UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 29, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-24768
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INTERNATIONAL NURSING SERVICES, INC.
-----------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-1123311
-------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
360 South Garfield St. Suite 400, Denver, CO 80209
--------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(303) 393-1515
--------------
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the
past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of August 10, 1997.
Common Stock, $0.001 par value 10,368,694
------------------------------ ----------
Class Number of Shares
INTERNATIONAL NURSING SERVICES, INC.
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INDEX
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PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements
Consolidated Balance Sheets -- June 29, 1997 (Unaudited) and
December 29, 1996 3
Unaudited Consolidated Statements of
Operations -- For the Three Months
Ended June 29, 1997 and June 30, 1996 and
For the Six Months Ended June 29, 1997
and June 30, 1996 4
Unaudited Consolidated Statements of Cash
Flows -- For the Six Months Ended June 29,
1997 and June 30, 1996 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 14
-----------------
SIGNATURES 16
Index to Exhibits 17
INTERNATIONAL NURSING SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 29, December 29,
----------- ---------------
<S> <C> <C>
Current assets
Accounts receivable, net $5,456,000 $4,458,000
Other current assets 351,000 19,000
---------- ----------
Total current assets 5,807,000 4,477,000
---------- ----------
Property and equipment, net 394,000 355,000
---------- ----------
Other assets
Intangible assets, net 5,956,000 4,080,000
---------- ----------
Total assets $12,157,000 $ 8,912,000
========== ==========
Current liabilities
Checks written in excess of book balance $ 397,000 $ 65,000
Accounts payable 1,448,000 617,000
Accrued expenses 1,144,000 1,620,000
Current portion of debt 411,000 145,000
Current portion of capital lease obligation 55,000 50,000
Loans under financing agreement 3,875,000 3,318,000
---------- ----------
Total current liabilities 7,330,000 5,815,000
---------- ----------
Long-term debt
Long-term portion of capital lease 20,000 50,000
---------- ----------
Stockholders' equity
Preferred stock, 10% cumulative convertible,
$10,000 par value, 488 shares authorized, 155
and 39 issued and outstanding at December 29,
1996 and June 29, 1997, respectively,
liquidation preference $10,000 per share 339,000 1,234,000
Preferred stock, 0% cumulative convertible,
$10,000 par value, 300 shares authorized,
124.9 issued and outstanding at June 29,
1997, liquidation preference $10,000 per
share 1,134,000 --
Common stock, $0.001 par value; 25,000,000
shares authorized 5,688,292 and 10,368,694
issued and outstanding at December 29,
1996 and June 29, 1997, respectively 11,000 6,000
Dividends payable 39,000 66,000
Additional paid-in capital 10,649,000 8,965,000
Accumulated deficit (7,365,000) (7,224,000)
---------- ----------
Total stockholders' equity 4,807,000 3,047,000
---------- ----------
Total liabilities and stockholders'
equity $12,157,000 $ 8,912,000
========== ==========
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
</TABLE>
INTERNATIONAL NURSING SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 29 and June 30 June 29 and June 30
---------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ---------- -------------
<S> <C> <C> <C> <C>
Net revenues $ 6,961,000 $ 3,216,000 $13,624,000 $6,580,000
Direct costs of
services 5,320,000 2,400,000 10,445,000 4,845,000
---------- ---------- ---------- ---------
Gross Margin 1,641,000 816,000 3,179,000 1,735,000
Selling, general and
administrative expenses 1,514,000 747,000 2,920,000 1,473,000
---------- --------- ---------- ---------
Net income (loss) from
operations 127,000 69,000 259,000 262,000
Interest expense, net 228,000 130,000 400,000 257,000
---------- -------- ---------- ---------
Net income (loss) $ (101,000) $ (61,000) $ (141,000) $ 5,000
========== ========= ========== =========
Net income (loss) per
common share (Note 7) $ (0.01) $ (0.01) $ (0.10) $ 0.09
========== ========= =========== =========
Weighted average shares
outstanding 8,062,336 4,937,254 7,582,488 4,770,755
========== ========= =========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
INTERNATIONAL NURSING SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended June 29, 1997
and June 30, 1996
--------------------------------------
1997 1996
----------------- --------------
<S> <C> <C>
Cash flows from (used in) operating
activities
Net income (loss) $ (141,000) $ 5,000
Adjustments to reconcile net income
(loss) to net cash flows from
(used in) operating activities
Depreciation and amortization 311,000 166,000
Net changes in current assets and
current liabilities (593,000) 210,000
---------- --------
Net cash flows from (used in)
operating activities (423,000) 381,000
---------- --------
Cash flows used in investing activities
Purchase of property and equipment (106,000) (32,000)
Business acquisition costs (2,116,000) (173,000)
---------- --------
Net cash flows used in investing
activities (2,222,000) (205,000)
---------- --------
Cash flows from (used in) financing
activities
Advances, net 557,000 509,000
Payments on capital leases and debt (667,000) 685,000
Proceeds from convertible debt 1,000,000 --
Net proceeds from exercise of
unit portion 200,000 --
Net proceeds from issuance of
preferred stock 1,555,000 --
Net proceeds from issuance of
common stock -- (19,000)
--------- --------
Net cash flows from (used in)
financing activities 2,645,000 (195,000)
--------- --------
Net (decrease) increase in cash
and cash equivalents -- (19,000)
Cash and cash equivalents, at
beginning of period -- 19,000
---------- --------
Cash and cash equivalents, at
end of period $ -- $ --
========== ========
</TABLE>
Non-cash investing and financing activities for the six months ended
June 29, 1997:
Issuance of 4,680,402 shares of common stock upon conversion of
$1,165,000 of 1996 and $622,500 of 1997 convertible preferred
stock.
The Company recorded imputed dividends on preferred stock of $553,000
associated with the 1997 private placement.
The Company imputed a discount on the convertible debenture of $134,000
using the Black-Scholes option pricing model related to the issuance
of the warrant to purchase 200,000 shares of common stock
associated with the convertible debenture issued. The Company
recorded the discount as a reduction to the carrying value of
the convertible debenture and as an increase to additional paid-in
capital.
The Company also recorded additional imputed interest expense of
approximately $56,000 related to the convertible debenture.
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
INTERNATIONAL NURSING SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The consolidated
financial statements as of December 29, 1996 have been derived from audited
financial statements, the report on which included an explanatory paragraph
describing uncertainties concerning the Company's ability to continue as a
going concern. The consolidated financial statements should be read in
conjunction with the financial statements and notes thereto contained in the
Company's Form 10-KSB for the fiscal year ended December 29, 1996. The
results of operations for the six months ended June 29, 1997 are not
necessarily indicative of the results for the entire fiscal year ending
December 28, 1997.
2. ACQUISITIONS
In January 1997, the Company acquired certain assets of Colorado Therapists On
Call, Inc. ("CTOC") and Professional Healthcare Providers, Inc. ("PHP"),
together doing business under the name TherAmerica, Inc. ("TherAmerica") The
Company paid $2,000,000 cash and assumed approximately $175,000 of liabilities
for the acquisition which was effective January 1, 1997. The Company
accounted for the transaction as a purchase transaction.
3. EQUITY TRANSACTIONS
1997 PRIVATE PLACEMENT
In January and February 1997, the Company completed a private placement of
167.15 Units, each unit consisting of one share of convertible preferred
stock, $10,000 par value, ("1997 Preferred Stock"), and a warrant to purchase
10,000 shares of common stock at $1.00 per share ("1997 Warrant"). The
convertible preferred stock carries no dividend. The preferred stock is
convertible to common at the lesser of $1.00 or 75% of the average sales price
for the five trading days prior to conversion. The Company raised gross
proceeds of $1,671,500 from this private placement. Commissions of $99,540
were paid to individuals who assisted in the private placement who are also
shareholders of the Company. Substantially all of the proceeds were used to
purchase TherAmerica. In May 1997, 10 Shares of 1997 Preferred Stock were
converted to 253,968 shares of common stock, and in June 1997, 32.25 Shares of
1997 Preferred Stock were converted to 1,862,508 shares of common stock.
1996 PRIVATE PLACEMENT
In July and September 1996, the Company completed a private placement of 244
Units, each unit consisting of a share of convertible preferred stock ($10,000
par value) ("1996 Preferred Stock"), a warrant to purchase 8,000 shares of the
Company's common stock at $2.50 per share ("1996 Warrant") and a unit purchase
option to purchase an additional unit at $10,000 per unit ("Unit Options").
The convertible preferred stock carries a 10% dividend and is convertible at
the lesser of $1.25 or 75% of the average sales price for the five trading
days prior to conversion. The private placement raised gross proceeds to the
Company of approximately $2,440,000.
Through August 1, 1997, 205 Units (with accrued dividends) have been converted
to 3,229,701 shares of common stock. Also in 1997, a Unit Holder which held
20 Units exercised its Unit purchase option resulting in gross proceeds to the
Company of $200,000. The Unit holder immediately converted the preferred to
common resulting in the issuance of 257,028 shares of common stock in January
1997.
In May of 1997, the Company canceled 204 Unit Options in exchange for the Unit
Option holders receiving a reduction in their warrant exercise price from
$2.50 per share to $.625 per share. This action resulted in the cancellation
of all but 40 of the Unit Options.
4. CONVERTIBLE DEBENTURE
On January 28, 1997, the Company issued a convertible note receiving
proceeds of $1,000,000 from a shareholder of the Company. Interest accrues on
the note at 12.5% and the note matures on January 27, 1998. Per the
original terms of the note, if it was not paid off by May 28, 1997, the
unpaid principal of the note became convertible to common stock until
January 27, 1998 at the lower of $1.50 or 65% of the prior five trading
days closing price of the common stock. The proceeds of the note were
used to fund the acquisition costs related to TherAmerica. The Company
also issued a warrant to purchase 200,000 shares of common stock at $1.1875
per share until July 31, 1999 to the convertible note holder. The Company
recorded an imputed discount on the convertible debenture of $134,000 using
the Black-Scholes option pricing model related to the issuance of the warrant
to purchase 200,000 shares of common stock at $1.1875 per share. For the
quarter ended June 29, 1997, the Company recorded additional interest expense
of approximately $56,000 which related to amortization of the imputed
discount. The Company amortizes the imputed discount over the expected term
of the related debt. On May 28, 1997, the Company paid $500,000 of principal
plus accrued interest to the noteholder, the exercise price of the warrant was
reduced to $0.27 from $1.19 and the noteholder extended the payment date to
July 28, 1997, which would eliminate the conversion feature of the note. The
Company was unable to pay the outstanding principal balance by July 28, 1997.
The Company repriced the imputed discount due to the reduction in the
exercise price of the warrant, and the result was not material.
5. STOCK OPTIONS
During the first quarter, the Company canceled and reissued 150,000 options to
purchase the Company's common stock to an officer of the Company. The options
were originally exerciseable at $1.88 (100,000 options) and $3.25 (50,000
options). The option exercise price was reset to $1.00 which represented the
fair market value of the options at the time of the grant.
Additionally, during the first quarter of 1997 the Company granted 443,748
options to purchase common stock at $1.00 per share under the Company's
incentive stock option plan, 133,609 of which were granted to officers and
directors.
6. LITIGATION
On July 26, 1996, Staff Builders, Inc. filed a civil action against the
Company in the US District Court for the Southern District of New
York demanding payment of an outstanding note payable. The plaintiff
alleged that the Company owed approximately $145,000 in principal and $12,000
in accrued interest. The Company entered into a settlement agreement in
January 1997 whereby the Company agreed to pay $166,122 in installments
between February 15, 1997 and July 15, 1997 in exchange for a release of all
claims. As of July 15, 1997, this amount was paid in full.
In 1997, a former patient filed a complaint in Texas against the Company
alleging that an employee/therapist of the Company was negligent. The Company
believes that there was no wrong doing and intends to defend itself vigorously
against the charges. The client/hospital where the employee was working at
the time of the alleged incident paid the plaintiff $100,000 in settlement and
release from further claims. The client/hospital has now demanded that the
Company indemnify them for the $100,000 as the client/hospital alleges this is
stipulated in a contract between the Company and the client/hospital. The
Company does not believe that it has a contractual obligation to indemnify the
client/hospital in this situation and intends to vigorously defend against
this demand. The Company believes that it will not incur any material losses
in excess of accrued amounts.
In April 1997, Ellis Home Care Services, Inc. ("EHCSI") filed a complaint in
the United States District Court , Southern District of New York, against the
Company. The complaint alleges that the Company has breached certain
obligations it undertook in connection with the acquisition of the Ellis
assets by the Company including that the Company pay EHCSI $421,705, which
represents the difference between the asset purchase price of $1,060,063
and the total of (i) the aggregate sales proceeds EHCSI received from the
sale of all of its shares of the Company's stock and (ii) a cash payment of
$60,000 made by the Company to EHCSI. In addition to the amount of
$421,705, the complaint seeks interest on such amount at nine percent
(9%) per annum and attorney's fees. The Company has retained counsel to
represent it in this proceeding, and is currently in settlement
negotiations with EHCSI.
7. LOSS PER SHARE
In accordance with the Securities and Exchange Commission's position on
accounting for preferred stock with convertible features that are in the money
at the time of issuance, the Company has imputed a value associated with such
conversion features and has recorded the value as a discount on the preferred
stock. The Company amortizes the imputed discount on the preferred stock over
the period from issuance of the preferred stock to the earliest period at
which the preferred stock becomes convertible. As the Company's 1997
preferred stock issuances are immediately convertible the Company has
amortized in the first quarter the entire imputed discount as a component of
dividends on preferred stock. The Company recorded additional dividends to
preferred stockholders of approximately $553,000 for the quarter ended March
30, 1997, which represents an imputed increase to the dividend yield and not
a contractual obligation on the part of the Company to pay such imputed
dividends.
Loss per share applicable to common stockholders is calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 29, 1997 June 30, 1997 June 29, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ (101,000) $ (61,000) $ (141,000) $ 5,000
Preferred stock
dividends -
stated rate (12,000) -- (31,000) --
Preferred stock
dividends - imputed
discount -- -- (553,000) --
Preferred stock
dividends - recapture -- -- -- 441,000
------------ ---------- ------------ -----------
Net income (loss)
applicable to common
stockholders $ (113,000) $ (61,000) $ (725,000) $ 446,000
============ =========== ============ ===========
Net income (loss)
per common share $ (.01) $ (.01) $ (.10) $ .09
============ =========== ============ ===========
Weighted average
shares outstanding 8,062,336 4,937,256 7,582,488 4,770,755
============ =========== ============ ==========
</TABLE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This filing contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby.
