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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1934
February 14, 1997
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Date of Report (date of earliest event reported)
NEWCARE HEALTH CORPORATION
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Exact name of Registrant as Specified in its Charter
Nevada 0-24110 86-0594391
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State or Other Jurisdiction Commission File IRS Employer Identification
of Incorporation Number Number
3600 Oak Manor Lane, Building 4, Largo, Florida 34644
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Address of Principal Executive Offices, Including Zip Code
(813)586-4262
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Registrant's Telephone Number, Including Area Code
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ITEM 5. OTHER EVENTS
SETTLEMENT OF LITIGATION WITH MATT CARROLL, ET AL.
On February 14, 1997, NewCare Health Corporation (the "Company") entered
into a Settlement Agreement (the "Agreement") with Matt Carroll, a director of
the Company ("Carroll"), Francis Farley ("Farley"), Cheryl Hammant
("Hammant"), and Edward R. Meyer ("Meyer"). Carroll, Farley, Hammant and
Meyer are referred to as the "Carroll Group." The purpose of the Agreement
was to settle the outstanding litigation filed by the Carroll Group against
the Company on October 21, 1996.
In the lawsuit the Carroll Group sued the Company for the Company's
alleged breach of its obligations to make payments due under certain
promissory notes executed by the Company in connection with the acquisition by
the Company of Spectrum Health Services, Inc. on September 1, 1994.
The Agreement provides that among other things, the Company will pay the
Carroll Group $6,000,000 as follows:
a) $1,000,000 was due and paid on February 21, 1997;
b) $1,000,000 is due when the Company receives proceeds from the
refinancing of its nursing home in Fitzgerald, Georgia or March 31, 1997,
whichever occurs first; and
c) $4,000,000 is due by May 14, 1997.
d) Interest accrues on all unpaid sums at the rate of 8.75%
commencing February 21, 1997, and it is payable by May 14, 1997.
The Agreement further provides that upon payment of the $6,000,000, the
Carroll Group will transfer 1,200,000 shares of the Company's common stock to
the Company or its designees.
The Agreement further provides for the sale of 300,000 shares of the
Company's common stock held by the Carroll Group as follows:
a) If the price of the Company's common stock does not trade at a
price of at least $4.00 during 30 consecutive trading days during the two year
period ending February 1, 1999, the Carroll Group can put 300,000 shares to
the Company at a price of $3.50 per share, during the 30 day period commencing
February 1, 1999.
b) If the common stock does trade at or above $4.00 for 30
consecutive trading days during the two year period, the Company has no
obligation to repurchase the shares.
c) If the Carroll Group decides to sell the shares to someone other
than the Company during the 30 day period commencing February 1, 1999, the
Company has a right of first refusal to buy the shares at the market price.
The Agreement further provides that the litigation between the Carroll
Group and the Company will be stayed pending the Company's compliance with its
obligation to pay $6,000,000 to the Carroll Group in accordance with the
provisions of the Agreement.
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The Agreement also provides that Matt Carroll will resign from the
Company's Board of Directors on February 14, 1997. This resignation was
accepted by the Board on February 14, 1997.
A copy of the Agreement is attached hereto as Exhibit 10.1.
LETTER OF UNDERSTANDING WITH CHRIS BROGDON
On February 19, 1997, the Company's Board of Directors ratified and
approved a Letter of Understanding (the "Letter") between the Company and
Chris Brogdon which was executed on January 31, 1997. Pursuant to this
Letter, the Company agreed to add Chris Brogdon and Harlan Matthews to the
Company's Board of Directors, and these two persons were in fact added on
February 19, 1997.
Chris Brogdon currently serves as President and a director of Retirement
Care Associates, Inc. ("RCA"), and Harlan Matthews currently serves as a
director of RCA.
Retirement Care Associates, Inc. is a leading provider in the
southeastern United States of senior residential care services, which include
long-term care, assisted living and independent living services.
The Letter further provides for and contemplates that Chris Brogdon and
other individuals he selects will become actively involved in the management
of the Company once RCA's proposed merger with Sun HealthCare Group, Inc. is
closed.
The Letter further provides and contemplates that Chris Brogdon and his
designees will purchase 869,978 restricted shares of the Company's common
stock from Robert W. Bell, Sr. and members of his family for a price of $1.20
per share. Mr. Bell is a former President and director of the Company. This
transaction was closed on February 21, 1997.
