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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1933
For the fiscal year ended: December 31, 1997
Commission file number: 0-24110
NEWCARE HEALTH CORPORATION
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(Exact name of Registrant as specified in its Charter)
Nevada 86-0594391
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6000 Lake Forrest Drive, Suite 315, Atlanta, Georgia 30328
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(Address of principal executive offices, including zip code)
(404) 252-2923
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(Registrant's telephone number)
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.02 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of March 5, 1998, 12,039,193 shares of the Registrant's common stock were
outstanding, and the aggregate market value of the shares held by
non-affiliates was approximately $24,390,000.
DOCUMENTS INCORPORATED BY REFERENCE: None.
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PART I
ITEM 1. BUSINESS
THE COMPANY
NewCare Health Corporation (the "Company") provides senior residential
care services including long-term care and assisted living/independent living
services. The Company's long-term care facilities provide skilled nursing
care and ancillary services to patients, while its assisted living/independent
living facilities provide services to residents in need of varying degrees of
assistance with the activities of daily living.
Beginning in August 1997, the Company also entered the business of
operating and managing hospitals through NewCare Hospital Corporation
("NCHC"), a majority owned subsidiary. On August 1, 1997, NCHC purchased
substantially all of the assets of Meadowbrook Rehabilitation Hospital in
Gardner, Kansas. NCHC also manages two not for profit hospitals for which it
holds options to purchase.
As of March 19, 1998, the Company owned or leased and operated 14
long-term care facilities with 1,467 skilled nursing beds, and two assisted
living/independent living facilities with 348 units. These facilities are
located in Georgia, Florida and Texas. As of that date, the Company also
managed four long-term care facilities in Massachusetts and three long-term
care facilities in Texas which it is in the process of purchasing or leasing.
On the same date, NCHC owned 84 hospital beds and managed two hospitals as
previously stated.
The Company's principal offices are located at 6000 Lake Forrest Drive,
Suite 315, Atlanta, Georgia 30328, and its telephone number is (404) 252-2923.
BACKGROUND
The Company was incorporated in Nevada on February 17, 1987, under the
name Camelback Capital, Inc. primarily for the purpose of raising capital and
acquiring or merging with a private business. The Company completed its
initial public offering on December 31, 1987. During the period from 1988
until 1993, the Company conducted minimal business activities, and during
1993, the Company terminated all business activity except for the search for a
private company to acquire or merge with.
ACQUISITION OF NEWCARE, INC.
In April 1994, the Company acquired 95.17% of the issued and outstanding
common stock of NewCare, Inc. ("NewCare"). NewCare was engaged in the
business of owning, managing and operating skilled long-term care facilities.
In connection with the transaction with NewCare, the Company amended its
Articles of Incorporation to (1) effect a one for twenty (1 for 20) reverse
stock split, (2) adjust the par value of the Common Stock to $.02 per share to
reflect the reverse stock split, and (3) change the name of the Company to
NewCare Health Corporation. All financial information and share data in this
Report give retroactive effect to the reverse split.
Unless the context otherwise requires, the term "Company" as used herein
refers to the Company and its subsidiaries.
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ACQUISITION AND SUBSEQUENT DISPOSITION OF SPECTRUM HEALTH SERVICES, INC.
On September 1, 1994, the Company acquired all of the outstanding common
shares of Spectrum Health Services, Inc.("Spectrum"). Spectrum sold medical
supplies and equipment, enteral products, wound care medication and kits,
respiratory therapy equipment and supplies, and orthopedic rehabilitation
supplies. It also provided services for billing, medical records computer
software, assessments software, referenced care plans, inventory supply
systems as well as providing educational programs, in-servicing and other
procedures in nursing, consulting and care plans. Spectrum had operations in
Florida, Georgia, Kansas and Texas.
On September 1, 1994, the Company also acquired all of the outstanding
shares of Spectrum Infusion Services, Inc. Spectrum Infusion Services, Inc.
was then merged into Spectrum. The Spectrum Infusion Services division
provided specialized products to long-term care facilities for patients that
require prescriptions for dispensing by pharmacists. The Spectrum Infusion
Services division provided products, equipment and disposable supplies
required for IV antibiotic hydration, pain management and chemotherapies.
These supplies and services were provided to long-term care facilities that in
turn dispensed them to the patients.
On October 24, 1996, the Company sold all of the operating assets of
Spectrum for cash and the assumption of certain debts to NCS Healthcare of
Florida, Inc. ("NCS"). The consideration paid by NCS was approximately
$10,167,000. Of this amount, $7,795,000 was paid in cash, $680,000 was held
in escrow pending the outcome of inventory, accounts receivable, and certain
other adjustments and approximately $1,841,000 was in the form of liabilities
assumed by NCS. In connection with the transaction, the Company paid
approximately $531,000 of the cash proceeds to retire certain Spectrum
obligations and borrowings that were not assumed by NCS and to pay certain
costs of the transaction.
ACQUISITION OF CIMERRON HEALTH CARE, INC.
On May 22, 1995, the Company acquired all of the outstanding shares of
Cimerron Health Care, Inc. ("Cimerron") from Karen Hagan. Cimerron leases one
(1) and owns three (3) skilled long-term care facilities in Georgia. In a
related agreement, Memorial Nursing Center, Inc., a subsidiary of NewCare,
acquired a skilled long-term care facility lease from Emory Nursing Center,
Inc., an affiliate of Cimerron also owned by Karen Hagan. The aggregate
number of skilled long-term care beds involved in the acquisition of the five
(5) skilled long-term care facilities from Cimerron and Emory is 502.
ACQUISITION OF PADGETT NURSING HOME
On September 15, 1995, the Company acquired through a lease Padgett
Nursing Home, a 100-bed skilled long-term care facility located in Tampa,
Florida. This facility is operated as the Central Tampa Nursing Home. In May
1997, the Company purchased this facility for $2,672,543. This purchase was
financed in the Company's $21.5 million loan transaction which closed during
May 1997.
ACQUISITION OF LONG-TERM CARE AND ASSISTED LIVING/INDEPENDENT LIVING
FACILITIES IN 1997
In May 1997, the Company entered into a lease of the Whigham Nursing
Center, a 142-bed long-term care facility in Whigham, Georgia. The current
lease on this facility expires on April 20, 2012.
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On September 16, 1997, the Company purchased all of the outstanding
stock of Wakulla Acquisition, Inc., which owns a 120-bed long-term care
facility in Crawfordville, Florida, for $1,200,000 in cash. In addition, the
Company assumed and paid off approximately $3,240,000 of existing debt on the
property. The Company financed this transaction through a loan of $4.8
million from LTC Properties, Inc. The loan is secured by a mortgage on the
long-term care facility and is due on September 1, 2007. The loan bears
interest at an initial rate of 10.83% per annum, which interest rate will
increase by 12.5 Basis Points on the first day of September of each calendar
year commencing on September 1, 1998. The loan is payable in monthly
installments of interest and principal based on a 25 year amortization
schedule with a balloon payment due on September 1, 2007. The Company paid
LTC Properties, Inc. a loan fee of $48,000 in connection with this
transaction.
In November, 1997, the Company purchased all of the outstanding stock of
Tyler Park Place, Inc., which is the general partner of Park Place Ltd., a
limited partnership, which owns an 118-bed long-term care facility in Tyler,
Texas. Tyler Park Place, Inc. owns a 58.8% interest in Park Place Ltd. The
Company paid $575,000 for all of the stock of Tyler Park Place, Inc., of which
$475,000 was paid in cash and $100,000 was in the form of a promissory note.
COMMENCEMENT OF HOSPITAL OPERATIONS IN 1997
On August 1, 1997, the Company's NCHC subsidiary purchased substantially
all of the operating assets such as furniture, equipment and inventory of the
Meadowbrook Rehabilitation Hospital located in Gardner, Kansas. The purchase
price of this acquisition was approximately $1,396,000. Also on August 1,
1997, in a separate transaction, the subsidiary acquired the building and land
where the Meadowbrook Rehabilitation Hospital is located for $3,500,000.
NCHC financed these transactions through a loan of $4.5 million from
HCFP Funding II, Inc., and approximately $396,000 from cash on hand. The loan
is in the form of a secured bridge note which is due on July 31, 1999. The
note bears interest at 3% over the prime rate and the interest is payable
monthly. NCHC paid the lender an origination fee of 1% of the loan ($45,000)
and will also pay the lender a success fee equal to the greater of (i) 10% of
the excess received from the sale, refinancing or other disposition of the
Meadowbrook Rehabilitation Hospital over $5 million, or (ii) $150,000 if the
disposition occurs within one year or $300,000 if the disposition occurs after
that time. The note is secured by all of the real estate and assets of the
hospital.
The Meadowbrook Rehabilitation Hospital is an 84-bed speciality hospital
located in Gardner, Kansas, approximately 20 miles southeast of Kansas City,
Kansas. The facility focuses its care on acute and subacute rehabilitation
therapy, occupational therapy, speech-language pathology and respiratory
therapy.
On September 30, 1997, NCHC entered into agreements to manage Tri-City
Hospital, a 131-bed osteopathic acute care hospital located in Dallas, Texas,
and Princeton Hospital, a 150-bed hospital in Orlando, Florida. Tri-City
Hospital is a private, non-profit hospital comprised of a general acute
medical/surgical hospital, offering alcohol and drug treatment services,
psychiatric services, and various clinics. Princeton Hospital is a private,
non-profit general acute/medical surgical hospital.
In addition, NCHC paid $25,000 for a five year option to purchase the
Tri-City Hospital for a price equal to the debt on the hospital at such time
as the option is exercised. The balance of this debt is currently
approximately $18.2 million of which the Company owns $9.1 million.
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The management agreement for Tri-City Hospital has a five year term
commencing October 17, 1997, and either party may terminate the agreement
without cause or penalty, effective September 30, 2000, by giving 90 days
prior written notice. The agreement provides for a base fee of $100,000 per
month plus a performance incentive in an amount not to exceed a cumulative
total of four percent (4%) of net revenues billed per month. The performance
incentive will be based on the accomplishment of certain performance criteria
to be agreed upon by the parties. NCHC also paid $25,000 for a five year
option to purchase the Princeton Hospital for a price equal to the debt on the
hospital at such time as the option is exercised. The balance of this debt is
currently approximately $45 million.
NCHC also agreed to make available to Tri-City Hospital during the first
twelve months of the management agreement an amount not to exceed $2 million
for the purpose of making capital improvement expenditures and for such other
purposes as the hospital and NCHC may agree. The repayment of principal and
interest on this loan will be subordinate to the payment of principal and
interest on any tax exempt debt of the hospital then outstanding.
In March 1998, the Board of Directors of Tri-City Hospital advised NCHC
that the management agreement was void or had been terminated. Tri-City
Hospital has also taken the position that the option is not valid. Due to the
actions taken, NCHC is not presently able to manage this hospital. NCHC has
filed a lawsuit against Tri-City Hospital in connection with this matter.
(See "ITEM 3 - LEGAL PROCEEDINGS.")
The management agreement for Princeton Hospital has a five year term
commencing October 1, 1997, and either party may terminate the agreement
without cause or penalty, effective September 30, 2000, by giving 90 days
prior written notice. The agreement provides for a base fee of $75,000 per
month plus a performance incentive in an amount not to exceed a cumulative
total of three percent (3%) of net revenues billed per month. The performance
incentive will be based on the accomplishment of certain performance criteria
to be agreed upon by the parties.
NCHC has agreed to loan to Princeton Hospital during the term of the
management agreement an amount not to exceed $2 million for the purpose of
making capital improvement expenditures and paying its accounts payable,
payroll and other operating expenses. The repayment of principal and interest
on this loan will be subordinate to the payment of principal and interest on
any tax exempt or taxable bond debt of the hospital then outstanding. In
November 1997, the Company also agreed to guarantee a $2 million loan to
Princeton Hospital.
In addition, NCHC has agreed to guarantee payment in an aggregate amount
not to exceed $4,100,000 of the interest payments due in January 1998 and July
1998 by Princeton Hospital on its existing tax exempt bond debt and due in
October 1997 and January, April and July 1998 by the hospital on its taxable
bonds. Any funds advanced by NCHC pursuant to this obligation will be added
to and increase the maximum amount of the capital improvement/working capital
loan described above.
NCHC is obligated to provide each hospital a hospital administrator and
a controller during the term of the agreements, and such persons will be
employees of NCHC. The hospitals will reimburse NCHC for the costs and
expenses associated with NCHC's provision of these key personnel.
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FACILITY ACQUISITIONS IN 1998
In January 1998, the Company acquired a 124-unit assisted living
facility in New Port Richey, Florida. The purchase price for this facility
was $5.9 million and was financed through a sale and leaseback transaction
with LTC Properties, Inc. The Company's lease on this facility is initially
through December 31, 2012. The Company has options to extend the lease for
two additional five year periods. The Company has no option to repurchase the
property from LTC Properties, Inc.
In January 1998, the Company also closed on the acquisition of Venice
South, a 120-bed long-term care facility in Venice, Florida. The Company
purchased this facility for $4,790,000 in a bankruptcy proceeding. The
purchase price was paid with $3,000,000 from a bridge note from HCFP Funding
II, Inc., which is secured by the property and $1,790,000 from cash on hand.
The bridge note bears interest at 4% over the prime rate and is due on April
27, 1998. The Company also paid the lender a $45,000 loan commitment fee.
The Company intends to refinance this bridge note with a long-term loan from
LTC Properties, Inc. in the amount of $4,800,000 which would be amortized over
20 years, although there is no assurance that such a loan can be negotiated.
In February 1998, the Company entered into agreements under which the
Company agreed to take over the rights and obligations of the lessees of five
long-term care facilities in Texas. The Company is paying approximately
$450,000 for the assignment of these leases. The Company's acquisition of
these leases is contingent on the approval of the State of Texas licensing
authorities. During the interim, the Company is managing three of these
facilities. The names, locations and other information concerning these
leases are set forth below:
NUMBER LEASE OPTION EXTEN-
NAME LOCATION OF BEDS EXPIRATION SIONS AVAILABLE
---- -------- ------- ---------- ----------------
Dallas Health Dallas, TX 185 2/28/11 Two five-year options
Care
Shepherd Nurs- Shepherd, TX 100 5/31/17 None
ing Center
Converse Nurs- Converse, TX 100 5/31/17 None
ing Center
Wortham Health Worthham, TX 84 8/31/02 Two five-year options
Care
Junction Nurs- Junction, TX 62 12/31/03 None
ing Care
Also in January 1998, the Company entered into an agreement to purchase
four long-term care facilities in Massachusetts in a bankruptcy proceeding for
$6,750,000 plus the cost of the outstanding bond debt on three of the
facilities. During February 1998, the Company paid $1,740,633 for all of the
outstanding bonds on these three facilities. The Company expects that this
purchase will be financed by a loan from HCFP Funding, however, no binding
agreement regarding the funding has been reached. HCFP Funding has deposited
the $6,750,000 in an escrow account under the jurisdiction of the bankruptcy
court, however, HCFP Funding has the option to withdraw the funds. The
acquisition of these long-term care facilities is contingent on the approval
of the State of Massachusetts licensing
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authorities which is expected in the second quarter of 1998 and the approval
of the bankruptcy trustee. During the interim, the Company is managing these
four long-term care facilities. Information concerning these long-term care
facilities is summarized below:
NAME OF FACILITY LOCATION NUMBER OF BEDS
---------------- -------- --------------
Meadowood Health Care South Hadley, MA 120
Summerfield Elms Manor Chicopee, MA 60
Summerfield Pine Manor Springfield, MA 92
Summerfield Oak Manor Holyoke, MA 60
PROPOSED CORPORATE ACQUISITIONS
In December 1997, the Company announced that it had agreed to acquire
Renaissance Senior Living, Inc., which is partially owned by the Company's
Chairman of the Board, for $2 million plus the assumption of debt. There is
no written agreement concerning this proposed acquisition which would be
subject to the approval of the Company's shareholders. Renaissance Senior
Living, Inc. currently owns a 100-unit assisted living facility in Florida and
a 50-unit assisted living facility in Tennessee, which is under construction.
Renaissance Senior Living, Inc. has also started construction of a 233-unit
assisted living/independent living / long-term care facility in Conyers,
Georgia.
In December 1997, the Company also announced that it had agreed to
acquire IATROS Health Network, Inc., a Nasdaq listed company, for
approximately $17 million in the Company's Common Stock. There is presently
no written agreement concerning this acquisition and the terms are still
being negotiated. The acquisition will be subject to the execution of a
definitive agreement and shareholder approval. IATROS owns, leases or manages
11 facilities in the New England market with 1997 consolidated revenues
approximating $31 million. IATROS also provides pharmacy and rehabilitation
therapy services, and operates a medical supply and durable medical equipment
company with 1997 combined ancillary revenues annualized at $12 million. In
connection with its negotiations with IATROS, the Company has purchased from
IATROS twenty percent of its shares outstanding for a total of $1 million.
LONG-TERM CARE FACILITY AND ASSISTED LIVING/INDEPENDENT LIVING FACILITY
OPERATIONS
As of March 19, 1998, the Company owned or leased and operated 14
long-term care facilities with 1,467 skilled long-term care beds, and two
assisted living/independent living facilities with 348 units. These
facilities are located in Georgia, Florida and Texas.
The Company's long-term care facilities provide both routine and
ancillary services. Routine services such as room and board and basic nursing
care services are provided in the skilled long-term care facilities and the
assisted living/independent living facilities. Certain of the Company's
long-term care facilities also provide specialty services such as HIV care,
Alzheimer's disease units, wound care, subacute care, and stroke and accident
rehabilitation. The Company provides a full range of occupational, physical,
speech and respiratory therapy in its long-term care facilities. The Company
derives most of its revenue for ancillary services from Medicare
reimbursement. See "--Regulation; Medicaid and Medicare" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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The average occupancy level, based on licensed beds, for the Company's
skilled long-term care facilities during the years ended December 31, 1997,
1996 and 1995 was 85.7%, 89.4% and 91.2%, respectively. The Company's
long-term care facility revenues, exclusive of assisted living, medical supply
and pharmaceutical revenues, are divided into the following classes for payor
mix:
YEARS ENDED DECEMBER 31,
1997 1996 1995
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Medicaid 65% 76% 69%
Medicare 14% 10% 10%
Private Pay 18% 11% 18%
HMO 1% 1% 1%
Hospice 1% 1% 1%
Other Payors 1% 1% 1%
---- ---- ----
100% 100% 100%
For the year ended December 31, 1997, the Company received 79% of its
long-term care facility revenues from Medicaid and Medicare, compared to 86%
and 79% for 1996 and 1995, respectively. Future changes in programs could
possibly have a negative impact on the Company's operations and ultimately can
affect the Company's profitability.
LONG-TERM CARE FACILITY AND ASSISTED LIVING/INDEPENDENT LIVING STRATEGY
The Company's strategy is to increase the number of long-term care and
assisted living/independent living facilities that it operates primarily by
(i) acquiring by purchase or lease independently-owned long-term care
facilities and assisted/independent living facilities located in the United
States and secondarily by (ii) developing assisted/independent living centers
adjacent or complementary to its existing facilities. Key elements of this
strategy include: (i) acquiring and developing additional long-term care and
assisted/independent living facilities; (ii) increasing facility occupancy
rates; (iii) improving the payor mix at the Company's long-term care
facilities; and (iv) achieving operating efficiencies.
ACQUIRE AND DEVELOP FACILITIES. The Company intends to acquire and
develop additional long-term care facilities and assisted/independent living
facilities in its existing markets and contiguous areas. Management believes
that such expansion will allow the Company to take better advantage of its
existing expertise and organizational resources and improve margins by
reducing overhead costs. As a result of the growing complexity of regulatory
requirements and the continued pressure on reimbursement rates, the Company
believes that other smaller, independent providers may be more willing to
consider selling or leasing their facilities on terms acceptable to the
Company. The Company believes it is well positioned to make acquisitions
because of its reputation and established geographic presence. In addition,
the Company intends to offer a broad range of senior residential care
services. Towards that end, the Company has recently implemented a strategy
to develop assisted living centers adjacent to its long-term care facilities
or independent living centers, thereby creating senior residential care
campuses which offer a greater variety of senior residential care services in
one location. The Company presently has one senior residential care campus.
In evaluating an existing facility for acquisition, the Company
primarily considers the facility's historical occupancy rates and payor mix,
reputation and compliance history, physical condition and appearance, labor
force stability, the
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availability of financing on acceptable terms and, in the case of
assisted/independent living facilities, the demographics of the surrounding
area. In evaluating a development project, the Company primarily considers
the strength of the market demand for the senior residential care services.
Upon the acquisition of a facility, the Company implements its
management information and control systems and provides capital for necessary
physical plant improvements to enable its professionals to increase occupancy
and attain the Company's standards for quality of care. The Company's
strategy with respect to its long-term care facilities is to seek Medicare
certification while simultaneously marketing the facility to attract more
Medicare and private pay residents. The Company believes that with effective
cost controls, the Company's facilities can continue to be profitable with a
highly concentrated Medicaid payor mix.
INCREASE FACILITY OCCUPANCY RATES. The Company believes its occupancy
rates in existing assisted/independent living centers should increase
primarily due to three factors: (i) an enhanced emphasis on facility-specific
marketing efforts; (ii) the continued growth of the elderly segment of the
population in the Company's markets; and (iii) the limited supply of long-term
care beds and assisted/independent living units. Increasing occupancy rates
will allow the Company to further reduce its fixed costs per patient day.
IMPROVE PAYOR MIX. The Company intends to improve its payor mix at its
long-term care facilities by making capital improvements which management
believes are necessary to attract more private pay residents, by aggressively
marketing such facilities to prospective private pay residents and by seeking
Medicare certification for newly acquired facilities. The Company has
recently implemented a strategy to develop assisted living centers adjacent to
its long-term care facilities or independent living centers, thereby creating
a senior residential care campus which offers a greater variety of senior
residential care services in one location. Management believes that providing
a "continuum of care" to its residents enhances the marketing efforts of its
assisted/independent living centers and that these centers should provide a
referral source to the other facilities on the same campus. The Company also
has intensified efforts to provide the full range of Medicare services to
eligible patients and is increasingly concentrating its marketing efforts on
private third party payors, such as managed care and insurance companies, as
well as hospital discharge planners, thereby developing referral sources for
both its long-term care and assisted/independent living centers.
LONG-TERM CARE SERVICES. Basic resident services are those
traditionally provided to elderly patients in long-term care facilities with
respect to daily living activities and general medical needs. The Company
provides in all of its facilities room and board, 24-hour skilled nursing care
by registered nurses, licenced practical nurses and certified nursing aides,
and a broad range of support services, including dietary services, therapeutic
recreational activities, social services, housekeeping and laundry services,
pharmaceutical and medical supplies, physical, speech, occupational and
respiratory therapy, wound care and other ancillary services.
ASSISTED LIVING SERVICES. The Company's assisted living centers are
designed to assist those persons generally 75 years of age or over who may
require assistance with any of the five basic activities of daily life (i.e.,
bathing, dressing, eating, walking and toileting). The Company assesses
incoming residents and develops an individualized care plan based on their
acuity level. The Company reassesses each of its residents on a regular basis
to determine if they require additional care. Each of the Company's assisted
living facilities
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offers its residents with private or semi-private accommodations, ongoing
health assessments, three meals per day and snacks approved by a registered
dietician, as well as 24-hour assistance with activities or daily life,
housekeeping service, linen and personal laundry service, organized social
activities and transportation. The Company's assisted living services are
provided in freestanding assisted living centers and in certain units in each
of the Company's independent living centers.
INDEPENDENT LIVING SERVICES. The Company's independent living centers
offer independent living to seniors. Each center offers a standard package of
services that typically include meal service, laundry and linen service,
housekeeping, organized social activities and transportation. In addition,
each of the Company's independent living facilities offers a menu of
separately priced additional services available at the option of the resident.
HOSPITAL OPERATIONS
NCHC currently owns one hospital with 84 beds and provides management
services to two hospitals with a total of 281 beds. NCHC also holds options
to purchase the two hospitals that it manages.
In operating or managing hospitals, NCHC implements policies and
procedures to improve each hospital's operating and financial performance.
NCHC implements an operating plan designed to reduce costs by improving
operating efficiency and increasing revenue through the expansion of the
breadth of services offered by the hospitals and the recruitment of physicians
to the community. Management believes that the long-term growth potential of
a hospital is dependent on the ability to add appropriate health care services
and effectively recruit physicians.
Each hospital management team is comprised of a hospital administrator
and controller. The Company believes that the quality of the local management
team at each hospital is critical to the hospital's success, because the
management team is responsible for implementing the elements of the operating
plan. The operating plan is developed by the local management team in
conjunction with NCHC's senior management team and sets forth revenue
enhancement strategies and specific expense benchmarks.
While the local management team is responsible for the day-to-day
operations of the hospitals, NCHC's corporate staff provides support services
to each hospital, including physician recruiting, corporate compliance,
reimbursement advice, human resources, accounting, cash management and other
finance activities, tax and insurance support. Financial controls are
maintained through utilization of standardized policies and procedures.
To achieve the operating efficiencies set forth in the operating plan,
NCHC (i) evaluates existing hospital management; (ii) adjusts staffing levels
according to patient volumes using best demonstrated practices by each
department; and (iii) capitalizes on purchasing efficiencies and renegotiates
certain vendor contracts. NCHC also enforces strict protocols for compliance
with the Company's supply contracts.
The average occupancy level, based on licensed beds, for the Company's
one owned hospital during the year ended December 31, 1997, was 24%. The
Company's hospital revenues are divided into the following classes for payor
mix:
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YEAR ENDED DECEMBER 31, 1997
----------------------------
Medicaid 1%
Medicare 63%
Private Pay 20%
Private Insurance 16%
----
100%
For the year ended December 31, 1997, the Company received 64% of its
revenues from Medicaid and Medicare from its one hospital. Future changes in
programs could possibly have a negative impact on the Company's operations and
ultimately can affect the Company's profitability.
REGULATION; MEDICAID AND MEDICARE
STATE AND LOCAL REGULATION
The Company's long-term care facilities and hospitals are subject to
compliance with various state and local health care statutes and regulations.
In order to maintain such licenses, the facilities must meet certain statutory
and administrative requirements. These requirements relate to the condition
of the facilities and the adequacy and condition of the equipment used
therein, the quality and adequacy of personnel and the quality of medical
care. Such requirements are subject to change.
Long-term care facilities are licensed in their respective state to
provide residential health and medical services to patients requiring
long-term care including the following minimum services: 24-hour nursing
care; personal or custodial care as needed; both routine and emergency
physician services; and access to dental, recreational, rehabilitative and
social work services.
Compliance with state licensing requirements imposed upon all health
care facilities is a prerequisite for the operation of the facilities and for
participation in government-sponsored health care funding programs such as
Medicaid and Medicare.
Some states require approval for construction and expansion of health
care facilities, including findings of need for additional or expanded heath
care facilities or services. Certificates of Need ("CON's"), which are issued
by governmental agencies with jurisdiction over health care facilities, are at
times required for capital expenditures exceeding a prescribed amount, changes
in bed capacity or services and certain other matters. The Company is unable
to predict whether it will be able to obtain any CON that may be necessary to
accomplish its business objectives in any jurisdiction where such CON's are
required.
MEDICAID AND MEDICARE PROGRAMS; RELATED REGULATION
Medicaid is a state-administered program financed by state and matching
federal funds. The program provides for federal assistance to the indigent
and certain other eligible persons. Although administered under broad federal
regulations, states are given flexibility to construct programs and payment
methods consistent with their individual goals. The current Georgia, Florida,
Texas, Massachusetts and Kansas Medicaid reimbursement plans are prospective
systems of reimbursement. Under a prospective system, per diem rates are
established based on cost of services provided for a prior year, and are
adjusted to reflect such factors as inflation.
11
<PAGE>
Medicare is a federally-administered and financed program which provides
health insurance protection to qualified individuals over the age of 65 and
the chronically disabled. This program has been a retrospective reimbursement
system that is based on a prior period's cost report filed with a Medicare
intermediary. In 1997, Congress passed the Balance Budget Act of 1997 ("BBA")
which provides for a phase-in of a prospective payment system ("PPS") for
skilled nursing facilities over a four year period, effective for the Company
in January 1999. Under PPS, Medicare will pay skilled nursing facilities a
fixed fee per patient day based on the acuity level of the patient to cover
all post-hospital extended care routine service costs, including ancillary and
capital related costs for beneficiaries receiving skilled services. The per
diem rate will also cover substantially all items and services furnished
during a covered stay for which reimbursement was formerly made separately
under Medicare. During the phase-in, payments will be based on a blend of the
facility's historical costs and a federally established per diem rate. Since
the federally established per diem rates have not been finalized, it is
unclear what the impact of PPS will be on the Company.
Effective October 1, 1990 the Omnibus Budget Reconciliation Act of 1987
("OBRA") eliminated the different certification standards for "skilled" and
"intermediate care" nursing facilities under Medicaid and Medicare programs in
favor of a single "nursing facility" standard. This standard has required the
Company to have at least one registered nurse on each shift and has increased
training requirements for nurses' aides by requiring a minimum number of
training hours and a certification test before a nurses' aide can commence
work. States also must certify that nursing facilities provide skilled care
in order to obtain Medicare reimbursement. OBRA has also increased the
enforcement powers of state and federal certification agencies. Additional
sanctions have been authorized including fines, temporary suspension of
admission of new patients to nursing facilities, decertification from
participation in the Medicaid or Medicare programs and, in extreme
circumstances, revocation of a nursing facility's license.