These forward-looking statements include the plans and objectives of the
management for future operations, including plans and objectives relating to
services offered by and future economic performance of the Company.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions that the Company will
continue to be able to provide on a cost effective and competitive basis
quality home health care and interim staffing services, that the regulatory
environment governing the Company's industry will not change in ways that are
materially adverse to the Company and its operations, that the Company will be
able to continue to fund operations, that the Company will be able to raise
additional equity or debt capital if required to fund operations and
acquisitions, that the Company will be able to achieve operating efficiencies
resulting in cost reductions, that a sufficient supply of qualified health
care personnel will be available to the Company for deployment in the health
care industry on a competitive and cost effective basis and that there will be
no material adverse change in the demand for the Company's services or in the
Company's operations or business. Assumptions relating to the foregoing
involve judgments with respect to, among other things, future economic,
competitive and market conditions, and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond
the control of the Company. Although the Company believes the assumptions
underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate, and therefore, there can be no assurance
that the results contemplated in the forward-looking statements will realized.
In addition, the business and operations of the Company are subject to
substantial risks which increase the uncertainty inherent in such
forward-looking statements.
Important factors to be considered in connection with forward-looking
statements include, without limitation, (a) the fact that the Company reported
net losses in fiscal 1995 and fiscal 1996 and had an accumulated deficit and a
working capital deficit in fiscal 1996 and at June 29, 1997; (b) the Company's
lack of working capital may require the Company to raise additional equity or
debt financing or sell assets in order to fund operations and the cash portion
of purchase prices payable in connection with acquisitions and the Company may
be unable to raise such debt or equity financing; (c) the current uncertainty
in the health care industry and government health care reform proposals
considered from time to time may adversely affect the regulatory environment
in which the Company operates and specifically affect the reimbursement rate
payable under government programs such as Medicare and Medicaid, potentially
resulting in decreased revenues from home care services; (d) the Company's
dependence on customer relationships makes the Company vulnerable to
consolidation in the health care industry, changes in customer personnel and
other factors that may impact customer relationships; (e) the Company's
ability to obtain needed licenses, permits and governmental approvals will
directly affect the Company's economic performance and operation; (f) the
Company's ability to compete in the highly competitive interim staffing and
home care services market will directly impact the Company's profitability and
operations; (g) the Company depends on key-management personnel especially
John P. Yeros to manage and direct the business and operations of the Company;
(h) hospital budgetary cycles, increased competition for qualified medical
personnel, patient admission fluctuations and seasonality will also impact the
profitability of the Company and cash flow may fluctuate due to the adoption
by hospitals and third party payors of new or revised reimbursement policies;
(j) the Company's operations would be adversely affected by the expansion of
more favorable credit terms in order to keep existing customers; (k) the
Company's ability to manage growth, particularly through acquisitions, will
directly impact the Company's profitability and operations; (l)
uninsured risks associated with providing home care and interim staffing
services will also impact the Company's profitability and operations; and
(m) various other factors may cause actual results to vary materially
from the results contemplated in any forward-looking statements included
in this filing. No assurance can be given that the foregoing factors
will not result in a material adverse effect on the Company and its
operations.
Any of these important factors discussed above or elsewhere in this
filing could cause the Company's revenues or net income (loss), or growth in
revenues or net income (loss), to differ materially from prior results. In
addition, growth in absolute amounts of selling, general and administrative
expenses or the occurrence of extraordinary events could cause actual results
to vary materially from the results contemplated by the forward-looking
statements. Budgeting and other management decisions are subjective in many
respects and thus susceptible to interpretations and periodic revisions based
on actual experience and business developments, the impact of which may cause
the Company to alter its marketing, capital expenditures or other budgets,
which may, in turn, affect the Company's results of operation.
In light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
Results of Operations
- -----------------------
Comparison of three months ended June 29, 1997 and June 30, 1996
The Company generated approximately $6,961,000 in revenues from
operations for the quarter ended June 29, 1997, compared to approximately
$3,216,000 in revenues for the second quarter of 1996. The increase in sales
for the quarter is due to the acquisition of Ellis Health Services, Inc., STAT
Health Care Services, Inc., and TherAmerica. These acquisitions provided
revenues of approximately $4,157,831. These increased revenues were offset by
losses in Texas and Colorado resulting from increased competition and
administrative personnel departures.
The Company's gross margin percentage decreased from 25% for the quarter
ended June 30, 1996 to 24% for the quarter ended June 29, 1997. The decrease
is attributable to gross margin erosion in Texas due to increased competition
and the inability to pass through to customers higher personnel costs.
Selling, general and administrative expenses increased for the quarter
ended June 29, 1997 by approximately $767,000 as compared to the quarter ended
June 30, 1996. This increase was generally consistent with the increase in
revenues. As a percentage of revenues, SG & A decreased from 23% for the
quarter ended June 30, 1996 to 22% for the quarter ended June 29, 1997.
Net loss increased from $61,000 in the quarter ended June 30, 1996 to a
net loss of $101,000 in the quarter ended June 29, 1997. The loss for the
quarter is attributable to factors discussed above and an increase in interest
expense.
During the first quarter, the Company initiated several programs and
service lines which are intended to increase revenues for the remainder of
1997. In particular, a travel nurse division was started in late 1996 and
resulted in approximately $286,103 in revenues in the second quarter of 1997.
Other sales incentive programs have been developed to increase the existing
sales base in Texas, Colorado and New York. In addition, the Company is
monitoring its selling, general and administrative costs to minimize these
costs which were a material reason for the losses the Company has experienced
in the past few years.
Comparison of six months ended June 29, 1997 and June 30, 1996
The Company generated approximately $13,624,000 in revenues from
operations for the six months ended June 29, 1997, compared to approximately
$6,580,000 in revenue for the same period in 1996. The increase was
attributable to additional revenues from the acquisitions Ellis, STAT, and
TherAmerica. The revenues from these acquisitions were partially offset by
increased competition in Texas and Colorado. The travel nurse division
generated revenues of approximately $355,000 during the six months ended
June 29, 1996.
The Company has implemented a sales and marketing program in Texas which
is intended to recapture some of the business lost to the competition and
intends to replace the lost low-margin business in Colorado with higher margin
sales from its new rehabilitation consulting division. There can be no
assurance given that these programs and activities will be successful in
increasing its revenue.
The Company's gross margin percentage decreased from 26% for the six
months ended June 30, 1996 to 23% for the six months ended June 29, 1997. The
decrease was due to increased competition in Texas and Colorado, some lower
margin business at the New York offices, and inability to pass through to
customers higher personnel costs.
Selling, general and administrative expenses increased for the six months
ended June 29, 1997 by approximately $1,447,000 as compared to the six months
ended June 30, 1996. The increase was directly attributable to the growth in
the Company's revenues, and also due to the expensing of transaction costs for
acquisitions which did not close. Selling, general and administrative expenses
as a percentage of revenue decreased from 24% for the six months ended June
30, 1996, to 21% for the six months ended June 29, 1997. Management
anticipates that selling, general and administrative expenses as a percentage
of sales will decrease throughout the remainder of 1997 as the Company sees
economics of scale result from its acquisition activity and its integration
strategy of centralizing the general and administrative functions of each
branch in Colorado.
Liquidity and Capital Resources
- ----------------------------------
The Company's current liabilities at June 29, 1997 aggregated
approximately $7,330,000 and current assets at June 29, 1997 aggregated
approximately $5,807,000.
In order for the Company to meet its current obligations, management
anticipates the need to raise additional debt or equity capital or sell
assets. Management believes that the Company will generate cash from its
operations, once certain non-recurring operating liabilities incurred in the
past have been paid off. However, the Company will require the raising of
additional debt or equity capital or asset sales to meet all of the current
obligations.
The Company has entered into non-binding letters of intent to sell its
Medicare and home care business in Denver, and its New York offices. If these
transactions close on a timely basis, funds should be available to meet a
portion of the Company's current obligations. There is no assurance, however,
that these transactions will close on a timely basis or at all, or that the
cash consideration will be adequate to meet the Company's needs. Separately,
the Company has signed a non-binding letter of intent to acquire a
closely-held medical software company. For a period of up to 130 days pending
implementation of a merger, the Company has agreed to provide bridge financing
to the software company in an amount not to exceed $297,500.
The Company previously utilized an accounts receivable financing
arrangement which was replaced with an asset-based line of credit on May 28,
1997. Funds generated by the refinancing were used to pay $500,000 plus
accrued interest of the $1,000,000 convertible loan on May 28, 1997. The
noteholder agreed to extend the due date on the remaining balance to July 28,
1997, which, if the payment was made, would have eliminated the conversion
feature of the note. The Company did not make such payment as of July 2,
1997.
As stated above, the Company's ability to repay the remaining balance of
the convertible loan, to continue paying on other outstanding obligations and
to pursue further acquisitions is dependent upon the raising of additional
debt or equity capital or the sale of assets. There can be no assurance given
that the Company will be successful in raising debt or equity capital or
selling assets on terms which are satisfactory to the Company. If the Company
is unable to pay the remaining balance of the convertible loan, the note
holder then has the option of converting the unpaid principal into common
stock of the Company at the rate of 65% of the common stock's prior five days
closing price.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 26, 1996, Staff Builders, Inc. filed a civil action against the
Company in the US District Court for the Southern District of New York
demanding payment of an outstanding note payable. The plaintiff alleged that
the Company owed approximately $145,000 in principal and $12,000 in accrued
interest. The Company entered into a settlement agreement in January 1997
whereby the Company agreed to pay $166,122 in installments between February
15, 1997 and July 15, 1997 in exchange for a release of all claims. As of
July 15, 1997, this amount was paid in full.
In 1997, a former patient filed a complaint in Texas against the Company
alleging that an employee/therapist of the Company was negligent. The Company
believes that there was no wrong doing and intends to defend itself vigorously
against the charges. The client/hospital where the employee was working at
the time of the alleged incident paid the plaintiff $100,000 in settlement and
release from further claims. The client/hospital has now demanded that the
Company indemnify them for the $100,000 as the client/hospital alleges this is
stipulated in a contract between the Company and the client/hospital. The
Company does not believe that it has a contractual obligation to indemnify the
client/hospital in this situation and intends to vigorously defend itself
against this demand. The Company believes that it will not incur any material
losses in excess of accrued amounts.
In April 1997, Ellis Home Care Services, Inc. ("EHCSI") filed a complaint in
the United States District Court, Southern District of New York, against the
Company. The complaint alleges that the Company has breached certain
obligations it undertook in connection with the acquisition of the assets of
Ellis by the Company in 1996, in particular that the Company pay EHCSI
$421,705, which represents the difference between the asset purchase price of
$1,060,063 and the total of (i) the aggregate sales proceeds EHCSI received
from the sale of all of its shares of the Company's stock and (ii) a cash
payment of $60,000 made by the Company to EHCSI. In addition to the amount of
$421,705, the complaint seeks interest on such amount at nine percent (9%) per
annum and attorney's fees. The Company has retained counsel to represent it
in this proceeding, and is currently in settlement negotiations with EHCSI.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Included as exhibits are the items listed on the Exhibit Index. The
Registrant will furnish a copy of any of the exhibits listed below upon
payment of $5.00 per exhibit to cover the costs to the Registrant of
furnishing such exhibit.
b. Reports on Form 8-K
None.
SIGNATURES
In accordance with 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.
Dated: August 13, 1997
INTERNATIONAL NURSING SERVICES, INC.
(Registrant)
/s/ John P. Yeros
-------------------------------------
John P. Yeros
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/
-------------------------------------
(Principal Financial and Accounting Officer)
INDEX TO EXHIBITS
10.23 Loan and Security Agreement, dated May 28, 1997, by and
between National Care Resources - New York, Inc., National
Care Resources - Texas, Inc., JJ Care Resources, Inc., National
Care Resources - Colorado, Inc., TherAmerica, Inc., and
International Nursing Services, Inc. and HCFP Funding, Inc.
27 Financial Data Schedule
$5,000,000.00
LOAN ANI) SECURITY AGREEMENI
----------------------------
by and between
NATIONAL CARE RESOURCES - NEW YORK, INC.
NATIONAL CARE RESOURCES - TEXAS, INC,
JJ CARE RESOURCES, INC. ; '
NATIONAL CARE RESOURCES - COLORADO, INC.
THERAMERICA, INC.
INTERNATIONAL NURSING SERVICES, INC.
("Borrower")
and
HCFP FUINDING, INC.
("Lender")
May 28, 1997
LOAN AND SECURIIY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of this
28th day of May, 1997, by and between and each of NATIONAL CARE RESOURCES -
NEW YORK, INC., a Colorado corporation, NATIONAL CARE RESOURCES - TEXAS, INC.,
a Colorado corporation, JJ CARE RESOURCES, INC., a New York corporation,
NATIONAL CARE RESOURCES - COLORADO, INC., a Colorado corporation, f/k/a Nurse
Source Healthcare Services, Inc., THERAMERICA, INC., a Colorado corporation
and INTERNATIONAL NURSING SERVICES, INC., a Colorado corporation
(collectively, the "Borrower") and HCFP FUNDING, INC., a Delaware corporation
(successor-in-interest to HealthPartners Funding, L.P.) (the "Lender").
RECITALS
--------
A. Certain of the entities comprising Borrower and Lender have established
a working capital financing relationship pursuant to that certain Amended and
Restated Receivables Purchase and Sale Agreement dated as of August 2, 1996,
which was amended as of December 18, 1996 (collectively, "Purchase Agreement")
which Purchase Agreement will be terminated effective as of the Closing (as
defined herein).
B. Borrower and Lender now desire to continue the financing relationship
under a line-of-credit structure, pursuant to which Lender shall make loans
and extensions of credit to Borrower, on the terms and conditions set forth
below.
C. The parties desire to define the terms and conditions of their
relationship and to reduce their agreements to writing.
NOW, THEREFORIE, in consideration of the promises and covenants contained in
this Agreement, and for other consideration, the receipt and sufficiency of
which are acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the following
meanings:
Section 1.1. Account. "Account" means any right to payment for goods sold or
- -----------------------
leased or services rendered, whether or not evidenced by an instrument or
chattel paper, and whether or not earned by performance.
Section 1.2. Account Debtor. "Account Debtor" means any Person obligated on
- -------------------------------
any Account of Borrower, including without limitation, any Insurer and any
Medicaid/Medicare Account Debtor.
Section 1.3. Affiliate. "Affiliate" means, with respect to a specified Person,
- -----------------------
any Person directly or indirectly controlling, controlled by, or under common
control with the specified Person, including without limitation their
stockholders and any Affiliates thereof. A Person shall be deemed to control
a corporation or other entity if the Person possesses, directly or indirectly,
the power to direct or cause the direction of the management and business of
the corporation or other entity, whether through the ownership of voting
securities, by contract, or otherwise.
Section 1.4. Agreement. "Agreement" means this Loan and Security Agreement, as
- -----------------------
it may be amended or supplemented from time to time.
Section 1.5. Base Rate. "Base Rate" means a rate of interest equal to two
- --------------------------
percent (2.00%) above the "Prime Rate of Interest".