The Letter further provides and contemplates that Chris Brogdon and his
designees will purchase from the Carroll Group 1,200,000 shares of common
stock for a price of $1.50 per share. This payment will be applied against
the payments due by the Company to the Carroll Group in the Settlement
Agreement referred to above.
The Letter further provides that the Company will grant to Chris Brogdon
and his designees options to purchase a total of 1,500,000 shares of common
stock at a price of $2.20 per share. These options are being granted in
consideration for Mr. Brogdon's agreement to take over management of the
Company. In the event that the Company's common stock does not reach an
average price of at least $5.00 during the 12 month period following Mr.
Brogdon's election as Chief Executive Officer, all unexercised options will be
canceled.
A copy of the Letter of Understanding is attached as Exhibit 10.2.
CURRENT BOARD OF DIRECTORS
As a result of the two events described above, the current members of
the Company's Board of Directors are as follows:
Chris Brogdon
Harlan Matthews
Ashok Dalal
Robert Hagan
Dr. Kishor Karia
Dr. Dhiraj Patel
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) EXHIBITS.
Exhibit 10.1 Settlement Agreement with Matt Carroll, et al.
Exhibit 10.2 Letter of Understanding between the Company
and Chris Brogdon dated January 31, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, hereunto duly authorized.
NEWCARE HEALTH CORPORATION
Dated: February 26, 1997 By /s/ Ashok Dalal
Ashok Dalal, Acting President
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SETTLEMENT AGREEMENT
This Settlement Agreement (the "Agreement") is made effective as of
February 14, 1997, by and among Matt Carroll ("Carroll"), Francis Farley
("Farley"), and Cheryl Hannant ("Hannant") (collectively, the "Sellers") and
Edward R. Meyer ("Meyer"), (Carroll, Farley, Hannant, and Meyer shall
collectively be referred to as the Carroll Group), and NewCare Health
Corporation ("NewCare"), Spectrum Health Services, Inc. ("Spectrum") and
Robert W. Bell ("Bell").
BACKGROUND
1. The Carroll Group owns and holds certain Promissory Notes dated
September 1, 1994, executed and delivered by NewCare to them in connection
with NewCare's acquisition of all outstanding stock of Spectrum (the "NewCare
Notes") and merger of Spectrum into Acquisition Company, NewCare's wholly
owned subsidiary. The Sellers own and hold certain promissory notes dated
August 31, 1994, executed and delivered by Spectrum to evidence outstanding
obligations owed by Spectrum to Sellers as of that date (the "Spectrum
Notes"). (The NewCare Notes and the Spectrum will collectively be referred to
as the "Notes"). The Notes are secured by a pledge of all outstanding stock
of Spectrum (the "Stock"). In addition to the Notes, the Stock secures the
payment of all other obligations of NewCare to Sellers under the Supplement to
Agreement among NewCare Health Corporation, NewCare Acquisition Corporation,
and Spectrum Health Services, Inc. dated August 5, 1994, and the Plan and
Agreement of Merger dated August 5, 1994 (collectively, the "Agreements").
The pledge of the Stock is evidenced by a Security Agreement dated September
1, 1994 (the "Security Agreement"). The pledge of the Stock is properly
perfected by Sellers' possession of the single certificate evidencing all
outstanding stock of Spectrum.
2. NewCare is in default under the terms of the NewCare Notes by,
among other defaults, its failure to make the principal payments due under the
Notes on September 1, 1995. NewCare also is in default under the NewCare
Notes by its failure to make the monthly interest payments due under the
NewCare Notes for May, June, July, October, November, December, 1995, and
January, February, March and April, 1996. Spectrum is in default under the
terms of the Spectrum Notes by its failure to make the monthly payments due
under the Spectrum Notes.
3. NewCare and Spectrum are also in default in their obligations
under the Agreements by their failure to distribute to Sellers prior period
profits.
4. On June 25, 1996, the Carroll Group, NewCare, Spectrum and Bell
entered into a Forbearance Agreement whereby the Carroll Group agreed to
forbear from immediately taking action against NewCare and Spectrum to collect
the amounts outstanding under the Notes and the Supplemental Agreement and
agreed to forbear from exercising their rights against the Spectrum stock
pursuant to the Security Agreement.
5. On October 21, 1996, the Carroll Group filed a lawsuit against
NewCare and Bell. NewCare and Bell have answered the Complaint, filed
Affirmative Defenses, and asserted a Counterclaim. The pending lawsuit shall
be referred to as the "Litigation".