The Medicaid and Medicare programs provide criminal penalties for
entities that knowingly and willfully offer, pay, solicit or receive
remuneration in order to induce business that is reimbursed under these
programs. The illegal remuneration provisions of the Social Security Act,
also known as the anti-kickback statute, prohibit remuneration intended to
induce the purchasing, leasing, ordering, or arranging for any good, facility,
service or item paid by Medicaid or Medicare programs.
There is increasing scrutiny by law enforcement authorities, the Office
of Inspector General ("OIG") of the Department of Health and Human Services
("HHS"), the courts, and Congress of arrangements between health care
providers and potential referral sources to ensure that the arrangements are
not designed as a mechanism to exchange remuneration for patient care
referrals and opportunities. Investigators have also demonstrated a
willingness to look behind the formalities of a business transaction to
determine the underlying purpose of payments between health care providers and
potential referral sources. Enforcement actions have increased, as evidenced
by recent highly publicized enforcement investigations of certain hospital
activities. Although, to its knowledge, the Company is not currently the
subject of any investigation which is likely to have a material adverse effect
on its business, financial condition or results of operations, there can be no
assurance that the Company and its hospitals will not be the subject of
investigations or inquiries in the future.
The Social Security Act also imposes criminal and civil penalties for
making false claims to the Medicaid and Medicare programs for services not
12
<PAGE>
rendered or for misrepresenting actual services rendered in order to obtain
higher reimbursement. The Medicare program has published certain "Safe
Harbor" regulations which describe various criteria and guidelines for
transactions which are deemed to be in compliance with the anti-remuneration
provisions. Although the Company has contractual arrangements with some
health care providers, management believes it is in compliance with the
anti-kickback statute and other provisions of the Social Security Act and with
the state statutes. However, there can be no assurance that government
officials responsible for enforcing these statutes will not assert that the
Company or certain transactions in which it is involved are in violation of
these statutes.
The Company derives a significant portion of its revenue from these
programs, particularly with respect to ancillary services. With respect to
Medicaid, reimbursement rates are determined by the appropriate administrative
state agency based on the cost report filed by each individual nursing
facility. Changes in the reimbursement policies of the Medicaid and Medicare
programs as a result of legislative and regulatory actions by federal and
state governments could adversely affect the revenues of the Company.
Governmental funding for health care programs is subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
intermediary determinations and governmental funding restrictions, all of
which may materially increase or decrease program reimbursement to health care
facilities. Congress has consistently attempted to curb the growth of federal
spending on such programs. Recent actions include limitations on payments to
hospitals and nursing facilities under the Medicaid and Medicare programs,
limitations on payments for physicians' services and elimination of funding
for health planning agencies. No assurance can be given that the future
funding of Medicaid and Medicare programs will remain at levels comparable to
the present levels.
HEALTH CARE REFORM
The Clinton Administration and various federal legislators have
introduced health care reform proposals, which are intended to control health
care costs and to improve access to medical services for uninsured
individuals. These proposals include proposed cutbacks to the Medicare and
Medicaid programs and steps to permit greater flexibility in the
administration of Medicaid. Changes in reimbursement levels under Medicare or
Medicaid and changes in applicable governmental regulations could
significantly affect the Company's results of operations. While no federal
legislation regarding health care reform was enacted in the calendar year
1997, it is uncertain at this time what legislation on health care reform will
ultimately be enacted or whether other changes in the administration or
interpretation of governmental health care programs will occur. There can be
no assurance that future health care legislation or other changes in the
administration or interpretation of governmental health care programs will not
have an adverse effect on the results of operations of the Company.
COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company's health care operations generate medical waste that must be
disposed of in compliance with federal, state and local environmental laws,
rules and regulations. The Company's operations, as well as the Company's
purchases and sales of facilities, are also subject to various other
environmental laws, rules and regulations. The Company believes that it is in
material compliance with applicable environmental laws and regulations.
Management believes that there are not any material environmental
contingencies.
13
<PAGE>
EMPLOYEES
At December 31, 1997, the Company and its subsidiaries employed
approximately 1,350 people, of which approximately 1,125 are employed on a
full time basis. This includes 26 full time and two part time employees who
work at the Company's headquarters.
The employees at two of the Company's long-term care facilities are
represented by collective bargaining units. The employees at the Whigham
Nursing Home, which totaled approximately 90 at December 31, 1997, are
represented by the United Food and Commercial Workers Union under a contract
which expires July 1, 2000. The employees at the Dania Nursing Home, which
totaled approximately 50 at December 31, 1997, are represented by South
Florida Council, UNITE, AFL-CIO, under a contract which expires June 3, 2000.
INSURANCE
Providing health care services entails an inherent risk of liability.
The Company maintains liability insurance providing coverage which it believes
to be adequate. In addition, the Company maintains property, business
interruption and workers' compensation insurance covering all facilities in
amounts deemed adequate by the Company. The Company carries malpractice
insurance coverage for each of the facilities that it owns, operates or
manages in the amount of $1 million per incident per facility and $3 million
annual aggregate per facility. The Company also carries an umbrella excess
liability insurance policy which has a $5 million per incident limit with an
aggregate limit of $5 million. There can be no assurance that any future
claims will not exceed applicable insurance coverage or that the Company will
be able to continue its present insurance coverage on satisfactory terms, if
at all.
ITEM 2. PROPERTIES
The Company currently occupies approximately 2,481 square feet of office
space for its corporate offices at 6000 Lake Forrest Drive, Suite 315,
Atlanta, Georgia. From April 1997 through December 1997, this space was
provided by Renaissance Senior Living, Inc., which in turn is leasing the
space from an unaffiliated party pursuant to a lease which expires in April
2002 and currently requires base monthly lease payments of approximately
$3,473. Effective January 1, 1998, this lease was assigned to the Company and
the Company has paid the lease payments since that date. The Company believes
that these facilities are suitable and adequate to meet its present and
anticipated needs.
The Company believes that all facilities owned and leased by the Company
and its subsidiaries are adequately insured. The following table sets forth
certain information relating to the Company's facilities as of March 19, 1998:
14
<PAGE>
NUMBER OCCUPANCY
LEASED/ OF BEDS AS OF
NAME LOCATION OWNED OR UNITS 3/19/98
---- -------- ------- -------- ---------
LONG-TERM CARE FACILITIES:
1. Central Tampa Tampa, Florida Owned 100 70.0%
Nursing Home
2. Dania Nursing Dania, Florida Owned 88 83.0%
Home
3. Oak Manor Largo, Florida Owned 180 88.9%
Nursing Home
4. Suncoast St. Petersburg, Owned 59 72.9%
Nursing Home Florida
5. Victoria Martin St. Petersburg, Owned 38 78.9%
Nursing Home Florida
6. Wakulla Manor Crawfordville, Owned 120 96.7%
Nursing Home Florida
7. Venice Nursing Venice, Florida Owned 120 35.0%
Pavillion
8. Emory Nursing Atlanta, Georgia Owned 40 92.5%
Home
9. Fitzgerald Fitzgerald, Owned 167 72.5%
Nursing Home Georgia
10. Ft. Valley Fort Valley, Owned 75 89.3%
Nursing Home Georgia
11. Pleasant View Metter, Georgia Leased 120 88.3%
Nursing Center
12. Whigham Nursing Whigham, Georgia Leased 142 95.1%
Center
13. Winward Nursing Flowery Branch, Owned 100 88.0%
Center Georgia
14. Tyler Park Place Tyler, Texas 58% Owned 118 73.7%
Nursing Home -----
Total 1,467
ASSISTED LIVING/INDEPENDENT LIVING CENTERS:
1. Oak Manor Villas Largo, Florida Owned 224 33.5%
Retirement Center
2. New Port Inn New Port Richey, Leased 124 81.8%
Florida ---
Total 348
15
<PAGE>
HOSPITAL:
1. Meadowbrook Gardner, Kansas Owned 84 26.2%
Rehabilitation
Hospital
The Company considers all of its facilities, both owned and leased,
together with the related equipment contained therein, to be well maintained,
in good operating condition, and suitable for the present and foreseeable
future needs of each facility.
ITEM 3. LEGAL PROCEEDINGS
TRI-CITY HOSPITAL LAWSUIT
On March 27, 1998, NCHC filed a lawsuit in the United States District
Court for the Northern District of Texas, Dallas Division, against Tri-City
Health Center, Inc., which owns the Tri-City Hospital in Dallas, Texas (the
"Hospital"), requesting injunctive and other relief against the Hospital in
connection with NCHC's management agreement with the Hospital and NCHC's
option to purchase the Hospital. In its Complaint, NCHC alleges that the
Hospital's Board of Directors has wrongfully taken the position that the
management agreement and option are not valid, and that if the management
agreement is valid, that NCHC is in default of that agreement. NCHC also
claims that since March 17, 1998, the Hospital has wrongfully not allowed
NCHC's employees on its premises, and that if any defaults have occurred under
the management agreement that the exclusion of NCHC's employees from the
premises prevents NCHC from curing any defaults as permitted under the
management agreement. NCHC also alleges that the Hospital wrongfully induced
the NCHC employee who had served as the Chief Executive Officer of the
Hospital to resign and become an employee of the Hospital.
NCHC has requested that the court declare that the management agreement
and option are valid and that the actions taken by the Hospital are wrongful.
NCHC is also requesting that the court enter a preliminary injunction against
the Hospital enjoining it from taking actions contrary to the management
agreement, requiring it to allow NCHC to resume management of the Hospital,
and to prohibit the Hospital from employing NCHC's former employee. The
Complaint also seeks to recover NCHC's attorney's fees and costs from the
Hospital.
As of April 6, 1998, the hospital had not filed an answer to the
Complaint.
CARROLL GROUP LAWSUIT
In June 1996 the Company entered into a debt forbearance agreement with
the previous owners of its Spectrum subsidiary Matthew Carroll, Francis
Farley, Cheryl Hannant and Edward R. Meyer (the "Carroll Group") to
restructure its acquisition related debt. The agreement provided, among other
things, for the issuance of 375,000 shares of the Company's common stock and
payments of $4,250,000, including a payment of $1,500,000 due September 24,
1996. On August 12, 1996, the Company and the Carroll Group executed an early
payment agreement providing for further debt reduction. Subsequently the
Carroll Group proposed an amendment to the debt forbearance agreement which
was accepted by the Company.
The payment due on September 24, 1996 was not paid by the Company. On
October 22, 1996 the Carroll Group, denying the validity of the early payment
agreement and forbearance agreement amendment filed a lawsuit against the
Company and Robert W. Bell, who was the President and Chairman of the Board at
the time, in the Circuit Court of the Thirteenth Judicial Circuit Court in
and for
16
<PAGE>
Hillsborough County, Florida, seeking, among other things, payments for all
amounts due under the forbearance agreement, and through court injunction to
sequester proceeds from the sale of Spectrum assets to NCS Healthcare of
Florida, Inc. and to appoint a receiver. The Company was successful in
opposing the injunction.
On February 14, 1997, the Company entered into a Settlement Agreement
("Agreement") with the Carroll Group. The purpose of the Agreement was to
settle the outstanding litigation filed by the Carroll Group against the
Company in October 1996.
The Agreement provided that among other things, the Company would 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 was due and paid on March 3, 1997, from the refinancing
of its long-term care facility in Fitzgerald, Georgia;
(c) $4,000,000 was due and paid by June 14, 1997.
(d) Interest accrued from all unpaid sums at the rate of 8.75%
commencing February 21, 1997, and it was due and paid by June 14, 1997.
The Agreement further provided that upon payment of the $6,000,000, the
Carroll Group would transfer 1,200,000 shares of the Company's common stock to
the Company or its designees. These shares were transferred to persons who
paid a total of $1,800,000 to the Carroll Group. Thus the Company's
obligation to the Carroll Group was $4,200,000.
The Agreement further provided 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. 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. The stock traded at or above $4.00 for
30 consecutive trading days during July and August 1997, so the Company has no
obligation to repurchase the 300,000 shares.
(b) 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 the right of first refusal to buy the shares at the market price.
The Agreement also provided that Matthew Carroll would resign from the
Company's Board of Directors on February 14, 1997. This resignation was
accepted by the Board on February 14, 1997.
LORA HENDERSON'S LAWSUIT
On April 19, 1996, Lora Henderson, an employee of the Oak Manor Nursing
Home, filed a complaint in federal district court in Tampa, Florida against
the Company and Robert W. Bell, Sr., former President and Chairman of the
Board of the Company. The complaint contained two counts, one for sexual
harassment under Title VII of the Federal Civil Rights Act and the other for
intentional
17
<PAGE>
infliction of emotional distress. The Court dismissed Robert W. Bell, Sr.
from the case and the count for intentional infliction of emotional distress
was dismissed. Henderson claimed an unspecified amount of damages for alleged
emotional distress and pain and suffering. The case had been scheduled for a
jury trial during the month of January 1998, but was settled in October 1997
for a payment of $20,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of the year ended December 31, 1997.
18
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION. The Company's Common Stock is traded in the
over-the-counter market, and since April 28, 1995, has been traded on the
Nasdaq Small-Cap Market under the symbol "NWCA".
The following table sets forth the high and low bid prices of the
Company's Common Stock as reported by the Nasdaq Small-Cap Market for the
periods presented. These prices are believed to be representative interdealer
quotations, without retail markup, markdown or commissions, and may not
represent prices at which actual transactions occurred.
BID
HIGH LOW
1996
First Quarter $2.625 $2.375
Second Quarter $2.375 $1.25
Third Quarter $1.50 $1.00
Fourth Quarter $1.3125 $0.25
The following table sets forth the high and low sales prices of the
Company's Common Stock as reported by the Nasdaq Small-Cap Market for the
periods presented:
HIGH LOW
1997
First Quarter $3.00 $1.0625
Second Quarter $4.625 $2.50
Third Quarter $5.25 $3.875
Fourth Quarter $4.3125 $3.3125
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK. At March 30, 1998, the
Company had approximately 685 holders of record of its Common Stock.
DIVIDENDS. The Company has paid no cash dividends on its Common Stock,
and has no present intention of paying cash dividends in the foreseeable
future.
SALES OF RESTRICTED SECURITIES. During the quarter ended December 31,
1997, the Company issued restricted securities as follows:
In November 1997, the Company sold 172,500 Units, each Unit consisting
of four shares of Common Stock and two Warrants to purchase Common Stock, to
34 accredited investors at a purchase price of $15.00 per Unit. Each Warrant
is exercisable to purchase one share of Common Stock at $5.00 per share until
October 30, 2000.
In connection with such sales the Company paid cash commissions to the
following registered broker/dealers as set forth next to their names:
International Trading Group - $29,700
Marion Bass Securities Corp. - $35,775
Bathgate McColley Capital Group LLC - $27,675
Lawson Financial Corporation - $22,950
Centex Securities, Inc. - $ 5,400
19
<PAGE>
With respect to these sales, the Company relied on Section 4(2) of the
Act, and Rule 506 of Regulation D promulgated thereunder. Each investor was
given a copy of a Private Placement Memorandum containing information
concerning the Company, a Form D was filed with the SEC and the Company
complied with the other applicable requirements of Rule 506. Each investor
signed a subscription agreement in which he represented that he was purchasing
the shares for investment only and not for the purpose of resale or
distribution. The appropriate restrictive legends were placed on the
certificates and stop transfer orders were issued to the transfer agent.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial information for the years ended
December 31, 1997 and 1996, is derived from financial statements of the
Company audited by Laney, Boteler & Killinger, independent certified public
accountants. The selected financial information for the years ended December
31, 1995 and 1994, is derived from financial statements of the Company audited
by Lovelace, Roby & Company, P.A., independent certified public accountants.
The selected financial information for the year ended December 31, 1993, is
derived from financial statements of the Company audited by Grant Thornton,
independent certified public accountants.
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997 1996 1995 1994
1993
<FN1> <FN1> <FN1> <FN1><FN2>
<FN1><FN2>
<S> <C> <C> <C> <C> <C>
Current Assets $21,237,727 $ 7,717,162 $ 6,751,312 $ 6,606,450 $
2,027,541
Total Assets 68,768,359 32,267,101 39,980,703 29,347,359
16,215,529
Current Liabili-
ties 23,539,395 20,242,609 16,151,525 7,160,213
3,223,000
Working Capital
(Deficit) (2,300,668) (12,525,447) (9,400,213) (553,763)
(1,195,459)
Long-term Debt 39,754,836 6,880,805 16,260,560 16,266,226
12,730,195
Shareholders'
Equity 5,460,228 5,143,687 7,369,979 5,718,631
187,542
- ------------------
<FN>
<FN1>
During the years ended December 31, 1993 and 1994, the Company and its
predecessors operated five long-term care facilities and one assisted
living/independent living complex. During 1995, through the acquisition of
Cimerron Health Care, Inc. and other transactions, the Company began operating
an additional six long-term care facilities. No additional acquisitions were
made during 1996. During 1997, the Company began operating three additional
long-term care facilities, purchased and began operating one hospital, and
started managing two additional hospitals.
<FN2>
Effective April 5, 1994, the Company acquired the stock of NewCare in a
reverse acquisition in which NewCare's stockholders acquired voting control of
the Company. The transaction was accounted for as a purchase with NewCare as
the acquiring company because NewCare's stockholders acquired a majority of
the voting rights in the combined company. Accordingly, the results of
operations prior to April 5, 1994, are those of NewCare and its predecessor.
</FN>
</TABLE>
20
<PAGE>
STATEMENT OF INCOME DATA:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995 1994
1993
------------ ----------- ----------- -----------
- -----------
<S> <C> <C> <C> <C> <C>
Revenues $32,984,930 $28,683,704 $23,176,905 $20,922,846
$15,276,727
Operating
Expenses 35,928,002 26,700,758 21,972,145 21,807,712
14,841,069
Net Income (Loss)
from Continuing
Operations (3,979,353) 99,936 (340,654) (919,616)
207,061
Net Income (Loss)
from Continuing
Operations Per
Common Share<FN1> $ (.37) $ .01 $ (.03) $ (.13) $
.06
Weighted Average
Shares<FN1> 10,769,829 10,667,524 10,390,073 7,289,746
3,353,272
Cash Dividends
Per Common Share $ -0- $ -0- $ -0- $ -0- $
- -0-
- ------------------
<FN>
<FN1>
The Company has retroactively restated net income per share and weighted
average shares outstanding for the effect of a reverse stock split which
occurred in April 1994.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
STRUCTURE OF OPERATIONS
The Company is currently an operator of long-term care facilities,
rehabilitation and acute-care hospitals, and assisted-independent living
centers. As of December 31, 1997, the Company operated thirteen (13)
long-term care facilities in Georgia, Florida and Texas, one (1) assisted
living center in Florida, and one (1) hospital in Kansas. The Company also
managed two acute-care hospitals in Florida and Texas.
RESULTS OF OPERATIONS
The Company's total operating revenues from continuing operations for
the year ended December 31, 1997, were $32,984,930 compared to $28,683,704 for
the year ended December 31, 1996. The 15.0% increase in revenues was due to
the acquisition of three long-term care facilities, one hospital and two
management agreements with hospitals, primarily made in the latter half of
1997.
Included in total operating revenues for 1997 were $32,359,366 related
to patient services, $503,577 in management fees stemming from the management
agreements on two hospitals entered into in the December 1997 quarter and
$121,987 in other operating revenues.
Operating expenses for the year ended December 31, 1997, totaled
$35,928,002, an increase of 34.6% over the $26,700,758 in total expenses for
the
21
<PAGE>
year ended December 31, 1996. The increase in operating expenses was primarily
the result of additional facility acquisitions during the year, a larger
provision for doubtful accounts (bad debts), two shareholder settlements and a
build-up of the management staff in preparation for accelerated growth plans
in 1998 and beyond.
Total operating expenses in 1997 included $24,913,670 representing the
costs incurred on patient services, and compares to the $20,095,723 incurred
in 1996. The increase in these costs was due mainly to the facility
acquisitions made during the year. Lease expense totaled $771,427 in 1997
versus $709,542 for 1996, and reflected the addition of one leased facility
during the year. Also during the year, the Company settled two shareholder
disputes for $485,000.
General and administrative costs rose $2,752,309 for the year ended
December 31, 1997, to $7,367,125 versus $4,614,816 in 1996. Several expense
categories experienced increases from 1996, due principally from increased
activity surrounding acquisitions, and included management salaries and
related costs, travel expenses, legal and audit fees, supplies, and corporate
insurance.
The provision for doubtful accounts, or bad debts expense, increased to
$1,194,780 for the year ended December 31, 1997, from the $203,937 recorded in
1996. The primary reason for the increase in the provision was a more
thorough review by management of aged receivables, and reaching a decision on
the overall probability of their collection. In addition, a provision was
placed on a portion of receivables from the managed hospitals, pending an
improvement in financial condition at one of the facilities.
Depreciation and amortization expense was $1,196,000 in 1997 versus
$1,076,740 in 1996, mainly due to the increase in facilities during the year.
As a result of a 15.0% increase in revenues and an increase of $34.6% in
expenses, the Company recorded an operating loss of $2,943,072 for the year
ended December 31, 1997, compared to an operating income of $1,982,946 for the
year ended December 31, 1996.
Investment income totaled $794,214 in the current year versus $83,828 in
1996. The principle reason for the increase was the interest received on bond
indentures the Company purchased on one of the hospitals currently under a
management agreement. Interest expense rose to $3,148,460 in 1997 from
$1,912,838 in 1996, principally the result of higher levels of outstanding
long-term debt and borrowings under the Company's line of credit.
The loss before income taxes, discontinued operations and extraordinary
items was $5,311,218 in 1997 versus an income of $153,936 in 1996. The loss
in the current year was reduced by an income tax benefit of $1,331,865, which
compares to an income tax provision of $54,000 in 1996.
The results for the year ended December 31, 1997 were also impacted by a
gain on the restructuring of its debts, net of taxes, of $879,851. The
results for 1996 were impacted by losses from a discontinued business segment
and the disposal of this segment of $2,326,228, net of tax benefits.
The net loss for the year ended December 31, 1997, was $3,099,502 ($0.29
per share) versus a net loss of $2,226,292 ($0.21 per share) for the year
ended December 31, 1996.
22
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
STRUCTURE OF OPERATIONS
During the year ended December 31, 1996, the Company operated through
its three subsidiaries: NewCare, Spectrum (sold in October 1996), and
Cimerron (acquired in May 1995). The Company's operations are comprised of
ten (10) skilled long-term care facilities, five (5) in Florida through
NewCare and five (5) in Georgia through Cimerron. As a result of the Spectrum
sale, the Company disposed of its medical supply and pharmaceutical sales and
service operations in Florida, Georgia, Kansas and Texas.
RESULTS OF OPERATIONS
The Company's revenues from continuing operations for the year ended
December 31, 1996, totaled $28,683,704 compared to the $23,176,905 reported
for the year ended December 31, 1995. The 23.8% increase in 1996 was
primarily the result of the five Cimerron facilities, acquired in May 1995,
being included in the 1995 results for only eight months. In addition, a
slight decline in the average occupancy levels at the facilities to 89.35% in
1996 from 91.17% in 1995 and a decrease in private pay mix to 11% from 18% had
a negative impact on revenue growth.
Expenses from continuing operations for the year ended December 31, 1996
totaled $26,700,758 compared to $21,972,145 for the year ended December 31,
1995. The 21.5% increase in expenses over 1995 was impacted by the acquisition
of Cimerron in May 1995. Total expenses for 1996 represented 93.1% of total
revenues versus 94.8% of total revenues in 1995.
Cost of patient services rose 9.9% in 1996 to $20,095,723 from
$18,293,388 reported for 1995, and accounted for 70.1% of total revenues in
the current year versus 78.9% in 1995. Lease expense for 1996 totaled
$709,542 versus $494,005 in 1995, with the increase due mainly to the results
for the Cimerron facilities for a full year in 1996.
General and administrative expense for the year ended December 31, 1996,
was $4,614,816 compared to $2,033,887 for the year ended December 31, 1995.
As a percent of revenues, these expenses represented 16.1% of the total in
1996 versus 8.8% in 1995. The principle reason for the increase in 1996 was
the fact that the administration overseeing the Cimerron operations in Georgia
were retained after their acquisition.
The provision for bad debts totaled $203,937 in 1996 and $211,919 in
1995, while depreciation and amortization expense rose to $1,076,740 in 1996
from $938,946 in 1995.
Interest expense increased to $1,912,838 in 1996 from $1,518,910 in 1995
due to the Cimerron acquisition. Investment income totaled $83,828 in 1996
and $9,496 in 1995.
The Company reported a net loss of $2,226,292 ($0.21 per share) for the
year ended December 31, 1996, compared to a net loss of $172,222 ($0.02 per
share) for the year ended December 31, 1995. Included in the results for 1996
were a loss of $970,430 from the discontinued Spectrum operations and a loss
from the sale of Spectrum of $1,355,798. The results for 1995 included a gain
from a discontinued business segment of $168,432.
23
<PAGE>
INFLATION AND LABOR SUPPLY
Long-term care facilities are labor intensive and can be affected by
changes in wages and the supply of labor. Inflationary increases in wages can
have adverse affects on the Company's skilled long-term care operations in the
short term until Medicaid and Medicare cost reports can be filed for
appropriate reimbursement rate adjustments for individual long-term care
facilities. The supply of labor can have possible adverse affects on the
Company's net results of operations.
CAPITAL RESOURCES AND LIQUIDITY
At December 31, 1997, the Company had a deficit of $2,301,668 in working
capital compared to a $12,525,447 deficit at December 31, 1996. The increase
in working capital of $10,223,779 was due primarily to significant mortgage
debt that was classified as a current liability for the year ended December
31, 1996, being refinanced as long-term debt for the year ended December 31,
1997. The funds needed to improve liquidity and reduce the $2,301,668 working
capital deficit for the year ended December 31, 1997, is being provided by
increased collection efforts on existing accounts receivable balances,
extended payment terms using corporate vendors, initiating stronger budgetary
compliance controls and possible refinancing of selected facilities.
During the year ended December 31, 1997, cash used in operating
activities was $2,198,550 as compared to $706,285 for the year ended December
31, 1996. The increase in cash used in operating activities of $1,492,265 for
the year ended December 31, 1997, was primarily attributable to the net loss
before extraordinary item of $3,979,353 for the year ended December 31, 1997,
an increase in deferred tax asset of $1,331,865, and an increase in accounts
receivable of $3,864,217 due to the addition of three long-term care
facilities and one hospital. Cash provided by operating activities was
primarily attributable to depreciation and amortization of $1,196,000 on the
facilities, provision for bad debts of $1,194,780 on accounts receivable
deemed uncollectible, increases in accounts payable of $4,958,541 and other
liabilities of $1,720,217 due to the addition of three long-term care
facilities and one rehabilitation hospital.
Cash used in investing activities during the year ended December 31,
1997, was $19,891,692. The expenditures were related to the acquisition of
facilities and purchase of property and equipment of $14,381,568, payments of
deferred costs of $1,672,918 on the debt incurred to purchase the facilities,
issuance of notes receivable of $990,000 to Messrs. Chris Brogdon - Chairman
of the Board, Timothy Beaulieu - Executive Vice President, and three other
individuals who are consultants, advances to related parties of $1,176,563,
increases in restricted investments of $1,707,761 pledged as collateral on
long-term debt and the purchase of investments of $7,617,015 consisting
primarily of bond indentures on a hospital the Company manages. The related
parties are companies controlled by Mr. Chris Brogdon. Cash provided by
investing activities consisted primarily of repayment on mortgage notes
receivable of $1,852,377, and $5,783,756 in proceeds from the sale of bond
indentures the Company purchased as an investment.
Cash provided by financing activities during the year ended December 31,
1997, was $21,189,141. The sources of cash related to proceeds of long-term
debt and lines of credit of $36,194,951, proceeds from issuance of common
stock of $3,580,476 from a private placement, and advances from related
parties of $2,776,177. The related parties are companies controlled by Mr.
Chris Brogdon. The Company's net borrowing from lines of credit was
$3,189,755, with interest rates at prime plus 2% (10.50% at December 31,
1997). In addition to interest
24
<PAGE>
charges, the draws on the line of credit are subject to monthly management
fees (.20% of the average previous months' loan balance) as well as a monthly
usage fee and commitment fees. Available borrowing at December 31, 1997, was
$6,810,245 limited by a borrowing base which is 80% of "collectible" accounts
receivable. The Company incurred long-term debt of $33,005,196, due through
2020, with interest rates ranging from 8.00% to 11.88% collateralized by
property and equipment of facilities. Cash used in financing activities
consisted of repayment of long-term debt of $20,318,489, and the purchase of
treasury stock of $1,043,974.
The Company's working capital at December 31, 1996 was a negative
$12,755,366 as compared to a negative $9,400,213 on December 31, 1995. The
decrease was due primarily to the fact that a significant amount of mortgage
debt that was classified as long-term debt on December 31, 1995, was
classified as a current liability as of December 31, 1996.