Section 1.6. Borrowed Money. "Borrowed Money" means any obligation to repay
- -------------------------------
money, any indebtedness evidenced by notes, bonds, debentures or similar
obligations, any obligation under a conditional sale or other title retention
agreement and the net aggregate rentals under any lease which under GAAP would
be capitalized on the books of Borrower or which is the substantial equivalent
of the financing of the property so leased.
Section 1.7. Borrower. "Borrower" has the meaning set forth in the Preamble.
- ------------------------
Section 1.8. Borrowing Base. "Borrowing Base" has the meaning set forth in
- -------------------------------
Section 2.1 (d).
Section 1.9. Business Day. "Business Day" means any day on which financial
- -----------------------------
institutions are open for business in the State of Maryland, excluding
Saturdays and Sundays.
Section 1.10. Closing; Closing Date. "Closing" and "Closing Date" have the
- ----------------------------------------
meanings set forth in Section 5.3.
Section 1.11. Collateral. "Collateral" has the meaning set forth in Section
- --------------------------
3.1.
Sectionl.12. Commitment Fee. "Commitment Fee" has the meaning set forth in
- ------------------------------
Section 2.4(a).
Section 1.13. Concentration Account. "Concentration Account" has the meaning
- -------------------------------------
set forth in Section 2.3(a).
Section 1.14. Controlled Group. "Controlled Group means a "controlled group"
- ---------------------------------
within the meaning of Section 4001 (b) of ERISA.
Section 1.15. Cost Report Settlement Account. "Cost Report Settlement Account"
- ---------------------------------------------
means an "Account" owed to Borrower by a Medicaid/Medicare Account Debtor
pursuant to any cost report, either interim, filed or audited, as the context
may require.
Section 1.16. Default Rate. "Default Rate" means a rate per annum equal to
- -----------------------------
five percent (5%) above the then applicable Base Rate.
Section 1.17. ERISA. "ERISA" has the meaning set forth in Section 4.12.
- ---------------------
Section 1.18. Event of Default. "Event of Default" and "Events of Default"
- ---------------------------------
have the meanings set forth in Section 8. 1
Section 1.19. GAAP. "GAAP" means generally accepted accounting principles
- --------------------
applied in a matter consistent with the financial statements referred to in
Section 4.7.
Section 1.20. Government Authority. "Governmental Authority" means and
- -------------------------------------
includes any federal, state, District of Columbia, county, municipal, or other
government and any department, commission, board, bureau, agency or
instrumentality thereof, whether domestic or foreign.
Section 1.21. Hazardous Material. "Hazardous Material" means any substances
- ------------------------------------
defined or designated as hazardous or toxic waste, hazardous or toxic
material, hazardous or toxic substance, or similar term, by any environmental
statute, rule or regulation or any Governmental Authority.
Section 1.22. Highest Lawful Rate. "Highest Lawful Rate" means the maximum
- -------------------------------------
lawful rate of interest referred to in Section 2.7 that may accrue pursuant to
this Agreement.
Section 1.23. Insurer. "Insurer" means a Person that insures a Patient against
- ---------------------
certain of the costs incurred in the receipt by such Patient of Medical
Services, or that has an agreement with Borrower to compensate Borrower for
providing services to a Patient.
Section 1.24. Lender. "Lender" has the meaning set forth in the Preamble.
- ----------------------
Section 1.25. Loan. "Loan" has the meaning set forth in Section 2. 1 (a).
- --------------------
Section 1.26. Loan Documents. "Loan Documents" means and includes this
- -------------------------------
Agreement, the Note, and each and every other document now or hereafter
delivered in connection therewith, as any of them may be amended, modified, or
supplemented from time to time.
Section 1.27. Loan Management Fee. "Loan Management Fee" has the meaning set
- ------------------------------------
forth in Section 2.4(c).
Section 1.28. Lockbox. "Lockbox" has the meaning set forth in Section 2.3.
- ------------------------
Section 1.29. Lockbox Bank. "Lockbox Bank" has the meaning set forth in
- ------------------------------
Section 2.3.
Section 1.30. Maximum Loan Amount. "Maximum Loan Amount" has the meaning set
- -----------------------------------
forth in Section 2. I (a).
Section 1.31. Medicaid/Medicare Account Debtor. "Medicaid/ Medicare Account
- -------------------------------------------------
Debtor" means any Account Debtor which is (i) the United States of America
acting under the Medicaid/Medicare program established pursuant to the Social
Security Act, (ii) any state or the District of Columbia acting pursuant to a
health plan adopted pursuant to Title XIX of the Social Security Act or (iii)
any agent, carrier, administrator or intermediary for any of the foregoing.
Section 1.32. Medical Services. Medical and health care services provided to
- --------------------------------
a Patient, including, but not limited to, medical and health care services
provided to a Patient and performed by Borrower or its independent contractors
which are covered by a policy of insurance issued by an Insurer, and includes
physician services, nurse and therapist services, dental services, hospital
services, skilled nursing facility services, comprehensive outpatient
rehabilitation services, home health care services, residential and outpatient
behavioral healthcare services, and medicine or health care equipment provided
by Borrower to a Patient for a necessary or specifically requested valid and
proper medical or health purpose.
Section 1.33. Note. "Note" has the meaning set forth in Section 2.1 (c).
- ---------------------
Section 1.34. Obligations. "Obligations" has the meaning set forth in Section
- ---------------------------
3.1.
Section 1.35. Patient. "Patient" means any Person receiving Medical Services
- -----------------------
from Borrower and all Persons legally liable to pay Borrower for such Medical
Services other than Insurers.
Section 1.36. Permitted Liens. "Permitted Liens" means: (a) liens for taxes
- --------------------------------
not delinquent, or which are being contested in good faith and by appropriate
proceedings which suspend the collection thereof and in respect of which
adequate reserves have been made (provided that such proceedings do not in
Lender's sole discretion, involve any substantial danger of the sale, loss or
forfeiture of such property or assets or any interest therein); (b) deposits
or pledges to secure obligations under workmen's compensation, social security
or similar laws, or under unemployment insurance; (c) deposits or pledges to
secure bids, tenders, contracts (other than contracts for the payment of
money), leases, statutory obligations, surety and appeal bonds and other
obligations of like nature arising in the ordinary course of business;
(d) mechanic's, workmen's, material men's or other like liens arising in
the ordinary course of business with respect to obligations which are not due,
or which are being contested in good faith by appropriate proceedings which
suspend the collection thereof and in respect of which adequate reserves have
been made (provided that such proceedings do not, in Lender's sole discretion,
involve any substantial danger of the sale, loss or forfeiture of such
property or assets or any interest therein); (e) liens and encumbrances in
favor of Lender; (f) liens granted in connection with the lease or purchase of
property or assets financed by borrowings permitted by Section 7.1 (provided,
however, that no such borrowings permitted by Section 7.1 may be secured by
liens on any of the Collateral); (g) judgment liens not to exceed $25,000.00,
which liens do not attach to the Collateral and (b) liens set forth on
Schedule 1.36.
- ----- -------
Section 1.37. Person. "Person" means an individual, partnership, corporation,
- ----------------------
trust, joint venture, joint stock company, limited liability company,
association, unincorporated organization, Governmental Authority, or any other
entity.
Section 1.38. Plan. "Plan" has the meaning set forth in Section 4.12.
- --------------------
Section 1.39. Premises. "Premises" has the meaning set forth in Section 4.14.
- -----------------------
Section 1.40. Prime Rate of Interest. "Prime Rate of Interest" means that rate
- -------------------------------------
of interest designated as such by Fleet National Bank of Connecticut, N.A., or
any successor thereto, as the same may from time to time fluctuate.
Section 1.41, Prohibited Transaction. "Prohibited Transaction" means a
- ---------------------------------------
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975(c)(1) of the Internal Revenue Code.
Section 1.42. Qualified Account. "Qualified Account" means an Account of
- -----------------------------------
Borrower generated in the ordinary course of Borrower's business from the sale
of goods or rendition of medical services which Lender, in its sole credit
judgment, deems to be a Qualified Account. Without limiting the generality of
the foregoing, no Account shall be a Qualified Account if: (a) the Account or
any portion thereof is payable by an individual beneficiary, recipient or
subscriber individually and not directly to Borrower by a Medicaid/Medicare
Account Debtor or commercial medical insurance carrier acceptable to Lender in
its sole discretion; (b) the Account remains unpaid more than one hundred
eighty (180) days past the claim or invoice date; (c) the Account is subject
to any defense, set-off, counterclaim, deduction, discount, credit,
chargeback, freight claim, allowance, or adjustment of any kind; (d) any pan
of any goods the sale of which has given rise to the Account has been
returned, rejected, lost, or damaged; (e) if the Account arises from the sale
of goods by Borrower, such sale was not an absolute sale or on consignment or
on approval or on a sale-or-return basis or subject to any other repurchase or
return agreement, or such goods have not been shipped to the Account Debtor or
its designee; (f) if the Account arises from the performance of services, such
services have not been actually been performed or were undertaken in violation
of any law; (g) the Account is subject to a lien other than a Permitted Lien;
(h) Borrower knows or should have known of bankruptcy, receivership,
reorganization, or insolvency of the Account Debtor; (i) the Account is
evidenced by chattel paper or an instrument of any kind, or has been reduced
to judgment; j) the Account is an Account of an Account Debtor having its
principal place of business or executive office outside the United States; (k)
the Account Debtor is an Affiliate or Subsidiary of Borrower; (1) more than
twenty percent (20%) of the aggregate balance of all Accounts owing from the
Account Debtor obligated on the Account are outstanding more than two hundred
forty (240) days past their invoice date; (m) fifty percent (50%) or more of
the aggregate unpaid Accounts from any individual Account Debtor are not
deemed Qualified Accounts hereunder; (n) the total unpaid Accounts of the
Account Debtor, except for a Medicaid/Medicare Account Debtor, exceed twenty
percent (20%) of the net amount of all Qualified Accounts (including
Medicaid/Medicare Account Debtors); (o) any covenant, representation or
warranty contained in the Loan Documents with respect to such Account has been
breached; or (p) the Account fails to meet such other specifications and
requirements which may from time to time be established by Lender.
Section 1.43. Reportable Event. "Reportable Event" means a "reportable event"
- --------------------------------
as defined in Section 4043(b) of ERISA.
Section 1.44. Revolving Credit Loan. "Revolving Credit Loan" has the meaning
- -------------------------------------
set forth in Section 2.1 (b).
Section 1.45. Term. "Term" has the meaning set forth in Section 2.8.
- ---------------------
ARTICLE H
LOAN
----
Section 2.1. Terms.
- ---------------------
(a) The maximum aggregate principal amount of credit extended by Lender
to Borrower hereunder (the "Loan") that will be outstanding at any time is
Five Million and No/l00 Dollars ($5,000,000.00) (the "Maximum Loan
Amount").
(b) The Loan shall be in the nature of a revolving line of credit, and
shall include sums advanced and other credit extended by Lender to or for the
benefit of Borrower from time to time under this Article 11 (each a "Revolving
Credit Loan") up to the Maximum Loan Amount depending upon the availability in
the Borrowing Base, the requests of Borrower pursuant to the terms and
conditions of Section 2.2 below, and on such other basis as Lender may
reasonably determine. The outstanding principal balance of the Loan may
fluctuate from time to time, to be reduced by repayments made by Borrower
(which may be made without penalty or premium), and to be increased by future
Revolving Credit Loans, advances and other extensions of credit to or for the
benefit of Borrower, and shall be due and payable in full upon the expiration
of the Term. For purposes of this Agreement, any determination as to whether
there is availability within the Borrowing Base for advances or extensions of
credit shall be made by Lender in its sole discretion and is final and binding
upon Borrower.
(e) At Closing, Borrower shall execute and deliver to Lender a promissory
note evidencing Borrower's unconditional obligation to repay Lender for
Revolving Credit Loans, advances, and other extensions of credit made under
the Loan, in the form of Exhibit A to this Agreement (the "Note"), dated the
---------
date hereof, payable to the order of Lender in accordance with the terms
thereof. The Note shall bear interest from the date of each advance
thereunder until repaid, with interest payable and calculated monthly in
arrears on the first Business Day of each month, at a rate per annum (on the
basis of the actual number of days elapsed over a year of 360 days) equal to
the Base Rate, provided that after an Event of Default such rate shall be
equal to the Default Rate. Each Revolving Credit Loan, advance and other
extension of credit shall be deemed evidenced by the Note, which is deemed
incorporated by reference herein and made a part hereof.
(d) Subject to the terms and conditions of this Agreement, advances under
the Loan shall be made against a borrowing base equal to eighty percent (80%)
of Qualified Accounts due and owing from any Medicaid/Medicare, Insurer or
other Account Debtor (the "Borrowing Base").
Section 2.2. Loan Administration. Borrowings under the Loan shall be as
- ------------------------------------
follows.
(a) A request for a Revolving Credit Loan shall be made, or shall be
deemed to be made, in the following manner: (i) Borrower may give Lender
notice of its intention to borrow, in which notice Borrower shall specify the
amount of the proposed borrowing and the proposed borrowing date, not later
than 2:00 p.m. Eastern time two (2) Business Days prior to the proposed
borrowing date; provided, however, that no such request may be made at a time
-----------------
when there exists an Event of Default; and (ii) the becoming due of any amount
required to be paid under this Agreement, whether as interest or for any other
Obligation, shall be deemed irrevocably to be a request for a Revolving Credit
Loan on the due date in the amount required to pay such interest or other
Obligation.
(b) Borrower hereby irrevocably authorizes Lender to disburse the proceeds
of each Revolving Credit Loan requested, or deemed to be requested, as
follows: (i) the proceeds of each Revolving Credit Loan requested under
subsection 2.2(a)(i) shall be disbursed by Lender by wire transfer to such
bank account as may be agreed upon by Borrower or Lender from time to time or
elsewhere if pursuant to written direction from Borrower; and (ii) the
proceeds of each Revolving Credit Loan requested under subsection 2.2(a)(ii)
shall be disbursed by Lender by way of direct payment of the relevant interest
or other Obligation.
(c) All Revolving Credit Loans, advances and other extensions of credit to
or for the benefit of Borrower shall constitute one general Obligation of
Borrower, and shall be secured by Lender's lien upon all of the Collateral.
(d) Lender shall enter all Revolving Credit Loans as debits to a loan
account in the name of Borrower and shall also record in said loan account all
payments made by Borrower on any Obligations and all proceeds of Collateral
which are indefeasibly paid to Lender, and may record therein, in accordance
with customary accounting practice, other debits and credits, including
interest and all charges and expenses properly chargeable to Borrower.
(e) Lender will account to Borrower monthly with a statement of Revolving
Credit Loans, charges and payments made pursuant to this Agreement and such
account rendered by Lender shall be deemed final, binding and conclusive upon
Borrower unless Lender is notified by Borrower in writing to the contrary
within thirty (30) days of the date each accounting is mailed to Borrower.
