and for periods subsequent to such
effective date, The Fuji Bank, Limited New York Branch, Crestar Bank, Bank of
Tokyo-Mitsubishi Trust Company, and AmSouth Bank shall each be a Bank party to
the Credit Agreement.
<PAGE> 19
2. Amendment to Exhibits and Schedules.
(a) Exhibits. The following Exhibit to the Credit Agreement is
hereby amended and restated in its entirety in the form of such Exhibit attached
hereto:
Exhibit 8.01(m)(iii) Compliance Certificate
(b) Schedules. The following Schedules to the Credit Agreement are
hereby amended and restated in their entirety in the forms of such Schedules
attached hereto:
Schedule 1.01(B) List of Banks and Commitments
Schedule 6.01(c) Subsidiaries
In addition, Schedule 8.02(q) [Certain Affiliate Transactions], in
the form of such Schedule attached hereto, is hereby added as a new, additional
Schedule to the Credit Agreement.
3. Closing Fees.
The Borrowers jointly and severally agree to reimburse the Agent and
the Banks on demand for all costs, expenses and disbursements relating to this
Twelfth Amendment which are payable by the Borrower as provided in Section
10.05 of the Credit Agreement. In addition, the Borrowers shall pay to the
Agent for the benefit of the applicable Banks the fees identified in Exhibit II
hereto as the "Closing Fee," and as the "Amendment Fee," respectively.
4. Conditions of Effectiveness.
The effectiveness of this Twelfth Amendment is expressly conditioned
upon the occurrence and completion of all of the following: (i) receipt by the
Agent of the nonrefundable fee set forth in that certain letter agreement among
the Agent and the Borrowers with respect to this Twelfth Amendment; (ii)
receipt by the Agent on behalf of the Banks of the nonrefundable fees equal to
the aggregate of the amounts set forth on Exhibit II hereto; (iii) the Agent's
receipt of counterparts of this Twelfth Amendment duly executed by the
Borrowers, the Guarantors and the Banks; (iv) the Agent's receipt of a
certificate signed by the Secretary or Assistant Secretary of the Borrowers and
Guarantors, certifying as to all action taken by the Borrowers and Guarantors
to authorize the execution, delivery and performance of this Twelfth Amendment;
(v) an opinion of Peter D. Bewley, General Counsel of the Loan Parties,
reasonably satisfactory to the Agent regarding this Twelfth Amendment, (vi)
with respect to each new Guarantor or new Borrower (a "Joining Subsidiary")
documentation as required under Section 11.18 of the Credit Agreement,
including without limitation the completion of the following: (1) executing
and delivering to the Agent (A) in the case of a Joining Subsidiary which
becomes a Borrower, a Revolving Credit Note in the form of Exhibit 1.01(R) to
the Credit Agreement, payable to each Bank, (B) a joinder to the Credit
Agreement in form satisfactory to the Agent, (C) a counterpart signature page
to the Guaranty Agreement executed by certain Loan Parties which is in the form
of Exhibit 1.01 (G)(1) to the Credit Agreement, in the case of a Joining
Subsidiary which
-2-
<PAGE> 20
becomes a Borrower, and Exhibit 1.01(G)(2) to the Credit Agreement, in
the case of a Joining Subsidiary which becomes a Guarantor, (D) if it
owns stock or other ownership interests in any Qualifying Subsidiary, a
joinder to the Pledge Agreement executed by certain Loan Parties which is in
the form of Exhibit 1.01(P)(4) to the Credit Agreement, 1.01(P)(5) to the
Credit Agreement, or 1.01(P)(6) to the Credit Agreement, as applicable, and
delivering, as applicable, the original certificates evidencing such stock or
other ownership interest if it is certificated with appropriate stock powers or
other assignments signed in blank and UCC-1 financing statements necessary to
perfect the security interests of the Agent for the benefit of the Banks
therein, (E) a joinder to the Subordination Agreement (Intercompany) executed
by certain Loan Parties which is in the form of Exhibit 1.01(S) to the Credit
Agreement, (F) a joinder to the Agency Agreement executed by certain Loan
Parties appointing NovaCare as agent; (2) delivering to the Agent an opinion of
Peter D. Bewley, General Counsel of the Loan Parties, reasonably satisfactory
to the Agent regarding such Joining Subsidiary and such joinder; (3) delivering
to the Agent certified copies of its organizational documents and other
documents as requested by the Agent; and (4) the Loan Party which owns the
stock or other ownership interest of the Joining Subsidiary shall execute and
deliver to the Agent for the benefit of the Banks a Pledge Agreement in the
form of Exhibit 1.01(P)(4), 1.01(P)(5) or 1.01(P)(6) to the Credit Agreement,
as applicable, and the original certificates evidencing such stock or other
ownership interest if it is certificated with appropriate stock powers or other
assignments signed in blank and UCC-1 financing statements necessary to perfect
the security interests of the Agent for the benefit of the Banks therein, and
(G) updated Schedules to the Credit Agreement and the other Loan Documents, if
any, to update such schedules with respect to each Joining Subsidiary, such
updated Schedules to be in form and substance satisfactory to the Required
Banks; (vii) receipt by the Agent of a Certificate signed by the Secretary or
Assistant Secretary of each Loan Party confirming that no Event of Default or
Potential Default under the Credit Agreement shall have occurred and be
continuing or shall exist, and (viii) new Notes to evidence the additional or
adjusted Commitments of certain of the Banks.
This Twelfth Amendment shall be dated as of and shall be effective as
of the date and year first above written subject to satisfaction of all
conditions precedent to effectiveness as set forth in this Section 4, which
date shall be the Twelfth Amendment Effective Date.
5. Consent of All Banks, Approval of Increase in Revolving Credit
Commitments.
Pursuant to Section 11.01(b) of the Credit Agreement, this Twelfth
Amendment shall require the written consent of all of the Banks.
By executing this Twelfth Amendment, the Agent, each Bank and each
Loan Party consents to the increase in the Revolving Credit Commitments from
$200 million to $275 million, with such increase expressly conditioned upon the
satisfactory completion of the syndication, on a best efforts basis by the
Agent of such increased Commitments, in accordance with the agreement among the
Agent and the Loan Parties with respect thereto.
-3-
<PAGE> 21
6. Full Force and Effect.
Each of the following documents shall remain in full force and effect
on and after the date of this Amendment:
(a) each of the Schedules attached to the Credit Agreement except
for the Schedules which are being amended and restated hereby;
(b) each of the Exhibits attached to the Credit Agreement except
for the Exhibit which is being amended and restated hereby; and
(c) the Notes, the Guaranty Agreements, the Pledge Agreements, the
Agent's Fee Letter, the Subordination Agreement (Intercompany), the Borrower
Agency Agreement and all other Loan Documents (except for Articles I through XI
of the Credit Agreement and the Exhibit and Schedules thereto listed in
Paragraph 2 hereof, each of which are being amended and restated hereby, remain
in full force and effect on and after the date hereof. On and after the date
hereof, each reference in the Credit Agreement to "this Agreement", "hereunder"
or words of like import shall mean and be a reference to the Credit Agreement,
as amended by this Amendment, and each reference in each other Loan Document to
the "Credit Agreement" shall mean and be a reference to the Credit Agreement,
as previously amended and as amended by this Twelfth Amendment. No novation is
intended by this Twelfth Amendment.
The parties hereto do not amend or waive any provisions of the
Agreement or the other Loan Documents except as expressly set forth herein.
7. Counterparts.
This Twelfth Amendment may be executed by different parties hereto in
any number of separate counterparts, each of which, when so executed and
delivered, shall be an original, and all of such counterparts shall together
constitute one and the same instrument.
8. Governing Law.
This Twelfth Amendment shall be deemed to be a contract under the laws
of the Commonwealth of Pennsylvania and for all purposes shall be governed by
and construed and enforced in accordance with the internal laws of the
Commonwealth of Pennsylvania without regard to its conflict of laws principles.
[INTENTIONALLY BLANK]
-4-
<PAGE> 22
[Signature Page 1 of 8 to Twelfth Amendment]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Amendment as of the day and year first
above written.
BORROWERS AND GUARANTORS:
ATTEST:
NOVACARE, INC., a Delaware corporation, and each
of the other BORROWERS listed on Schedule 6.01(c)
of the Credit Agreement (which Schedule is
attached hereto as Exhibit III) and each of the
GUARANTORS listed on Schedule 6.01(c) of the
Credit Agreement (which Schedule is attached
hereto as Exhibit III), other than those listed
below
By: /s/ [SIG] By: /s/ RICHARD A. MCDONALD
----------------------- -----------------------------------------------
Richard A. McDonald [Name],
------------------------------------------
[Seal] the Vice President and Treasury [Title]
--------------------------------------
of each Borrower and Guarantor listed on Schedule
6.01(c) of the Credit Agreement (which Schedule is
attached hereto as Exhibit III), other than those
listed below, which is a corporation and of each
general partner of each Borrower and Guarantor
which is a partnership
Address for Notices for each of the foregoing
Borrowers and Guarantors:
1016 West Ninth Avenue
King of Prussia, PA 19406
Telecopier No. (610) 992-3328
Attention: Chief Financial Officer
Telephone No. (610) 992-7200
<PAGE> 23
[Signature Page 2 of 8 to Twelfth Amendment]
AGENT:
PNC BANK, NATIONAL ASSOCIATION, as Agent
By: /s/ [SIG]
-----------------------------------------
Title: VP
--------------------------------------
Address for Notices:
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Telecopier No. (412) 762-2784
Attention: Regional Healthcare Group
Telephone No. (412) 762-8343
BANKS:
PNC BANK, NATIONAL ASSOCIATION
By: /s/ [SIG]
--------------------------------------------
Title: V.P.
-----------------------------------------
Address for Notices:
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Telecopier No. (412) 762-2784
Attention: Regional Healthcare Group
Telephone No. (412) 762-8343
<PAGE> 24
[Signature Page 3 of 8 to Twelfth Amendment]
CORESTATES BANK, N.A.
By: /s/ LISA ROTHERBERG
---------------------------------
Name: LISA ROTHERBERG
-------------------------------
Title: COMMERCIAL OFFICER
------------------------------
Address for Notices:
1339 Chestnut Street
P.O. Box 7618
FC 1-8-3-22
Philadelphia, PA 19101
Telecopier No. (215) 973-2738
Attention: Jennifer W. Leibowitz
Assistant Vice President
Telephone No. (215) 786-3972
FIRST UNION NATIONAL BANK
By: /s/ JOSEPH H. TOWELL
---------------------------------
Name: JOSEPH H. TOWELL
-------------------------------
Title: SENIOR VICE PRESIDENT
------------------------------
Address for Notices:
One First Union Center
301 S. College Street
Charlotte, NC 28288-0735
Telecopier No. (704) 383-9144
Attention: Terence Moore
Assistant Vice President
Telephone No. (704) 383-5212
<PAGE> 25
[Signature Page 4 of 8 to Twelfth Amendment]
FLEET NATIONAL BANK
By: /s/ MARYANN S. SMITH
---------------------------------
Name: MARYANN S. SMITH
-------------------------------
Title: VICE PRESIDENT
------------------------------
Address for Notices:
Health Care and Institutions Group
Fleet Center MA BOF 04A
75 State Street
Boston, MA 02109-1810
Telecopier No. (617) 346-0610
Attention: Maryann S. Smith
Vice President
Telephone No. (617) 346-1594
MELLON BANK, N.A.
By: /s/ COLLEEN CUNNIFFEE
---------------------------------
Name: COLLEEN CUNNIFFEE
-------------------------------
Title: ASSISTANT VICE PRESIDENT
------------------------------
Address for Notices:
Healthcare Banking
Plymouth Meeting/Exec. Campus
610 W. Germantown Pike
Suite 200/AIM #19E-0246
Plymouth Meeting, PA 19462
Telecopier No. (610) 941-4136
Attention: Colleen Cunniffe
Assistant Vice President
Telephone No. (610) 941-8426
<PAGE> 26
[Signature Page 5 of 8 to Twelfth Amendment]
NATIONSBANK, N.A.
By: /s/ KEVIN WAGLEY
---------------------------------
Name: KEVIN WAGLEY
-------------------------------
Title: VICE PRESIDENT
------------------------------
Address for Notices:
Healthcare Finance Group
One NationsBank Plaza
Fifth Floor
Nashville, TN 37239-1697
Telecopier No. (615) 749-4640
Attention: Kevin Wagley
Vice President
Telephone No. (615) 749-3802
THE BANK OF NEW YORK
By: /s/ PETER H. ABDILL
---------------------------------
Name: PETER H. ABDILL
-------------------------------
Title: VICE PRESIDENT
------------------------------
Address for Notices:
Northeastern Division
One Wall Street
22nd Floor
New York, NY 10286
Telecopier No. (212) 635-7978
Attention: Peter Abdill
Vice President
Telephone No. (212) 635-6987
<PAGE> 27
[Signature Page 6 of 8 to Twelfth Amendment]
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By: /s/ JANET P. SAMMONS
---------------------------------
Name: JANET P. SAMMONS
-------------------------------
Title: VICE PRESIDENT
------------------------------
Address for Notices:
Healthcare Banking Group
0-1106, Tower 10
200 South Orange Avenue
Orlando, FL 32801
Telecopier No. (407) 237-5489
Attention: Jeffrey R. Dickson
First Vice President
Telephone No. (407) 237-4541
BANK ONE, KENTUCKY, NA
By: /s/ TODD D. MUNSON
---------------------------------
Name: TODD D. MUNSON
-------------------------------
Title: SENIOR VICE PRESIDENT
------------------------------
Address for Notices:
Internal Zip KY1-2216
416 West Jefferson Street
Louisville, KY 40202
Telecopier No. (502) 566-2367
Attention: Todd Munson
Sr. Vice President
Telephone No. (502) 566-2640
<PAGE> 28
STATE OF GEORGIA
COUNTY OF FULTON
On the 24th day of September, 1997 personally appeared Janet P.
Sammons, as the Vice President of SunTrust Bank, Central Florida, National
Association, and before me executed the attached Twelfth Amendment Waiver and
Consent dated as of September 30, 1997 to the Credit Agreement between
NovaCare, Inc., with SunTrust Bank, Central Florida, National Association, as
Lender.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal, in
the state and county aforesaid.
/s/ CHRISTINE B. ALFORD
--------------------------------------------------------------
Signature of Notary Public, State of Georgia
-------------------------
/s/ CHRISTINE B. ALFORD
--------------------------------------------------------------
(Print, Type or Stamp Commissioned Name of Notary Public)
Personally known ____X_____; OR Produced Identification
------
Type of identification produced:
-----------------------------
--------------------------------------------------------------
Notary Public DeKalb county, Georgia
My Commission Expires June 29, 2001
<PAGE> 29
[Signature Page 7 of 8 to Twelfth Amendment]
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By: /s/ STEPHEN CHIN
---------------------------------
Name: STEPEN CHIN
-------------------------------
Title: VICE PRESIDENT
------------------------------
Address for Notices:
Two World Trade Center
New York, New York 10048
Telecopier No. (212) 898-2907
Attention: Robert O'Brien
Assistant Vice President
Telephone No. (212) 898-2442
CRESTAR BANK
By: /s/ LEASA MCSHANE
---------------------------------
Name: LEASA MCSHANE
-------------------------------
Title: VICE PRESIDENT
------------------------------
Address for Notices:
120 East Baltimore Street
25th Floor
Baltimore, MD 21203-7307
Telecopier No. (410) 986-1670
Attention: Leesa McShane
Vice President
Telephone No. (410) 986-1672
<PAGE> 30
[Signature Page 8 of 8 to Twelfth Amendment]
BANK OF TOKYO - MITSUBISHI TRUST COMPANY
By: /s/ J. BECKWITH
---------------------------------
Name: J. BECKWITH
-------------------------------
Title: VICE PRESIDENT
------------------------------
Address for Notices:
US Corp. Banking Division
1251 Avenue of the Americas
New York, New York 10020-1104
Telecopier No. (212) 782-4935
Attention: Ned Komar
Vice President
Telephone No. (212) 782-4584
AMSOUTH BANK
By: /s/ J. KEN DIFATTA
---------------------------------
Name: J. KEN DIFATTA
-------------------------------
Title: Commercial Banking Officer
------------------------------
Address for Notices:
1900 5th Avenue North
Birmingham, AL 35203
Telecopier No. (205) 326-4790
Attention: Ken DiFatta
Commercial Banking Officer
Telephone No. (205) 801-0358
<PAGE> 31
EXHIBIT I
Amended and Restated Credit Agreement
<PAGE> 32
Final
$275,000,000 REVOLVING CREDIT FACILITY
CREDIT AGREEMENT
by and among
NOVACARE, INC.,
and
CERTAIN of its SUBSIDIARIES
and
THE BANKS PARTY HERETO
and
PNC BANK, NATIONAL ASSOCIATION, as Agent
Dated as of May 27, 1994, as amended
<PAGE> 33
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
LIST OF SCHEDULES AND EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
ARTICLE I - CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
1.03 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE II - REVOLVING CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.01 Revolving Credit Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.02 Nature of Banks' Obligations with Respect to Revolving Credit Loans . . . . . . . . . . . 27
2.03 Commitment Fees; Closing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.04 Voluntary Reduction of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.05 Revolving Credit Loan Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.06 Making Revolving Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.07 Revolving Credit Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.08 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.09 Letter of Credit Subfacility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.10 Extension by Banks of the Expiration Date . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE III - [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE IV - INTEREST RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.01 Interest Rate Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(a) Revolving Credit Interest Rate Options . . . . . . . . . . . . . . . . . . . . . 35
(i) Revolving Credit Base Rate Option . . . . . . . . . . . . . . . . . . . . 35
(ii) Revolving Credit Euro-Rate Option . . . . . . . . . . . . . . . . . . . . 36
(b) Rate Quotations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.02 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.02 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.03 Interest After Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.04 Euro-Rate Unascertainable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.05 Selection of Interest Rate Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE V - PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.02 Pro Rata Treatment of Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.03 Interest Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.04 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(A) Termination of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
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<TABLE>
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(B) Replacement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.05 [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.06 Additional Compensation in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . 42
(a) Increased Costs or Reduced Return Resulting From Taxes, Reserves, Capital
Adequacy Requirements, Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . 42
(b) Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VI - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.01 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(a) Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . 44
(b) Capitalization and Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(d) Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(e) Validity and Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(f) No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(g) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(h) Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(i) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(A) Historical Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(B) Financial Projections . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(j) Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(k) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(l) Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(m) No Event of Default; Compliance with Instruments . . . . . . . . . . . . . . . . 47
(n) Patents, Trademarks, Copyrights, Etc. . . . . . . . . . . . . . . . . . . . . . . 47
(o) Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(p) Status of the Pledged Collateral . . . . . . . . . . . . . . . . . . . . . . . . 48
(q) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(r) Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(s) Material Contracts, Licenses, Permits and Approvals . . . . . . . . . . . . . . . 49
(t) Investment Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(u) Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(v) Plans and Benefit Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . 50
(w) Employment Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(x) Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(y) Senior Debt Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(z) Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.02 Updates to Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE VII - CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.02 Each Additional Revolving Credit Loan . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
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ARTICLE VIII - COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.01 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(a) Preservation of Existence, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 54
(b) Payment of Liabilities, Including Taxes, etc. . . . . . . . . . . . . . . . . . . 54
(c) Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(d) Maintenance of Properties and Leases . . . . . . . . . . . . . . . . . . . . . . 55
(e) Maintenance of Patents, Trademarks, etc. . . . . . . . . . . . . . . . . . . . . 55
(f) Visitation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(g) Keeping of Records and Books of Account . . . . . . . . . . . . . . . . . . . . . 55
(h) Plans and Benefit Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . 56
(i) Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(j) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(k) Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(l) Subordination of Intercompany Indebtedness; Permitted Additional
Subordinated Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(A) Intercompany Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 58
(B) Permitted Additional Subordinated Indebtedness . . . . . . . . . . . . . 58
(m) Certificate of Borrowers; Other Reports and Information . . . . . . . . . . . . . 58
(i) Quarterly Financial Statements . . . . . . . . . . . . . . . . . . . . . 58
(ii) Annual Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 59
(iii) Certificate of the Borrower . . . . . . . . . . . . . . . . . . . . . . . 59
(iv) Separate Financial Information for Certain Excluded Entities . . . . . . 59
(v) Management Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
(vi) Other Reports and Information . . . . . . . . . . . . . . . . . . . . . . 60
8.02 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(a) Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
(b) Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(c) Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(d) Liquidations, Mergers, Consolidations, Acquisitions . . . . . . . . . . . . . . . 63
(e) Dispositions of Assets or Subsidiaries . . . . . . . . . . . . . . . . . . . . . 65
(f) Joinder of Qualifying Subsidiaries; Excluded Entities . . . . . . . . . . . . . . 66
(g) Continuation of or Change in Business . . . . . . . . . . . . . . . . . . . . . . 66
(h) Plans and Benefit Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . 66
(i) Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(j) Dividends and Related Distributions . . . . . . . . . . . . . . . . . . . . . . . 68
(k) Minimum Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(l) Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
(m) Funded Debt to Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 69
(n) Funded Debt to Cash Flow From Operations . . . . . . . . . . . . . . . . . . . . 69
(o) Minimum Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . 69
(p) Changes in Subordinated Indebtedness Documents . . . . . . . . . . . . . . . . . 69
(q) Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
</TABLE>
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8.03 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
(a) Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
(b) Notice of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
ARTICLE IX - DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.02 Consequences of Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.03 Notice of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
ARTICLE X - THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.01 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.02 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.03 Nature of Duties; Independent Credit Investigation . . . . . . . . . . . . . . . . . . . . 76
10.04 Actions in Discretion of Agent; Instructions from the Banks . . . . . . . . . . . . . . . 76
10.05 Reimbursement and Indemnification of Agent by the Borrowers . . . . . . . . . . . . . . . 77
10.06 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.07 Reimbursement and Indemnification of Agent by Banks . . . . . . . . . . . . . . . . . . . 78
10.08 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.09 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.11 Banks in Their Individual Capacities . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.12 Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.13 Equalization of Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.14 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.15 Agent's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.16 Availability of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.17 Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.18 Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
ARTICLE XI - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.01 Modifications, Amendments or Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.02 No Implied Waivers; Cumulative Remedies; Writing Required . . . . . . . . . . . . . . . . 81
11.03 Reimbursement and Indemnification of Banks by the Borrowers; Taxes . . . . . . . . . . . . 82
11.04 Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
11.05 Funding by Branch, Subsidiary or Affiliate . . . . . . . . . . . . . . . . . . . . . . . . 83
(a) Notional Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
(b) Actual Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
11.06 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
11.07 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
11.08 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
11.09 Prior Understanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
11.10 Duration; Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
11.11 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
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11.12 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
11.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
11.14 Agent's or Bank's Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
11.15 Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . 86
11.17 Tax Withholding Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
11.18 Joinder of Loan Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
11.19 Continuing Effectiveness of Certain Provisions . . . . . . . . . . . . . . . . . . . . . . 88
(a) Amendment and Restatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
</TABLE>
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LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
SCHEDULES
- ---------
SCHEDULE 1.01(B) LIST OF BANKS AND COMMITMENTS
SCHEDULE 1.01(E) EXCLUDED ENTITIES
SCHEDULE 1.01(P)(1) PERMITTED INVESTMENTS
SCHEDULE 1.01(P)(2) PERMITTED LIENS
SCHEDULE 2.09 EXISTING LETTERS OF CREDIT
SCHEDULE 6.01(a) ORGANIZATION AND QUALIFICATION
SCHEDULE 6.01(c) SUBSIDIARIES
SCHEDULE 6.01(l) CONSENTS AND APPROVALS
SCHEDULE 6.01(q) INSURANCE
SCHEDULE 6.01(s) MATERIAL CONTRACTS
SCHEDULE 6.01(v) PLANS AND BENEFIT ARRANGEMENTS
SCHEDULE 6.01(x) ENVIRONMENTAL MATTERS
SCHEDULE 8.02(a)(ii) EXISTING INDEBTEDNESS
SCHEDULE 8.02(q) CERTAIN AFFILIATE TRANSACTIONS
EXHIBITS
- --------
EXHIBIT 1.01(A) ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.01(G)(1) GUARANTY AND SURETYSHIP AGREEMENT (For
NovaCare and Borrowing Subsidiaries)
EXHIBIT 1.01(G)(2) GUARANTY AND SURETYSHIP AGREEMENT (For
Nonborrower Subsidiaries)
EXHIBIT 1.01(P)(1) INTENTIONALLY OMITTED
EXHIBIT 1.01(P)(2) INTENTIONALLY OMITTED
EXHIBIT 1.01(P)(3) TERMS FOR SUBORDINATED DEBT
EXHIBIT 1.01(P)(4) PLEDGE AGREEMENT - STOCK (For NovaCare and
Borrowing Subsidiaries)
EXHIBIT 1.01(P)(5) PLEDGE AGREEMENT - STOCK (For Nonborrower
Subsidiaries)
EXHIBIT 1.01(P)(6) PLEDGE AGREEMENT - PARTNERSHIP INTERESTS
EXHIBIT 1.01(R) REVOLVING CREDIT NOTE
EXHIBIT 1.01(S) SUBORDINATION AGREEMENT (INTERCOMPANY)
EXHIBIT 1.01(W) EXAMPLE OF WEIGHTED AVERAGE RATING
COMPUTATION
EXHIBIT 2.05 REVOLVING CREDIT LOAN REQUEST
EXHIBIT 7.01(d) FORM OF OPINION OF BORROWERS' COUNSEL
EXHIBIT 8.01(m)(iii) COMPLIANCE CERTIFICATE
</TABLE>
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of May 27, 1994, and is made
by and among NOVACARE, INC., a Delaware corporation ("NovaCare"), each
Subsidiary of NovaCare identified on Schedule 6.01(c) hereto as a "Borrower"
(collectively, the "Borrowing Subsidiaries" and together with NovaCare
sometimes collectively referred to as the "Borrowers" and individually as a
"Borrower"), each Subsidiary of NovaCare identified on Schedule 6.01(c) hereto
as a "Guarantor" (collectively, the "Guarantors" and, individually, a
"Guarantor"), the BANKS (as hereinafter defined), and PNC BANK, NATIONAL
ASSOCIATION in its capacity as agent for the Banks under this Agreement
(hereinafter referred to in such capacity as the "Agent").
WITNESSETH:
WHEREAS, the Loan Parties (as hereinafter defined) have
requested the Banks to provide a revolving credit facility in an aggregate
principal amount not to exceed $275,000,000; and
WHEREAS, the revolving credit facility shall be used for (a)
the acquisition and development of health care related businesses and
facilities and (b) general corporate purposes; and
WHEREAS, the Banks are willing to provide such credit upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and intending to be
legally bound hereby, covenant and agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01 Certain Definitions. In addition to words and terms
defined elsewhere in this Agreement, the following words and terms shall have
the following meanings, respectively, unless the context hereof clearly
requires otherwise:
Affiliate as to any person shall mean any other
person (i) which directly or indirectly controls, is controlled by, or is under
common control with such person, (ii) which beneficially owns or holds 50% or
more of any class of the voting stock of any Loan Party, or (iii) 50% or more
of the voting stock (or in the case of a person which is not a corporation, 50%
or more of the equity interest) of which is beneficially owned or held,
directly or indirectly, by any Loan Party. Control, as used herein, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a person, whether through the
ownership of voting securities, by contract or otherwise, including the power
to elect a majority of the directors or trustees of a corporation or trust, as
the case may be.
<PAGE> 40
Agent shall mean PNC Bank, National Association and
its successors.
Agent's Fee shall mean the fee payable to the Agent
by Borrowers described in the Agent's Fee Letter.
Agent's Fee Letter shall mean the letter from the
Borrowers to the Agent dated the date hereof providing for the payment of fees
to the Agent for its services as Agent hereunder, as such letter may be
amended, modified or replaced from time to time.
Agreement shall mean this Credit Agreement as the
same may be supplemented or amended from time to time including all schedules
and exhibits hereto.
Amendment No. 12 shall mean the Twelfth Amendment to
this Credit Agreement, among the Loan Parties, the Agent and the Banks, dated
as of September 30, 1997.
Annual Permitted Acquisition Amount shall have the
meaning given to such term in Section 8.02(d)(ii)(g).
Applicable Percentage over Euro-Rate shall have the
meaning given to such term in Section 4.01(a)(ii).
Approvals shall have the meaning given to such term
in Section 6.01(s).
Assignment and Assumption Agreement shall mean an
Assignment and Assumption Agreement by and among a Purchasing Bank, the
Transferor Bank and the Agent, as Agent and on behalf of the remaining Banks,
substantially in the form of Exhibit 1.01(A) hereto.
Authorized Officer shall mean those persons
designated by written notice to the Agent from each of the Loan Parties,
authorized to execute notices, reports and other documents required hereunder.
Any Loan Party may amend such list of persons from time to time by giving
written notice of such amendment to the Agent.
Available Revolving Credit Commitments for any date
of determination, shall mean, as to the Borrowers, an amount equal to the
excess, if any, of (A) the Revolving Credit Commitments, over (B) the sum of
(i) the aggregate outstanding Revolving Credit Loans and (ii) the aggregate
undrawn face amount of outstanding Letters of Credit issued pursuant to Section
2.09 hereof.
Bank to be Replaced shall have the meaning set forth
in Section 5.04(b).
Bank to be Terminated shall have the meaning set
forth in Section 5.04(b).
Banks shall mean the financial institutions named on
Schedule 1.01(B) hereto and their respective successors and assigns as
permitted hereunder, each of which is referred to herein as a Bank.
-2-
<PAGE> 41
Base Rate shall mean the greater of (i) the Federal
Funds Effective Rate plus one-half percent (0.5%) per annum, or (ii) the
interest rate per annum announced from time to time by the Agent at its
Principal Office as its then prime rate, which rate may not necessarily be the
lowest rate then being charged commercial borrowers by the Agent.
Beneficial Interests shall have the meaning set forth
in Section 6.01(c).
Benefit Arrangement shall mean at any time an
"employee benefit plan," within the meaning of Section 3(3) of ERISA, which is
neither a Plan or a Multiemployer Plan and which is maintained, sponsored or
otherwise contributed to, by any member of the ERISA Group.
Borrower Agency Agreement shall mean that certain
agreement among the Borrowers, dated as of even date herewith, pursuant to
which the Borrowers authorize and appoint NovaCare to act on behalf of the
Borrowers to take any and all actions that may be required to be taken by any
Borrower or the Borrowers hereunder, including, without limitation, making
requests for and borrowing any Revolving Credit Loan.
Borrowers shall mean NovaCare and each Subsidiary of
NovaCare identified as a "Borrower" on Schedule 6.01(c) hereto and any person
subsequently becoming a party to the Loan Documents and assuming the
obligations of a Borrower thereunder.
Borrowing Date shall mean, with respect to any
Revolving Credit Loan, the date for the making thereof or the renewal thereof
or conversion thereof to the same or a different Interest Rate Option, which
shall be a Business Day.
Borrowing Tranche shall mean (i) with respect to the
Revolving Credit Euro-Rate Portion of the Revolving Credit Loans, Revolving
Credit Loans to which a Revolving Credit Euro-Rate Option applies by reason of
the selection of, conversion to or renewal of such Interest Rate Option on the
same day and having the same Euro-Rate Interest Period, and (ii) with respect
to the Revolving Credit Base Rate Portion of the Revolving Credit Loans,
Revolving Credit Loans to which the Revolving Credit Base Rate Option applies
by reason of the selection of or conversion to such Interest Rate Option.
Business Day shall mean a day on which commercial
banks are open for business in Pittsburgh, Pennsylvania and New York, New York.
Capitalization shall mean as of any date of
determination Consolidated Funded Debt plus Consolidated Net Worth.
Change in Ownership shall mean if, from and after the
Closing Date, any person or group within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the rules and
regulations promulgated thereunder (other than John H. Foster, the current
Chairman of the Board and Chief Executive Officer of NovaCare, or a person or
group directly or indirectly controlled by said John H. Foster) shall have
acquired
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beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act),
directly or indirectly, of securities of NovaCare (or other securities
convertible into such securities) representing 50% or more of combined voting
power of all securities of NovaCare entitled to vote in the election of
directors (hereinafter called a "Controlling Person"). For purposes of this
definition, a person or group shall not be a Controlling Person if such person
or group holds voting power in good faith and not for the purpose of
circumventing this definition as an agent, bank, broker, nominee, trustee, or
holder of irrevocable proxies given in response to a solicitation pursuant to
the 1934 Act, for one or more beneficial owners who do not individually, or, if
they are a group acting in concert, as a group, have the voting power specified
in this definition.
Closing Date shall mean the Business Day on which the
first Revolving Credit Loan shall be made, which shall be May 27, 1994 or such
later date on which all requisite conditions have been satisfied. The closing
shall take place on the Closing Date at the offices of Buchanan Ingersoll
Professional Corporation, Pittsburgh, Pennsylvania, or at such other time and
place as the parties agree.
Closing Fee shall mean the non-refundable fee paid to
the Banks by the Borrowers on the Closing Date, as consideration for each
Bank's Revolving Credit Commitment.
Commitment Fee shall have the meaning assigned to
that term in Section 2.03 hereof.
Commitments shall mean Revolving Credit Commitments
and Commitment shall mean Revolving Credit Commitment.
Consideration shall mean with respect to any
Permitted Acquisition, the aggregate of (i) the cash paid by any of the Loan
Parties, directly or indirectly, to the seller in connection therewith, (ii)
the Indebtedness incurred or assumed by any of the Loan Parties (including,
without limitation, Indebtedness of a person becoming a Loan Party in
connection with a Permitted Acquisition, which Indebtedness continues to exist
following the consummation of such Permitted Acquisition), whether in favor of
the seller or otherwise and whether fixed or contingent, in connection
therewith, (iii) any Guaranty given or incurred by any Loan Party in connection
therewith, (iv) the fair market value of any equity issued by any of the Loan
Parties, in connection therewith, and (v) any other consideration given or
obligation incurred by any of the Loan Parties in connection therewith,
provided, however that the amount of any deferred earn-out payments to any
seller not required by GAAP to be disclosed as a liability on the balance sheet
of any Loan Party as of the date of consummation of such Permitted Acquisition
shall be excluded from the determination under clauses (i) through (v) of this
definition.
Consolidated Cash Flow from Operations shall mean:
(a) for any period of determination prior to the
Spin-Off Consummation (i) the sum of net income, depreciation, amortization,
other non-cash charges (if any are deducted in the determination of net
income), interest expense and income tax expense, minus (ii) non-cash credits
(if any are included in the determination of net income), in each case
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of NovaCare and its Subsidiaries for such period determined and consolidated in
accordance with GAAP but without regard to net income and the other items
described in clauses (i) and (ii) of this sentence attributable to Restricted
Excluded Entities; provided that, if a Loan Party shall have made one or more
Permitted Acquisitions during such period, Consolidated Cash Flow from
Operations shall be adjusted on a pro forma basis to give effect to all
Permitted Acquisitions as if they had occurred at the beginning of such period;
and provided further that if any Loan Party shall have effected one or more
Permitted Asset Transfers during such period, Consolidated Cash Flow from
Operations shall be adjusted on a pro forma basis to give effect to all such
Permitted Asset Transfers as if they had occurred at the beginning of such
period. The pro forma adjustments described in the previous sentence shall be
made based upon historical financial statements for the four (4) fiscal
quarters prior to the date of such Permitted Acquisition or Permitted Asset
Transfer, as the case may be, which historical financial statements shall be
reasonably satisfactory to the Agent; and
(b) for any period of determination on and after
the Spin-Off Consummation (i) the sum of net income, depreciation,
amortization, other non-cash charges (if any are deducted in the determination
of net income), interest expense and income tax expense, minus (ii) non-cash
credits (if any are included in the determination of net income), in each case
of NovaCare and its Subsidiaries for such period determined and consolidated in
accordance with GAAP but without regard to net income and the other items
described in clauses (i) and (ii) of this sentence attributable to NovaCare
Employee Services, Inc. and without regard to net income and the other items
described in clauses (i) and (ii) of this sentence attributable to Restricted
Excluded Entities; provided that, if a Loan Party shall have made one or more
Permitted Acquisitions during such period, Consolidated Cash Flow from
Operations shall be adjusted on a pro forma basis to give effect to all
Permitted Acquisitions as if they had occurred at the beginning of such period;
and provided further that if any Loan Party shall have effected one or more
Permitted Asset Transfers during such period, Consolidated Cash Flow from
Operations shall be adjusted on a pro forma basis to give effect to all such
Permitted Asset Transfers as if they had occurred at the beginning of such
period. The pro forma adjustments described in the previous sentence shall be
made based upon historical financial statements for the four (4) fiscal
quarters prior to the date of such Permitted Acquisition or Permitted Asset
Transfer, as the case may be, which historical financial statements shall be
reasonably satisfactory to the Agent.
Consolidated Earnings Available for Fixed Charges
shall mean:
(a) for any period of determination prior to the
Spin-Off Consummation, the sum of net income (excluding non-cash credits, if
any, included in the determination of net income), interest expense, income tax
expense, depreciation, amortization, other non-cash charges (if any are
deducted in the determination of net income), and expenses under operating
leases, in each case of NovaCare and its Subsidiaries for such period
determined and consolidated in accordance with GAAP, but without regard to any
of the foregoing items attributable to Restricted Excluded Entities; and
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(b) for any period of determination after the
Spin-Off Consummation, the sum of net income (excluding non-cash credits, if
any, included in the determination of net income), interest expense, income tax
expense, depreciation, amortization, other non-cash charges (if any are
deducted in the determination of net income), and expenses under operating
leases, in each case of NovaCare and its Subsidiaries (other than NovaCare
Employee Services, Inc.) for such period determined and consolidated in
accordance with GAAP, but without regard to any of the foregoing items
attributable to Restricted Excluded Entities.
If a Loan Party shall have made one or more Permitted
Acquisitions during any such period, Consolidated Earnings Available for Fixed
Charges shall be adjusted on a pro forma basis to give effect to all Permitted
Acquisitions as if they had occurred at the beginning of such period; and
provided further that if any Loan Party shall have effected one or more
Permitted Asset Transfers during such period, Consolidated Earnings Available
for Fixed Charges shall be adjusted on a pro forma basis to give effect to all
such Permitted Asset Transfers as if they had occurred at the beginning of such
period. The pro forma adjustments described in the previous sentence shall be
made based upon historical financial statements for the four (4) fiscal
quarters prior to the date of such Permitted Acquisition or Permitted Asset
Transfer, as the case may be, which historical financial statements shall be
reasonably satisfactory to the Agent.
Consolidated Fixed Charges shall mean:
(A) for any period of determination through and
including the Spin-Off Consummation, the sum of interest expense, expenses
under operating leases, income tax expense, current maturities of long term
Indebtedness, and current principal payments under capitalized leases (for the
twelve (12) month period following the date of determination), in each case of
NovaCare and its Subsidiaries for such period determined and consolidated in
accordance with GAAP; and
(B) for any period of determination after the
Spin-Off Consummation, the sum of interest expense, expenses under operating
leases, income tax expense, current maturities of long term Indebtedness, and
current principal payments under capitalized leases (for the twelve (12) month
period following the date of determination), in each case of NovaCare and its
Subsidiaries (other than NovaCare Employee Services, Inc.) for such period
determined and consolidated in accordance with GAAP.
If a Loan Party shall have made one or more Permitted
Acquisitions during any such period, Consolidated Fixed Charges shall be
adjusted on a pro forma basis to give effect to all Permitted Acquisitions as
if they had occurred at the beginning of such period; and provided further that
if any Loan Party shall have effected one or more Permitted Asset Transfers
during such period, Consolidated Fixed Charges shall be adjusted on a pro forma
basis to give effect to all such Permitted Asset Transfers as if they had
occurred at the beginning of such period. The pro forma adjustments described
in the previous sentence shall be made based upon historical financial
statements for the four (4) fiscal quarters prior to the date of such
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<PAGE> 45
Permitted Acquisition or Permitted Asset Transfer, as the case may be, which
historical financial statements shall be reasonably satisfactory to the Agent.