During the year ended December 31,1996, cash used in operating
activities was $706,285 as compared to $1,538,933 of cash provided by
operating activities for the year ended December 31, 1995. The largest
contributing factor to the cash used in the year ended December 31, 1996 was
the net loss of $2,226,292. This figure was offset by the loss on the
disposal of the Spectrum assets of $1,386,798. There was a $2,090,525
decrease in accounts payable in 1996 which was partly offset by a $1,612,136
decrease in accounts receivable. These decreases in accounts payable and
accounts receivable were primarily attributable to the sale of operating
assets of Spectrum. There was also an increase in other receivables of
$486,682 due to the holdback associated with the sale of Spectrum.
Depreciation and amortization was $1,554,219 for 1996 as compared to
$1,494,836 for 1995. Amortization of $94,000 included in the year ended
December 31, 1996, relates to the writeoff of the balance of goodwill for Bay
to Bay, which lost its lease May 31, 1996.
Net cash provided by investing activities was $7,089,285 for the twelve
month period ended December 31, 1996. Proceeds on disposal of property, plant
and equipment, which was primarily related to the sale of Spectrum, was
$10,234,655. The Company paid $1,085,050 in net purchases of property, plant,
and equipment, issued notes receivable of $1,852,377, and made payments for
other assets of $207,943.
For the twelve month period ended December 31, 1996, financing
activities used net cash of $3,385,939. The Company made payments of
$2,405,020 on long-term debt, $1,525,000 on notes payable, and reduced its
line of credit by $166,491. The Company received proceeds of $710,572 from
long-term debt.
The Company believes that its long-term liquidity needs will generally
be met by cash flows from operations. If necessary, the Company believes that
it can obtain an extension of its current line of credit and/or other lines of
credit from commercial sources. Except as described above, the Company is not
aware of any trends, demands, commitments or understandings that would impact
its liquidity.
The Company intends to use long-term debt financing in connection with
the purchase of additional facilities on terms which can be paid out of the
cash flow generated by the property.
The Company intends to continue to lease, purchase and manage additional
facilities in the future.
25
<PAGE>
The Company is obligated to loan up to $2,000,000 each to Tri-City
Hospital and Princeton Hospital for the purpose of making capital improvement
expenditures and for other purposes. These loans are to be made before
October 1998, and are expected to be financed with long-term debt financing.
The Company is also obligated to repay the $3,000,000 bridge note on the
Venice South long-term care facility by April 27, 1998. The Company expects
to finance this with a long-term loan from LTC Properties, Inc.
The Company has a contract to purchase the Pecan Manor Nursing Home for
$1,800,000 to $2,000,000 (depending on the results of an independent
appraisal). The Company expects to close on this purchase during April 1998,
and expects to finance this purchase with a long-term loan.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information with respect to Item 8 is contained in the Company's
consolidated financial statements and are set forth herein beginning on Page
F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No response required.
26
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information about the directors and executive officers of the
Company is contained in the following table:
NAME AGE POSITION
Ashok Dalal 58 President, Chief Executive Officer and
Director
Chris Brogdon 49 Chairman of the Board and Director
Timothy Beaulieu 39 Executive Vice President of the Company
in charge of all Long-term care facilities
James H. Sanregret 47 Chief Financial Officer of the Company
Frank Camma 28 Vice President of Strategic Planning
Arthur Doloresco 47 President of NewCare Hospital Corporation
Dr. Kishor Karia 54 Director
Harlan Mathews 70 Director
Dr. Dhiraj Patel 46 Director
William McBride, III 38 Director
All directors hold office until the next annual meeting of the
shareholders of the Company or until their successors have been elected and
qualified. Officers serve at the discretion of the Board of Directors with no
fixed terms of office.
Effective January 6, 1998, the Company established an Audit Committee, a
Compensation Committee and an Executive Committee. The Audit Committee and
Compensation Committee both consist of Harlan Mathews, William McBride, III,
and Ashok Dalal. The Executive Committee consists of Timothy Beaulieu, James
H. Sanregret, and Philip M. Rees (counsel to the Company).
The following sets forth biographical information as to the business
experience of each officer and director of the Company for at least the last
five years.
ASHOK DALAL has served as Executive Vice President and a Director of the
Company since April 1994 and has held such positions with ANH since November
1989 and with NewCare since its inception in February 1993. Mr. Dalal has
served as Chief Executive Officer of the Company since the resignation of
Robert W. Bell, Sr. on January 3, 1997. Mr. Dalal was a private investor in
several limited partnerships whose properties were managed by ANH. He has a
B.S. Degree and a Master of Business Administration Degree.
CHRIS BROGDON has served as a Director of the Company since February 19,
1997. He has served as President and a Director of Retirement Care
Associates, Inc., a publicly-held company
headquartered in Atlanta, Georgia, since October 1991. He has also served as
Secretary of Capitol Care
27
<PAGE>
Management Company, Inc. ("Capitol Care") since October 1990. Capitol Care is
a wholly-owned subsidiary of Retirement Care Associates, Inc. Mr. Brogdon has
been involved in financing and operating long-term care facilities and
assisted living/independent living communities since 1982. From 1969 until
1982, Mr. Brogdon was employed in the securities business as a retail
salesman. Mr. Brogdon attended Georgia State University in Atlanta, Georgia.
Since March 1987, Mr. Brogdon has been Secretary/Treasurer of Winter Haven
Homes, Inc. ("WHH") and since August 1990, he has been Secretary/Treasurer of
National Assistance Bureau, Inc. ("NAB"). Both WHH and NAB are engaged in the
business of owning and operating long-term care facilities and assisted
living/independent living communities. Mr. Brogdon also serves as a Director
of Contour Medical, Inc., a publicly-held company, of which Retirement Care
Associates, Inc. is a majority shareholder, and In-House Rehab, Inc., a
publicly-held company of which Retirement Care Associates, Inc. is a minority
shareholder.
TIMOTHY BEAULIEU has served as Executive Vice President of the Company
in charge of all long-term care facilities since July 1997. Mr. Beaulieu was
previously employed by Life Care Centers of America for 14 years and was Chief
Operating Officer from 1994 to May 1997. As Chief Operating Officer, he was
responsible for the operations of approximately 210 long-term care facilities
and 15 assisted living/independent living/assisted living properties. He also
had direct responsibility for marketing, human resources, professional
development, and clinical services support. Mr. Beaulieu was Senior Vice
President of Support Services from 1993 to 1994 and was responsible for the
creation of ancillary companies with the purpose of providing services to Life
Care's facilities in the area of pharmacy, rehab, home health, enteral and
parenteral therapy, etc. He also had oversight of the Associate Benefit Trust
Program, a self-insured group insurance program with approximately 3,500
enrollees with in excess of $8 million in annual premiums. From 1992 to 1993,
he was Eastern Division Vice President and coordinated the operating
activities in 38 facilities on the East Coast from Massachusetts to Florida.
From 1988 to 1992, he was Regional Vice President and was responsible for the
operation of facilities in Florida, Georgia and Tennessee. From 1985 to 1988,
he was acquisition specialist for Life Care Affiliates, a subsidiary of Life
Care. During this time, he was responsible for the generation of leads for
the acquisition of long-term care centers, certificates of need, and
management agreements. From 1984 to 1985, he was an Administrator for Life
Care, opening a new 80-bed long-term care facility and operating a 120-bed
facility. Mr. Beaulieu received his Bachelor of Science degree in Business
Administration, as well as his Associate of Science degree in Health Care
Administration from Southern College of Seventh Day Adventist.
JAMES H. SANREGRET has served as Chief Financial Officer of the Company
since June 1997. Mr. Sanregret was previously employed by Delta Air Lines
for 24 years. He was Treasurer of Delta from 1992 to May 1997. As Treasurer
he was responsible for all Corporate Finance, Tax and Corporate Insurance
activities on a global basis for the $12 billion airline. He was Assistant
Vice President of Financial Planning in 1992 and was responsible for analyzing
the economics of all proposed spending activities, preparation of projected
income statement for quarterly Board of Directors meetings, and the
development of expense levels and capital outlays for all major corporate
acquisitions/mergers. From 1985 to 1992, he was the Director of Financial
Planning. He coordinated all financial activities related to the acquisition
of Western Airlines. He functioned as Manager of Financial Planning from 1981
to 1985, Analyst of Financial Planning from 1974 to 1981, and Accountant of
Property Accounting from 1973 to 1974. Mr. Sanregret received a Bachelor of
Business Administration from the University of Wisconsin in 1972.
28
<PAGE>
FRANK CAMMA has served as Vice President of Strategic Planning of the
Company since July 1997. Mr. Camma began his career in the healthcare
industry in 1990, when he served as an accountant in the Contract Services
division of NovaCare Incorporated, a rehabilitation services company until
1992. From June 1992 to October 1993, he served as a Financial Analyst at
First Fidelity Bank Corporation. He completed the Professional Banker
training program and returned to NovaCare Incorporated as a Financial Analyst
in the Corporate Finance department. In this capacity he was responsible for
the annual budget as well as weekly operating reports. From September 1994 to
August 1996, he served as a Senior Financial Analyst at Acquisition Management
Services. Acquisition Management Services is a captive investment banking
boutique for Foster Management Company, a $250 million venture capital firm
specializing in the consolidation of niche healthcare businesses. He was
responsible for valuing, performing due diligence and negotiating potential
transactions. His primary client was NovaCare Incorporated. From August 1996
to March 1997, he served as an Associate with the investment banking firm of
NatWest Markets. Mr. Camma graduated summa cum laude from Villanova
University with a Bachelors Degree in Business Administration in 1992.
ARTHUR DOLORESCO has served as President of NewCare Hospital Corporation
since August 1997. Mr. Doloresco has served in various leadership positions
in the healthcare industry for the past 20 years. Working with both 501(c)3
and investor-owned facilities, he served from May 1996 to July 1997 as the
President of the Kentucky Division for Columbia/HCA. His responsibilities
included all operations in Kentucky, including 13 hospitals, home health
agencies, and surgery centers, which accounted for over $680 million in net
revenues. Prior to joining Columbia/HCA, he served as a Regional Vice
President for Champion Healthcare Corporation from December 1994 to May 1996
in Houston, Texas, where he was responsible for half of that company's
operations. He has served as the President and Chief Executive Officer of
various hospitals, including an urban teaching facility with over 500 beds.
Mr. Doloresco received his Masters Degree in Health Administration from the
Medical College of Virginia in 1979 and a Bachelor of Science Degree in
Business Administration from Old Dominion University in Norfolk, Virginia in
1975.
DR. KISHOR KARIA has served as a director of the Company since July,
1995. Dr. Karia is an internal medicine physician specializing in Hematology
Oncology and has been practicing in South Florida since 1982. Dr. Karia was a
limited partner in several Florida long-term care facilities operated by the
Company until 1993 when he exchanged his ownership interest in the long-term
care facilities with NewCare, Inc.
HARLAN MATHEWS has been a Director of the Company since February 1997.
Since 1994 he has been a partner in the law firm of Farris, Mathews, Branan &
Hellen, P.L.C., in Nashville, Tennessee. From 1993 to 1994, he served as a
United States Senator from the State of Tennessee. From 1987 to 1993, he was
Deputy to the Governor of Tennessee and Cabinet Secretary. From 1974 to 1987,
Mr. Mathews was Treasurer of the State of Tennessee. He received a Bachelor's
Degree in Business from Jacksonville State University in Alabama in 1949 and a
Master's Degree in Public Administration from Vanderbilt University in 1950.
Mr. Mathews received a law degree from the Nashville School of Law in 1962.
Mr. Mathews currently serves as a Director of Assisted living/independent
living Care Associates, Inc., a publicly-held company based in Atlanta,
Georgia, and Murray Guard, Inc., a publicly-held company based in Jackson,
Tennessee.
DR. DHIRAJ PATEL has served as a Director of the Company since January
1997. Dr. Patel has been a practicing physician in Hollywood, Florida for the
past 14 years. Dr. Patel was a limited partner in several Florida long-term
care
29
<PAGE>
facilities operated by the Company until 1993, when he exchanged his ownership
interest in the long-term care facilities with NewCare Inc.
WILLIAM McBRIDE, III, has served as a Director of the Company since
September 1997. Mr. McBride is Chairman and Chief Executive Officer of
Assisted Living Concepts, which he co-founded and has been a Director since
its formation. Until September 1997, Mr. McBride was President and Chief
Operating Officer of LTC Properties, Inc. ("LTC"), healthcare real estate
investment trust. LTC specializes in the long-term care industry which was
co-founded by Mr. McBride in 1992. Prior to founding LTC, Mr. McBride was
employed from April 1988 to July 1992 by Beverly Enterprises, Inc., an owner
and operator of long-term care facilities, assisted living/independent living
living facilities and pharmacies where he served as Vice President, Controller
and Chief Accounting Officer. From 1982 to 1988, Mr. McBride was employed by
the public accounting firm of Ernst & Young. Mr. McBride serves as a member
of the Board of Directors of LTC and Malan Realty Investors, Inc.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, no persons who were either a
director, officer or beneficial owner of more than 10% of the Company's Common
Stock, failed to file on a timely basis reports required by Section 16(a) of
the Exchange Act during the most recent fiscal year, except as follows:
Chris Brogdon, Harlan Mathews, Arthur Doloresco, Frank Camma and William
McBride, III, each filed Form 3's late; Chris Brogdon filed two Form 4's late,
reporting a total of 13 transactions late by amending a Form 4 filing; and
James H. Sanregret, Dr. Kishor Karia and Dr. Dhiraj Patel each filed one Form
4 late reporting one transaction.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information regarding the executive
compensation for the Company's President for the years ended December 31,
1997, 1996 and 1995 from the Company and its subsidiaries. No other
executive officer received compensation in excess of $100,000 during these
periods.
30
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------ --------------------------
SECURITIES
UNDERLY-
OTHER RE- ING
ALL
ANNUAL STRICTED OPTIONS/
OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP
COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER) PAYOUTS
SATION
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Ashok Dalal, 1997 $24,167 -0- -0- -0- 225,000 -0-
- -0-
President<FN1>
Arthur Doloresco, 1997 $121,875 $10,000 135,000 -0- 50,000 -0-
$4,884
President of <FN3> <FN4>
<FN5>
Subsidiary<FN2>
Robert Bell, Sr., 1996 $96,000 -0- -0- -- -- --
- -0-
President<FN6> 1995 $96,000 -0- -0- -- -- --
- -0-
- -----------------
<FN>
<FN1>
Mr. Dalal became President on January 3, 1997.
<FN2>
Mr. Doloresco became President of the Company's 1997 NewCare Hospital
Subsidiary on during
August 1997.
<FN3>
Includes $26,500 paid for Mr. Doloresco's moving expenses and $108,600 which
represents
the net cost to the Company of purchasing his former residence from him and
reselling it.
<FN4>
Does not include the value of restricted stock of NewCare Hospital
Corporation, a
majority-owned subsidiary of the Company, issued to Mr. Doloresco pursuant to
his
employment agreement. Please see the description of that agreement under the
heading
"EMPLOYMENT AGREEMENTS" below.
<FN5>
Represents amounts paid for a term life insurance policy provided for the
benefit of Mr.
Doloresco.
<FN6>
Mr. Bell resigned as President on January 3, 1997.
</FN>
</TABLE>
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
POTENTIAL
REALIZABLE
PERCENT VALUE AT
ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES
SECURITIES OPTIONS/SARs EXERCISE OF STOCK PRICE
UNDERLYING GRANTED TO OR BASE APPRECIATION
OPTIONS/SARs EMPLOYEES IN PRICE EXPIRATION FOR OPTION TERM
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---------------- ------------ ------------ ------- ----------- --------
- --------
<S> <C> <C> <C> <C> <C> <C>
Ashok Dalal 175,000 38.9% $2.25 2-25-2002 $108,786
$240,388
Arthur Doloresco 50,000 11.1% $4.85 8-18-2002 $ 66,998
$148,049
</TABLE>
31
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
SECURITIES
UNDERLYING VALUE OF UNEXER-
SHARES UNEXERCISED CISED IN-THE
ACQUIRED OPTIONS MONEY OPTIONS/
ON SARs AT FY-END SARs AT FY-END
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE
- ---------------- -------- -------- -------------- ---------------
Ashok Dalal -0- -0- 225,000/0 $295,312/$0
Arthur Doloresco -0- -0- 0/50,000 $ 0/$0
Except for the Company's 1997 Stock Option Plan described below, the
only benefit plan offered at the present involves a major medical plan, which
is made available to all full-time employees on a non-discriminatory basis.
Members of the Board of Directors receive a fee of $500 per meeting
attended. They are also entitled to reimbursement of reasonable expenses
incurred by them in attending board meetings.
EMPLOYMENT AGREEMENTS
Effective June 2, 1997, the Company entered into a three-year employment
agreement with James H. Sanregret, Chief Financial Officer of the Company.
Under this agreement, Mr. Sanregret will receive an annual salary of $144,000
during the first year of the agreement, $184,000 during the second year and
$224,000 during the third year. He also received stock options to purchase
50,000 shares of the Company's Common Stock. The Company is also to provide a
$500,000 term life insurance policy for his benefit and pay him a $700 per
month car allowance. Mr. Sanregret has agreed to keep certain information
confidential and that for a period of two years following the termination of
his employment agreement he will not serve in an executive capacity for any
business which is engaged in a similar business to the Company in its region
without the Company's consent.
Effective July 8, 1997, the Company entered into a three-year employment
agreement with Timothy J. Beaulieu, Vice President of the Company in charge of
all long-term care facility operations. Under this agreement, Mr. Beaulieu
will receive an annual salary of $175,000 during the first year of the
agreement, $200,000 during the second year and $225,000 during the third year.
He also received stock options to purchase 75,000 shares of the Company's
Common Stock in connection with the agreement, and he will be entitled to
receive additional stock options to purchase 50,000 shares of Common Stock on
each anniversary of the agreement at the then current price. The agreement
may be terminated by the Company without notice and without cause. In the
event that the Company terminates the agreement due to Mr. Beaulieu's
disability, he will continue to receive his salary for a period of one year
following termination. Mr. Beaulieu has agreed to keep certain information
confidential and that for a period of one year following the termination of
his employment he will not serve in an executive capacity for any business
which is engaged in a similar business to the Company in its region without
the Company's consent.
Effective August 1, 1997, the Company entered into a three-year
employment agreement with Arthur Doloresco, President of the Company's NewCare
Hospital Corporation ("NCHC") subsidiary. Under this agreement, Mr. Doloresco
will receive an annual salary of $325,000 during the first year of the
agreement, $350,000 during the second year, and $375,000 during the third
year. Mr.
32
<PAGE>
Doloresco is also entitled to an annual bonus of $200,000 for any calendar
year in which NCHC's earnings before interest, taxes, depreciation,
amortization and rent ("EBITDAR") exceeds 20% of net revenues; $275,000 if
EBITDAR exceeds 25% of net revenues; and $350,000 if EBITDAR exceeds 30% of
net revenues. He also received stock options to purchase 50,000 shares of the
Company's Common Stock in connection with the agreement. The Company has
also agreed to provide Mr. Doloresco a $1,000,000 term life insurance policy
for his benefit. The Company also purchased his residence in Houston, Texas
and paid for his moving expenses to Atlanta, Georgia. Mr. Doloresco also
received five shares of the Common Stock of the Company's NewCare Hospital
Corporation subsidiary ("NCHC"), which represents 5% of NCHC's outstanding
Common Stock. The shares of NCHC's stock will vest one share at the end of
each year of his employment, except that if Mr. Doloresco's employment ends on
July 31, 2000, all of the shares will then be vested. The entire five shares
will vest immediately in the event of a termination of Mr. Doloresco's
employment by the Company without cause or by Mr. Doloresco with cause, or in
the event of a merger or combination where NCHC is not the surviving entity,
or its board of directors does not control the surviving entity. The
agreement may be terminated immediately by the Company with or without cause.
Mr. Doloresco may terminate the agreement immediately for cause or on twelve
months notice without cause. In the event of termination by the Company
without cause or by Mr. Doloresco with cause, Mr. Doloresco will be entitled
to twelve months severance pay. The Company and Mr. Doloresco have agreed to
negotiate in good faith to review or extend the term of the agreement not less
than 180 days prior to the end of the term, and if no agreement is reached,
Mr. Doloresco will be entitled to up to six months base salary following
termination of his employment. Mr. Doloresco has agreed to keep certain
information confidential and that for a period of two years following the
termination of his employment he will not serve in an executive capacity for
any business which is engaged in a similar business to the Company in its
region without the Company's consent.
1997 STOCK OPTION PLAN
In April 1997, the Company's Board of Directors approved the
establishment of a Stock Option Plan (the "1997 Plan") subject to approval of
the Company's shareholders. The Board of Directors believes that the 1997
Plan will advance the interests of the Company by encouraging and providing
for the acquisition of an equity interest in the success of the Company by
employees, officers, directors and consultants, and by providing additional
incentives and motivation toward superior Company performance. The Board
believes it also will enable the Company to attract and retain the services of
employees, officers, directors and consultants, and by providing additional
incentives and motivation toward superior Company performance. The Board
believes it also will enable the Company to attract and retain the services of
employees, officers, directors and consultants upon whose judgment, interest
and special effort the successful conduct of its operations is largely
dependent.
The 1997 Plan allows the Board to grant stock options from time to time
to employees, officers and directors of the Company and consultants to the
Company. The Board has the power to determine at the time the option is
granted whether the option will be an Incentive Stock Option (an option which
qualifies under Section 422 of the Internal Revenue Code of 1986) or an option
which is not an Incentive Stock Option. However, Incentive Stock Options will
only be granted to persons who are employees of the Company. Vesting
provisions are determined by the Board at the time options are granted. The
total number of shares of Common Stock subject to options under the 1997 Plan
may not exceed 2,000,000, subject to adjustment in the event of certain
recapitalizations, reorganizations and similar transactions. The option price
may be satisfied by the payment of
33
<PAGE>
cash, or where approved by the Board of Directors, in its sole discretion and
where permitted by law: (a) by cancellation of indebtedness of the Company to
the holder; (b) by surrender of shares of Common Stock of the Company having a
Fair Market Value equal to the exercise price of the option that have been
owned by holder for more than six months, or were obtained by the holder in
the open public market; (c) by waiver of compensation due or accrued to the
holder for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the holder
and a broker-dealer whereby the holder irrevocably elects to exercise the
option and to sell a portion of the shares so purchased to pay for the
exercise price and the broker-dealer irrevocably commits upon receipt of such
shares to forward the exercise price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the holder and a broker-dealer whereby the holder irrevocably
elects to exercise the option and to pledge the shares so purchased to the
broker-dealer in a margin account, and the broker-dealer irrevocably commits
upon receipt of such shares to forward the exercise price directly to the
Company; or (f) by any combination of the foregoing.
The Board of Directors may amend the 1997 Plan at any time, provided
that the Board may not amend the 1997 Plan to materially increase the number
of shares available under the 1997 Plan, materially increase the benefits
accruing to Participants under the 1997 Plan, or materially change the
eligible class of employees without shareholder approval.
To date, stock options have been granted under the 1997 Plan to four
employees to purchase an aggregate of 215,000 shares of Common Stock at prices
ranging from $2.25 to $4.85 per share, contingent on shareholder approval of
the 1997 Plan. Of these, options to purchase 50,000 shares at $2.25 per share
were granted to Frank Camma, Vice President of Strategic Planning of the
Company; options to purchase 50,000 shares at $4.85 per share were granted to
Arthur Doloresco, President of the Company's NewCare Hospital Corporation
subsidiary; and options to purchase 25,000 shares at $4.50 per share were
granted to Timothy Beaulieu, Executive Vice President.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 1, 1998, the shares of the
Common Stock beneficially owned by each person who is the beneficial owner of
more than five percent (5%) of the Company's shares, each of the Company's
Directors and Executive Officers and by all of the Company's Directors and
Executive Officers as a group. Each person has sole voting and investment
power with respect to the shares shown, except as noted.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT OF BENEFICIAL PERCENTAGE
OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ----------------------------- -------------------- ----------
<S> <C> <C>
Ashok Dalal 1,156,469<FN1> 9.4%
3703 Bridge Road
Cooper City, FL 33026
Dr. Kishor Karia 901,138<FN2> 7.5%
11001 Pines Blvd., Suite 106
Pembroke Pines, FL 33024
Dr. Dhiraj Patel 907,888<FN3> 7.5%
11801 N. Island Road
Cooper City, FL 33026 34
<PAGE>
Chris Brogdon 2,280,615<FN4> 18.4%
6000 Lake Forrest Drive, Suite 200
Atlanta, GA 30328
Harlan Mathews 0 -0-
420 Hunt Club Road
Nashville, TN 37221
William McBride, III 50,000 0.4%
1647 Logan Creek Drive
Glenbrook, NV 89413
Timothy Beaulieu 125,000<FN5> 1.0%
6000 Lake Forrest Drive, #315
Atlanta, GA 30328
James H. Sanregret 90,000<FN6> 0.7%
6000 Lake Forrest Drive, #315
Atlanta, GA 30328
Frank Camma 85,001<FN7> 0.7%
6000 Lake Forrest Drive, #315
Atlanta, GA 30328
Arthur Doloresco 50,000<FN8> 0.4%
6000 Lake Forrest Drive, #315
Atlanta, GA 30328
Veena Holdings, Ltd.<FN9> 901,138 7.5%
1101 Pines Blvd., Suite 106
Pembroke Pines, FL 33024
Daksha Vakharia Revocable Trust 598,000 5.0%
3365 Bridle Path Lane
Fort Lauderdale, FL 33331
Pro Futures Bridge Capital Fund, 1,000,002<FN10> 8.1%
L.P.
5350 S. Roslyn Street, Suite 350
Englewood, CO 80111
Renaissance Capital Group, Inc. 1,512,336<FN11> 11.1%
Suite 210-LB59
8080 North Central Expressway
Dallas, TX 75206
All Directors and Executive 5,646,111 43.6%
Officers as a Group (10 Persons)
- -------------------
<FN>
<FN1>
Includes 900,000 shares held directly; an aggregate of 31,469 shares held of
record by certain family members of Mr. Dalal; and 225,000 shares underlying
stock options held by Mr. Dalal.
<FN2>
Represents shares held by Veena Holdings, Ltd., a partnership owned by Dr.
Karia and his family.
35
<PAGE>
<FN3>
Includes 801,138 shares held in the name of Dr. Patel's wife, Pravinagauri
Patel; 26,750 shares held in the Karia & Patel Stirling Health Center Annuity
Plan for the benefit of Dr. Patel; and 80,000 shares held jointly by Dr. Patel
and his wife.
<FN4>
Includes 710,978 shares owned by Mr. Brogdon; 397,600 shares owned by Mr.
Brogdon's wife, Connie Brogdon; 209,537 shares of Common Stock which
represents 50% of the shares held by Winter Haven Homes, Inc., of which Connie
Brogdon is a 50% owner; 22,000 shares held by trusts of which Connie Brogdon
is the beneficial owner; 30,000 shares held by Assisted living/independent
living Care Associates, Inc., of which Mr. Brogdon is President, Director and
a principal shareholder of which Mr. Brogdon disclaims beneficial ownership;
375,000 shares underlying currently exercisable stock options held by Mr.
Brogdon; and 535,500 shares underlying options Mr. Brogdon holds to purchase
stock from another shareholder.
<FN5>
Includes 50,000 shares owned by Mr. Beaulieu and 75,000 shares underlying
stock options held by him.
<FN6>
Includes 40,000 shares owned by Mr. Sanregret and 50,000 shares underlying
stock options held by him.
<FN7>
Includes 10,001 shares owned by Mr. Camma and 75,000 shares underlying stock
options held by him.
<FN8>
Represents 50,000 shares underlying stock options held by Mr. Doloresco.
<FN9>
The shareholders of Veena Holdings, Ltd. are Dr. Kishor Karia, Veena Karia,
Ojus Karia and Tajus Karia.
<FN10>
Includes 666,668 shares held directly and 333,334 shares underlying warrants
held by Pro Futures Bridge Capital Fund, L.P.
<FN11>
Includes 200,000 shares underlying stock options held by Renaissance Capital,
Group, and 1,312,336 shares issuable upon the conversion of Convertible
Debentures held by two entities controlled by Renaissance Capital Group, Inc.
The number of shares issuable upon the conversion of the Convertible
Debentures may be increased in April or May 1998 as a result of an adjustment
to the conversion price based on the weighted average closing price of the
Company's Common Stock for the 21 consecutive trading days following the
announcement of the financial results for the year ended December 31, 1997.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
RESIGNATION OF ROBERT W. BELL, SR.
During January 1997, Robert W. Bell, Sr., the Company's Chairman and
President, resigned from all of his positions with the Company. In connection
with his resignation, the Company purchased from him and members of his family
a total of 869,978 shares of the Company's common stock for a price of $1.20
per share, or a total consideration of $1,043,973.60. These shares were then
resold to Chris Brogdon and his designees. (See "Letter of Understanding with
Chris Brogdon", below.)
36
<PAGE>
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 Mathews 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 Mathews currently
serves as a director of RCA.
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.
Pursuant to the Letter, Chris Brogdon and his designees purchased from
the Company, for a price of $1.20 per share, the 869,978 restricted shares of
the Company's common stock which the Company purchased from Robert W. Bell,
Sr. and members of his family.