Such notice shall be deemed an objection to those items specifically objected
to therein.
Section 2.3.Collections, Disbursements, Borrowing Availability, and Lockbox
- ------------------------------------------------------------------------------
Account. Borrower shall maintain a lockbox account (the "Lockbox") with Bank
- --------
One Arizona, N.A.(the "Lockbox Bank"), subject to the provisions of this
Agreement, and shall execute with the Lockbox Bank a Lockbox Agreement in the
form attached as Exhibit B, and such other agreements related thereto as
-------
Lender may require. Borrower shall ensure that all collections of Accounts
are paid directly from Account Debtors into the Lockbox, and that all funds
paid into the Lockbox are immediately transferred into a depository account
maintained by Lender at Bank One Arizona, N.A. or First Bank, N.A., as
determined by Lender in its sole discretion and communicated to Borrower (the
"Concentration Account"). Lender shall apply, on a daily basis, all funds
transferred into the Concentration Account pursuant to this Section 2.3 to
reduce the outstanding indebtedness under the Loan with future Revolving
Credit Loans, advances and other extensions of credit to be made by Lender
under the conditions set forth in this Article II. To the extent that any
collections of Accounts or proceeds of other Collateral are not sent directly
to the Lockbox but are received by Borrower, such collections shall be held in
trust for the benefit of Lender and promptly remitted, in the form received,
to the Lockbox Bank for transfer to the Concentration Account immediately upon
receipt by Borrower, Borrower acknowledges and agrees that its compliance with
the terms of this Section 2.3 is essential, and that upon its failure to
comply with any such terms Lender shall be entitled to assess a non compliance
fee which shall operate to increase the Base Rate by two percent (2%) per
annum during any period of non-compliance. Lender shall be entitled to assess
such fee whether or not an Event of Default is declared or otherwise occurs.
All funds transferred from the Concentration Account for application to
Borrower's indebtedness to Lender shall be applied to reduce the Loan balance,
but for purposes of calculation interest shall be subject to a five (5)
Business Day clearance period, If as the result of collections of Accounts
pursuant to the terms and conditions of as Section 2.3 a credit balance exists
with respect to the Concentration Account, such credit balance shall not
accrue interest in favor of Borrower, but shall be available to Borrower at
any time or times for so long as no Event of Default exists.
Section 2.4. Fees.
- --------------------
(a) At Closing, Borrower shall unconditionally pay to Lender a commitment
fee equal to two percent (2.0%) of the Maximum Loan Amount (the "Commitment
Fee").
(b) Intentionally Deleted.
(c) For so long as the Loan is available to Borrower, Borrower unconditionally
shall pay to Lender a monthly loan management fee ("Loan Management Fee")
equal to thirty five one hundredths of one percent (0.35%) of the average
daily amount of the outstanding principal balance of the Revolving Credit
Loans during the preceding month. The Loan Management Fee shall be payable
monthly in arrears on the first day of each successive calendar month.
(d) Borrower shall pay to Lender all reasonable out-of-pocket audit and
appraisal fees in connection with audits and appraisals of Borrower's books
and records and such other matters as Lender shall deem appropriate, which
shall be due and payable on the first Business Day of the month following the
date of issuance by Lender of a request for payment thereof to Borrower.
(e) Borrower shall pay to Lender, on demand, any and all reasonable fees,
costs or expenses which Lender or any participant pays to a bank or other
similar institution (including, without limitation, any fees paid by Lender to
any participant) arising out of or in connection with (i) the forwarding to
Borrower or any other, Person on behalf of Borrower, by Lender, of proceeds of
Revolving Credit Loans made by Lender to Borrower pursuant to this Agreement,
and (ii) the depositing for collection, by Lender or any participant, of any
check or item of payment received or delivered to Lender or any participant on
account of Obligations.
Section 2.5. Payments. Principal payable on account of Revolving Credit Loans
- ----------------------
shall be payable by Borrower to Lender immediately upon the earliest of (i)
the receipt by Borrower of any proceeds of any of the Collateral to the extent
of such proceeds, (ii) the occurrence of an Event of Default in consequence of
which the Loan and the maturity of the payment of the Obligations are
accelerated, or (iii) the termination of this Agreement pursuant to Section
2.8 hereof; provided, however, that if any advance made by Lender in excess of
-----------------
the Borrowing Base shall exist at any time, Borrower shall, immediately upon
demand, repay such overadvance. Interest accrued on the Revolving Credit
Loans shall be due on the earliest of (i) the first Business Day of each month
(for the immediately preceding month), computed on the last calendar day of
the preceding month, (ii) the occurrence of an Event of Default in consequence
of which the Loan and the maturity of the payment of the Obligations are
accelerated, or (iii) the termination of this Agreement pursuant to Section
2.8 hereof. Except to the extent otherwise set forth in this Agreement, all
payments of principal and of interest on the loan, all other charges and any
other obligations of Borrower hereunder, shall be made to Lender to the
Concentration Account, in immediately available funds.
Section 2.6. Use of Proceeds. The proceeds of Lender's advances under the
- ---------------------------------
Loan shall be used solely to repay in part existing indebtedness and for
working capital and for other costs of Borrower arising in the ordinary course
of Borrower's business'.
Section 2.7. Interest Rate Limitation. The parties intend to conform strictly
- --------------------------------------
to the applicable usury laws in effect from time to time during the term of
the Loan. Accordingly, if any transaction contemplated hereby would a
usurious under such laws, then notwithstanding any other provision hereof. (a)
the aggregate of all interest that is contracted for, charged, or received
under this Agreement or under any other Loan Document shall not exceed the
maximum amount of interest allowed by applicable law (the 'Highest Lawful
Rate"), and any excess shall be promptly credited to Borrower by Lender (or,
to the extent that such consideration shall have been paid, such excess shall
be promptly refunded to Borrower by Lender); (b) neither Borrower nor any
other Person now or hereafter liable hereunder shall be obligated to pay the
amount of such interest to the extent that it is in excess of the Highest
Lawful Rate; and (c) the effective rate of interest shall be reduced to the
Highest Lawful Rate. All sums paid, or agreed to be paid, to Lender for the
use, forbearance, and detention of the debt of Borrower to Lender shall, to
the extent permitted by applicable law, be allocated throughout the full term
of the Note until payment is made, in full so that the actual rate of interest
does not exceed the Highest Lawful Rate in affect at any particular time
during the full term thereof. If at any time the rate of interest under the
Note exceeds the Highest Lawful Rate, the rate of interest to accrue pursuant
to this Agreement shall be limited, notwithstanding anything to the contrary
herein to the Highest Lawful Rate, but any subsequent reductions in the Base
Rate shall not reduce the interest to accrue pursuant to this Agreement below
the Highest Lawful Rate until the total amount of interest accrued equals the
amount of interest that would have accrued if a varying rate per annum equal
to the interest rate under the Note had at all times been in effect. If the
total amount of interest paid or accrued pursuant to this Agreement under the
foregoing provisions is less than the total amount of interest that would have
accrued if a varying rate per annum equal to the interest rate under the Note
had been in effect, then Borrower agrees to pay to Lender an amount equal to
the difference between (a) the lesser of (i) the amount of interest that would
have accrued if the Highest Lawful Rate had at all times been in effect, or
(ii) the amount of interest that would have accrued if a varying rate per
annum equal to the interest rate under the Note had at all times been in
effect, and (b) the amount of interest accrued in accordance with the other
provisions of this Agreement.
Section 2.8. Term.
- --------------------
(a) Subject to Lender's right to cease making Revolving Credit Loans to
Borrower upon or after any Event of Default, this Agreement shall be in effect
for a period of three (3) years from the Closing Date, unless terminated as
provided in this Section 2.8 (the "Term"), and this Agreement shall be renewed
for one-year periods thereafter upon the mutual written agreement of the
parties.
(b) Notwithstanding anything herein to the contrary, Lender may terminate
this Agreement without notice upon or after the occurrence of an Event of
Default.
(c) Upon at least thirty (30) days prior written notice to Lender,
Borrower may terminate this Agreement prior to the third annual anniversary of
the Closing Date, provided that, at the effective date of such termination,
Borrower shall pay to Lender (in addition to the then outstanding principal,
accrued interest and other Obligations owing under the terms of this Agreement
and any other Loan Documents) as liquidated damages for the loss of bargain
and not as a penalty, an amount equal to (i) two percent (20%) of the Maximum
Loan Amount if the effective date of such termination by Borrower is on or
prior to the first annual anniversary of the Closing Date, and (ii) one
percent (1%) of the Maximum Loan Amount if the effective date of such
termination by Borrower is after the first annual anniversary of the Closing
Date and prior to the second annual anniversary of the Closing Date.
(d) All of the Obligations shall be immediately due and payable upon the
termination date stated in any notice of termination of as Agreement. All
undertakings, agreements, covenants, warranties, and representations of
Borrower contained in the Loan Documents shall survive any such termination
and Lenders shall retain its liens in the Collateral and all of its rights and
remedies under the Loan Documents notwithstanding such termination until
Borrower has paid the Obligations to Lender, in full, in immediately available
funds.
Section 2.9. Joint and Several Liability; Binding Obligations., Each entity
- -----------------------------------------------------------------
comprising Borrower and executing this Agreement on behalf of Borrower "I
shall be jointly and severally liable for all of the Obligations. In
addition, each entity comprising Borrower hereby acknowledges and agrees that
all of the representations, warranties, covenants, obligations, conditions,
agreements and other terms contained in this Agreement shall be applicable to
and shall be binding upon each individual entity comprising Borrower, and
shall be binding upon all such entities when taken together.
ARTICLE III
COLLATERAL
----------
Section 3.1. Generally. As security for the payment of all liabilities of
- -------------------------
Borrower to Lender, including without limitation: (i) indebtedness evidenced
under the Note, repayment of Revolving Credit Loans, advances and other
extensions of credit; all fees and charges owing by Borrower, and all other
liabilities and obligations of every kind or nature whatsoever of Borrower to
Lender, whether now existing or hereafter incurred, joint or several, matured
or unmatured, direct or indirect, primary or secondary, related or unrelated,
due or to become due, including but not limited to any extensions,
modifications, substitutions, increases and renewals thereof, (ii) the payment
of all reasonable amounts advanced by Lender to preserve, protect, defend, and
enforce its rights hereunder and in the following property in accordance with
the terms of this Agreement, and (iii) the payment of all reasonable expenses
incurred by Lender in connection therewith (collectively, the "Obligations"),
Borrower hereby assigns and grants to Lender a continuing first priority lien
on and security interest in, upon, and to the following property (the
'Collateral"):
(a) All of Borrower's now-owned and hereafter acquired or arising
Accounts, and rights to payment of every kind and description, and any
contract rights, chattel paper, documents and instruments with respect
thereto;
(b) All of Borrower's now owned and hereafter acquired or arising general
intangibles of every kind and description pertaining to its Accounts, accounts
receivable and other rights to payment, including, but not limited to, all
existing and future customer lists, chooses in action, claims, books, records,
contracts, licenses, formulae, tax and other types of refunds, returned and
unearned insurance premiums, rights and claims under insurance policies, and
computer information, software, records, and data;
(c) All of Borrower's now or hereafter acquired deposit accounts into
which Accounts are deposited, including the Concentration Account;
(d) All of Borrower's monies and other property of every kind and nature
now or at any time or times hereafter in the possession of or under the
control of Lender or a bailee or Affiliate of Lender; and
(e) The proceeds (including, without limitation, insurance proceeds) of
all of the foregoing-
Section 3.2. Lien Documents. At Closing and thereafter as Lender deems
- -------------------------------
necessary in its sole discretion, Borrower shall execute and deliver to
Lender, or have executed and delivered (all in form and substance satisfactory
to Lender in its sole discretion):
(a) UCC-1 Financing statements pursuant to the Uniform Commercial Code in
effect in the jurisdiction(s) in which Borrower operates, which Lender may
file in any jurisdiction where any Collateral is or may be located and in any
other jurisdiction that Lender deems appropriate; provided that a carbon,
photographic, or other reproduction or other copy of this Agreement or of a
financing statement is sufficient as and may be filed in lieu of a financing
statement; and
(b) Any other agreements, documents, instruments, and writings deemed
necessary by Lender or as Lender may otherwise request from time to time in
its sole discretion to evidence, perfect, or protect Lender's lien and
security interest in the Collateral required hereunder.
Section 3.3. Collateral Administration.
- ------------------------------------------
(a) All Collateral (except deposit accounts) will at all times be kept by
Borrower at its principal office(s) as set forth on Exhibit C hereto and shall
---------
not, without the prior written approval of Lender, be moved therefrom.
(b) Borrower shall keep accurate and complete records of its Accounts and
all payments and collections thereon and shall submit to Lender on such
periodic basis as Lender shall request a sales and collections report for the
preceding period, in form satisfactory to Lender. In addition, if Accounts in
an aggregate face amount in excess of $50,000.00 become ineligible because
they fall within one of the specified categories of ineligibility set forth in
the definition of Qualified Accounts or otherwise, Borrower shall notify
Lender of such occurrence on the first Business Day following such occurrence
and the Borrowing Base shall thereupon be adjusted to reflect such occurrence.
If requested by Lender, Borrower shall execute and deliver to Lender formal
written assignments of all of its Accounts weekly or daily, which shall
include all -Accounts that have been created since the date of the last
assignment, together with copies of claims, invoices or other information
related thereto.
(c) Whether or not an Event of Default has occurred, any of Lender's
officers, employees or agents shall have the right, at any time or times
hereafter, in the name of Lender, any designee of Lender or Borrower, to
verify the validity, amount or any other matter relating to any Accounts by
mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with
Lender in an effort to facilitate and promptly conclude such verification
process.
(d) To expedite collection, Borrower shall endeavor in the first instance
to make collection of its Accounts for Lender. Lender retains the right at
all times after the occurrence of an Event of Default, subject to applicable
law regarding Medicaid/Medicare Account Debtors, to notify Account Debtors
that Accounts have been assigned to Lender and to collect Accounts directly in
its own name and to charge the collection costs and expenses, including
attorneys' fees, to Borrower.
Section 3.4. Other Actions. In addition to the foregoing, Borrower (i) shall
- -----------------------------
provide prompt written notice to each private indemnity, managed care or other
Insurer who either is currently an Account Debtor or becomes an Account Debtor
at any time following the date hereof that Lender has been granted a first
priority lien and security interest in, upon and to all Accounts applicable to
such Insurer, and hereby authorizes Lender to send any and all similar notices
to such Insurers by Lender, and (ii) shall do anything further that may be
lawfully required by Lender to secure Lender and effectuate the intentions and
objects of this Agreement, including but not limited to the execution and
delivery of lockbox agreements, continuation statements, amendments to
financing statements, and any other documents required hereunder.