Consolidated Funded Debt shall mean (i) as of any
date of determination through but not including the Spin-Off Consummation, all
Indebtedness of NovaCare and its Subsidiaries to persons other than NovaCare
and its Subsidiaries, determined and consolidated in accordance with GAAP, and
(ii) as of any date of determination on and after the Spin-Off Consummation,
all Indebtedness of NovaCare and its Subsidiaries (other than NovaCare Employee
Services, Inc.), to persons other than NovaCare and its Subsidiaries determined
and consolidated in accordance with GAAP. Any items which are included in more
than one clause of the definition of Indebtedness shall not be counted more
than one time in computing the amount of Consolidated Funded Debt.
Consolidated Net Income shall mean (i) for any period
of determination for periods prior to the Spin-Off Consummation, the net income
of NovaCare and its Subsidiaries for such period determined and consolidated in
accordance with GAAP, and (ii) for any period of determination for periods on
and after the Spin-Off Consummation, the net income of NovaCare and its
Subsidiaries (other than NovaCare Employee Services, Inc.) for such period
determined and consolidated in accordance with GAAP, except that in the case of
amounts under either the forgoing clause (i) or (ii), there shall be excluded
from such net income any increases or decreases in income or expenses resulting
from changes in GAAP on and after the Closing Date.
Consolidated Net Worth shall mean (i) as of any date
of determination through but not including the Spin-Off Consummation, total
stockholders' equity of NovaCare and its Subsidiaries as of such date
determined and consolidated in accordance with GAAP, and (ii) as of any date of
determination on and after the Spin-Off Consummation, total stockholders'
equity of NovaCare and its Subsidiaries (other than NovaCare Employee Services,
Inc.) as of such date determined and consolidated in accordance with GAAP.
Drawing Date shall have the meaning assigned to that
term in Section 2.09(d).
Delivery Date shall mean the earlier of (A) the date
on which NovaCare delivers its consolidated financial statements pursuant to
Sections 8.01(m)(i) and (ii) or (B) one Business Day following the date on
which such financial statements are due to be delivered pursuant to such
Sections.
Dollar, Dollars, U.S. Dollars and the symbol $ shall
mean lawful money of the United States of America.
Effective Date shall mean, November 28, 1994, which
is the effective date of the second amendment to this Agreement.
Environmental Complaint shall mean any written
complaint setting forth a cause of action for personal or property damage or
equitable relief, order, notice of violation,
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citation, request for information issued pursuant to any Environmental Laws by
an Official Body, subpoena or other written notice of any type relating to,
arising out of, or issued pursuant to any of the Environmental Laws or any
Environmental Conditions, as the case may be, in each case with respect to any
violation or alleged violation of Environmental Laws or release or threatened
release of a Regulated Substance.
Environmental Conditions shall mean any conditions of
the environment, including, without limitation, the work place, the ocean,
natural resources (including flora or fauna), soil, surface water, ground
water, any actual or potential drinking water supply sources, substrata or the
ambient air, relating to or arising out of, or caused by the use, handling,
storage, treatment, recycling, generation, transportation, release, spilling,
leaking, pumping, emptying, discharging, injecting, escaping, leaching,
disposal, dumping, threatened release or other management or mismanagement of
Regulated Substances resulting from the use of, or operations on, the Property.
Environmental Laws shall mean all federal, state,
local and foreign laws and regulations, including permits, orders, judgments,
and consent decrees issued, or entered into, pursuant thereto, relating to
pollution or protection of human health or the environment or employee safety
in the work place.
ERISA shall mean the Employee Retirement Income
Security Act of 1974, as the same may be amended or supplemented from time to
time, and any successor statute of similar import, and the rules and
regulations thereunder, as from time to time in effect.
ERISA Group shall mean, at any time, NovaCare, its
Subsidiaries and all members of a controlled group of corporations and all
trades or businesses (whether or not incorporated) under common control and all
other entities which, together with NovaCare, are treated as a single employer
under Section 414 of the Internal Revenue Code.
Euro-Rate shall mean with respect to the Revolving
Credit Loans comprising any Borrowing Tranche to which the Revolving Credit
Euro-Rate Option applies for any Interest Period, the interest rate per annum
determined by the Agent by dividing (the resulting quotient rounded upward to
the nearest 1/100 of 1% per annum) (i) the rate of interest determined by the
Agent in accordance with its usual procedures (which determination shall be
conclusive absent manifest error) to be the "offered" Euro-Rate evidenced by
Telerate page 4756 as quoted by Noonan, Astley & Pearce or such other display
page on the Telerate System as may replace such page (or appropriate successor
or, if Noonan, Astley & Pearce or its successors ceases to provide such quotes,
a comparable replacement as determined by the Agent) two (2) Business Days
prior to the first day of such Euro-Rate Interest Period for delivery on the
first day of such Interest Period in amounts comparable to such Borrowing
Tranche and having maturities comparable to such Interest Period by (ii) a
number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate may
also be expressed by the following formula:
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<PAGE> 47
<TABLE>
<S> <C>
[Telerate page 4756 as Quoted by Noonan,]
Euro-Rate = [Astley & Pearce or appropriate successor]
------------------------------------------
1.00 - Euro-Rate Reserve Percentage
</TABLE>
The Euro-Rate shall be adjusted with respect to any Revolving Credit Euro-Rate
Option outstanding on the effective date of any change in the Euro-Rate Reserve
Percentage as of such effective date. The Agent shall give prompt notice to
the Borrowers of the Euro-Rate as determined or adjusted in accordance
herewith, which determination shall be conclusive absent manifest error.
Euro-Rate Interest Period shall have the meaning
assigned to that term in Section 4.02 hereof.
Euro-Rate Reserve Percentage shall mean the maximum
percentage (expressed as a decimal rounded upward to the nearest 1/100 of 1%)
as determined by the Agent (which determination shall be conclusive absent
manifest error) which is in effect during any relevant period, as prescribed by
the Board of Governors of the Federal Reserve System (or any successor) for
determining the reserve requirements (including, without limitation,
supplemental, marginal and emergency reserve requirements) with respect to
eurocurrency funding (currently referred to as "Eurocurrency Liability") of a
member bank in such System.
Event of Default shall mean any Event of Default
described in Section 9.01 of this Agreement.
Excluded Entities shall mean collectively (i) any
Minority Subsidiary or Unaffiliated Managed Company in which a Loan Party has
made a Restricted Investment permitted by Section 8.02(i)(v), and (ii) the
Excluded Qualifying Subsidiaries, and Excluded Entity shall mean separately any
of the Excluded Entities. In addition, effective upon the Spin-Off
Consummation, NovaCare Employee Services, Inc. shall be deemed to be an
Excluded Entity .
Excluded Qualifying Subsidiaries shall mean the
Qualifying Subsidiaries listed on Schedule 1.01(E) as of the Closing Date under
the heading "Excluded Qualifying Subsidiaries," as thereafter amended from time
to time with the approval of the Required Banks.
Existing Lines of Business shall mean the businesses
conducted by the Loan Parties on the Closing Date.
Expiration Date shall mean with respect to the
Revolving Credit Commitments, November 28, 1999.
Federal Funds Effective Rate for any day shall mean
the rate per annum (based on a year of 360 days and actual days elapsed and
rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve
Bank of New York (or any successor) on such day as being the weighted average
of the rates on overnight Federal funds transactions arranged by
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<PAGE> 48
Federal funds brokers on the previous trading day, as computed and announced by
such Federal Reserve Bank (or any successor) in substantially the same manner
as such Federal Reserve Bank computes and announces the weighted average it
refers to as the "Federal Funds Effective Rate" as of the date of this
Agreement; provided, if such Federal Reserve Bank (or its successor) does not
announce such rate on any day, the "Federal Funds Effective Rate" for such day
shall be the Federal Funds Effective Rate for the last day on which such rate
was announced.
GAAP shall mean generally accepted accounting
principles as are in effect from time to time, subject to the provisions of
Section 1.03 hereof, and applied on a consistent basis (except for changes in
application in which the Borrowers' independent certified public accountants
concur) both as to classification of items and amounts.
Guaranty of any person shall mean any obligation of
such person guaranteeing or in effect guaranteeing any liability or obligation
of any other person in any manner, whether directly or indirectly, including,
without limiting the generality of the foregoing, any agreement to indemnify or
hold harmless any other person, any performance bond or other suretyship
arrangement and any other form of assurance against loss, except endorsement of
negotiable or other instruments for deposit or collection in the ordinary
course of business.
Guaranty Agreements shall mean collectively, the
Guaranty and Suretyship Agreement in substantially the form attached hereto as
Exhibit 1.01(G)(1) executed and delivered by each of the Borrowers to the Agent
for the benefit of the Banks and the Guaranty and Suretyship Agreement in
substantially the form attached hereto as Exhibit 1.01(G)(2) executed and
delivered by each of the Guarantors to the Agent for the benefit of the Banks
and Guaranty Agreement shall mean separately any Guaranty Agreement.
Guarantors shall mean each Subsidiary of NovaCare
identified as a "Guarantor" on Schedule 6.01(c) and any person which hereafter
becomes a party to the Loan Documents and assumes the obligations of a
Guarantor thereunder. Each Qualifying Subsidiary of NovaCare which is not a
Borrower or an Excluded Qualifying Subsidiary is required to join the Credit
Agreement as a Guarantor.
Indebtedness shall mean as to any person at any time,
any and all indebtedness, obligations or liabilities (whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, or joint or several) of such person for or in respect of: (i)
borrowed money, (ii) amounts raised under or liabilities in respect of any note
purchase or acceptance credit facility, (iii) reimbursement obligations under
any letter of credit, currency swap agreement, interest rate swap, cap, collar
or floor agreement or other interest rate management device, (iv) any other
transaction (including without limitation forward sale or purchase agreements,
capitalized leases and conditional sales agreements) having the commercial
effect of a borrowing of money entered into by such person to finance its
operations or capital requirements (but not including trade payables and
accrued expenses incurred in the ordinary
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<PAGE> 49
course of business which are not represented by a promissory note), or (v) any
Guaranty of Indebtedness for borrowed money.
Indenture shall mean that certain Indenture dated as
of January 15, 1993 between NovaCare and PNC Bank, as Trustee, as the same may
be amended, modified, supplemented, restated or replaced from time to time.
Insolvency Proceedings shall mean, with respect to
any Person, (a) a case, action or proceeding with respect to such Person (i)
before any court or any other Official Body under any bankruptcy, insolvency,
reorganization or other, similar Law now or hereafter in effect, or (ii) for
the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator, (or similar official) of any Loan Party or otherwise
relating to the liquidation, dissolution, winding-up or relief of such Person,
or (b) any general assignment for the benefit of creditors, composition,
marshaling of assets for creditors, or other, similar arrangement in respect of
such Person's creditors generally or any substantial portion of its creditors;
undertaken under any Law.
Intercompany Indebtedness shall mean, for periods
prior to the Spin-Off Consummation, all Indebtedness of NovaCare or any of its
Subsidiaries, as maker, to NovaCare or any other Subsidiary, as holder, and for
periods on or after the Spin-Off Consummation, all Indebtedness of NovaCare or
any of its Subsidiaries (other than NovaCare Employee Services, Inc.), as
maker, to NovaCare or any other Subsidiary, as holder. It is expressly agreed
that for periods on or after the Spin-Off Consummation, neither NovaCare nor
any Subsidiary of NovaCare shall make any loans or advances to NovaCare
Employee Services, Inc.
Interest Payment Date shall mean each date specified
for the payment of interest in Section 5.03.
Interest Rate Option shall mean the Revolving Credit
Euro-Rate Option or Revolving Credit Base Rate Option.
Internal Revenue Code shall mean the Internal Revenue
Code of 1986, as the same may be amended or supplemented from time to time, and
any successor statute of similar import, and the rules and regulations
thereunder, as from time to time in effect.
Investment shall mean all of the following with
respect to any Investment Entity (as hereinafter defined): (i) investments or
contributions by any other Loan Parties directly or indirectly to the capital
of or other payments to the Investment Entity; (ii) loans by any other Loan
Parties directly or indirectly to such Investment Entity; (iii) guaranties by
any other Loan Parties directly or indirectly of the obligations of the
Investment Entity; or (iv) other obligations, contingent or otherwise, of any
other Loan Parties, to or for the benefit of such Investment Entity. For
purposes of the definition of Investment, "Investment Entity" shall mean a Loan
Party with respect to which any of the Investments described in clauses (i)
through (iv) inclusive of this definition occurs.
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<PAGE> 50
Labor Contracts shall have the meaning assigned to
that term in Section 6.01(s).
Law shall mean any law (including common law),
constitution, statute, treaty, regulation, rule, ordinance, opinion, release,
ruling, order, injunction, writ, decree or award of any Official Body.
Letter of Credit shall have the meaning assigned to
that term in Section 2.09.
Letter of Credit Borrowing shall mean an extension of
credit resulting from a drawing under any Letter of Credit which shall not have
been reimbursed on the date when made and shall not have been converted into a
Revolving Credit Loan under Section 2.09(d).
Letter of Credit Fee shall have the meaning assigned
to that term in Section 2.09.
Letters of Credit Outstanding shall mean at any time
the sum of (i) the aggregate undrawn face amount of outstanding Letters of
Credit and (ii) the aggregate amount of all unpaid and outstanding
Reimbursement Obligations.
Lien shall mean any mortgage, deed of trust, pledge,
lien, security interest, charge or other encumbrance or security arrangement of
any nature whatsoever, whether voluntarily or involuntarily given, including
but not limited to any conditional sale or title retention arrangement, and any
assignment, deposit arrangement or lease intended as, or having the effect of,
security and any filed financing statement or other notice of any of the
foregoing (whether or not a lien or other encumbrance is created or exists at
the time of the filing).
Loan Documents shall mean this Agreement, the Notes,
the Guaranty Agreements, the Pledge Agreements, the Agent's Fee Letter, the
Subordination Agreement (Intercompany), the Borrower Agency Agreement and any
other instruments, certificates or documents delivered or contemplated to be
delivered hereunder or thereunder or in connection herewith or therewith, as
the same may be supplemented or amended from time to time in accordance
herewith or therewith, and Loan Document shall mean any of the Loan Documents.
Loan Parties shall mean collectively the Borrowers,
the Guarantors, and each person which hereafter becomes a party to the Loan
Documents as a Borrower or Guarantor, and Loan Party shall mean any of the Loan
Parties. The term Loan Parties shall be deemed also to include all of the
Excluded Entities other than the Unaffiliated Managed Companies and the term
Loan Party shall be deemed to include any Excluded Entity other than any
Unaffiliated Managed Company, in each case, solely for purposes of the
representations and warranties contained in Article VI and the covenant
contained in Section 8.02(q).
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<PAGE> 51
Loans shall mean Revolving Credit Loans and Loan
shall mean Revolving Credit Loan.
Material Adverse Change shall mean any set of
circumstances or events which (a) has or could reasonably be expected to have
any material adverse effect whatsoever upon the validity or enforceability of
this Agreement or any other Loan Document, (b) is or could reasonably be
expected to be material and adverse to the business, properties, assets,
financial condition, results of operations or prospects of the Loan Parties
taken as a whole, (c) impairs materially or could reasonably be expected to
impair materially the ability of any one or more Loan Parties to duly and
punctually pay or perform Indebtedness in principal amount in excess of
$1,000,000 in the aggregate, or (d) impairs materially or could reasonably be
expected to impair materially the ability of the Agent or any of the Banks, to
the extent permitted, to enforce its legal remedies pursuant to this Agreement
or any other Loan Document.
Member Interests shall have the meaning set forth in
Section 6.01(c).
Minimum Net Worth Requirement shall mean
(a) for any period of determination prior to the
Spin-Off Consummation, the sum of the amounts under the following clauses (i),
(ii), (iii) and (iv) reduced by the amount under the following clause (v): (i)
$489,675,000, plus (ii) for each fiscal quarter after June 30, 1997,
seventy-five percent (75%) of Consolidated Net Income of NovaCare and its
Subsidiaries for each fiscal quarter in which net income was earned (as opposed
to a net loss), plus (iii) to the extent not included in Consolidated Net
Income in the preceding clause (ii), one hundred percent (100%) of federal and
state income tax refunds (collectively the "Tax Refunds") received by NovaCare
or a Subsidiary of NovaCare during the period of determination relating to the
sale by them of their rehabilitation hospitals during the fiscal year ended
June 30, 1995, plus (iv) the proceeds received by NovaCare in connection with
the sale of shares of its capital stock after deducting any expenses associated
with any sale including proceeds from conversion of the Subordinated
Debentures, during the period from July 1, 1997 through (and including) the
date of determination, minus (v) the cash purchase price of common stock of
NovaCare repurchased by NovaCare during the period of determination, up to an
aggregate maximum amount for the repurchase of such common stock of $70,000,000
plus the portion of the Tax Refunds used to repurchase such common stock, for
all periods after July 1, 1995; and
(b) for any period of determination on and after
the Spin-Off Consummation, the sum of the amounts under the following clauses
(i), (ii), (iii) and (iv) reduced by the amount under the following clause (v):
(i) the amount mutually agreeable to NovaCare and the Agent (which is intended
to be consolidated stockholders' equity as determined in accordance with GAAP,
as of the date of the Spin-Off Consummation for NovaCare and its Subsidiaries
(other than NovaCare Employee Services, Inc.)), plus (ii) seventy-five percent
(75%) of Consolidated Net Income of NovaCare and its Subsidiaries (other than
NovaCare Employee Services, Inc.) for each fiscal quarter after the date of the
Spin-Off Consummation in which net income was earned (as opposed to a net
loss), plus (iii) to the extent not included in
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<PAGE> 52
Consolidated Net Income in the preceding clause (ii), one hundred percent
(100%) of federal and state income tax refunds (collectively the "Tax Refunds")
received by NovaCare or a Subsidiary of NovaCare (other than NovaCare Employee
Services, Inc.) during the period of determination relating to the sale by them
of their rehabilitation hospitals during the fiscal year ended June 30, 1995,
plus (iv) the proceeds received by NovaCare in connection with the sale of
shares of its capital stock after deducting any expenses associated with any
sale including proceeds from conversion of the Subordinated Debentures, during
the period from July 1, 1997 through (and including) the date of determination,
minus (v) the cash purchase price of common stock of NovaCare repurchased by
NovaCare during the period of determination , up to an aggregate maximum amount
for the repurchase of such common stock of $70,000,000 plus the portion of the
Tax Refunds used to repurchase such common stock, for all periods after July 1,
1995.
As NovaCare and the Agent mutually agree in
determining the amount under clause (i) of subsection (b) above, NovaCare and
the Agent may further mutually agree to make the following additional
adjustments: (x) for the fiscal quarter in which the Spin-Off Consummation
occurs (the "Spin-Off Quarter"), the portion of Consolidated Net Income of
NovaCare and its Subsidiaries (other than NovaCare Employee Services, Inc.)
attributable to the Spin-Off Quarter included in the determination of clause
(ii) of subsection (a) above may be limited to Consolidated Net Income for the
period from the first date of the Spin-Off Quarter through and including the
date of the Spin-Off Consummation; and (y) the portion of Consolidated Net
Income of NovaCare and its Subsidiaries (other than NovaCare Employee Services,
Inc.) attributable to the Spin-Off Quarter included in the determination of
clause (ii) of subsection (b) above may be limited to Consolidated Net Income
for the period from the date following the date of the Spin-Off Consummation
through and including the last day of the Spin-Off Quarter.
Minority Subsidiary of any person at any time shall
mean (i) any corporation or trust of which more than 5% and not more than 50%
(by number of shares or number of votes) of the outstanding capital stock or
shares of beneficial interest normally entitled to vote for the election of one
or more directors or trustees (regardless of any contingency which does or may
suspend or dilute the voting rights) is at such time owned directly or
indirectly by such person or one or more of such person's Subsidiaries, (ii)
any partnership (other than a limited partnership of which such person is a
general partner) of which more than 5% and not more than 50% of the partnership
interests is at the time directly or indirectly owned by such person or one or
more of such person's Subsidiaries or (iii) any other entity of which such
person owns not more than 50% but more than 5% of the ownership interests
directly or indirectly.
Month, with respect to a Euro-Rate Interest Period,
shall mean the interval between the days in consecutive calendar months
numerically corresponding to the first day of such Interest Period. The last
day of a calendar month shall be deemed to be such numerically corresponding
day for such calendar month (i) if there is no such numerically corresponding
day in such calendar month, or (ii) if the first day of such Interest Period is
the last Business Day of a calendar month.
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<PAGE> 53
Multiemployer Plan shall mean any employee benefit
plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3)
of ERISA and to which NovaCare, its Subsidiaries or any member of the ERISA
Group is then making or accruing an obligation to make contributions or, within
the preceding five Plan years, has made or had an obligation to make such
contributions.
Multiple Employer Plan shall mean a Plan which has
two or more contributing sponsors (including any Borrower or any member of the
ERISA Group) at least two of whom are not under common control, as such a plan
is described in Sections 4063 and 4064 of ERISA.
Notes shall mean Revolving Credit Notes and Note
shall mean any Revolving Credit Note.
NovaCare Employee Services, Inc. shall mean NovaCare
Employee Services, Inc., a corporation organized and existing under the laws of
the State of Delaware.
Official Body shall mean any national, federal,
state, local or other government or political subdivision thereof, or any
agency, authority, bureau, central bank, commission, department or
instrumentality of any government or political subdivision thereof, or any
court, tribunal, grand jury or arbitrator, in each case whether foreign or
domestic.
Participation Advance shall mean, with respect to any
Bank, such Bank's payment in respect of its participation in a Letter of Credit
Borrowing according to its Ratable Share pursuant to Section 2.09(g).
PBGC shall mean the Pension Benefit Guaranty
Corporation established pursuant to Subtitle A of Title IV of ERISA or any
successor.
Permitted Acquisition shall have the meaning assigned
to that term in Section 8.02(d)(ii).
Permitted Additional Institutional Indebtedness shall
mean Indebtedness to a Qualified Lender provided that (A) such Indebtedness is
unsecured; (B) the agreements governing such Indebtedness shall not contain any
provisions which are more restrictive than the provisions of this Agreement and
such Indebtedness shall not be senior in priority of payment to the
Indebtedness hereunder; and (C) the Loan Parties shall deliver to the Agent on
behalf of the Banks drafts of the agreement described in clause (B) at least
five (5) Business Days before they incur such Indebtedness.
Permitted Additional Subordinated Indebtedness shall
mean Indebtedness which meets each of the following conditions: (A) the
documentation governing such Indebtedness shall provide that the rights of the
holders thereof shall be subordinate to the rights of the Agent and the Banks
with respect to the Indebtedness under the Loan Documents in accordance with
the subordination provisions contained in Exhibit 1.01(P)(3), (B) the
agreements
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<PAGE> 54
governing such Indebtedness shall not contain any provisions which are more
restrictive than the provisions of this Agreement, and (C) the Loan Parties
shall deliver to the Agent on behalf of the Banks copies of drafts of the
agreements described in clauses (A) and (B) at least five (5) Business Days
before they incur such Indebtedness if the amount of such Indebtedness shall
exceed $5,000,000.
Permitted Asset Transfer shall mean any sale,
conveyance, assignment, lease, abandonment or other transfer or disposition of
assets of any Loan Party, permitted by Sections 8.02(e)(i) or (iv) hereof.
Permitted Intercompany Indebtedness shall mean
Intercompany Indebtedness, provided that such Indebtedness is subordinated
pursuant to the Subordination Agreement (Intercompany).
Permitted Investments shall mean investments by the
Loan Parties in any of the following:
(i) direct obligations of the United States of
America ("U.S.A.") or any agency or instrumentality thereof or obligations
backed by the full faith and credit of the U.S.A. maturing within two (2)
years;
(ii) any obligation of any state which is part of
the U.S.A. or any obligation of any county or local governmental body of any
such state provided that each of the following criteria are met: (A) such
obligation matures within five (5) years; (B) the weighted average of the
maturities (measured in numbers of years including fractions thereof) of all
such obligations held by the Loan Parties is equal to or less than three (3)
years; (C) such obligation is rated not lower than Baa-2 by Moody's Investors
Service Inc. or BBB by Standard & Poor's Corporation (or equivalent rating) and
so long as the uninsured and unguaranteed general obligation debt of such
state, county or local governmental body is rated, at the time of purchase and
thereafter, not lower than Baa-2 by Moody's Investors Service Inc. or BBB by
Standard & Poor's Corporation (or equivalent rating); (D) the Weighted Average
Rating of all such obligations held by the Loan Parties is Aa-2 by Moody's
Investors Service Inc. or AA by Standard & Poor's Corporation (or equivalent
rating); and (E) so long as the uninsured and unguaranteed general obligation
debt of each state, county or local governmental body relating to each such
obligation of the Loan Parties is rated, the Weighted Average Rating of all
such debt at the time of purchase and thereafter shall not be lower than Aa-2
by Moody's Investors Service Inc. or AA by Standard & Poor's Corporation (or
equivalent rating);
(iii) commercial paper maturing in two hundred and
seventy (270) days or less rated not lower than A-1 by Standard & Poor's
Corporation or P-1 by Moody's Investors Service Inc. on the date of
acquisition;
(iv) demand deposits, time deposits or
certificates of deposit maturing within six (6) months in (A) any U.S.
financial institution which is a member of the Federal Reserve System, or (B)
any non-U.S. financial institution ranked among the fifty (50) largest in
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<PAGE> 55
the world by assets (as listed by the American Banker Journal) or a non-U.S.
financial institution with a net worth of at least $750 million, which
institution described in this clause (B) has a credit quality rated at least
A-1 or A by Standard & Poor's Corporation (or equivalent rating);
(v) investments in money-market funds rated AAm
or AAm-G or higher by Standard & Poor's Corporation (or equivalent rating)
whose net asset value remains a constant $1.00 per share;
(vi) in any fiscal year, investments in the
aggregate in such fiscal year of up to $5 million in tax advantaged real estate
partnerships; and
(viii) other investments existing on the Closing
Date listed on Schedule 1.01(P)(1) (except for repurchase agreements which are
addressed in clause (v) above).
Permitted Investment in Excluded Entities shall mean
Restricted Investments in Excluded Entities which do not exceed in the
aggregate $50,000,000 for all Excluded Entities or the following amount as to
any individual Excluded Entity: (i) $5,000,000, in the case of a Restricted
Investment in an Excluded Entity which is a Minority Subsidiary; (ii)
$10,000,000, in the case of a Restricted Investment in an Excluded Entity which
is a Subsidiary; and (iii) $1,000,000, in the case of a Restricted Investment
in either an Unaffiliated Managed Company or an entity which is neither a
Subsidiary nor a Minority Subsidiary, and (iv) for periods on and after the
Spin-Off Consummation, $0, in the case of any Restricted Investment in NovaCare
Employee Services, Inc. In addition, the aggregate Restricted Investments in
Excluded Entities of the type described in clause (iii) of the preceding
sentence shall not exceed $5,000,000. Notwithstanding anything in this
Agreement to the contrary, for periods on and after the Spin-Off Consummation,
no Restricted Investments shall be made by NovaCare or any Subsidiary of
NovaCare in NovaCare Employee Services, Inc.
Permitted Liens shall mean:
(i) Liens for taxes, assessments, or similar
charges, incurred in the ordinary course of business and which are not yet due
and payable;
(ii) Pledges or deposits made in the ordinary
course of business to secure payment of workers' compensation, or to
participate in any fund in connection with workers' compensation, unemployment
insurance, old-age pensions or other social security programs or pledges,
deposits or contributions under trust agreements to secure obligations with
respect to employee benefit plans;
(iii) Liens of mechanics, materialmen,
warehousemen, carriers, or other like Liens, securing obligations incurred in
the ordinary course of business that are not yet due and payable and Liens of
landlords securing obligations to pay lease payments that are not yet due and
payable or in default;
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<PAGE> 56
(iv) Good faith pledges or deposits made in the
ordinary course of business to secure performance of bids, tenders, progress or
advance payments, contracts (other than for the repayment of borrowed money) or
leases, not in excess of the aggregate amount due thereunder, or to secure
statutory obligations, or surety, appeal, indemnity, performance or other
similar bonds required in the ordinary course of business (except that appeal
bonds shall be permitted even if they are required outside of the ordinary
course of business);
(v) Encumbrances consisting of zoning
restrictions, easements, reservations or other restrictions on the use of real
property, none of which materially impairs the use of such property as
currently used or the present value thereof, and none of which is violated in
any material respect by existing or proposed structures or land use;
(vi) Liens in favor of the Agent for the benefit
of the Banks;
(vii) Liens securing obligations under leases
permitted in Section 8.02(a)(iii) provided that such Liens are limited to the
property under lease;
(viii) Any Lien existing on the date of this
Agreement, which if securing Indebtedness in excess of $1,000,000 individually
or $3,000,000 in the aggregate, is described on Schedule 1.01(P)(2) hereto,
provided that the principal amount secured thereby is not hereafter increased
and no additional assets become subject to such Lien (other than with respect
to after-acquired property clauses in effect on the date hereof);
(ix) Liens described in Sections 8.02(a)(v)(A)(2)
and 8.02(a)(vi) on assets (A) acquired in Permitted Acquisitions securing
Indebtedness assumed in connection therewith or (B) of a person the ownership
interests of which are acquired by a Loan Party in a Permitted Acquisition
securing Indebtedness of such person existing prior to the date of such
acquisition;
(x) Purchase Money Security Interests securing
Indebtedness permitted under Section 8.02(a)(v)(A)(1); and
(xi) The following, (A) if the validity or amount
thereof is being contested in good faith by appropriate and lawful proceedings
diligently conducted so long as levy and execution thereon have been stayed and
continue to be stayed or (B) if a final judgment is entered and such judgment
is discharged within thirty (30) days of entry, and in either case they do not
affect the Pledged Collateral (or, in the event that they do affect the Pledged
Collateral, the Loan Parties have provided adequate security satisfactory to
the Banks', in the Banks' sole discretion) or, in the aggregate, materially
impair the ability of the Loan Parties to perform their obligations hereunder
or under the other Loan Documents:
(1) Claims or Liens for taxes,
assessments or charges due and payable and subject to interest
or penalty, provided that the applicable Loan Party maintains
such reserves or other appropriate provisions as shall be
required by
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<PAGE> 57
GAAP and pays all such taxes, assessments or charges forthwith
upon the commencement of proceedings to foreclose any such
Lien;
(2) Claims, Liens or encumbrances upon,
and defects of title to, real or personal property other than
the Pledged Collateral (or, in the event that they do affect
the Pledged Collateral, the Loan Parties have provided
adequate security satisfactory to the Banks, in the Banks'
sole discretion), including any attachment of personal or real
property or other legal process prior to adjudication of a
dispute on the merits; or
(3) Claims or Liens of mechanics,
materialmen, warehousemen, carriers, or other statutory
nonconsensual Liens.
Permitted Line of Business shall mean, for any period
through but not including the date of the Spin-Off Consummation, the business
engaged in by NovaCare and its Subsidiaries as described in the Annual Report,
SEC Form 10-K of NovaCare and its Subsidiaries, dated June 30, 1997 (the
"Existing Business"), and for periods on and after the date of the Spin-Off
Consummation, the Existing Business but expressly excluding and prohibiting the
ownership or operation of Professional Employment Organizations, other than the
continued ownership of by NovaCare of common stock of NovaCare Employee
Services, Inc. in accordance with Section 8.02(i).
Permitted NovaCare Guaranty shall have the meaning
set forth in Section 8.02(a)(vi)(D).
Person shall mean any individual, corporation,
partnership, association, joint-stock company, trust, unincorporated
organization, joint venture, government or political subdivision or agency
thereof, or any other entity.
Plan shall mean at any time an employee pension
benefit plan (including a Multiple Employer Plan but not a Multiemployer Plan)
which is covered by Title IV of ERISA or is subject to the minimum funding
standards under Section 412 of the Internal Revenue Code and either (i) is
maintained by any member of the ERISA Group for employees of any member of the
ERISA Group or (ii) has at any time within the preceding five years been
maintained by any entity which was at such time a member of the ERISA Group for
employees of any entity which was at such time a member of the ERISA Group.
Pledge Agreements shall mean the Pledge Agreement in
substantially the form attached hereto as Exhibit 1.01(P)(4) executed and
delivered by NovaCare and each other Borrower which owns stock in any other
Loan Party, Exhibit 1.01(P)(5) executed and delivered by each Guarantor which
owns stock in any other Loan Party, Exhibit 1.01(p)(6) executed and delivered
by each Borrower or Guarantor which owns any partnership interests in any other
Loan Party, and any other form of agreement, in form and substance acceptable
to the Agent, pledging any interests in a Loan Party (including, without
limitation, ownership interests in any Loan Party which is a limited liability
company) or the equity interests in an Excluded Entity owned
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<PAGE> 58
by any Loan Party executed and delivered by the holders of such interests, in
each instance to the Agent for the benefit of the Banks, and Pledge Agreement
shall mean separately any Pledge Agreement.
Pledged Collateral shall have the meaning assigned to
that term in the Pledge Agreements.
PNC Bank shall mean PNC Bank, National Association.
Pooling Consideration shall mean with respect to any
Permitted Acquisition which would be accounted for as a "pooling of interests"
under GAAP, the sum of:
(i) the fair market value (determined as of the
date of the signing of the definitive acquisition agreement, provided that such
Permitted Acquisition shall close within one hundred and twenty (120) days
following such signing) of any stock issued by NovaCare in connection with such
merger; and
(ii) cash paid in lieu of fractional shares or
with respect to dissenters' rights to the extent that the amount thereof can be
ascertained on or before the date which is fifteen (15) Business Days prior to
the date on which the closing of such Permitted Acquisition is scheduled to
occur.
Pooling Partner shall mean a person, which is not a
Subsidiary or Minority Subsidiary of NovaCare, engaged in a merger or other
transaction with a Loan Party which is accounted for under GAAP as a "pooling
of interests" and as a result of which a Loan Party acquires all of the assets
of such person or at least ninety percent of each class of voting capital stock
of such person.
Potential Default shall mean any event or condition
which with notice, passage of time or a determination by the Agent or the
Required Banks, or any combination of the foregoing, would constitute an Event
of Default.
Principal Office shall mean the main banking office
of the Agent, Fifth Avenue and Wood Street, Pittsburgh, Pennsylvania 15265.
Prior Security Interest shall mean a valid and
enforceable perfected first priority security interest under the Uniform
Commercial Code in the Pledged Collateral.
Professional Employment Organization shall mean a
Person who through contractual arrangements provides the service of payroll and
human resource functions to non-affiliated businesses.
Prohibited Transaction shall mean any prohibited
transaction as defined in Section 4975 of the Internal Revenue Code or Section
406 of ERISA for which neither an individual nor a class exemption has been
issued by the United States Department of Labor.
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<PAGE> 59
Property shall mean all real property, both owned and
leased, of the Loan Parties.
Purchase Money Security Interest shall mean Liens
upon tangible personal property securing loans to any Loan Party or deferred
payments by a Loan Party for the purchase of such tangible personal property.
Purchasing Bank shall mean a Bank which becomes a
party to this Agreement by executing an Assignment and Assumption Agreement.
Qualified Lender shall mean any person or persons,
other than a commercial bank or any other organization which provides revolving
credit loans to third parties in the ordinary course of its business.
Qualifying Subsidiary at any time shall mean (i) any
corporation or trust of which more than 80% (by number of shares or number of
votes) of the outstanding capital stock or shares of beneficial interest
normally entitled to vote for the election of one or more directors or trustees
(regardless of any contingency which does or may suspend or dilute the voting
rights) is at such time owned directly or indirectly by NovaCare or one or more
of NovaCare's Subsidiaries, (ii) any limited partnership of which NovaCare is a
general partner or of which more than 80% of the partnership interests is at
the time directly or indirectly owned by NovaCare or one or more of NovaCare's
Subsidiaries, (iii) any general partnership of which NovaCare or one or more of
NovaCare's Subsidiaries owns directly or indirectly more than 80% of the
general partnership interests, or (iv) any other entity of which NovaCare or
one or more of its Subsidiaries owns directly or indirectly more than 80% of
the ownership interests.
Ratable Share shall mean the proportion that a Bank's
Revolving Credit Commitment bears to the Revolving Credit Commitments of all of
the Banks.
Regulated Substances shall mean any substance,
including without limitation any solid, liquid, gaseous, thermal or thoriated
material, refuse, garbage, wastes, chemicals, petroleum products or
by-products, dust, scrap, PCB's, heavy metals, any substances defined as
"hazardous substances," "pollutants," "pollution," "contaminant," "hazardous or
toxic substances," "toxic wastes," "regulated substances," "industrial waste,"
"residual waste," "solid wastes," "municipal wastes," "infectious waste,"
"chemotherapeutic waste," "medical waste" or any related materials or
substances as now or hereafter defined pursuant to any Environmental Laws,
ordinances, rules or directives of any Official Body, the generation,
manufacture, processing, distribution, treatment, storage, disposal, transport,
recycling, reclamation, use, reuse or other management or mismanagement of
which is regulated by the Environmental Laws.
Regulation U shall mean Regulation U, T, G or X as
promulgated by the Board of Governors of the Federal Reserve System, as amended
from time to time.
Remaining Banks shall have the meaning set forth in
Section 5.04(b).
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Reportable Event means a reportable event described
in Section 4043 of ERISA and regulations thereunder with respect to a Plan or
Multiemployer Plan.
Required Banks shall mean (i) if there are no
Revolving Credit Loans outstanding, Banks whose Revolving Credit Commitments
aggregate at least 66-2/3% of the Revolving Credit Commitments of all of the
Banks, or (ii) if there are Revolving Credit Loans outstanding, Banks whose
Revolving Credit Loans outstanding aggregate at least 66-2/3% of the total
principal amount of the Revolving Credit Loans outstanding hereunder.
Restricted Excluded Entities shall mean collectively
the Excluded Entities which have incurred Restricted Indebtedness, and
Restricted Excluded Entity shall mean separately any of the Restricted Excluded
Entities.
Restricted Indebtedness shall mean with respect to
any Excluded Entity, Indebtedness incurred by such Excluded Entity.
Restricted Investments shall mean all of the
following with respect to any one or more of the Excluded Entities: (i)
investments or contributions by any of the Loan Parties directly or indirectly
in or to the capital of or other payments to (except in connection with
transactions for fair value in the ordinary course of business) such Excluded
Entities, (ii) loans by any of the Loan Parties directly or indirectly to such
Excluded Entities, (iii) guaranties by any of the Loan Parties directly or
indirectly of the obligations of such Excluded Entities, or (iv) other
obligations, contingent or otherwise, of any of the Loan Parties to or for the
benefit of such Excluded Entities. If the nature of a Restricted Investment is
tangible property then the amount of such Restricted Investment shall be
determined by valuing such property at fair value in accordance with the past
practice of the Loan Parties and such fair values shall be satisfactory to the
Agent, in its sole discretion.
Revolving Credit Base Rate Option shall have the
meaning assigned to that term in Section 4.01(a)(i).
Revolving Credit Base Rate Portion shall mean the
portion of the Revolving Credit Loans bearing interest at any time under the
Revolving Credit Base Rate Option.
Revolving Credit Commitment shall mean as to any Bank
at any time, the amount initially set forth opposite its name on Schedule
1.01(B) hereto in the column labeled "Amount of Commitment for Revolving Credit
Loans," and thereafter on Schedule 1 to the most recent Assignment and
Assumption Agreement, and Revolving Credit Commitments shall mean the aggregate
Revolving Credit Commitments of all of the Banks.
Revolving Credit Euro-Rate Option shall have the
meaning assigned to that term in Section 4.01(a)(ii).
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<PAGE> 61
Revolving Credit Euro-Rate Portion shall mean the
portion of the Revolving Credit Loans bearing interest at any time under the
Revolving Credit Euro-Rate Option.
Revolving Facility Usage shall mean at any time the
sum of the Revolving Credit Loans outstanding and the Letters of Credit
Outstanding.
Revolving Credit Loan Request shall mean a request
for Revolving Credit Loans made in accordance with Section 2.05 hereof.
Revolving Credit Loans shall mean collectively and
Revolving Credit Loan shall mean separately all Revolving Credit Loans or any
Revolving Credit Loan made by the Banks or one of the Banks to the Borrowers
pursuant to Section 2.01 hereof.
Revolving Credit Notes shall mean the Revolving
Credit Notes of the Borrowers in the form of Exhibit 1.01(R) hereto evidencing
the Revolving Credit Loans together with all amendments, extensions, renewals,
replacements, refinancings or refundings thereof in whole or in part.