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises contained herein, Sellers, NewCare, Spectrum, and Bell agree as
follows:
TERMS
I. BACKGROUND
The parties agree that the background is true and correct and is
therefore incorporated into this Agreement by this reference.
II. CONSIDERATION
In consideration of the making of this Agreement, the promises and
releases set forth below, and other good and valuable consideration, the
receipt of which are hereby acknowledged, the Carroll Group, NewCare,
Spectrum, and Bell have entered into this Agreement intending to be legally
bound.
III. PAYMENT OF OBLIGATIONS
NewCare will pay the Carroll Group the amount of $6,000,000, plus
interest accruing as provided in paragraph IV below as follows:
a. $1,000,000 will be wired to Williams, Reed, Weinstein,
Schifino & Mangione, P.A.'s trust account on Friday, February 21, 1997;
b. $1,000,000 will be wired to Williams, Reed, Weinstein,
Schifino & Mangione, P.A.'s trust account when NewCare receives proceeds from
the refinancing of the nursing home located in Fitzgerald, Georgia, or within
forty-five (45) days after February 14, 1997, whichever occurs first; and
c. $4,000,000 will be wired to Williams, Reed, Weinstein,
Schifino & Mangione, P.A.'s trust account within one hundred twenty (120) days
after February 14, 1997.
IV. INTEREST
Commencing on February 21, 1997, interest will accrue at 8.75% per annum
on the unpaid balance remaining due and owing and shall be paid
contemporaneously with the payment described in paragraph III(c) above.
V. MORTGAGE
Contemporaneously with the execution of this Agreement, NewCare will
grant the Carroll Group a security interest in the form of a third mortgage, a
copy of which is attached hereto as Exhibit "A", on the Oak Manor Facility
securing the entire amount of the obligation due the Carroll Group pursuant to
paragraph III herein. Williams, Reed, Weinstein, Schifino & Mangione, P.A.
will hold the mortgage in escrow and the mortgage will only be recorded in the
event that NewCare fails to pay any of the obligations set forth in paragraph
III, above, or otherwise defaults under this Agreement. In the event NewCare
fails to pay any of the obligation set forth in paragraph III above, NewCare
shall pay all costs associated with the execution and recording of the
mortgage and other security documents, including, but not limited to,
documentary stamps taxes, intangible taxes and recording fees and such costs,
if not paid directly by NewCare, shall be advanced by the Carroll Group and
added to the amount of the obligations to be paid pursuant to paragraph III,
above. The mortgage will be returned to NewCare upon satisfaction of all of
NewCare's obligations set forth in paragraph III above. NewCare agrees that
it will not grant or permit any other liens or encumbrances on the facility
pledged or secured until the obligations set forth in paragraph III is
satisfied.
VI. NCS HEALTHCARE OF FLORIDA, INC. HOLD BACK
Contemporaneously with the execution of this Agreement, all monies held
by NCS Healthcare of Florida, Inc. ("NCS") as a hold back in connection with
the sale of Spectrum's assets to NCS will be assigned by NewCare to the
Carroll Group. The assignment shall be in the form attached hereto as Exhibit
"B". The amount held by NCS as a hold back is $500,000. NewCare makes no
representations or warranties as to the specific amount which will be
collected by the Carroll Group from the NCS hold back amount.
VII. SPECTRUM RECEIVABLES
Contemporaneously with the execution of this Agreement, NewCare shall
assign to the Carroll Group all of Spectrum's remaining accounts receivable.
The Assignment shall be in the form attached hereto as Exhibit "B". A
description of the receivables being assigned is attached hereto as Exhibit
"C". NewCare makes no representations or warranties as to the specific amount
which will be collected by the Carroll Group from such accounts receivable.
VIII. ASSIGNMENT OF STOCK
The Carroll Group shall transfer to NewCare, or its designees, 1.2
million shares of NewCare stock upon full payment of the obligations set forth
in paragraph III above.