At Lender's request, Borrower shall also immediately deliver to Lender all
items for which Lender must receive possession to obtain a perfected security
interest. Borrower shall, on Lender's demand, deliver to Lender all notes,
certificates, and documents of title, chattel paper, warehouse receipts,
instruments, and any other similar instruments constituting Collateral.
Section 3.5. Searches. Prior to Closing, and thereafter (as and when requested
- ----------------------
by Lender in its sole discretion), Borrower shall obtain and deliver to Lender
the following searches against Borrower (the results of which are to be
consistent with Borrower's representations and warranties under this
Agreement), all at its own expense:
(a) Uniform Commercial Code searches with the Secretary of State and local
filing offices of each jurisdiction where Borrower maintains its executive
offices, a place of business, or assets
(b) Judgment, federal tax lien and corporate and partnership tax lien
searches, in each jurisdiction searched under clause (a) above; and
(c) Good standing certificates showing Borrower to be in good standing in
its state
of formation and in each other state in which it is doing and presently
intends to do business for
which qualification is required.
Section 3.6. Power of Attorney. Each of the officers of Lender is hereby
- -----------------------------------
irrevocably made, constituted and appointed the true and lawful attorney for
Borrower (without requiring any of them to act as such) with full power of
substitution to do the following: (a) endorse the name of Borrower upon any
and all checks, drafts, money orders, and other instruments for the payment of
money that are payable to Borrower and constitute collections on Borrower's
Accounts; (b) with prior notice to Borrower, execute in the name of Borrower
any financing statements, schedules, assignments, instruments, documents, and
statements that Borrower is obligated to give Lender hereunder; and (c)
following an Event of default do such other and further acts and deeds in the
name of Borrower that Lender may deem necessary or desirable to enforce any
Account or other Collateral or perfect Lender's security interest or lien in
any Collateral.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
--------------------------------
Each entity comprising the Borrower represents and warrants to Lender, and
shall be deemed to represent and warrant on each day on which an Obligations
shall be outstanding hereunder, that:
Section 4.1. Subsidiaries. Except as set forth in Schedule 4-1, Borrower has
- --------------------------- ------------
no subsidiaries.
Section 4.2. Organization and Good Standing. Borrower is a corporation duly
- ----------------------------------------------
organized, validly existing, and in good standing under the laws of its state
of formation, is in good standing as a foreign corporation in each
jurisdiction in which the character of the properties owned or leased by it
therein or the nature of its business makes such qualification necessary, has
the corporate power and authority to own its assets and transact the business
in which it is engaged, and has obtained all material certificates, licenses
and qualifications required under all laws, regulations, ordinances, or orders
of public authorities necessary for the ownership and operation of all of its
properties and transaction of all of its business.
Section 4.3. Authority. Borrower has full corporate power and authority to
- -------------------------
enter into, execute, and deliver this Agreement and to perform its obligations
hereunder, to borrow the Loan, to execute and deliver the Note, and to incur
and perform the obligations provided for in the Loan Documents, all of which
have been duly authorized by all necessary corporate action. No consent or
approval of shareholders of, or lenders to, Borrower and no consent, approval,
filing or registration with any Governmental Authority is required as a
condition to the validity of the Loan Documents or the performance by Borrower
of its obligations thereunder.
Section 4.4. Binding Agreement. This Agreement and all other Loan Documents
- ---------------------------------
constitute, and the Note, when issued and delivered pursuant hereto for value
received, will constitute, the valid and legally binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms.
Section 4.5. Litigation. Except as disclosed in Schedule 4.5, there are no
- -------------------------- ------------
actions, suits, proceedings or investigations pending or threatened against
Borrower before any court or arbitrator or before or by any Governmental
Authority which, in any one case or in the aggregate, if determined adversely
to the interests of Borrower, could have a material adverse effect on the
business, properties, condition (financial or otherwise) or operations,
present or prospective, of Borrower, or upon its ability to perform its
obligations under the Loan Documents. Borrower is not in default with respect
to any order of any court, arbitrator, or Governmental Authority applicable to
Borrower or its properties.
Section 4.6. No Conflicts. The execution and delivery by Borrower of this
- -----------------------------
Agreement and the other Loan Documents do not, and the performance of its
obligations thereunder will not, violate, conflict with, constitute a default
under, or result in the creation of a lien or encumbrance upon the property of
Borrower under: (a) any provision of Borrowers articles of incorporation or
bylaws, (b) any provision of any law, rule, or regulation applicable to
Borrower, or (c) any of the following: (i) any indenture or other agreement or
instrument to which Borrower is a party or by which Borrower or its property
is bound; or (ii) any judgment, order or decree of any court, arbitration
tribunal, or Governmental Authority having jurisdiction over Borrower which is
applicable to Borrower.
Section 4.7. Financial Condition. The annual financial statements of Borrower
- ----------------------------------
as of December 29, 1996 audited by Ehrhardt, Keefe, Steiner & Hoffman and the
unaudited financial statements of Borrower as of March 30, 1997, certified by
the chief financial officer of Borrower, which have been delivered to Lender,
fairly present the financial condition of Borrower and the results of its
operations and changes in financial condition as of the dates and for the
periods referred to, and have been prepared in accordance with GAAP. There
are no material unrealized or anticipated liabilities, direct or indirect,
fixed or contingent, of Borrower as of the dates of such financial statements
which will not be reflected therein or in the notes thereto. There has been
no adverse change in the business, properties, condition (financial or
otherwise) or operations of Borrower since March 30, 1997. Borrower's fiscal
year ends on December 28, 1997 and 1998 federal tax identification numbers of
each entity comprising the Borrower are listed on Schedule 4.7.
Section 4.8. No Default. Except as disclosed on Schedule 4.8, Borrower is not
- ------------------------- ------------
in default under or with respect to any obligation in any respect which could
be adverse to its business, operations, property or financial condition, or
which could adversely affect the ability of Borrower to perform its
obligations under the Loan Documents. No Event of Default or event which with
the giving of notice or lapse of time, or both, could become an Event of
Default, has occurred and is continuing.
Section 4.9. Title to Properties. Borrower has good and marketable title to
- ------------------------------------
its properties and assets, including the Collateral and the properties and
assets reflected in the financial statements described in Section 4.7, subject
to no lien, mortgage, pledge, encumbrance or charge of any kind, other than
Permitted Liens and the current lien of Lender. Borrower has not agreed or
consented to cause any of its properties or assets whether owned now or
hereafter acquired to be subject in the future (upon the happening of a
contingency or otherwise) to any lien, mortgage, pledge, encumbrance or charge
of any kind other than Permitted Liens.
Section 4.10. Taxes. Borrower has filed, or has obtained extensions for the
- ----------------------
filing of, all federal, state and other tax returns which are required to be
filed, and has paid all taxes shown as due on those returns and all
assessments, fees and other amounts due as of the date hereof. All tax
liabilities of Borrower were, as of December 29, 1996 and are now, adequately
provided for on Borrowee's books. No tax liability has been asserted by the
Internal Revenue Service or other taxing authority against Borrower for taxes
in excess of those already paid or accrued for Section 4.11. Securitiesand
----------
Banking Laws and Regulations.
----------------------------
(a) The use of the proceeds of the Loan and Borrower's issuance of the
Note will not directly or indirectly violate or result in a violation of the
Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, or
any regulations issued pursuant thereto, including without limitation
Regulations U, T, G, or X of the Board of Governors of the Federal Reserve
System. Borrower is not engaged in the business of extending credit for the
purpose of the purchasing or carrying "margin stock" within the meaning of
those regulations. No part of the proceeds of the Loan hereunder will be used
to purchase or any margin stock or to extend credit to others for such
purpose.
(b) Borrower is not an investment company within the meaning of the
Investment Company Act of 1940, as amended, nor is it, directly or indirectly,
controlled by or acting on behalf of any Person which is an investment Company
within the meaning of that Act.
Section 4.12. ERISA, No employee benefit plan (a "Plan") subject to the
-----
Employee Retirement Income Security Act of 1974 ("ERISA") and regulations
issued pursuant thereto that is maintained by Borrower or under which Borrower
could have any liability under ERISA (a) has failed to meet minimum funding
standards established in Section 302 of ERISA, (b) has failed to comply with
all applicable requirements of ERISA and of the Internal Revenue Code,
including all applicable rulings and regulations thereunder, (c) has engaged
in or been involved in a prohibited transaction (as defined in ERISA) under
ERISA or under the Internal Revenue Code, or (d) has been terminated.
Borrower has not assumed, or received notice of a claim asserted against
Borrower for, withdrawal liability (as defined in the Multi-Employer Pension
Plan Amendments Act of 1980, as amended) with respect to any multi-employer
pension plan and is not a member of any Controlled Group (as defined in
ERISA). Borrower has timely made when due all contributions with respect to
any multi-employer pension plan in which it participates and no event has
occurred triggering a claim against Borrower for withdrawal liability with
respect to any multi-employer pension plan in which Borrower anticipates.
Section 4.13. Compliance with Law. Except as described in Schedule 4.13,
- -------------------------------------- -------------
Borrower is not in violation of any statute, rule or regulation of any
Governmental Authority (including, without limitation, any statute, rule or
regulation relating to employment practices or to environmental, occupational
and health standards and controls). Borrower has obtained all material
licenses, permits, franchises, and other governmental authorizations necessary
for the ownership of its properties and the conduct of its business. Borrower
is current with all reports and documents required to be filed with any state
or federal securities commission or similar Governmental Authority and is in
full compliance with all applicable rules and regulations of such commissions,
Section 4.14. Environmental Matters. No use, exposure, release, generation,
- --------------------------------------
manufacture, storage, treatment, transportation or disposal of Hazardous
Material has occurred or is occurring on or from any real property on which
the Collateral is located or which is owned leased or otherwise occupied by
Borrower (the "Premises"), or off the Premises as a result of any action of
Borrower, except as described in Schedule 4.14. All Hazardous Material used,
- - -------------
treated, stored, transported to or from, generated or handled on the Premises,
or off the Premises by Borrower, has been disposed of on or off the Premises
by or on behalf of Borrower in a lawful manner. There are no underground
storage tanks present on or under the Premises owned or leased by Borrower.
No other environmental, public health or safety hazards exist with respect to
the Premises.
Section 4.15. Places of Business. The only places of business of Borrower, and
- ---------------------------------
the places where it keeps and intends to keep the Collateral and records
concerning the Collateral, are at the addresses set forth in Schedule 4,15.
--------------
Schedule; 4.15 also lists the owner of record of each such property,
--------------
Section 4.16, Intellectual Property. Borrower exclusively owns or possesses
- ---------------------------------------
all the patents, patent applications, trademarks, trademark applications,
trademarks, trade names, copyrights, franchises, licenses, and rights with
respect to the foregoing necessary for the present and planned future conduct
of its business, without any known conflict with the rights of others. A list
of all such intellectual property (indicating the nature of Borrowers
interest), as well as all outstanding franchises and licenses given by or held
by Borrower, is attached as Schedule 4.16. Borrower is not in default of any
-------------
obligation or undertaking with respect to such intellectual property or
rights.
Section 4.17. Intentionally Deleted.
- ---------------------------------------
Section 4.18. Material Facts. Neither this Agreement nor any other Loan
- --------------------------------
Document nor any other agreement, document, certificate, or statement
furnished to Lender by or on behalf of Borrower in connection with the actions
contemplated hereby contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained
herein or therein not misleading. There is no fact known to Borrower that
adversely affects or in the future may adversely affect the business,
operations, affairs or financial condition of Borrower, or any of its
properties or assets.
Section 4.19. Investments, Guarantees, and Certain Contracts. Borrower does
- ----------------------------------------------------------------
not own or hold any equity or long-term debt investments in, have any
outstanding advances to, have any outstanding guarantees for the obligations
of, or have any outstanding borrowings from any Person, except as described on
Schedule 4.19. Borrower is not a party to any contract or agreement, or
subject to any corporate restriction, which adversely affects its business.
Section 4.20. Business Interruptions. Within five years prior to the date
- ----------------------------------------
hereof, neither the business, property or assets, or operations of Borrower
has been adversely affected in any way by any casualty, strike, lockout,
combination of workers, or order of the United States of America or other
Governmental Authority, directed against Borrower. There are no pending or
threatened labor disputes, strikes, lockouts, or similar occurrences or
grievances against Borrower or its business.
Section 4.21. Names. Within five years prior to the date hereof, Borrower has
- ---------------------
not conducted business under or used any other name (whether corporate,
partnership or assumed) other than as shown on Schedule 4.21. Borrower is the
-------------
sole owner of all names listed on that Schedule and any and all business done
and invoices issued in such names are Borrower's sales, business, and
invoices. Each trade name of Borrower represents a division or trading style
of Borrower and not a separate Person or independent Affiliate.
Section 4.22 Joint Ventures. Borrower is not engaged in any joint venture or
- ------------------------------
partnership with any other Person, except as set forth on Schedule 4.22.
Section 4.23 Accounts. Lender may rely, in determining which Accounts are
- ------------------------
Qualified Accounts, on all statements and representations made by Borrower
with respect to any Account or Accounts. Unless otherwise indicated in
writing to Lender, with respect to each Account:
(a) It is genuine and in all respects what it purports to be, and is not
evidenced by a judgment;
(b) It arises out of a completed, bona fide sale and delivery of goods or
rendition of services by Borrower in the ordinary course of its business and
in accordance with the terms and conditions of all purchase orders, contracts,
certification, participation certificate of need or other documents relating
thereto and forming a part of the contract between Borrower and the Account
Debtor,
(c) It is for a liquidated amount maturing as stated in a duplicate claim
or invoice covering such sale or rendition of services, a copy of which has
been furnished or is available to Lender.
(d) Such Accounts and Lender's security interest therein, is not, and will
not (by voluntary act or omission by Borrower), be in the future, subject to
any offset, lien, deduction, defense, dispute, counterclaim or any other
adverse condition, and each such Account is absolutely owing to Borrower and
is not contingent in any respect or for any reason;
(e) There are no facts, events or occurrences which in any way impair the
validity or enforceability of any Accounts or tend to reduce the amount
payable thereunder from the face amount of the claim or invoice and statements
delivered to Lender with respect thereto;
(f) To the best of Borrower's knowledge, (i) the Account Debtor thereunder
had the capacity to contract at the time any contract or other document giving
rise to the Account was executed and (ii) such Account Debtor is solvent;
(g) To the best of Borrower's knowledge, there are no proceedings or
actions which are threatened or pending against any Account Debtor thereunder
which might result in any material adverse change in such Account Debtor's
financial condition or the collectibility of such Account;
(h) It has been billed and forwarded to the Account Debtor for payment in
accordance with applicable laws and compliance and conformance with any and
requisite procedures, requirements and regulations governing payment by such
Account Debtor with respect to such Account, and such Account if due from a
Medicaid/Medicare Account Debtor is properly payable directly to Borrower; and
(i) Borrower has obtained and currently has all certificates of need,
Medicaid and Medicare provider numbers, licenses, permits and authorizations
as necessary in the generation of such accounts.