Sale Price shall mean, with respect to any sale by
any of the Loan Parties of its assets, the sum of (i) cash paid by the buyer at
closing, (ii) the face amount of any deferred payments to be paid by the buyer
after closing, (iii) the amount of any debt assumed or guaranteed by the buyer,
plus (iv) the fair market value of any other consideration given by the buyer
in connection therewith.
Selected Banks shall have the meaning given to such
term in Section 5.04(b).
Sixth Amendment Effective Date shall mean June 30,
1996.
Solvent shall mean, with respect to any person on a
particular date, that on such date (i) the fair value of the property of such
person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such person, (ii) the present fair
saleable value of the assets of such person is not less than the amount that
will be required to pay the probable liability of such person on its debts as
they become absolute and matured, (iii) such person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and
other commitments as they mature in the normal course of business, (iv) such
person does not intend to, and does not believe that it will, incur debts or
liabilities beyond such person's ability to pay as such debts and liabilities
mature, and (v) such person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such person's
property would constitute unreasonably small capital after giving due
consideration to the prevailing practice in the industry in which such person
is engaged. In computing the amount of contingent liabilities at any time, it
is intended that such liabilities will be computed at the amount which, in
light of all the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured
liability.
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<PAGE> 62
Spin-Off shall mean that certain transaction pursuant
to which the following shall have occurred: (i) NovaCare shall have either
completed a spin-off of a percentage of its ownership interests in, or caused
the issuance, through an initial public offering of stock, of additional shares
of capital stock of NovaCare Employee Services, Inc. and as a result of such
transaction, NovaCare, after giving effect thereto, shall own at least 65% of
all of the issued and outstanding equity interests of NovaCare Employee
Services, Inc., (ii) the aggregate proceeds to NovaCare or NovaCare Employee
Services, Inc. (in either case, net of all reasonable and customary transaction
fees and costs and all federal, state and local income taxes in connection
therewith) shall be at least $45 million, and (iii) NovaCare Employee Services,
Inc. shall repay all outstanding Indebtedness as of the Spin-Off Consummation,
together with accrued interest thereon, of NovaCare Employee Services, Inc. to
NovaCare.
Spin-Off Consummation shall mean the date of the
consummation of the Spin-Off (which shall be on or before December 31, 1997) in
accordance with and subject to the satisfaction of all of the terms and
conditions set forth in Section 8.02(e).
Spin-Off Documents shall have the meaning set forth
in Section 8.02(e)(v).
Subordinated Debentures shall mean the $175 million
in original principal amount of 5-1/2% Convertible Subordinated Debentures Due
2000 issued by NovaCare pursuant to the Indenture.
Subordinated Indebtedness shall mean the Indebtedness
of NovaCare or the other Loan Parties under the Subordinated Indebtedness
Documents.
Subordinated Indebtedness Documents shall mean the
Indenture and other documents evidencing Indebtedness which is subordinated to
the Indebtedness of the Loan Parties to the Banks pursuant to Section 8.01(l),
and all other instruments, certificates or documents delivered or contemplated
to be delivered in connection therewith, as any of the foregoing may be
supplemented or amended from time to time in accordance herewith.
Subordination Agreement (Intercompany) shall mean the
Subordination Agreement in the form of Exhibit 1.01(S) hereto pursuant to which
the Loan Parties subordinate their rights to collect loans made to other Loan
Parties to the rights of the Banks to collect Indebtedness of the Loan Parties
to the Banks under the Loan Documents.
Subsidiary of any person at any time shall mean (i)
any corporation or trust of which more than 50% (by number of shares or number
of votes) of the outstanding capital stock or shares of beneficial interest
normally entitled to vote for the election of one or more directors or trustees
(regardless of any contingency which does or may suspend or dilute the voting
rights) is at such time owned directly or indirectly by such person or one or
more of such person's Subsidiaries, or any limited partnership of which such
person is a general partner or any partnership of which more than 50% of the
partnership interests is at the time directly or indirectly owned by such
person or one or more of such person's Subsidiaries or (ii) any other
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entity of which such person owns more than 50% of the ownership interests,
directly or indirectly, and (iii) any corporation, trust, partnership or other
entity which is controlled or capable of being controlled by such person or one
or more of such person's Subsidiaries.
Subsidiary Shares shall have the meaning assigned to
that term in Section 6.01(c).
Termination Date shall have the meaning set forth in
Section 5.04(b).
Transferor Bank shall mean the selling Bank pursuant
to an Assignment and Assumption Agreement.
Unaffiliated Managed Company shall mean a person
which is not an Affiliate, Subsidiary or Minority Subsidiary of NovaCare and
with which any of the Loan Parties have entered into a contract providing for
the management by one or more of the Loan Parties of one or more businesses
owned by such person; provided that such businesses would be permitted under
Section 8.02(g) if they were owned by the Loan Parties.
Uniform Commercial Code shall have the meaning
assigned to that term in Section 6.01(o).
Weighted Average Rating shall mean with respect to
obligations of states, counties or local governmental bodies held by the Loan
Parties, or with respect to the general obligation debt of each state, county
or local government body which issued such obligations, a weighted average
determined by (1) first, converting the rating of each such obligation or such
debt, as the case may be, to a whole number based on the table set forth below,
(2) second, computing a weighted average of such whole numbers, with weighting
based on the amount of such obligations, and rounding such average to the next
lowest whole number, and (3) third, converting the whole number determined in
the second step above back to a rating based on the table.
<TABLE>
<CAPTION>
Rating
- -----------------------------------------------------
Equal to Number Assigned
or greater than But less than To Such Rating
- --------------- ------------- --------------
<S> <C> <C>
Aaa-1 or AAA 4
Aa-2 or AA Aaa-1 or AAA 3
A-2 or A Aa-2 or AA 2
Baa-2 or BBB A-2 or A 1
</TABLE>
Exhibit 1.01(W) sets forth an example of such computation.
1.02 Construction. Unless the context of this Agreement
otherwise clearly requires, references to the plural include the singular, the
singular the plural and the part the whole, "or" has the inclusive meaning
represented by the phrase "and/or," and "including" has
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the meaning represented by the phrase "including without limitation."
References in this Agreement to "determination" of or by the Agent or the Banks
shall be deemed to include good faith estimates by the Agent or the Banks (in
the case of quantitative determinations) and good faith beliefs by the Agent or
the Banks (in the case of qualitative determinations). Whenever the Agent or
the Banks are granted the right herein to act in its or their sole discretion
or to grant or withhold consent such right shall be exercised in good faith.
The words "hereof," "herein," "hereunder" and similar terms in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement. The section and other headings contained in this Agreement and the
Table of Contents preceding this Agreement are for reference purposes only and
shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, schedule and
exhibit references are to this Agreement unless otherwise specified.
1.03 Accounting Principles. Except as otherwise provided
in this Agreement, all computations and determinations as to accounting or
financial matters and all financial statements to be delivered pursuant to this
Agreement shall be made and prepared in accordance with GAAP (including
principles of consolidation where appropriate), and all accounting or financial
terms shall have the meanings ascribed to such terms by GAAP. The Loan Parties
and the Banks will in good faith attempt to agree upon appropriate changes to
the financial covenants hereunder if GAAP changes after the Closing Date and
such change materially changes the application of such covenants to the
business of NovaCare and its Subsidiaries.
ARTICLE II
REVOLVING CREDIT FACILITY
2.01 Revolving Credit Borrowing. Subject to the terms and
conditions hereof and relying upon the representations and warranties herein
set forth, each Bank severally agrees to make revolving credit loans (the
"Revolving Credit Loans") to any of the Borrowers at any time or from time to
time on or after the date hereof to, but not including, the Expiration Date, in
an aggregate principal amount not to exceed at any one time such Bank's
Revolving Credit Commitment minus such Bank's Ratable Share of the Letters of
Credit Outstanding. Within such limits of time and amount and subject to the
other provisions of this Agreement, the Borrowers may borrow, repay and
reborrow pursuant to this Section 2.01. In no event shall the aggregate of
outstanding Revolving Credit Loans and Letters of Credit Outstanding as of any
date exceed the Revolving Credit Commitments as of such date, and the entire
outstanding principal amount of the Revolving Credit Loans shall be due and
payable on the Expiration Date.
2.02 Nature of Banks' Obligations with Respect to
Revolving Credit Loans. Each Bank shall be obligated to participate in each
request for Revolving Credit Loans pursuant to Section 2.05 hereof in
accordance with its Ratable Share. The aggregate of each Bank's Revolving
Credit Loans outstanding hereunder to the Borrowers at any time shall never
exceed its Revolving Credit Commitment minus its Ratable Share of the aggregate
undrawn face amount of Letters of Credit Outstanding. The obligations of each
Bank hereunder are several. The failure of any Bank to perform its obligations
hereunder shall not affect the obligations of the
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Borrowers to any other party nor shall any other party be liable for the
failure of such Bank to perform its obligations hereunder. The Banks shall
have no obligation to make Revolving Credit Loans hereunder on or after the
Expiration Date.
2.03 Commitment Fees; Closing Fees. The Borrowers,
jointly and severally, agree to pay to the Agent for the account of each Bank,
as consideration for such Bank's Revolving Credit Commitment hereunder, a
commitment fee (the "Commitment Fee") equal to the per annum rate (computed on
the basis of a year of 365 days or 366 days, as the case may be, and actual
days elapsed) set forth below as the "Applicable Commitment Fee", on the
average daily difference between the unborrowed amount of such Bank's Revolving
Credit Commitment as the same may be constituted from time to time and such
Bank's Ratable Share of Letters of Credit Outstanding. The Applicable
Commitment Fee shall be calculated and determined based upon the ratio of (a)
Consolidated Funded Debt to (b) Consolidated Cash Flow from Operations. Such
ratio shall be computed as of the end of each quarter. Consolidated Cash Flow
from Operations shall be computed at the end of each quarter for the four
fiscal quarters then ended. Adjustments to the Commitment Fee attributable to
a change in such ratio shall be effective (a) on the Delivery Date for the
Borrower's consolidated financial statements for such quarter if the Applicable
Commitment Fee is to be increased and (b) on the later of the Delivery Date for
such financial statements or the date on which such financial statements are
actually delivered to the Agent and the Banks if the Applicable Commitment Fee
is to be decreased.
<TABLE>
<CAPTION>
Ratio of Consolidated Applicable
Funded Debt to Consolidated Commitment
Cash Flow from Operations Fee Per Annum
--------------------------- -------------
<S> <C>
Greater than or equal to .25%
2.00 to 1.0
Less than 2.00 to 1.0 .20%
</TABLE>
The Commitment Fees shall be payable in arrears on
the first Business Day of each July, October, January and April after the date
hereof and on the Expiration Date or upon acceleration of the Revolving Credit
Notes.
2.04 Voluntary Reduction of Commitment. The Borrowers
shall have the right at any time and from time to time upon five (5) Business
Days' prior written notice to the Agent to permanently reduce, in minimum
amount of $5,000,000 and whole multiples of $1,000,000 of principal, or
terminate the Revolving Credit Commitments without penalty or premium, except
as hereinafter set forth, provided that any such reduction or termination shall
be accompanied by (a) the payment in full of any Commitment Fee then accrued on
the amount of such reduction or termination and (b) prepayment of the Revolving
Credit Notes, together with the full amount of interest accrued on the
principal sum to be prepaid (and all amounts referred to in Section 5.06
hereof), to the extent that the aggregate amount thereof then outstanding
exceeds the Revolving Credit Commitments as so reduced or terminated. Except
as provided in Section 5.04(b) each
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Bank's Revolving Credit Commitment shall be reduced by its Ratable Share of the
reduction in the Revolving Credit Commitments. From the effective date of any
such reduction or termination, the obligations of the Borrowers to pay the
Commitment Fee pursuant to Section 2.03 shall correspondingly be reduced or
cease.
2.05 Revolving Credit Loan Requests. Except as otherwise
provided herein, the Borrowers, through NovaCare as their agent pursuant to the
Borrower Agency Agreement, may from time to time prior to the Expiration Date
request the Banks to make Revolving Credit Loans, or renew or convert the
Interest Rate Option applicable to existing Revolving Credit Loans, by the
delivery to the Agent, not later than 10:00 a.m. Pittsburgh time (i) three (3)
Business Days prior to the proposed Borrowing Date with respect to the making
of Revolving Credit Loans to which the Revolving Credit Euro-Rate Option
applies or the conversion to or the renewal of the Revolving Credit Euro-Rate
Option for any Revolving Credit Loans; and (ii) one (1) Business Day prior to
either the proposed Borrowing Date with respect to the making of a Revolving
Credit Loan to which the Revolving Credit Base Rate Option applies or the last
day of the preceding Euro-Rate Interest Period with respect to the conversion
to the Revolving Credit Base Rate Option for any Revolving Credit Loan, of a
duly completed request therefor substantially in the form of Exhibit 2.05 or a
request by telephone immediately confirmed in writing by letter, facsimile or
telex in such form (each, a "Revolving Credit Loan Request"), it being
understood that the Agent may rely in good faith on the authority of any person
making such a telephonic request and purporting to be an Authorized Officer.
Each Revolving Credit Loan Request shall be irrevocable and shall (i) specify
the proposed Borrowing Date; (ii) specify the aggregate amount of the proposed
Revolving Credit Loans comprising the Borrowing Tranche, which shall be in
integral multiples of $500,000 and not less than $1,500,000 for Revolving
Credit Loans to which the Revolving Credit Euro-Rate Option applies and not
less than the lesser of $500,000 or the maximum amount available for Revolving
Credit Loans to which the Revolving Credit Base Rate Option applies; (iii)
specify whether the Revolving Credit Euro-Rate Option or Revolving Credit Base
Rate Option shall apply to the proposed Revolving Credit Loans comprising the
Borrowing Tranche; (iv) in the case of Revolving Credit Loans to which the
Revolving Credit Euro-Rate Option applies, specify an appropriate Euro-Rate
Interest Period for the proposed Revolving Credit Loans comprising the
Borrowing Tranche; (v) specify the Borrower to which each Borrowing Tranche is
to apply and the amount of such Borrowing Tranche allocable to such Borrower;
(vi) certify that the use by the Borrower of the Revolving Credit Loan proceeds
is a use permitted by Section 2.08; and (vii) certify that no Event of Default
or Potential Default has occurred and is continuing after giving effect to the
proposed Revolving Credit Loan.
2.06 Making Revolving Credit Loans. The Agent shall,
promptly after receipt by it of a Revolving Credit Loan Request pursuant to
Section 2.05, notify the Banks of its receipt of such Revolving Credit Loan
Request specifying: (i) the proposed Borrowing Date and the time and method of
disbursement of such Revolving Credit Loan; (ii) the amount and type of such
Revolving Credit Loan and the applicable Euro-Rate Interest Period (if any);
(iii) the apportionment among the Banks of the Revolving Credit Loans as
determined by the Agent in accordance with Section 2.02 hereof; and (iv) the
Borrower to which each Borrowing Tranche is
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to apply and the amount of such Borrowing Tranche allocable to such Borrower.
Each Bank shall remit the principal amount of each Revolving Credit Loan to the
Agent such that the Agent is able to, and the Agent shall, to the extent the
Banks have made funds available to it for such purpose, fund such Revolving
Credit Loan to the Borrower or Borrowers in U.S. Dollars and immediately
available funds at the Principal Office prior to 2:00 P.M. Pittsburgh time on
the Borrowing Date, provided that if any Bank fails to remit such funds to the
Agent in a timely manner the Agent may elect in its sole discretion to fund
with its own funds the Revolving Credit Loan of such Bank on the Borrowing
Date.
2.07 Revolving Credit Notes. The obligation of each
Borrower to repay the aggregate unpaid principal amount of the Revolving Credit
Loans made to it by each Bank, together with interest and fees thereon, shall
be evidenced by a Revolving Credit Note dated the Closing Date in substantially
the form attached hereto as Exhibit 1.01(R) payable to the order of such Bank.
Each such note shall be in a face amount equal to the Revolving Credit
Commitment of such Bank. Notwithstanding that NovaCare may request Revolving
Credit Loans on behalf of a Borrower or Borrowers in accordance with Section
2.05, the Borrowers shall internally account on an individual Borrower basis
for the use of the proceeds of the Revolving Credit Loans by each Borrower, and
further the Borrowers warrant that they have customary and sufficient
accounting procedures in order to accomplish such accounting.
2.08 Use of Proceeds. The proceeds of the Revolving
Credit Loans shall be used by the Borrowers only for: (i) Permitted
Acquisitions and the refinancing of Indebtedness assumed in connection
therewith , (ii) the development of health care related businesses and
facilities and for periods prior to the Spin-Off Consummation, Professional
Employment Organizations, each as permitted under this Agreement and (iii)
general corporate purposes, provided, however, that no portion of the Revolving
Credit Loans shall be used directly or indirectly for the purpose of repaying
or redeeming the Subordinated Debentures.
2.09 Letter of Credit Subfacility.
(a) NovaCare as agent for any Borrower may
request the issuance of, on the terms and conditions hereinafter set forth,
standby letters of credit (each a "Letter of Credit" and collectively, "Letters
of Credit") by delivering to the Agent a completed application and agreement
for letters of credit in such form as the Agent may specify from time to time
by no later than 10:00 a.m., Pittsburgh time, at least three (3) Business Days,
or such shorter period as may be agreed to by the Agent, in advance of the
proposed date of issuance. Subject to the terms and conditions hereof and in
reliance on the agreements of the other Banks set forth in this Section 2.09,
the Agent will issue a Letter of Credit provided that each Letter of Credit
shall (A) have a maximum maturity of twelve (12) months from the date of
issuance, and (B) in no event expire later than ten (10) Business Days prior to
the Expiration Date and providing that in no event shall (i) the Letters of
Credit Outstanding exceed, at any one time, $15,000,000 or (ii) the Revolving
Facility Usage exceed, at any one time, the Revolving Credit Commitments.
Schedule 2.09 hereto lists letters of credit which PNC Bank issued for the
accounts of certain of the Loan Parties prior to the date hereof and which
shall remain outstanding after the Closing
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Date (the "Existing Letters of Credit"). Each Existing Letter of Credit shall
be a Letter of Credit hereunder on and after the Closing Date and the
provisions of this Section 2.09 shall apply to such Existing Letter of Credit.
(Schedule 2.09 also lists all amounts of Loans, interest and expenses
outstanding under the Prior Credit Agreement.)
(b) The Borrower shall pay to the Agent for the
ratable account of the Banks a fee (the "Letter of Credit Fee") equal to the
Applicable Percentage Over Euro-Rate which is then in effect which fee shall be
computed on the face amount of each Letter of Credit and shall be payable
quarterly in arrears commencing with the first Business Day of each April,
July, October and January following issuance of each Letter of Credit and on
the expiration date for each Letter of Credit. The Borrower shall pay to the
Agent for its own account a fronting fee equal to 1/16% per annum, which fee
shall be computed on the face amount of each Letter of Credit and shall be
payable quarterly in arrears commencing with the first business day of each
October, January, April and July following issuance of each letter of credit
and on the expiration date for each Letter of Credit. The Borrower shall also
pay to the Agent the Agent's then in effect customary fees and administrative
expenses payable with respect to Letters of Credit as the Agent may generally
charge or incur from time to time in connection with the issuance, maintenance,
modification (if any), assignment or transfer (if any), negotiation and
administration of Letters of Credit.
(c) Immediately upon the issuance of each Letter
of Credit, each Bank shall be deemed to, and hereby irrevocably and
unconditionally agrees to, purchase from the Agent a participation in such
Letter of Credit and each drawing thereunder in an amount equal to such Bank's
Ratable Share of the maximum amount available to be drawn under such Letter of
Credit and the amount of such drawing, respectively.
(d) In the event of any request for a drawing
under a Letter of Credit by the beneficiary or transferee thereof, the Agent
will promptly notify the Borrower. Provided that it shall have received such
notice, the Borrower shall reimburse (such obligation to reimburse the Agent
shall sometimes be referred to as a "Reimbursement Obligation") the Agent prior
to 12:00 noon, Pittsburgh time on each date that an amount is paid by the Agent
under any Letter of Credit (each such date, a "Drawing Date") in an amount
equal to the amount so paid by the Agent. In the event the Borrower fails to
reimburse the Agent for the full amount of any drawing under any Letter of
Credit by 12:00 noon, Pittsburgh time, on the Drawing Date, the Agent will
promptly notify each Bank thereof, and the Borrower shall be deemed to have
requested that Revolving Credit Loans be made by the Banks under the Revolving
Credit Base Rate Option to be disbursed on the Drawing Date under such Letter
of Credit, subject to the amount of the unutilized portion of the Revolving
Credit Commitment and subject to the conditions set forth in Section 7.02 [Each
Additional Revolving Credit Loan] other than any notice requirements. Any
notice given by the Agent pursuant to this Section 2.09(d) may be oral if
immediately confirmed in writing; provided that the lack of such an immediate
confirmation shall not affect the conclusiveness or binding effect of such
notice.
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(e) Each Bank shall upon any notice pursuant to
Section 2.09(d) make available to the Agent an amount in immediately available
funds equal to its Ratable Share of the amount of the drawing, whereupon the
participating Banks shall (subject to Section 2.09(f)) each be deemed to have
made a Revolving Credit Loan under the Revolving Credit Base Rate Option to the
Borrower in that amount. If any Bank so notified fails to make available to
the Agent for the account of the Agent the amount of such Bank's Ratable Share
of such amount by no later than 2:00 p.m., Pittsburgh time on the Drawing Date,
then interest shall accrue on such Bank's obligation to make such payment, from
the Drawing Date to the date on which such Bank makes such payment (i) at a
rate per annum equal to the Federal Funds Effective Rate during the first three
days following the Drawing Date and (ii) at a rate per annum equal to the rate
applicable to Loans under the Revolving Credit Base Rate Option on and after
the fourth day following the Drawing Date. The Agent will promptly give notice
of the occurrence of the Drawing Date, but failure of the Agent to give any
such notice on the Drawing Date or in sufficient time to enable any Bank to
effect such payment on such date shall not relieve such Bank from its
obligation under this Section 2.09(e).
(f) With respect to any unreimbursed drawing that
is not converted into Revolving Credit Loans under the Revolving Credit Base
Rate Option to the Borrower in whole or in part as contemplated by Section
2.09(d), because of the Borrower's failure to satisfy the conditions set forth
in Section 7.02 [Each Additional Revolving Credit Loan] other than any notice
requirements or for any other reason, the Borrower shall be deemed to have
incurred from the Agent a Letter of Credit Borrowing in the amount of such
drawing. Such Letter of Credit Borrowing shall be due and payable on demand
(together with interest) and shall bear interest at the rate per annum
applicable to the Revolving Credit Loans under the Revolving Credit Base Rate
Option. Each Bank's payment to the Agent pursuant to Section 2.09(e) shall be
deemed to be a payment in respect of its participation in such Letter of Credit
Borrowing and shall constitute a Participation Advance from such Bank in
satisfaction of its participation obligation under this Section 2.09.
(g)(i) Upon (and only upon) receipt by the Agent
for its account of immediately available funds from the Borrower (i) in
reimbursement of any payment made by the Agent under the Letter of Credit with
respect to which any Bank has made a Participation Advance to the Agent, or
(ii) in payment of interest on such a payment made by the Agent under such a
Letter of Credit, the Agent will pay to each Bank, in the same funds as those
received by the Agent, the amount of such Bank's Ratable Share of such funds,
except the Agent shall retain the amount of the Ratable Share of such funds of
any Bank that did not make a Participation Advance in respect of such payment
by Agent.
(g)(ii) If the Agent is required at any time to
return to any Loan Party, or to a trustee, receiver, liquidator, custodian, or
any official in any Insolvency Proceeding, any portion of the payments made by
any Loan Party to the Agent pursuant to Section 2.09(g)(i) in reimbursement of
a payment made under the Letter of Credit or interest or fee thereon, each Bank
shall, on demand of the Agent, forthwith return to the Agent the amount of its
Ratable Share of any amounts so returned by the Agent plus interest thereon
from the date such demand
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is made to the date such amounts are returned by such Bank to the Agent, at a
rate per annum equal to the Federal Funds Effective Rate in effect from time to
time.
(h) Each Loan Party agrees to be bound by the
terms of the Agent's application and agreement for letters of credit and the
Agent's written regulations and customary practices relating to letters of
credit. In the event of a conflict between such application or agreement and
this Agreement, this Agreement shall govern. It is understood and agreed that,
except in the case of gross negligence or willful misconduct, the Agent shall
not be liable for any error, negligence and/or mistakes, whether of omission or
commission, in following any Loan Party's instructions or those contained in
the Letters of Credit or any modifications, amendments or supplements thereto.
(i) In determining whether to honor any request
for drawing under any Letter of Credit by the beneficiary thereof, the Agent
shall be responsible only to determine that the documents and certificates
required to be delivered under such Letter of Credit have been delivered and
that they comply on their face with the requirements of such Letter of Credit.
(j) Each Bank's obligation in accordance with
this Agreement to make the Revolving Credit Loans or Participation Advances, as
contemplated by Section 2.09, as a result of a drawing under a Letter of
Credit, and the Obligations of the Borrower to reimburse the Agent upon a draw
under a Letter of Credit, shall be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of this Section 2.09
under all circumstances, including the following circumstances:
(i) any set-off, counterclaim,
recoupment, defense or other right which such Bank may have against the Agent,
the Borrower or any other Person for any reason whatsoever;
(ii) the failure of any Loan Party or any
other Person to comply, in connection with a Letter of Credit Borrowing, with
the conditions set forth in Section 2.01 [Revolving Credit Borrowing], 2.05
[Revolving Credit Loan Requests], 2.06 [Making Revolving Credit Loans] or 7.02
[Each Additional Revolving Credit Loan] or as otherwise set forth in this
Agreement for the making of a Revolving Credit Loan, it being acknowledged that
such conditions are not required for the making of a Letter of Credit Borrowing
and the obligation of the Banks to make Participation Advances under Section
2.09;
(iii) any lack of validity or
enforceability of any Letter of Credit;
(iv) the existence of any claim, set-off,
defense or other right which any Loan Party or any Bank may have at any time
against a beneficiary or any transferee of any Letter of Credit (or any Persons
for whom any such transferee may be acting), the Agent or any Bank or any other
Person, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any underlying
transaction between any Loan Party or Subsidiaries of a Loan Party and the
beneficiary for which any Letter of Credit was procured);
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(v) any draft, demand, certificate or
other document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect even if the Agent has been notified
thereof;
(vi) payment by the Agent under any
Letter of Credit against presentation of a demand, draft or certificate or
other document which does not comply with the terms of such Letter of Credit;
(vii) any adverse change in the business,
operations, properties, assets, condition (financial or otherwise) or prospects
of any Loan Party or Subsidiaries of a Loan Party;
(viii) any breach of this Agreement or any
other Loan Document by any party thereto;
(ix) the occurrence or continuance of an
Insolvency Proceeding with respect to any Loan Party;
(x) the fact that an Event of Default or
a Potential Default shall have occurred and be continuing;
(xi) the fact that the Expiration Date
shall have passed or this Agreement or the Commitments hereunder shall have
been terminated; and
(xii) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing.
(k) In addition to amounts payable as provided in
Section 10.05 [Reimbursement and Indemnification of Agent by Borrowers], the
Borrower hereby agrees to protect, indemnify, pay and save harmless the Agent
from and against any and all claims, demands, liabilities, damages, losses,
costs, charges and expenses (including reasonable fees, expenses and
disbursements of counsel and allocated costs of internal counsel) which the
Agent may incur or be subject to as a consequence, direct or indirect, of (i)
the issuance of any Letter of Credit, other than as a result of (A) the gross
negligence or willful misconduct of the Agent as determined by a final judgment
of a court of competent jurisdiction or (B) subject to the following clause
(ii), the wrongful dishonor by the Agent of a proper demand for payment made
under any Letter of Credit, or (ii) the failure of the Agent to honor a drawing
under any such Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government
or governmental authority (all such acts or omissions herein called
"Governmental Acts").
(l) As between any Loan Party and the Agent, such
Loan Party assumes all risks of the acts and omissions of, or misuse of the
Letters of Credit by, the respective beneficiaries of such Letters of Credit.
In furtherance and not in limitation of the foregoing, the Agent shall not be
responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted by any party in connection with the
application for an issuance of any such Letter of Credit, even if it should in
fact prove to be in
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any or all respects invalid, insufficient, inaccurate, fraudulent or forged
(even if the Agent shall have been notified thereof); (ii) the validity or
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign any such Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) the failure of the beneficiary of
any such Letter of Credit, or any other party to which such Letter of Credit
may be transferred, to comply fully with any conditions required in order to
draw upon such Letter of Credit or any other claim of any Loan Party against
any beneficiary of such Letter of Credit, or any such transferee, or any
dispute between or among any Loan Party and any beneficiary of any Letter of
Credit or any such transferee; (iv) errors, omissions, interruptions or delays
in transmission or delivery of any messages, by mail, cable, telegraph, telex
or otherwise, whether or not they be in cipher; (v) errors in interpretation of
technical terms; (vi) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any such Letter of Credit or
of the proceeds thereof; (vii) the misapplication by the beneficiary of any
such Letter of Credit of the proceeds of any drawing under such Letter of
Credit; or (viii) any consequences arising from causes beyond the control of
the Agent, including any Governmental Acts, and none of the above shall affect
or impair, or prevent the vesting of, any of the Agent's rights or powers
hereunder. Nothing in the preceding sentence shall relieve the Agent from
liability for the Agent's gross negligence or willful misconduct in connection
with actions or omissions described in such clauses (i) through (viii) of such
sentence.
In furtherance and extension and not in
limitation of the specific provisions set forth above, any action taken or
omitted by the Agent under or in connection with the Letters of Credit issued
by it or any documents and certificates delivered thereunder, if taken or
omitted in good faith, shall not put the Agent under any resulting liability to
the Borrower or any Bank.
2.10 Extension by Banks of the Expiration Date.
Upon or promptly after delivery by NovaCare of the annual financial statements
to be provided under Section 8.01(m)(ii) hereof for the fiscal year ending June
30, 1995 or any subsequent fiscal year, NovaCare, as agent for the Borrowers,
may request an extension of the Expiration Date by written notice to the Agent
who shall promptly deliver such notice to the Banks, and the Banks agree to
respond to such request to the Agent who shall promptly deliver such response
to NovaCare within sixty (60) days following NovaCare's delivery of such
request. All Banks must consent to any extension of the Expiration Date in
order for the extension to be effective and the failure of the Banks to respond
within such time period shall not in any manner constitute consent to an
extension of the Expiration Date. Borrowers may request that the Expiration
Date be extended (i) until November 28, 2000 in their first request for an
extension hereunder, and (ii) for one-year periods beyond the Expiration Date
then in effect in any subsequent request for an extension hereunder.
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ARTICLE III
[RESERVED]
ARTICLE IV
INTEREST RATES
4.01 Interest Rate Options. Each Borrower shall pay
interest in respect of the outstanding unpaid principal amount of the Revolving
Credit Loans as selected by NovaCare, as agent for such Borrower, from the
Revolving Credit Base Rate Option or Revolving Credit Euro-Rate Option set
forth below applicable to the Revolving Credit Loans, it being understood that,
subject to the provisions of this Agreement, NovaCare, as such agent, may
select different Interest Rate Options and different Euro-Rate Interest Periods
to apply simultaneously to the Revolving Credit Loans comprising different
Borrowing Tranches and may convert to or renew one or more Interest Rate
Options with respect to all or any portion of the Revolving Credit Loans
comprising any Borrowing Tranche provided that there shall not be at any one
time outstanding more than fifteen (15) Borrowing Tranches in the aggregate
among all the Revolving Credit Loans. The Agent's determination of a rate of
interest and any change therein shall in the absence of manifest error be
conclusive and binding upon all parties hereto. If at any time the designated
rate applicable to any Revolving Credit Loan made by any Bank exceeds such
Bank's highest lawful rate, the rate of interest on such Bank's Revolving
Credit Loan shall be limited to such Bank's highest lawful rate.
(a) Revolving Credit Interest Rate Options.
NovaCare, as agent for the Borrowers, shall have the right to select from the
following Interest Rate Options applicable to the Revolving Credit Loans.
(i) Revolving Credit Base Rate Option:
A fluctuating rate per annum (computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed) equal to the Base Rate, such
interest rate to change automatically from time to time effective as of the
effective date of each change in the Base Rate.
(ii) Revolving Credit Euro-Rate Option:
A rate per annum (computed on the basis of a year of 360 days and actual days
elapsed), for each period specified below, equal to the Euro-Rate plus the
applicable percentage (the "Applicable Percentage Over Euro-Rate") set forth
below, based upon the ratio of (a) Consolidated Funded Debt to (b) Consolidated
Cash Flow from Operations. Such ratio shall be computed as of the end of each
quarter. Consolidated Cash Flow from Operations shall be computed at the end
of each quarter for the four fiscal quarters then ended. Adjustments to
interest attributable to a change in such ratio shall be effective (a) on the
Delivery Date for the Borrower's consolidated financial statements for such
quarter if the applicable interest rate is to be increased and (b) on the later
of the Delivery Date for such financial statements or the date on which such
financial statements are actually delivered to the Agent and the Banks if the
applicable interest rate is to be decreased.
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<TABLE>
<S> <C>
Ratio of Consolidated
Funded Debt to Consolidated
Cash Flow from Operations Applicable Interest Rate
------------------------- ------------------------
Greater than or equal to
2.50 to 1.0 Euro-Rate plus 1-1/8%
Greater than or equal to Euro-Rate plus 1-1/16%
2.00 to 1.0 but less than
2.50 to 1.0
Greater than or equal to Euro-Rate plus 7/8%
1.50 to 1.0 but less than
2.00 to 1.0
Greater than or equal to Euro-Rate plus 11/16%
1.00 to 1.0 but less than
1.50 to 1.0
Less than 1.00 to 1.0 Euro-Rate plus 1/2%
</TABLE>
(b) Rate Quotations. NovaCare, as agent for the
Borrowers, may call the Agent on or before the date on which a Revolving Credit
Loan Request is to be delivered to receive an indication of the rates then in
effect, but it is acknowledged that such projection shall not be binding on the
Agent or the Banks nor affect the rate of interest which thereafter is actually
in effect when the election is made.
4.02 Interest Periods. At any time when NovaCare, as
agent for the Borrowers, shall select, convert to or renew a Revolving Credit
Euro-Rate Option, NovaCare shall notify the Agent thereof at least three (3)
Business Days prior to the effective date of such Revolving Credit Euro-Rate
Option by delivering a Revolving Credit Loan Request. The notice shall specify
an interest period during which such Interest Rate Option shall apply, such
periods to be one, two, three or six months ("Euro-Rate Interest Period"),
provided, that:
(a) any Euro-Rate Interest Period which would
otherwise end on a date which is not a Business Day shall be extended to the
next succeeding Business Day unless such Business Day falls in the next
calendar month, in which case such Euro-Rate Interest Period shall end on the
next preceding Business Day;
(b) any Euro-Rate Interest Period which begins on
the last day of a calendar month for which there is no numerically
corresponding day in the subsequent calendar month during which such Interest
Period is to end shall end on the last Business Day of such subsequent month;
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(c) Revolving Credit Euro-Rate Portion for each
Euro-Rate Interest Period shall be in integral multiples of $500,000 and not
less than $1,500,000;
(d) NovaCare shall not select, convert to or
renew a Euro-Rate Interest Period for any portion of the Revolving Credit Loans
that would end after the Expiration Date; and
(e) in the case of the renewal of a Revolving
Credit Euro-Rate Option at the end of a Euro-Rate Interest Period, the first
day of the new Interest Period shall be the last day of the preceding Interest
Period, without duplication in payment of interest for such day.
4.03 Interest After Default. To the extent permitted by
Law, upon the occurrence and during the continuation of an Event of Default,
any principal, interest, fee or other amount payable hereunder shall bear
interest for each day thereafter until paid in full (before and after judgment)
at a rate per annum which shall be equal to two hundred (200) basis points (2%
per annum) above the Base Rate if no rate of interest is otherwise applicable.
Each Borrower acknowledges that such increased interest rate reflects, among
other things, the fact that such Revolving Credit Loans or other amounts have
become a substantially greater risk given their default status and that the
Banks are entitled to additional compensation for such risk.
4.04 Euro-Rate Unascertainable.
(a) If on any date on which a Euro-Rate would
otherwise be determined, the Agent shall have determined (which determination
shall be conclusive absent manifest error) that:
(i) adequate and reasonable means do not
exist for ascertaining such Euro-Rate, or
(ii) a contingency has occurred which
materially and adversely affects the secondary market for negotiable
certificates of deposit maintained by dealers of recognized standing relating
to the London interbank market relating to the Euro-Rate, or
(b) if at any time any Bank shall have determined
(which determination shall be conclusive absent manifest error) that:
(i) the making, maintenance or funding
of any Revolving Credit Loan to which a Revolving Credit Euro-Rate Option
applies has been made impracticable or unlawful by compliance by such Bank in
good faith with any Law or any interpretation or application thereof by any
Official Body or with any request or directive of any such Official Body
(whether or not having the force of Law), or
(ii) such Revolving Credit Euro-Rate
Option will not adequately and fairly reflect the cost to such Bank of the
establishment or maintenance of any such Revolving Credit Loan, or
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(iii) after making all reasonable efforts,
deposits of the relevant amount in Dollars for the relevant Euro-Rate Interest
Period for a Revolving Credit Loan to which a Revolving Credit Euro-Rate Option
applies are not available to such Bank at the effective cost of funding a
proposed Revolving Credit Loan to which the Revolving Credit Euro-Rate Option
applies in the London interbank market, then, in the case of any event
specified in subsection (a) above, the Agent shall promptly so notify NovaCare,
as agent for the Borrowers, and the Banks thereof and in the case of an event
specified in subsection (b) above, such Bank shall promptly so notify the Agent
in such capacity and endorse a certificate to such notice as to the specific
circumstances of such notice and the Agent shall promptly send copies of such
notice and certificate to the other Banks and NovaCare, as agent for the
Borrowers. Upon such date as shall be specified in such notice (which shall
not be earlier than the date such notice is given) the obligation of (A) the
Banks in the case of such notice given by the Agent or (B) such Bank in the
case of such notice given by such Bank to allow NovaCare, as agent for the
Borrowers, to select, convert to or renew a Revolving Credit Euro-Rate Option
shall be suspended until the Agent shall have later notified NovaCare, in such
capacity, or such Bank shall have later notified the Agent, of the Agent's or
such Bank's, as the case may be, determination (which determination shall be
conclusive absent manifest error) that the circumstances giving rise to such
previous determination no longer exist. If at any time the Agent makes a
determination under subsection (a) or (b) of this Section 4.04 and NovaCare has
previously notified the Agent of its selection of, conversion to or renewal of
a Revolving Credit Euro-Rate Option and such Interest Rate Option has not yet
gone into effect, such notification shall be deemed to provide for selection
of, conversion to or renewal of the Revolving Credit Base Rate Option otherwise
available with respect to such Revolving Credit Loans. If any Bank notifies
the Agent of a determination under subsection (b) of this Section 4.04, the
Borrowers shall, subject to the Borrowers' indemnification obligations under
Section 5.06(b), as to any Revolving Credit Loan of such Bank to which a
Revolving Credit Euro-Rate Option applies, on the date specified in such notice
either convert such Revolving Credit Loan to the Revolving Credit Base Rate
Option otherwise available with respect to such Revolving Credit Loan or prepay
such Revolving Credit Loan in accordance with Section 5.04 hereof. Absent due
notice from NovaCare of conversion or prepayment, such Revolving Credit Loan
shall automatically be converted to the Revolving Credit Base Rate Option
otherwise available with respect to such Revolving Credit Loan upon such
specified date.
4.05 Selection of Interest Rate Options. If NovaCare, as
agent for the Borrowers, fails to select a Euro-Rate Interest Period in
accordance with the provisions of Section 4.02 in the case of renewal of the
Revolving Credit Euro-Rate Portion, NovaCare shall be deemed to have converted
such Revolving Credit Loan or portion thereof to the Revolving Credit Base Rate
Option otherwise available with respect to such Revolving Credit Loans,
commencing upon the last day of that Euro-Rate Interest Period.