IX. REPURCHASE OF NEWCARE STOCK
NewCare agrees to purchase 300,000 shares of NewCare stock from the
Carroll Group at an agreed upon purchase price of $3.50 per share. The
Carroll Group shall have the option to put the 300,000 shares, or any portion
of the 300,000 shares, to NewCare, on or after February 1, 1999. There shall
be no restriction on the Carroll Group's ability to otherwise sell the 300,000
shares of NewCare stock, or any portion thereof. However, the Carroll Group
will grant NewCare a right of first refusal to purchase the shares at the
market price for a period of thirty (30) days prior to any sale to a third
party. NewCare's obligation to repurchase the 300,000 shares will terminate
if the closing price of NewCare common stock equals or exceeds $4.00 for
thirty (30) consecutive trading days during the two year period. If the price
of the NewCare stock does not reach $4.00 for thirty (30) consecutive trading
days during the two year period, the Carroll Group will have the option of
either (i) putting the stock to NewCare at $3.50 per share during the thirty
(30) day period beginning the day after the last day of such two year period
or (ii) retaining the stock. In the event of a sale of NewCare, a merger, or
a sale or transfer of substantially all of NewCare's assets or stock, NewCare,
or the surviving or acquiring entity, will be immediately obligated to
purchase the 300,000 shares at $3.50 per share prior to the sale, merger or
transfer.
X. MUTUAL GENERAL RELEASES
The parties to the Agreement shall execute the General Releases attached
hereto as Composite Exhibit "D". However, nothing contained in this
Agreement, or the Exhibits attached hereto, shall relieve any party from their
obligations under this Agreement.
XI. HCRx AND FEINBERG LITIGATION
The Carroll Group shall pay HCRx and Feinberg those amounts identified
as due them in the schedule attached to the document titled First Amendment to
Forbearance Agreement. NewCare and/or Spectrum shall be obligated to pay any
additional monies allegedly due and owing to HCRx and Feinberg. The Carroll
Group will use its best efforts to obtain a Release for the benefit of NewCare
and Spectrum from HCRx and Feinberg.
XII. RELEASE OF CLAIMS AND WAIVER OF DEFENSE
NewCare and Bell hereby irrevocably waive any and all defenses which
they may have to the enforcement of the this Agreement and all defenses,
demands, claims or counterclaims have been or could have been raised in the
Litigation. NewCare also waives any other claims which it may have against
the Carroll Group or Glenn Gullo.
XIII. EVENT OF DEFAULT
In the event that NewCare fails to make any of the payments set forth in
paragraph III above, on the date due, NewCare hereby consents to, and the
Court shall immediately enter, ex-parte, a Final Judgment in the amounts
remaining unpaid under paragraphs 3 and 4 above and providing for the
foreclosure of the lien evidenced by the mortgage referenced in paragraph V
above. Similarly, if NewCare fails to comply with the obligations set forth
in paragraph IX herein, and fails to repurchase 300,000 shares of NewCare
stock from the Carroll Group at $3.50 per share upon request by the Carroll
Group, NewCare will stipulate to the entry of an ex-parte judgment in the
amount of $1,050,000. Upon payment of the $1,050,000 the Carroll Group will
deliver the 300,000 shares to NewCare.
XIII. STAY OF LITIGATION
The Litigation presently pending shall be stayed pending NewCare's
compliance with the obligations set forth in paragraph III above. Upon
satisfaction of the obligations set forth in paragraph III above, the Carroll
Group, NewCare and Bell shall dismiss the pending litigation with prejudice.
The dismissal with prejudice shall not preclude the parties from enforcing any
of their rights herein.
XIV. COST OF LITIGATION
Each party hereto shall bear their own attorneys fees and costs incurred
in connection with the Litigation.
XV. SALE OR TRANSFER OF A MAJORITY OF SPECTRUM OR NEWCARE ASSETS OR STOCK
NewCare shall keep its business and properties substantially intact and
in its current form, including its present operations, physical facilities,
working conditions and relationships with affiliates, suppliers and customers
until NewCare has complied with the obligations set forth in paragraph III
above. In the event that a majority of NewCare's assets or stock are sold or
transferred, or in the event NewCare merges, all amounts owed to the Carroll
Group pursuant to paragraphs III and IX herein will immediately become due and
payable.
XVI. STATUS REPORTS
Within sixty (60) days after approval of this Agreement by NewCare's
Board of Directors, NewCare will provide the Carroll Group with the status of
NewCare's efforts to obtain financing in connection with its obligation to pay
the Carroll Group the remaining balance of $4,000,000.
XVII. EXECUTION
This Agreement may be executed in counter parts and shall be binding
only on those parties who have executed the Agreement. Any party failing to
execute this Agreement shall not be entitled to claim any benefits or exercise
any rights hereunder. The failure of any party to execute this Agreement
shall have no effect on the enforceability of this Agreement as to the
executing parties.
XVIII. MATT CARROLL'S RESIGNATION
Matt Carroll shall resign as a NewCare Board member upon the execution
of this Agreement and approval of this Agreement by the NewCare Board.