ARTICLE V
CLOSING AND CONDITIONS OF LENDING
Section 5.1. Conditions Precedent to Agreement. of Lender to enter into and
- --------------------------------------------------
perform this Agreement and to make Revolving Credit Loan is subject to the
following conditions precedent:
(a) Lender shall have received two (2) originals of this Agreement and all
other Loan Documents required to be executed and delivered at or prior to
Closing (other than the. Note, as to which Lender shall receive only one
original), executed by Borrower and any other required Persons, as applicable,
(b) Lender shall have received all searches and good standing certificates
required by Section 3.5.
(c) Borrower shall have complied and shall then be in compliance with all
the terms, covenants and conditions of the Loan Documents.
(d) There shall have occurred no Event of Default and no event which, with
the giving of notice or the lapse of time, or both, could constitute such an
Event of Default
(e) The representations and warranties contained in Article IV shall be
true and correct.
(f) Lender shall have received copies of all board of directors
resolutions of Borrower, and other corporate action taken by Borrower to
authorize the execution, delivery and performance of the Loan Documents and
the borrowing of the Loan thereunder, as well as the names and signatures of
the officers of Borrower authorized to execute documents on its behalf in
connection herewith, all as also certified as of the date hereof by Borrower's
chief financial officer, and such other papers as Lender may require.
(g) Lender shall have received copies, certified as true, correct and
complete by a corporate officer of each Borrower, of the articles of
incorporation of each Borrower, with any amendments to any of the foregoing,
and all other documents necessary for performance of the obligations of
Borrower under this Agreement and the other Loan Documents.
(h) Lender shall have received a written opinion of counsel for Borrower,
dated the date hereof, in the form of
(i) Lender shall have received such financial statements, reports,
certifications, and other operational information required to be delivered
hereunder, including without limitation an initial borrowing base certificate
calculating the Borrowing Base.
(j) Lender shall have received the Commitment Fee.
(k) The Lockbox and the Concentration Account shall have been established.
(l) Lender shall have received a certificate of Borrower's chief financial
officer, dated the Closing Date, certifying that all of the conditions
specified in this Section have been fulfilled.
Section 5.2 Conditions Precedent to Advances. Notwithstanding any other
provision of this Agreement, no Loan proceeds, Revolving Credit Loans,
advances or other extensions of credit under the Loan shall be disbursed
hereunder unless the following conditions have been satisfied or waived
immediately prior to such disbursement:
(a) The representations and warranties on the part of Borrower contained
in Article IV of this Agreement shall be true and correct in all respects at
and as of the date of disbursement or advance, as though made on and as of
such date (except to the extent that such representations and warranties
expressly relate solely to an earlier date and except that an references in
Section 4.7 to financial statements shall be deemed to be a reference to the
then most recent annual and interim financial statements of Borrower furnished
to Lender pursuant to Section 6.1 hereof).
(b) No Event of Default or event which, with the giving of notice of the
lapse of time, or both, could become an Event of Default shall have occurred
and be continuing or would result from the making of the disbursement or
advance.
(c) No adverse change in the condition (financial or otherwise),
properties, business, or operations of Borrower shall have occurred and be
continuing with respect to Borrower since the date hereof.
Section 5.3. Closing. Subject to the conditions of this Article V, the Loan
- -----------------------
shall be made available on the date as is mutually agreed by the parties (the
"Closing Date") at such time as may be mutually agreeable to the parties upon
the execution hereof (the "Closing") at such place as may be requested by
Lender.
Section 5.4. Waiver of Rights. By completing the Closing hereunder, or by
- ----------------------------------
making advances under the Loan, Lender does not waive a breach of any
representation or warranty of Borrower hereunder or under any other Loan
Document, and all of Lender's claims and rights resulting from any breach or
misrepresentation by Borrower are specifically reserved by Lender.
ARTICLE VI
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that for so long as Borrower way borrow
hereunder and until payment in full of the Note and performance of all other
obligations of Borrower under the Loan Documents:
<PAGE>
Section 6.1. Financial Securities and Collateral Reports. Borrower will
- ---------------------------------------------------------------
furnish to Lender (a) a sales and collections report and accounts receivable
aging schedule on a form acceptable to Lender within fifteen (15) days after
the end of each calendar month, which shall include, but not limited to, a
report of sales, credits issued and collections received; (b) payable aging
schedules within fifteen (15) days after the end of each calendar month; (c)
internally prepared monthly financial statements for Borrower, certified by
the chief financial officer of Borrower, within forty-five (45) days of the
end of each calendar month, accompanied by management analysis and actual vs.
budget variance reports; (d) to the extent prepared by Borrower, annual
projections, profit and loss statements, balance sheets, and cash flow reports
(prepared on a monthly basis) for the succeeding fiscal year within thirty
(30) days before the end of each of Borrower's fiscal years; (e) internally
prepared annual financial statements for Borrower within sixty (60) days after
the end of each of Borrower's fiscal years; (f) annual audited financial
statements for Borrower audited by Ehrhardt, Keefe, Steiner & Hoffman, or a
firm of independent public accountants satisfactory to Lender, within one
hundred thirty-five (135) days after the end of each of Borrower's fiscal
years; (g) promptly upon receipt thereof, copies of any reports submitted to
Borrower by the independent accountants in connection with any interim audit
of the books of Borrower and copies of each management control letter provided
to Borrower by independent accountants; (h) as soon as available, copies of
all financial statements and notices provided by Borrower to all of its
stockholders; and (i) such additional information, reports or statements as
Lender may from time to time request. Annual financial statements shall set
forth in comparative form figures for the corresponding periods in the prior
fiscal year. All financial statements shall include a balance sheet and
statement of earnings and shall be prepared in accordance with GAAP.
Section 6.2. Payments Hereunder. Borrower will make all payments of principal,
- --------------------------------
interest, fees, and all other payments required hereunder, under the Loan, and
under any other agreements with Lender to which Borrower is a party, as and
when due.
Section 6.3. Existence, Good Standing, and Compliance with Laws. Borrower
- --------------------------------------------------------------------
will do or cause to be done all things necessary (a) to obtain and keep in
full force and effect all corporate existence, rights, licenses, privileges,
and franchises of Borrower necessary to the ownership of its property or the
conduct of its business, and comply with all applicable present and future
laws, ordinances, rules, regulations, orders and decrees of any Governmental
Authority having or claiming jurisdiction over Borrower; and (b) to maintain
and protect the properties used or useful in the conduct of the operations of
Borrower, in a prudent manner, including without limitation the maintenance at
all times of such insurance upon its insurable property and operations as
required by law or by Section 6.7 hereof.
Section 6.4. Legality. The making of the Loan and each disbursement or
- ------------------------
advance under the Loan shall not be subject to any penalty or special tax,
shall not be prohibited by any governmental order or regulation applicable to
Borrower, and shall not violate any rule or regulation of any Governmental
Authority, and necessary consents, approvals and authorizations of any
Governmental Authority to or of any such disbursement or advance shall have
been obtained.
Section 6.5. Lender's Satisfaction. All instruments and legal documents and
- --------------------------------------
proceedings in connection with the transactions contemplated by this Agreement
shall be satisfactory in form and substance to Lender and its counsel, and
Lender shall have received all documents, including records of corporate
proceedings and opinions of counsel, which Lender may have requested in
connection therewith.
Section 6.6. Taxes and Charges. Borrower will timely file all tax reports and
- --------------------------------
pay and discharge all taxes, assessments and governmental charges or levies
imposed upon Borrower, or its income or profits or upon its properties or any
part thereof, before the same shall be in default and prior to the date on
which penalties attach thereto, as well as all lawful claims for labor,
material supplies or otherwise which, if unpaid, might become a lien or charge
upon the properties or any part thereof of Borrower; provided, however, that
-----------------
Borrower shall not be required to pay and discharge or cause to be paid and
discharged any such tax, assessment, charge, levy or claim so long as the
validity or amount thereof shall not be contested in good faith and by
appropriate proceedings by Borrower, and Borrower shall have set aside on
their books, adequate reserve therefor; and provided further, that such
-----------------
deferment of payment is permissible only so long as Borrower's title to, and
its right to use, the Collateral is not adversely affected thereby and
Lender's lien and priority on the Collateral are not adversely affected,
altered or impaired thereby.
Section 6.7. Insurance. Borrower will carry adequate public liability and
- -------------------------
professional liability insurance with responsible companies satisfactory to
Lender in such amounts and against such risks as is customarily maintained by
similar businesses and by owners of similar property in the same general area.
Section 6.8. General Information. Borrower will furnish to Lender such
- ------------------------------------
information as Lender may, from time to time, request with respect to the
business or financial affairs of Borrower, and permit any officer, employee or
agent of Lender to visit and inspect any of the properties, to examine the
minute books, books of account and other records, including management letters
prepared by Borrower's auditors, of Borrower,- and make copies thereof or
extracts therefrom, and to discuss its and their business affairs, finances
and accounts with and be advised as to the same by, the accountants and
officers of Borrower, all at such times and as often as Lender may require.
Section 6.9. Maintenance of Property. Borrower will maintain, keep and
- -----------------------------------------
preserve all of its properties in good repair, working order and condition and
from time to time make all needful and proper repairs, renewals, replacements,
betterments and improvements thereto, so that the business carried on in
connection therewith may be properly and advantageously conducted at all
times.
Section 6.10. Notification of Events of Default and Adverse Developments.
- ------------------------------------------------------------------------------
Borrower promptly will notify Lender upon the occurrence of: (a) any Event of
Default; (b) any event which, with the giving of notice or lapse of time, or
both, could constitute an Event of Default; (c) any event, development or
circumstance whereby the financial statements previously furnished to Lender
fail in any material respect to present fairly, in accordance with GAAP, the
financial condition and operational results of Borrower; (d) any judicial,
administrative or arbitration proceeding pending against Borrower, and any
judicial or administrative proceeding known by Borrower to be threatened
against it which, if adversely decided, could adversely affect its condition
(financial or otherwise) or operations (present or prospective) or which may
expose Borrower to uninsured liability of $25,000.00 or more; (e) any default
claimed by any other creditor for Borrowed Money of Borrower other than
Lender; and (f) any other development in the business or affairs of Borrower
which may be adverse; in each case describing the nature thereof and (in the
case of notification under clauses (a) and (b)) the action Borrower proposes
to take with respect thereto.
Section 6.11. Employee Benefit Plans. Borrower will (a) comply with the
- -----------------------------------------
funding requirements of ERISA with respect to the Plans for its employees, or
will promptly satisfy any accumulated funding deficiency that arises under
Section 302 of ERISA; (b) furnish Lender, promptly after filing the same, with
copies of all reports or other statements filed with the United States
Department of Labor, the Pension Benefit Guaranty Corporation, or the Internal
Revenue Service with respect to all Plans, or which Borrower, or any member of
a Controlled Group, may receive from such Governmental Authority with respect
to any such Plans, and (c) promptly advise Lender of the occurrence of any
Reportable Event or Prohibited Transaction with respect to any such Plan and
the action which Borrower proposes to take with respect thereto. Borrower
will make all contributions when due with respect to any multi-employer
pension plan in which it participates and will promptly advise Lender: (a)
upon its receipt of notice of the assertion against Borrower of a claim for
withdrawal liability; (b) upon the occurrence of any event which could trigger
the assertion of a claim for withdrawal liability against Borrower, and (c)
upon the occurrence of any event which would place Borrower in a Controlled
Group as a result of which any member (including Borrower) thereof may be
subject to a claim for withdrawal liability, whether liquidated or contingent.
Section 6.12. Financing Statements. Borrower's shall provide to Lender
- --------------------------------------
evidence satisfactory to Lender as to the due recording of termination
statements, releases of collateral, and Forms UCC-3, and shall cause to be
recorded financing statements on Form UCC-1, duly executed by Borrower and
Lender, in all places necessary to release all existing security interests and
other liens in the Collateral (other than as permitted hereby) and to perfect
and protect Lender's first priority lien and security interest in the
Collateral as Lender may request. Promptly upon repayment of the Obligations,
Lender shall execute all releases, UCC-3 financing statements and other
necessary documentation to evidence the release of its lien on the Collateral
following such repayment.
Section 6.13. Financial Records. Borrower shall current and accurate books of
- ---------------------------------
records and accounts in which full and correct entries will be made of all of
its business transactions, and will reflect in its financial statements
adequate accruals and appropriations to reserves, all in accordance with GAAP.
Section 6.14. Collection of Accounts. Borrower continue to collect its
- -----------------------------------------
Accounts in the ordinary course of business.
Section 6.15. Places of Business. Borrower shall give party (30) days' prior
- -----------------------------------
written notice to Lender of any change in the location of any of its places of
business, of the places where its records concerning its Accounts are kept, of
the places where the Collateral is kept, or of the establishment of any new,
or the discontinuance of any existing, places of business.
Section 6.16. Business Conducted. Borrower shall continue in the business
- ------------------------------------
presently conducted by it using its best efforts to maintain its customers and
goodwill. Borrower shall not engage, directly or indirectly, in any line of
business substantially different from the business conducted by it immediately
prior to the Closing Date, or engage in business or lines of business which
are not reasonably related thereto.
Section 6.17. Litigation and Other Proceedings. Borrower shall give prompt
- ---------------------------------------------------
notice to Lender of any litigation, arbitration, or other proceeding before
any Governmental Authority against or affecting Borrower if the amount claimed
is more than $50,000.00
Section 6.18. Bank Accounts. Borrower shall assign to Lender all of its
- -------------------------------
depository and disbursement accounts into which proceeds of Accounts are
deposited.
Section 6.19. Submission of Collateral Documents. Borrower will, on demand of
- --------------------------------------------------
Lender, make available to Lender copies of medical records, insurance
verification forms, assignment of benefits, in-take forms or other proof of
the satisfactory performance of services that gave rise to an Account, a copy
of the claim or invoice for each Account and copies of any written contract or
order from which the Account arose. Borrower shall promptly notify Lender if
an Account becomes evidenced or secured by an instrument or chattel paper and
upon request of Lender, will promptly deliver any such instrument or chattel
paper to Lender,
Section 6.20. Licensure; Medicaid/Medicare Cost Reports. Borrower will
- -------------------------------------------------------------
maintain all certificates of need, provider numbers and licenses necessary to
conduct its business as presently conducted and take any steps required to
comply with any such new or additional requirements that may be imposed on
providers of medical products and services. If required, all
Medicaid/Medicare cost reports will be properly filed.