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ARTICLE V
PAYMENTS
5.01 Payments. All payments and prepayments to be made in
respect of principal, interest, Commitment Fees, Closing Fees, Letter of Credit
Fees, Agent's Fee or other fees or amounts due from the Borrowers hereunder
shall be payable prior to 11:00 A.M. (Pittsburgh time) on the date when due
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived by the Borrowers, and without setoff, counterclaim or
other deduction of any nature, and an action therefor shall immediately accrue.
Such payments shall be made to the Agent at its Principal Office for the
ratable accounts of the Banks with respect to the Revolving Credit Loans in
U.S. Dollars and in immediately available funds and the Agent shall promptly
distribute such amounts to the Banks in immediately available funds, provided
that in the event payments are received by 11:00 A.M. (Pittsburgh time) by the
Agent with respect to the Revolving Credit Loans and such payments are not
distributed to the Banks on the same day such payments are received by the
Agent, the Agent shall pay the Banks the Federal Funds Effective Rate with
respect to the amount of such payments for each day held by the Agent and not
distributed to the Banks. The Agent's and each Bank's statement of account,
ledger or other relevant record shall, in the absence of manifest error, be
conclusive as the statement of the amount of principal of and interest on the
Revolving Credit Loans and other amounts owing under this Agreement and shall
be deemed an "account stated."
5.02 Pro Rata Treatment of Banks. Each borrowing, and
each selection of, conversion to or renewal of any Interest Rate Option and
each payment or prepayment by the Borrower with respect to principal, interest,
Commitment Fees, Closing Fees, Letter of Credit Fees, or other fees or amounts
due from the Borrowers hereunder to the Banks with respect to the Revolving
Credit Loans, shall (except as provided in Section 4.04(b) [Euro-Rate
Unascertainable], 5.04(b) [Voluntary Prepayments] or 5.06(a) [Additional
Compensation in Certain Circumstances] hereof) be made in proportion to the
Revolving Credit Loans outstanding from each Bank and if no such Revolving
Credit Loans are then outstanding, in proportion to the Ratable Share of each
Bank.
5.03 Interest Payment Dates. Interest on Revolving Credit
Loans to which the Revolving Credit Base Rate Option applies shall be due and
payable in arrears on the first Business Day of each July, October, January and
April after the date hereof and on the Expiration Date or upon acceleration of
the Revolving Credit Notes. Interest on Revolving Credit Loans to which a
Revolving Credit Euro-Rate Option applies shall be due and payable on the last
day of each Euro-Rate Interest Period for those Revolving Credit Loans, and if
any such Euro-Rate Interest Period is longer than three Months, also on the
last day of every third Month during such period.
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5.04 Voluntary Prepayments.
(a) Each Borrower shall have the right at its
option from time to time to prepay the Revolving Credit Loans in whole or part
without premium or penalty (except as provided in subsection (b) below or in
Section 5.06 hereof):
(i) at any time with respect to any
Revolving Credit Loan to which the Revolving Credit Base Rate Option applies,
(ii) on the last day of the applicable
Euro-Rate Interest Period with respect to any Revolving Credit Loans to which a
Revolving Credit Euro-Rate Option applies, or
(iii) on the date specified in a notice by
any Bank pursuant to Section 4.04(b) [Euro-Rate Unascertainable] hereof with
respect to any Revolving Credit Loan to which a Revolving Credit Euro-Rate
Option applies.
Whenever a Borrower desires to prepay any part of the
Revolving Credit Loans, it shall cause NovaCare, as its agent, to provide a
prepayment notice to the Agent at least one (1) Business Day prior to the date
of prepayment of Revolving Credit Loans setting forth the following
information:
(x) the date, which shall be a Business
Day, on which the proposed prepayment is to be made; and
(y) the total principal amount of such
prepayment, which shall not be less than $500,000.
All prepayment notices shall be irrevocable. The principal
amount of the Revolving Credit Loans for which a prepayment notice is given,
together with interest on such principal amount except with respect to
Revolving Credit Loans to which the Revolving Credit Base Rate Option applies,
shall be due and payable on the date specified in such prepayment notice as the
date on which the proposed prepayment is to be made. Unless otherwise
specified by NovaCare on behalf of such Borrower with respect to prepayments of
the Revolving Credit Euro-Rate Portion of the Revolving Credit Loans permitted
under (ii) or (iii) above, all prepayments shall be applied first to the
Revolving Credit Base Rate Portion of such Revolving Credit Loans, as the case
may be, and then to the Revolving Credit Euro-Rate Portion of such Revolving
Credit Loans, subject to Section 5.06(b) hereof.
(b) In the event (i) any Bank gives notice under
Section 4.04(b) [Euro-Rate Unascertainable] or Section 5.06(a) [Additional
Compensation in Certain Circumstances] hereof, or (ii) any Bank does not
approve any action as to which consent of the Required Banks is requested by
the Borrowers and obtained hereunder, NovaCare may request either that such
Bank's Revolving Credit Commitment be terminated pursuant to the procedures set
forth in clause (A) below or that such Bank be replaced by a new bank pursuant
to the procedures set forth in clause (B) below. If NovaCare desires to
request that a Bank's Commitment be
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terminated or a Bank be replaced pursuant to this Section 5.04(b), NovaCare
shall deliver to the Agent notice of such request within thirty (30) days after
NovaCare receives such Bank's notice in the case of clause (i) of this Section
5.04(b), or within thirty (30) days after the Required Banks have consented to
a matter with respect to which such Bank has not consented in the case of
clause (ii) of this Section 5.04(b). NovaCare may request that the Commitment
of a Bank be terminated or a Bank be replaced pursuant to clause (ii) of the
first sentence of this Section 5.04(b) only if there exists no Event of Default
or Potential Default on the date of such request.
(A) Termination of Commitment. If
NovaCare requests that the Commitment of a Bank be terminated (the "Bank to be
Terminated") pursuant to this Section 5.04(b), such Commitment shall be
terminated pursuant to the procedures set forth below if each of the Banks
other than the Bank to be Terminated (the "Remaining Banks") agrees to such
request. The Remaining Banks shall not unreasonably withhold such consent if
NovaCare is requesting a termination pursuant to clause (i) of the first
paragraph of Section 5.04(b). If the Remaining Banks agree to such
termination, NovaCare shall notify all of the Banks of the date on which such
termination shall be effective (the "Termination Date"). Such notice must be
delivered at least three Business Days prior to the Termination Date and no
more than thirty (30) days following NovaCare's receipt of approval from the
Remaining Banks to terminate the Bank to be Terminated. The Borrowers shall
repay all outstanding Loans of the Bank to be Terminated on the Termination
Date and shall pay any amounts required under Section 5.06 and any accrued
Commitment Fees due to such Bank to be Terminated. The Borrowers also shall
repay the Loans of the Remaining Banks outstanding on the Termination Date if
such reduction is necessary to cause the sum of Loans and Letters of Credit
outstanding on such date not to exceed the Commitments (as reduced). The
following shall occur upon delivery of the foregoing payment:
(1) the Commitment of the Bank to
be Terminated and its obligation under outstanding Letters of Credit shall
terminate and such Bank shall cease to be a Bank hereunder;
(2) the aggregate Commitments of
the Banks hereunder shall be reduced by an amount equal to the amount of the
Commitment which is being terminated pursuant to clause (1) above; and
(3) the contingent obligation of
each of the Remaining Banks in outstanding Letters of Credit shall be increased
so that its share therein shall equal its Ratable Share of such Letters of
Credit after giving effect to the termination of the Commitment of the Bank to
be Terminated.
It is acknowledged that the effect of the termination of the
Commitment of the Bank to be Terminated pursuant to clause (1) above and the
reduction of the Commitments pursuant to clause (2) above includes, without
limitation, that the Ratable Shares of each of the Remaining Banks shall
increase ratably and the aggregate of such increases will equal the Ratable
Share of the Bank to be Terminated immediately prior to the Termination Date.
PNC Bank may not be terminated under this Section unless on or before the
Termination Date all Letters of Credit have been terminated or replaced by an
issuing bank other than PNC Bank. If
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PNC Bank is the Bank to be Terminated, PNC Bank may, at its option, require
that a successor Agent replace PNC Bank as Agent on or before the Termination
Date.
(B) Replacement. If NovaCare requests
that a Bank be replaced (the "Bank to be Replaced") pursuant to this Section
5.04(b), such request shall be accompanied by a proposed list of banks
designated by NovaCare as acceptable replacement Banks. Selection of the
proposed replacement bank is subject to the approval of the Agent. If the
Agent approves one of the proposed banks (the "Selected Bank"), the Bank to be
Replaced shall assign its Commitment and all of its other rights as a Bank
hereunder to the Selected Bank, and the Selected Bank shall purchase the Loans
and the rights of the Bank to be Replaced and assume such Bank's obligations
under Section 2.09 in respect of outstanding Letters of Credit pursuant to an
Assignment and Assumption Agreement and subject to the limitations contained in
Section 11.11. If the Bank to be Replaced is PNC Bank (1) PNC Bank, may at its
option, require that a successor Agent replace PNC Bank as Agent on the date of
such replacement, and (2) such replacement shall not be effective until all
outstanding Letters of Credit have been replaced or terminated so that such
Agent is no longer the issuer of or obligated under such Letters of Credit.
5.05 [RESERVED]
5.06 Additional Compensation in Certain Circumstances.
(a) Increased Costs or Reduced Return Resulting
From Taxes, Reserves, Capital Adequacy Requirements, Expenses, Etc. If any
Law, guideline or interpretation or any change in any Law, guideline or
interpretation or application thereof by any Official Body charged with the
interpretation or administration thereof or compliance with any request or
directive (whether or not having the force of Law) of any central bank or other
Official Body:
(i) subjects any Bank to any tax or
changes the basis of taxation with respect to this Agreement, the Revolving
Credit Notes, the Revolving Credit Loans or payments by any Borrower of
principal, interest, or other amounts due from any Borrower hereunder or under
the Revolving Credit Notes (except for taxes on the net income of such Bank),
(ii) imposes, modifies or deems
applicable any reserve, special deposit or similar requirement against credits
or commitments to extend credit extended by, or assets (funded or contingent)
of, deposits with or for the account of, or other acquisitions of funds by, any
Bank, or
(iii) imposes, modifies or deems
applicable any capital adequacy or similar requirement (A) against assets
(funded or contingent) of, or letters of credit, other credits or commitments
to extend credit extended by, any Bank, or (B) otherwise applicable to the
obligations of any Bank under this Agreement,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Bank or its parent with respect to this
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Agreement, the Revolving Credit Notes or the making, maintenance or funding of
any part of the Revolving Credit Loans (or, in the case of any capital adequacy
or similar requirement, to have the effect of reducing the rate of return on
the capital of any Bank or its parent, taking into consideration such Bank's
customary policies with respect to capital adequacy) by an amount which such
Bank in its sole discretion deems to be material, such Bank shall from time to
time notify the Borrowers and the Agent of the amount determined in good faith
(using any averaging and attribution methods employed in good faith) by such
Bank (which determination shall be conclusive absent manifest error) to be
necessary to compensate such Bank for such increase in cost, reduction of
income or additional expense. Such notice shall set forth in reasonable detail
the basis for such determination. Such amount shall be due and payable by the
Borrowers, jointly and severally, to such Bank ten (10) Business Days after
such notice is given. For purposes of this Section 5.06(a), in calculating the
amount necessary to compensate such Bank for any such increase in cost,
reduction of income or additional expense, such Bank shall calculate the amount
payable to it in a manner consistent with the manner in which it shall
calculate similar compensation payable to it by other borrowers in the industry
of the Borrowers having provisions in their credit agreements comparable to
this Section 5.06(a).
(b) Indemnity. In addition to the
compensation required by subsection (a) of this Section 5.06, the Borrowers,
jointly and severally, shall indemnify each Bank against all liabilities,
losses or expenses (including loss of margin, any loss or expense incurred in
liquidating or employing deposits from third parties and any loss or expense
incurred in connection with funds acquired by a Bank to fund or maintain
Revolving Credit Loans subject to the Revolving Credit Euro-Rate Option) which
such Bank sustains or incurs as a consequence of any
(i) payment, prepayment, conversion or
renewal of any Revolving Credit Loan to which the Revolving Credit Euro-Rate
Option applies on a day other than the last day of the corresponding Euro-Rate
Interest Period (whether or not such payment or prepayment is mandatory,
voluntary or automatic and whether or not such payment or prepayment is then
due),
(ii) attempt by the Borrowers to revoke
(expressly, by later inconsistent notices or otherwise) in whole or part any
notice relating to Revolving Credit Loan Requests under Section 2.05 or Section
4.02 or prepayments under Section 5.04, or
(iii) default by any Borrower in the
performance or observance of any covenant or condition contained in this
Agreement or any other Loan Document, including without limitation any failure
of any Borrower to pay when due (by acceleration or otherwise) any principal,
interest, or any other amount due hereunder.
If any Bank sustains or incurs any such loss or expense it
shall from time to time notify the Borrowers of the amount determined in good
faith by such Bank (which determination shall be conclusive absent manifest
error and may include such assumptions, allocations of costs and expenses and
averaging or attribution methods as such Bank shall deem reasonable) to be
necessary to indemnify such Bank for such loss or expense. Such notice shall
set forth in
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reasonable detail the basis for such determination. Such amount shall be due
and payable by the Borrowers, jointly and severally, to such Bank ten (10)
Business Days after such notice is given.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.01 Representations and Warranties. Each Loan Party
represents and warrants to the Agent and each of the Banks as follows:
(a) Organization and Qualification. Each of the
Loan Parties is a corporation, partnership, limited liability company or
business trust, duly organized, validly existing and, except as set forth on
Schedule 6.01(a), in good standing under the laws of its respective
jurisdiction of organization; each Loan Party has the corporate, partnership,
limited liability company or trust (as the case may be) power to own or lease
its respective properties and to engage in the business it presently conducts
or proposes to conduct; and each Loan Party is duly qualified and in good
standing in each jurisdiction where the property owned or leased by it or the
nature of the business transacted by it or both makes such licensing or
qualification necessary, except where the failure to be so licensed or
qualified would not constitute a Material Adverse Change.
(b) Capitalization and Ownership. All of the
issued and outstanding shares of authorized capital stock of NovaCare have been
validly issued and are fully paid and nonassessable.
(c) Subsidiaries; Excluded Entities. Schedule
6.01(c) attached hereto states the name of each Subsidiary of NovaCare, its
jurisdiction of organization, its authorized capital stock and the issued and
outstanding shares (referred to herein collectively as the "Subsidiary Shares")
and the owners thereof if it is a corporation, its outstanding partnership
interests (the "Partnership Interests") and the owners thereof if it is a
partnership, its outstanding equity interests (the "Member Interests") and the
owners thereof if it is a limited liability company, and the trustee and
holders of its beneficial interests (the "Beneficial Interests") if it is a
business trust. NovaCare has good and marketable title to all of the
Subsidiary Shares, Partnership Interests, Member Interests and Beneficial
Interests it purports to own, free and clear in each case of any Lien, except
for Liens in favor of the Agent for the benefit of the Banks, and each other
Loan Party has good and marketable title to all of the Subsidiary Shares,
Partnership Interests, Member Interests and Beneficial Interests it purports to
own, free and clear of any Lien, except for Liens in favor of the Agent for the
benefit of the Banks. All Subsidiary Shares, Partnership Interests, Member
Interests and Beneficial Interests have been validly issued. All Subsidiary
Shares are fully paid and nonassessable. All capital contributions and other
consideration required to be made or paid in connection with the issuance of
the Partnership Interests, Member Interests or Beneficial Interests have been
made or paid, as the case may be. Except as set forth on Schedule 6.01(c),
there are no options, warrants or other rights outstanding to purchase any such
Subsidiary Shares, Partnership Interests, Member Interests or Beneficial
Interests. Each Subsidiary, other than the Excluded Qualifying Subsidiaries,
is a Loan Party
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hereunder and is listed on the signature lines or Schedule 6.01(c), as the case
may be as a Guarantor or a Borrower. Schedule 1.01(E) lists each Subsidiary,
Minority Subsidiary or Unaffiliated Managed Company which is not a Loan Party.
(d) Power and Authority. Each Loan Party has
full corporate, partnership, limited liability company or trust (as the case
may be) power to enter into, execute, deliver and carry out this Agreement and
the other Loan Documents to which it is a party, to incur the Indebtedness
contemplated by the Loan Documents and to perform its obligations under the
Loan Documents to which it is a party and all such actions have been duly
authorized by all necessary proceedings on its part.
(e) Validity and Binding Effect. This Agreement
has been duly and validly executed and delivered by each Loan Party (except for
Excluded Entities), and each other Loan Document, when duly executed and
delivered by each respective Loan Party thereto, will have been duly and
validly executed and delivered by such Loan Parties. This Agreement and each
other Loan Document delivered by the Loan Parties pursuant to the provisions
hereof will constitute legal, valid and binding obligations of the Loan Parties
thereto, enforceable against each respective Loan Party in accordance with
their respective terms, except to the extent that enforceability of any of the
foregoing Loan Documents may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforceability
of creditors' rights generally or limiting the right of specific performance or
by general equitable principles.
(f) No Conflict. Neither the execution and
delivery of this Agreement or the other Loan Documents by the Loan Parties nor
the consummation of the transactions herein or therein contemplated or
compliance with the terms and provisions hereof or thereof by them will
conflict with, constitute a default under or result in any breach of (i) the
terms and conditions of the certificate of incorporation, by-laws or other
organizational documents of any Loan Party, or (ii) any Law or any material
agreement or instrument or order, writ, judgment, injunction or decree to which
any Loan Party is a party or by which it is bound or to which it is subject, or
result in the creation or enforcement of any Lien, charge or encumbrance
whatsoever upon any property (now or hereafter acquired) of any Loan Party
(other than Liens granted under the Loan Documents).
(g) Litigation. There are no actions, suits,
proceedings or investigations pending or, to the knowledge of any Loan Party,
threatened against any Loan Party at law or equity before any Official Body
which individually or in the aggregate would constitute a Material Adverse
Change including, without limitation, any actions, suits or proceedings by any
Official Body to recover any Medicare or Medicaid payments from any Loan Party
or to otherwise exclude any Loan Party from participation in any Medicare,
Medicaid or similar program. No Loan Party is in violation of any order, writ,
injunction or any decree of any Official Body which would constitute a Material
Adverse Change.
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(h) Title to Properties. Each of the Loan
Parties has good and marketable title to or valid leasehold interest in all
properties, assets and other rights which it purports to own or lease or which
are reflected as owned or leased on its books and records, free and clear of
all Liens and encumbrances except Permitted Liens. All leases of property are
in full force and effect without the necessity for any consent which has not
previously been obtained upon consummation of the transactions contemplated
hereby.
(i) Financial Statements.
(A) Historical Statements. NovaCare has
delivered to the Agent copies of its audited consolidated year-end financial
statements for and as of the end of the fiscal year ended June 30, 1997 (the
"Historical Statements"). The Historical Statements were compiled from the
books and records maintained by NovaCare's management, fairly present the
consolidated financial condition of NovaCare and its Subsidiaries as of their
dates and the results of operations for the fiscal periods then ended and have
been prepared in accordance with GAAP consistently applied, subject (in the
case of the Interim Statements) to normal year-end audit adjustments.
(B) Financial Projections. NovaCare has
delivered to the Agent financial projections of NovaCare and its Subsidiaries
through June 30, 1998 derived from various assumptions of NovaCare's management
(the "Financial Projections"). The Financial Projections represent a
reasonable range of possible results in light of the history of the business,
present and reasonably foreseeable conditions and the intentions of NovaCare's
management. The Financial Projections reasonably reflect the liabilities of
NovaCare and its Subsidiaries upon consummation of the transactions
contemplated hereby as of the Closing Date.
(C) Accuracy of Financial Statements.
Neither NovaCare nor any Subsidiary has any liabilities, contingent or
otherwise, or material forward or long-term commitments that are not disclosed
in the Historical Statements or in the notes thereto and are required to be
disclosed, and except as disclosed therein there are no unrealized or
anticipated losses from any commitments of NovaCare or any Subsidiary which
would constitute a Material Adverse Change. Since June 30, 1997 no Material
Adverse Change has occurred.
(j) Full Disclosure. Neither this Agreement nor
any other Loan Document, nor any certificate, statement, agreement or other
documents furnished to the Agent or any Bank in connection herewith or
therewith, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances under which they were made, not
misleading.
(k) Taxes. All material federal, state, local
and other tax returns required to have been filed with respect to each Loan
Party have been filed and payment or adequate provision has been made for the
payment of all taxes, fees, assessments and other governmental charges which
have or may become due pursuant to said returns or to assessments received
except to the extent that such taxes, fees, assessments and other charges are
being contested in good faith by appropriate proceedings diligently conducted
and for which such reserves or other appropriate provisions, if any, as shall
be required by GAAP shall have been
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made. There are no agreements or waivers extending the statutory period of
limitations applicable to any federal income tax return of any Loan Party.
(l) Consents and Approvals. No consent,
approval, exemption, order or authorization of, or a registration or filing
with any Official Body or any other person is required by any Law or any
agreement in connection with the execution, delivery and carrying out of this
Agreement and the other Loan Documents by any Loan Party, except as listed on
Schedule 6.01(l) attached hereto, all of which shall have been obtained or made
on or prior to the Closing Date except as otherwise indicated on Schedule
6.01(l); provided, however, that it is acknowledged that consent of health care
regulatory authorities issuing any licenses or regulating any health care
facilities may be required if the Agent on behalf of the Banks exercises the
rights and remedies in respect of the Pledged Collateral and such exercise of
remedies results in or constitutes an assignment of any health care license
issued by a health care regulatory authority or constitutes a change of control
with respect to the ownership of a health care facility.
(m) No Event of Default; Compliance with
Instruments. No event has occurred and is continuing and no condition exists
or will exist after giving effect to the borrowings to be made on the Closing
Date under the Loan Documents which constitutes an Event of Default or
Potential Default. No Loan Party is in violation of (i) any term of its
certificate of incorporation, by-laws, or other organizational documents or
(ii) any material agreement or instrument to which it is a party or by which it
or any of its properties may be subject or bound where such violation would
constitute a Material Adverse Change.
(n) Patents, Trademarks, Copyrights, Etc. Each
Loan Party owns or possesses all the material patents, trademarks, service
marks, trade names, copyrights and other intellectual property rights necessary
to own and operate its properties and to carry on its business as presently
conducted and planned to be conducted by such Loan Party without known conflict
with the rights of others.
(o) Security Interests. The Liens and security
interests granted to the Agent for the benefit of the Banks pursuant to the
Pledge Agreements in the Pledged Collateral constitute and the Loan Parties
shall not take any action that would cause them not to continue to constitute
Prior Security Interests under the Uniform Commercial Code as in effect in each
applicable jurisdiction (the "Uniform Commercial Code") or other applicable Law
entitled to all the rights, benefits and priorities provided by the Uniform
Commercial Code or such Law. Upon taking possession of any stock certificates,
certificates of Beneficial Interests or certificates of Member Interests,
evidencing the Pledged Collateral which consists of stock, certificated
Beneficial Interests or certificated Member Interests, as the case may be, and
the filing of UCC-1 financing statements with respect to any Pledged Collateral
which consists of Partnership Interests, uncertificated Beneficial Interests or
uncertificated Member Interests, all such action as is necessary or advisable
to establish such rights of the Agent will have been taken, and there will be
upon execution and delivery of the Pledge Agreement and such taking of
possession and such filing, no necessity for any further action in order to
preserve, protect and continue such rights.
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(p) Status of the Pledged Collateral. All the
shares of capital stock, Member Interests, or Beneficial Interests included in
the Pledged Collateral to be pledged pursuant to the Pledge Agreements are or
will be upon issuance duly authorized, validly issued, fully paid,
nonassessable and owned beneficially and of record by the pledgor free and
clear of any Lien or restriction on transfer, except as otherwise provided by
the Pledge Agreements and except as the right of the Banks or the Agent to
dispose of such shares, Member Interests, or Beneficial Interests may be
limited by the Securities Act of 1933, as amended, and the regulations
promulgated by the Securities and Exchange Commission thereunder and by
applicable state securities laws. There are no shareholder or other agreements
or understandings with respect to the shares of capital stock, Member
Interests, or Beneficial Interests included in the Pledged Collateral.
(q) Insurance. Schedule 6.01(q) hereto lists all
insurance policies and other bonds to which each Loan Party is a party on the
date hereof, all of which are valid and in full force and effect. No notice
has been given or claim made and no grounds exist to cancel or avoid any of
such policies or bonds or to reduce the coverage provided thereby. Such
policies and bonds provide adequate coverage from reputable and financially
sound insurers in amounts sufficient to insure the assets and risks of each
Loan Party in accordance with prudent business practice in the industry of each
Loan Party.
(r) Compliance with Laws. Each Loan Party is in
compliance in all material respects with all applicable Laws (other than
Environmental Laws which are specifically addressed in subsection (x)) in all
jurisdictions in which such Loan Party is presently doing business except where
the failure to do so would not constitute a Material Adverse Change.
(s) Material Contracts, Licenses, Permits and
Approvals.
(A) All material contracts of each Loan
Party are valid, binding and enforceable upon the Loan Party which is a party
to such contract, as the case may be, and, to the best knowledge of each Loan
Party, each of the other parties thereto in accordance with their respective
terms, and there is no material default thereunder, to the knowledge of the
Loan Parties, with respect to parties other than the Loan Parties.
(B) Except as set forth on Schedule
6.01(s), each Loan Party has all material accreditations, authorizations,
approvals, certificates of need, consents, licenses, permits and qualifications
(collectively, "Approvals") required (i) for them to construct, acquire, own,
manage, lease and/or operate their facilities and provide services, or (ii) for
them to receive payment and reimbursement from any patient or third party
payor, to the extent in the case of (i) and (ii) such Approvals are presently
required. There are no actions, suits, proceedings or investigations pending
or, to the knowledge of any Loan Party, threatened against any Loan Party at
law or in equity before any Official Body to modify, rescind or revoke any of
the Approvals. The Loan Parties have all other material Approvals required for
the lawful operation of their businesses, except for any violations which would
not result in a Material Adverse Change. All material Approvals of the Loan
Parties are in full force and effect and have not been amended or otherwise
modified (except for modifications which would not constitute a Material
Adverse
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Change), rescinded, revoked or assigned, and no notice has been received of any
violation of applicable Laws or any refusal to renew any Approval which could
reasonably be expected to cause any of such Approvals to be modified, rescinded
or revoked (except for modifications, rescissions or revocations which would
not constitute a Material Adverse Change). The continuation, validity and
effectiveness of all such Approvals will in no way be adversely affected by the
transactions contemplated by this Agreement. No Loan Party knows of any reason
why any of them will not be able to maintain, after the Closing Date, all
material Approvals necessary or appropriate to construct, own, lease, manage
and operate all of their facilities and to otherwise conduct their businesses
as now conducted and presently proposed to be conducted. There are no
deficiencies to the conditions for participation by any Loan Party in any
Medicare, Medicaid or other reimbursement programs which would preclude such
participation, nor, other than routine, scheduled audits, is there any pending
or, to the knowledge of the Borrowers, threatened investigation, proceeding or
other action by Medicare or Medicaid to exclude any Loan Party from
participation in such programs.
(t) Investment Companies. No Loan Party is an
"investment company" registered or required to be registered under the
Investment Company Act of 1940 or under the "control" of an "investment
company" as such terms are defined in the Investment Company Act of 1940 and
shall not become such an "investment company" or under such "control."
(u) Margin Stock. Neither NovaCare nor any of
its Subsidiaries is engaged or intends to engage principally, or as one of its
important activities, in the business of extending credit for the purpose,
immediately, incidentally or ultimately, of purchasing or carrying margin stock
(within the meaning of Regulation U). No part of the proceeds of any Revolving
Credit Loan has been or will be used, immediately, incidentally or ultimately,
to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock or to refund Indebtedness
originally incurred for such purpose, or for any purpose which entails a
violation of or which is inconsistent with the provisions of the regulations of
the Board of Governors of the Federal Reserve System.
(v) Plans and Benefit Arrangements. Except as set
forth on Schedule 6.01(v) hereto:
(i) NovaCare, its Subsidiaries and each
member of the ERISA Group are in compliance in all material respects with any
applicable provisions of ERISA with respect to all Benefit Arrangements, Plans
and Multiemployer Plans and each Benefit Arrangement and Plan has been
administered in all material respects in accordance with its terms and ERISA.
There has been no Prohibited Transaction with respect to any Benefit
Arrangement or any Plan or, to the best knowledge of NovaCare and its
Subsidiaries, with respect to any Multiemployer Plan or Multiple Employer Plan,
which could result in any material liability of NovaCare, its Subsidiaries or
any other member of the ERISA Group. NovaCare, its Subsidiaries and all
members of the ERISA Group have made when due any and all payments required to
be made under any agreement relating to a Multiemployer Plan or a Multiple
Employer Plan or any Law pertaining thereto. With respect to each Plan and
Multiemployer
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Plan, NovaCare, its Subsidiaries and each member of the ERISA Group (i) have
fulfilled in all material respects their obligations under the minimum funding
standards of ERISA, (ii) have not incurred any liability to the PBGC other than
for the payment of required premiums and (iii) have not had asserted against
them any penalty for failure to fulfill the minimum funding requirements of
ERISA.
(ii) To the best knowledge of each Loan
Party, each Multiemployer Plan and Multiple Employer Plan is able to pay
benefits thereunder when due.
(iii) Neither NovaCare, its Subsidiaries
nor any other member of the ERISA Group has instituted or intends to institute
proceedings to terminate any Plan, which termination resulted or will directly
or indirectly result in any material liability to any Loan Party.
(iv) No event requiring notice to the
PBGC under Section 302(f)(4)(A) of ERISA has occurred or is reasonably expected
to occur with respect to any Plan, and no amendment with respect to which
security is required under Section 307 of ERISA has been made or is reasonably
expected to be made to any Plan.
(v) The aggregate actuarial present
value of all benefit liabilities (whether or not vested) under each Plan,
determined on a plan termination basis, as disclosed in, and as of the date of,
the most recent actuarial report for such Plan, does not exceed the aggregate
fair market value of the assets of such Plan by a material amount.
(vi) Neither NovaCare, its Subsidiaries
nor any other member of the ERISA Group has incurred or reasonably expects to
incur any material withdrawal liability under ERISA to any Multiemployer Plan
or Multiple Employer Plan. Neither NovaCare, its Subsidiaries nor any other
member of the ERISA Group has been notified by any Multiemployer Plan or
Multiple Employer Plan that such Multiemployer Plan or Multiple Employer Plan
has been terminated within the meaning of Title IV of ERISA and, to the best
knowledge of NovaCare and its Subsidiaries, no Multiemployer Plan or Multiple
Employer Plan is reasonably expected to be reorganized or terminated, within
the meaning of Title IV of ERISA.
(vii) To the extent that any Benefit
Arrangement is insured, NovaCare, its Subsidiaries and all members of the ERISA
Group have paid when due all premiums required to be paid for all periods
through and including the Closing Date. To the extent that any Benefit
Arrangement is funded other than with insurance, NovaCare, its Subsidiaries and
all members of the ERISA Group have made when due all contributions required to
be paid for all periods through and including the Closing Date.
(w) Employment Matters. Each Loan Party is in
compliance with its labor contracts and all applicable federal, state and local
labor and employment Laws including, but not limited to, those related to equal
employment opportunity and affirmative action, labor relations, minimum wage,
overtime, child labor, medical insurance continuation, worker adjustment and
relocation notices, immigration controls and worker and unemployment
compensation, except for any failure to comply which would not constitute a
Material Adverse Change. There are no outstanding grievances, arbitration
awards or appeals therefrom arising out of any Loan Party's labor contracts or
current or threatened strikes, picketing, handbilling or
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other work stoppages or slowdowns at facilities of any Loan Party which in any
case would constitute a Material Adverse Change. NovaCare has delivered to the
Agent true and correct copies of each of the Labor Contracts in effect as of
the date hereof.
(x) Environmental Matters. Except as disclosed on
Schedule 6.01(x) hereto:
(i) Neither NovaCare nor any of its
Subsidiaries has received any Environmental Complaint from any Official Body or
private person alleging that NovaCare, any of its Subsidiaries or any prior or
subsequent owner of the Property is a potentially responsible party under the
Comprehensive Environmental Response, Cleanup and Liability Act, ("CERCLA") 42
U.S.C. Section 9601, et seq., or is potentially liable under the Solid Waste
Disposal Act, as amended, ("SWDA") 42 U.S.C. Section 6901, et. seq., or any
comparable state or foreign law, statute or regulation of either CERCLA or SWDA
and NovaCare has no reason to believe that such an Environmental Complaint
might be received. There are no pending or, to any Loan Party's actual
knowledge, threatened Environmental Complaints relating to NovaCare, any of its
Subsidiaries or, to any Loan Party's knowledge, any prior or subsequent owner
of the Property pertaining to, or arising out of, any Environmental Conditions
which, individually or in the aggregate, if adversely determined could
reasonably be expected to constitute a Material Adverse Change.
(ii) Except for conditions, violations or
failures which individually and in the aggregate are not reasonably likely to
result in a Material Adverse Change, (i) there are no circumstances at, on or,
to the best knowledge of each Loan Party, under the Property that constitute a
breach of or non-compliance with any of the Environmental Laws, and (ii) there
are, to the best knowledge of each Loan Party, no past or present Environmental
Conditions at, on or under the Property or, to each Loan Party's actual
knowledge, at, on or under adjacent property, that prevent compliance with the
Environmental Laws at the Property.
(iii) Neither the Property nor any
structures, improvements, equipment, fixtures, activities or facilities thereon
or thereunder contain or use Regulated Substances except in compliance in all
material respects with Environmental Laws (other than any noncompliance which
individually and in the aggregate is not reasonably likely to result in a
Material Adverse Change). There are no processes, facilities, operations,
equipment or any other activities at, on or, to the best knowledge of each Loan
Party, under the Property, or, to each Loan Party's actual knowledge, at, on or
under adjacent property, that currently result in the release or threatened
release of Regulated Substances onto the Property, except to the extent that
such releases or threatened releases are not a material breach of or otherwise
not a material violation of the Environmental Laws, or are not likely to result
in a Material Adverse Change.
(iv) There are no above ground storage
tanks, underground storage tanks, or underground piping associated with such
tanks, used for the management of Regulated Substances at, on or under the
Property that (a) do not have, to the extent required by applicable
Environmental Laws, a full operational secondary containment system in place,
and (b) are not otherwise in compliance in all material respects with all
Environmental Laws (other than any noncompliance which individually or in the
aggregate is not reasonably likely to result
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in a Material Adverse Change). To the best knowledge of each Loan Party, there
are no abandoned underground storage tanks or underground piping associated
with such tanks, previously used for the management of Regulated Substances at,
on or under the Property that have not been either abandoned in place, or
removed, in accordance with the Environmental Laws (other than any
noncompliance which individually or in the aggregate is not reasonably likely
to result in a Material Adverse Change).
(v) Each Loan Party has all material
permits, licenses, authorizations, plans and approvals necessary under the
Environmental Laws for the conduct of the business of each Loan Party as
presently conducted (except where the failure to hold any such permit, license,
authorization or approval is not reasonably likely to result in a Material
Adverse Change). Each Loan Party has submitted all material notices, reports
and other filings required by the Environmental Laws to be submitted to an
Official Body which pertain to past and current operations on the Property
(except where the failure to make any such submission is not reasonably likely
to result in a Material Adverse Change).
(vi) Except for violations which
individually and in the aggregate are not likely to result in a Material
Adverse Change, (i) all present and, to the actual knowledge of each Loan
Party, past on-site generation, storage, processing, treatment, recycling,
reclamation or disposal of Regulated Substances at, on, or, to the best
knowledge of each Loan Party, under the Property and, (ii) to the best
knowledge of each Loan Party, all off-site transportation, storage, processing,
treatment, recycling, reclamation or disposal of Regulated Substances by any
Loan Party, and to the actual knowledge of each Loan Party, by any other party,
relating to the activities on the Property has been done in accordance with the
Environmental Laws.
(y) Senior Debt Status. The obligations of the
Loan Parties under this Agreement, the Revolving Credit Notes or the
Guaranties, as the case may be, do rank and will rank at least pari passu in
priority of payment with all other indebtedness of the Loan Parties except
indebtedness of the Loan Parties to the extent secured by Permitted Liens.
There is no Lien upon or with respect to any of the properties or income of any
Loan Party which secures indebtedness or other obligations of any person except
for Permitted Liens. The obligations of the Loan Parties hereunder, under the
Revolving Credit Notes, or under the Guaranties constitute and will constitute
"Senior Indebtedness" as defined under the Indenture.
(z) Solvency. Each Loan Party is Solvent and
after giving effect to the transactions contemplated by the Loan Documents,
including all Indebtedness incurred thereby, and the payment of all fees
related thereto, each Loan Party will be Solvent, determined as of the Closing
Date and as of each Borrowing Date, except to the extent that any failure to
comply with the foregoing would not result in a Material Adverse Change.
6.02 Updates to Schedules. Should any of the information
or disclosures provided on any of the Schedules attached hereto become outdated
or incorrect in any material respect, the Loan Parties shall promptly provide
the Agent in writing with such revisions or updates to such Schedule as may be
necessary or appropriate to update or correct same; provided, however that no
Schedule shall be deemed to have been amended, modified or superseded by any
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such correction or update, nor shall any breach of warranty or representation
resulting from the inaccuracy or incompleteness of any such Schedule be deemed
to have been cured thereby, unless and until the Required Banks, in their sole
and absolute discretion, shall have accepted in writing such revisions or
updates to such Schedule.
ARTICLE VII
CONDITIONS OF LENDING
The obligation of each Bank to make Revolving Credit Loans or
to issue any Letters of Credit hereunder is subject to the performance by each
Loan Party of its obligations to be performed hereunder at or prior to the
making of any such Revolving Credit Loans or the issuing of such Letters of
Credit and to the satisfaction of the following further conditions:
7.01 [INTENTIONALLY OMITTED]
7.02 Each Additional Revolving Credit Loan. At the time
of making any Revolving Credit Loans or issuing any Letters of Credit other
than the Revolving Credit Loan made or Letters of Credit issued on the Closing
Date hereunder and after giving effect thereto: the representations and
warranties of the Loan Parties contained in Article VI hereof shall be true on
and as of the date of such additional Revolving Credit Loan or Letter of Credit
with the same effect as though such representations and warranties had been
made on and as of such date (except representations and warranties which
expressly relate solely to an earlier date or time, which representations and
warranties shall be true and correct on and as of the specific dates or times
referred to therein) and the Loan Parties shall have performed and complied
with all covenants and conditions hereof; no Event of Default or Potential
Default shall have occurred and be continuing or shall exist; the making of the
Revolving Credit Loans or issuance of the Letters of Credit shall not
contravene any Law applicable to any Loan Party or any of the Banks; and
NovaCare, for itself or as agent for another Borrower or Borrowers, shall have
delivered to the Agent a duly executed and completed Revolving Credit Loan
Request or request for Letters of Credit.
ARTICLE VIII
COVENANTS
8.01 Affirmative Covenants. Each Loan Party covenants and
agrees that until payment in full of the Revolving Credit Loans and interest
thereon, expiration or termination of all Letters of Credit, satisfaction of
all of the Loan Parties' other obligations hereunder and termination of the
Revolving Credit Commitment, each Loan Party shall comply at all times with the
following affirmative covenants:
(a) Preservation of Existence, etc. Except as
specifically permitted by Section 8.02(d), each Loan Party shall maintain its
corporate existence and its qualification and good standing in each
jurisdiction in which its ownership or lease of property or the nature of its
business makes such license or qualification necessary, except where the
failure to be so licensed or qualified would not constitute a Material Adverse
Change.
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(b) Payment of Liabilities, Including Taxes, etc.
Each Loan Party shall duly pay and discharge all material liabilities to which
it is subject or which are asserted against it, promptly as and when the same
shall become due and payable, including all taxes, assessments and governmental
charges upon it or any of its properties, assets, income or profits, prior to
the date on which penalties attach thereto, except to the extent that such
liabilities, including taxes, assessments or charges, are being contested in
good faith and by appropriate and lawful proceedings diligently conducted and
for which such reserve or other appropriate provisions, if any, as shall be
required by GAAP shall have been made, but only to the extent that failure to
discharge any such liabilities would not result in any Material Adverse Change
or adversely affect the Pledged Collateral, provided that such Loan Party will
pay all such liabilities forthwith upon the commencement of proceedings to
foreclose any Lien which may have attached as security therefor.