The Letter further provides and contemplates that Chris Brogdon and his
designees will purchase from the Company 1,200,000 shares of common stock for
a price of $1.50 per share, contingent upon the Company receiving these shares
from the Carroll Group. (See "Item 3" above.)
The Letter further provided that the Company was to 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 were 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 for any 30 consecutive days during the 12
month period following Mr. Brogdon's election as Chief Executive Officer, all
unexercised options will be canceled.
LOANS TO PURCHASE STOCK
In June 1997, the Company loaned an aggregate of $990,000 to five
individuals to allow them to purchase shares of the Company's Common Stock
from Matthew Carroll and certain other shareholders. The loans are due on
June 30, 1998, and bear interest at 10% per annum. Included in these loans
are loans to Chris Brogdon, Chairman of the Board and a principal shareholder
of the Company, in the principal amount of $487,500, and to Timothy Beaulieu,
Executive Vice President of the Company, in the principal amount of $75,000.
In addition, the Company made loans to the following persons who are employed
by Retirement Care Associates, Inc. in the principal amounts shown: Edward E.
Lane - $277,500; Philip Rees - $75,000; and Robert Lancaster - $75,000.
AGREEMENTS WITH RENAISSANCE SENIOR LIVING, INC.
On February 17, 1997, the Company entered into a Management Agreement
with Renaissance Senior Living, Inc. ("Renaissance"), pursuant to which
Renaissance agreed to manage all of the Company's long-term care facilities
and assisted living/independent living facilities. Renaissance was to be paid
a monthly fee for each facility equal to 25% of the increase in profit (a
decrease in loss) at the facility as compared to the profit (or loss) at the
facility as of December 31, 1996, but the fee was not to exceed 6% of the
gross operating revenues of the facility for that month. The agreement
terminated on December 31, 1997, and this arrangement ended. During the year
ended December 31, 1997, Renaissance earned no fees under this agreement
because none of the facilities had the requisite
37
<PAGE>
improvement. Renaissance is owned by Chris Brogdon (20%), Edward E. Lane
(20%), Darrell Tucker (17%) and other officers and employees of Assisted
living/independent living Care Associates, Inc. Chris Brogdon, a director of
the Company, is also a director of Renaissance.
In December 1997, Renaissance formed Conyers Assisted living/independent
living, L.P., a Georgia limited partnership for the purpose of constructing a
senior living community on a 10 acre tract of raw land in Conyers, Georgia.
Renaissance serves as General Partner of the partnership and holds 99% of the
interest in the partnership, and the Company is the sole limited partner and
holds 1% of the interest in the partnership for which it contributed $1.00.
Since the formation of the partnership, the Company has also contributed
approximately $300,000 and guaranteed $9 million in the Development Authority
of Rockdale County First Mortgage Revenue Bonds (Conyers Assisted
living/independent living, L.P. Project), the net proceeds of which were
loaned to the partnership to finance the construction of a 132 unit senior
living community on the site. The Company has agreed to enter into an
agreement to manage the facility for which it will receive a fee of 5% of the
facility's gross revenues. As part of the management agreement the Company
will agree to make non-interest bearing advances to Conyers Assisted
living/independent living, L.P. to the extent that revenues generated by the
facility are not sufficient to pay its current expenses and required principal
and interest under the bonds. The facility is expected to be completed in the
Fall of 1998.
TRANSACTIONS WITH KAREN HAGAN
The Company leased office space from Cimerron Properties, Inc., a
company owned by Karen Hagan, a principal shareholder of the Company, under an
operating lease that was to expire on December 31, 1999. Annual rental
payments under the lease were approximately $45,600. Pursuant to a settlement
agreement with Karen Hagan and others, effective April 15, 1997, this lease
was terminated early in exchange for a cash payment of $65,000.
In September 1995, the Company exercised an option to purchase the Emory
Nursing Center in exchange for $300,000 in cash and the assumption of
approximately $500,000 in debt. The $300,000 was raised by borrowing the
money from Karen Hagan. The $300,000 loan bears interest at 10% and is
payable in monthly payments of interest only through September 15, 1998, when
all principal and any accrued interest is due. The $500,000 note payable
matured in February 1996, and was refinanced with a loan from Assisted
living/independent living Care Associates, Inc. bearing interest at 9%.
Accrued interest and principal were due in February 1997. This note has been
converted to a demand note. Two of the Company's directors are also directors
of Retirement Care Associates, Inc.
In October 1995, the Company borrowed $600,000 from Karen Hagan to
purchase Suncoast Nursing Home. The promissory note bears interest at 10% per
annum and is payable interest only until April 15, 1998, when it is due. The
note is secured by a mortgage on Suncoast Nursing Home.
In August 1995, the Company borrowed $225,000 from Karen Hagan to
purchase real estate adjacent to the Emory Nursing Center. Thirty thousand
dollars ($30,000) was repaid during January 1997. A $195,000 note bears
interest at 10% and is payable in monthly installments of interest only
through August 1998, when all principal and any accrued interest is due. The
note is collateralized by the real estate.
38
<PAGE>
In July 1996, the Company borrowed $80,000 from Karen Hagan to pay
outstanding payroll taxes. The note bore interest at 12% and was payable in
twelve monthly installments of $7,467 with the final payment due July 1, 1997.
The note was repaid as scheduled.
SETTLEMENT WITH ROBERT HAGAN AND KAREN HAGAN
Effective April 15, 1997, the Company entered into and closed a
Settlement Agreement with Karen and Robert Hagan (the "Hagans") and Chris
Brogdon ("Brogdon"). This agreement provides for, among other things, the
following:
1. At the closing, the Company paid Robert Hagan $150,000 for the
termination of his employment agreement dated May 22, 1995.
2. At the closing, the Company paid Cimerron Properties, Inc., a
company owned by the Hagans, $65,000 for termination of a commercial real
estate lease for office space occupied by the Company in Roswell, Georgia,
which was scheduled to terminate on December 31, 1997.
3. Brogdon will purchase a total of 714,000 shares from Karen Hagan
over a two year period commencing April 15, 1997. The transaction is
structured such that Karen Hagan will sell to Brogdon four options for 178,500
shares each. The options will be exercisable in six month intervals at an
exercise price of $3.00 per share, with the first option exercisable at any
time on or before October 15, 1997. Brogdon must pay $21,420 for the first
option (which expires October 15, 1997); $42,820 for the second option;
$64,260 for the third option; and $85,860 for the fourth option. The purchase
price for each option will be payable in monthly installments of $3,570 each
beginning on May 15, 1997, and continuing monthly thereafter until such time
as the option has been exercised by Brogdon or until it lapses.
Brogdon has also granted to Karen Hagan four put options which
essentially provide that during the 10 day periods following each of the four
option periods Karen Hagan can force Brogdon to purchase any shares that he
doesn't purchase under the prior six month option. The purchase price for the
put options is $2.95 per share.
4. At the closing, the Company delivered to the Hagans title to a
1994 Ford Ranger pickup.
5. At the closing, Robert Hagan, Karen Hagan and Richard Vanderberg
tendered his or her resignation as an officer and/or director of the Company
and any of its subsidiaries.
6. The Company agreed to continue to employ Richard Vanderberg
according to his employment agreement as the Chief Financial Officer of
Cimerron Health Care, Inc., until October 1, 1997. At that time, the Company
paid Vanderberg $116,250 to terminate his employment agreement which otherwise
would have continued until May 22, 2000.
On April 15, 1997, Robert Hagan and Chris Brogdon were both directors of
the Company, and Robert Hagan was a principal shareholder by virtue of the
714,287 shares owned by his wife. Robert Hagan resigned as a director
effective on April 15, 1997.
LOAN FROM RETIREMENT CARE ASSOCIATES, INC.
During February 1996, Retirement Care Associates, Inc. ("RCA") loaned
the Company $500,000 pursuant to a one-year promissory note with 9% interest
secured
39
<PAGE>
by an interest in the Emory Nursing facility. The note was converted to a
30-day demand note with interest payable monthly and was paid in full during
August 1997. Chris Brogdon and Harlan Mathews, directors of the Company, are
also directors of RCA, and Chris Brogdon is President and a principal
shareholder of RCA.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K .
(a) 1. The following financial statements are filed herewith:
Page(s)
Independent Auditors' Report F-1
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets F-3 - F-4
Consolidated Statements of Operations F-5 - F-6
Consolidated Statements of Changes in Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-8 - F-9
Notes to Consolidated Financial Statements F-10- F-33
2. No financial statement schedules are required to be filed.
3. The following exhibits are filed herewith:
EXHIBIT
NUMBER DESCRIPTION LOCATION
10.4 Settlement Agreement among Incorporated by reference to
Karen Hagan, Robert Hagan, Exhibit 10 to the Company's
Christopher F. Brogdon and Report on Form 8-K dated
the Company dated April April 15, 1997
15, 1997
10.5 Asset Purchase Agreement Incorporated by reference to
with Meadowbrook Neuro- Exhibit 10.1 to the Company's
care-Kansas city, Inc. Report on Form 8-K dated
August 1, 1997
10.6 Agreement of Sale (Real Incorporated by reference to
Estate) Exhibit 10.2 to the Company's
Report on Form 8-K dated
August 1, 1997
10.7 Second Bridge Note and Incorporated by reference to
Security Agreement and Exhibit 10.3 to the Company's
Mortgage, Assignment, Report on Form 8-K dated
of Leases and Rents, August 1, 1997
Security Agreement and
Fixtures Filing
40
<PAGE>
10.8 Management Agreement with Incorporated by reference to
Tri-City Hospital Centre, Exhibit 10.1 to the Company's
Inc. Report on Form 8-K dated
September 30, 1997, concerning
Tri-City Hospital
10.9 Option Agreement Tri-City Incorporated by reference to
Hospital Centre, Inc. Exhibit 10.2 to the Company's
Report on Form 8-K dated
September 30, 1997, concerning
Tri-City Hospital
10.10 Management Agreement with Incorporated by reference to
Princeton Hospital, Inc. Exhibit 10.1 to the Company's
Report on Form 8-K dated
September 30, 1997, concerning
Princeton Hospital
10.11 Option Agreement Prince- Incorporated by reference to
ton Hospital, Inc. Exhibit 10.2 to the Company's
Report on Form 8-K dated
September 30, 1997, concerning
Princeton Hospital
10.12 Stock Purchase Agreement Incorporated by reference to
with Wakulla Manor, Inc. Exhibit 10.1 to the Company's
et al., and First Amend- Report on Form 8-K dated
ment to Stock Purchase September 16, 1997
Agreement
10.13 Loan Agreement and Prom- Incorporated by reference to
issory Note Secured by Exhibit 10.2 to the Company's
Mortgage Report on Form 8-K dated
September 16, 1997
10.14 Employment Agreement Filed herewith electronically
with Timothy Beaulieu
10.15 Employment Agreement Filed herewith electronically
with James H. Sanregret
10.16 Employment Agreement Filed herewith electronically
with Arthur Doloresco
10.17 1997 Stock Option Plan Filed herewith electronically
10.18 Convertible Loan Agree- Filed herewith electronically
ment among the Company
and Renaissance Capital
Growth & Income Fund
III, Inc., et al. and
Convertible Debentures
10.19 Loan Agreement with Filed herewith electronically
Nationwide Health Prop-
erties, Inc. and Secured
Promissory Note
41
<PAGE>
10.20 Loan and Security Agree- Filed herewith electronically
ment with HCFP Funding,
Inc.
10.21 Guarantee Agreement for Filed herewith electronically
Conyers Retirement, L.P.
21 Subsidiaries of the Filed herewith electronically
Registrant
27 Financial Data Schedule Previously filed
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed for events
occurring during the quarter ended December 31, 1997.
42
<PAGE>
LANEY
BOTELER &
KILLINGER
- ----------------------------
Certified Public Accountants
- ----------------------------
INDEPENDENT AUDITORS' REPORT
Board of Directors
NewCare Health Corporation and Subsidiaries
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of NewCare Health
Corporation and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. The consolidated statements
of operations, shareholders' equity and cash flows of NewCare Health
Corporation and Subsidiaries as of December 31, 1995, were audited by other
auditors whose opinion, dated February 27, 1996, expressed an unqualified
opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the 1997 and 1996 consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
NewCare Health Corporation and Subsidiaries as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Laney, Boteler & Killinger
Laney, Boteler & Killinger
Atlanta, Georgia
March 17, 1998
100 Ashford Center North - Sutie 310 - Atlanta, Georgia 30338 - 7790/394-8000
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
NewCare Health Corporation and Subsidiaries
Largo, Florida
We have audited the consolidated statements of operations, changes in
shareholders' equity and cash flows of NewCare Health Corporation and
Subsidiaries for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of NewCare Health Corporation and aubsidiaries for
the year ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Lovelace, Roby & Company, P.A.
Certified Public Accountants
Orlando, Florida
February 27, 1996
F-2
<PAGE>
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
Assets
DECEMBER 31,
-----------------------------
1996 1997
------------- ------------
Current assets
Cash and cash equivalents $ 2,297,599 $ 3,198,700
Accounts receivable, net of allowance for
doubtful accounts of $976,600 and $191,300 4,569,319 1,829,581
Other receivables 160,113 486,682
Notes receivable - related parties 1,039,500 -
Due from related party 1,201,063 92,000
Mortgage notes receivable - 1,852,377
Marketable securities (available for
sale) and other investments 10,083,000 57,993
Restricted investments, current 469,119 -
Inventory 132,680 27,762
Deferred taxes 412,204 -
Prepaid expenses and other current assets 873,130 172,067
------------ ------------
Total current assets 21,237,727 7,717,162
------------ ------------
Property and equipment, net 42,972,686 23,821,561
------------ ------------
Other assets
Deferred loan costs 1,257,427 248,132
Goodwill 1,219,039 319,039
Organizational costs 76,016 76,016
------------ ------------
2,552,482 643,187
Less accumulated amortization 464,733 280,615
------------ ------------
Deferred costs, net 2,087,749 362,572
Deposits 926,511 60,762
Restricted investments, less current
portion 1,543,686 305,044
------------ ------------
Total other assets 4,557,946 728,378
------------ ------------
Total assets $ 68,768,359 $ 32,267,101
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
Liabilities and Shareholders' Equity
DECEMBER 31,
-----------------------------
1996 1997
------------- ------------
Current liabilities
Current maturities of long-term debt $ 1,380,735 $ 16,899,696
Borrowings under line of credit 3,189,755 -
Brokerage investment margin payable 6,740,653 -
Accounts payable 6,163,548 1,143,996
Accrued expenses 3,288,527 2,049,865
Due to related parties 2,776,177 -
Other liabilities - 149,052
------------ ------------
Total current liabilities 23,539,395 20,242,609
------------ ------------
Long-term debt 39,754,836 6,880,805
------------ ------------
Minority interest in subsidiary 13,900 -
------------ ------------
Commitments and contingencies
Shareholders' equity
Common stock, $.02; 50,000,000 shares
authorized; 11,372,524 and 10,667,524
shares issued, respectively 227,350 213,350
Additional paid-in capital 11,579,675 9,055,724
Retained earnings (deficit) (7,174,889) (4,075,387)
Unrealized gain on marketable securities 828,092 -
Treasury stock, at cost - (50,000)
------------ ------------
Total shareholders' equity 5,460,228 5,143,687
------------ ------------
Total liabilities and shareholders'
equity $ 68,768,359 $ 32,267,101
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996, and 1995
1997 1996 1995
----------- ----------- -----------
Revenue
Net patient services revenue $32,359,366 $28,194,431 $23,069,661
Management fees revenue 503,577 - -
Other operating revenue 121,987 489,273 107,244
----------- ----------- -----------
Total operating revenues 32,984,930 28,683,704 23,176,905
Operating expenses
Cost of patient services 24,913,670 20,095,723 18,293,388
Lease expense 771,427 709,542 494,005
Shareholder settlements 485,000 - -
General and administrative 7,367,125 4,614,816 2,033,887
Provision for bad debts 1,194,780 203,937 211,919
Depreciation and amortization 1,196,000 1,076,740 938,946
----------- ----------- -----------
Total operating expenses 35,928,002 26,700,758 21,972,145
----------- ----------- -----------
Operating income (loss) (2,943,072) 1,982,946 1,204,760
----------- ----------- -----------
Other income (expense)
Investment income 794,214 83,828 9,496
Interest expense (3,148,460) (1,912,838) (1,518,910)
----------- ----------- -----------
(2,354,246) (1,829,010) (1,509,414)
Income (loss) before minority
interest, income taxes, dis-
continued operations and extra-
ordinary item (5,297,318) 153,936 (304,654)
Minority interest in subsidiary (13,900) - -
----------- ----------- -----------
Income (loss) before income taxes,
discontinued operations and extra-
ordinary item (5,311,218) 153,936 (304,654)
Income tax benefit (provision) 1,331,865 (54,000) (36,000)
----------- ----------- -----------
Income (loss) before discontinued
operations and extraordinary item (3,979,353) 99,936 (340,654)
Discontinued operations
Income (loss) from discontinued
business segment net of income
tax benefit of $23,000 in 1996 - (970,430) 168,432
Loss on disposal of discontinued
business segment net of income
tax benefit of $31,000 - (1,355,798) -
----------- ----------- -----------
Loss before extraordinary item (3,979,353) (2,226,292) (172,222)
F-5
<PAGE>
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996, and 1995
(Continued)
1997 1996 1995
----------- ----------- -----------
Extraordinary item - Gain on
forgiveness of debt, net of
income tax provision of $473,765 879,851 - -
----------- ----------- -----------
Net loss $(3,099,502) $(2,226,292) $ (172,222)
=========== =========== ===========
Basic and diluted net income
(loss) per common share from:
Income (loss) before extraor-
dinary item and discontinued
operations $ (.37) $ .01 $ (.03)
Discontinued operations $ - $ (.22) $ .01
Extraordinary item $ .08 $ - $ -
Net loss $ (.29) $ (.21) $ (.02)
Weighted average number of common
shares outstanding 10,769,829 10,667,524 10,390,073
=========== =========== ===========
F-6
<PAGE>
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
Years Ended December 31, 1997, 1996, and 1995
<TABLE><CAPTION>
UNREALIZED
COMMON STOCK ADDITIONAL GAIN ON
TOTAL
------------------- PAIT-IN ACCUMULATED MARKETABLE TREASURY
SHAREOLDERS'
SHARES AMOUNT CAPITAL DEFICIT SECURITIES STOCK
EQUITY
---------- -------- ----------- ----------- --------- ---------
- ----------
<C> <S> <S> <S> <S> <S> <S>
<S>
Balance at
December 31,
1994 9,920,488 $198,410 $ 7,247,094 $(1,676,873) $ - $ (50,000)
$5,718,631
Issuance of
common stock
for acquisition
of subsidiary 726,286 14,525 1,801,190 - - -
1,815,715
Other common
stock issuances 20,750 415 7,440 - - -
7,855
Net loss for
1995 - - - (172,222) - -
(172,222)
---------- -------- ----------- ----------- --------- ---------
- ----------
Balance at
December 31,
1995 10,667,524 213,350 9,055,724 (1,849,095) - (50,000)
7,369,979
Net loss for
1996 - - - (2,226,292) - -
(2,226,292)
---------- -------- ----------- ----------- --------- ---------
- ----------
Balance at
December 31,
1996 10,667,524 213,350 9,055,724 (4,075,387) - (50,000)
5,143,687
Purchase of
common stock
from related
party (869,978) - - - -(1,043,974)
(1,043,974)
Issuances of
common stock:
To related
parties 869,978 - - - - 1,043,974
1,043,974
Compensation
for services - - 15,783 - - 50,000
65,783
Other 10,000 200 22,200 - - -
22,400
Private place-
ments 695,000 13,800 2,485,968 - - -
2,499,768
Unrealized gain
on marketable
securities - - - - 828,092 -
828,092
Net loss for
1997 - - - (3,099,502) - -
1,099,502)
---------- -------- ---------- ----------- --------- ---------
- -----------
Balance at
December 31,
1997 11,372,524 $227,350 $11,579,675 $(7,174,889) $ 828,092 $ -
$ 5,460,228
</TABLE>
F-7
<PAGE>
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- -----------
- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss before extraordinary item $ (3,979,353) $(2,226,292) $
(172,222)
Adjustments to reconcile net loss
to net cash provided by operating
activities
Depreciation and amortization 1,196,000 1,554,219 1,494,836
Common stock issued for services 51,449 - 7,855
Provision for bad debts 1,194,780 (707,936) 1,001,448
Gain on sale of investments (177,107) - -
Loss on disposal of business segment - 1,386,798 -
Deferred taxes (1,331,865) - -
Change in minority interest 13,900 - -
Changes in assets and liabilities,
net of effects from business com-
binations
Decrease (increase) in assets
Accounts receivable (3,864,217) 1,612,136
(1,617,140)
Other receivables (160,113) (486,682) -
Inventories (104,918) 181,701 43,475
Other current assets (701,063) 81,142 73,254
Deposits (865,749) - -
Increase (decrease) in liabilities
Accounts payable 4,958,541 (2,090,525) 778,678
Accrued liabilities 1,720,217 157,987 34,284
Other liabilities (149,052) (168,833)
(105,535)
------------ ----------- ----------
Net cash provided by (used
in) operating activities (2,198,550) (706,285) 1,538,933
------------ ----------- ----------
Cash flows from investing activities
Proceeds from sale of property and
equipment - 10,234,655 -
Purchases of property and equipment (14,381,568) (1,085,050)
(564,149)
Payments of deferred costs (1,672,918) (131,950)
(118,120)
Cash paid for acquisitions of
affiliates, net of cash acquired - -
(1,612,200)
Issuance of notes receivable -
related parties (990,000) - -
Collections on advances to related
parties 18,000 - -
Advances to related parties (1,176,563) (18,000) -
Issuance of notes receivable - (1,852,377) -
Collections on notes receivable 1,852,377 - -
Change in restricted investments (1,707,761) - -
Proceeds on sale of investments 5,783,756 - -
Purchase of investments (7,617,015) (57,993) -
------------ ----------- ----------
Net cash provided by (used
in) investing activities (19,891,692) 7,089,285
(2,294,469)
------------ ----------- ----------
</TABLE>
F-8
<PAGE>
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996, and 1995
(Continued)
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- ----------
<S> <C> <C> <C>
Cash flows from financing activities
Proceeds from long-term debt 33,005,196 710,572 2,741,953
Repayment of long-term debt (20,318,489) (2,405,020)
(2,710,935)
Advances from related parties 2,776,177 - -
Repayment of notes payable - (1,525,000) -
Purchase of treasury stock (1,043,974) - -
Proceeds from issuance of common
stock 3,580,476 - -
Net increase (decrease) in
lines of credit 3,189,755 (166,491) -
------------ ----------- ----------
Net cash provided by (used
in) financing activities 21,189,141 (3,385,939) 31,018
------------ ----------- ----------
Net increase (decrease) in cash
and cash equivalents (901,101) 2,997,061
(724,518)
Cash and cash equivalents at
beginning of year 3,198,700 201,639 926,157
------------ ----------- ----------
Cash and cash equivalents at
end of year $ 2,297,599 $ 3,198,700 $ 201,639
============ =========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
NEWCARE HEALTH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION
The financial statements include the accounts of NewCare Health Corporation
and its consolidated subsidiaries (the Company). The Company currently
operates fourteen leased and owned nursing and retirement facilities located
in Georgia, Florida and Texas and one rehabilitative hospital in Kansas. The
company also manages two hospitals located in Florida and Texas for unrelated
third parties. The assets and operations of its medical supply and
pharmaceutical sales and service division, operating through the Company's
Spectrum subsidiary, were sold October 24, 1996 (Note 2).
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the Company and
its wholly-owned subsidiaries, as well as its majority-owned subsidiaries.
All significant intercompany transactions have been eliminated in the
consolidation process.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less.
INVENTORY
Inventories, consisting primarily of health care supplies, are valued at the
lower of cost (first-in, first-out) or market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Maintenance and repairs are
charged to operations and major improvements are capitalized. Upon sale,
retirement or other disposition, the cost and accumulated depreciation are
eliminated from the accounts and any gain or loss is included in operations.
Depreciation is computed using the straight-line method for financial
reporting purposes and accelerated methods for income tax purposes. Estimated
useful lives of the assets range from three to fifteen years for equipment and
thirty to forty years for real estate. Substantially all property and
equipment owned by the Company is held as collateral for the Company's debt
(Note 7).
INVESTMENTS
In accordance with Statements of Financial Accounting Standards No. 115,
marketable securities are classified as held-to-maturity, available-for-sale
or trading based on the intentions and ability of the Company to hold the
investment. All marketable securities held at December 31, 1997, are
classified as available for sale and are carried at fair market value.
Unrealized holding gains and losses for available for sale securities are
recorded as a separate component of shareholders' equity.
F-10
<PAGE>
DEFERRED COSTS
Deferred loan costs, consisting of loan commitment fees and related
expenditures, are amortized over the repayment term of the loan using the
interest method. Organizational costs relate to costs incurred in connection
with the organization of the Company or a subsidiary of the Company and are
amortized on a straight-line basis over five years.
Offering costs directly related to the Company's offerings of its common stock
are offset against the proceeds from the offerings as a charge to additional
paid-in capital, or expensed in the event the related offering is
unsuccessful.
GOODWILL
Goodwill arises in connection with business combinations accounted for as
purchases where the purchase price exceeds the fair value of the net assets of
the acquired businesses. Goodwill is amortized on a straight-line basis over
the periods of expected benefit, generally ten to twenty years. The carrying
value of goodwill is reviewed if the facts and circumstances suggest that it
may be impaired. Any permanent impairment would be recognized by a charge
against earnings. Accumulated amortization of goodwill approximated $162,000
and $135,000 as of December 31, 1997 and 1996, respectively.
RESTRICTED INVESTMENTS
Restricted investments consist of cash, certificates of deposit and U.S.
Treasury bonds whose use is restricted to meet future service requirements.
Current restricted investments include principal and interest bond and note
payable service funds which are used for payment of principal and interest on
or before the dates required by the respective trust indenture. Non-current
restricted investments include debt service reserve funds which are used for
payment of principal and interest when amounts in the principal and interest
funds are insufficient. Non-current restricted investments also include funds
held by the mortgagor of the Fitzgerald HUD Loan for future repair and
replacement of the facility and a certificate of deposit held by a bank in the
amount of $1,159,000 as security for a letter of credit securing the
Nationwide refinancing loan (Note 7). Fair value approximates cost for these
investments at December 31, 1997 and 1996.
ASSESSMENT OF LONG-LIVED ASSETS
The Company periodically reviews the carrying value of its long-lived assets
(primarily property and equipment and intangible assets) whenever events or
circumstances provide evidence that suggests the carrying amount of long-lived
assets may not be recovered. If this review indicates that the long-lived
assets may not be recoverable, the Company reviews the expected undiscounted
future net operating cash flows from its facilities, as well as valuations
obtained in connection with various refinancings. Any impairment of value is
recognized as a charge against earnings in the statement of operations. As of
December 31, 1997, the Company does not believe that there is any indication
that the amortization period of its long-lived assets needs to be adjusted.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences of temporary
differences between the financial reporting bases and the tax bases of the
Company's assets and liabilities. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
F-11
<PAGE>
Income tax expense is the tax payable for the period plus or minus the net
change during the period in deferred tax assets and liabilities.
CREDIT RISK
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of accounts receivable and investments.
Credit risk associated with private pay accounts receivable is mitigated by
the large number of such accounts. Credit risk related to accounts receivable
from the Medicaid and Medicare programs is mitigated by the taxing authority
of the governmental entities funding those programs. Credit risk associated
with the Company's investment in bonds is currently mitigated by the Company's
involvement as the management agent of the hospital whose indebtedness is
related to the bonds.
REVENUE RECOGNITION
Net patient service revenue is reported at the estimated net realizable
amounts receivable from residents, third-party payors and others for services
rendered. Patient service revenue is derived primarily from services to
retirement center residents and nursing home patients. Retirement center
residents typically pay rent in advance of the month for which it is due.
Nursing home patients are predominantly beneficiaries of the Medicare and
Medicaid programs.
The Medicare program reimburses nursing homes on the basis of allowable costs
subject to certain limitations. Payments are received throughout the year at
amounts estimated to approximate costs. Following year end, cost reports are
filed with the Medicare program and final settlements are made. Provisions
for Medicare settlements are provided in the financial statements for the
period the related services are rendered. Differences between the amounts
accrued and final settlements are reported in the year of settlement.
State Medicaid programs pay nursing homes primarily on a per diem basis with
no retroactive settlement. Revenues from services to Medicaid patients are
recorded at payment rates established by the various state programs in the
period services are rendered.
The Company recognized revenue in its Spectrum subsidiary from the sale of
products in the period that the products were shipped to customers. Revenue
from providing health care services is generally recognized in the period that
the services are performed.
There has been, and the Company expects that there will continue to be, a
number of proposals to limit Medicare and Medicaid payments for long-term and
rehabilitative services. The Company cannot predict at this time whether any
of these proposals will be accepted or, if adopted and implemented, what
effect such proposals would have on the Company.