Section 6.21. Officer's Certificates. Together with the monthly financial
- ----------------------------------------
statements delivered pursuant to clause (c) of Section 6.1, and together with
the audited annual financial statements delivered pursuant to clause (f) of
that Section, Borrower shall deliver to Lender a certificate of its chief
financial officer, in form and substance satisfactory to Lender setting forth:
(a) The information (including detailed calculations) required in order to
establish whether Borrower is in compliance with the requirements of Articles
VI and VII as of the end of the period covered by the financial statements
then being furnished; and
(b) That the signer has reviewed the relevant terms of this Agreement, and
has made (or caused to be made under his supervision) a review of the
transactions and conditions of Borrower from the beginning of the accounting
period covered by the income statements being delivered to the date of the
certificate, and that such review has not disclosed the existence during such
period of any condition or event which constitutes an Event of Default or
which is then, or with the passage of time or giving of notice or both, could
become an event of Default, and if any such condition or event existed during
such period or now exists, specifying the nature and period of existence
thereof and what action Borrower has taken or proposes to take with respect
thereto.
Section 6.22. Visits and Inspections. Borrower agrees to permit
- -----------------------------------------
representatives of Lender, from time to time, as often as may be reasonably
requested, but only during normal business hours, to visit and inspect the
properties of Borrower, and to inspect, audit and make extracts from its books
and records, and discuss with its officers, its employees and its independent
accountants, Borrower's business, assets, liabilities, financial condition,
business prospects and results of operations.
Section 6.23. Net Worth. Borrower will not at any time allow its net worth, as
- ------------------------
computed in accordance with GAAP, to fall below $3,000,000.00.
Section 6.24. Retention of Key Officers. Absent death or disability, John
- ---------------------------------------------
Yeros and Robin M. Bradbury shall serve without interruption as President and
Chief Financial Officer, respectively, of each entity comprising Borrower.
ARTICLE VII
Borrower covenants and agrees that so long as Borrower may borrow hereunder
and until payment in full of the Note and performance of all other obligations
of Borrower under the Loan Documents:
Section 7.1. Borrowing. Borrower will not, without Lender's prior
- -------------------------
written-consent, create, incur, assume or suffer to exist any liability for
Borrowed Money except: (a) indebtedness to Lender, (b) indebtedness of
Borrower secured by mortgages, encumbrances or liens expressly permitted by
Section 7.3 hereof, (c) accounts payable to trade creditors and current
operating expenses (other then for borrowed money) which are not aged more
than one hundred twenty (120) days from the billing date, in each case
incurred in the ordinary course of business and paid within such time period,
unless the same are being contested in good faith and by appropriate and
lawful proceedings, and Borrower shall have set aside such reserves, if any,
with respect thereto as are required by GAAP and deemed adequate by Borrower
and its independent accountants; (d) borrowings incurred in the ordinary
course of its business and not exceeding $50,000.00 in the aggregate
outstanding at any one time. Borrower will not make prepayments on any
existing or future indebtedness for Borrowed Money to any Person (other than
Lender, to the extent permitted by this Agreement or any subsequent agreement
between Borrower and Lender).
Section 7.2. Joint Venture. Borrower will not invest directly or indirectly
- -----------------------------
in any joint venture for any purpose without the prior written notice to, and
the express written consent of, Lender, which consent may be withheld in
Lender's sole discretion.
Section 7.3.Liens and Encumbrances. Borrower will not create, incur, assume
- -------------------------------------
or suffer to exist any mortgage, pledge, lien or other encumbrance of any kind
(including the charge upon property purchased under a conditional sale or
other title retention agreement) upon, or any security interest in, any of its
Collateral, whether now owned or hereafter acquired, except for Permitted
Liens.
Section 7.4. Merger, Acquisition, or Sale of Assets. Borrower will not enter
- -----------------------------------------------------
into any merger or consolidation with or acquire all or substantially all of
the assets or any Person and will not sell, lease, or otherwise dispose of any
of its assets except in the ordinary course of its business; provided,
however, that Borrower shall be permitted, without first obtaining Lender's
written consent, to (i) acquire assets not to exceed $500,000.00, or (ii)
merge with another Person in a transaction involving no more than $500,000.00,
so long as in any such instance Borrower is the surviving entity in any such
merger and Lender's first priority security interest in the Collateral is in
no way impaired by any such transaction.
Section 7.5. Sale and Leaseback. Borrower will not, directly or indirectly,
- -----------------------------------
enter into any arrangement whereby Borrower sells or transfers all or any part
of its assets and there upon and within one year thereafter rents or leases
the assets so sold or deferred without the prior written notice to, and the
express written consent of, Lender, which consent may be withheld in Lender's
sole discretion.
Section 7.6. Distributions and Management Fees. Borrower will not declare or
- ------------------------------------------------
pay any dividends or other distributions with respect to, purchase, redeem or
Otherwise acquire for value any of its outstanding stock now or hereafter
outstanding; or return any capital of its stockholders, nor shall Borrower pay
or become obligated to pay management fees or fees of a similar nature to any
Person; provided, however, that so long as Lender has not notified Borrower of
--------
the existence of an Event of Default hereunder, Borrower may make any such
dividends or other distributions or purchase, redeem or otherwise acquire such
interest, return any such capital, or pay any such management fees subject any
other terms and conditions of this Agreement.
Section 7.7. Loans. Except as set forth on Schedule 7.7 attached hereto,
- --------------------- ----------
Borrower will not make loans or advances to any Person, other than (i) trade
credit ended in the ordinary course of its business, and (ii) advances for
business travel and similar temporary advances in the ordinary course of
business to officers, stockholders, directors, and employees.
Section 7.8. Contingent Liabilities. Borrower will not assume, guarantee,
- ---------------------------------------
endorse, contingently agree to purchase or otherwise become liable upon the
obligation of any Person, except by the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business.
Section 7.9. Subsidiaries. Borrower will not form any subsidiary, or make any
- ---------------------------
investment in or any loan in the nature of an investment to, any other Person.
Section 7.10. Compliance with ERISA. Borrower will not permit with respect to
- -------------------------------------
any Plan covered by Title IV of ERISA any Prohibited Transaction or any
Reportable Event.
Section 7.11. Certificate of Need. Borrower will not amend, alter or suspend
- ------------------------------------
or terminate or make provisional in any material way, any certificate of need
or provider number without the prior written consent of Lender.
Section 7.12. Transactions with Affiliates. Borrower will not enter into any
- ---------------------------------------------
transaction, including without limitation the purchase, sale, or exchange of
property, or the loaning or giving of funds to any Affiliate or subsidiary,
except in the ordinary course of business and pursuant to the reasonable
requirements of Borrower's business and upon terms substantially the same and
no less favorable to Borrower as it would obtain in a comparable arm's length
transaction with any Person not an Affiliate or subsidiary, and so long as the
transaction is not otherwise prohibited hereunder. For purposes of the
foregoing, Lender consents to the transactions described on Schedule 7.12.
-------------
Section 7.13. Use of Lender's Name. Borrower will not use Lender's name (or
- --------------------------------------
the name of any of Lender's affiliates) in connection with any of its business
operations. Borrower may disclose to third parties and in regulatory filings
that Borrower has a borrowing relationship with Lender. Nothing herein
contained is intended to permit or authorize Borrower to make any contract on
behalf of Lender.
Section 7.14. Change in Control. There shall occur no change in the ownership
- ---------------------------------
of the common stock of International Nursing Services, Inc. ("INS") that will
result in one or more Persons, acting in concert, having the ability to
control the management and affairs of Borrower, which Person or Persons do not
have such ability as of the date of this Agreement.
Section 7.15. Contracts and Agreements. Borrower will not become or be a party
- ---------------------------------------
to any contract or agreement which would breach this Agreement, or breach any
other instrument, agreement, or document to which Borrower is a party or by
which it is or may be bound.
Section 7.16. Margin Stock. Borrower Will not carry or purchase any "margin
- ------------------------------
security" within the meaning of Regulations U, G, T or X of the Board of
Governors of the Federal Reserve System.
Section 7.17. Truth of Statements and Certificates. Borrower will not furnish
- ----------------------------------------------------
to Lender any certificate or other document that contains any untrue statement
of a material fact or that omits to state a material fact necessary to make it
not misleading in light of the circumstances under which it was furnished.
ARTICLE VIII
EVENTS OF DEFAULT
-------------------
Section 8.1. Events of Default. Each of the following (individually, an "Event
- -------------------------------
of Default" and collectively, the "Events of Default") shall constitute an
event of default hereunder:
(a) A default in the payment of any installment of principal of, or
interest upon, the Note when due and payable, whether at maturity or
otherwise, which default shall have continued unremedied for a period of five
(5) days after written notice thereof from Lender to Borrower;
(b) A default in the payment of any other charges, fees, or other monetary
obligations owing to Lender arising out of or incurred in connection with this
Agreement when such payment is due and payable, which default shall have
continued unremedied for a period of five (5) days after written notice from
Lender;
(c) A default in the due observance or performance by Borrower of any
other term, covenant or agreement contained in any of the Loan Documents,
which default shall have continued unremedied for a period of ten (10) days
after written notice from Lender;
(d) If any representation or warranty made by Borrower herein or in any of
the other Loan Documents, any financial statement, or any statement or
representation made in any other certificate, report or opinion delivered in
connection herewith or therewith proves to have been incorrect or misleading
in any material respect when made, which default shall have continued
unremedied for a period of ten (10) days after written notice from Lender;
(e) If any obligation of Borrower (other than its Obligations hereunder)
for the payment of Borrowed Money is not paid when due, or within any
applicable grace period, or such obligation becomes or is declared to be due
and payable prior to the expressed maturity thereof, or there shall have
occurred an event which, with the giving of notice or lapse of time, or both,
would cause any such obligation to become, or allow any such obligation to be
declared to be, due and payable;
(f) If Borrower makes an assignment for the benefit of creditors, offers a
composition or extension to creditors, or makes or sends notice of an intended
bulk sale of any business or assets now or hereafter conducted by Borrower;
(g) If Borrower files a petition in bankruptcy, is adjudicated insolvent
or bankrupt, petitions or applies to any tribunal for any receiver of or any
trustee for itself or any substantial part of its property, commences any
proceeding relating to itself under any reorganization, arrangement,
readjustment or debt dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or there is announced
against Borrower any such proceeding which remains undismissed for a period of
sixty (60) days, or any Borrower by any act indicates its consent to, approval
of, or acquiescence in, any such proceeding or the appointment of any receiver
of or any trustee for a Borrower or any substantial part of its property, or
suffers any such receivership or trusteeship to continue undischarged for a
period of sixty (60) days;
(h) If one or more final judgments against Borrower or attachments against
its property not fully and unconditionally covered by insurance shall be
rendered by a court of record and shall remain unpaid, unstayed on appeal,
undischarged, unbonded and undismissed for a period of ten (10) days;
(i) A Reportable event which might constitute grounds for termination of
any Plan covered by Title IV of ERISA or for the appointment by the
appropriate United States District Court of a trustee to administer any such
Plan or for the entry of a lien or encumbrance to secure any deficiency, has
occurred and is continuing thirty (30) days after its occurrence, or any such
Plan is terminated, or a trustee is appointed by an appropriate United States
District Court to administer any such Plan, or the Pension Benefit Guaranty
Corporation institutes proceedings to terminate any such Plan or to appoint a
trustee to administer any such Plan, or a lien or encumbrance is entered to
secure any deficiency or claim;
(j) INTENTIONALLY DELETED
(k) If there shall occur any material uninsured damage to or loss, theft or
destruction of any portion of the Collateral;
(1) If Borrower breaches of violates the terms of, or if a default or an
event which could, whether with notice or the passage of time, or both,
constitute a default, occurs under any other existing or future agreement
(related or unrelated) between Borrower and Lender;
(m) Upon the issuance of any execution or distraint process against Borrower
or any of its property or assets;
(n) If Borrower ceases any material portion of its business operations as
presently conducted;
(o) If any indication or evidence is received by Lender that Borrower may
have directly or indirectly been engaged in any type of activity which, in
Lender's discretion, might result in the forfeiture of any property of
Borrower to any Governmental Authority, which default shall have continued
unremedied for a period of ten (10) days written notice from Lender;
(p) Borrower or any Affiliate of Borrower, shall challenge or contest in
any action, suit or proceeding, the validity or enforceability of this
Agreement, or any of the other Loan Documents, the legality or the
enforceability of any of the Obligations or the perfection or priority of any
Lien granted to Lender;
(q) Borrower shall be criminally indicted or convicted under any law that
could lead to a forfeiture of any Collateral.
(r) There shall occur a material adverse change in the financial condition
or business prospects of Borrower, or if Lender in good faith deems itself
insecure as a result of acts or events bearing upon the financial condition of
Borrower or the repayment of the Note, which default shall have continued
unremedied for a period of ten (10) days after written notice from Lender.
Section 8.2. Acceleration. Upon the occurrence of any of the foregoing Events
- ---------------------------
of Default, the Note shall become and be immediately due and payable upon
declaration to that effect delivered by Lender to Borrower; provided that,
upon the happening of any event specified in Section 8.1 (g) hereof, the Note
shall be immediately due and payable without declaration or other notice to
Borrower.
Section 8.3. Remedies.
- ------------------------
(a) In addition to all other rights, options, and remedies granted to
Lender under this Agreement, upon the occurrence of an Event of Default Lender
may (i) terminate the Loan, whereupon all outstanding Obligations shall be
immediately due and payable, (ii) exercise all other rights granted to it
hereunder and all rights under the Uniform Commercial Code in effect in the
applicable jurisdiction(s) and under any other applicable law, and (iii)
exercise all rights and remedies under all Loan Documents now or hereafter in
effect, including the following rights and remedies (which list is given by
way of example and is not intended to be an exhaustive list of all such rights
and remedies):
(i) The right to take possession of, send notices regarding, and collect
directly the Collateral, with or without judicial process, and to exercise all
rights and remedies available to Lender with respect to the Collateral under
the Uniform Commercial Code in effect in the jurisdiction(s) in which such
Collateral is located;
(ii) The right to (by its own means or with judicial assistance) enter any
of Borrower's premises and take possession of the Collateral, or render it
unusable, or dispose of the Collateral on such premises in compliance with
subsection (b), without any liability for rent, storage, utilities, or other
sums, and Borrower shall not resist or interfere with such action;
(iii) The right to acquire Borrower at Borrower's expense to assemble all
or any part of the Collateral and make it available to Lender at any place
designated by Lender,
(iv) The right to reduce the Maximum Loan Amount or to use the Collateral
and/or funds in the Concentration Account in amounts up to the Maximum Loan
Amount for any reason; and
(v) The right to relinquish or abandon any Collateral or any security interest
therein.