(c) Maintenance of Insurance. Each Loan Party
shall insure its properties and assets against loss or damage by fire and such
other insurable hazards as such assets are commonly insured (including fire,
extended coverage, property damage, worker's compensation, public liability and
business interruption insurance) and against other risks in such amounts as
similar properties and assets are insured by prudent companies in similar
circumstances carrying on similar businesses, and with reputable and
financially sound insurers, including self-insurance to the extent customary.
At the request of the Agent, each Loan Party shall deliver on the Closing Date
and annually thereafter a certificate signed by such Loan Party's independent
insurance broker certifying as to all insurance then in force with respect to
such Loan Party.
(d) Maintenance of Properties and Leases. Each
Loan Party shall maintain in good repair, working order and condition (ordinary
wear and tear excepted) in accordance with the general practice of other
businesses of similar character and size, all of those material properties
useful or necessary to its business, and from time to time, each Loan Party
will make or cause to be made all appropriate repairs, renewals or replacements
thereof.
(e) Maintenance of Patents, Trademarks, etc.
Each Loan Party shall maintain in full force and effect all patents,
trademarks, trade names, copyrights, licenses, franchises, permits and other
authorizations necessary for the ownership and operation of its properties and
business if the failure so to maintain the same would constitute a Material
Adverse Change.
(f) Visitation Rights. Each Loan Party shall
permit any of the officers or authorized employees or representatives of the
Agent or any of the Banks to visit and inspect any of its properties and to
examine and make excerpts from its books and records or discuss its business
affairs, finances and accounts with its officers, all in such detail and at
such times during normal business hours and as often as any of the Banks may
reasonably request, provided that each Bank shall provide such Loan Party and
the Agent with reasonable notice prior to any visit or inspection. In the
event that any Bank desires to conduct an inspection of a Loan Party,
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such Bank shall make a reasonable effort to conduct such audit
contemporaneously with any audit to be performed by the Agent.
(g) Keeping of Records and Books of Account. The
Loan Parties shall maintain and keep proper books of record and account which
enable the Loan Parties to issue financial statements in accordance with GAAP
and as otherwise required by applicable Laws of any Official Body having
jurisdiction over the Loan Parties, and accurately and fairly reflect the
transactions and dispositions of the assets of the Loan Parties.
(h) Plans and Benefit Arrangements.
(i) NovaCare shall, and shall cause each
member of the ERISA Group to, comply with ERISA, the Internal Revenue Code and
other Laws applicable to Plans and Benefit Arrangements except where such
failure, alone or in conjunction with any other failure, would not result in a
Material Adverse Change. Without limiting the generality of the foregoing,
NovaCare shall cause all of its Plans and all Plans maintained by any member of
the ERISA Group to be funded in accordance with the minimum funding
requirements of ERISA and shall make, and cause each member of the ERISA Group
to make, in a timely manner, all contributions due to Plans, Benefit
Arrangements and Multiemployer Plans.
(ii) Promptly upon becoming aware of the
occurrence thereof, NovaCare shall furnish to the Banks notice (including the
nature of the event and, when known, any action taken or threatened by the
Internal Revenue Service or the PBGC with respect thereto) of:
(A) any Reportable Event with
respect to NovaCare or any member of the ERISA Group (regardless of whether the
obligation to report said Reportable Event to the PBGC has been waived),
(B) any Prohibited Transaction
which could subject NovaCare or any member of the ERISA Group to a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Internal Revenue Code in connection with any Plan, Benefit
Arrangement or any trust created thereunder,
(C) any assertion of material
withdrawal liability with respect to any Multiemployer Plan,
(D) any partial or complete
withdrawal from a Multiemployer Plan by NovaCare or any member of the ERISA
Group under Title IV of ERISA (or assertion thereof), where such withdrawal is
likely to result in material withdrawal liability,
(E) any cessation of operations
(by NovaCare or any member of the ERISA Group) at a facility in the
circumstances described in Section 4062(e) of ERISA,
(F) withdrawal by NovaCare or any
member of the ERISA Group from a Multiple Employer Plan where such withdrawal
is likely to result in a material liability,
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(G) a failure by NovaCare or any
member of the ERISA Group to make a payment to a Plan required to avoid
imposition of a lien under Section 302(f) of ERISA,
(H) the adoption of an amendment
to a Plan requiring the provision of security to such Plan pursuant to Section
307 of ERISA, or
(I) any change in the actuarial
assumptions or funding methods used for any Plan, where the effect of such
change is to materially increase or materially reduce the unfunded benefit
liability or obligation to make periodic contributions.
(iii) Promptly after receipt thereof,
NovaCare shall furnish to the Banks copies of (a) all notices received by
NovaCare or any member of the ERISA Group of the PBGC's intent to terminate any
Plan administered or maintained by NovaCare or any member of the ERISA Group,
or to have a trustee appointed to administer any such Plan, and (b) at the
request of the Agent or any Bank the three most recent annual reports (IRS Form
5500 series) and all accompanying schedules, the most recent actuarial reports,
the most recent financial information concerning the financial status of each
Plan administered or maintained by NovaCare or any member of the ERISA Group,
and schedules showing the amounts contributed within the last year to each such
Plan by or on behalf of NovaCare or any member of the ERISA Group in which any
of their personnel participate or from which such personnel may derive a
benefit.
(iv) Promptly upon the filing thereof,
NovaCare shall furnish to the Banks copies of any Form 5310, or any successor
or equivalent form to Form 5310, filed with the PBGC in connection with the
termination of any Plan.
(i) Compliance With Laws. Each Loan Party shall
comply with all applicable Laws, including all Environmental Laws, in all
respects provided that it shall not be deemed to be a violation of this Section
8.01(i) if any failure to comply with any Law would not result in or constitute
a Material Adverse Change.
(j) Use of Proceeds. The Borrowers will use the
proceeds of the Revolving Credit Loans only for lawful purposes in accordance
with Section 2.08 hereof as applicable and such uses shall not contravene any
applicable Law or any other provision hereof.
(k) Further Assurances. Each Loan Party shall,
from time to time, at its expense, faithfully preserve and protect the Agent's
Lien on and Prior Security Interest in the Pledged Collateral as a continuing
first priority perfected Lien, and shall do such other acts and things as the
Agent in its sole discretion reasonably may deem necessary or advisable from
time to time in order to preserve, perfect and protect the Liens granted under
the Loan Documents and to exercise and enforce its rights and remedies
thereunder with respect to the Pledged Collateral.
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(l) Subordination of Intercompany Indebtedness;
Permitted Additional Subordinated Indebtedness.
(A) Intercompany Indebtedness. Each
Loan Party shall enter into and be bound by the Subordination Agreement
(Intercompany) and shall cause all Intercompany Indebtedness to be subordinated
to the obligations of the Loan Parties to the Agent and the Banks pursuant to
the terms of such Subordination Agreement (Intercompany).
(B) Permitted Additional Subordinated
Indebtedness. The Loan Parties shall cause to be subordinated pursuant to the
provisions of Exhibit 1.01(P)(3) hereof all Indebtedness and Guaranties of
Indebtedness of the Loan Parties except for Indebtedness expressly permitted
under clauses (i) through (viii) of Section 8.02(a). Without limiting the
foregoing, the Loan Parties shall cause to be subordinated pursuant to such
provisions all Indebtedness and Guaranties of Indebtedness (i) incurred by any
Loan Party in connection with a Permitted Acquisition, or (ii) incurred by a
corporation (or its Subsidiaries) whose shares or other equity interests are
acquired by a Loan Party in a Permitted Acquisition, unless such Indebtedness
is permitted under clauses (i) through (viii) of Section 8.02(a).
(m) Certificate of Borrowers; Other Reports and
Information. NovaCare shall furnish or cause to be furnished to the Banks:
(i) Quarterly Financial Statements. As soon as
available and in any event within forty-five (45) calendar days after the end
of each of the first three fiscal quarters in each fiscal year, financial
statements of NovaCare and its consolidated Subsidiaries, consisting of a
balance sheet as of the end of such fiscal quarter, related statements of
income for the fiscal quarter then ended and the fiscal year through such date
and related statements of cash flows, for the fiscal year through such date,
all in reasonable detail and certified (subject to normal year-end audit
adjustments) by the Chief Executive Officer, President or Chief Financial
Officer of NovaCare as having been prepared in accordance with GAAP,
consistently applied, and setting forth in comparative form the respective
financial statements (except for the balance sheets) for the corresponding date
and period in the previous fiscal year. NovaCare may comply with this Section
8.01(m)(i) by delivering to the Banks certified copies of its Form 10-Q filed
with the Securities and Exchange Commission provided that the financial
statements contained therein comply with the foregoing requirements.
Notwithstanding anything contained herein to the contrary, for periods on and
after the Spin-Off Consummation, the quarterly financial statements of NovaCare
and its consolidated Subsidiaries required to be prepared and delivered in
accordance with this Section 8.01(m)(i) shall be prepared on a consolidated
basis in accordance with GAAP but without regard to NovaCare Employee Services,
Inc.
(ii) Annual Financial Statements. As soon as
available and in any event within ninety (90) days after the end of each fiscal
year, financial statements of NovaCare and its consolidated Subsidiaries
consisting of a balance sheet as of the end of such fiscal year, and related
statements of income, stockholders' equity and cash flows for the fiscal year
then
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ended, all in reasonable detail and setting forth in comparative form the
financial statements as of the end of and for the preceding fiscal year, and
certified by Price Waterhouse or other independent certified public accountants
of nationally recognized standing reasonably satisfactory to the Agent. The
certificate or report of accountants shall be free of qualifications (other than
any consistency qualification that may result from a change in the method used
to prepare the financial statements as to which such accountants concur) and
shall not indicate the occurrence or existence of any event, condition or
contingency which would materially impair the prospect of payment or performance
of any covenant, agreement or duty of the Loan Parties under any of the Loan
Documents. NovaCare may comply with this Section 8.01(m)(ii) by delivering to
the Banks copies of its Form 10-K filed with the Securities and Exchange
Commission, provided that the financial statements and report of accountants
contained therein comply with the foregoing requirements. Notwithstanding
anything contained herein to the contrary, for periods on and after the Spin-Off
Consummation, the annual financial statements of NovaCare and its consolidated
Subsidiaries required to be prepared and delivered in accordance with this
Section 8.01 (m)(ii) shall be prepared on a consolidated basis in accordance
with GAAP but without regard to NovaCare Employee Services, Inc.
(iii) Certificate of the Borrower. No later than
ten (10) Business Days following the due date of the financial statements of
NovaCare and its Subsidiaries furnished to the Agent and to the Banks pursuant
to Sections 8.01(m)(i) and (ii) hereof, a certificate of NovaCare signed by the
Chief Executive Officer, President or Chief Financial Officer of NovaCare, in
the form of Exhibit 8.01(m)(iii) hereto, to the effect that, except as
described pursuant to Section 8.03(a) below, (i) the representations and
warranties of the Loan Parties contained in Article VI hereof are true on and
as of the date of such certificate with the same effect as though such
representations and warranties had been made on and as of such date (except
representations and warranties which expressly relate solely to an earlier date
or time) and the Loan Parties have performed and complied with all covenants
and conditions hereof, and (ii) no Event of Default or Potential Default exists
and is continuing on the date of such certificate. The certificate also shall
contain calculations in sufficient detail to demonstrate compliance as of the
date of the financial statements with all financial covenants contained in
Section 8.02 hereof.
(iv) Separate Financial Information for Certain
Excluded Entities. As soon as available, quarterly and annual financial
statements with respect to each Excluded Entity in which a Restricted
Investment of more than $1 million has been made by a Loan Party.
(v) Management Letters. Concurrently with the
annual financial statements described in Section 8.01(m)(ii), any reports
including management letters submitted to any Loan Party by independent
accountants in connection with any annual, interim or special audit.
(vi) Other Reports and Information. Promptly upon
their becoming available to NovaCare or as otherwise specified below:
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(A) the annual consolidated budget and
any accompanying forecasts or projections of NovaCare and its Subsidiaries
submitted to NovaCare's Board of Directors which shall project the operations
of NovaCare and its Subsidiaries on a consolidated basis and separately for
each of their lines of business. NovaCare shall deliver such budget, forecasts
and projections to the Banks not later than forty-five (45) days following the
commencement of the fiscal year to which such budget, forecasts and projections
may be applicable. In the event that as a result of a Permitted Acquisition,
NovaCare updates any budget, forecasts or projections to give effect to such
Permitted Acquisition, NovaCare shall promptly deliver to the Banks such
updated budget, forecasts or projections as they become available.
(B) any reports, notices or proxy
statements generally distributed by NovaCare to its stockholders on a date no
later than the date supplied to the stockholders,
(C) regular or periodic reports,
including Forms 10-K, 10-Q and 8-K, registration statements and prospectuses
(except for registration statements on Form S-8), filed by NovaCare with the
Securities and Exchange Commission,
(D) a copy of any order in any
proceeding to which NovaCare or any of its Subsidiaries is a party issued by
any Official Body, which order is other than in the ordinary course of business
in the case of an order issued by an Official Body other than a court, a
tribunal, a grand jury or arbitrator or which order is reasonably likely to
result in a Material Adverse Change,
(E) a copy of any notice regarding the
occurrence of an event of default or event which with the passage of time or
giving of notice or both would cause an event of default in respect of any
lease to which NovaCare or any of its Subsidiaries is a party or by which
NovaCare or any of its Subsidiaries is bound, pursuant to which lease NovaCare
or any of its Subsidiaries makes payments equal to or in excess of $250,000 in
any fiscal year, such notice to be delivered to the Banks upon receipt thereof
by NovaCare or any of its Subsidiaries,
(F) upon the request of the Agent or any
Bank, a copy of the purchase agreement and all documents and financial
statements and information in connection with each Permitted Acquisition, and
(G) such other reports and information
as the Banks may from time to time reasonably request. NovaCare shall also
notify the Banks promptly after it obtains knowledge of the enactment or
adoption of any Law which may result in a Material Adverse Change.
8.02 Negative Covenants. NovaCare covenants and agrees
that until payment in full of the Revolving Credit Loans and interest thereon,
expiration or termination of all Letters of Credit and satisfaction of all of
the Borrowers' other obligations hereunder and termination of the Revolving
Credit Commitment, NovaCare shall, and shall cause each Loan Party to, comply
at all times with the following negative covenants (and insofar as the
following are applicable to any Borrower, such Borrower also covenants and
agrees as follows):
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(a) Indebtedness. Each Loan Party shall not at
any time create, incur, assume or suffer to exist any Indebtedness, except:
(i) Indebtedness under the Loan
Documents;
(ii) Indebtedness existing on the date
hereof as set forth on Schedule 8.02(a)(ii), (other than Indebtedness under the
Indenture which is addressed in clause (iv) below), including any extensions or
renewals thereof provided there is no increase in the amount thereof or other
significant change in the terms thereof adverse to any Loan Party;
(iii) Capitalized leases entered into in
the ordinary course of business consistent with past practice;
(iv) Indebtedness under the Indenture
provided that the subordination provisions contained in the Indenture shall not
be amended after the Closing Date and that the Indenture is not otherwise
amended after the Closing Date if the effect thereof would (i) accelerate the
due date or increase the amount of any payment due from the Loan Parties
thereunder, (ii) change the rate at which interest is charged thereunder, or
(iii) impose restrictions or obligations on the Loan Parties which are not
imposed thereunder on the Closing Date or add any term thereto which is less
favorable in any material respect to the Loan Parties than the terms of the
Indenture on the Closing Date or which is more restrictive to any of the Loan
Parties than the terms of the Credit Agreement;
(v) (A) Up to $20,000,000 in
aggregate principal amount collectively for all Loan Parties, at any one time
outstanding, of (1) Indebtedness incurred or assumed on or after the Closing
Date secured by Purchase Money Security Interests entered into in the ordinary
course of business consistent with past practice; and (2) in connection with a
Permitted Acquisition which would be accounted for as a "purchase" transaction
under GAAP, Indebtedness assumed by Loan Parties pursuant to mergers of persons
into Loan Parties or Indebtedness of persons whose stock (or other ownership
interests) or assets are acquired by Loan Parties in a Permitted Acquisition
(whether by merger or otherwise and only to the extent the Indebtedness of a
person is assumed by Loan Parties in the case of the acquisition of the assets
of such person by a Loan Party) provided that with respect to each such
Permitted Acquisition such persons referred to above are not Affiliates of any
Loan Parties prior to such Permitted Acquisition and provided that such
Indebtedness (i) existed before the date of such Permitted Acquisition; (ii)
does not exceed the purchase price (determined in accordance with GAAP) in
connection with such Permitted Acquisition; and (iii) is secured only by the
assets acquired if the Permitted Acquisition is an asset acquisition, or is
secured only by the assets of the person whose stock or other ownership
interests are being acquired if the Permitted Acquisition is an acquisition of
stock or other ownership interests;
(B) Any extensions or renewals of
Indebtedness described in clause (A) above provided there is no increase in the
amount thereof or other significant change in the terms thereof adverse to any
Loan Party;
(vi) Indebtedness assumed by an acquiring
Loan Party in an asset acquisition which would be accounted for as a "pooling
of interests" transaction under
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GAAP, or Indebtedness of a Pooling Partner which remains outstanding following
the acquisition, directly or indirectly, of such Pooling Partner's stock or
other ownership interests in connection with a stock acquisition (which is
accounted for as a "pooling of interests under GAAP"), provided that, in either
case: (A) such transaction is a Permitted Acquisition and such Indebtedness
existed before the date of such Permitted Acquisition; (B) the aggregate amount
of such Indebtedness does not exceed the Pooling Consideration in connection
with such Permitted Acquisition; (C) the aggregate amount of such Indebtedness
together with all other Indebtedness previously incurred under this Section
8.02(a)(vi) during the then current fiscal year does not exceed $100,000,000;
(D) no Loan Party shall issue any Guaranty in respect of, grant any Lien in any
of its assets as security for, or otherwise become liable to repay, such
Indebtedness except (1) if the Permitted Acquisition is an asset acquisition
which would be accounted for as a "pooling of interests" transaction under
GAAP, the acquiring Loan Party may assume such Indebtedness and may confirm the
continued existence of Liens in the assets which it acquires from the Pooling
Partner securing such Indebtedness, provided that such Loan Party shall have
been inactive prior to such Permitted Acquisition so that its assets shall
consist solely of the assets which it has acquired pursuant to such Permitted
Acquisition, (2) if the Permitted Acquisition is a stock acquisition which is
accounted for under GAAP as a "pooling of interests", the Pooling Partner may
remain liable on such Indebtedness and may confirm its prior grant of Liens in
its assets securing such Indebtedness, and (3) NovaCare may execute a Guaranty
guaranteeing such Indebtedness provided that such Guaranty shall be
subordinated in accordance with the provisions of Exhibit 1.01(P)(3) (a
"Permitted NovaCare Guaranty"); (E) the amount of such Indebtedness (or
committed amount if the Indebtedness is a revolving credit facility) shall not
be increased after such Permitted Acquisition; and (F) the agreements governing
such Indebtedness may not be amended or modified in any material respect,
extended, renewed or replaced after such Permitted Acquisition;
(vii) Permitted Intercompany Indebtedness
provided, however, that for periods on or after the Spin-Off Consummation,
neither NovaCare nor any Subsidiary of NovaCare shall make any loans or
advances to NovaCare Employee Services, Inc.;
(viii) Permitted Additional Institutional
Indebtedness; and
(ix) Permitted Additional Subordinated
Indebtedness.
(b) Liens. Each Loan Party shall not at any time
create, incur, assume or suffer to exist any Lien on any of its property or
assets, tangible or intangible, now owned or hereafter acquired, or agree or
become liable to do so, except Permitted Liens. None of the Loan Parties shall
enter into any agreement or covenant with any person other than the Agent or
the Banks which in any manner limits the right of any of the Loan Parties to
incur any Lien on any of their assets, except that the Loan Parties may enter
into agreements granting Permitted Liens to third parties.
(c) Guaranties. Each Loan Party shall not at any
time, directly or indirectly, become or be liable in respect of any Guaranty,
or assume, guarantee, become surety for, endorse or otherwise agree, become or
remain directly or contingently liable upon or with respect to any obligation
or liability of any other person which obligation or liability would be
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required to be reported or noted in the financial statements of such Loan Party
in accordance with GAAP, except pursuant to (u) Guaranties of contractual
obligations of the Loan Parties not constituting Indebtedness; (v) Permitted
NovaCare Guaranties; (w) Guaranties listed on Schedule 8.02(a)(ii); (x) the
Guaranty Agreements; (y) guaranties subordinated in accordance with the
provisions of Exhibit 1.01(P)(3) guaranteeing Permitted Additional Subordinated
Indebtedness or (z) guaranties of the obligations described in Sections
8.02(a)(iii), (v) and (viii).
(d) Liquidations, Mergers, Consolidations,
Acquisitions. Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, dissolve, liquidate or wind-up its affairs, or become a
party to any merger or consolidation, or acquire by purchase, lease or
otherwise all or substantially all of the assets or capital stock or other
ownership interests of any other person, provided that
(i) any wholly-owned Subsidiary of
NovaCare may consolidate or merge into another Loan Party which is wholly-owned
by one or more of the other Loan Parties, and
(ii) any Loan Party may acquire, whether
by purchase or by merger, (A) all of the ownership interests of another Person
or (B) substantially all of the assets of another Person or of a business or
division of another Person (each a "Permitted Acquisition"), provided that each
of the following requirements is met:
(a) such Person shall be a
corporation, limited liability company or other entity with respect to
applicable state law provided that the owners of all stock or other ownership
interests in such entity shall not be liable for any obligations of such entity
or for the claims of any creditors thereof,
(b) if the Loan Parties are
acquiring the ownership interests in such Person, such Person shall join this
Agreement as a Borrower or a Guarantor pursuant to Section 11.18 hereof and the
owners of such acquired Person shall grant Liens in the stock or other
ownership interests in such Person and otherwise comply with Section 11.18 on
or before the date of such Permitted Acquisition,
(c) the board of directors or
other equivalent governing body of such Person shall have approved such
Permitted Acquisition,
(d) the business acquired, or the
business conducted by the Person whose ownership interests are being acquired,
as applicable, shall be a Permitted Line of Business,
(e) no Potential Default or Event
of Default shall exist immediately prior to and after giving effect to such
Permitted Acquisition,
(f) after giving effect to such
Permitted Acquisition there shall be Available Revolving Credit Commitments of
at least Five Million Dollars ($5,000,000), and
(g) the Consideration paid by the
Loan Parties for each Permitted Acquisition shall not exceed Thirty Million
Dollars ($30,000,000), and after giving
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effect to such Permitted Acquisition, the Consideration paid by the Loan
Parties for all Permitted Acquisitions made during the current fiscal year of
the Loan Parties shall not exceed One Hundred Fifty Million Dollars
($150,000,000) (the "Annual Permitted Acquisition Amount") provided that in no
event shall the portion of the Annual Permitted Acquisition Amount utilized to
make Permitted Acquisitions of physician practices in the specialty of
occupational medicine exceed Forty Million Dollars ($40,000,000) in any fiscal
year and in no event shall the portion of the Annual Permitted Acquisition
Amount utilized to make Permitted Acquisitions of Professional Employment
Organizations in any fiscal year prior to the fiscal year during which the
Spin-Off Consummation occurs exceed Forty-Five Million Dollars ($45,000,000).
Notwithstanding anything in this Agreement to the contrary, for periods on or
after March 31, 1997, no portion of the Annual Permitted Acquisition Amount
shall be utilized to make Permitted Acquisitions of Professional Employment
Organizations, and
(iii) NovaCare Employee Services, Inc. may
acquire, whether by purchase or by merger (A) all of the ownership interests of
another Person, or (B) substantially all of the assets of another Person or of
a business or division of another Person (each a "NESI Permitted Acquisition")
provided that (x) for periods when NovaCare Employee Services, Inc. is a party
to a credit facility among the Agent, various lending institutions and NovaCare
Employee Services, Inc. (the "NESI Credit Facility") each NESI Permitted
Acquisition shall be subject to and in compliance with the NESI Credit Facility
and after giving effect to each such acquisition, no Potential Default or Event
of Default shall exist and be continuing; and (y) for periods when the NESI
Credit Facility is not in effect, each NESI Permitted Acquisition by NovaCare
Employee Services, Inc. shall meet all of the following requirements:
(a) such Person shall be a
corporation, limited liability company or other entity with respect to
applicable state law provided that the owners of all stock or other ownership
interests in such entity shall not be liable for any obligations of such entity
or for the claims of any creditors thereof,
(b) if NovaCare Employee
Services, Inc. is acquiring the ownership interests in such Person, such Person
shall join this Agreement as a Guarantor pursuant to Section 11.18 hereof and
the owners of such acquired Person shall grant Liens in the stock or other
ownership interests in such Person and otherwise comply with Section 11.18 on or
before the date of such NESI Permitted Acquisition,
(c) the board of directors or
other equivalent governing body of such Person shall have approved such NESI
Permitted Acquisition,
(d) the business acquired, or the
business conducted by the Person whose ownership interests are being acquired,
as applicable, shall be a Permitted Line of Business,
(e) no Potential Default or Event
of Default shall exist immediately prior to and after giving effect to such
NESI Permitted Acquisition, and
(f) no Loan proceeds shall be
used to consummate any NESI Permitted Acquisition nor shall any Loan Party make
any loan or advance to nor any
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investment in or contribution to the capital of NovaCare Employee Services,
Inc. or other Person in connection with or in order to consummate any NESI
Permitted Acquisition.
(e) Dispositions of Assets or Subsidiaries. Each
Loan Party shall not sell, convey, assign, lease, abandon or otherwise transfer
or dispose of, voluntarily or involuntarily, any of its properties or assets,
tangible or intangible (including but not limited to sale, assignment, discount
or other disposition of accounts, contract rights, chattel paper, equipment or
general intangibles with or without recourse or of capital stock, shares of
beneficial interest or partnership interests of a Subsidiary), except:
(i) transactions involving any sale,
abandonment, transfer or lease of assets in the ordinary course of business
which are no longer necessary or required in the conduct of such Loan Party's
business;
(ii) transactions involving any sale,
transfer, abandonment or lease of assets by any Loan Party which is a wholly
owned Subsidiary of NovaCare to NovaCare or any other Loan Party which is a
wholly owned Subsidiary of NovaCare;
(iii) transactions involving any sale,
abandonment, transfer or lease of assets in the ordinary course of business
which are replaced by substitute assets;
(iv) transactions involving a sale of
assets provided that the sum of the Sale Price received from such sale and from
all prior sales permitted under this clause (iv) (but without regard to the
Sale Price received in connection with the Spin-Off) does not exceed 5% of
Consolidated Net Worth as of the end of the fiscal quarter of NovaCare
preceding the date of such sale and provided that the Loan Parties deliver to
the Banks evidence of compliance with this clause (iv) before making such sale,
or
(v) the Spin-Off, on or before December
31, 1997, so long as (w) after giving effect thereto no Event of Default or
Potential Default shall exist under the Credit Agreement or the other Loan
Documents, and the President, Chief Executive Officer or Chief Financial
Officer of the Loan Parties shall have certified the foregoing to the Agent for
the benefit of the Banks; (x) NovaCare shall have delivered to the Agent copies
of all documents relating to or in connection with the Spin-Off (collectively,
the "Spin-Off Documents") prior to the consummation of the Spin-Off and the
Spin-Off Documents shall all be in form and substance satisfactory to the
Agent, the Spin-Off shall have been consummated in accordance with the Spin-Off
Documents and the President, Chief Executive Officer or Chief Financial Officer
of NovaCare shall have delivered to the Agent a certificate certifying the
consummation of the Spin-Off in accordance with the Spin-Off Documents and
attaching a true and complete copy of the Spin-Off Documents, as certified by
such officer; (y) the Agent shall have received a certificate signed by the
President, Chief Executive Officer or Chief Financial Officer of the Borrowers
and Guarantors, certifying as to all action taken by the Borrowers and
Guarantors to authorize the execution, delivery and performance of the Spin-Off
and that all conditions to the effectiveness of the Spin-Off have been met; and
(z) the Agent shall have received an opinion of Peter D. Bewley, General
Counsel of the Loan Parties reasonably satisfactory to the Agent (including
without limitation customary opinions regarding with respect to the Spin-Off
the compliance with all securities laws, including 10b(5) and confirming the
Prior Security Interest
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of the Agent on behalf of the Banks in the remaining stock of the Spin-Off
Entity owned by NovaCare after the Spin-Off.)
(f) Joinder of Qualifying Subsidiaries; Excluded
Entities. NovaCare shall not and shall not permit any other Loan Party to own,
create or acquire any Qualifying Subsidiary except for the Excluded Qualifying
Subsidiaries unless such Qualifying Subsidiary joins this Agreement as either a
Borrower or Guarantor pursuant to Section 11.18 hereof. The Loan Parties shall
not permit their Restricted Investments in Excluded Entities to exceed the
Permitted Investment in Excluded Entities.
(g) Continuation of or Change in Business. Each
Loan Party shall not engage in any business other than a Permitted Line of
Business. NovaCare shall not change its business materially after the Closing
Date.
(h) Plans and Benefit Arrangements. Each Loan
Party shall not:
(i) fail to satisfy the minimum funding
requirements of ERISA and the Internal Revenue Code with respect to any Plan;
(ii) request a minimum funding waiver
from the Internal Revenue Service with respect to any Plan;
(iii) engage in a Prohibited Transaction
with any Plan, Benefit Arrangement or Multiemployer Plan which, alone or in
conjunction with any other circumstances or set of circumstances resulting in
liability under ERISA, would constitute a Material Adverse Change;
(iv) permit the aggregate actuarial
present value of all benefit liabilities (whether or not vested) under each
Plan, determined on a plan termination basis, as disclosed in the most recent
actuarial report completed with respect to such Plan, to exceed, as of any
actuarial valuation date, the fair market value of the assets of such Plan;
(v) fail to make when due any
contribution to any Multiemployer Plan that NovaCare or any member of the ERISA
Group may be required to make under any agreement relating to such
Multiemployer Plan, or any Law pertaining thereto;
(vi) withdraw (completely or partially)
from any Multiemployer Plan or withdraw (or be deemed under Section 4062(e) of
ERISA to withdraw) from any Multiple Employer Plan, where any such withdrawal
is likely to result in a material liability of NovaCare or any member of the
ERISA Group;
(vii) terminate, or institute proceedings
to terminate, any Plan, where such termination is likely to result in a
material liability to NovaCare or any member of the ERISA Group;
(viii) make any amendment to any Plan with
respect to which security is required under Section 307 of ERISA; or
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(ix) fail to give any and all notices and
make all disclosures and governmental filings required under ERISA or the
Internal Revenue Code, where such failure is likely to result in a Material
Adverse Change.
(i) Loans and Investments. The Loan Parties
shall not, and shall not permit any of their Subsidiaries to, at any time make
or suffer to remain outstanding any loan or advance to, or purchase, acquire or
own any stock, bonds, notes or securities of, or any partnership interest
(whether general or limited) in or any other investment or interest in, or make
any capital contribution to, any other person, or agree, become or remain
liable to do any of the foregoing, except:
(i) trade credit extended on usual and
customary terms in the ordinary course of business including any such credit
which may be evidenced from time to time by promissory notes;
(ii) advances to employees to meet
expenses incurred by such employees in the ordinary course of their employment
and short-term or relocation loans to new executives to induce them to enter
into the employ of NovaCare or any of its Subsidiaries, consistent with past
practices;
(iii) Permitted Investments;
(iv) Permitted Intercompany Indebtedness,
and Investments by the Loan Parties in other Loan Parties; provided, however,
that for periods on or after the Spin-Off Consummation, neither NovaCare nor
any Subsidiary of NovaCare shall make any loans or advances to or investments
in NovaCare Employee Services, Inc.; and
(v) the Permitted Investment in Excluded
Entities so long as: (a) the Excluded Entity in which the Restricted
Investment is made is engaged in either a Permitted Line of Business, the
ownership of real property, or operation of a physician practice group; (b) if
a Loan Party is a general partner of an Excluded Entity in which a Restricted
Investment is made, the Restricted Investment in such general partner shall not
exceed the amount of the Permitted Investment in Excluded Entity for such
Excluded Entity; (c) the Loan Party making a Restricted Investment in an
Excluded Entity gives notice to the Agent, including a brief description of the
nature, type and amount of the Restricted Investment, description of the
Excluded Entity, and if the nature of a Restricted Investment is tangible
property then the fair value of such tangible property (including a detailed
calculation and summary of the method of such valuation) together with such
other information regarding the Restricted Investment as the Agent or any Bank
may reasonably request, such notice to be delivered to the Agent no later than
ten (10) Business Days prior to the making of such Restricted Investment, (d)
the Loan Party making the Permitted Investment in Excluded Entities is a Loan
Party other than NovaCare, and (e) a Prior Security Interest in the stock,
partnership interests or other equity interests of the Excluded Entity owned by
any Loan Party are pledged to the Agent, for the benefit of the Banks, pursuant
to a Pledge Agreement in form and substance satisfactory to the Agent.
Notwithstanding anything contained in this Section 8.02(i) to the contrary,
neither NovaCare nor any other Loan Party shall at any time on or after the
Spin-Off Consummation make any loan or advance to, purchase, acquire or own any
stock, bonds, notes or securities of, or any other
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investment or interest in, or make any capital contribution to, or agree, become
or remain liable to do any of the foregoing with respect to NovaCare Employee
Services, Inc., other than the continued ownership of NovaCare's equity interest
of common stock of NovaCare Employee Services, Inc. as owned as of the Spin-Off
Consummation.
(j) Dividends and Related Distributions. The
Loan Parties shall not make or pay, or agree to become or remain liable to make
or pay, any dividend or other distribution of any nature (whether in cash,
property, securities or otherwise) on account of or in respect of its shares of
capital stock or on account of the purchase, redemption, retirement or
acquisition of its shares of capital stock (or warrants, options or rights
therefor), except (i) dividends payable by any Subsidiary of NovaCare to
NovaCare or to any other Loan Party, or (ii) dividends paid by NovaCare or
payments by NovaCare for stock repurchases or redemptions not exceeding
twenty-five percent (25%) of consolidated net income earned in respect of any
fiscal year provided that such dividends (A) may not be made until at least
four (4) Business Days have elapsed following the delivery by NovaCare of its
financial statements to the Banks pursuant to Section 8.01(m)(ii) hereof for
such fiscal year, and (B) may be made in subsequent fiscal years if they are
not made during the fiscal year in which such financial statements are
delivered.
(k) Minimum Current Ratio. The Loan Parties
shall not permit the ratio of consolidated current assets of NovaCare and its
Subsidiaries to consolidated current liabilities of NovaCare and its
Subsidiaries, calculated as of the end of each fiscal quarter, to be less than
1.75 to 1.0.
For periods on and after the Spin-Off Consummation, for
purposes solely of this Section 8.02(k), NovaCare Employee Services, Inc. shall
not be deemed to be a Subsidiary of NovaCare for purposes of calculating the
ratio set forth above, and the current assets and current liabilities of
NovaCare Employee Services, Inc. shall be excluded from calculation of such
ratio.
(l) Minimum Net Worth. The Loan Parties shall
not permit Consolidated Net Worth, calculated as of the end of each fiscal
quarter, to be less than the Minimum Net Worth Requirement.
(m) Funded Debt to Capitalization. The Loan
Parties shall not permit the ratio of Consolidated Funded Debt to
Capitalization, calculated as of the end of each fiscal quarter, to exceed .50
to 1.0.
(n) Funded Debt to Cash Flow From Operations.
The Loan Parties shall not permit the ratio of Consolidated Funded Debt to
Consolidated Cash Flow from Operations, calculated as of the end of each fiscal
quarter for the four fiscal quarters then ended, to exceed 3.00 to 1.0.
(o) Minimum Fixed Charge Coverage Ratio. The
Loan Parties shall not permit the ratio of Consolidated Earnings Available for
Fixed Charges to Consolidated Fixed
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Charges, calculated as of the end of each fiscal quarter for the four fiscal
quarters then ended, to be less than 1.40 to 1.0.
(p) Changes in Subordinated Indebtedness
Documents. NovaCare shall not, and shall not permit any Subsidiary to, amend
or modify any provisions of the Subordinated Indebtedness Documents without
providing at least five (5) Business Days' prior written notice to the Agent
and the Banks, and obtaining the prior written consent of the Required Banks.
The Loan Parties shall not directly or indirectly make any payment or other
distribution directly or indirectly to the obligees under the Subordinated
Indebtedness, except for (i) regularly scheduled mandatory payments under the
Subordinated Indebtedness Documents excluding any mandatory payments required
by reason of acceleration, or (ii) prepayments of Indebtedness described in
Section 8.02(a)(v)(A)(2); provided, that, no portion of the Revolving Credit
Loans shall be used directly or indirectly for the purpose of repaying or
redeeming the Subordinated Indebtedness.
(q) Affiliate Transactions. NovaCare shall not,
and shall not permit any of its Subsidiaries to, enter into or carry out any
transaction (including, without limitation, purchasing property or services or
selling property or services) with any Affiliate (other than the Loan Parties)
unless such transaction is not otherwise prohibited by this Agreement, is
entered into in the ordinary course of business upon fair and reasonable
arm's-length terms and conditions which are fully disclosed to the Agent and is
in accordance with all applicable Law. It is agreed that the transactions set
forth on Schedule 8.02(q) between NovaCare and NovaCare Employee Services, Inc.
shall be deemed to comply with the requirements of this Section 8.02(q).
(r) Professional Employment Organizations.
NovaCare shall not, and shall not permit any of its Subsidiaries, to on or
after March 31, 1997, at any time (x) become a party to any merger or
consolidation, or acquire by purchase, lease or otherwise all or substantially
all of the assets or capital stock or other ownership interests of any other
entity or Person which engages in the business of a Professional Employment
Organization, or (y) make or suffer to remain outstanding any loan or advance
to, or purchase, acquire or own any stock, bonds, notes or securities of, or
any partnership interests (whether general or limited) in or any other
investment or interest in, or make any capital contribution to, any other
entity or Person which engages in the business of a Professional Employment
Organization, other than the continued ownership of NovaCare's equity interest
of common stock of NovaCare Employee Services, Inc. otherwise permitted by this
Agreement.
8.03 Reporting Requirements. The Borrowers jointly and
severally covenant and agree that until payment in full of the Revolving Credit
Loans and interest thereon, and termination of the Revolving Credit Commitment
and satisfaction of all of the Borrowers' other obligations hereunder, the
Borrowers shall furnish or cause to be furnished to the Agent and each of the
Banks:
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(a) Notice of Default. Promptly after any
officer of any Loan Party has learned of the occurrence of an Event of Default
or Potential Default, a certificate signed by the Chief Executive Officer,
President or Chief Financial Officer of NovaCare setting forth the details of
such Event of Default or Potential Default and the action which such Loan Party
proposes to take with respect thereto.
(b) Notice of Litigation. Promptly after the
commencement thereof, notice of all actions, suits, proceedings or
investigations before or by any Official Body or any other person against any
Loan Party involving a claim or series of claims in excess of $2,500,000 or
which if adversely determined would constitute a Material Adverse Change.