PRODUCT WARRANTIES
While operating the Spectrum division sold in October 1996, the Company
generally would replace or refund the purchase price of products sold if the
customer was not satisfied. Historically, the effect of this policy was not
material to the Company's financial statements and, accordingly, the financial
statements do not include a provision for the effect of product warranty
policies resulting from past sales in the Spectrum subsidiary.
F-12
<PAGE>
NET INCOME (LOSS) PER SHARE
Net earnings (loss) per common share are computed using the weighted average
number of common shares and common equivalent shares outstanding during each
year. Common share equivalents represent shares issuable upon the assumed
exercise of stock options and warrants. The stock options are included in the
computation using the treasury stock method if they would have a dilutive
effect in years where there are earnings. Common share equivalents are not
considered in calculations of per share data when their inclusion would be
anti-dilutive. For purposes of determining diluted earnings (loss) per share,
there were no common stock equivalents at December 31, 1997 and 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the periods reported. Actual results could
differ from those estimates.
STOCK-BASED COMPENSATION
The Financial Accounting Standards Board released SFAS No. 123, "Accounting
for Stock Based Compensation." SFAS No. 123 encourages, but does not require,
companies to recognize compensation expenses based on the fair value of grants
of stock, stock options, and other equity investments to employees. Although
expense recognition for employee stock-based compensation is not mandatory,
SFAS No. 123 requires that companies not adopting must disclose pro-forma net
income and earnings per share. The Company will continue to apply the prior
accounting rules and make pro-forma disclosures.
RECLASSIFICATIONS
Certain 1995 and 1996 amounts have been reclassified to conform with the 1997
presentation.
NOTE 2 - BUSINESS COMBINATIONS, ACQUISITIONS AND DISPOSITIONS
SPECTRUM
During 1994, the Company acquired all of the outstanding common stock of
Spectrum Health Services, Inc. and Spectrum Infusion Services, Inc.
(Spectrum). Spectrum was engaged in the business of selling medical supplies,
pharmaceutical products and services and therapy services to health care
facilities and individuals. The purchase price was $9,581,190, composed of
$1,390,000 in cash, $5,012,190 in notes payable and 1,700,000 shares of the
Company's common stock valued at $3,179,000. The Company's stock given in the
exchange was valued by the Company's Board of Directors at $1.87 per share,
which was the price at which shares were being sold in the concurrent private
placement.
At the acquisition date, Spectrum had net assets with a fair market value of
approximately $2,874,000 resulting in an excess of cost over net assets
acquired of approximately $6,847,000. The Company was amortizing this amount
over forty years using the straight-line method.
On October 24, 1996, the assets of Spectrum were sold. The sale price of
$10,167,000 was comprised of approximately $7,795,000 in cash, assumption of
F-13
<PAGE>
liabilities totaling $1,841,000 and payoff of liabilities and closing costs
totaling $531,000. The 1996 income statement reflects a loss from the sale of
Spectrum of $1,355,798. Basic and diluted income (losses) per share due to
these discontinued operations at December 31, 1996 and 1995 totaled $(.22) and
$.01 per share, respectively.
OTHER
The lease with Bay to Bay Nursing Home expired in June 1996 and was not
renewed. Revenue from this nursing home for the years ended December 31, 1996
and 1995 totaled $20,271 and $161,305, respectively.
In September 1995, the Company acquired, through a lease, the operations of a
100-bed skilled nursing facility located in Tampa, Florida. This facility was
purchased by the Company on May 21, 1997, for $2,753,000 in connection with
the refinancing of debt on four other existing facilities.
In May 1997, the Company entered into a 15 year lease for a 142-bed nursing
facility in Whigham, Georgia.
In August 1997, the Company purchased an 84 bed rehabilitation hospital in
Gardner, Kansas, for $5,000,000. The acquisition was financed with $500,000
in cash and $4,500,000 in new debt.
In September 1997, the Company acquired all of the outstanding stock of a 120
bed nursing facility in Wakulla, Florida, for $1,200,000 plus debt assumption
of $3,200,000. New debt of $4,800,000 was used to purchase the stock, retire
the assumed debt and other liabilities.
In November 1997, the Company acquired all of the outstanding stock of a
corporation which is the sole general partner in a limited partnership which
operates a 120 bed nursing facility in Tyler, Texas, for $575,000, consisting
of $475,000 in cash and a $100,000 note payable. The general partner owns a
combined general and limited partner interest totaling 58.8%.
Total cost for the 1997 acquisitions is $13,128,000, of which $975,000 was
paid in cash and $12,153,000 through issuance of debt.
The Company typically obtains financing in excess of the purchase price paid
for the acquired facilities. The excess funds are used to cover certain
closing costs associated with the transactions with any residual amounts
retained by the Company.
The acquisitions referred to above have been accounted for using the purchase
method of accounting. The operating results of those acquired facilities have
been included in the consolidated statement of operations from the date of
acquisition.
UNAUDITED PRO-FORMA RESULTS OF OPERATIONS
The following table presents unaudited pro-forma results of operations data as
if the acquisitions described above had occurred on January 1, 1996 after
giving effect to certain adjustments and reclassifications, including
additional depreciation expense, increased interest expense on acquisition
related debt, related income tax effects and elimination of intercompany
transactions. The pro-forma amounts are provided for information purposes
only. It is based on historical information and does not necessarily reflect
the actual results that would have occurred, nor is it necessarily indicative
of future results of operations of the combined enterprise.
F-14
<PAGE>
FOR THE YEAR ENDED DECEMBER 31,
(UNAUDITED)
------------------------------
1996 1997
----------- -----------
Net revenues $20,236,000 $20,988,000
Net loss (809,000) (408,000)
Net loss per share (0.07) (0.04)
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable and net patient service revenue include amounts payable by
Medicaid and Medicare programs. These government reimbursement programs
accounted for approximately 87% and 73% of net patient service revenue during
1997 and 1996, respectively.
The Company grants credit without collateral to its patients, most of whom are
local residents of the respective nursing home and retirement facilities and
are insured under third-party payor agreements. The mix of receivables from
patients and third party payors is as follows:
1996 1997
---------- ----------
Medicaid $2,208,011 $1,393,923
Medicare 2,181,035 282,312
Other third party payors 360,038 172,812
Private pay patients 872,732 171,834
---------- ----------
5,621,816 2,020,881
Management fees 344,103 -
---------- ----------
5,965,919 2,020,881
Less allowance for doubtful accounts 976,600 191,300
---------- ----------
$4,569,319 $1,829,581
---------- ----------
In the opinion of management, any differences between the net Medicare and
Medicaid revenue recorded and final determination will not materially affect
the consolidated financial statements.
The activity in the allowance for doubtful accounts is as follows:
1997 1996
---------- ----------
Beginning of period $ 191,300 $ 899,235
Provision for bad debts 1,194,780 203,937
Deductions (409,480) (911,872)
---------- ---------
End of period $ 976,600 $ 191,300
---------- ---------
NOTE 4 - MORTGAGE NOTES RECEIVABLE
On November 15, 1996, the Company acquired two purchase money mortgage notes
from an unrelated party totaling $1,853,300. The notes were collateralized by
all real and personal property of the Central Tampa Nursing Facility (Note 2)
which
F-15
<PAGE>
the Company had previously leased from the issuer of the notes. The notes
bore interest at the rate of 10% per annum. These notes were paid by the
borrower on May 21, 1997, at which time the Company purchased the property and
equipment of the facility.
NOTE 5 - MARKETABLE SECURITIES AND OTHER INVESTMENTS
Marketable securities at December 31, 1997, consisted of approximately fifty
percent of the outstanding bond indebtedness on one of the hospitals the
Company manages for an unrelated third party. The acquisition of the bonds
were financed substantially by a brokerage margin loan. Interest at 8.0% is
charged monthly on the average outstanding balance. The readily determinable
fair value of these bonds at December 31, 1997, was $9,100,000, with a cost
basis of $7,826,012, resulting in an unrealized gain of $1,273,988 which is
recorded, net of tax, as a separate component of shareholders' equity.
During 1997, the Company purchased and sold marketable securities classified
as available for sale with proceeds totaling $5,783,756 and a cost of
$5,606,656 resulting in a realized gain of $177,100 which is included in
investment income.
On December 22, 1997, the Company signed an agreement to acquire approximately
twenty percent of the outstanding shares of Iatros Health Network, Inc.
(Iatros) for $1,000,000. As of December 31, 1997, the Company had paid
$211,000 in cash. The balance of $789,000 is included in accounts payable and
was paid in installments from January through March 1998. The stock purchase
was made as part of initial steps in merger discussions with Iatros (Note 23).
The Company accounts for its investment in Iatros on the equity method and
recorded a loss of $17,000 for its period of ownership.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
1997 1996
----------- -----------
Land and improvements $ 5,869,814 $ 4,197,271
Buildings and improvements 38,014,213 21,721,772
Equipment and other 4,802,472 3,585,056
----------- -----------
48,686,499 29,504,099
Less: accumulated depreciation
and amortization 6,749,126 5,682,538
----------- -----------
41,937,373 23,821,561
Construction in progress 1,035,313 -
----------- -----------
Net property and equipment $42,972,686 $23,821,561
Construction in progress consists of renovations at one of the nursing home
facilities in Florida and other expenses incurred in combining the
Certificate's of Need at existing facilities.
Substantially all of the property and equipment is pledged as collateral for
long-term debt.
NOTE 7 - LONG-TERM DEBT
Notes payable and long-term debt consisted of the following at December 31,
1997 and 1996:
F-16
<PAGE>
1997 1996
----------- -----------
Note payable with interest at 8.5%, collateral-
ized by a first mortgage on property and equip-
ment at the Oak Manor facility and guarantees
by officers, directors and other related parties
of the Company. The note was paid on May 21,
1997, with proceeds from the Nationwide loan. $ - $ 4,169,296
Note payable with interest at 2%, collateral-
ized by a second mortgage on the Oak Manor
facility. The note was paid on May 21, 1997,
with proceeds from the Nationwide loan. - 5,650,000
Gainesville and Hall County Development Authority
bonds with interest at 10.25%, collateralized by
property and equipment at the Windward facility
and restricted bond trust funds. The bonds
were paid on May 21, 1997, with proceeds from
the Nationwide loan. - 1,760,000
Note payable to a bank with interest at 12%,
due in monthly interest only installments of
$10,000 with principal due at maturity in
January 2009, collateralized by a first mort-
gage on property and equipment at the Fort
Valley facility. 1,000,000 1,000,000
Ben Hill County Development Authority bonds
with interest from 8.75% to 11.5%, collater-
alized by property and equipment at the
Fitzgerald Nursing facility and restricted
bond trust funds. The bonds were paid on
February 28, 1997, with proceeds from the
PFC Corporation loan. - 575,000
Note payable with interest at 10.25%, colla-
teralized by a security interest in the
Fitzgerald Nursing facility. The note was
paid at a discount (Note 16) on January 16,
1997. - 2,041,209
Note payable with interest at prime plus 1%,
collateralized by property and equipment at
the Dania Nursing facility and guaranteed by
a former director. The note was paid on May
21, 1997, with proceeds from the Nationwide
loan. - 1,373,158
Note payable to a bank with interest at prime
plus 1% (9.50% at December 31, 1997) due in
monthly principal installments of $2,083 plus
interest with remaining principal due at matur-
ity in March 2004, collateralized by property
and equipment at the Victoria Martin Nursing
facility. 156,250 181,250
F-17
<PAGE>
Note payable to Retirement Care Associates, Inc.
with interest at 9%, collateralized by a
security interest in the Emory Nursing facility. - 500,000
Notes payable to an individual with interest at
10% due in monthly installments; principal due
at maturity. The notes mature on various dates
through September 1998 and are collateralized by
the property and equipment of the Emory and Sun
Coast facilities. 1,095,000 1,125,000
Notes and obligations payable related to the
acquisition of Spectrum. Terms of the notes
were modified during 1996. Subsequent default
caused the notes to revert to the original
terms. A final settlement agreement was reached
in February 1997, and the notes and obligations
were paid in accordance with the agreement at a
discount during the year (Note 16). - 5,359,595
Note payable to an individual with interest from
6% to 12% due in various monthly installments.
The note was paid during the year. - 45,993
Note payable to Nationwide Health Properties,
Inc. with interest at 10.78%, due in monthly
interest only payments of approximately $187,000.
The note is scheduled to mature June 1, 2009,
and is collateralized by the property and equip-
ment at the Oak Manor, Central Tampa, Dania,
and Windward nursing and retirement home facili-
ties as well as a letter of credit in the amount
of $1,159,000 with a bank. Up to 25% of the
outstanding loan balance is guaranteed by
the Chairman of the Board. 20,892,278 -
Note payable to the PFC Corporation; coinsured
by the Department of Housing and Urban Deve-
lopment with interest at 8.38% due in monthly
payments of principal and interest of $23,003.
The note matures March 1, 2020 and is colla-
teralized by the property and equipment at the
Fitzgerald Nursing facility and the restricted
reserve funds associated with the debt. 2,777,682 -
Note payable to LTC Properties, Inc. with
monthly principal and interest payments of
approximately $48,500. Interest, currently
at 10.83%, is subject to annual increases of
0.125% over the previous years' rate. The
note is scheduled to mature October 1, 2007,
with a final principal payment of $4,251,600.
The note is collateralized by the property and
equipment at the Wakulla Manor facility and the
leasehold interest in the New Port Inn facility
(Note 23). 4,792,325 -
F-18
<PAGE>
Tyler Health Facilities Development Corporation
bonds with interest at 8.50% due in semi-annual
interest payments and annual principal payments
in accordance with the bond agreements. The
bonds, scheduled to mature December 1, 2018, are
collateralized by the property and equipment of
the Park Place Nursing facility and the related
restricted bond trust funds. 5,715,000 -
Unsecured note payable to an individual payable
in annual principal payments of $20,000 plus
interest at 8.0%. The note is scheduled to
mature on December 2, 2002. 100,000 -
Note payable to HCFP Funding II with interest
only payments at prime plus 3% (11.5% at Decem-
ber 31, 1997). The note, scheduled to mature
July 31, 1999, is collateralized by the prop-
erty and equipment of the Meadowbrook Hospital
facility. 4,500,000 -
Note payable to a bank with interest at prime
plus 1% (9.50% at December 31, 1997), payable
in monthly installments of principal and in-
terest of $4,000. The note, scheduled to mature
September 9, 2000, is collateralized by equip-
ment and is guaranteed by the Chairman of the
Board. 107,036 -
----------- -----------
41,135,571 23,780,501
Less current maturities 1,380,735 16,899,696
----------- -----------
Total long-term debt $39,754,836 $ 6,880,805
=========== ===========
At December 31, 1997, $607,722 of the Nationwide loan proceeds have not been
disbursed. This amount has been held back from the loan proceeds to be
advanced to the Company, upon request, to pay for improvements and renovations
at the various facilities secured by the loan.
Future maturities of long-term debt are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------------
1998 $ 1,380,735
1999 4,745,145
2000 253,549
2001 242,792
2002 263,149
Thereafter 34,250,201
-----------
$41,135,571
===========
NOTE 8 - BORROWINGS UNDER LINE OF CREDIT
On June 30, 1997, to facilitate its working capital needs, the Company opened
a revolving line of credit with HCFP Funding, Inc. with a maximum borrowing
amount
F-19
<PAGE>
of $10,000,000. Monthly interest payments are due at prime plus 2% (10.50% at
December 31, 1997). In addition to interest charges, the draws on the line of
credit are subject to monthly management fees (.20% of the average previous
months' loan balance) as well as a monthly usage fee and commitment fees.
Commitment fees are due in $20,000 to $30,000 increments based on total
balance thresholds specified in the agreement. Total commitment fees paid,
limited to $100,000, were $30,000 through December 31, 1997. Draws on the
line of credit are secured by substantially all trade receivables of the
Company. In accordance with the loan agreement, draws on the line of credit
are subject to limitations based on a formula that is calculated at each draw
request date. The maximum outstanding balance on the line of credit is
generally limited to 80% of "collectable" accounts receivable, the "borrowing
base" ($3,655,000 at December 31, 1997). Net draws against this line of
credit totaled $3,189,755 at December 31, 1997 with $6,810,245 available for
the Company's use subject to limitations mentioned above. The line of credit
agreement is scheduled to expire on June 30, 2000, with annual renewals
thereafter until terminated by either party.
NOTE 9 - SHORT-TERM ACQUISITION NOTES PAYABLE
The cash needed to effect the acquisition of one of its subsidiaries was
raised through the issuance of $1,525,000 of short-term notes payable, bearing
interest at 12%. Interest only was payable monthly through April 30, 1996,
when all principal and any accrued unpaid interest was due. The notes were
extended and interest continued to accrue until November 30, 1996, when all
principal and accrued interest was paid. At the issuance of the notes, the
Company issued one warrant for every $10 advanced under the note agreements
for a total of 152,500 warrants. The warrants are exercisable for one share
each of the Company's common stock until June 1, 1998, at an exercise price of
$3.50 per share. Interest paid on these notes during 1996 and 1995 totaled
approximately $165,000 and $91,000, respectively.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases nursing homes commencing on various dates with terms
expiring through May 31, 2012. Monthly rent expense for these facilities
total $51,333 with one lease payment escalating 2.5% per year.
The Company's rental expense under these operating leases, plus minor
equipment leases for the years ended December 31, 1997, 1996 and 1995, totaled
approximately $731,000, $975,000 and $776,000, respectively.
Lease expense associated with operating leases having initial or remaining
non-cancelable lease terms in excess of one year and containing escalation
clauses has been recorded in the accompanying financial statements on a
straight-line basis. Deferred lease expense due to this straight-line rent
adjustment for the year ended December 31, 1997, totaled $40,359.
The aggregate amount of minimum lease payments due under non-cancelable lease
obligations in excess of one year at December 31, 1997, are as follows:
F-20
<PAGE>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ----------
1998 $ 621,867
1999 630,813
2000 639,984
2001 517,383
2002 395,018
2003-2007 2,128,252
2008-2012 2,068,054
----------
$7,001,371
==========
OTHER
In connection with the two hospital management agreements, which expire on
September 30, 2002, the Company has agreed to make capital improvement loans
up to $2,000,000 to each of the hospitals during the first year of the
agreement. Interest would be at the Company's borrowing rate. No advances
had been made on the improvement loans as of December 31, 1997. In addition,
the Company guaranteed payment up to $4,100,000 of interest payments due
January 1 and July 1, 1998, on one of the hospital's existing bond
indebtedness.
The Company has guaranteed a $2,000,000 line of credit issued by HCFP Funding,
Inc. to one of the hospitals under management. In December 1997, $1,068,300
was drawn on the line of credit to make a debt service payment due January 1,
1998. The funds drawn were deposited into the Company's bank account and used
to make the interest payment due in excess of $2,000,000. At December 31,
1997, the advance on this credit line is included in due to related parties in
the accompanying financial statements. On January 1, 1998, the Company made
the required interest payment from its funds as part of its guarantee.
HEALTH CARE REFORM
Governmental funding for health care programs is subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
intermediary determinations and governmental funding restrictions, all of
which may materially affect program reimbursement to health care facilities.
In 1997, Congress passed the Balance Budget Act of 1997 which provides for a
phase-in of a prospective payment system (PPS) for skilled nursing facilities
over a four year period. Under PPS, Medicare will pay skilled nursing
facilities a fixed fee per patient per day based on the acuity level of the
patient. During the phase-in, the rate paid to the facility will be a blended
rate based on the facility's historical costs and a federally established
per diem rate. The effect the PPS will have on the Company has not been
determined since the federally established per diem rates have not been
finalized. The PPS will become effective for cost reporting periods beginning
on or after July 1, 1998. These and other changes in the reimbursement
policies of the Medicaid and Medicare programs as a result of legislative and
regulatory actions by federal and state governments could adversely affect the
revenues and operations of the Company.
LEGAL PROCEEDINGS
During 1995, the Company's Spectrum subsidiary was assessed by Medicare
approximately $364,000 relating to the recoupment of an alleged overpayment of
services it provided during the years 1990 through 1993. The Company appealed
the claim and, in June 1996, received notification that the assessment had
been revised to $86,000. This amount was paid and is included in the income
statement for 1996. F-21
<PAGE>
During 1996, the facilities operated by the Company's Cimerron subsidiary were
audited by the State of Georgia for the fiscal year ended June 30, 1995. The
audit resulted in disallowed expenses in excess of $270,000. The State
recouped the overpayment and it is included in the income statement for 1997.
The Company is also engaged in various legal and regulatory proceedings
incidental to the Company's normal business activities. Such matters are
subject to many uncertainties, and outcomes are not predictable with
assurance. Consequently, the Company is unable to ascertain the ultimate
aggregate amount of monetary liability or financial impact with respect to
these matters at December 31, 1997. These matters could affect the operating
results of any one quarter when resolved in future periods. However,
management believes that after final disposition, any monetary liability or
financial impact to the Company would not be material to the Company's annual
consolidated financial statements.
CONSTRUCTION PLANS
In 1996, the Company filed an application with the Florida Agency for Health
Care Administration to combine the Certificates of Need (CON) for two of its
Florida facilities, which currently operate thirty-eight bed and fifty-nine
bed skilled nursing facilities, respectively. The Company plans to construct
a new facility using lease financing to operate the combined ninety-seven
beds. The Company plans to convert and operate the existing facilities as
assisted living facilities. As of December 31, 1997, and the date of this
report, the request for consolidation of the CON's was still pending. The
Company has not entered into any formal arrangements for construction or
financing of the new facility.
During 1995, Cimerron obtained a Certificate of Need for twenty skilled
nursing beds and, in November 1995, acquired approximately eight acres of
undeveloped land in Georgia. The Company has plans to combine the new twenty-
bed Certificate of Need with the existing forty-bed Certificate of Need
currently operating as Emory Nursing Home (Emory) and construct a new sixty-
bed skilled nursing facility. Current plans call for the existing Emory
facility to be operated as an assisted living facility. As of December 31,
1997, the Company had not entered into any formal arrangements for
construction or financing of the new facility.
NOTE 11 - SHAREHOLDERS' EQUITY
Common stock has been issued by the Company for various purposes. In certain
of these transactions, the Company's Board of Directors assigned a fair value
to the common stock issued equal to the fair value of the services or other
consideration received.
STOCK OPTIONS AND WARRANTS
In connection with the acquisition of a skilled nursing home facility in 1990,
an option was granted to the seller to acquire shares of common stock of the
Company's predecessor organization. The options, after conversion for changes
in capital structure, remain outstanding for the acquisition of 89,332 shares
of common stock at an exercise price of $2.24 per share. This option remains
exercisable through May 1998.
During 1993, an option to acquire up to 33,500 of the Company's common stock,
at an exercise price of $2.24 per share, was granted to an officer of the
Company. In June 1996, the officer exercised his right to purchase 10,000
shares. The remaining 23,500 options remain exercisable through June 1998.
F-22
<PAGE>
During September 1994, options were granted to the Company's president and
executive vice-president to acquire up to 50,000 shares each of the Company's
common stock, at an exercise price of $4.75 per share. These options remain
exercisable through September 1999.
On January 31, 1997, the Company granted options to purchase 1,500,000 shares
of the Company's common stock at an exercise price of $2.20 per share. Of
these, 375,000 shares were granted to the Company's new Chairman. The options
were granted in consideration of his undertaking to manage the Company. The
new Chairman will become CEO of NewCare after a company he currently serves as
President and CEO merges with another company. In the event that the per
share stock price of the Company does not reach an average price of at least
$5.00 for any thirty consecutive days during the ensuing twelve month period
after becoming CEO, unexercised options will be canceled.
The Company issued 152,500 warrants in connection with advances made under a
short term note agreement (Note 7). The warrants are exercisable for one
share each of the Company's common stock until June 1, 1998, at an exercise
price of $3.50 per share.
During 1997, the Company increased shareholders' equity approximately
$2,500,000 through a private placement. Each private placement unit consisted
of four shares of common stock and two warrants for $15. A total of 345,000
warrants were issued and are exercisable for one share each of the Company's
common stock until October 30, 2000, at an exercise price of $5.00 per share.
In April 1997, the Company reserved 2,000,000 shares of common stock under a
1997 stock option plan which is pending shareholders' approval. As of
December 31, 1997, options to acquire 150,000 shares has been issued to
employees subject to approval of this plan. The option exercise prices range
from $2.50 to $4.85 and expire five years from issuance.
During 1997, additional options to acquire 725,000 shares of the Company's
stock were issued to various other individuals. The option exercise prices
range from $2.25 to $4.50 and expire on various dates from January 24, 2000
through December 3, 2002.
The stock options and warrants described above were issued with exercise
prices determined by the Company's Board of Directors to be equal to, or
greater than, the fair value of the Company's common stock on the respective
grant dates.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation". This new standard defines a fair value based method of
accounting for an employee stock option or similar equity instrument. This
statement gives entities a choice of recognizing related compensation expense
by adopting the new fair value method or to continue to measure compensation
using the intrinsic value approach under Accounting Principals Board (APB)
Opinion No. 25, the former standard. If the former standard for measurement
is elected, SFAS No. 123 requires supplemental disclosure to show the effects
of using the new measurement criteria. This statement is effective for the
Company's 1997 fiscal year. The Company intends to continue using the
measurement practices prescribed by APB Opinion No. 25 and, accordingly, this
pronouncement will not affect the Company's financial position or results of
operations.
The following is a summary of stock option activity and related information
for the years ended December 31:
F-23
<PAGE>
1997 1996 1995
--------------------- ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- -------- ------- -------- ------- --------
Outstanding:
Beginning 222,832 $3.367 222,832 $3.367 222,832 $3.367
Granted 2,375,000 2.652 - - - -
Exercised 10,000 2.240 - - - -
Canceled - - - - - -
--------- ------ ------- ------ ------- ------
End of Year 2,587,832 $2.715 222,832 $3.367 222,832 $3.367
========= ====== ======= ====== ======= ======
Exercisable:
End of Year 2,587,832 $2.715 222,832 $3.367 222,832 $3.367
========= ====== ======= ====== ======= ======
Weighted average
fair value of
options granted
during the
year: $2.080 $ - $ -
Exercise prices for options outstanding as of December 31, 1997, ranged from
$2.20 to $4.85. The weighted average remaining contractual life of those
options is 3.81 years.
The following is a summary of the outstanding warrants at December 31, 1997:
DATE TOTAL TOTAL EXERCISE EXPIRATION
ISSUED ISSUED OUTSTANDING PRICE DATE
------ ------ ----------- -------- ----------
5/22/95 152,500 152,500 $3.50 06/01/1998
11/11/97 345,000 345,000 $5.00 10/30/2000
05/19/97 100,000 100,000 $2.50 05/19/2009
No value has been assigned to the warrants in the accompanying financial
statements.
Because the Company has adopted the disclosure-only provisions of SFAS No.
123, no compensation cost has been recognized for the stock option plans. Had
compensation cost for the Company's stock option plan been determined based on
the fair value at the grant date of the awards consistent with the provisions
of SFAS No. 123, the Company's net earnings and earnings per share would have
been reduced to the pro forma amounts indicated below:
1997
------------
Net income (loss) as reported $(3,099,502)
Effect if SFAS 123 had been applied - net of tax (3,013,000)
Pro forma net loss (6,112,502)
Loss per share-as reported (.280)
Pro forma loss per share (.560)
F-24
<PAGE>
The fair value of each option grant is estimated on the date of grant using
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997; dividend yield of 0%, expected volatility
of 111%, risk-free interest rates of 6.0% and expected option lives of five
years.
EARNINGS PER SHARE
The Company and its subsidiaries have adopted the provisions of SFAS 128 for
purposes of reporting earnings per share. The options and warrants mentioned
above have not been included in the computation of diluted earnings per share
for the years presented due to their antidilutive effect. These options and
warrants are considered antidilutive because in 1997 and 1995, the company had
a loss from continuing operations, and in 1996, the exercise price of all the
outstanding options and warrants exceeded the average market price of the
Company's stock. These options and warrants, as well as the convertible
debenture bonds offered in February 1998 (Note 23), could be considered to be
dilutive in future periods.
NOTE 12 - MANAGEMENT FEES
One of the Company's subsidiaries, NewCare Hospital Corporation, has
management contracts with unrelated third parties to manage the operations of
two hospitals in Florida and Texas. The agreements commenced in October 1997
and expire September 30, 2002, unless terminated by either party after
September 30, 2000. Monthly management fees total $175,000 plus a performance
incentive not to exceed a cumulative total of four percent of net revenues.
The performance incentive will be based on the accomplishment of certain
performance criteria to be agreed upon by both parties. Management fee
revenue also includes reimbursements of payroll and related expenses.
Management fees totaled $503,577 for the period ended December 31, 1997.
The Company also has paid $25,000 each for purchase options for each of the
hospitals where the purchase price for the hospital property will be equal to
the amount of indebtedness on the property. The options also expire on
September 30, 2002.
In March 1998, the Board of Directors of the Texas hospital advised the
Company that the management agreement was void or had been terminated and that
the option agreement was also not valid. As of March 17, 1998, the Company is
not able to manage this hospital and is considering filing a lawsuit against
the hospital and its Board of Directors.