(b) Borrower agrees that a notice received by it at least five (5) days
before the time of any intended public sale, or the time after which any
private sale or other disposition of the Collateral is to be made, shall be
deemed to be reasonable notice of such sale or other disposition. if permitted
by applicable law, any perishable Collateral which threatens to speedily
decline in value or which is sold on a recognized marked may be sold
immediately by Lender without prior notice to Borrower. At any sale or
disposition of Collateral, Leader may (to the extent permitted by applicable
law) purchase all or any part of the Collateral, free from any night of
redemption by Borrower, which right is hereby waived and released. Borrower
covenants and agrees not to interfere with or impose any obstacle to Lender's
exercise of its rights and remedies with respect to the Collateral.
Section 8.4. Nature of Remedies. Lender any portion of the Collateral to
- ------------------------------------
satisfy the liabilities and Obligations of Borrower to Lender in any order.
All rights and remedies granted Lender hereunder and under any agreement
referred to herein, or otherwise available at law or in equity, shall be
deemed concurrent and cumulative, and not alternative remedies, and Lender may
proceed with any number of remedies at the same time until the Loans, and all
other existing and future liabilities and obligations of Borrower to
Lender, are satisfied in full. The exercise of any one right or remedy shall
not be deemed a waiver or release of any other right or remedy, and Lender,
upon the occurrence of an Event of Default, may proceed against Borrower,
and/or the Collateral, at any time, under any agreement, with any available
remedy and in any order.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1. Expenses and Taxes.
- ------------------------------------
(a) Borrower agrees to pay, whether or not the Closing occurs, a
reasonable documentation preparation fee, together with reasonable actual
audit and appraisal fees and all other reasonable out-of-pocket charges and
expenses incurred by Lender in connection with the negotiation preparation and
execution of each of the Loan Documents and preparation for Closing. Borrower
also agrees to pay all reasonable out-of-pocket charges and expenses incurred
by Lender (including the reasonable fees and expenses of Lender's counsel) in
connection with the enforcement, protection or preservation of any right or
claim of Lender and the collection of any amounts due under the Loan
Documents.
(b) Borrower shall pay all taxes (other than taxes based upon or measured
by Lender's income or revenues or any personal property tax), if any, in
connection with the issuance of the Note and the recording of the security
documents therefor The obligations of Borrower under this clause (b) shall
survive the payment of Borrower's indebtedness hereunder and the termination
of this Agreement.
Section 9.2. Entire Agreement; Amendments. This Agreement and the other Loan
- --------------------------------------------
Documents constitute the full and entire understanding and agreement among the
parties with regard to their subject matter and supersede all prior written or
oral agreements, understandings, representations and warranties made with
respect thereto. No amendment, supplement or modification of this Agreement
nor any waiver of any provision thereof shall be made except in writing
executed by the party against whom enforcement is sought.
Section 9.3. No Waiver; Cumulative Rights. No waiver by any party hereto of
- ---------------------------------------------
any one or more defaults by the other party in the performance of any of the
provisions of this Agreement shall operate or be construed of any party in
exercising any right, power or different nature. No failure or delay on the
party in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power ore remedy preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to any party hereto at law, in equity or otherwise.
Section 9.4. Notices. Any notice or other communication or permitted
- -----------------------
hereunder shall be in writing and personally delivered, mailed by registered
or certified mail, regular mail), or sent by prepaid overnight courier
service, and addressed to the relevant party at its address set forth below,
or at such other address as such party may, by written notice, designate as
its address for purposes of notice hereunder.
(a) If to Lender, at-
HCFP Funding, Inc.
2 Wisconsin Circle, Suite 320
Chevy Chase, Maryland 20815
Attention-- Ethan D. Leder, President
Telephone: (301) 961-1640
Telecopier: (301) 664-9860
(b) If to Borrower, at:
c/o International Nursing Services, Inc., 360 South Garfield
Street Suite 400 Denver, Colorado 80209-3136
Attention: Mr. Robin M. Bradbury, CFO
Telephone: (303) 393-1515, (800) 852-5257
Telecopier: (303) 394-3653
If mailed notice shall be deemed to be given five (5) days after being sent,
if sent by personal delivery or telecopier, notice shall be deemed to be given
when delivered, and if sent by prepaid courier, notice shall be deemed to be
to be given the next Business Day following deposit with the
Section 9.5. Severability. if any term, covenant or condition of this
- ----------------------------
Agreement, or the application of such term, covenant or condition to any party
or circumstance shall be found by a court of competent jurisdiction to be, to
any extent, invalid or unenforceable, the remainder of this Agreement and the
application of such term, covenant, or condition to parties or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term, covenant or condition shall In valid and
enforced to the fullest extent permitted by law. Upon determination that any
such term is invalid, illegal or unenforceable, the parties hereto shall amend
this Agreement so as to effect the original intent of the parties as closely
as possible in an acceptable manner.
Section 9.6. Successors and Assigns. This Agreement the Note, and the other
- ---------------------------------------
Loan Documents shall be binding upon and inure to the benefit of Borrower and
Lender and their respective Successors and assigns. Notwithstanding the
foregoing, Borrower may not assign any of its rights or delegate any of its
obligations hereunder without the prior written consent of Lender, which may
be withheld in its sole discretion. Lender may sell, assign, transfer, or
participate any or all of its rights or obligations hereunder without notice
to or consent of Borrower.
Section 9.7. Counterparts. This Agreement may be executed in any number of
- ----------------------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one instrument.
Section 9.8. Interpretation. No provision of this Agreement or any other Loan
- -----------------------------
Document shall be interpreted or construed against any party because that
party or its legal representative drafted that provision. The titles of the
paragraphs of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement. Any pronoun used in this
Agreement shall be deemed to include singular and plural and masculine,
feminine and neuter gender as the case may be. The words "herein," "hereof,"
and "hereunder" shall be deemed to refer to this entire Agreement, except as
the context otherwise requires.
Section 9.9. Survival of Terms. All covenants, agreements, representations
- ----------------------------------
and warranties made in this Agreement, any other Loan Document, and in any
certificates and other instruments delivered in connection therewith shall be
considered to have been relied upon by Lender and shall survive the making by
Lender of the Loans herein contemplated and the execution and delivery to
Lender of the Note, and shall continue in full force and effect until all
liabilities and obligations of Borrower to Lender are satisfied in full.
Section 9.10. Release of Lender. Borrower releases Lender, its officers,
- ------------------------------------
employees, and agents, of and from any claims for loss or damage resulting
from acts or conduct of any or all of them, unless caused by Lender's
recklessness, gross negligence, or willful misconduct.
Section 9.1 1. Time. Whenever Borrower is required to make any
- -----------------------
payment-or-perform any act on a Saturday, Sunday, or a legal holiday under the
laws of the State of Maryland (or other jurisdiction where Borrower is
required to make the payment or perform the act), the payment may be made or
the act performed on the next Business Day. Time is of the essence in
Borrower's performance under this Agreement and all other Loan Documents.
Section 9,12. Commissions. The transaction contemplated by this Agreement was
- ---------------------------
brought about by Lender and Borrower acting as principals and without any
brokers, agents, or finders being the effective procuring cause. Borrower
represents that it has not committed Lender to the payment of any brokerage
fee, commission, or charge in connection with this transaction. If any such
claim is made on Lender by any broker, finder, or agent or other person,
Borrower will indemnify, defend, and hold Lender harmless from and against the
claim and will defend any action to recover on that claim, at Borrower's cost
and expense, including Lender's counsel fees. Borrower agrees that until any
such claim or demand is adjudicated in Lender's favor, the amount demanded
will be deemed a liability of Borrower under this Agreement, secured by the
Collateral.
Section 9.13. Third Parties. No rights are intended to be created hereunder or
- ----------------------------
under any other Loan Document for the benefit of any third party donee,
creditor, or incidental beneficiary of Borrower. Nothing contained in this
Agreement shall be construed as a delegation to Lender of Borrower's duty of
performance, including without limitation Borrower's duties under any account
or contract in which Lender has a security interest.
Section 9.14. Discharge of Borrower's Obligations. Lender, in its sole
- -------------------------------------------------------
discretion, shall have the right at any time, and from time to time, with
prior notice to Borrower if Borrower fails to do so, to: (a) obtain insurance
covering any of the Collateral as required hereunder; (b) pay for the
performance of any of Borrower's obligations hereunder; (c) discharge taxes,
liens, security interests, or other encumbrances at any time levied or placed
on any of the Collateral in violation of this Agreement unless Borrower is in
good faith with due diligence by appropriate proceedings contesting those
items; and (d) pay for the maintenance and preservation of any of the
Collateral. Expenses and advances shall be added to the Loan, until
reimbursed to Lender and shall be secured by the Collateral. Such payments
and advances by Lender shall not be construed as a waiver by Lender of an
Event of Default.
Section 9.15. Information to Participants. Lender may divulge to any
- ----------------------------------------------
participant it may obtain in the Loan, or any portion thereof, all information
and furnish to such participant copies of reports, financial statements,
certificates, and documents obtained under any provision of this Agreement or
any other Loan Document.
Section 9.16. Indemnify. Borrower hereby agrees to indemnify and hold harmless
- ------------------------
Lender, its partners, officers, agents and employees (collectively,
"Indemnity") from and against any liability, loss, cost, expense, claim,
damage, suit, action or proceeding ever suffered or incurred by Lender
(including reasonable attorneys' fees and expenses) arising from Borrower's
failure to observe, perform or discharge any of its covenants, obligations,
agreements or duties hereunder, or from the breach of any of the
representations or warranties contained in Article IV hereof. In addition,
Borrower shall defend Indemnity against and save it harness from all claims of
any Person with respect to the Collateral. Notwithstanding any contrary
provision in this Agreement, the obligation of Borrower under this Section
9.16 shall survive the payment in full of the obligations and the termination
of this Agreement.
Section 9.17. Choice of Law., Consent to Jurisdiction. THIS AGREEMENT AND THE
- -------------------------------------------------------
NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF MARYLAND) WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF
CONFLICTS OF LAWS. IF ANY ACTION ARISING OUT OF THIS AGREEMENT OR THE NOTE IS
COMMENCED BY LENDER IN THE STATE OF MARYLAND OR FEDERAL COURT LOCATED IN THE
STATE OF MARYLAND, BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY SUCH
COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND.
ANY PROCESS IN ANY SUCH ACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED
MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS DESCRIBED IN SECTION 9.4
HEREOF.
Section 9.18. Waiver of Trial by Jury. BORROWER HEREBY (A) COVENANTS AND
- --------------------------------------------
AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY,
AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH
RIGHT SHALL NOW OR HEREAFTER EMST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY BORROWER, AND THIS WAIVER IS
ENDED TO ENCOMEPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED AND
REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE
OF BORROWER'S WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, BORROWER HEREBY
CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S
COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO BORROWER THAT LENDER WILL
NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO.JURY TRIAL PROVISION.
Section 9.19. Confession of Judgment. BORROWERAUTHORIZESANY ATTORNEY ADMITTED
- --------------------------------------
TO PRACTICE BEFORE ANY COURT OF RECORD TN THE UNITED STATES OR THE CLERK OF
SUCH COURT TO APPEAR ON BEHALF OF BORROWER IN ANY COURT IN ONE OR MORE
PROCEEDINGS, OR BEFORE ANY CLERK THEREOF OF PROTHONOTARY OR OTHER COURT
OFFICIAL, AND TO CONFESS JUDGMENT AGAINST BORROWER IN FAVOR OF LENDER IN THE
FULL AMOUNT DUE ON THIS AGREEMENT (INCLUDING PRINCIPAL, ACCRUED INTEREST AND
ANY AND ALL CHARGES, FEES AND COSTS) PLUS ATTORNEYS' FEES EQUAL TO FIFTEEN
PERCENT (15%) OF THE AMOUNT DUEO PLUS COURT COSTS ALL WITHOUT PRIOR NOTICE OR
OPPORTUNITY OF BORROWER FOR PRIOR HEARING. BORROWER AGREES AND CONSENTS THAT
VENUE AND JURISDICTION SIIALL BE PROPER IN THE CIRCUIT COURT OF ANY COUNTY OF
THE STATE OF MARYLAND OR OF BALTIMORE CITY, MARYLAND, OR IN THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF MARYLAND. BORROWER WAIVES THE BENEFIT OF
ANY AND EVERY STATUTE, ORDINANCE, OR RULE OF COURT WHICH MAY BE LAWFULLY
WAIVED CONFERRING UPON BORROWER ANY RIGHT OR PRIVELEGE OF EXEMPTION, HOMESTEAD
RIGHTS, STAY OF EXECUTION, OR SUPPLEMENTARY PROCEEDINGS, OR OTHER RELIEF FROM
THE ENFORCEMENT OR IMMEDIATE ENFORCEMENT OF A JUDGMENT OR RELATED PROCEEDINGS
ON A JUDGMENT. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT
AGAINST BORROWER SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, OR
BY ANY IMPERFECT EXERCISE THEREOF, AND SHALL NOT BE EXTINGUISHED BY ANY
JUDGMENT ENTERED PURSUANT THERETO; SUCH AUTHORITY AND POWER MAY BE EXERCISED
ON ONE OR MORE OCCASIONS FROM TIME TO TIME, IN THE SAME OR DIFFERENT
JURISDICTIONS, AS OFTEN AS LENDER SHALL DEEM NECESSARY, CONVENIENT, OR PROPER.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
above as of the date first written above
LENDER:
ATTEST: HCFP FUNDING, INC.
(Seal) a Delaware Corporation
By: By:
Name: Name:
Title: Title:
BORROWER
ATTEST: NATIONAL CARE RESOURCES-TEXAS,
INC.
(Seal) a Colorado Corporation
By: By:
Name: Name:
Title: Title:
ATTEST JJ CARE RESOURCES, INC.
(Seal) a New York Corporation
By: By:
Name: Name:
Title: Title:
ATTEST: NATIONAL CARE RESOURCES COLORADO,
INC.
(Seal) a Colorado Corporation
By: By:
Name: Name:
Title: Title:
ATTEST: NATIONAL CARE RESOURCES,-NEW
YORK, INC.
(Seal)
By: By:
Name: Name:
Title: Title:
ATTEST: THERAMERICA
(Seal) a Colorado Corporation
By: By:
Name: Name:
Title: Title:
LIST OF EXHIBITS
Exhibit A Form of Revolving Credit Note
Exhibit B Form of Lockbox Agreement
Exhibit C Locations of Collateral
Exhibit D Form of Legal Opinion
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> JUN-29-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 5,456,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,807,000
<PP&E> 394,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,157,000
<CURRENT-LIABILITIES> 7,330,000
<BONDS> 0
0
1,473,000
<COMMON> 11,000
<OTHER-SE> 3,323,000
<TOTAL-LIABILITY-AND-EQUITY> 4,807,000
<SALES> 0
<TOTAL-REVENUES> 13,624,000
<CGS> 10,445,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 13,365,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 400,000
<INCOME-PRETAX> (141,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (141,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (141,000)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
</TABLE>