IXX. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
hereto as to the subject matter hereof and there are not other prior or
contemporaneous agreements, understandings, promises, representations, or
warranties between or among the parties with regard thereto. This Agreement
shall not be modified unless such modification is in writing and is executed
by all parties to be bound by such modification.
XXI. GOVERNING LAW
The parties agree that this Agreement will be governed by and construed
in accordance with Florida law.
XXII. BOARD APPROVAL
This Agreement shall be null and void unless approved by NewCare's Board
of Directors by on or before February 14, 1997.
/s/ Matt Carroll
Matt Carroll
/s/ Francis Farley
Francis Farley
/s/ Cheryl Hannant
Cheryl Hannant
/s/ Edward R. Meyer
Edward R. Meyer
____________________________________________
Glenn Gullo
NewCare Health Corporation, a Nevada
corporation
By: /s/ Ashok Dalal
Name (Print): Ashok Dalal
Title (Print):______________________________
Spectrum Health Services, Inc., a Florida
corporation
By: /s/ Ashok Dalal
Name (Print): Ashok Dalal
Title (Print):______________________________
____________________________________________
Robert W. Bell, Sr.
LETTER OF UNDERSTANDING
JACOBS, FORLIZZO & NEAL, P.A.
Attorneys At Law
A.R. "Charlie" Neal Please Reply to Feather Sound
VIA FACSIMILE AND REGULAR MAIL
January 31, 1997
Chris Brogdon
6000 Lake Forrest Dr.
Suite 200
Atlanta, GA 30328
Re: NewCare Health Corporation
Dear Chris:
I am writing at the request of Ashok Dalal, interim CEO of NewCare
Health Corporation, to outline some of our conclusions with respect to the
discussions that have occurred over the past several weeks. All of the
matters discussed herein are subject to approval by the NewCare Board of
Directors.
Mr. Dalal intends to make the following proposals to the NewCare Board
of Directors.
1. NewCare will accept your offer to purchase the shares owned by
Robert W. Bell, Sr. and other members of his family. In connection with his
resignation as chief executive officer of NewCare, Mr. Bell agreed to sell not
less than 400,000 shares of his common stock to NewCare or its assigns at a
price of $1.20 per share. Mr. Bell has elected to sell 869,978 shares.
NewCare will cause the shares to be delivered to an independent party to hold
in trust until such time as NewCare has been fully reimbursed for payments
advanced by it to pay for all such shares. At that time, the transfer agent
will be directed to issue share certificates to such individuals and in such
denominations as you request.
Such purchase and sale will occur during the week ending February 7,
1997.
2. NewCare is currently involved in litigation with a current
director. Discussions regarding settlement of the lawsuit are actively
ongoing. One condition expected to be included in any final settlement is the
sale by such person of not less than 1,200,000 shares of NewCare common stock
to NewCare or its assigns at a price of $1.50 per share. Our current
objective is to close this transaction during the second week of February.
NewCare's right to purchase such shares would be assigned to you at that time.
Because your purchase of such shares is an integral aspect of the settlement
of the lawsuit, we will require that cash in or promissory notes, or some
combination thereof, in the amount of the purchase price of such shares be
held in escrow by an unrelated party reasonably acceptable to both you and
NewCare.
3. You and any such individuals that you select will become actively
involved in the day-to-day management of NewCare after deal signed with
Sunhealth. You and Harlan Mathews will be appointed to serve as directors of
NewCare until its next shareholder meeting, at which time you will be proposed
for election in the proxy statement accompanying such shareholder meeting. It
is anticipated that such newly elected board will appoint you as chief
executive officer of NewCare. In consideration for your undertaking to
actively manage NewCare, NewCare will grant you options to purchase 1,500,000
shares of common stock at a purchase price determined by the average of the
closing price of NewCare's stock for the week ended January 31, 1997.
4. In your capacity as chief executive officer of NewCare, you will
agree to aggressively promote the growth of NewCare. In the event that the
per share stock price of NewCare does not reach an average price of at least
$5.00 for the twelve month period unexercised options will be canceled.
If the preceding is a correct statement of our mutual understanding,
please execute this letter where indicated and return to me via fax and
regular mail.
Very truly yours,
JACOBS, FORLIZZO & NEAL, P.A.
A.R. "Charlie" Neal
Accepted and Agreed to by:
/s/ Chris Brogdon
Chris Brogdon