ARTICLE IX
DEFAULT
9.01 Events of Default. An Event of Default shall mean
the occurrence or existence of any one or more of the following events or
conditions (whatever the reason therefor and whether voluntary, involuntary or
effected by operation of Law):
(a) Any Loan Party shall fail to pay any
principal of any Revolving Credit Loan (including scheduled installments,
mandatory prepayments or the payment due at maturity), fees or any other amount
owing hereunder or under the other Loan Documents after such principal, fees or
other amount becomes due in accordance with the terms hereof or thereof or
shall fail to pay any interest on any Revolving Credit Loan within five (5)
days of the due date for payment of interest;
(b) Any representation or warranty made at any
time by any Loan Party herein or in any other Loan Document, or in any
certificate, other instrument or statement furnished pursuant to the provisions
hereof or thereof, shall prove to have been false or misleading in any material
respect as of the time it was made or furnished;
(c) Any Loan Party shall breach or default in the
observance or performance of any covenant contained in (i) Section 8.01(f),
(ii) Section 8.02 (except for breaches of covenants contained in Sections
8.02(b), (h) and (i); such breaches are addressed in clause (iii) below), or
(iii) Section 8.02(b), (h) or (i) when the performance or observance of such
covenant is within the control of such Loan Party;
(d) Any Loan Party shall default in the
observance or performance of any other covenant, condition or provision hereof
or of any other Loan Document and such default shall continue unremedied for a
period of twenty (20) Business Days after any officer of such Loan Party
becomes aware of the occurrence thereof (such grace period to be applicable
only in the event such default can be remedied by corrective action of NovaCare
or such Loan Party as determined by the Agent in its sole discretion);
(e) A default or event of default shall occur at
any time under the terms of (i) Subordinated Indebtedness Documents evidencing
Subordinated Indebtedness in
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excess of $1,000,000 (or any agreement to subordinate the right of payment in
respect of Subordinated Indebtedness in excess of $1,000,000 to the
Indebtedness arising out of or under the Loan Documents, at any time and for
any reason, ceases to be in full force and effect or is declared to be null and
void or unenforceable in part); (ii) any lease by a Loan Party under which such
Loan Party may be obligated as lessee or sublessee in excess of $1,000,000 in
the aggregate over the lease term and such Loan Party fails to make a payment
thereunder when due or a default thereunder shall occur which permits the
lessor or sublessor to terminate the lease, retake possession of the leased
property or assert a claim for damages; or (iii) any other agreement involving
borrowed money or the extension of credit or any other Indebtedness under which
any Loan Party may be obligated as borrower or guarantor in excess of
$1,000,000 in the aggregate, and with respect to such other agreement described
in this clause (iii) either (A) such breach, default or event of default
consists of the failure to pay (beyond any period of grace permitted with
respect thereto, whether waived or not) any indebtedness when due (whether at
stated maturity, by acceleration or otherwise) or (B) such breach or default
permits or causes the acceleration of any indebtedness (whether or not such
right shall have been waived) or the termination of any commitment to lend;
(f) Any final judgments or orders for the payment
of money in excess of $2,500,000 in the aggregate shall be entered against any
Loan Party by a court having jurisdiction in the premises which judgment is not
discharged, vacated, bonded or stayed pending appeal within a period of thirty
(30) days from the date of entry;
(g) Any of the Loan Documents shall cease to be
legal, valid and binding agreements enforceable against the Loan Party
executing the same or such party's successors and assigns (as permitted under
the Loan Documents) in accordance with the respective terms thereof or shall in
any way be terminated (except in accordance with its terms) or become or be
declared ineffective or inoperative or shall cease to give or provide the
respective Liens, security interests, rights, titles, interests, remedies,
powers or privileges intended to be created thereby;
(h) There shall occur any material uninsured
(except to the extent of self-insurance for which adequate reserves have been
made) damage to or loss, theft or destruction of any of the Property in excess
of $2,500,000 or any other of any Loan Party's assets are attached, seized,
levied upon or subjected to a writ or distress warrant; or such come within the
possession of any receiver, trustee, custodian or assignee for the benefit of
creditors and the same is not cured within thirty (30) days thereafter;
(i) A notice of lien or assessment in excess of
$2,500,000 is filed of record with respect to all or any part of any Loan
Party's assets by the United States, or any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental agency, including, without limitation, the PBGC, or if any taxes
or debts owing at any time or times hereafter to any one of these become
payable and the same are not paid within thirty (30) days after the same become
payable unless the same are being contested in good faith
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and either a stay of execution is in effect or the Banks are provided with
adequate security satisfactory to the Banks in their sole discretion;
(j) Any Loan Party is enjoined, restrained or in
any way prevented by court order from conducting all or any material part of
its business and such injunction, restraint or other preventive order is not
dismissed within thirty (30) days after the entry thereof;
(k) A Change in Ownership occurs;
(l) A proceeding shall have been instituted in a
court having jurisdiction in the premises seeking a decree or order for relief
in respect of any Loan Party in an involuntary case under any applicable
bankruptcy, insolvency, reorganization or other similar law now or hereafter in
effect, or for the appointment or the taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar
official) of any Loan Party or for any substantial part of any Loan Party's
property, or for the winding-up or liquidation of its affairs, and such
proceeding shall remain undismissed or unstayed and in effect for a period of
thirty (30) consecutive days or such court shall enter a decree or order
granting any of the relief sought in such proceeding;
(m) Any Loan Party shall commence a voluntary
case under any applicable bankruptcy, insolvency, reorganization or other
similar law now or hereafter in effect, shall consent to the entry of an order
for relief in an involuntary case under any such law, or shall consent to the
appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator, conservator (or other similar official) of
itself or for any substantial part of its property or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall take any action in furtherance of any of the
foregoing; or
(n) Any event, condition, violation, failure or
circumstance shall occur or exist of which the Loan Parties are not aware but
which would constitute a breach of Section 6.01(x) if one or more of the Loan
Parties were aware of such event, condition, violation, failure or
circumstance.
9.02 Consequences of Event of Default.
(a) If an Event of Default specified under
subsections (a) through (k) or (n) of Section 9.01 hereof shall occur and be
continuing, the Banks shall be under no further obligation to make Revolving
Credit Loans or issue any Letters of Credit hereunder and the Agent may, and
upon written request of the Required Banks shall, (i) by written notice to the
Loan Parties, declare the unpaid principal amount of the Revolving Credit Notes
then outstanding and all interest accrued thereon, any unpaid fees and all
other Indebtedness of the Loan Parties to the Banks hereunder and thereunder to
be forthwith due and payable, and the same shall thereupon become and be
immediately due and payable to the Agent for the benefit of each Bank without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived; and (ii) require each Borrower to, and each Borrower
shall thereupon,
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deposit in a non- interest bearing account with the Agent, as cash collateral
for its obligations under the Loan Documents, an amount equal to the maximum
amount currently or at any time thereafter available to be drawn on all
outstanding Letters of Credit issued on its account, and each Borrower hereby
pledges to the Agent and the Banks, and grants to the Agent and the Banks a
security interest in, all such cash as security for such obligations. Upon the
curing of all existing Events of Default to the satisfaction of the Required
Banks, the Agent shall return such cash collateral to the applicable Borrower.
It is acknowledged that the authority given to the Agent to take the actions
set forth in clauses (i) and (ii) above without first obtaining the written
request of the Required Banks is intended primarily to enable the Agent to act
on behalf of the Banks when obtaining such written request is not feasible or
practical or would result in unacceptable delays as determined by the Agent in
its sole discretion; and
(b) If an Event of Default specified under
subsections (l) or (m) of Section 9.01 hereof shall occur, the Banks shall be
under no further obligations to make Revolving Credit Loans or issue any
Letters of Credit hereunder and the unpaid principal amount of the Revolving
Credit Notes then outstanding and all interest accrued thereon, any unpaid fees
and all other Indebtedness of the Loan Parties to the Banks hereunder and
thereunder shall be immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived; and
(c) If an Event of Default shall occur and be
continuing, any Bank to whom any obligation is owed by any Loan Party hereunder
or under any other Loan Document or any participant of such Bank which has
agreed in writing to be bound by the provisions of Section 10.13 hereof and any
branch, subsidiary or affiliate of such Bank or participant anywhere in the
world shall have the right, in addition to all other rights and remedies
available to it, without notice to the Loan Parties, to set-off against and
apply to the then unpaid balance of all the Revolving Credit Loans and all
other obligations of such Loan Party hereunder or under any other Loan Document
any debt owing to, and any other funds held in any manner for the account of,
such Loan Party by such Bank or participant or by such branch, subsidiary or
affiliate, including, without limitation, all funds in all deposit accounts
(whether time or demand, general or special, provisionally credited or finally
credited, or otherwise) now or hereafter maintained by such Loan Party for its
own account (but not including funds held in custodian or trust accounts) with
such Bank or participant or such branch, subsidiary or affiliate. Such Bank
agrees promptly to notify NovaCare on behalf of the Loan Parties after any such
set-off and application made by such Bank; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application. Such right shall exist whether or not any Bank or the Agent shall
have made any demand under this Agreement or any other Loan Document, whether
or not such debt owing to or funds held for the account of such Loan Party is
or are matured or unmatured and regardless of the existence or adequacy of any
collateral, Guaranty or any other security, right or remedy available to any
Bank or the Agent; and
(d) If an Event of Default shall occur and be
continuing, and provided that the Agent shall have accelerated the maturity of
Revolving Credit Loans of the Borrowers or such Loans otherwise shall have been
accelerated or come due pursuant to any of the foregoing
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provisions of this Section 9.02, the Agent or any Bank, if owed any amount with
respect to the Revolving Credit Notes, may proceed to protect and enforce its
rights by suit in equity, action at law and/or other appropriate proceeding,
whether for the specific performance of any covenant or agreement contained in
this Agreement or the Revolving Credit Notes, including as permitted by
applicable Law the obtaining of the ex parte appointment of a receiver, and, if
such amount shall have become due, by declaration or otherwise, proceed to
enforce the payment thereof or any other legal or equitable right of the Agent
or such Bank; and
(e) Following the occurrence and during the
continuance of an Event of Default, each Loan Party, at the cost and expense of
the Loan Parties (including the cost and expense of obtaining any of the
following referenced consents, approvals, etc.) will promptly execute and
deliver or cause the execution and delivery of all applications, certificates,
instruments, registration statements, and all other documents and papers the
Agent or any Bank may request in connection with the obtaining of any consent,
approval, registration, qualification, permit, license, accreditation, or
authorization of any Official Body or other person necessary or appropriate for
the effective exercise of any rights hereunder or under the other Loan
Documents. Without limiting the generality of the foregoing, each Loan Party
agrees that in the event the Agent or any Bank shall exercise its rights,
hereunder or pursuant to the other Loan Documents, to sell, transfer, or
otherwise dispose of, or vote, consent, operate, or take any other action in
connection with any of the Pledged Collateral, each Loan Party shall execute
and deliver (or cause to be executed and delivered) all applications,
certificates, assignments, and other documents that the Agent or any Bank
requests to facilitate such actions and shall otherwise promptly, fully, and
diligently cooperate with the Agent or any Bank and any other necessary persons
in making any application for the prior consent or approval of any Official
Body or any other person to the exercise by the Agent or any Bank of any of
such rights relating to all or any of the Pledged Collateral. Furthermore,
because the Loan Parties agree that the remedies of the Agent and the Banks at
law for failure of the Loan Parties to comply with the provisions of this
Section 9.02(e) would be inadequate and that any such failure would not be
adequately compensable in damages, the Loan Parties agree that the covenants of
this Section 9.02(e) may be specifically enforced; and
(f) [RESERVED]
(g) From and after the date on which the Agent
has taken any action pursuant to this Section 9.02 and until all obligations of
the Loan Parties have been paid in full, any and all proceeds received by the
Agent from any sale or other disposition of the Pledged Collateral, or any part
thereof, or the exercise of any other remedy by the Agent, shall be applied as
follows:
(i) first, to reimburse the Agent and
the Banks for out-of-pocket costs, expenses and disbursements, including
without limitation reasonable attorneys' fees and legal expenses, incurred by
the Agent or the Banks in connection with realizing on the Pledged Collateral
or collection of any obligations of the Loan Parties under any of the Loan
Documents, including advances made by the Banks or any one of them or the Agent
for the
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reasonable maintenance, preservation, protection or enforcement of, or
realization upon, the Pledged Collateral, including without limitation,
advances for taxes, insurance, repairs and the like and reasonable expenses
incurred to sell or otherwise realize on, or prepare for sale or other
realization on, any of the Pledged Collateral;
(ii) second, to the repayment of all
Indebtedness then due and unpaid of the Loan Parties to the Banks incurred
under this Agreement or any of the Loan Documents, provided that such proceeds
shall be applied first to interest, fees, expenses and other Indebtedness other
than principal, in such manner as the Agent may reasonably determine, and then
to principal;
(iii) the balance, if any, as required by
Law; and
(h) In addition to all of the rights and remedies
contained in this Agreement or in any of the other Loan Documents, the Agent
shall have all of the rights and remedies of a secured party under the Uniform
Commercial Code or other applicable Law, all of which rights and remedies shall
be cumulative and nonexclusive, to the extent permitted by Law. The Agent may
exercise all post-default rights granted to the Agent and the Banks under the
Loan Documents or applicable Law.
9.03 Notice of Sale. Any notice required to be given by
the Agent of a sale, lease, or other disposition of the Pledged Collateral or
any other intended action by the Agent, if given ten (10) days prior to such
proposed action, shall constitute commercially reasonable and fair notice
thereof to the Loan Parties.
ARTICLE X
THE AGENT
10.01 Appointment. Each Bank hereby irrevocably
designates, appoints and authorizes PNC Bank to act as Agent for such Bank
under this Agreement to execute and deliver or accept on behalf of each of the
Banks the other Loan Documents. Each Bank hereby irrevocably authorizes, and
each holder of any Note by the acceptance of a Note shall be deemed irrevocably
to authorize, the Agent to take such action on its behalf under the provisions
of this Agreement and the other Loan Documents and any other instruments and
agreements referred to herein, and to exercise such powers and to perform such
duties hereunder as are specifically delegated to or required of the Agent by
the terms hereof, together with such powers as are reasonably incidental
thereto. PNC Bank agrees to act as the Agent on behalf of the Banks to the
extent provided in this Agreement.
10.02 Delegation of Duties. The Agent may perform any of
its duties hereunder by or through agents or employees (provided such
delegation does not constitute a relinquishment of its duties as Agent) and,
subject to Sections 10.05 and 10.06 hereof, shall be entitled to engage and pay
for the advice or services of any attorneys, accountants or other experts
concerning all matters pertaining to its duties hereunder and to rely upon any
advice so obtained.
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10.03 Nature of Duties; Independent Credit Investigation.
The Agent shall have no duties or responsibilities except those expressly set
forth in this Agreement and no implied covenants, functions, responsibilities,
duties, obligations, or liabilities shall be read into this Agreement or
otherwise exist. The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of this Agreement
a fiduciary or trust relationship in respect of any Bank; and nothing in this
Agreement, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of this Agreement except as
expressly set forth herein. Each Bank expressly acknowledges (i) that the
Agent has not made any representations or warranties to it and that no act by
the Agent hereafter taken, including any review of the affairs of the Loan
Parties, shall be deemed to constitute any representation or warranty by the
Agent to any Bank; (ii) that it has made and will continue to make, without
reliance upon the Agent, its own independent investigation of the financial
condition and affairs and its own appraisal of the creditworthiness of the Loan
Parties in connection with this Agreement and the making and continuance of the
Loans hereunder; and (iii) except as expressly provided herein, that the Agent
shall have no duty or responsibility, either initially or on a continuing
basis, to provide any Bank with any credit or other information with respect
thereto, whether coming into its possession before the making of any Loan or at
any time or times thereafter.
10.04 Actions in Discretion of Agent; Instructions from the
Banks. The Agent agrees, upon the written request of the Required Banks, to
take or refrain from taking any action of the type specified as being within
the Agent's rights, powers or discretion herein, provided that the Agent shall
not be required to take any action which exposes the Agent to personal
liability or which is contrary to this Agreement or any other Loan Document or
applicable Law. In the absence of a request by the Required Banks, the Agent
shall have authority, in its sole discretion, to take or not to take any such
action, unless this Agreement specifically requires the consent of the Required
Banks or all of the Banks. Any action taken or failure to act pursuant to such
instructions or discretion shall be binding on the Banks, subject to Section
10.06 hereof. Subject to the provisions of Section 10.06, no Bank shall have
any right of action whatsoever against the Agent as a result of the Agent
acting or refraining from acting hereunder in accordance with the instructions
of the Required Banks, or in the absence of such instructions, in the absolute
discretion of the Agent.
10.05 Reimbursement and Indemnification of Agent by the
Borrowers. The Borrowers, jointly and severally, unconditionally agree to pay
or reimburse the Agent and save the Agent harmless against (a) liability for
the payment of all reasonable out-of-pocket costs, expenses and disbursements,
including but not limited to fees and expenses of counsel, appraisers and
environmental consultants, incurred by the Agent (i) in connection with the
development, negotiation, preparation, printing, execution, administration,
syndication, interpretation and performance of this Agreement and the other
Loan Documents, (ii) relating to any requested amendments, waivers or consents
pursuant to the provisions hereof, (iii) in connection with the enforcement of
this Agreement or any other Loan Document or collection of amounts due
hereunder or thereunder or the proof and allowability of any claim arising
under this Agreement or any other Loan Document, whether in bankruptcy or
receivership proceedings
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or otherwise, and (iv) in any workout, restructuring or in connection with the
protection, preservation, exercise or enforcement of any of the terms hereof or
of any rights hereunder or under any other Loan Document or in connection with
any foreclosure, collection or bankruptcy proceedings, and (b) all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Agent, in its capacity as such, in any
way relating to or arising out of this Agreement or any other Loan Documents or
any action taken or omitted by the Agent hereunder or thereunder, provided that
the Borrowers shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements if the same results from the Agent's gross negligence
or willful misconduct, or if NovaCare was not given notice of the subject claim
and the opportunity to participate in the defense thereof, at its expense, or
if the same results from a compromise or settlement agreement entered into
without the consent of NovaCare. In addition, the Borrowers agree to reimburse
and pay all reasonable out-of-pocket expenses of the Agent's regular employees
and agents engaged periodically to perform audits or inspection of NovaCare and
its Subsidiaries' books, records and business properties.
10.06 Exculpatory Provisions. Neither the Agent nor any of
its directors, officers, employees, agents, attorneys or affiliates shall (a)
be liable to any Bank for any action taken or omitted to be taken by it or them
hereunder, or in connection herewith including without limitation pursuant to
any Loan Document, unless caused by its or their own gross negligence or
willful misconduct, (b) be responsible in any manner to any of the Banks for
the effectiveness, enforceability, genuineness, validity or the due execution
of this Agreement or any other Loan Documents or for any recital,
representation, warranty, document, certificate, report or statement herein or
made or furnished under or in connection with this Agreement or any other Loan
Documents, or (c) be under any obligation to any of the Banks to ascertain or
to inquire as to the performance or observance of any of the terms, covenants
or conditions hereof or thereof on the part of the Loan Parties, or the
financial condition of NovaCare and its Subsidiaries, or the existence or
possible existence of any Event of Default or Potential Default. Neither the
Agent nor any Bank nor any of their respective directors, officers, employees,
agents, attorneys or affiliates shall be liable to the Loan Parties or their
Subsidiaries for consequential damages resulting from any breach of contract,
tort or other wrong in connection with the negotiation, documentation,
administration or collection of the Loans or any of the Loan Documents.
10.07 Reimbursement and Indemnification of Agent by Banks.
Each Bank agrees to reimburse and indemnify the Agent (to the extent not
reimbursed by the Borrowers and without limiting the obligation of the
Borrowers to do so) in proportion to its Ratable Share from and against all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against the Agent, in its capacity
as such, in any way relating to or arising out of this Agreement or any other
Loan Documents or any action taken or omitted by the Agent hereunder or
thereunder, provided that no Bank shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements (a) if the same results from the
Agent's gross negligence or willful misconduct, or
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(b) if such Bank was not given notice of the subject claim and the opportunity
to participate in the defense thereof, at its expense, or (c) if the same
results from a compromise and settlement agreement entered into without the
consent of such Bank. In addition, each Bank agrees promptly upon demand to
reimburse the Agent (to the extent not reimbursed by the Borrowers and without
limiting the obligation of the Borrowers to do so) in proportion to its Ratable
Share for all amounts due and payable by the Borrowers to the Agent in
connection with the Agent's periodic audit of books, records and business
properties of NovaCare and its Subsidiaries.
10.08 Reliance by Agent. The Agent shall be entitled to
rely upon any writing, telegram, telex or teletype message, resolution, notice,
consent, certificate, letter, cablegram, statement, order or other document or
conversation by telephone or otherwise believed by it to be genuine and correct
and to have been signed, sent or made by the proper person or persons, and upon
the advice and opinions of counsel and other professional advisers selected by
the Agent. The Agent shall be fully justified in failing or refusing to take
any action hereunder unless it shall first be indemnified to its satisfaction
by the Banks against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action.
10.09 Notice of Default. The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Potential Default or Event of
Default unless the Agent has received written notice from a Bank or NovaCare
referring to this Agreement, describing such Potential Default or Event of
Default and stating that such notice is a "notice of default."
10.10 Notices. The Agent shall promptly send to each Bank
a copy of all notices received from the Loan Parties pursuant to the provisions
of this Agreement or the other Loan Documents promptly upon receipt thereof.
The Agent shall promptly notify NovaCare and the other Banks of each change in
the Base Rate and the effective date thereof.
10.11 Banks in Their Individual Capacities. With respect
to its Revolving Credit Commitments and the Revolving Credit Loans made by it,
the Agent shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not the Agent, and the term "Banks"
shall, unless the context otherwise indicates, include the Agent in its
individual capacity. PNC Bank and its affiliates and each of the Banks and
their respective affiliates may, without liability to account, except as
prohibited herein, make loans to, accept deposits from, discount drafts for,
act as trustee under indentures of, and generally engage in any kind of banking
or trust business with, the Loan Parties and their Subsidiaries, in the case of
the Agent, as though it were not acting as Agent hereunder and in the case of
each Bank, as though such Bank were not a Bank hereunder.
10.12 Holders of Notes. The Agent may deem and treat any
payee of any Note as the owner thereof for all purposes hereof unless and until
written notice of the assignment or transfer thereof shall have been filed with
the Agent. Any request, authority or consent of any person who at the time of
making such request or giving such authority or consent is the holder of any
Note shall be conclusive and binding on any subsequent holder, transferee or
assignee of such Note or of any Note or Notes issued in exchange therefor.
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10.13 Equalization of Banks. The Banks and the holders of
any participations in any Notes agree among themselves that, with respect to
all amounts received by any Bank or any such holder for application on any
obligation hereunder or under any Note or under any such participation, whether
received by voluntary payment, by realization upon security, by the exercise of
the right of set-off or banker's lien, by counterclaim or by any other non-pro
rata source, equitable adjustment will be made in the manner stated in the
following sentence so that, in effect, all such excess amounts will be shared
ratably among the Banks and such holders in proportion to their interests in
payments under the Notes, except as otherwise provided in Sections 4.04(b),
5.04(b) or 5.06(a) hereof. The Banks or any such holder receiving any such
amount shall purchase for cash from each of the other Banks a participation in
such Bank's Loans in such amount as shall result in a ratable participation by
the Banks and each such holder in the aggregate unpaid amount under the Notes,
provided that if all or any portion of such excess amount is thereafter
recovered from the Bank or the holder making such purchase, such purchase shall
be rescinded and the purchase price restored to the extent of such recovery,
together with interest or other amounts, if any, required by law (including
court order) to be paid by the Bank or the holder making such purchase.
10.14 Successor Agent. The Agent may resign as Agent upon
not less than thirty (30) days' prior written notice to NovaCare for the
benefit of the Loan Parties and the Banks. If the Agent shall resign under
this Agreement, then either (a) the Required Banks shall appoint from among the
Banks a successor agent for the Banks, or (b) if a successor agent shall not be
so appointed and approved within the thirty (30) day period following the
Agent's notice to the Banks of its resignation, then the Agent shall appoint,
with the consent of NovaCare on behalf of the Loan Parties, such consent not to
be unreasonably withheld, a successor agent who shall serve as Agent until such
time as the Required Banks appoint a successor agent. Upon its appointment
pursuant to either clause (a) or (b) above, such successor agent shall succeed
to the rights, powers and duties of the Agent and the term "Agent" shall mean
such successor agent, effective upon its appointment, and the former Agent's
rights, powers and duties as Agent shall be terminated without any other or
further act or deed on the part of such former Agent or any of the parties to
this Agreement. After the resignation of any Agent hereunder, the provisions
of this Article X shall inure to the benefit of such former Agent and such
former Agent shall not by reason of such resignation be deemed to be released
from liability for any actions taken or not taken by it while it was an Agent
under this Agreement.
10.15 Agent's Fee. The Borrowers shall pay the Agent's Fee
to Agent until the Commitments have terminated and the Loans have been paid in
full or until the Agent shall have resigned.
10.16 Availability of Funds. Unless the Agent shall have
been notified by a Bank prior to the date upon which a Loan is to be made that
such Bank does not intend to make available to the Agent such Bank's portion of
such Loan, the Agent may assume that such Bank has made or will make such
proceeds available to the Agent on such date and the Agent may, in reliance
upon such assumption (but shall not be required to), make available to the
applicable Borrowers a corresponding amount. If such corresponding amount is
not in fact made available
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to the Agent by such Bank, the Agent shall be entitled to recover such amount
on demand from such Bank (or, if such Bank fails to pay such amount forthwith
upon such demand from NovaCare as agent for such Borrowers) together with
interest thereon, in respect of each day during the period commencing on the
date such amount was made available to such Borrowers and ending on the date
the Agent recovers such amount, at a rate per annum equal to (i) the Federal
Funds Effective Rate for the first Business Day during which such interest
shall accrue, and (ii) the applicable interest rate in respect of the Loan for
each day thereafter.
10.17 Calculations. In the absence of gross negligence or
willful misconduct, the Agent shall not be liable for any error in computing
the amount payable to any Bank whether in respect of the Loans, fees or any
other amounts due to the Banks under this Agreement. In the event an error in
computing any amount payable to any Bank is made, the Agent, the Borrowers and
each affected Bank shall, forthwith upon discovery of such error, make such
adjustments as shall be required to correct such error, and any compensation
therefor will be calculated at the Federal Funds Effective Rate.
10.18 Beneficiaries. Except as expressly provided herein,
the provisions of this Article X are solely for the benefit of the Agent and
the Banks, and the Loan Parties shall not have any rights to rely on or enforce
any of the provisions hereof. In performing its functions and duties under
this Agreement, the Agent shall act solely as agent of the Banks and does not
assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for the Loan Parties.
ARTICLE XI
MISCELLANEOUS
11.01 Modifications, Amendments or Waivers. With the
written consent of the Required Banks, the Agent, acting on behalf of all the
Banks, and the Loan Parties (or NovaCare on behalf of the Loan Parties) may
from time to time enter into written agreements amending or changing any
provision of this Agreement or any other Loan Document or the rights of the
Banks or the Loan Parties hereunder or thereunder, or may grant written waivers
or consents to a departure from the due performance of the obligations of the
Loan Parties hereunder or thereunder. Any such agreement, waiver or consent
made with such written consent shall be effective to bind all the Banks;
provided, that, without the written consent of all the Banks, no such
agreement, waiver or consent may be made which will do any of the following,
except if this Agreement expressly provides that the consent of a fraction of
the Banks which is less than 100% may bind all of the Banks with respect
thereto:
(a) Reduce the amount of the Commitment Fee,
Letter of Credit Fee or any other fees payable to any Bank hereunder, or amend
Sections 5.02 [Pro Rata Treatment of Banks], 10.06 [Exculpatory Provisions] and
10.13 [Equalization of Banks] hereof;
(b) Increase or reduce the amount of the
Commitments or of any Commitment, increase the dollar limitation set forth in
Section 2.09(a)(i) or whether or not any Revolving Credit Loans are
outstanding, extend the time for payment of principal or interest of
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any Revolving Credit Loan, or reduce the principal amount of or the rate of
interest borne by any Revolving Credit Loan, or otherwise affect the terms of
payment of the principal of or interest of any Revolving Credit Loan or the
obligation in Section 2.09 to reimburse the Agent pursuant to advances under
Letters of Credit;
(c) Except for sales of assets permitted by
Section 8.02(e), release any collateral or other security, including, without
limitation, the Guaranties, if any, for the Borrowers' obligations hereunder;
or
(d) Amend this Section 11.01, change the
definition of Required Banks, or change any requirement providing for the Banks
or the Required Banks to authorize the taking of any action hereunder.
11.02 No Implied Waivers; Cumulative Remedies; Writing
Required. No course of dealing and no delay or failure of the Agent or any
Bank in exercising any right, power, remedy or privilege under this Agreement
or any other Loan Document shall affect any other or future exercise thereof or
operate as a waiver thereof; nor shall any single or partial exercise thereof
or any abandonment or discontinuance of steps to enforce such a right, power,
remedy or privilege preclude any further exercise thereof or of any other
right, power, remedy or privilege. The rights and remedies of the Agent and
the Banks under this Agreement and any other Loan Documents are cumulative and
not exclusive of any rights or remedies which they would otherwise have. Any
waiver, permit, consent or approval of any kind or character on the part of any
Bank of any breach or default under this Agreement or any such waiver of any
provision or condition of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing.
11.03 Reimbursement and Indemnification of Banks by the
Borrowers; Taxes. The Borrowers jointly and severally agree unconditionally
upon demand to pay or reimburse to each Bank (other than the Agent as to which
the Borrowers' obligations are set forth in Section 10.05) and to save such
Bank harmless against (i) liability for the payment of all reasonable
out-of-pocket costs, expenses and disbursements (including fees and expenses of
counsel for such Bank), incurred by such Bank (a) in connection with the
administration and interpretation of this Agreement, the other Loan Documents
and other instruments and documents to be delivered hereunder, (b) relating to
any amendments, waivers or consents pursuant to the provisions hereof or
thereof, (c) in connection with the enforcement of this Agreement or any other
Loan Document, or collection of amounts due hereunder or thereunder or the
proof and allowability of any claim arising under this Agreement or any other
Loan Document, whether in bankruptcy or receivership proceedings or otherwise,
and (d) in any workout, restructuring or in connection with the protection,
preservation, exercise or enforcement of any of the terms hereof or of any
rights hereunder or under any other Loan Document or in connection with any
foreclosure, collection or bankruptcy proceedings, or (ii) all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against such Bank in any way relating to or arising
out of this Agreement or any other Loan Documents or any action taken or
omitted by
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such Bank hereunder or thereunder, provided that the Borrowers shall not be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements (A) if
the same results from such Bank's gross negligence or willful misconduct, or
(B) if the Borrowers were not given notice of the subject claim and the
opportunity to participate in the defense thereof, at their expense, or (C) if
the same results from a compromise or settlement agreement entered into without
the consent of the Borrowers. The Borrowers jointly and severally agree
unconditionally to pay all stamp, document, transfer, recording or filing taxes
or fees and similar impositions now or hereafter determined by the Agent or any
Bank to be payable in connection with this Agreement or any other Loan
Document, and the Borrowers jointly and severally agree unconditionally to save
the Agent and the Banks harmless from and against any and all present or future
claims, liabilities or losses with respect to or resulting from any omission to
pay or delay in paying any such taxes, fees or impositions.
11.04 Holidays. Whenever any payment or action to be made
or taken hereunder shall be stated to be due on a day which is not a Business
Day, such payment or action shall be made or taken on the next following
Business Day (except as provided in Section 4.02(a)), and such extension of
time shall be included in computing interest or fees, if any, in connection
with such payment or action.
11.05 Funding by Branch, Subsidiary or Affiliate.
(a) Notional Funding. Each Bank shall have the
right from time to time, without notice to the Loan Parties, to deem any
branch, subsidiary or affiliate (which for the purposes of this Section 11.05
shall mean any corporation or association which is directly or indirectly
controlled by or is under direct or indirect common control with any
corporation or association which directly or indirectly controls such Bank) of
such Bank to have made, maintained or funded any Revolving Credit Loan to which
the Revolving Credit Euro-Rate Option applies at any time, provided that
immediately following (on the assumption that a payment were then due from the
Borrowers to such other office) and as a result of such change the Borrowers
would not be under any greater financial obligation pursuant to Section 5.06
hereof than they would have been in the absence of such change. Notional
funding offices may be selected by each Bank without regard to the Bank's
actual methods of making, maintaining or funding the Loans or any sources of
funding actually used by or available to such Bank.
(b) Actual Funding. Each Bank shall have the
right from time to time to make or maintain any Loan by arranging for a branch,
subsidiary or affiliate of such Bank to make or maintain such Loan subject to
the last sentence of this Section 11.05(b). If any Bank causes a branch,
subsidiary or affiliate to make or maintain any part of the Loans hereunder,
all terms and conditions of this Agreement shall, except where the context
clearly requires otherwise, be applicable to such part of the Revolving Credit
Loans to the same extent as if such Revolving Credit Loans were made or
maintained by such Bank but in no event shall any Bank's use of such a branch,
subsidiary or affiliate to make or maintain any part of the Revolving Credit
Loans hereunder cause such Bank or such branch, subsidiary or affiliate to
incur any cost or
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expenses payable by any Borrower hereunder or require any Borrower to pay any
other compensation to any Bank (including, without limitation, any expenses
incurred or payable pursuant to Section 5.06 hereof) which would otherwise not
be incurred.
11.06 Notices. All notices, requests, demands, directions
and other communications (collectively "notices") given to or made upon any
party hereto under the provisions of this Agreement shall be by telephone, in
person or in writing (including telex or facsimile communication) unless
otherwise expressly permitted hereunder and shall be delivered or sent by telex
or facsimile to the respective parties at the addresses and numbers set forth
under their respective names on the signature pages hereof, provided, that, all
notices to the Loan Parties shall be sent in care of NovaCare, unless written
direction is given by a Borrower to the Banks to send notices to a different
party and address. All notices shall, except as otherwise expressly herein
provided, be effective (a) in the case of telex or facsimile, when received,
(b) in the case of hand-delivered notice, when hand delivered, (c) in the case
of telephone, when telephoned, provided, however, that in order to be
effective, telephonic notices must be confirmed in writing no later than the
next day by letter, facsimile or telex, and (d) if given by any other means
(including by air courier), when delivered; provided, that notices to the Agent
shall not be effective until received. Any Bank giving any notice to the Loan
Parties (or to NovaCare on their behalf) shall simultaneously send a copy
thereof to the Agent, and the Agent shall promptly notify the other Banks of
the receipt by it of any such notice.
11.07 Severability. The provisions of this Agreement are
intended to be severable. If any provision of this Agreement shall be held
invalid or unenforceable in whole or in part in any jurisdiction such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
11.08 Governing Law. This Agreement shall be deemed to be
a contract under the laws of the Commonwealth of Pennsylvania and for all
purposes shall be governed by and construed and enforced in accordance with the
laws of the Commonwealth of Pennsylvania without regard to its conflict of laws
principles.
11.09 Prior Understanding. This Agreement supersedes all
prior understandings and agreements, whether written or oral, between the
parties hereto relating to the transactions provided for herein, including any
prior confidentiality agreements and commitments.
11.10 Duration; Survival. All representations and
warranties of the Borrowers contained herein or made in connection herewith
shall survive the making of Revolving Credit Loans and shall not be waived by
the execution and delivery of this Agreement, any investigation by the Agent or
the Banks, the making of Revolving Credit Loans, or payment in full of the
Revolving Credit Loans. All covenants and agreements of the Borrowers
contained in Sections 8.01, 8.02 and 8.03 herein shall continue in full force
and effect from and after the date hereof so long as the Borrowers may borrow
hereunder and until termination of the Revolving Credit
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Commitment. All covenants and agreements of the Borrowers contained herein
relating to the payment of principal, interest, premiums, additional
compensation or expenses and indemnification, including those set forth in the
Revolving Credit Notes, Article V and Sections 10.05, 10.07 and 11.03 hereof,
and relating to confidentiality shall survive payment in full of the Revolving
Credit Loans, termination or expiration of all Letters of Credit and
termination of the Revolving Credit Commitment.
11.11 Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the Banks, the Agent, the Loan
Parties and their respective successors and assigns, except that the Loan
Parties may not assign or transfer any of their rights and obligations
hereunder or any interest herein. Each Bank may, at its own cost, make
assignments of or sell participations in all or any part of its Revolving
Credit Commitment and the Loans made by it to one or more banks or other
entities, subject to the consent of NovaCare on behalf of the Loan Parties and
the Agent with respect to any assignee (but not with respect to a participant),
such consent not to be unreasonably withheld; provided that assignments may not
be made in amounts less than $5,000,000 and provided that participations may be
sold only to banks or other financial institutions. In the case of an
assignment, upon receipt by the Agent of the Assignment and Assumption
Agreement, the assignee shall have, to the extent of such assignment (unless
otherwise provided therein), the same rights, benefits and obligations as it
would have if it had been a signatory Bank hereunder, the Revolving Credit
Commitments in Section 2.01 shall be adjusted accordingly, and upon surrender
of any Revolving Credit Note subject to such assignment, the Borrowers shall
execute and deliver new Notes to the assignee in an amount equal to the amount
of the Revolving Credit Commitment assumed by it and a new Revolving Credit
Note to the assigning Bank in an amount equal to the Revolving Credit
Commitment retained by it hereunder. The assigning Bank shall pay to Agent a
service fee of $3,500. In the case of a participation, the participant shall
only have the rights specified in Section 9.02(c) (the participant's rights
against such Bank in respect of such participation to be those set forth in the
agreement executed by such Bank in favor of the participant relating thereto
and not to include any voting rights except with respect to changes of the type
referenced in clauses (a), (b), or (c) under Section 11.01 hereof), all of such
Bank's obligations under this Agreement or any other Loan Document shall remain
unchanged and all amounts payable by the Borrowers hereunder or thereunder
shall be determined as if such Bank had not sold such participation. Each Bank
may furnish any publicly available information concerning the Borrowers and any
other information concerning the Borrowers in the possession of such Bank from
time to time to assignees and participants (including prospective assignees or
participants) provided such assignees and participants agree to be bound by the
provisions of Section 11.12 hereof.
11.12 Confidentiality. The Agent and the Banks each agree
to keep confidential all information obtained from the Borrowers which is
nonpublic and confidential or proprietary in nature (including any information
the Borrowers specifically designate as confidential), except as provided
below, and to use such information only in connection with its capacity under
this Agreement and for the purposes contemplated hereby. The Agent and the
Banks shall be permitted to disclose such information (i) to outside legal
counsel, accountants and other professional advisors who need to know such
information in connection with the administration
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and enforcement of this Agreement, subject to agreement of such persons to
maintain the confidentiality thereof, (ii) to assignees and participants as
contemplated by Section 11.11 (subject to the agreement of such persons to
maintain the confidentiality thereof), (iii) to the extent requested by any
bank regulatory authority or, with notice to the Borrowers, as otherwise
required by applicable Law or by any subpoena or similar legal process, or in
connection with any investigation or proceeding arising out of the transactions
contemplated by this Agreement, (iv) if it becomes publicly available other
than as a result of a breach of this Agreement or becomes available from a
source not subject to confidentiality restrictions, or (v) if NovaCare shall
have consented to such disclosure.
11.13 Counterparts. This Agreement may be executed by
different parties hereto on any number of separate counterparts, each of which,
when so executed and delivered, shall be an original, and all such counterparts
shall together constitute one and the same instrument.
11.14 Agent's or Bank's Consent. Whenever the Agent's or
any Bank's consent is required to be obtained under this Agreement or any of
the other Loan Documents as a condition to any action, inaction, condition or
event, the Agent and each Bank shall be authorized to give or withhold such
consent in its sole and absolute discretion (unless otherwise specifically
provided herein) and to condition its consent upon the giving of additional
collateral, the payment of money or any other matter.
11.15 Exceptions. The representations, warranties and
covenants contained herein shall be independent of each other and no exception
to any representation, warranty or covenant shall be deemed to be an exception
to any other representation, warranty or covenant contained herein unless
expressly provided, nor shall any such exceptions be deemed to permit any
action or omission that would be in contravention of applicable Law.
11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL. EACH
BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE
COURT OF COMMON PLEAS OF ALLEGHENY COUNTY, PENNSYLVANIA AND THE UNITED STATES
DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA, AND WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH BORROWER AT
THE ADDRESSES PROVIDED FOR IN SECTION 11.06 HEREOF AND SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH BORROWER WAIVES ANY
OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS
PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE. EACH BORROWER AND THE BANKS HEREBY WAIVE TRIAL BY JURY
IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR
RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE PLEDGED COLLATERAL TO
THE FULL EXTENT PERMITTED BY LAW.