NOTE 13 - INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets at
December 31, 1997 and 1996, are as follows:
F-25
<PAGE>
1997 1996
---------- ----------
Deferred tax liabilities:
Unrealized gain on marketable
securities $ (445,896) $ -
Depreciation and amortization (515,800) (196,700)
---------- ----------
(961,696) (196,700)
---------- ----------
Deferred tax assets
Bad debt allowance 341,800 67,000
Net operating loss carry forward 1,847,300 974,000
Accrued expenses 312,000 252,000
Deferred revenue - 30,500
---------- ----------
Gross deferred tax assets 2,501,100 1,323,900
Valuation allowance (1,127,200) (1,127,200)
---------- ----------
1,373,900 196,700
---------- ----------
Net deferred taxes $ 412,204 $ -
========== ==========
The deferred tax asset valuation allowance was $144,000 at December 31, 1995,
and was increased to $1,127,200 at December 31, 1996, a change of $982,000.
The components of income tax expense are approximately as follows:
1997 1996 1995
----------- --------- ---------
Federal
Current $ - $ - $ -
Deferred-net (858,100) - -
State
Current - - 36,000
Deferred-net - - -
----------- --------- ---------
Total $ (858,100) $ - $ 36,000
=========== ========= =========
A reconciliation of current income tax expense and the amount computed by
applying the statutory federal income tax rate to the net loss before income
taxes is as follows:
F-26
<PAGE>
1997 1996 1995
----------- ---------- ---------
Taxes computed at 35% $(1,385,200) $ (779,000) $(48,000)
Increases (decreases)
in taxes resulting from:
Amortization (19,300) (127,000) (87,000)
State income taxes, net of federal
income tax effect - - -
Bad debt expense 274,900 67,000 36,000
Inventories - - 184,000
Depreciation (119,000) (70,000) (111,000)
Accrued expenses 229,400 253,000 138,000
Deferred revenue - 30,000 21,000
Net operating losses 161,100 626,000 (110,000)
----------- ---------- --------
Total $ (858,100) $ - $ 36,000
=========== ========== ========
At December 31, 1997, the Company has net operating loss carry forwards of
approximately $5,278,000 that are available to offset future taxable income.
The loss carry forwards expire at various times through 2012 as follows:
EXPIRES AMOUNT
------- ----------
2006 $ 1,000
2009 445,000
2010 372,000
2011 764,000
2012 3,696,000
----------
Total $5,278,000
----------
NOTE 14 - TRANSACTIONS WITH RELATED PARTIES
Prior to June 1996, the Company leased a nursing home from a shareholder.
Rent payments to the shareholder of approximately $72,000 and $183,000 were
made in 1996 and in 1995, respectively.
A company controlled by a shareholder provided contract services to certain of
the Company's nursing centers. Total contract service fees paid to this
company totaled approximately $530,130, $1,148,100, and $794,000 in 1997, 1996
and 1995, respectively.
The Company leased office space from a shareholder under an operating lease.
Annual rental payments under the lease were approximately $45,600. In March
1997, this lease was terminated in exchange for a cash payment of $65,000.
In November 1995, the Company exercised an option to purchase one of its
leased facilities from the lessor in exchange for $300,000 in cash and the
assumption of approximately $500,000 in debt. The option was exercised using
funds borrowed from a related party totaling $300,000. The related party
loan, with interest at 10%, was payable in monthly payments of interest only
through November 1996, at which time the terms were modified to reflect a new
maturity date of September 1998. The $500,000 note payable matured in
February 1996, and was paid using funds from a replacement loan from another
related party. The new loan was a twelve month loan bearing interest at 9%
and was paid in May 1997.
F-27
<PAGE>
In November 1995, the Company borrowed $195,000 and $600,000 from a
shareholder to purchase real property. The notes bear interest at 10% and
are payable in monthly installments of interest only through August 1998 and
November 1998, respectively, when all principal and any accrued interest is
due. The notes are collateralized by real estate.
In September 1994, the Company loaned $74,000 to two of its principal
officers. The loans, which were approved by the Board of Directors, are non-
interest bearing and were originally due in September 1995 but were extended
with new terms requiring payment on demand. Additional advances totaling
$18,000 were made during 1996. Repayments totaling $18,000 were received
during 1997. One of the officers to whom advances totaling $49,000 were made
is no longer with the Company. He has filed a lawsuit against the Company
(Note 10) that has not been resolved as of the date of this report. The
$49,000 advance was written off as uncollectible during 1997. The remaining
$25,000 is included in due from related parties.
In July 1997, the Company loaned $990,000 to some of the Company's Directors,
Officers and other related parties. The proceeds were used to purchase the
stock acquired by the Company in the Spectrum settlement. The loans, with
interest at 10%, are due on June 30, 1998. At December 31, 1997, the
outstanding principal plus accrued interest of $49,500 total $1,039,500.
In July 1996, the Company borrowed $80,000 from a shareholder to pay
outstanding payroll taxes. The note, with interest at 12%, was paid during
the year ended December 31, 1997.
NOTE 15 - EMPLOYEE RETIREMENT PLAN
In October 1997, the Company established a defined contribution retirement
plan. Full-time employees qualify for the plan upon the completion of one
year of service with the Company and reaching the age of twenty-one. Company
contributions to the plan represent a matching percentage of certain employee
contributions. The matching percentage is subject to management's discretion
based upon the consolidated financial performance of the Company. The Company
has not made any matching contributions to the plan.
NOTE 16 - SPECTRUM SETTLEMENT AGREEMENT AND FORGIVENESS OF DEBT
When the Company acquired the Spectrum subsidiary in September 1994, notes
totaling $5,012,190 were issued as part of the purchase price. The initial
principal payments that were payable January 2, 1996, were not made due to a
cash shortage. By agreement with the note holders, the payments were
deferred. In June 1996, the Company and certain related party holders of the
Spectrum acquisition notes reached an agreement on restructuring the notes.
The agreement provided, among other things, for a reduction of the amount
payable and extensions of payment terms. Due to the Company's inability to
make the restructured payments, the notes reverted to their original terms.
The note holders filed a lawsuit against the Company for breach of contract
with respect to the payment of the notes. On February 14, 1997, the Company
and the Spectrum note holders reached a settlement whereby the Company or its
designees would buy back 1,200,000 shares of the original 1,500,000 shares of
NewCare stock offered in the acquisition at $1.50 per share for a total of
$1,800,000. In addition, the Company agreed to pay the Spectrum note holders,
as settlement of all obligations, $4,200,000 plus interest at 8.75% until all
payments were made. The final payment on this note was made on June 14, 1997.
Interest during this period totaled $102,486.
F-28
<PAGE>
At the time of the settlement agreement, the Company carried net liabilities
and obligations associated with the Spectrum acquisition and operations
totaling $5,330,681. This resulted in a gain on forgiveness of debt totaling
$1,130,681. This gain has been combined with the gain on forgiveness on
refinancing of the debt on various facilities for a total of $1,353,616 and is
reported as an extraordinary item in the statement of operations net of the
income tax provision of $473,765. Basic and diluted earnings per share from
this extraordinary gain on forgiveness of debt at December 31, 1997, totaled
$.08 per share.
The Company had agreed to purchase the remaining 300,000 shares held by the
Spectrum note holders for $3.50 per share. The Company's obligation to
purchase the shares terminates if the closing price of the stock equals or
exceeds $4.00 per share for thirty (30) consecutive trading days before
February 1, 1999. The obligation terminated during the third quarter of 1997
when the Company's share price exceeded this threshold for the required period
of time.
NOTE 17 - SHAREHOLDER AND MANAGEMENT CHANGES
In January 1997, the president and chairman of the board of the Company
resigned. As part of agreement, he sold 869,978 shares of the Company's
stock back to the Company. The shares were held in escrow and the right to
purchase the shares was assigned to Mr. Chris Brogdon. Mr. Brogdon was
subsequently elected to the Company's board of directors and has assumed the
position of chairman. Mr. Brogdon and his wife personally acquired 187,000 of
the shares and assigned the right to purchase the remaining 682,978 shares to
business associates.
In other actions, Mr. Brogdon was granted the right to acquire 1,200,000
shares of Company stock in connection with the re-acquisition of shares in the
Spectrum settlement noted above and was granted an option to purchase
1,500,000 shares of unissued stock at a price of $2.20 per share. He has also
signed a letter of intent to purchase 714,000 shares of stock from the wife of
the former president of the Company's Cimerron subsidiary.
Mr. Brogdon is related to Renaissance Senior Living, Inc., (Renaissance)
which, on February 17, 1997, signed a management agreement to manage the
nursing homes of the Company. The agreement expired on December 31, 1997.
The agreement provided for management fees based on an improvement in the
profit position of the Company, not to exceed 6% of revenue. No management
fees were paid or accrued under this agreement.
EMPLOYMENT AND LEASE AGREEMENT TERMINATIONS
Two employment agreements and office space lease were terminated in
conjunction with the acquisition of the shares from the Cimerron former
president's wife by Mr. Brogdon, as noted above, and the takeover of
management of the Company's facilities by Renaissance. Cash payments made to
terminate the agreements totaled approximately $331,000.
NOTE 18 - YEAR 2000 DISCLOSURE
The Company has reviewed all of its current computer applications with respect
to the date change from 1999 to the year 2000, as discussed in the Securities
and Exchange Commission Staff Legal Bulletin No. 5 (the "Year 2000 Issue").
The Company believes that certain of its applications are substantially in
compliance with the Year 2000 Issue and that any additional costs will not be
material to the Company. The Company is currently unable to determine the
effect of compliance with the Year 2000 Issue by its customers and suppliers.
F-29
<PAGE>
NOTE 19 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
the fair the fair value of its financial instruments.
CASH AND CASH EQUIVALENTS
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates fair value because of the short maturity of these
instruments.
MARKETABLE EQUITY SECURITIES
The carrying amount reported in the balance sheet for marketable equity
securities approximates fair value. All marketable equity securities are
classified as "available for sale" for accounting purposes and therefore, are
carried at fair value with unrealized gains and losses recorded directly in
equity. Unrealized gains at December 31, 1997, totaled approximately
$1,274,000.
NOTES RECEIVABLE
The carrying amount approximates fair value for the notes receivable based on
the fair value being estimated at the net present value of cash flows that
would be received on the notes over the remaining notes' terms using the
stated interest rates that approximates market interest rates.
SHORT AND LONG-TERM DEBT
The fair value of all debt has been estimated based on the present value of
expected cash flows related to existing borrowings discounted at rates
currently available to the Company for debt with similar terms and remaining
maturities.
The cost and estimated fair values of the Company's finanical instruments at
December 31, 1997 and 1996, are as follows:
DECEMBER 31, 1997
---------------------------
CARRYING FAIR
AMOUNT VALUE
Financial asets: ----------- -----------
Cash and cash equivalents $ 2,297,599 $ 2,297,599
Marketable securities 7,826,012 9,100,000
Notes receivable 1,039,500 1,039,350
Financial liabilities
Short-term debt 11,311,143 11,311,143
Long-term debt 39,754,836 39,754,836
DECEMBER 31, 1996
---------------------------
CARRYING FAIR
AMOUNT VALUE
----------- -----------
Financial assets:
Cash and cash equivalents $ 3,198,700 $ 3,198,700
Notes receivable 1,852,377 1,852,377
Financial liabilities
Short-term debt 16,899,696 16,899,696
Long-term debt 6,880,805 6,880,805
F-30
<PAGE>
NOTE 20 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
As described in Note 2 , the company acquired certain businesses during 1997.
The fair value of assets acquired was $18,775,933 and the fair value of
liabilities assumed was $18,179,793 which resulted in net cash payments of
$596,140.
Total debt of $33,255,196 was incurred during the year ended December 31,
1997, to purchase property and equipment totaling $10,016,516, pay loan costs
of $772,918, pay off existing indebtedness of $18,972,507, goodwill of
$900,000, and the remaining proceeds used for working capital.
Cash paid for interest during the years ended December 31, 1997, 1996 and 1995
was $3,248,177, $1,517,350, and $1,617,000, respectively.
NOTE 21 - ACCRUED EXPENSES
Accrued expenses consisted of the following as of December 31, 1997 and 1996:
1997 1996
---------- ----------
Payroll and payroll taxes $1,641,186 $ 808,960
Insurance 957,867 -
Interest 192,539 662,895
Other 496,935 578,010
---------- ----------
$3,288,527 $2,049,865
========== ==========
NOTE 22 - COMPREHENSIVE INCOME
The Financial Accounting Standards Board issued SFAS No. 130, "Reporting
Comprehensive Income". SFAS 130 requires companies to report comprehensive
income in its financial statements. Comprehensive income is defined as the
change in equity of a business during a period from the transactions and other
events and circumstances from non-owner sources. It includes all changes in
equity during a period except those resulting from investments by and
distributions to owners. SFAS 130 becomes effective for years beginning after
December 15, 1997. If this statement was applied to 1997, comprehensive
income would be as follows:
Net loss as reported $(3,099,502)
Other comprehensive income, net of tax:
Unrealized gain on securities 828,092
-----------
Comprehensive income (loss) $(2,271,410)
===========
NOTE 23 - SUBSEQUENT EVENTS
In January 27, 1998, the Company issued $5,000,000 in 8.5% convertible
debentures maturing January 27, 2005. Interest only payments are due monthly
until January 27, 2001, at which time principal payments of $10 per $1,000 of
outstanding principal plus interest are payable monthly until maturity. The
debentures are convertible into the Company's common stock at $3.81 per share.
F-31
<PAGE>
FACILITY ACQUISITIONS IN 1998:
In January 1998, the Company acquired in a sale and leaseback transaction, a
124-unit assisted living facility in New Port Richey, Florida. The purchase
price for this facility was $5.9 million. The Company's lease on this
facility is initially through December 31, 2012, with options to extend the
lease for two additional five-year periods.
In January 1998, the Company also closed on the acquisition of a 120-bed long-
term care facility in Venice, Florida. The Company purchased this facility
for $4,790,000 in a bankruptcy proceeding. The purchase price was paid with
$3,000,000 from a bridge note from HCFP Funding II, Inc. (HCFP) and
$1,790,000 from cash on hand. The bridge note, which is secured by the
property acquired, bears interest at 4% over the prime rate and is due on
April 27, 1998. HCFP was paid a $45,000 loan commitment fee as part of the
transaction. The Company is in the process of negotiating a loan totaling
$4,800,000 from LTC Properties, Inc. to refinance the bridge note. Although
there is no assurance that such a loan can be negotiated, it is anticipated
that the amortization period will be twenty years.
Also in January 1998, the Company entered into an agreement to purchase four
long-term care facilities for $6,750,000. The facilities, totaling 332 beds,
are located in Massachusetts and are currently involved in a bankruptcy
proceeding. The Company expects that this purchase will be financed by a loan
from HCFP, however, no binding agreement regarding the funding has been
reached. Due to the situation regarding the bankruptcy, and as a requirement
of the Commonwealth of Massachusetts to consider licensing, HCFP has deposited
the $6,750,000 into an escrow account under the jurisdiction of the bankruptcy
court. However, HCFP has the option to withdraw the funds. The acquisition
of these long-term care facilities is contingent on the Company's approval
from the Commonwealth of Massachusetts licensing authorities, which is
expected in the second quarter of 1998, and the approval of the bankruptcy
trustee. During the interim, the Company is managing the four facilities.
During February 1998, the Company paid $1,740,633 for all of the outstanding
bonds (face value of $3,120,000) on three of the four facilities.
In February 1998, the Company entered into agreements under which the Company
agreed to take over the rights and obligations of the lessees of five long-
term care facilities in Texas. The Company is paying approximately $450,000
for the assignment of these leases. The Company's acquisition of these
leases is contingent on the approval of the State of Texas licensing
authorities. During the interim, the Company is managing three of the four
facilities. The facilities individually range from 62 beds to 185 beds
(total 531 beds) and the leases expire on various dates through May 31, 2017,
before extension options.
PROPOSED CORPORATE ACQUISITIONS
In December 1997, the Company announced that it has agreed to acquire
Renaissance Senior Living, Inc., which is partially owned by the Company's
Chairman of the Board, for $2 million plus the assumption of debt. There is
no written agreement concerning this proposed acquisition which would be
subject to the approval of the Company's shareholders. Renaissance Senior
Living, Inc. currently owns a 100-unit assisted living facility in Florida and
a 50-unit assisted living facility in Tennessee, which is under construction.
Renaissance Senior Living, Inc. has also started construction of a 233-unit
assisted living/independent living/long-term care facility in Conyers,
Georgia.
In December 1997, the Company also announced that it had agreed to acquire
IATROS Health Network, Inc., a NASDAQ listed company, for approximately $17
million in the Company's common stock. There is presently no written
agreement concerning
F-32
<PAGE>
this acquisition and the terms are being renegotiated. The acquisition will
be subject to the execution of a definitive agreement and shareholder
approval. IATROS owns, leases or manages eleven facilities in the New England
market with 1997 consolidated revenues of approximately $31 million. IATROS
also provides pharmacy and rehabilitation therapy services, and operates a
medical supply and durable medical equipment company with 1997 combined
ancillary revenues annualized at $12 million. As stated in Note 5, the
Company has already acquired 4,000,000 shares (approximately 20%) of IATROS'
common stock.
NOTE 24 - LIQUIDITY
During the year ended December 31, 1997, the Company experienced a significant
net operating loss and at the same time a decline in liquidity, resulting from
the operating loss and a heightened level of investment in new facilities.
Management believes the operating loss is the result of a decline in the
overall census of residents and patients in the Company's facilities, together
with the formation of current corporate management to operate and oversee the
facilities. The management team in place is adequate to handle the Company's
growth in the foreseeable future even considering the number of facilities
under current consideration for acquisition.
To improve liquidity of the Company until profitable operations can be
attained and maintained, Management has developed and is implementing the
following plans:
1) Comprehensive marketing plan to increase the census at all
facilities;
2) Increased efforts on collection of existing accounts receivable
balances;
3) Negotiation of extended payment terms on accounts payable by
consolidating vendors used in the purchase of supplies and
consumable items;
4) Implement more stringent budgetary controls at the operating
facilities;
5) Identify selected facilities for possible refinancing.
In addition to the above actions, the Company still has available under its
current line of credit an additional $6,810,245 which can be drawn subject to
limitations outlined in the agreement. These funds will be available as new
facilities are acquired and the borrowing base increases.
F-33
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
NEWCARE HEALTH CORPORATION
Dated: April 15, 1998 By:/s/ Ashok Dalal
Ashok Dalal, President
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is made and
entered into as of this 2nd day of July 1997 by and between NEWCARE NURSING
CORPORATION, a Georgia corporation, with offices at 6000 Lake Forrest Drive,
Suite 20O, Atlanta, Georgia 30328 (hereinafter referred to as the "Company")
and Timothy J. Beaulieu, an individual. (hereinafter referred to as the
"Executive").
WITNESSETH:
WHEREAS, the Company is engaged in the business of providing management
services (including without limitation, services with respect to accounting,
operations, marketing and management) to nursing home facilities, retirement
care facilities and personal care facilities (the foregoing business
activities are hereinafter referred to as the "Business") currently throughout
the geographical region contained within the Southeastern United States (the
"Region"); and
WHEREAS, the Company and the Executive desire to enter into this
Agreement for the Executive to serve as the Vice President of Operations of
the Company and to set forth herein the respective rights and responsibilities
of each party to the other;
NOW, THEREFORE, in consideration of the mutual benefits arising
therefrom and for other good and valuable consideration, the parties hereto
agree as follows:
1. Employment. The Company agrees to and does hereby employ the
Executive, and the Executive agrees to and hereby does accept employment by
the Company, subject to the terms and conditions set forth herein.
2. Term. The term of this Agreement shall commence effective as of July
7, 1997 and end three years thereafter, on July 6, 2000 (the "Term"), unless
such Term shall be sooner terminated pursuant to the terms hereof or extended
by mutual agreement of the Company and the Executive.
3. Duties.
(a) Title and Duties. During the Term of this Agreement, the Executive
shall be employed as the Vice President of Operations of the Company, and
shall be in charge of and responsible for the general and supervisory duties
normally and customarily attendant to such office in a company engaged in the
Business, and shall render such other services and exercise such powers, which
are from time to time requested of him, assigned to him or vested in him by
the Board of Directors of the Company (the "Board") and which are commensurate
with his position as Vice President of Operations.
(b) Full Time Employment. The Executive agrees that during the Term, he
will devote substantially his full business time, energies, labor and skills
to the business of the Company and to the duties and responsibilities
specified herein. The Company shall provide the Executive with his own office
space and such secretarial, administrative and clerical support as the
Executive may reasonably require to enable the Executive to execute his duties
and responsibilities.
(c) No Competing Interests. Except as approved by the Board, the
Executive agrees not to be employed by, contract with, be an officer or
director of, or provide professional services to any other person, business,
company, corporation, association or entity of any kind which is in engaged in
the Business in the Region or which would cause a conflict with the
Executive's duties to the Company or otherwise interfere with the performance
by the Executive of his duties hereunder.
4. Compensation.
(a) Annual Salary. In consideration for the services performed under
this Agreement, the Company shall pay to the Executive an annual salary of (i)
One Seventy Five Thousand Dollars ($175,000.00) for the first year of the Term
hereof, (ii) Two Hundred Thousand Dollars ($200,000.00) for the second year of
the Term hereof and (iii) Two Hundred Twenty Five Thousand Dollars
($225,000.00) for the third year of the Term hereof.
(b) Stock Options. Upon the signing of this Agreement and the
commencement of employment, NEWCARE HEALTH CORPORATION ("NEWCARE"), the parent
corporation of the company, shall grant to Executive nonqualified stock
options according to the following terms:
50,000 Options at $2.20 per share
25,000 Options at current price on July 7, 1997.
In addition NEWCARE shall grant Executive 50,000 options on the anniversary
date of each subsequent year of the term of this Agreement at the prevailing
stock price on that date.
(c) Stock for Purchase. Upon signing of this Agreement, the Executive
will have the option to purchase up to 50,000 shares of NEWCARE common stock
at a purchase price of $1.50 per share, within an eighteen month period.
5. Benefits.
(a) Vacation. The Executive shall be entitled to reasonable paid
vacation, up to three (3) calendar weeks, during each twelve month period of
his employment, at such time or times as the Executive shall determine in his
reasonable discretion, taking into account the needs of the Company and its
business operations.
(b) Reimbursement For Expenses. The Executive may, and is hereby
authorized to, incur reasonable expenses in promoting the Company's business
and conducting his duties under this Agreement, including reasonable travel
and entertainment expenses. The Company shall reimburse the Executive promptly
for all such reasonable expenses upon the presentation by the Executive of
itemized accounts of and receipts for such expenses. The Company reserves the
right to establish an allowance for such expenses, as determined from time to
time by the Board.
(c) Other Benefits. Throughout the Term, the Executive shall be and
remain eligible to participate in any pension, profit-sharing, stock option,
employee incentive programs or other similar plan or program of the Company
now existing or established hereafter for the benefit of its employees or
executives generally, to the extent that he is eligible under the general
provisions thereof. The Executive also shall be entitled to participate in any
group insurance, hospitalization, medical, health, accident, disability or
other similar plan or program of the Company now existing or established
hereafter for the benefit of Company employees or executives generally, to the
extent that he is eligible under the general provisions thereof. In addition,
the Executive shall be entitled to the benefits set forth on Schedule I
attached hereto and incorporated herein by reference.
6. Restrictive Covenants of the Executive.
(a) Confidentiality. The Executive acknowledges that his employment by
the Company has heretofore brought him, and will throughout his employment
continue to bring him, into close contact with many confidential affairs of
the Company and the Affiliates, including information about operational
methods, and other business affairs, methods and information, including plans
for future development, not readily available to the public. The Executive
further acknowledges that the services to be performed under this Agreement
are of a special, unique, unusual, extraordinary and intellectual character;
that the Company and the Affiliates are engaged in, and shall continue to be
engaged in, business operations throughout the Region, that its services may
be marketed throughout the Region, and that the Company and the Affiliates
compete with other organizations that are or could be located in nearly any
part of the Region. In recognition of the foregoing, the Executive covenants
and agrees that:
(i) he will not, except as necessary in Executive's good faith business
judgment in discharging Executive's duties hereunder, or as otherwise required
by law or judicial or administrative order, knowingly divulge any material
confidential matters of the Company or the Affiliates which are not otherwise
in the public domain and will not intentionally disclose them to anyone
outside of the Company or the Affiliates during his employment hereunder or
following the expiration or termination of his employment with the Company.
(ii) he will deliver promptly to the Company at the end of the Term, or
at any other time the Company may so request, all memoranda, notes, records,
reports and other documents (and all copies thereof) relating to the
businesses of the Company and/or the Affiliates which he obtained while
employed by, or otherwise serving or acting on behalf of, the Company or any
of the Affiliates, and which he may then possess or have under his control.
(b) Non-Competition. For a period of one year following (i)
termination by the Company of Executive's employment with the Company
(provided Company makes the payments provided in Section 7(f), if applicable,
or (ii) termination of the Executive of Executive's employment with the
Company (other than a termination as permitted by Section 1 O(c) hereof,
Executive agrees that he will not, directly or indirectly, serve in an
executive capacity, whether as an officer or director, or as a consultant,
employee or agent, for any business (whether a corporation, partnership, sole
proprietorship or other business form) which is substantially engaged in the
conduct of the Business in the Region without the expressed written permission
of the CEO of NEWCARE.
(c) Non-Solicitation of Employees. The Executive agrees that during his
employment by the Company and for a period of twenty-four (24) months
following the expiration or termination of such employment for whatever
reason, the Executive shall not directly or indirectly, whether as an
individual for his own account or with any other person, firm, corporation,
partnership, joint venture or entity whatsoever, solicit or endeavor to entice
away from the Company or any subsidiaries of those entities (collectively,
the"Affiliates") any employee who was employed by the Company or any such
Affiliate during the period that the Executive was employed by the Company
without the expressed permission of the CEO of the NEWCARE.
(d) Non-Solicitation of Facilities: Non-Interference with Trade
Relationships. The Executive shall not, during the term of his employment by
the Company and for a period of twenty-four (24) months following the
expiration or termination of such employment for whatever reason, directly or
indirectly, through any other individual or entity, solicit, entice, persuade
or induce any other individual or entity to terminate, reduce, change or
refrain from renewing or extending his contractual or prospective contractual
or other relationship with the Company or any of the Affiliates, and the
Executive shall not approach or solicit, directly or indirectly, any health
care facility which is managed by the Company or any of the Affiliates for any
of the above purposes or authorize or knowingly cooperate with the taking of
any of the above actions by any other individual or entity.
(e) Severability. The Executive agrees that the covenants and agreements
contained in Sections 7(a), 7(b), 7(c) and 7(d) of this Agreement, are of the
essence of this Agreement; that the Executive has agreed to the agreements set
forth in Section 7(a), 7(b), 7(c) and 7(d) as an inducement to the Company to
employ the Executive; that each of such covenants is reasonable and necessary
to protect and preserve the interests and properties of the Company and the
business of the Company; that the Company and the Affiliates are engaged in
the Business in and throughout the Region; that the Business of the Company
and the Affiliates are sufficiently related such that the Company would suffer
irreparable loss and damage if the Executive were to solicit employees of, or
health care facilities managed by, any of the Affiliates or to disseminate
confidential information of the Affiliates; that irreparable loss and damage
will be suffered by the Company should the Executive breach any such covenants
and agreements; that each of such covenants and agreements is separate,
distinct and severable not only from the other of such covenants and
agreements but also from the other and remaining provisions of this Agreement;
and that the enforceability of any such covenant or agreement shall not affect
the validity or enforceability of any other such covenants or agreements or
any other provision or provisions of this Agreement.
(f) Injunctive Relief. The Executive agrees that the remedy at law for
any breach or threatened breach of any covenant contained in this Paragraph 6
will be inadequate and that the Company, in addition to such other remedies as
may be available to it, at law or in equity, shall be entitled to injunctive
relief without bond or other security.
7. Termination.
(a) Notice Periods. Notwithstanding any provisions contained herein to
the contrary, the Executive's employment may be terminated by the Company at
any time, without notice, for any reason or without reason, and the Executive
may terminate his employment upon thirty (30) days' notice to the Company
without reason.
(b) "Disability". For purposes of this Agreement, "Disability" shall
mean the Executive is mentally or physically disabled from properly performing
his duties and responsibilities hereunder for a period of one hundred twenty
(120) consecutive days or for one hundred eighty (180) days even though not
consecutive, within any one (1) year period, all as determined by a physician
reasonably acceptable to the Executive and the Company in good faith by the
Company's Board of Directors and supported by medical evidence.
(c) "Cause". For purposes of this Agreement, for "Cause" shall mean: (i)
the conviction of the Executive of a felony by a federal or state court of
competent jurisdiction; (ii) any action by the Executive which constitutes
fraud, misappropriation of funds or embezzlement; (iii) a decree by a court of
competent jurisdiction that the Executive is not competent to manage his own
affairs; or (iv) the intentional commission or omission, with blatant
malevolent intent, of an act which jeopardizes the continuing effectiveness of
the Business or of the certificates, licenses or other authorizations held by
the Company and necessary for the conduct of the Business.