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11.17 Tax Withholding Clause. At least five (5) Business
Days prior to the first date on which interest or fees are payable hereunder
for the account of any Bank, each Bank that is not incorporated under the laws
of the United States of America or a state thereof agrees that it will deliver
to the Borrowers and to the Agent two (2) duly completed copies of (i) Internal
Revenue Service Form W-9, 4224 or 1001, or other applicable form prescribed by
the Internal Revenue Service, certifying in either case that such Bank is
entitled to receive payments under this Agreement and the other Loan Documents
without deduction or withholding of any United States federal income taxes, or
is subject to such tax at a reduced rate under an applicable tax treaty, or
(ii) Form W-8 or other applicable form or a certificate of such Bank indicating
that no such exemption or reduced rate is allowable with respect to such
payments. Each Bank which so delivers a Form W-8, W-9, 4224 or 1001 further
undertakes to deliver to the Borrowers and to the Agent two (2) additional
copies of such form (or a successor form) on or before the date that such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form so delivered by it, and such amendments thereto
or extensions or renewals thereof as may be reasonably requested by the
Borrowers or the Agent, either certifying that such Bank is entitled to receive
payments under this Agreement and the other Loan Documents without deduction or
withholding of any United States federal income taxes or is subject to such tax
at a reduced rate under an applicable tax treaty or stating that no such
exemption or reduced rate is allowable. The Agent shall be entitled to
withhold United States federal income taxes at the full withholding rate unless
a Bank establishes an exemption or that it is subject to a reduced rate as
established pursuant to the above provisions.
11.18 Joinder of Loan Parties.
(i) All Subsidiaries (other than those which are
Excluded Qualifying Subsidiaries) of NovaCare acquired or created on or after
the Closing Date shall join this Agreement as a Guarantor or a Borrower (a
"Joining Subsidiary") on the date of their acquisition or creation by
completing all of the following by such date: (1) executing and delivering to
the Agent (A) in the case of a Joining Subsidiary which becomes a Borrower, a
Revolving Credit Note in the form of Exhibit 1.01(R) payable to each Bank, (B)
a joinder to this Agreement in form satisfactory to the Agent, (C) a Guaranty
Agreement in the form of Exhibit 1.01(G)(1), in the case of a Joining
Subsidiary which becomes a Borrower and Exhibit 1.01(G)(2), in the case of a
Joining Subsidiary which becomes a Guarantor, and (D) if it owns stock or other
ownership interests in any Subsidiary, a Pledge Agreement in the form of
Exhibit 1.01(P)(4), 1.01(P)(5) or 1.01(P)(6) or other appropriate form
acceptable to the Agent if such Subsidiary is not a partnership or corporation,
as applicable, and delivering, as applicable, the original certificates
evidencing such stock or other ownership interest if it is certificated with
appropriate stock powers or other assignments signed in blank and UCC-1
financing statements necessary to perfect the security interests of the Agent
for the benefit of the Banks therein; (2) delivering to the Agent an opinion of
counsel reasonably satisfactory to the Agent regarding such Joining Subsidiary
and such joinder; and (3) delivering to the Agent certified copies of its
organizational documents and other documents as requested by the Agent. The
Loan Party which owns the stock or other ownership interest of the Joining
Subsidiary shall execute and deliver to the Agent for the benefit of the Banks
a Pledge Agreement in the form of Exhibit 1.01(P)(4), 1.01(P)(5) or
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1.01(P)(6) or other appropriate form acceptable to the Agent if such Subsidiary
is not a partnership or corporation, as applicable, and the original
certificates evidencing such stock or other ownership interest if it is
certificated with appropriate stock powers or other assignments signed in blank
and UCC-1 financing statements necessary to perfect the security interests of
the Agent for the benefit of the Banks therein. Notwithstanding the provisions
of this Section 11.18(i) to the contrary, for periods after the Spin-Off
Consummation, NovaCare Employee Services, Inc. shall not be required to join
this Agreement as a Guarantor or Borrower, and further, following the Spin-Off
Consummation, any equity interests of NovaCare Employee Services, Inc. owned by
NovaCare or any Subsidiary of NovaCare shall not be required to be pledged to
the Agent for the benefit of the Banks.
(ii) The Agent shall acknowledge any joinders
delivered pursuant to this Section 11.18 and provide copies thereof to the
Banks and the Loan Parties. All joinders by a new Loan Party shall be
effective and binding upon all Banks and each of the other Loan Parties without
any requirement that the Banks or such other Loan Parties execute such joinder.
11.19 Continuing Effectiveness of Certain Provisions.
(a) Amendment and Restatement. This Agreement
amends and restates the Credit Agreement effective as of September 30, 1997
except that (i) prior to September 30, 1997, the Loan Parties shall comply with
the representations, warranties and covenants contained in the Agreement
without regard to Amendment No. 12 and (ii) the interest rate, Commitment Fees,
Letter of Credit Fees and other fees applicable to the Loans or otherwise
applicable for periods prior to September 30, 1997 shall be determined as
provided in this Agreement without regard to Amendment No. 12 to this Agreement
unless this Agreement after giving effect to Amendment No. 12 otherwise
provides in which case, the provisions of this Agreement after giving effect to
Amendment No. 12 shall control.
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[Signature Page 1 of 10 to Credit Agreement]
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed this Agreement as of the day and year
first above written.
BORROWERS AND GUARANTORS:
ATTEST: NOVACARE, INC., a Delaware
corporation, and each of the other
BORROWERS listed on Schedule 6.01(c)
and each of the GUARANTORS listed on
Schedule 6.01(c)
By: By:
------------------- -----------------------------------
[Seal] [Name],
-------------------------------
the [Title]
----------------------------
of each Borrower and Guarantor listed
on Schedule 6.01(c), other than those
listed below, which is a corporation
and of each general partner of each
Borrower and Guarantor which is a
partnership
Address for Notices for each of the
foregoing Borrowers and Guarantors:
1016 West Ninth Avenue
King of Prussia, PA 19406
Telecopier No. (610) 992-3328
Attention: Chief Financial Officer
Telephone No. (610) 992-7200
<PAGE> 126
[Signature Page 2 of 10 to Credit Agreement]
AGENT:
PNC BANK, NATIONAL ASSOCIATION, as
Agent
By:
--------------------------------
Title:
-----------------------------
Address for Notices:
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Telecopier No. (412) 768-5149
Attention: Regional Healthcare Group
Telephone No. (412) 762-8343
BANKS:
PNC BANK, NATIONAL ASSOCIATION
By:
--------------------------------
Title:
-----------------------------
Address for Notices:
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Telecopier No. (412) 768-5149
Attention: Regional Healthcare Group
Telephone No. (412) 762-8343
<PAGE> 127
[Signature Page 3 of 10 to Credit Agreement]
CORESTATES BANK, N.A.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Address for Notices:
1339 Chestnut Street
P.O. Box 7618
FC 1-8-3-22
Philadelphia, PA 19101
Telecopier No. (215) 786-7721
Attention: Lisa Rothenberger
-----------------
Telephone No.
-----------------
<PAGE> 128
[Signature Page 4 of 10 to Credit Agreement]
FIRST UNION NATIONAL BANK
By:
-------------------------------
Name: Terence Moore
Title: Assistant Vice President
Address for Notices:
One First Union Center
301 S. Giles Street
Charlotte, NC 28288-0735
Telecopier No. (704) 383-9144
Attention: Terence Moore, Assistant
Vice President
Telephone No. (704) 383-5212
<PAGE> 129
[Signature Page 5 of 10 to Credit Agreement]
FLEET NATIONAL BANK
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Address for Notices:
Health Care and Institutions
Fleet Center MA BOF 04A
75 State Street
Boston, MA 02109-1810
Telecopier No. (617) 346-0610
Attention: Maryann S. Smith
Vice President
Telephone No. (617) 346-1594
<PAGE> 130
[Signature Page 6 of 10 to Credit Agreement]
MELLON BANK, N.A.
By:
-----------------------------
Name:
----------------------------
Title:
--------------------------
Address for Notices:
Healthcare Banking
Plymouth Meeting/Exec. Campus
610 W. Germantown Pike
Suite 200/AIM #19E-0246
Plymouth Meeting, PA 19462
Telecopier No. (610) 941-4136
Attention: Colleen Cunniffe
Assistant Vice President
Telephone No. (610) 941-8426
<PAGE> 131
[Signature Page 7 of 10 to Credit Agreement]
NATIONSBANK N.A.
By:
-------------------------------
Name:
-----------------------------
Title:
-----------------------------
Address for Notices:
Healthcare Finance Group
One NationsBank Plaza, 5th Floor
Nashville, TN 37239-1697
Telecopier No. (615)749-4640
Attention: Kevin Wagley
Vice President
Telephone No. (615) 749-3802
<PAGE> 132
[Signature Page 8 of 10 to Credit Agreement]
THE BANK OF NEW YORK
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address for Notices:
Northeastern Division
One Wall Street
22nd Floor
New York, NY 10286
Telecopier No. (212) 635-7978
Attention: Peter Abdill
Vice President
Telephone No. (212) 635-6987
<PAGE> 133
[Signature Page 9 of 10 to Credit Agreement]
SUNTRUST BANK, CENTRAL FLORIDA, N.A.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address for Notices:
Healthcare Banking Group
0-1106, Tower 10
200 South Orange Avenue
Orlando, FL 32801
Telecopier No. (407) 237-5489
Attention: Jeffrey R. Dickson
First Vice President
Telephone No. (407) 237-4541
<PAGE> 134
[Signature Page 10 of 10 to Credit Agreement]
BANK ONE, KENTUCKY, N.A.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address for Notices:
Internal Zip KY1-2216
416 West Jefferson Street
Louisville, KY 40202
Telecopier No. (502) 566-2367
Attention: Todd Munson
Sr. Vice President
Telephone No. (502) 566-2640
[ADD NEW BANKS]
<PAGE> 135
STATE OF GEORGIA
COUNTY OF FULTON
On the _____ day of _____________, 1997 personally appeared
______________, as the ___________ President of SunTrust Bank, Central Florida,
National Association, and before me executed the attached Tenth Amendment
Waiver and Consent dated as of _____________, 1997 to the Credit Agreement
between NovaCare, Inc., with SunTrust Bank, Central Florida, National
Association, as Lender.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal, in
the state and county aforesaid.
------------------------------------------------------------------
Signature of Notary Public, State of
-----------------------------
------------------------------------------------------------------
(Print, Type or Stamp Commissioned Name of Notary Public)
Personally known ; OR Produced Identification
--------- -----------
Type of identification produced:
---------------------------------
------------------------------------------------------------------
<PAGE> 136
SCHEDULE 1.01(B)
COMMITMENTS OF BANKS
<TABLE>
<CAPTION>
Revolving
Participation Credit
Bank Percentage Commitment
----- ------------- ------------
<S> <C> <C>
PNC Bank, National Association 16.36363640% $45,000,000
Mellon Bank, N.A. 10.00000000% 27,500,000
NationsBank, N.A. 9.09090909% 25,000,000
CoreStates Bank, N.A. 9.09090909% 25,000,000
SunTrust Bank, Central Florida, N.A. 6.36363636% 17,500,000
Fleet National Bank 7.27272727% 20,000,000
First Union National Bank 5.45454545% 15,000,000
The Bank of New York 5.45454545% 15,000,000
Bank One, Kentucky, NA 5.45454545% 15,000,000
Crestar Bank 5.45454545% 15,000,000
AmSouth Bank 9.09090909% 25,000,000
Bank of Tokyo - Mitsubishi Trust Company 5.45454545% 15,000,000
The Fuji Bank, Limited New York Branch 5.45454545% 15,000,000
TOTAL 100.000000000% $275,000,000
============== ============
</TABLE>
<PAGE> 137
EXHIBIT II
FEES
<TABLE>
<CAPTION>
Bank Closing Fee Amendment Fee Total Fee
---- ----------- ------------- ---------
<S> <C> <C> <C>
PNC Bank, National Association $12,500 $40,000 $52,000
Mellon Bank, N.A. 0 $27,500 $27,500
NationsBank, N.A. 0 $25,000 $25,000
CoreStates Bank, N.A. $12,500 $20,000 $32,500
SunTrust Bank, Central Florida, N.A. 0 $17,500 $17,500
Fleet National Bank $12,500 $15,000 $27,500
First Union National Bank 0 $15,000 $15,000
The Bank of New York 0 $15,000 $15,000
Bank One, Kentucky, NA 0 $15,000 $15,000
Crestar Bank $37,500 0 $37,500
AmSouth Bank $62,500 0 $62,500
Bank of Tokyo - Mitsubishi Trust $37,500 0 $37,500
Company
The Fuji Bank, Limited New York Branch $37,500 0 $37,500
------- - -------
TOTAL $212,500 $190,000 $402,500
</TABLE>
<PAGE> 138
EXHIBIT III
-----------
SCHEDULE 6.01(c)
REVISED SEPTEMBER 30, 1997
SUBSIDIARIES
I. SUBSIDIARY CORPORATIONS
<TABLE>
<CAPTION>
No.
Subsidiary Jurisdiction Borrower/ Authorized Shares Shareholder(s)
---------- ------------ Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
A.D. Craig Company California G 20,000 common shares, no 666.66 NovaCare Orthotics &
par value Prosthetics West, Inc.
Advanced Orthopedic Technologies, Nevada G 1,000 common shares, $.01 1,000 NovaCare Orthotics &
Inc. par value Prosthetics, Inc.
Advanced Orthopedic Technologies, New York G 5,500,000 Class A Voting 1,662,500 Advanced Orthopedic
Inc. common shares, $.01 par Technologies, Inc., a
value Nevada corporation
500,000 Class B Non- 40,320 Advanced Orthopedic
Voting common shares, Technologies, Inc., a
$.01 par value Nevada corporation
400,000 Series C 139,811.2548 Advanced Orthopedic
Preferred Stock, $.01 par Technologies, Inc., a
value Nevada corporation
1,000 Series D Preferred 10 Advanced Orthopedic
Stock, $.01 par value Technologies, Inc., a
Nevada corporation
Advance Orthotics, Inc. Texas G 50,000 common shares, no 50,000 NovaCare Orthotics &
par value Prosthetics West, Inc.
Advanced Orthopedic Technologies New Jersey G 1,000 common shares, no 200 Advanced Orthopedic
(Clayton), Inc. par value Technologies, Inc., a New
York corporation
</TABLE>
1
<PAGE> 139
<TABLE>
<CAPTION>
No.
Subsidiary Jurisdiction Borrower/ Authorized Shares Shareholder(s)
---------- ------------ Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
Advanced Orthopedic Technologies West Virginia G 200 common shares, $.01 125 Advanced Orthopedic
(Lett), Inc. par value Technologies, Inc., a New
York corporation
Advanced Orthopedic Technologies New Jersey G 200 common shares, no par 200 Advanced Orthopedic
(New Jersey), Inc. value Technologies, Inc., a New
York corporation
Advanced Orthopedic Technologies New Mexico G 200 common shares, $1.00 100 Advanced Orthopedic
(New Mexico), Inc. par value Technologies, Inc., a New
York corporation
Advanced Orthopedic Technologies New York G 600 Class A Voting 475 Advanced Orthopedic
(New York), Inc. dividend bearing common Technologies, Inc., a New
shares, no par value York corporation
400 Class B Non-Voting 25 Advanced Orthopedic
dividend bearing common Technologies, Inc., a New
shares, no par value York corporation
Advanced Orthopedic Technologies New York G 200 common shares, no par 100 Advanced Orthopedic
(OTI), Inc. value Technologies, Inc., a New
York corporation
Advanced Orthopedic Technologies West Virginia G 200 common shares, $.01 100 Advanced Orthopedic
(Parmeco), Inc. par value Technologies, Inc., a New
York corporation
Advanced Orthopedic Technologies California G 200 common shares, $1.00 100 Advanced Orthopedic
(SFV), Inc. par value Technologies, Inc., a New
York corporation
</TABLE>
2
<PAGE> 140
<TABLE>
<CAPTION>
No.
Subsidiary Jurisdiction Borrower/ Authorized Shares Shareholder(s)
---------- ------------ Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
Advanced Orthopedic Technologies Virginia G 50,000 common shares, 100 Advanced Orthopedic
(Virginia), Inc. $1.00 par value Technologies, Inc., a New
York corporation
Advanced Orthopedic Technologies West Virginia G 600 Class A Voting 600 Advanced Orthopedic
(West Virginia), Inc. dividend bearing common Technologies, Inc., a New
shares, $5.00 par value York corporation
400 Class B Voting non- 0
dividend bearing common
shares, $5.00 par value
Advanced Orthopedic Technologies New York G 200 common shares, $1.00 100 Advanced Orthopedic
Management Corp. par value Technologies, Inc., a New
York corporation
Affiliated Physical Therapists, Ltd. Arizona G 120,091 common shares, 35,600 RehabClinics, Inc.
$1.00 par value 83,067
preferred shares, $1.00
par value
Artificial Limb and Brace Center Arizona G 1,000,000 common shares, 1,066 NovaCare Orthotics &
$1.00 par value Prosthetics West, Inc.
Ather Sports Injury Clinic, Inc. California G 10,000 common shares, no 2,000 NovaCare Outpatient
par value Rehabilitation West, Inc.
Atlantic Rehabilitation Services, New Jersey G 1,000 common shares, 20 RehabClinics, Inc.
Inc. no par value
Boca Rehab Agency, Inc. Delaware G 1,000 common shares, $.01 1,000 RehabClinics, Inc.
par value
</TABLE>
3
<PAGE> 141
<TABLE>
<CAPTION>
No.
Subsidiary Jurisdiction Borrower/ Authorized Shares Shareholder(s)
---------- ------------ Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
Bowman-Shelton Orthopedic Service, Oklahoma G 3,000 common shares, 3,000 NovaCare Orthotics &
Incorporated $1.00 par value Prosthetics East, Inc.
Buendel Physical Therapy, Inc. Florida G 750 common shares, 100 RehabClinics, Inc.
$10.00 par value
Cannon & Associates, Inc. Delaware G 10,000 common shares, 3,000 NovaCare, Inc. (PA)
no par value
1,286 cumulative
redeemable preferred
shares, $.01 par value
Cenla Physical Therapy & Louisiana G 10,000 common shares, 2,000 RehabClinics, Inc.
Rehabilitation Agency, Inc. no par value
Center for Physical Therapy and New Mexico G 500,000 common 1,000 RehabClinics, Inc.
Sports Rehabilitation, Inc. shares, no par value
CenterTherapy, Inc. Minnesota G 50,000 Class A voting 475 Class RehabClinics, Inc.
shares, $.01 par value, A voting
50,000 Class B non-
voting shares, $.01
par value
Certified Orthopedic Appliance Co., Arizona G 10,000 common shares, 150 NovaCare Orthotics &
Inc. $100 par value Prosthetics West, Inc.
Champion Physical Therapy, Inc. Pennsylvania G 100,000 common shares, 6,660 NovaCare Outpatient
$1.00 par value Rehabilitation East,
Inc.
CMC Center Corporation California G 750,000 common shares, 1,111 NC Resources, Inc.
no par value
ConsulTemps, Inc. Virginia G 5,000 common shares, 1,000 NovaCare Employee Services
$1.00 par value of Orlando, Inc.
</TABLE>
4
<PAGE> 142
<TABLE>
<CAPTION>
No.
Subsidiary Jurisdiction Borrower/ Authorized Shares Shareholder(s)
---------- ------------ Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
Coplin Physical Therapy Associates, Minnesota G 2,500 common shares, 100 RehabClinics, Inc.
Inc. no par value
Crowley Physical Therapy Clinic, Louisiana G 10,000 common shares, 500 RehabClinics, Inc.
Inc. no par value
Dale Clark Prosthetics, Inc. Iowa G 1,000 common shares, 20 NovaCare Orthotics &
$100 par value Prosthetics East, Inc.
Douglas Avery and Associates, Ltd. Virginia G 500 Series A Voting Common 100 RehabClinics, Inc.
Shares, $10.00 par value
300 Series B Non-Voting
Common Shares, $.01
par value
Douglas C. Claussen, R.P.T., California G 50,000 common shares, 10,187 RehabClinics, Inc.
Physical Therapy, Inc. no par value
E.A. Warnick-Pomeroy Co., Inc. Pennsylvania G 300 common shares, 16 NovaCare Orthotics &
$100 par value Prosthetics East, Inc.
Elk County Physical Therapy, Inc. Pennsylvania G 100,000 common shares, 2,000 NovaCare Outpatient
no par value Rehabilitation East, Inc.
Employee Benefits Management, Inc. Florida G 800,000 common shares, 428,747 NovaCare Employee Services
$.01 par value of America, Inc.
Employee Services, Inc. of North North Carolina G 800,000 common shares, 428,747 NovaCare Employee Services
Carolina no par value of America, Inc.
Employers' Risk Management, Inc. Florida G 800,000 common shares, 428,747 NovaCare Employee Services
$.01 par value of America, Inc.
</TABLE>
5
<PAGE> 143
<TABLE>
<CAPTION>
No.
Subsidiary Jurisdiction Borrower/ Authorized Shares Shareholder(s)
---------- ------------ Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
Fine, Bryant & Wah, Inc. Maryland G 50,000 Class A voting 2,000 NovaCare Outpatient
common shares, $1.00 par Rehabilitation East, Inc.
value
50,000 Class B 106 NovaCare Outpatient
non-voting common Rehabilitation East, Inc.
shares, $1.00 par value
Francis Naselli, Jr. & Stewart Rich Pennsylvania G 1,000 common shares, 1,000 RehabClinics, Inc.
Physical Therapists, Inc. no par value
Frank J. Malone & Son, Inc. Pennsylvania G 100,000 common shares, 2 NovaCare Orthotics &
$.10 par value Prosthetics East, Inc.
Gallery Physical Therapy Center, Minnesota G 1,048.85 common shares, 1,048.85 RehabClinics, Inc.
Inc. no par value
Georgia Physical Therapy of West Georgia G 5,000,000 common 1,000,200 RehabClinics, Inc.
Georgia, Inc. shares, $.01 par value
Georgia Physical Therapy, Inc. Georgia G 100,000 common shares, 1,000 RehabClinics, Inc.
$.50 par value
Greater Sacramento Physical Therapy California G 100,000 common shares, 38,250 RehabClinics, Inc. Peters,
Associates, Inc. no par value 11,250 Starkey & Todrank Physical
Therapy Corporation
Grove City Physical Therapy and Pennsylvania G 100,000 common shares, 10 NovaCare Outpatient
Sports Medicine, Inc. $10.00 par value Rehabilitation East, Inc.
Gulf Breeze Physical Therapy, Inc. Florida G 7,500 common shares, 200 RehabClinics, Inc.
$1.00 par value
</TABLE>
6
<PAGE> 144
<TABLE>
<CAPTION>
No.
Subsidiary Jurisdiction Borrower/ Authorized Shares Shareholder(s)
---------- ------------ Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
Gulf Coast Hand Specialists, Inc. Florida G 7,500 common shares, 100 RehabClinics, Inc.
$1.00 par value
Hand Therapy and Rehabilitation California G 10,000 common shares, 6,000 RehabClinics, Inc.
Associates, Inc. no par value
Hand Therapy Associates, Inc. Arizona G 1,000,000 common 250 RehabClinics, Inc.
shares, $10 par value
Hawley Physical Therapy, Inc. California G 100,000 common shares, 20,000 RehabClinics, Inc.
no par value
Heartland Rehabilitation, Inc. Indiana G 1,000 common shares, 100 NovaCare, Inc. (PA)
no par value
Indianapolis Physical Therapy and Indiana G 400,000 common shares, 267,808 RehabClinics, Inc.
Sports Medicine, Inc. no par value
Industrial Health Care Company, Inc. Connecticut G 20,000 common shares, 919 NC Resources, Inc.
$1.00 par value
J.E. Hanger, Incorporated Missouri G 10,000 common shares, 6,545 NovaCare Orthotics &
$10.00 par value Prosthetics East, Inc.
Jim All, Inc. Texas -- 1,000,000 common shares, 1,000 NovaCare Orthotics &
$1.00 par value Prosthetics West, Inc.
Kesinger Physical Therapy, Inc. California G 10,000 common shares, 1,000 RehabClinics, Inc.
no par value
Lynn M. Carlson, Inc. Arizona G 1,000,000 common shares, 6,400 RehabClinics, Inc.
$1.00 par value
McFarlen & Associates, Inc. Texas -- 100,000 common shares, 1,000 NovaCare Orthotics &
$.10 par value Prosthetics West, Inc.
</TABLE>
7
<PAGE> 145
<TABLE>
<CAPTION>
No.
Subsidiary Jurisdiction Borrower/ Authorized Shares Shareholder(s)
---------- ------------ Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
McKinney Prosthetics/Orthotics, Inc. Illinois G 1,000 Class A voting common 1,000 NovaCare Orthotics &
shares, $1.00 par value 50,000 10,000 Prosthetics East, Inc.
Class B non-voting common
shares, $1.00 par value
Medical Arts O&P Services, Inc. Wisconsin G 100,000 common shares, $.01 par 800 NovaCare Orthotics &
value Prosthetics East, Inc.
Metro Rehabilitation Services, Inc. Michigan G 50,000 common shares, $1.00 par 1,000 NovaCare Outpatient
value Rehabilitation East, Inc.
Michigan Therapy Centre, Inc. Michigan G 50,000 common shares, $.01 par 11,765 RehabClinics, Inc.
value
Mill River Management, Inc. Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
Mitchell Tannenbaum I, Inc. Illinois G 1,000 common shares, no par 100 RCI (S.P.O.R.T.), Inc.
value
Mitchell Tannenbaum II, Inc. Illinois G 1,000 common shares, no par 100 RCI (S.P.O.R.T.), Inc.
value
Mitchell Tannenbaum III, Inc. Illinois G 1,000 common shares, no par 100 RCI (S.P.O.R.T.), Inc.
value
Monmouth Rehabilitation, Inc. New Jersey G 100 common shares, no par 80 RehabClinics, Inc.
value
</TABLE>
8
<PAGE> 146
<TABLE>
<CAPTION>
No.
Subsidiary Jurisdiction Borrower/ Authorized Shares Shareholder(s)
---------- ------------ Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
NC Cash Management, Inc. Delaware G 1,000 common shares, $.01 100 NC Resources, Inc.
par value
NC Resources, Inc. Delaware G 1,000 common shares, $.01 par 100 NovaCare, Inc. (DE)
value
NCES Finance, Inc. Delaware G 3,000 common shares, $.01 par 100 NovaCare Employee Services,
value Inc.
NCES Holdings, Inc. Delaware G 3,000 common shares, $.01 par 100 NovaCare Employee Services,
value Inc.
NCES Licensing, Inc. Delaware G 3,000 common shares, $.01 par 100 NovaCare Employee Services,
value Inc.
New Mexico Physical Therapists, Inc. New Mexico G 50,000 common shares, $1.00 par 559 RehabClinics, Inc.
value
Northland Regional Orthotic and Minnesota G 25,000 common shares, no par 12 NovaCare Orthotics &
Prosthetic Center, Inc. value Prosthetics East, Inc.
Northside Physical Therapy, Inc. Ohio G 500 common shares, without par 100 RehabClinics, Inc.
value
NovaCare (Arizona), Inc. Arizona G 1,000 common shares, no par 1,000 NovaCare, Inc. (PA)
value
NovaCare (Colorado), Inc. Delaware G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
value
NovaCare (Texas), Inc. Texas G 100 common shares, $.01 par 100 NovaCare, Inc. (PA)
value
NovaCare Administrative Employee New York G 200 common shares, no par value 1 NovaCare Employee Services
Services of New York, Inc. TPI, Inc.
</TABLE>
9
<PAGE> 147
<TABLE>
<CAPTION>
No.
Subsidiary Jurisdiction Borrower/ Authorized Shares Shareholder(s)
---------- ------------ Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
NovaCare Administrative Employee Florida G 800,000 common shares, $.01 par 428,747 NovaCare Employee
Services, Inc. value Services of America,
Inc.
NovaCare Employee Services Club Florida G 800,000 common shares, $.01 par 428,747 NovaCare Employee
Staff, Inc. value Services of America,
Inc.
NovaCare Employee Services Easy Florida G 800,000 common shares, $.01 par 428,747 NovaCare Employee
Staff, Inc. value Services of America,
Inc.
NovaCare Employee Services New York G 200 common shares, no par value 1 NovaCare Employee
Northeast, Inc. Services TPI, Inc.
NovaCare Employee Services of Florida G 800,000 common shares $.01 par 428,747 NovaCare Employee
America, Inc. value Services, Inc.
500,000 preferred shares, no par 0
value
NovaCare Employee Services of Delaware G 200 common shares, $1.00 par 1 NovaCare Employee
Boston, Inc. value Services TPI, Inc.
NovaCare Employee Services of Florida G 50 common shares, no par 50 NovaCare Employee
Bradenton, Inc. value Services of America,
Inc.
NovaCare Employee Services of Florida G 800,000 common shares, $.01 428,747 NovaCare Employee
Florida, Inc. par value Services of America, Inc.
NovaCare Employee Services of New New York G 200 common shares, no par 1 NovaCare Employee Services
York, Inc. value TPI, Inc.
</TABLE>
10
<PAGE> 148
<TABLE>
<CAPTION>
No.
Subsidiary Jurisdiction Borrower/ Authorized Shares Shareholder(s)
---------- ------------ Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
NovaCare Employee Services of Florida G 1,000,000 common shares, $.01 50,000 NovaCare Employee
Orlando, Inc. par value Services
Resource One, Inc.
NovaCare Employee Services Resource Florida G 1,000,000 common shares, $.01 100,000 NovaCare Employee
One, Inc. par value Services, Inc.
NovaCare Employee Services TPI, New York G 11,111 common shares, $.01 6,261 NovaCare Employee
Inc. par value Services, Inc.
4,850 preferred shares, $.01 4,850 NovaCare Employee
par value Services, Inc.
NovaCare Employee Services, Inc. Delaware G 60,000,000 common shares, 19,400,000(1) Cannon &
$.01 par value Associates, Inc.
1,000,000 preferred shares, 0
$.01 par value
NovaCare Management Company, Inc. Delaware G 1,000 common shares, $.01 par 100 NovaCare Orthotics
value & Prosthetics, Inc.
NovaCare Management Services, Inc. Delaware G 1,000 common shares, $.01 par 100 NovaCare, Inc. (DE)
value
NovaCare Northside Therapy, Inc. Minnesota G 2,500 common shares, $10.00 100 NovaCare, Inc. (PA)
par value
NovaCare Occupational Health Delaware G 1,000 common shares, $.01 par 1,000 NC Resources, Inc.
Services, Inc. value
</TABLE>
(1) An additional 1,243,187 shares have been issued to officers, directors,
employees and former owners of NovaCare Employee Services, Inc. and/or its
subsidiaries, as listed on Exhibit A. Those shares are not pledged
hereunder. In addition, NovaCare Employee Services, Inc. has issued
424,000 options to purchase its common stock to officers, directors,
employees and employees of affiliates.
11
<PAGE> 149
<TABLE>
<CAPTION>
Subsidiary Jurisdiction Borrower/ Authorized No. Shares Shareholder(s)
---------- ------------ Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
NovaCare Orthotics & Prosthetics Delaware G 1,000 common shares, $.01 par 1,000 NovaCare Orthotics &
East, Inc. value Prosthetics Holdings, Inc.
NovaCare Orthotics & Prosthetics Delaware G 1,000 common shares, $.01 par 1,000 NovaCare Orthotics &
Holdings, Inc. value Prosthetics, Inc.
NovaCare Orthotics & Prosthetics California G 5,000,000 common shares, $.10 689,681 NovaCare Orthotics &
West, Inc. par value Prosthetics Holdings,Inc.
NovaCare Orthotics & Prosthetics, Delaware G 1,000 common shares, $.01 par 1,000 NC Resources, Inc.
Inc. value
NovaCare Outpatient Rehabilitation Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
East, Inc. value
NovaCare Outpatient Rehabilitation Kansas G 100,000 common shares, no par 1,250 RehabClinics, Inc.
I, Inc. value
NovaCare Outpatient Rehabilitation Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
West, Inc. value
NovaCare Outpatient Rehabilitation, Kansas G 500,000 common shares, $1.00 10,851 RehabClinics, Inc.
Inc. par value
NovaCare Rehab Agency of Alabama, Alabama G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
Inc. value
NovaCare Rehab Agency of Florida, Florida G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
Inc. value
NovaCare Rehab Agency of Georgia, Georgia G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
Inc. value
NovaCare Rehab Agency of Illinois, Illinois G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
Inc. value
</TABLE>
12
<PAGE> 150
<TABLE>
<CAPTION>
Subsidiary Jurisdiction Borrower/ Authorized No. Shares Shareholder(s)
---------- ----------- Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
NovaCare Rehab Agency of Kansas, Kansas G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
Inc. value
NovaCare Rehab Agency of Missouri, Missouri G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
Inc. value
NovaCare Rehab Agency of New New Jersey G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
Jersey, Inc. value
NovaCare Rehab Agency of North North Carolina G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
Carolina, Inc. value
NovaCare Rehab Agency of Northern California G 9,000 common shares, $1.00 100 NovaCare, Inc. (PA)
California, Inc. par value
NovaCare Rehab Agency of Ohio, Inc. Ohio G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
value
NovaCare Rehab Agency of Oklahoma, Oklahoma G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
Inc. value
NovaCare Rehab Agency of Oregon, Oregon G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
Inc. value
NovaCare Rehab Agency of Pennsylvania G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
Pennsylvania, Inc. value
NovaCare Rehab Agency of South South Carolina G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
Carolina, Inc. value
NovaCare Rehab Agency of Southern California G 9,000 common shares, $1.00 100 NovaCare, Inc. (PA)
California, Inc. par value
NovaCare Rehab Agency of Tennessee, Tennessee G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
Inc. value
</TABLE>
13
<PAGE> 151
<TABLE>
<CAPTION>
Subsidiary Jurisdiction Borrower/ Authorized No. Shares Shareholder(s)
---------- ----------- Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
NovaCare Rehab Agency of Virginia, Virginia G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
Inc. value
NovaCare Rehab Agency of Washington G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (PA)
Washington, Inc. value
NovaCare Rehab Agency of Wyoming, Wyoming G 1,000 common shares, no par 1,000 NovaCare, Inc. (PA)
Inc. value
NovaCare Rehabilitation Agency of Wisconsin G 9,000 common shares, $1.00 10 NovaCare, Inc. (PA)
Wisconsin, Inc. par value
NovaCare Rehabilitation, Inc. Minnesota G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
NovaCare Service Corp. Delaware G 1,000 common shares, $.01 par 1,000 NovaCare, Inc. (DE)
value
NovaCare, Inc. Pennsylvania B 5,000 common shares, no par 1,000 NC Resources, Inc.
value
NovaFunds, Inc. Delaware B 3,000 common shares, $.01 par 100 NC Resources, Inc.
value
NovaMark, Inc. Delaware G 3,000 common shares, $.01 par 100 NovaFunds, Inc.
value
NovaStock, Inc. Delaware G 3,000 common shares, $.01 par 100 NovaFunds, Inc.
value
Opus Care, Inc. Illinois G 50,000 common shares, no par 1,000 NovaCare Orthotics &
value Prosthetics East,Inc.
</TABLE>
14
<PAGE> 152
<TABLE>
<CAPTION>
Subsidiary Jurisdiction Borrower/ Authorized No. Shares Shareholder(s)
---------- ----------- Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
Ortho East, Inc. Massachusetts G 12,500 common shares, no par 100 NovaCare Orthotics &
value Prosthetics East,Inc.
Ortho Rehab Associates, Inc. Florida G 1,000 common shares, $1.00 100 RehabClinics, Inc.
par value
Ortho-Fab Laboratories, Inc. Illinois G 500 common shares, no par 500 NovaCare Orthotics &
value Prosthetics East,Inc.
Orthopedic and Sports Physical California G 100,000 common shares, no par 3,000 RehabClinics, Inc.
Therapy of Cupertino, Inc. value
Orthopedic Rehabilitative Services, Illinois G 5,000 common shares, no par 1,000 NovaCare Orthotics &
Ltd. value Prosthetics East, Inc.
Orthotic & Prosthetic Florida G 1,000 common shares, $1.00 500 NovaCare Orthotics &
Rehabilitation Technologies, Inc. par value Prosthetics East, Inc.
Orthotic and Prosthetic Associates, Massachusetts G 300,000 common shares, $.01 200,000 NovaCare Orthotics &
Inc. par value Prosthetics East, Inc.
OSI Midwest, Inc. Nebraska -- 10,000 common shares, $1.00 7,651 NovaCare Orthotics &
par value Prosthetics Holdings, Inc.
Peters, Starkey & Todrank Physical California G 50,000 common shares, no par 91 RehabClinics, Inc.
Therapy Corporation value
Physical Focus Inc. Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
Physical Rehabilitation Partners, Louisiana G 5,000 common shares, no par 106.12 RehabClinics, Inc.
Inc. value
Physical Therapy Institute, Inc. Louisiana G 500 common shares, no 500 RehabClinics, Inc.
par value
</TABLE>
15
<PAGE> 153
<TABLE>
<CAPTION>
Subsidiary Jurisdiction Borrower/ Authorized No. Shares Shareholder(s)
---------- ----------- Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
Professional Insurance Planners of Florida G 5,000 common shares, $.10 par 250 NovaCare Employee Services
Florida, Inc. value Resource One, Inc.
Professional Orthotics and New Mexico G 50,000 common shares, $1.00 40,000 NovaCare Orthotics &
Prosthetics, Inc. par value Prosthetics West, Inc.
Professional Orthotics and New Mexico G 50,000 common shares, $1.00 30,000 NovaCare Orthotics &
Prosthetics, Inc. of Santa Fe par value Prosthetics West, Inc.
Progressive Orthopedic California G 20,000 common shares, $10.00 2,618 NovaCare Orthotics &
par value Prosthetics West,Inc.
Prosthetics-Orthotics Associates, Illinois G 1.000 common shares, no par 500 NovaCare Orthotics &
Inc. value Prosthetics East,Inc.
Quad City Management, Inc. Iowa G 100,000 common shares, no par 1,000 RehabClinics, Inc.
value
RCI (Colorado), Inc. Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
RCI (Exertec), Inc. Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
RCI (Illinois), Inc. Delaware G 100 common shares, 100 RehabClinics, Inc.
no par value
RCI (Michigan), Inc. Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
RCI (S.P.O.R.T.), Inc. Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
RCI (WRS), Inc. Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
</TABLE>
16
<PAGE> 154
<TABLE>
<CAPTION>
Subsidiary Jurisdiction Borrower/ Authorized No. Shares Shareholder(s)
---------- ----------- Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
RCI Nevada, Inc. Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
Rebound Oklahoma, Inc. Oklahoma G 500 common shares, $1.00 par 500 RehabClinics, Inc.
value
Redwood Pacific Therapies, Inc. California G 100,000 common shares, no par 15,120 RehabClinics, Inc.
value
Rehab Managed Care of Arizona, Inc. Delaware B 1,000 common shares, $.01 par 100 RehabClinics, Inc.
value
Rehab Provider Network Florida G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
of Florida, Inc. value
Rehab Provider Network - New New Jersey G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
Jersey, Inc. value
Rehab Provider Network - California G 100 common shares, $.10 par 100 RehabClinics, Inc.
California, Inc. value
Rehab Provider Network - Delaware, Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
Inc. value
Rehab Provider Network - Georgia, Georgia G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
Inc. value
Rehab Provider Network - Illinois, Illinois G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
Inc. value
Rehab Provider Network - Indiana, Indiana G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
Inc. value
Rehab Provider Network - Maryland, Maryland G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
Inc. value
</TABLE>
17
<PAGE> 155
<TABLE>
<CAPTION>
Subsidiary Jurisdiction Borrower/ Authorized No. Shares Shareholder(s)
---------- ----------- Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
Rehab Provider Network - Michigan, Michigan G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
Inc. value
Rehab Provider Network - Ohio, Inc. Ohio G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
Rehab Provider Network - Oklahoma, Oklahoma G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
Inc. value
Rehab Provider Network - Virginia, Virginia G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
Inc. value
Rehab Provider Network - District of G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
Washington, D.C., Inc. Columbia value
Rehab Provider Network - Pennsylvania G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
Pennsylvania, Inc. value
Rehab Provider Network of Colorado G 100 common shares, $.01 100 RehabClinics, Inc.
Colorado, Inc. par value
Rehab Provider Network of Nevada, Nevada G 100 common shares, $1.00 par 100 RehabClinics, Inc.
Inc. value
Rehab Provider Network of New New Mexico G 1,000 common shares, $.01 1,000 RehabClinics, Inc.
Mexico, Inc. par value
Rehab Provider Network of Texas, Texas G 1,000 common shares, $.01 1,000 RehabClinics, Inc.
Inc. par value
Rehab Provider Network of Wisconsin G 1,000 common shares, $.01 1,000 RehabClinics, Inc.
Wisconsin, Inc. par value
Rehab World, Inc. Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
</TABLE>
18
<PAGE> 156
<TABLE>
<CAPTION>
Subsidiary Jurisdiction Borrower/ Authorized No. Shares Shareholder(s)
---------- ----------- Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
Rehab/Work Hardening Management Pennsylvania G 500 common shares, no 500 RehabClinics, Inc.
Associates, Ltd. par value
RehabClinics (COAST), Inc. Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
RehabClinics (Galaxy), Inc. Illinois -- 1,200 Class A common shares, RCI (S.P.O.R.T.),Inc.(60%)
no par value
RehabClinics (New Jersey), Inc. Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
RehabClinics (PTA), Inc. Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
RehabClinics (SPT), Inc. Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
RehabClinics Abilene, Inc. Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
RehabClinics Dallas, Inc. Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
value
RehabClinics Pennsylvania, Inc. Pennsylvania G 1,000 common shares, no par 1,000 RehabClinics (SPT), Inc.
value
RehabClinics, Inc. Delaware B 1,000 common shares, $.01 par 1,000 NC Resources, Inc.
value
Rehabilitation Fabrication, Inc. Massachusetts G 15,000 common shares, no par 1,000 Orthotic and Prosthetic
value Associates, Inc.
Robert M. Bacci, R.P.T. Physical California G 100,000 common shares, 5,000 RehabClinics, Inc.
Therapy, Inc. no par value
</TABLE>
19
<PAGE> 157
<TABLE>
<CAPTION>
Subsidiary Jurisdiction Borrower/ Authorized No. Shares Shareholder(s)
---------- ----------- Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
Robin Aids Prosthetics, California G 50,000 common shares, no par 50,000 NovaCare Orthotics &
Inc. value Prosthetics West, Inc.
Rx One, Inc. Florida G 1,000,000 common shares, $.01 100,000 NovaCare Employee Services,
par value Inc.
S.T.A.R.T., Inc. Massachusetts G 12,500 common shares, no par 200 RehabClinics, Inc.
value
Salem Orthopedic & Oregon G 500 common shares, no par 56.15 NovaCare Orthotics &
Prosthetic, Inc. value Prosthetics West, Inc.
San Joaquin Orthopedic, Inc. California G 500,000 common shares, no par 550 NovaCare Orthotics &
value Prosthetics West, Inc.
SG Rehabilitation Agency, Inc. Pennsylvania G 100,000 common shares, $10.00 100 NovaCare, Inc. (PA)
par value
SG Speech Associates, Inc. Pennsylvania G 100,000 common shares, $10.00 100 NovaCare, Inc. (PA)
par value
South Jersey Physical Therapy New Jersey G 2,500 common shares, no par 2,500 NovaCare Outpatient
Associates, Inc. value Rehabilitation East, Inc.
Southpointe Fitness Center, Pennsylvania G 100,000 common shares, $1.00 1,000 NovaCare Outpatient
Inc. par value Rehabilitation East, Inc.
Southwest Medical Supply New Mexico G 10,000 common shares, $1.00 10,000 RehabClinics, Inc.
Company par value
Southwest Physical Therapy, New Mexico G 500,000 common shares, 12,500 RehabClinics, Inc.
Inc. no par value
Southwest Therapists, Inc. New Mexico G 5 common shares, no par value 5 RehabClinics, Inc.
</TABLE>
20
<PAGE> 158
<TABLE>
<CAPTION>
Subsidiary Jurisdiction Borrower/ Authorized No. Shares Shareholder(s)
---------- ----------- Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
Sporthopedics Sports and Physical California G 10,000 common shares, no par 8,000 RehabClinics, Inc.
Therapy Centers, Inc. value
Sports Therapy and Arthritis Delaware G 1,000 common shares, $.01 par 1,000 RehabClinics, Inc.
Rehabilitation, Inc. value
Staffing Technologies, Inc. New York G 200 common shares, no par 1 NovaCare Employee Services
value TPI, Inc.
Star Physical Therapy Inc. Florida G 1,000 common shares, $1.00 60 RehabClinics, Inc.
par value
Stephenson-Holtz, Inc. California G 100,000 common shares, no par 10,000 RehabClinics, Inc.
value
Texoma Health Care Center, Inc. Texas G 10,000 common shares, $1.00 1,000 NovaCare Orthotics &
par value Prosthetics West, Inc.
The Center for Physical Therapy and New Mexico G 500,000 common shares, no par 1,000 RehabClinics, Inc.
Rehabilitation, Inc. value
The Orthopedic Sports and Pennsylvania G 3,000 common shares, no par 2,000 RehabClinics, Inc.
Industrial Rehabilitation Network, value
Inc.
Theodore Dashnaw Physical Therapy, California G 100 common shares, no 30 RehabClinics, Inc.
Inc. par value
Treister, Inc. Ohio G 500 common shares, no par 100 NovaCare Outpatient
value Rehabilitation East, Inc.
Union Square Center for California G 1,000 common shares, no par 500 RehabClinics, Inc.
Rehabilitation & Sports Medicine, value
Inc.
Vanguard Rehabilitation, Inc. Arizona G 1,000,000 common shares, 64,500 RehabClinics, Inc.
$1.00 par value
</TABLE>
21
<PAGE> 159
<TABLE>
<CAPTION>
Subsidiary Jurisdiction Borrower/ Authorized No. Shares Shareholder(s)
---------- ----------- Guarantor Capital Issued --------------
--------- ------- ------
<S> <C> <C> <C> <C> <C>
Wayzata Physical Therapy Center, Minnesota G 2,500 common shares, no par 1,000 RehabClinics, Inc.
Inc. value
West Side Physical Therapy, Inc. Ohio G 750 common shares, no par 100 NovaCare Outpatient
value Rehabilitation East, Inc.
West Suburban Health Partners, Inc. Minnesota G 25,000 common shares, $1.00 990 RehabClinics, Inc.
par value
Western Rehab Services, Inc. Arizona G 100,000 common shares, no par 1,000 NovaCare, Inc. (PA)
value
Workers Rehabilitation Services, Illinois -- 10,000 common shares, no par RCI (WRS), Inc. (60%)
Inc. value
</TABLE>
22
<PAGE> 160
<TABLE>
<CAPTION>
II. PARTNERSHIP INTERESTS
Name Jurisdiction Partnership Interest
- ---- ------------ --------------------
<S> <C> <C>
Advanced Orthopedic Services, Ltd. Texas 99% limited partnership interest owned by
RehabClinics Dallas, Inc. who is also the
general partner 1% limited partnership interest
owned by RehabClinics, Inc.
Galaxy North Limited Partnership Illinois 60% owned by RCI (S.P.O.R.T.), Inc.
Galaxy West Limited Partnership Illinois 60% owned by RCI (S.P.O.R.T.), Inc.
Land Park Physical Therapy California 50% owned by RehabClinics, Inc.
50% owned by Union Square Center for
Rehabilitation & Sports Medicine, Inc.
McFarlen & Associates I Texas 99.9% owned by OSI Midwest, Inc.
McFarlen & Associates II Texas 99.9% owned by OSI Midwest, Inc.
McFarlen & Associates III Texas 99.9% owned by OSI Midwest, Inc.
McFarlen & Associates IV Texas 99.9% owned by OSI Midwest, Inc.
Northwest Suburban Worker Rehabilitation Illinois 662/3% owned by RCI (WRS), Inc.
Services Limited Partnership
Orthomedics - Voner (Rancho) California 50% owned by NovaCare Orthotics & Prosthetics
Holdings, Inc.
Orthomedics - Voner (Whittier) California 50% owned by NovaCare Orthotics &
Prosthetics Holdings, Inc.
T.J. Partnership Delaware 75% owned by RehabClinics (PTA), Inc.
West Suburban Worker Rehabilitation Illinois 662/3% owned by RCI (WRS), Inc.
Services Limited Partnership
</TABLE>
23
<PAGE> 161
III. LIMITED LIABILITY CORP.
<TABLE>
<CAPTION>
Name Jurisdiction Partnership Interest
- ---- ------------ --------------------
<S> <C> <C>
TJ Corporation I, L.L.C. Delaware RCI (Illinois), Inc. - 75% interest
WorkCare, L.L.C. Delaware NovaCare, Inc. - 88% interest
</TABLE>
IV. OPTIONS TO PURCHASE
1. RCI (WRS), Inc., a Delaware corporation owns 66 2/3% of Worker
Rehabilitation Services, Inc., an Illinois Corporation ("WRS"). WRS
is a general and limited partner of Northwest Suburban Worker
Rehabilitation Services Limited Partnership, an Illinois limited
partnership currently owning a 66 2/3% interest. RCI (WRS), Inc. will
acquire the remaining corporate and partnership interests on December
30, 1994 and December 30, 1995 in the amount of 16 2/3% and 16 2/3%
each year.
2. RCI (WRS), Inc., a Delaware corporation owns 66 2/3% of Worker
Rehabilitation Services, Inc., an Illinois Corporation ("WRS"). WRS
is a general and limited partner of West Suburban Worker Rehabilitation
Services Limited Partnership, an Illinois limited partnership currently
owning a 66 2/3% interest. RCI (WRS), Inc. will acquire the remaining
corporate and partnership interests on December 30, 1994 and December
30, 1995 in the amount of 16 2/3% and 16 2/3% each year.
3. RCI (S.P.O.R.T.), Inc., a Delaware corporation owns 60% of Galaxy
Service Corporation, an Illinois corporation ("GSC"). GSC owns a 75%
participating general partnership interest in Galaxy North Limited
Partnership, an Illinois limited partnership (the "Partnership"). GSC
will acquire the remaining 40% interest in GSC on December 31, 1994 and
December 31, 1995 in the amount of 20% each year and the remaining 10%
limited partnership interests in the Partnership December 31, 1994 and
December 31, 1995 in amount of 5% per year.
4. RCI (S.P.O.R.T.), Inc., a Delaware corporation owns 60% of Galaxy
Service Corporation, an Illinois corporation ("GSC"). GSC owns a 75%
participating general partnership interest in Galaxy Worth Limited
Partnership, an Illinois limited partnership (the "Partnership"). GSC
will acquire the remaining 40% interest in GSC on December 31, 1994 and
December 31, 1995 in the amount of 20% each year and the remaining 10%
limited partnership interests in the Partnership December 31, 1994 and
December 31, 1995 in amount of 5% per year.
5. Orthomedics - Voner (Rancho), a California general partnership. A 50%
interest is held NovaCare Orthotics & Prosthetics Holdings, a Delaware
wholly owned subsidiary of NovaCare Orthotics & Prosthetics, Inc., a
Delaware wholly owned subsidiary of NovaCare, Inc. (Delaware). The
remaining 50% is owned by Mr. Voner.
24
<PAGE> 162
6. Orthomedics - Voner (Whittier), a California general partnership. A
50% interest is held NovaCare Orthotics & Prosthetics Holdings, a
Delaware wholly owned subsidiary of NovaCare Orthotics & Prosthetics,
Inc., a Delaware wholly owned subsidiary of NovaCare, Inc. (Delaware).
The remaining 50% is owned by Mr. Voner.
25
<PAGE> 163
EXHIBIT A
ADDITIONAL SHAREHOLDER INFORMATION FOR NOVACARE EMPLOYEE SERVICES, INC.
NOVACARE EMPLOYEE SERVICES, INC. STOCK & SHAREHOLDER DATA
# AUTHORIZED: 60,000,000
TREASURY SHARES: 562,500
<TABLE>
<CAPTION>
SHAREHOLDER CERTIFICATE # DATE # SHARES
<S> <C> <C> <C>
Cannon & Associates, Inc. 48 7/1/97 18,200,000
Cannon & Associates, Inc. 49 7/1/97 1,200,000
Andrew W. Stith 46 4/23/97 5,000
Bernard Clinton Byrd, Jr. 2 10/8/96 93,750
Bernard Clinton Byrd, Jr. 37 5/15/97 22,500
Bernard Clinton Byrd, Jr. 47 2/28/97 30,000
Deborah M. Skinner 6 2/7/97 10,319
Edward G. Chiles and Anne H. Chiles 20 2/27/97 9,485
Edward G. Chiles and Anne H. Chiles 30 4/21/97 1,107
First Union National Bank, N.A. as Custodian for the 10 2/13/97 125,000
IRA of Loren J. Hulber
James E. Boyd 16 2/27/97 13,213
James E. Boyd 26 4/21/97 1,541
James E. Boyd and Sandra Boyd 18 2/27/97 4,793
James E. Boyd and Sandra Boyd 28 4/21/97 559
John Skinner, III 7 2/7/97 9,268
James W. McLane 43 5/1/97 10,000
Lawton Chiles 21 2/27/97 13,780
Lawton Chiles 31 4/21/97 1,608
Loren J. Hulber 11 2/17/97 125,000
Loren J. Hulber 12 2/17/97 125,000
Malvern and Carolyn Tippett 8 2/7/97 9,803
Milton S. May and Brenda B. May 19 2/27/97 6,483
Milton S. May and Brenda B. May 29 4/21/97 757
Prostaff Human Resources, Inc. 39 5/15/97 11,000
Quansoo-TPI, L.L.C. 4 2/6/97 125,000
Rhea G. Chiles 22 2/27/97 13,780
Rhea G. Chiles 32 4/21/97 1,608
</TABLE>
1
<PAGE> 164
<TABLE>
<S> <C> <C> <C>
Suzan F. Boyd 14 2/27/97 77,105
Suzan F. Boyd 35 4/21/97 8,995
Terry DeLong 9 2/7/97 297
Thomas D. Schubert 45 6/10/97 10,000
Valerie Boyd 15 2/27/97 53,842
Valerie Boyd 36 4/21/97 6,281
Valerie Boyd as Trustee of the Wilbur H. Boyd 2-Yr 23 2/27/97 28,265
Grantor Retained Annuity Trust
Valerie Boyd as Trustee of the Wilbur H. Boyd 2-Yr 33 4/21/97 3,298
Grantor Retained Annuity Trust
Valerie Boyd as Trustee of the Fay T. Boyd 5-Yr Grantor 24 2/27/97 141,041
Retained Annuity Trust
Valerie Boyd as Trustee of the Fay T. Boyd 5-Yr Grantor 34 4/21/97 16,455
Retained Annuity Trust
William E. Mayville 3 10/8/96 93,750
William E. Mayville 38 5/15/97 18,750
Wayne R. Lynn 17 2/27/97 13,213
Wayne R. Lynn 27 4/21/97 1,541
</TABLE>
2
<PAGE> 165
SCHEDULE 8.02(q)
AFFILIATE TRANSACTIONS BETWEEN
NOVACARE, INC. AND NOVACARE EMPLOYEE SERVICES, INC.
- - Trademark Agreement
- - Loan Agreement
- - Employee Services Agreement
- - Management Agreement
- - Temporary Staffing Agreement
<PAGE> 166
EXHIBIT 8.01(m)(iii)
COMPLIANCE CERTIFICATE
____________________, 19__
PNC BANK, NATIONAL ASSOCIATION
as Agent for the Banks party
to the Credit Agreement Referred to Below
Fifth Avenue and Wood Street
Pittsburgh, PA 15265
Ladies and Gentlemen:
I refer to the Credit Agreement dated as of May 27, 1994 (as amended,
supplemented or modified from time to time, the "Credit Agreement") among
NOVACARE, INC., a Delaware corporation ("NovaCare"), and the other Borrowers
and the Guarantors under such Credit Agreement (collectively, the "Loan
Parties"), the Banks party thereto and PNC BANK, NATIONAL ASSOCIATION, as Agent
for such Banks. Unless otherwise defined herein, terms defined in the Credit
Agreement are used herein with the same meanings.(1)
I, ______________________________, [President/Chief Executive
Officer/Chief Financial Officer] of NovaCare, do hereby certify pursuant to
Section 8.01(m)(iii) of the Credit Agreement on behalf of NovaCare as of the
[fiscal quarter/year ended _______________, 19___] the "Report Date"), as
follows:
(1) Minimum Current Ratio. (Section 8.02(k)). The ratio of (i)
consolidated current assets of NovaCare and its Subsidiaries to
(ii) consolidated current liabilities of NovaCare and its
Subsidiaries calculated as of the Report Date is __________ to
1.0 which is not less than the ratio of 1.75 to 1 as set forth
in Section 8.02(k).
[For periods on and after the Spin-Off Consummation, the current
assets and the current liabilities of NovaCare Employee
Services, Inc. shall be excluded from calculation of such ratio
- See Schedule A - Item (1)]
(2) Minimum Net Worth. (Section 8.02(l)). As of the Report Date,
the Consolidated Net Worth is $__________ which is not less than
the
- ----------------------------------
(1) For periods from and after the Spin-Off Consummation NovaCare Employee
Services, Inc. is excluded as a Subsidiary of NovaCare from all calculations
for NovaCare and its consolidated Subsidiaries.
<PAGE> 167
PNC BANK, NATIONAL ASSOCIATION
_____________________, 19_____
Page 2
Minimum Net Worth Requirement which is $__________. Such amounts
are computed as follows:
(A) Consolidated Net Worth as of the Report Date:
Total stockholders' equity of NovaCare and its
Subsidiaries $_______
[For periods on and after the Spin-Off
Consummation, the stockholders' equity of
NovaCare Employee Services, Inc.
shall be excluded from such calculation
- See Schedule A - Item (2)]
(B) Minimum Net Worth Requirement as of the Report Date:
(i) $489,675,000
[To be reset in accordance with the Credit
Agreement as of the date of the Spin-Off
Consummation]
(ii) Seventy-five percent (75%) of Consolidated
Net Income of NovaCare (excluding NovaCare
Employee Services, Inc.) and its
Subsidiaries for each fiscal quarter in
which net income was earned (as opposed to
a net loss) for each fiscal quarter after
June 30, 1997 through (and including) the
Report Date computed as follows:
(a) consolidated net income $_______
(b) Less: increases in net
income resulting from
changes in GAAP after
Closing Date $_______
(c) Plus: decreases in net
income resulting from
changes in GAAP after
<PAGE> 168
PNC BANK, NATIONAL ASSOCIATION
_____________________, 19_____
Page 3
Closing Date $_______
(d) Subtotal sum of (a), (b)
and (c) $_______
(e) Line (d) times 75% $_______
(iii) To the extent not included in Item (ii)(e)
above, One Hundred Percent (100%) of all
federal and state income tax refunds
(collectively, the "Tax Refunds") received
by NovaCare or any of its Subsidiaries
during the period of determination relating
to the sales by them of their
rehabilitation hospitals during the fiscal
year ended June 30, 1995 $________
(iv) One hundred percent (100%) of all proceeds
received by NovaCare in connection with the
sale of shares of its capital stock after
deducting any expenses associated with
such sale (including proceeds from
conversion of the Subordinated Debentures)
during the period from July 1, 1997 through
(and including) the Report Date $________
(v) The cash purchase price of common
stock of NovaCare repurchased by
NovaCare during the period of
determination (not to exceed
an aggregate of $70,000,000 plus
the portion of the Tax Refunds used
for such repurchases for all periods
after July 1, 1995) $________
(vi) Sum of (i), (ii), (iii) and (iv)
reduced by (v) equals Minimum
Net Worth Requirement $________
[As of the Spin-Off Consumation, item (2)(B)(i) shall be restated in
accordance with the Credit Agreement. For periods on and after the Spin-
<PAGE> 169
PNC BANK, NATIONAL ASSOCIATION
_____________________, 19_____
Page 4
<TABLE>
<S> <C>
Off Consummation, the portion of Consolidated Net Income
attributable to NovaCare Employee Services, Inc. shall be
excluded from such calculation of Mininum Net Worth
Requirement in accordance with the Credit Agreement- See
Schedule A]
(3) Funded Debt to Capitalization. (Section 8.02(m)). As of
the Report Date, the ratio of (i) Consolidated Funded Debt
to (ii) Capitalization is __________ to 1.0. which is not
more than the ratio of .50 to 1.0 as set forth in Section
8.02(m).
(A) Consolidated Funded Debt, the numerator of the foregoing
ratio, is determined as follows:
Indebtedness of NovaCare and its Subsidiaries on the Report
Date to persons other than NovaCare and its Subsidiaries in
respect of, without duplication:
(i) Borrowed money $_______
(ii) Amounts raised under or liabilities in respect of
any note purchase or acceptance credit facility $_______
(iii) Reimbursement obligations under any letter of
credit, currency swap agreement, interest rate
swap, cap, collar or floor agreement or other
interest rate management device $_______
(iv) Other transactions (including without limitation
forward sale or purchase agreements, capitalized
leases and conditional sales agreements) having
the commercial effect of a borrowing of money
entered into to finance operations or capital
requirements (but not including trade payables and
accrued expenses incurred in the ordinary course
of business which are not represented by a
promissory note) $_______
</TABLE>
<PAGE> 170
PNC BANK, NATIONAL ASSOCIATION
_____________________, 19_____
Page 5
<TABLE>
<S> <C>
(v) any guaranty of indebtedness for borrowed money $_______
(vi) Sum of (i) through (v) equals Consolidated
Funded Debt $_______
(B) Capitalization, the denominator of the foregoing ratio, is
determined as follows:
(i) Consolidated Funded Debt (amount from
clause (vi) of Paragraph (A) above) $_______
(ii) Consolidated Net Worth, which is total
stockholders' equity of NovaCare
and its Subsidiaries as of the Report Date $_______
(iii) Sum of (i) and (ii) equals Capitalization $_______
[For periods on and after the Spin-Off Consummation, the portion
of Consolidated Funded Debt and the Capitalization attributable
to NovaCare Employee Services, Inc. shall be excluded from
calculation of such ratio - See Schedule A - Item 3]
(4) Funded Debt to Cash Flow From Operations. (Section 8.02(n)).
The ratio of (i) Consolidated Funded Debt on the Report Date to
(ii) Consolidated Cash Flow from Operations for the four fiscal
quarters ending on the Report Date is __________ to 1.0. Such
ratio is not more than 3.0 to 1.0 pursuant to Section 8.02(n).
(A) Consolidated Funded Debt, the numerator of the foregoing
ratio (amount from Paragraph 3(A) above) $_______
</TABLE>
<PAGE> 171
PNC BANK, NATIONAL ASSOCIATION
_____________________, 19_____
Page 6
<TABLE>
<S> <C>
(B) Consolidated Cash Flow from Operations(2), the denominator
of the foregoing ratio, for the four fiscal quarters
ending on the Report Date is determined as follows:
(i) Net Income $_______
(ii) Depreciation $_______
(iii) Amortization $_______
(iv) Other non-cash charges to net income $_______
(v) Interest Expense $_______
(vi) Income Tax Expense $_______
(vii) Sum of (i), (ii), (iii), (iv), (v) and (vi) $_______
(viii) Non-cash credits to net income $_______
(ix) Item (vii) reduced by item (viii) equals
Consolidated Cash Flow from Operations $_______
[For periods on and after the Spin-Off Consummation, the portion
of Funded Debt and Cash Flow from Operations attributable to
NovaCare Employee Services, Inc. shall be excluded from
calculation of such ratio - See Schedule A - Items 3 and 4]
(5) Minimum Fixed Charge Coverage Ratio(3). (Section 8.02(o)). The
ratio of (i) Consolidated Earnings Available for Fixed Charges
of NovaCare and
</TABLE>
- -----------------------------------
(2) To be adjusted in accordance with the definition of Consolidated Cash Flow
from Operations set forth in the Credit Agreement (a) to give effect to
Permitted Acquisitions and Permitted Asset Transfers during the four fiscal
quarters ending on the Report Date; and (b) to exclude the net income and other
items described in Clauses (ii) through (viii) attributable to Restricted
Excluded Entities.
(3) To be adjusted in accordance with the definitions of Consolidated Earnings
Available for Fixed Charges and Consolidated Fixed Charges set forth in the
Credit Agreement (a) to give effect to Permitted Acquisitions which occur
during the four fiscal quarters ending on the Report Date; and (b) to exclude
the net income and certain items of expense as provided in such definition
attributable to Restricted Excluded Entities.
<PAGE> 172
PNC BANK, NATIONAL ASSOCIATION
_____________________, 19_____
Page 7
<TABLE>
<S> <C>
its Subsidiaries to (ii) Consolidated Fixed Charges of NovaCare
and its Subsidiaries for the four fiscal quarters ending on the
Report Date is __________ to 1.0. Such ratio is not less than
1.4 to 1.0 pursuant to Section 8.02(o)
(A) Consolidated Earnings Available for Fixed Charges, the
numerator of the foregoing ratio is determined as follows:
(i) Net Income $___________
(ii) Interest Expense $___________
(iii) Income Tax Expense $___________
(iv) Depreciation $___________
(v) Amortization $___________
(vi) Other non-cash charges to net income $___________
(vii) Expenses under operating leases $___________
(viii) Sum of (i), (ii), (iii), (iv), (v) and (vi) $___________
(ix) Non-cash credits to net income $___________
(x) Item (viii) reduced by item (ix) equals
Consolidated Earnings Available for Fixed
Charges $___________
(B) Consolidated Fixed Charges, the denominator of the foregoing
ratio is determined as follows:
(i) Interest Expense $___________
(ii) Expenses under operating leases $___________
(iii) Income Tax Expense $___________
</TABLE>
<PAGE> 173
PNC BANK, NATIONAL ASSOCIATION
_____________________, 19_____
Page 8
<TABLE>
<S> <C>
(iv) Current maturities of long-term Indebtedness $___________
(v) Current principal payments under capitalized leases
(for the twelve (12) month period following
the Report Date) $___________
(vi) The sum of (i) through (v) $___________
[For periods on and after the Spin-Off Consummation, the portion
of Consolidated Earnings Available for Fixed Charges and
Consolidated Fixed Charges attributable to NovaCare Employee
Services, Inc. shall be excluded from calculation of such ratio
- See Schedule A - Item 5]
(6) Indebtedness Assumed in Permitted Acquisitions; Purchase
Money Security Interests (Sections 8.02(a)(v) and (vi)).
(a) Permitted Acquisitions and Purchase Money Security Interests
(Section 8.02(a)(v)). The amount of Indebtedness of the Loan
Parties described in Section 8.02(a)(v) of the Credit
Agreement is $__________ on the Report Date which is less
than $20,000,000, the maximum permitted amount. The amount
of such Indebtedness is computed as follows:
(i) Purchase Money Security Interests entered into in
the ordinary course of business $___________
(ii) Permitted Acquisitions (accounted for as a
"purchase" under GAAP) - Indebtedness (including
extensions and renewals thereof) either (1) assumed
by Loan Parties pursuant to acquisitions of the
assets of other persons (by purchase, merger or
otherwise) in Permitted Acquisitions (accounted for
as a "purchase" under GAAP) between the Closing
Date and the Report Date or (2) of corporations,
partnerships or other entities whose stock,
partnership interests or other ownership interests
were acquired by Loan Parties (by purchase, merger
or otherwise) in Permitted Acquisitions (accounted
for as a purchase under
</TABLE>
<PAGE> 174
PNC BANK, NATIONAL ASSOCIATION
_____________________, 19_____
Page 9
GAAP) between the Closing Date and the Report
Date, which in the case of either (1) or (2) above
remains outstanding on the Report Date:
<TABLE>
<CAPTION>
Loan Party Collateral
which is securing
now liable Date of the
on the Permitted Indebtedness Indebtedness
Indebtedness Acquisition (if any) Outstanding
------------ -------- -----------
<S> <C> <C> <C>
$
---------------- ------------ ------------- ---------------
$
---------------- ------------ ------------- ---------------
$
---------------- ------------ ------------- ---------------
Total $
---------------
</TABLE>
<TABLE>
<S> <C> <C>
(iii) Sum of Lines (i) and (ii) (may not exceed
$20,000,000) $
=============
(b) Permitted Acquisitions (accounted for as a "pooling of
interests" under GAAP) (Section 8.02(a)(vi)). The
amount of Indebtedness of the Loan Parties described in
Section 8.02(a)(vi) of the Credit Agreement incurred
during the current fiscal year was $__________ which is
less than $100,000,000, the maximum amount permitted to
be incurred during the current fiscal year. The amount
of such Indebtedness is computed as follows:
Indebtedness either (1) assumed by acquiring Loan
Parties in Permitted Acquisitions (accounted for as a
"pooling of interests" under GAAP) during the current
fiscal year, or (2) of Pooling Partners and their
Subsidiaries whose stock or other ownership interests
were acquired in Permitted Acquisitions (accounted for
as a "pooling of interests" under GAAP) during the
current fiscal year, including in the case of both (1)
and (2) any Indebtedness which has been repaid since
the date of the pooling as well as Indebtedness which
remains outstanding on the date of this certificate.
</TABLE>
<PAGE> 175
PNC BANK, NATIONAL ASSOCIATION
_____________________, 19_____
Page 10
<TABLE>
<CAPTION>
Loan Party which
assumed Indebtedness Collateral securing
or Pooling Partner whose Date of the Indebtedness Amount of
stock was acquired Pooling (if any) Indebtedness
------------------ ------- -------- ------------
<S> <C> <C> <C>
$
---------------- ---------- ------------- -------------
$
---------------- ---------- ------------- -------------
$
---------------- ---------- ------------- -------------
Total (may not exceed $100,000,000) $
-------------
</TABLE>
7) Permitted Additional Institutional Indebtedness (Section
8.02(a)(viii) and definition of "Permitted Additional
Institutional Indebtedness"). The following is a list of
Permitted Additional Institutional Indebtedness outstanding
on the Report Date:
<TABLE>
<CAPTION>
Documentation governing
has been delivered
Loan to Agent**
Lender Party Amount (yes/no)
------ ----- ------ --------
<S> <C> <C> <C>
$
--------------- ------------ ------------- --------------
$
--------------- ------------ ------------- --------------
$
--------------- ------------ ------------- --------------
</TABLE>
**Documentation governing Indebtedness should be enclosed with the certificate
if it has not previously been delivered to Agent
(8) Permitted Additional Subordinated Indebtedness (Section
8.02(a)(ix) and definition of "Permitted Additional
Subordinated Indebtedness"). The following is a list of all
Permitted Additional Subordinated Indebtedness outstanding on
the Report Date:
<PAGE> 176
PNC BANK, NATIONAL ASSOCIATION
_____________________, 19_____
Page 11
<TABLE>
<CAPTION>
Documentation governing
debt has been delivered to
Loan Agent **
Lender Party Amount (yes/no)
------ ----- ------ --------
<S> <C> <C> <C>
$
--------------- ------------ ------------- ------------
$
--------------- ------------ ------------- ------------
$
--------------- ------------ ------------- ------------
</TABLE>
**Documentation governing Indebtedness should be enclosed with the
certificate if it has not previously been delivered to Agent
(9) Permitted Acquisitions.(4) (Section 8.02(d)) The Loan Parties
made the following Permitted Acquisitions during the quarter
ending on the Report Date:
<TABLE>
<CAPTION>
Type of
Transaction
(Purchase or
Seller/ Pooling under Date of
Pooling Partner GAAP) Closing Consideration
--------------- ------ ------- -------------
<S> <C> <C> <C>
-------------- ------------- ------- ------------
-------------- ------------- ------- ------------
-------------- ------------- ------- ------------
</TABLE>
The aggregate Consideration with respect to the Permitted
Acquisitions made during the quarter ending on the Report Date
together with the aggregate Consideration for all other
Permitted Acquisitions during the current fiscal year is
$_____________, which does not exceed the permitted amount of
$150,000,000.
(10) Permitted Investment in Excluded Entities; (Sections
8.02(f) and (i)). The Loan Parties' Restricted Investments: (a)
of the type described in clause (i) of the definition of
Permitted Investment in Excluded Entities collectively are
$_______; (b) of the type described in clause (ii) of the
definition of
- ----------------------------------
(4) Limitations on Consideration per Permitted Acquisition and in the aggregate
for all Permitted Acquisitions in each fiscal year not to exceed amounts set
forth in Section 8.02(d)
<PAGE> 177
PNC BANK, NATIONAL ASSOCIATION
_____________________, 19_____
Page 12
Permitted Investment in Excluded Entities collectively are
$_______; and (c) of the type described in clause (iii) of the
definition of Permitted Investment in Excluded Entities
collectively are $________. In the aggregate, the Permitted
Investment in Excluded Entities described in the preceding
clauses (a), (b), and (c) is $________ which is less than the
permitted amount of $50,000,000. The foregoing is computed
below. The table below lists as of the Report Date each
Subsidiary and Minority Subsidiary which is not a Borrower or
Guarantor (whether or not the Loan Parties have made a
Restricted Investment therein), each Unaffiliated Managed
Company in which the Loan Parties have made a Restricted
Investment and each other entity in which the Loan Parties have
made a Permitted Investment in Excluded Entities.
<TABLE>
<CAPTION>
(iv)
(i) Other Total
Investments(5) (iii) obligations Restricted
in or (ii) Guaranties to or for Investments
contributions Loans to on behalf of the benefit (Sum of
Excluded to Excluded Excluded Excluded of Excluded columns (i)
Entity Entity Entity Entity Entity thru (iv))
------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
$
-------- --------- --------- ------------ ---=-------- -----------
$
-------- --------- --------- ------------ ------------ -----------
Total (must be less than $50,000,000) $
-----------
</TABLE>
- ----------------------------------
(5) Indicate if nature of Restricted Investment is tangible property.
Restricted Investment in certain Excluded Entities is limited to the per entity
amount and certain aggregate sublimits specified in the definition of Permitted
Investment in Excluded Entities.
<PAGE> 178
PNC BANK, NATIONAL ASSOCIATION
_____________________, 19_____
Page 13
(12) Events of Default or Potential Default. No event has
occurred and is continuing which constitutes an Event
of Default or Potential Default.
(13) Representations and Warranties. The representations
and warranties contained in Article VI of the Credit
Agreement are true on and as of the date hereof with
the same effect as though such representations and
warranties had been made on and as of the date hereof
(except representations and warranties which
expressly relate solely to an earlier date or time,
which representations and warranties shall have been
true and correct on and as of the specific dates or
times referred to therein) and the Loan Parties have
performed and complied with all covenants and
conditions hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate this _____ day of _____________, 19_____.
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
<PAGE> 179
SCHEDULE A
to Compliance Certificate
ADJUSTMENTS FOR NOVACARE EMPLOYEE SERVICES, INC.
________________________, 19__
<TABLE>
<S> <C>
(1) Minimum Current Ratio. (Section 8.02(k)).
(i) current assets of NovaCare Employee Services,
Inc. (the "NovaCare Employee Services, Inc.")
as of the Report Date is $_______________
(ii) current liabilities of NovaCare Employee Services, Inc.
as of the Report Date is $_______________
(2) Minimum Net Worth. (Section 8.02(l)).
(A) As of the Report Date, the Stockholders' equity of
NovaCare Employee Services, Inc. is $________________
(B) As of the Report Date, the Net Income attributable to
NovaCare Employee Services, Inc. (excluding from such net
income any increases or decreases in income or expenses
resulting from changes in GAAP on or after the
Closing Date is $_______________
(3) Funded Debt to Capitalization. (Section 8.02(m)).
(A) Funded Debt, of NovaCare Employee Services, Inc. is determined
as follows:
Indebtedness of NovaCare Employee Services, Inc. on the Report Date to persons other
than NovaCare and its Subsidiaries in respect of, without duplication:
(i) Borrowed money $_______
(ii) Amounts raised under or liabilities in respect of any
note purchase or acceptance credit facility $_______
(iii) Reimbursement obligations under any letter of credit,
currency swap agreement, interest rate swap, cap, collar
or floor agreement or other interest rate management device $_______
(iv) Other transactions (including without limitation forward
sale or purchase
</TABLE>
<PAGE> 180
PNC BANK, NATIONAL ASSOCIATION
_____________________, 19_____
Page 15
<TABLE>
<S> <C>
agreements, capitalized leases and
conditional sales agreements) having the
commercial effect of a borrowing of money
entered into to finance operations or
capital requirements (but not including
trade payables and accrued expenses
incurred in the ordinary course of business
which are not represented by a promissory
note) $_______
(v) any guaranty of indebtedness for borrowed money $__________
(vi) Sum of (i) through (v) equals Funded Debt of NovaCare
Employee Services, Inc. $__________
(B) Capitalization, of NovaCare Employee Services, Inc., is
determined as follows:
(i) Funded Debt attributable to NovaCare
Employee Services, Inc. $__________
(ii) Total stockholders' equity of NovaCare
Employee Services, Inc. as of the Report Date $__________
(iii) Sum of (i) and (ii) equals Capitalization
attributable to NovaCare Employee Services, Inc. $__________
(4) Cash Flow From Operations.
(A) Cash Flow from Operations, attributable to NovaCare Employee Services, Inc. for the four fiscal
quarters ending on the Report Date is determined as follows:
(i) Net Income $__________
(ii) Depreciation $__________
(iii) Amortization $__________
</TABLE>
<PAGE> 181
PNC BANK, NATIONAL ASSOCIATION
_____________________, 19_____
Page 16
<TABLE>
<S> <C>
(iv) Other non-cash charges to net income $___________
(v) Interest Expense $___________
(vi) Income Tax Expense $___________
(vii) Sum of (i), (ii), (iii), (iv), (v) and (vi) $___________
(viii) Non-cash credits to net income $___________
(ix) Item (vii) reduced by item (viii) equals Cash Flow from
Operations for NovaCare Employee Services, Inc. $___________
(5) Minimum Fixed Charge Coverage Ratio. (Section 8.02(o)).
(A) Earnings Available for Fixed Charges attributable to NovaCare Employee Services, Inc. is
determined as follows:
(i) Net Income $___________
(ii) Interest Expense $___________
(iii) Income Tax Expense $___________
(iv) Depreciation $___________
(v) Amortization $___________
(vi) Other non-cash charges to net income $___________
(vii) Expenses under operating leases $___________
(viii) Sum of (i), (ii), (iii), (iv), (v) and (vi) $___________
(ix) Non-cash credits to net income $___________
(x) Item (viii) reduced by item (ix) equals
Earnings Available for Fixed
Charges attributable to NovaCare Employee Services, Inc. $___________
</TABLE>
<PAGE> 182
PNC BANK, NATIONAL ASSOCIATION
_____________________, 19_____
Page 17
<TABLE>
<S> <C>
(B) Fixed Charges attributable to NovaCare Employee Services, Inc. is determined as follows:
(i) Interest Expense $___________
(ii) Expenses under operating leases $___________
(iii) Income Tax Expense $___________
(iv) Current maturities of long-term Indebtedness $___________
(v) Current principal payments under capitalized leases
(for the twelve (12) month period following
the Report Date) $___________
(vi) The sum of (i) through (v) $___________
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet as of September 30, 1997 and the Condensed
Consolidated Statement of Operations for the three months ended September 30,
1997 and is qualified in its entirety by reference to such statements in Form
10-Q for the quarterly period ended September 30, 1997.
</LEGEND>
<CIK> 0000802843
<NAME> NOVACARE, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 32,584
<SECURITIES> 0
<RECEIVABLES> 322,606
<ALLOWANCES> 40,611
<INVENTORY> 0
<CURRENT-ASSETS> 366,559
<PP&E> 149,357
<DEPRECIATION> 78,122
<TOTAL-ASSETS> 1,083,777
<CURRENT-LIABILITIES> 166,927
<BONDS> 373,004
0
0
<COMMON> 667
<OTHER-SE> 518,869
<TOTAL-LIABILITY-AND-EQUITY> 1,083,777
<SALES> 0
<TOTAL-REVENUES> 356,698
<CGS> 0
<TOTAL-COSTS> 323,773<F1>
<OTHER-EXPENSES> 4,400<F2>
<LOSS-PROVISION> 5,111
<INTEREST-EXPENSE> 5,794
<INCOME-PRETAX> 17,620
<INCOME-TAX> 7,396
<INCOME-CONTINUING> 10,224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,224
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
<FN>
<F1>
"Total Costs" consist of cost of services and selling and administrative
expenses.
<F2>
"Other Expenses" consist of amortization of good will and minority interest
offset by interest income.
</FN>
</TABLE>