(d) Benefits Following Termination. Except as expressly provided
elsewhere in this Agreement, upon the termination of Executive's employment
with Company, then the Company shall have no further obligations or
liabilities to the Executive hereunder, such that all benefits and salary
provided for within this Agreement shall terminate simultaneously with the
termination of the Executive's employment, except for benefits and salary
earned and accrued through the date of termination. Nothing in this
subparagraph (e) shall supersede any rights of the Executive to receive any
amounts or benefits otherwise due to him, whether such rights are created by
this Agreement or otherwise. Notwithstanding the foregoing, in the event that
the Executive's employment is terminated due to disability, the Company shall
continue to pay the salary and maintain benefits for Executive for a period
equal to one (1) year from the date on which the Executive first became unable
to Perform his duties and responsibilities hereunder as a result of such
disability.
(e) Termination Other than for Cause or Due to Disability. In the event
of the Executive's termination by the Company other than for Cause, due to
disability, the Company shall continue to provide the Executive with the
salary and benefits enumerated herein for a period of one year, following
termination.
(f) Termination Notices. Any termination by the Company or by the
Executive shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for the termination of the
Executive's employment.
8. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of Georgia.
9. Notices. All notices required or permitted to be given by either
party hereunder, including notice of change of address, shall be given in
writing and delivered by hand, or mailed, postage prepaid, certified or
registered mail, return receipt requested, or by nationally recognized
overnight courier service, to the other party at the addresses set forth on
the first page of this Agreement, or to such other address as may be
designated by either party to the other party hereto. Notices shall be
effective upon delivery, or if delivery is refused, upon tender of delivery.
10. Miscellaneous.
(a) Entire Agreement. (i) This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes any and all prior oral or written agreements and understanding.
There are no oral promises, conditions, representations, understandings,
interpretations or terms. of any kind as conditions or inducements to the
execution hereof or in effect among parties. This Agreement may not be
amended, and no provision hereof shall be waived, except by a waiver, by the
party waiving compliance therewith, which states that it is intended to amend
or waive a provision of this Agreement. Any waiver of any rights or failure to
act in a specific instance shall relate only to such instance and shall not be
construed as an agreement to waive any rights or failure to act in any other
instance, whether or not similar.
(ii) The parties hereto agree that, after the execution of this
Agreement, they will take, do, execute or cause or permit to be made, done or
executed all such further and other lawful acts, deeds, things, devices,
conveyances and assurances in law whatsoever as may be required to carry out
the true intention and to give full force and effect to this Agreement.
(b) Severability. Should any provision of this Agreement be held by a
court of competent jurisdiction to be unenforceable or prohibited by an
applicable law, this Agreement shall be considered divisible as to such
provision, which shall be inoperative, and the remainder of this Agreement
shall be valid and binding as though such provision were not included herein.
(c) Successors and Assigns. This Agreement shall inure to the benefit
of, and be binding upon, the Company and any person or entity with which the
Company merges or consolidates or to which the Company sells all or
substantially all of its assets. Notwithstanding anything herein to the
contrary, Executive shall have the right to cancel this Agreement and not be
bound by the provision of Section 6 should the Company be sold, or elect to
merge with or sell its assets to another company or should the Company or its
controlling Officers be engaged in or convicted of any illegal activity.
(d) Headlines. All headings in this Agreement are for convenience only
and are not intended to affect the meaning of any provision hereof.
(e) Counterparts. This Agreement may be executed in two or more
counterparts with the same effect as if the signatures to all such
counterparts were upon the same instrument, and all such counterparts shall
constitute but one instrument.
(f) Good Faith. The parties acknowledge that this Agreement has been
entered into in good faith and that each pasty will exercise good faith in the
performance of its obligations and enforcement of its rights hereunder.
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement under seal as of the day and year first above written.
"EXECUTIVE" "COMPANY"
NEWCARE NURSING CORPORATION
/s/ Timothy Beaulieu (SEAL) By/s/ __________________________
Timothy J. Beauliu Its: President
Attest: /s/ Kerry Emrick
Its: Vice President<PAGE>
<PAGE>
SCHEDULE 1
1. Bonus Plan. The Company shall develop a bonus plan which, as a result of
the employee performance, will allow the Executive to earn a minimum of
$30,000 in annual bonus.
2. Relocation Expense. The Company shall pay relocation expenses in the form
of a one time payment in the amount of $37,500 to be paid during the first two
weeks of employment.
3. The Company shall maintain, at its sole expense, a life insurance policy
covering the Executive and providing a death benefit of $500,000.00 and made
payable to a beneficiary designated by the Executive.
4. The Company shall pay any incremental cost of maintaining dependent health
coverage on the Executive's dependents.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of the 2 day of
June,
1997, by and between NEWCARE HEALTH CORPORATION, a Nevada Corporation,
hereinafter sometimes referred to as "EMPLOYER" and James H. Sangreget
hereinafter sometimes referred to as "EMPLOYEE".
WHEREAS, the EMPLOYER has offered and the EMPLOYEE has accepted
employment
upon certain terms and conditions; and
WHEREAS, the parties desire to reduce the employment agreement in
writing;
NOW, THEREFORE, IT IS MUTUALLY AGREED AS FOLLOWS:
W I T N E S S E T H :
ARTICLE I.
DUTIES AND TERM
FOR AND IN CONSIDERATION of Ten ($10.00) Dollars, and other good and
valuable considerations exchanged between the parties, receipt of which is
hereby
acknowledged,
The EMPLOYER does hereby employ the EMPLOYEE for a term of three (3)
years
to commence on the first day of June 1997, and to continue thereafter unless
sooner terminated as provided hereinafter below.
THE EMPLOYEE shall serve in a capacity with the EMPLOYER as Chief
Financial
Officer, or such other office as may be designated from time to time by the
Corporation's Board of Directors. The EMPLOYEE shall devote his full time,
undivided attention and full business efforts to his duties as an employee of
the
Corporation which shall include but are not limited to the following:
(a) Hire, train and employ all employees under him as may be required on
behalf of the Corporation for the Corporation to conduct its business in an
orderly fashion;
(b) Maintain physical responsibility by keeping or cause to be kept all
necessary financial books and records of the corporation in a customary and
orderly fashion;
(c) To report to the Corporation's executives or Board as from time to
time
shall be directed to the EMPLOYEE;
(d) To be a faithful and loyal employee and act in a fiduciary manner
with
the EMPLOYER in performing his duties in a professional and satisfactory
manner
as may be in the best interest of the EMPLOYER.
(e) To refrain from engaging in other business enterprises either
directly
or indirectly during this Agreement without the express prior written approval
of EMPLOYER.
ARTICLE II.
COMPENSATION AND BENEFITS
The EMPLOYER shall pay to the EMPLOYEE an annual salary of One Hundred
Forty-Four Thousand and 00/100 Dollars ($144,000) beginning June 1, 1997, One
Hundred Eighty-Four Thousand and 00/100 Dollars ($184,000) beginning June 1,
1998
and Two Hundred Twenty-Four Thousand and 00/100 Dollars ($224,000) beginning
June
1, 1999, payable in accordance with normal payroll procedures.
The EMPLOYER shall provide health insurance (Family Coverage) to the EMPLOYEE
upon its standard group policy of the EMPLOYER. The EMPLOYEE shall take such
holiday leave and sick leave with pay as may be determined by the EMPLOYER'S
Board. The EMPLOYEE shall receive three (3) weeks paid vacation each year of
the
Agreement. The EMPLOYER shall provide EMPLOYEE $500,000 term life insurance
during the term of this Agreement. The EMPLOYER shall pay EMPLOYEE $700 each
month car allowance during the term of this Aqreement.
ARTICLE III.
RESTRICTIVE COVENANTS
The EMPLOYEE further covenants and agrees that he will not, during the
term
of this employment nor for a period of two (2) years immediately following the
termination of this employment (regardless of whether said termination is
voluntary or involuntary) engage in the business of or be employed by a
business
entity in competition with the primary business of the EMPLOYER. For purposes
of
this Agreement, the primary business of the EMPLOYER is the operation and
management of health care facilities. This restrictive covenant shall apply in
a geographic area within twenty-five (25) miles of each city or cities in
which
the EMPLOYER does business or has done business during the term of this
Agreement. This restrictive covenant is apolicable to employment or service
directly or indirectly by the EMPLOYEE through consultation, advice or other
indirect methods of competition. The EMPLOYEE is further restricted upon
termination of this employment (voluntarily or involuntarily) from the
employment
of or offer of employment to any other employees of the Corporation or from
engaging in business in partnership or joint ownership of another business
entity
with any other employee of the Corporation for a period of twelve (12) months
after the termination either voluntarily or involuntarily of this Employment
Agreement.
The EMPLOYEE agrees that during the course of his employment, he will
acquire information and knowledge respecting the confidential affairs of the
EMPLOYER in various phases of its business. Accordingly, the EMPLOYEE agrees
that
he shall not, at any time, use for himself or disclose to any other person not
employed by the Corporation, any such knowledge or information heretofore
acquired or acquired during the term of this Agreement. He further agrees that
all memorandums, notes, records, papers and other documents and all copies
thereof relating to the Corporation's operation or business, some of which may
be prepared by him, and all other objects associated therewith and in any way
obtained by him, shall be the Corporation's property. This shall include, but
is
not limited to, documents and objects, concerning any process, system,
approach,
technique, consultation or advice to clients, business techniques and other
trade
secrets. At the conclusion of this Agreement, whether voluntarily or
involuntarily, the EMPLOYEE shall deliver all such documents and objects that
may
be in his possession to the Corporation, at the Corporation's request,
together
with his written certification of compliance.
The parties further agree that should the EMPLOYEE violate the terms of
this restrictive covenant, that the EMPLOYER shall be entitled to not only
monetary damages as may be assessed by a Court of competent jurisdiction, but
in
addition, extraordinary injunctive relief to prohibit perpetually violation of
these restrictive covenants.
ARTICLE IV.
MISCELLANEOUS
This Agreement shall be governed by and construed in accordance with the
laws of the State of Georgia. Should any particular provision or paragraph or
article of this Agreement be determined by a Court of competent jurisdiction
to
be illegal, then the remaining provisions shall be severable and legally
binding.
This Agreement shall inure to and be binding upon the Executors,
Administrators, and personal representatives of the EMPLOYEE and the
EMPLOYER'S
assigns or successors in interest. Should it become necessary to enforce any
of
the terms, provisions or obligations in this Agreement, the guilty party shall
pay the other parties' reasonable attorney fees incurred as a result of any
action for the enforcement of all rights, duties and obligations contained
herein.
IN WITNESS WHEREOF, the parties have executed this Agreement on this 17 day of
June 1997.
EMPLOYER:
NEWCARE HEALTH CORPORATION
By: /s/ Chris Brogdon
Its: President
EMPLOYEE:
/s/ James H. Sanregret
JAMES H. SANREGRET
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of the 1st day of
August 1997, by and between NEWCARE HOSPITAL CORPORATION, a Georgia
Corporation,
hereinafter sometimes referred to as "EMPLOYER" and Arthur M. Doloresco
hereinafter sometimes referred to as "EMPLOYEE".
WHEREAS, the EMPLOYER has offered and the EMPLOYEE has accepted
employment
upon certain terms and conditions; and
WHEREAS, the parties desire to reduce the employment agreement in
writing;
NOW, THEREFORE, IT IS MUTUALLY AGREED AS FOLLOWS:
W I T N E S S E T H :
ARTICLE I.
DUTIES AND TERM
FOR AND IN CONSIDERATION of Ten ($10.00) Dollars, and other good and
valuable considerations exchanged between the parties, receipt of which is
hereby
acknowledged,
The EMPLOYER does hereby employ the EMPLOYEE for a term of three (3)
years
to commence on the first day of August 1997 (the "Expected Term"),unless
sooner
terminated as provided hereinafter below.
THE EMPLOYEE shall serve in a capacity with the EMPLOYER as President.
The
EMPLOYEE shall devote his full time, undivided attention and full business
efforts to his duties as an employee of the Corporation which shall include
but
are not limited to the following:
(a) Hire, train and employ all employees under him as may be required on
behalf of the Corporation for the Corporation to conduct its business in an
orderly fashion;
(b) Maintain fiscal responsibility by keeping or causing to be kept all
necessary financial books and records of the EMPLOYER in a customary and
orderly
fashion;
(c) Report to the EMPLOYER's Board as from time to time shall be directed
to the EMPLOYEE;
(d) Perform his duties in a professional manner and in the best interest
of the EMPLOYER.
(e) Refrain from engaging in other business enterprises either directly
or
indirectly during this Agreement without the express prior written approval of
EMPLOYER; provided, however, nothing herein shall prohibit or limit EMPLOYEE
from
holding non-controlling interests in publically-traded entities.
ARTICLE II.
COMPENSATION AND BENEFITS
The EMPLOYER shall reimburse EMPLOYEE for all reasonable expenses
incurred
by EMPLOYEE in his performance hereunder and pay to the EMPLOYEE an annual
salary
of Three Hundred Twenty-Five Thousand and 00/100 Dollars ($325,000) beginning
August 1, 1997, Three Hundred Fifty Thousand and 00/100 Dollars ($350,000)
beginning August 1, 1998 and Three Hundred Seventy-Five Thousand and 00/100
Dollars ($375,000) beginning August 1, 1999, payable no less frequently than
monthly and otherwise in accordance with normal payroll procedures. In
addition,
EMPLOYEE shall be entitled to receive an annual bonus based on the following
schedule, determined by reference to Applicable Periods (each such Applicable
Period consisting of a full calendar year or so much of a calendar year as
coincides with the term hereof) and appropriately prorated in the case of an
Applicable Period which consists of less than a full calendar year: $200,000
in
any Applicable Period in which EBITDAR exceeds 20% of the net revenue of the
EMPLOYER; $275,000 in any Applicable Period in which EBITDAR exceeds 25% of
the
net revenue of the EMPLOYER; or $350,000 in any Applicable Period in which
EBITDAR exceeds 30% of the net revenue of the EMPLOYER.
The EMPLOYER shall provide health and dental insurance (Family Coverage)
to the EMPLOYEE upon the standard group policy of the EMPLOYER or NewCare
Health
Corporation ("NWCA"), for each benefit whichever is more favorable for
beneficiaries. The EMPLOYEE shall receive three (3) weeks paid vacation and 5
days paid sick leave each year of the Agreement. The EMPLOYER shall provide
EMPLOYEE $1,000,000 term life insurance during the term of this Agreement.
EMPLOYEE shall be entitled to participate in all stock purchase plans and
401(k)
plans otherwise available to senior executives of the EMPLOYER or NWCA, for
each
benefit whichever is more favorable for beneficiaries.
The EMPLOYER shall promptly reimburse EMPLOYEE for all reasonable moving
expenses associated with relocating from Houston, Texas to Atlanta, Georgia
(including the transport of two motor vehicles and reasonable transportation,
lodging and meal expense for EMPLOYEE and EMPLOYEE's spouse associated with
locating a residence in Atlanta), provided, however, such amounts shall be
promptly returned to EMPLOYER in the event this agreement is terminated on or
before July 31, 1998 by EMPLOYER for cause as hereinafter defined or by
EMPLOYEE
other than for cause. On or before August 15, 1997 EMPLOYER shall purchase
from
EMPLOYEE (or cause to be purchased from EMPLOYEE) EMPLOYEE's existing
residence
in Houston, Texas (the "Existing Residence") for the price paid by EMPLOYEE
(the
"Purchase Price") for such residence (such price being approximately
$542,000),
and EMPLOYER shall also pay EMPLOYEE an additional amount (the "Gross-up
Amount")
equal to the sum of all income taxes payable by EMPLOYEE related to (i) the
difference between the Purchase Price and the fair market value of the
Existing
Residence and (ii) the Gross-up Amount; provided, however, that in the event
EMPLOYEE sells the Existing Residence prior to the purchase by EMPLOYER (and
if
EMPLOYEE has obtained EMPLOYER's consent if the purchase price is less than
the
Purchase Price), EMPLOYER shall pay EMPLOYEE the difference, if any, between
the
Purchase Price and the purchase price paid by the third party of the Existing
Residence and an additional amount (the "Third Party Gross-up Amount") equal
to
the sum of all income taxes payable by EMPLOYEE related to (y) the difference
between the Purchase Price and the purchase price paid by the third party and
(z)
the Third Party Gross-up Amount. If this Agreement is terminated on or before
July 31, 1998 by EMPLOYER for cause or notice is given by EMPLOYEE to EMPLOYER
on or before July 31, 1998 that EMPLOYEE intends to terminate this Agreement
other than for cause, EMPLOYEE shall promptly pay EMPLOYER all amounts paid by
EMPLOYER to EMPLOYEE pursuant to the preceding sentence less amounts received
by
EMPLOYER upon the sale of the Existing Residence by EMPLOYER.
As additional compensation, EMPLOYEE shall receive, within 5 days
following
execution hereof by the later signing party, 5 shares of the existing capital
stock of the EMPLOYER (without preemptive rights), subject to and legended to
describe the vesting schedule described below. EMPLOYER hereby represents and
warrants that (x) EMPLOYER's authorized capital stock currently consists of
1,000
shares of common stock and (y) except for the 5 shares to be issued to
EMPLOYEE
hereunder and 95 shares issued and/or to be issued to NWCA or its designees
and/or Dan Carter or his designees ("Carter"), there is no present intention,
plan or agreement for the issuance of any shares of EMPLOYER's stock;
provided,
however, EMPLOYER and EMPLOYEE acknowledge and agree that nothing herein shall
prohibit or limit EMPLOYER's right to issue additional capital stock of
EMPLOYER
or to otherwise alter the capital structure of EMPLOYER. EMPLOYEE hereby
acknowledges and agrees that he has and shall have no interest in any of the
95
shares issued or to be issued to NWCA and/or Carter, whether or not any such
shares are in fact issued to Carter. EMPLOYER and EMPLOYEE agree that the
aggregate fair market value of the shares to be issued to EMPLOYEE hereunder,
determined without taking into account (and therefore without reduction for)
the
vesting schedule with respect to such shares, is Fifty Dollars ($50.00). The
shares os stock to be issued to EMPLOYEE shall vest as follows if EMPLOYEE is
still employed by EMPLOYER: 1 share on July 31, 1998; 1 share on July 31,
1999;
1 share on July 31, 2000; 1 share on July 31, 2001; and 1 share on July 31,
2002;
provided, however, in the event this Agreement is not renewed or extended
beyond
July 31, 2000, but EMPLOYEE remained employed until that date, the remaining 3
shares (including the 1 share which would vest on July 31, 2000 described
above)
shall vest on July 31, 2000; further provided, however, that the entire 5
shares
shall immediately vest (i) in the event of termination of this Agreement by
EMPLOYER other than for cause or by EMPLOYEE for cause or (ii) in the event of
a business combination of EMPLOYER (merger, sale, etc.) in which (y) EMPLOYER
is
not the surviving entity or (z) the current Board of Directors of EMPLOYER (or
their designees) does not control the Board of Directors of the surviving
entity
(where, for this purpose the phrase "surviving entity" means the entity,
which,
after the subject transaction, owns all or substantially all of the assets
formerly owned by EMPLOYER and conducts all or substantially all of the
business
formerly conducted by EMPLOYER). EMPLOYER and EMPLOYEE acknowledge that,
contemporaneously herewith, NWCA will grant to EMPLOYEE under NWCA's stock
option
plan an option to purchase 50,000 shares of common stock at the closing price
on
the date hereof, exercisable for a period of five years so long as EMPLOYEE
remains employed by EMPLOYER, all as more particularly described in the form
of
option agreement attached hereto as Exhibit "A"
ARTICLE III.
RESTRICTIVE COVENANTS
The EMPLOYEE further covenants and agrees that he will not, during the
term
of this Agreement and if this agreement is terminated (i) by EMPLOYER for
cause
or (ii) by EMPLOYEE other than for cause, for a period of two (2) years
immediately following the termination of this Agreement, engage or be employed
by a business entity which engages in competition with the primary business of
the EMPLOYER. For purposes of this Agreement, the primary business of the
EMPLOYER is the operation and management of hospital facilities. This
restrictive
covenant shall apply in (and only in) a geographic area within twenty-five
(25)
miles of each city or cities in which the EMPLOYER or any of its subsidiaries
operates a hospital at the time of termination of this Agreement. This
restrictive covenant is applicable to employment or service directly or
indirectly by the EMPLOYEE through consultation, advice or other indirect
methods
of competition. The EMPLOYEE is further restricted upon expiration of the term
of this Agreement or upon termination of this Agreement by EMPLOYER for cause
or
by EMPLOYEE other than for cause from the employment of or offer of employment
to any other employees of EMPLOYER or its subsidiaries or from engaging in
business in partnership or joint ownership of another business entity with any
other employee of EMPLOYER or its subsidiaries for a period of twelve (12)
months
after such expiration or termination of this Agreement.
The EMPLOYEE agrees that during the course of his employment, he will
acquire information and knowledge respecting the confidential affairs of the
EMPLOYER in various phases of its business. Accordingly, the EMPLOYEE agrees
that
he shall not, at any time, use for himself or disclose to any other person not
employed by EMPLOYER or its subsidiaries, any such knowledge or information
heretofore acquired or acquired during the term of this Agreement. He further
agrees that all memorandums, notes, records, papers and other documents and
all
copies thereof relating to EMPLOYER's operation or business, some of which may
be prepared by him, and all other objects associated therewith and in any way
obtained by him, shall be EMPLOYER's property. This shall include, but is not
limited to, documents and objects, concerning any process, system, approach,
technique, consultation or advice to clients, business techniques and other
trade
secrets. At the conclusion of this Agreement, whether voluntarily or
involuntarily, the EMPLOYEE shall deliver all such documents and objects that
may
be in his possession to EMPLOYER, together with his written certification of
compliance.
The parties further agree that should the EMPLOYEE violate the terms of
this restrictive covenant, EMPLOYER shall be entitled to not only monetary
damages as may be assessed by a Court of competent jurisdiction, but in
addition, extraordinary injunctive relief to prohibit continued violation of
these restrictive covenants.
ARTICLE IV.
TERMINATION
4.1 Termination by EMPLOYER for cause. EMPLOYER reserves the right to
terminate this Agreement at any time for any of the following reasons:
(1) EMPLOYEE shall fail to perform or comply with any term or condition
of
this Agreement and such failure continues for a period of (10) days (or such
longer period as is reasonable in the circumstances, but in any event
terminating at the earliest moment that EMPLOYEE is no longer prosecuting
such cure with reasonable diligence) following EMPLOYEE's receipt of a notice
from EMPLOYER which describes such failure in reasonable detail;
(2) EMPLOYEE commits any offense involving moral turpitude which would
offend public decency or morality, or causes EMPLOYEE or EMPLOYER public
ridicule or scorn;
(3) EMPLOYEE knowingly violates any federal, state or local laws or
ordinances for which EMPLOYER might become liable. Termination for cause for
any
of the above described reasons shall be immediately effective upon notice from
the EMPLOYER to the EMPLOYEE.
In the event of termination for cause by EMPLOYER, compensation and any
and
all benefits to which EMPLOYEE is entitled, unless otherwise provided by law,
shall cease at midnight on the date of notice of termination and EMPLOYEE
shall
have five (5) days within which to exercise any stock options previously
granted
to EMPLOYEE hereunder. For all purposes of this Agreement, termination of this
Agreement shall be considered termination "by EMPLOYER for cause" if and only
if
such termination is pursuant to this section 4.1.
4.2 Termination by EMPLOYER Other Than for Cause. EMPLOYER reserves the
right to terminate this Agreement other than for cause at any time upon notice
to EMPLOYEE, upon which termination, however, EMPLOYER shall pay severance
equal
to the lesser of (i) twelve (12) month's salary or (ii) the amount equal to
the
sum of the salary to be paid during the remaining term of this Agreement and
the
amount which would be payable (absent renewal or extension hereof) upon
expiration of this Agreement pursuant to section 4.5 of this Agreement. For
all
purposes of this Agreement, termination of this Agreement shall be considered
termination "by EMPLOYER other than for cause" if and only if such termination
is pursuant to this section 4.2.
4.3 Termination by EMPLOYEE for Cause. EMPLOYEE reserves the right to
terminate this Agreement at any time for any of the following reasons:
(1) EMPLOYER shall fail to perform or comply with any term or condition
of
this Agreement and such failure continues for a period of thirty (30) days (or
such longer period as is reasonable in the circumstances, but in any event
terminating at the earliest moment that EMPLOYER is no longer prosecuting such
cure with reasonable diligence) following EMPLOYER's receipt of a notice from
EMPLOYEE which describes such failure in reasonable detail; or
(2) EMPLOYER directs EMPLOYEE to take action (or to refrain from taking
action) which action (or refraining from action) is reasonably believed by
EMPLOYEE to constitute a violation of federal state or local laws or
ordinances
or professional or ethical or moral standards, in any case if (and only if)
EMPLOYER fails to withdraw such direction within a reasonable time after being
notified by EMPLOYEE of EMPLOYEE's such belief and EMPLOYEE'S intent to
terminate this Agreement: if EMPLOYER fails to withdraw such direction.
Termination for cause for any of the above described reasons shall be
immediately effective upon notice from EMPLOYEE to EMPLOYER. In the event of
termination for cause by EMPLOYEE, EMPLOYEE shall be entitled to compensation
and
all benefits applicable through the date of termination, together with
severance
equal to the lesser of (i) twelve ( 12) month's salary or (ii) the amount
equal
to the sum of the salary to be paid during the remaining term of this
Agreement
and the amount which would be payable (absent renewal or extension hereof)
upon
expiration of this Agreement pursuant to section 4.5 of this Agreement. For
all
purposes of this Agreement, termination of this Agreement shall be considered
termination "by EMPLOYEE for cause" if and only if such termination is
pursuant
to this section 4.3.
4.4 Termination by EMPLOYEE Other Than for Cause. EMPLOYEE reserves the
right to terminate this Agreement other than for cause on at least twelve (12)
month's notice; provided, however, EMPLOYEE's vesting of additional capital
stock pursuant to Article 2 shall terminate immediately (not at the time of
termination of employment) and EMPLOYER shall have the option to thereafter
terminate EMPLOYEE at any time upon notice to EMPLOYEE and pay EMPLOYEE
severance equal to twelve (12) month's salary less (i) all amounts paid by
EMPLOYER to EMPLOYEE after the date of notice of termination from EMPLOYEE
to EMPLOYER and (ii) any amounts to be paid by EMPLOYEE to EMPLOYER pursuant
to Article 2 of this Agreement. For all purposes of this Agreement.
Termination of this Agreement shall be considered termination "by EMPLOYEE
other than for cause" if and only if such termination is pursuant to this
section 4.4.
4.5 Expiration. Not less than 180 days prior to the end of the Expected
Term, EMPLOYER and EMPLOYEE agree to negotiate in good faith to renew or
extend
the term of this Agreement. In the event EMPLOYER and EMPLOYEE have not agreed
to renew or extend the term of this Agreement on or before 90 days prior to
the
end of the Expected Term, EMPLOYEE shall be permitted to spend reasonable
portions of each business day to seek other employment; provided, however,
EMPLOYEE shall be required to perform the duties required of EMPLOYEE
hereunder.
Upon termination of EMPLOYER's employment of EMPLOYEE as a result of the
expiration of the Expected Term (and not as a result of the application of any
previous section in this Article IV), EMPLOYEE shall be entitled to continue
to
receive compensation and all benefits applicable through the last day of the
Expected Term, as well as continuation of EMPLOYEE's base salary only for the
shorter of (i) six (6) months or (ii) until such time as EMPLOYEE is otherwise
employed; provided, however, EMPLOYER shall continue to pay EMPLOYEE the
difference, if any, between EMPLOYEE's base salary at the time of expiration
of
the Expected Term and EMPLOYEE's bona fide salary with his new employer until
the
expiration of the six (6) month period after the end of the Expected Term.
ARTICLE V.
MISCELLANEOUS
This Agreement shall be governed by and construed in accordance with the
laws of the State of Georgia. Should any particular provision or paragraph or
article of this Agreement be determined by a Court of competent jurisdiction
to
be illegal, then the remaining provisions shall be severable and legally
binding.
This Agreement shall inure to and be binding upon the Executors,
Administrators, and personal representatives of the EMPLOYEE and the
EMPLOYER'S
assigns or successors in interest. Should it become necessary to enforce any
of
the terms, provisions or obligations in this Agreement by litigation, the
non-prevailing party shall pay the other party's reasonable attorney fees
actually incurred in such litigation.
All notices and other communications hereunder shall be effective if and
only if in writing and delivered personally, sent by Federal Express or
similar
nationally recognized carrier, or mailed by registered or certified mail
(return
receipt requested), charges, or postage prepaid, to the addressee at the
addressee's address most recently supplied by the addressee to the sender by
effective notice hereunder (or, prior to such notice, at the address for the
addressee set forth below):
(a) if to EMPLOYER, to
NewCare Hospital Corporation
6000 Lake Forrest Drive, Suite 200
Atlanta, Georgia 30328
Attn: General Counsel
(b) if to EMPLOYEE, to
Arthur M. Doloresco
c/o Michael G. Wasserman
Holt Ney 2,atcoff & Wasserman, LLP
100 Galleria Parkway, Suite 600
Atlanta, Georgia 30339
Unless otherwise provided herein, written notices so delivered, sent or mailed
shall be effective on the earlier of (x) actual delivery or (y) as applicable,
either (i) the first business day following the date of deposit with a
qualified
courier service or (ii) the third business day following the date of deposit
with
the United States Postal Service. Any refusal to accept delivery of any such
communication shall be considered successful delivery and receipt thereof.
The parties acknowledge that EMPLOYEE is obliged to provide at least
thirty
(30) days' notice to his present employer of termination of such~ employment.
To
the extent that such obligation delays EMPLOYEE from commencing employment
hereunder on August 1, 1997, such delay shall be excused, but in no event
beyond
the sooner of (i) the fortieth (40th) day following execution hereof by the
later
signing party or (ii) the tenth (10th) day following release of EMPLOYEE by
EMPLOYEE's current employer (and EMPLOYEE shall be entitled to no compensation
or benefits for the period between August 1, 1997 and the date of his actual
commencement of employment hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement on this 17th
day of July 1997.
EMPLOYER:
NEWCARE HOSPITAL CORPORATION
By:/s/ Chris Brogdon
Its: President
EMPLOYEE:
/s/ Arthur M. Doloresco
NEWCARE HEALTH CORPORATION, as parent of EMPLOYER hereby guarantees the
performance of the obligations of EMPLOYER hereunder
NEWCARE HEALTH CORPORATION
By: /s/ Chris Brogdon
Its: Chairman
NEWCARE HEALTH CORPORATION
1997 STOCK OPTION PLAN
2,000,000 SHARES
This Stock Option Plan was adopted this 21st day April 1997, by NewCare
Health Corporation upon the following terms and conditions:
1. Definitions. Except as otherwise expressly provided in this Plan,
the
following capitalized terms shall have the respective meanings hereafter
ascribed
to them:
(a) "Board" shall mean the Board of Directors of the Corporation;
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended;
(c) "Consultant" shall mean a person who provides services to the
Corporation as an independent contractor;
(d) "Corporation" or "Company" means NewCare Health Corporation and
each and all of any present and future subsidiaries;
(e) "Date of Grant" shall mean, for each participant in the Plan,
the
date on which the Board approves the specific grant of stock options to that
participant;
(f) "Employee" shall be an employee of the Corporation or any
subsidiary of the Corporation;
(g) "Grantee" shall mean the recipient of an Incentive Stock Option
under the Plan;
(h) "Incentive Stock Option" shall refer to a stock option which
qualifies under Section 422 of the Code.
(i) "Non-statutory Option" shall mean an option which is not an
Incentive Stock Option.
(j) "Shares" shall mean the Corporation's common stock, no par
value;
(k) "Shareholders" shall mean owners of record of any Shares; and
2. Purpose. The purpose of this Stock Option Plan (the "Plan") is
two-fold. First, the Plan will further the interests of the Corporation and
its
shareholders by providing incentives in the form of stock options to employees
who contribute materially to the success and profitability of the Corporation.
Such stock options will be granted to recognize and reward outstanding
individual
performances and contributions and will give selected employees an interest in
the Corporation parallel to that of the shareholders, thus enhancing their
proprietary interest in the Corporation's continued success and progress.
This
program also will enable the Corporation to attract and retain experienced
employees. Second, the Plan will provide the Corporation flexibility
and the means to reward directors and consultants who render valuable
contributions to the Corporation.
3. Administration. This Plan will be administered by the Board. The
Board has the exclusive power to select the participants in this Plan, fix the
awards to each participant, and make all other determinations necessary or
advisable under the Plan, to determine whether the performance of an eligible
employee warrants an award under this Plan, and to determine the amount and
duration of the award. The Board has full and exclusive power to construe and
interpret this Plan, to prescribe, amend and rescind rules and regulations
relating to this Plan, and to take all actions necessary or advisable for this
Plan's administration. The Board shall have full power and authority to
determine, and at the time such option is granted shall clearly set forth,
whether the option shall be an Incentive Stock Option or a Non-statutory
Option.
Any such determination made by the Board will be final and binding on all
persons. A member of the Board will not be liable for performing any act or
making any determination required by or pursuant to the Plan, if such act or
determination is made in good faith.
4. Participants. Any employee, officer, director or consultant that
the
Board, in its sole discretion, designates is eligible to participate in this
Plan. However, only key employees of the Corporation shall be eligible to
receive grants of Incentive Stock Options. The Board's designation of a
person
as a participant in any year does not require the Board to designate that
person
to receive an award under this Plan in any other year or, if so designated, to
receive the same award as any other participant in any year. The Board may
consider such factors as it deems pertinent in selecting participants and in
determining the amount of their respective awards, including, but without
being
limited to: (a) the financial condition of the Corporation; (b) expected
profits
for the current or future years; (c) the contributions of a prospective
participant to the profitability and success of the Corporation; and (d) the
adequacy of the prospective participant's other compensation. The Board, in
its
discretion, may grant benefits to a participant under this Plan, even though
stock, stock options, stock appreciation rights or other benefits previously
were
granted to him under this or another plan of the Corporation, whether or not
the
previously granted benefits have been exercised, but the participant may hold
such options only on the terms and subject to the restrictions hereafter set
forth.
5. Kinds of Benefits. Awards under this Plan, if any, will be granted
in
options to acquire Shares as described below.
6. Options; Expiration; Limitations. Any Incentive Stock Option
granted
under this Plan shall automatically expire ten years after the Date of Grant
or
at such earlier time as may be described in Article 9 or directed by the Board
in the grant of the option. Notwithstanding the preceding sentence, no
Incentive
Stock Option granted to a Shareholder who owns, as of the Date of Grant, stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Corporation shall, in any event, be exercisable after
the expiration of five years from the Date of Grant. For the purpose of
determining under any provision of this Plan whether a shareholder owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Corporation, such Shareholder shall be considered as
owning the stock owned, directly or indirectly, by or for his brothers and
sisters (whether by the whole or half blood), spouse, ancestors and lineal
descendants, and stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be considered as being owned
proportionately
by or for its shareholders, partners or beneficiaries.
Upon the exercise of an option, the Corporation shall deliver to the
participant certificates representing authorized but unissued Shares. The
cumulative total number of shares which may be subject to options issued and
outstanding pursuant to this Plan is limited to 2,000,000 shares. This amount
automatically will be adjusted in accordance with Article 21 of this Plan. If
an option is terminated, in whole or in part, for any reason other than its
exercise, the Board may reallocate the shares subject to that option (or to
the
part thereof so terminated) to one or more other options to be granted under
this
Plan.
7. Option Exercise Price. Each option shall state the option price,
which shall be not less than 100% of the fair market value of the Shares on
the Date of Grant or the par value thereof whichever is greater. Notwith-
standing the preceding sentence, in the case of a grant of an Incentive Stock
Option to an employee who, as of the Date of Grant, owns stock possessing
more than ten percent of the total combined voting power of all classes of
stock of the Corporation or its Parent or Subsidiaries, the option price
shall not be less than 110% of the fair market value of the Shares on the
Date of Grant or the par value thereof, whichever is greater.
During such time as the Shares are not traded in any securities market,
the
fair market value per share shall be determined by a good faith effort of the
Board, using its best efforts and judgment. During such time as the Shares
are
traded in a securities market but not listed upon an established stock
exchange,
the fair market value per share shall be the mean between dealer "bid" and
"ask"
prices in the securities market in which it is traded on the Date of Grant, as
reported by the National Association of Securities Dealers, Inc. If the
Shares
are listed upon an established stock exchange or exchanges such fair market
value
shall be deemed to be the highest closing price on such stock exchange or
exchanges on the Date of Grant, or if no sale of any Shares shall have been
made
on any stock exchange on that day, on the next preceding day on which there
was
such a sale. Subject to the foregoing, the Board shall have full authority
and
discretion in fixing the option price and shall be fully protected in doing
so.
8. Maximum Option Exercise. The aggregate fair market value
(determined
as of the Date of Grant) of the stock with respect to which Incentive Stock
Options are exercisable for the first time by a grantee during any calendar
year
(under all such plans of the Corporation and its parent or subsidiary, if any)
shall not exceed $100,000. For purposes of this Article 8, the value of stock
acquired through the exercise of Non-statutory Options shall not be included
in
the computation of the aggregate fair market value.
9. Exercise of Options.
(a) No stock option granted under this Plan may be exercised before
the Grantee's completion of such period of services as may be specified by the
Board on the Date of Grant. Furthermore, the timing of the exercise of any
option granted under this Plan may be subject to a vesting schedule based upon
years of service or an expiration schedule as may be specified by the Board on
the Date of Grant. Thereafter, or if no such period is specified subject to
the
provisions of subsections (c), (d), (e), (f) and (g) of this Article 9, the
Grantee may exercise the option in full or in part at any time until
expiration
of the option.
A Grantee cannot exercise an Incentive Stock Option granted under
this
Plan unless, at the time of exercise, he has been continuously employed by the
Corporation since the date the option was granted. The Board may decide in
each
case to what extent bona fide leaves of absence for illness, temporary
disability, government or military service, or other reasons will not be
deemed
to interrupt continuous employment.
(b) Unless an Option specifically provides to the contrary, all
options granted under this Plan shall immediately become exercisable in full
in
the event of the consummation of any of the following transactions:
(1) A merger or acquisition in which the Company is not the
surviving entity;
(2) The sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
(3) Any merger in which the Company is the surviving entity
but
in which fifty percent (50%) or more of the Company's outstanding voting stock
is issued to holders different from those who held the stock immediately prior
to such merger.
(c) Except as provided in subsections (d), (e) and (f) of this
Article
9, a Grantee cannot exercise an Incentive Stock Option after he ceases to be
an
employee of the Corporation, unless the Board, in its sole discretion,
grants the
recipient an extension of time to exercise the Incentive Stock Option after
cessation of employment. The extension of time of exercise that may be
granted
by the Board under this subsection (c) shall not exceed three months after the
date on which the Grantee ceases to be an employee and in no case shall extend
beyond the stated expiration date of the option.
(d) If the employment of a Grantee is terminated by the Corporation
for a cause as defined in subsection (I) of this Article 9, all rights to any
stock option granted under this Plan shall terminate, including
but not limited to the ability to exercise such stock options.
(e) If a Grantee ceases to be an employee as a result of
retirement,
he may exercise the Incentive Stock Option within three months after the date
on
which he ceases to be an employee (but no later than the stated expiration
date
of the option) to the extent that the Incentive Stock Option was exercisable
when
he ceased to be an employee. An employee shall be regarded as retired if he
terminates employment after his sixty-fifth birthday.
(f) If a Grantee ceases to be an employee because of disability
(within the meaning of Section 105(d)(4) of the Code), or if a Grantee dies,
and
if at the time of the Grantee's disability or death he was entitled to
exercise
an Incentive Stock Option granted under this Plan, the Incentive Stock Option
can
be exercised within 12 months after his death or termination of employment on
account of disability (but no later than the stated expiration date of the
option), by the Grantee in the case of disability or, in case of death, by his
personal representative, estate or the person who acquired by gift, bequest or
inheritance his right to exercise the Incentive Stock Option. Such options
can
be exercised only as to the number of shares for which they could have been
exercised at the time the Grantee died or became disabled.
(g) With respect to Non-statutory Options granted to Board members,
the Board may provide on the Date of the Grant that such options will expire a
specified number of days after such Board member ceases to be a member of the
Board. In the absence of any such provision, the option will expire on the
stated expiration date of the option.
(h) Any stock option granted under the Plan will terminate, as a
whole
or in part, to the extent that, in accordance with this Article 9, it no
longer
can be exercised.
(i) For purposes of this Article 9, "cause" shall mean the
following:
(1) Fraud or criminal misconduct;
(2) Gross negligence;
(3) Willful or continuing disregard for the safety or
soundness
of the Corporation;
(4) Willful or continuing violation of the published rules of
the
Corporation.
10. Method of Exercise. Each option granted under this Plan will be
deemed
to be exercised when the holder of it indicates his decision to do so in
writing
delivered to the Corporation and concurrently tenders to the Corporation full
payment as provided in paragraph 11 below pursuant to the exercise of the
option
and complies with such other reasonable requirements as the Board establishes
pursuant to this Plan. No person, personal representative, estate or other
entity will have the rights of a shareholder with respect to shares subject to
an option granted under this Plan until a certificate or certificates for the
shares have been delivered to the person exercising the option.
Any option granted under this Plan may be exercised as to any lesser
number
of shares than the full amount for which such option has been granted. A
partial
exercise of an option will not affect the Grantee's rights to exercise the
option
from time to time in accordance with this Plan as to the remaining shares
subject to the option.
11. Payment of the Exercise Price. Payment of the Exercise Price may be
made in cash (by check) or, where approved by the Company in its sole
discretion
and where permitted by law: (a) by cancellation of indebtedness of the Company
to Holder; (b) by surrender of shares of common stock of the Company having a
Fair Market Value equal to the exercise price of the Option that have been
owned
by Holder for more than six (6) months (and which have been paid for within
the
meaning of SEC Rule 144 and, if such Shares were purchased from the Company by
use of a promissory note, such note has been fully paid with respect to such
shares), or were obtained by Holder in the open public market; (c) by waiver
of
compensation due or accrued to Holder for services rendered; (d) provided that
a public market for the Company's stock exists, through a "same day sale"
commitment from Holder and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD Dealer") whereby Holder
irrevocably
elects to exercise the Option and to sell a portion of the Shares so purchased
to pay for the Exercise Price and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price directly to the
Company; (e) provided that a public market for the Company's stock exists,
through a "margin" commitment from Holder and an NASD Dealer whereby Holder
irrevocably elects to exercise the Option and to pledge the Shares so
purchased
to the NASD Dealer in a margin account as security for a loan from the NASD
Dealer in the amount of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the Exercise Price
directly to the Company; or (f) by any combination of the foregoing.
12. Taxes; Compliance with Law; Approval of Regulatory Bodies. The
Corporation, if necessary or desirable, may pay or withhold the amount of
any tax
attributable to any amount payable or shares deliverable under this Plan and
the
Corporation may defer making payment on delivery until it is indemnified to
its
satisfaction for that tax. Stock options are exercisable, and shares can be
delivered under this Plan, only in compliance with all applicable federal and
sate laws and regulations, including, without limitation, state and federal
securities laws, and the rules of all stock exchanges on which the
Corporation's
shares are listed at any time. Any certificate issued pursuant to options
granted under this Plan shall bear such legends and statements as the Board
deems
advisable to assure compliance with federal and state laws and regulations.
No
option may be exercised, and shares may not be issued under this Plan, until
the
Corporation has obtained the consent or approval of every regulatory body,
federal or state, having jurisdiction over such matters as the Board deems
advisable.
Specifically, in the event that the Corporation deems it necessary or
desirable to file a registration statement with the Securities and Exchange
Commission or any State Securities Commission, no option granted under the
Plan
may be exercised, and shares may not be issued, until the Corporation has
obtained the consent or approval of such Commission.
In the case of the exercise of an option by a person or estate acquiring
by
bequest or inheritance the right to exercise such option, the Board may
require
reasonable evidence as to the ownership of the option and may require such
consents and releases of taxing authorities as the Board deems advisable.
13. Assignability. Each option granted under this Plan is not
transferable
other than by will or the laws of descent and distribution. Each option is
exercisable during the life of the Grantee only by him.
14. Tenure. A participant's right, if any, to continue to serve the
Corporation as an officer, employee or otherwise, will not be enlarged or
otherwise affected by his designation as a participant under this Plan, and
such
designation will not in any way restrict the right of the Corporation to
terminate at any time the employment or affiliation of any participant for
cause
or otherwise.
15. Amendment and Termination of Plan. The Board may alter, amend or
terminate this Plan from time to time without approval of the shareholders.
However, without the approval of the shareholders, no amendment will be
effective
that:
(a) materially increases the benefits accruing to participants
under
the Plan;
(b) increases the cumulative number of shares that may be delivered
upon the exercise of options granted under the Plan or the aggregate fair
market
value of options which a participant may exercise in any calendar year;
(c) materially modifies the eligibility requirements for
participation
in the Plan; or
(d) amends the requirements of paragraphs (a)-(c) of this Article
14.
Any amendment, whether with or without the approval of shareholders, that
alters the terms or provisions of an option granted before the amendment will
be
effective only with the consent of the participant to whom the option was
granted
or the holder currently entitled to exercise it, except for adjustments
expressly authorized by this Plan.
16. Expenses of Plan. The expenses of the Plan will be borne by the
Corporation.
17. Duration of Plan. Options may only be granted under this Plan
during
the ten years immediately following the earlier of the adoption of the Plan or
its approval by the Shareholders. Options granted during that ten year period
will remain valid thereafter in accordance with their terms and the provisions
of this Plan.
18. Other Provisions. The option agreements authorized under the Plan
shall contain such other provisions including, without limitation,
restrictions
upon the exercise of the option, as the Board shall deem advisable. Any such
option agreements, which are intended to be "Incentive Stock Options" shall
contain such limitations and restrictions upon the exercise of the option as
shall be necessary in order that such option will be an "Incentive Stock
Option"
as defined in Section 422 of the Code.
19. Indemnification of the Board. In addition to such other rights of
indemnification as they may have as directors, the members of the Board shall
be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with the
defense
of any action, suit or proceeding, or in connection with any appeal therein,
to
which they or any of them may be a party by reason of any action taken or
failure
to act under or in connection with the Plan or any option granted thereunder,
and against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the
Corporation)
or paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such director is liable for negligence or
misconduct in the performance of his duties; provided that within 60 days
after
the institution of any such action, suit or proceeding a director shall in
writing offer the Corporation the opportunity, at its own expense, to handle
and
defend the same.
20. Application of Funds. The proceeds received by the Corporation from
the sale of stock pursuant to options granted under this Plan will be used for
general corporate purposes.
21. No Obligation to Exercise Option. The granting of an option shall
impose no obligation upon the Grantee to exercise such option.
22. Adjustment Upon Change of Shares. If a reorganization, merger,
consolidation, reclassification, recapitalization, combination or exchange of
shares, stock split, stock dividend, rights offering, or other event affecting
shares of the Corporation occurs, then the number and class of shares to which
options are authorized to be granted under this Plan, the number and class of
shares then subject to options previously granted under this Plan, and the
price
per share payable upon exercise of each option outstanding under this Plan
shall
be equitably adjusted by the Board to reflect such changes.
23. Number and Gender. Unless otherwise clearly indicated in this Plan,
words in the singular or plural shall include the plural and singular,
respectively, where they would so apply, and words in the masculine or neuter
gender shall include the feminine, masculine or neuter gender where
applicable.
24. Applicable Law. The validity, interpretation and enforcement of
this
Plan are governed in all respects by the laws of Nevada.
25. Effective Date of Plan. This Plan shall not take effect until
adopted
by the Board. This Plan shall terminate if it is not approved by the holders
of
a majority of the outstanding shares of the capital stock of the Corporation,
which approval must occur within the period beginning twelve months before and
ending twelve months after the Plan is adopted by the Board.
NewCare Health Corporation
By:/s/ Ashok Dalal
Ashok Dalal, President
I hereby certify that the foregoing Stock Option Plan was approved by the
Board of Directors of NewCare Health Corporation the 21st day of April 1997.
______________________________________________
Secretary
I hereby certify that the foregoing Stock Option Plan was approved by the
Shareholders of NewCare Health Corporation the ____ day of ________ 1997.
_______________________________________________
Secretary
CONVERTIBLE LOAN AGREEMENT
DATED JANUARY 27, 1998
BY AND AMONG
NEWCARE HEALTH CORPORATION
AS BORROWER
AND
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
AND
RENAISSANCE US GROWTH & INCOME TRUST PLC
As Lenders
AND
RENAISSANCE CAPITAL GROUP, INC.
As Agent for the Lenders<PAGE>
<PAGE>
TABLE OF CONTENTS
ARTICLE I - DEFINITION OF TERMS
Section 1.01. Definitions
Section 1.02. Other Definition Provisions
ARTICLE II - LOAN PROVISIONS
Section 2.01. The Loan
Section 2.02. Use of Proceeds
Section 2.03. Interest Rate and Interest Payments
Section 2.04. Maturity
Section 2.05. Mandatory Principal Repayment
Section 2.06. Redemption
Section 2.07. Fees and Expenses
Section 2.08. Finder's Fees
Section 2.09. Taxes
Section 2.10. Conversion Rights
ARTICLE III - CONDITIONS PRECEDENT
Section 3.01. Document Requirements
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BORROWER
Section 4.01. Organization and Good Standing
Section 4.02. Authorization and Power
Section 4.03. No Conflicts or Consents
Section 4.04. Enforceable Obligations
Section 4.05. No Liens
Section 4.06. Financial Condition
Section 4.07. No Default
Section 4.08. Material Agreements
Section 4.09. No Litigation
Section 4.10. Taxes
Section 4.11. Capitalization
Section 4.12. Use of Proceeds
Section 4.13. Employee Matters
Section 4.14. Employee Benefit Plans
Section 4.15. Compliance with Laws
Section 4.16. Licenses and Permits
Section 4.17. Contracts
Section 4.18. Shares Issuable Upon Conversion
Section 4.19. Insider
Section 4.20. Subsidiaries
Section 4.21. Casualties
Section 4.22. Investment Company Act
Section 4.23. Sufficiency of Capital
Section 4.24. Corporate Names
Section 4.25. Insurance
Section 4.26. Intellectual Property
Section 4.27. Real Property
Section 4.28. Certain Representations With Respect to Borrower's Business
Section 4.29. Reimbursement Matters
Section 4.30. Hill-Burton Funds
Section 4.31. Environmental
Section 4.32. Survival of Representations and Warranties
Section 4.33. Full Disclosure 26
ARTICLE V - AFFIRMATIVE COVENANTS OF BORROWER
Section 5.01. Financial Statements, Reports and Documents
Section 5.02. Preparation of Budgets
Section 5.03. Payment of Taxes and Other Indebtedness
Section 5.04. Maintenance of Existence and Rights; Conduct of Business
Section 5.05. SEC Filings
Section 5.06. Notice
Section 5.07. Compliance with Loan Documents
Section 5.08. Compliance with Material Agreements
Section 5.09. Operations and Properties
Section 5.10. Books and Records; Access
Section 5.11. Compliance with Law
Section 5.12. Insurance
Section 5.13. Authorizations and Approvals
Section 5.14. ERISA Compliance
Section 5.15. Further Assurances
Section 5.16. Indemnity by Borrower
Section 5.17. Reservation of Shares
Section 5.18. Ownership of Subsidiaries
Section 5.19. Retention of Stock Ownership
Section 5.20. Key Man Life Insurance.
ARTICLE VI - NEGATIVE COVENANTS OF BORROWER
Section 6.01. Limitation on Indebtedness
Section 6.02. Limitation on Liens
Section 6.03. Limitation on Investments
Section 6.04. Alteration of Material Agreements
Section 6.05. Transactions with Affiliates
Section 6.06. Limitations on Acquisition of Nonrelated Business
Section 6.07. Limitation on Sale of Properties
Section 6.08. Fiscal Year and Accounting Method
Section 6.09. Liquidation
Section 6.10. Material Amendments to Articles of Incorporation or Bylaws
Section 6.11. Executive Compensation
Section 6.12. Restricted Payments
Section 6.13. Consolidation or Merger
ARTICLE VII - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS
Section 7.01. Financial Ratios
ARTICLE VIII - EVENTS OF DEFAULT
Section 8.01. Events of Default
Section 8.02. Remedies Upon Event of Default
Section 8.03. Performance by the Lenders
Section 8.04. Payment of Expenses Incurred by the Lenders
ARTICLE IX - REGISTRATION RIGHTS
Section 9.01. Demand Registration
Section 9.02. "Piggy-Back" Registration
Section 9.03. Shelf Registration
Section 9.04. Obligations of Borrower
Section 9.05. Furnish Information
Section 9.06. Expenses of Registration
Section 9.07. Indemnification Regarding Registration Rights
Section 9.08. Reports Under the 1934 Act
Section 9.09. Assignment of Registration Rights
Section 9.10. Other Matters
ARTICLE X - BOARD OF DIRECTORS
Section 10.01. Board Representation or Attendance by Observer
Section 10.02. Limitation of Authority of Persons Designated as Director
Nominee
Section 10.03. Nonliability of the Lenders
ARTICLE XI - AGENCY AND INTER-LENDER PROVISIONS
Section 11.01. The Lenders' Representations and Warranties to Other Lenders
Section 11.02. Waiver of Loan Provisions or Interest or Principal Payments
Section 11.03. Agency
ARTICLE XII - MISCELLANEOUS
Section 12.01. Strict Compliance
Section 12.02. Waivers and Modifications
Section 12.03. Limitation on Liability
Section 12.04. Choice of Forum; Consent to Service of Process and Jurisdiction
Section 12.05. Arbitration
Section 12.06. Invalid Provisions
Section 12.07. Maximum Interest Rate
Section 12.08. Participations and Assignments of the Debentures
Section 12.09. Confidentiality
Section 12.10. Binding Effect
Section 12.11. No Third Party Beneficiary
Section 12.12. Entirety
Section 12.13. Headings
Section 12.14. Survival
Section 12.15. Multiple Counterparts
Section 12.16. Knowledge of Borrower
Section 12.17. Notices
Section 12.18. Governing Law<PAGE>
<PAGE>
AGREEMENT
THIS AGREEMENT, dated as of January 27, 1998, by and among NewCare Health
Corporation, a Nevada corporation, as borrower ("Borrower"), Renaissance
Capital
Growth & Income Fund III, Inc., a Texas corporation, and Renaissance US Growth
& Income Trust PLC, a public limited company registered in England and Wales
(individually referred to as Renaissance III and Renaissance PLC,
respectively,
and together with any permitted assignees or successors in interest
individually
referred to as each or any "Lender" and collectively referred to as the
"Lenders"), and Renaissance Capital Group, Inc., a Texas corporation, as agent
(the "Agent") for the Lenders. All references herein to Borrower shall include
the Subsidiaries, unless the context otherwise requires.
WITNESSETH:
WHEREAS, Borrower seeks to obtain Five Million Dollars ($5,000,000) from the
Lenders through the issuance of Debentures to be used tor acquisitions,
working
capital and general corporate purposes in accordance with Section 2.02 hereof.
and
WHEREAS, Borrower has requested that the Lenders provide such loan as herein
provided, and that the Lenders are willing to furnish such to Borrower upon
the
terms and subject to the conditions and for the considerations hereinafter set
forth;
NOW, THEREFORE, in consideration of the mutual promises herein contained and
for
other valuable consideration, receipt and sufficiency of which is
acknowledged,
the parties hereto agree as follows:
ARTICLE I - DEFINITION OF TERMS
Section 1.01. Definitions.
(a) For the purposes of this Agreement, the following terms shall have the
respective meanings assigned to them in this Article I or in the section or
recital referred to below:
"Acquisition Indebtedness" shall mean Indebtedness or mandatorily
redeemable preferred stock of Borrower or a Subsidiary incurred in connection
with, or to provide all or any portion of the funds or credit support utilized
to consummate, the transaction or series of related transactions pursuant to
which such Subsidiary became a Subsidiary or was acquired by Borrower.
"Affiliate" with respect to any Person shall mean a person that directly
or indirectly, through one or more intermediaries. controls or is controlled
by,
or is under common control with, such Person.
"Capital Expenditure" shall mean an expenditure for assets that is
properly
classifiable as a capital expenditure in accordance with GAAP.
"Capital Lease" shall mean any lease of property, real or personal, which
would be properly classifiable as a capital lease in accordance with GAAP.
"Common Stock"shall mean Borrower's common stock, $.02 par value.
"Consolidated Current Assets" shall mean, for any Person as of any date,
the assets of such Person and its Consolidated Subsidiaries which would be
reflected as current assets on a consolidated balance sheet for such Person
and
its Subsidiaries prepared as of such date in accordance with GAAP.
"Consolidated Current Liabilities" shall mean, for any Person as of any
date, the liabilities of such Person and its Consolidated Subsidiaries which
would be reflected as current liabilities on a consolidated balance sheet for
such Person and its Subsidiaries prepared as of such date in accordance with
GAAP. For purposes of calculating compliance with any covenant contained in
this
Agreement or any other Loan Document, the principal amount of Consolidated
Current Liabilities shall include any balance under any revolving credit
facility
of Borrower, regardless of whether such revolving credit facility would be
reflected as a current liability in accordance with GAAP.
"Consolidated Net Income" shall mean, for any Person for any period,
consolidated net income of such Person and its Consolidated Subsidiaries for
such
period which would be reflected in accordance with GAAP, but excluding (a) any
gain or loss arising from the sale of capital assets, (b) any gain or loss
arising from any write-up or write-down of assets, (c) income or loss of any
other Person, substantially all of the assets of which have been acquired by
such
Person in any manner, to the extent that such earnings or losses were realized
by such other Person prior to the date of such acquisition, (d) income or loss
of any Person in which the Person has any ownership interest (other than
Consolidated Subsidiaries of such Person), unless such earnings have actually
been received or paid by the Person or its Consolidated Subsidiaries in the
form
of cash distributions or additional cash calls, (e) income or loss of any
other
Person to which assets of the Person or its Consolidated Subsidiaries shall
have
been sold, transferred or disposed of, or into which the Person shall have
merged, to the extent that such earnings or losses of any other Person anse
prior
to the date of such transaction, (f) any gain or loss arising from the
acquisition of any securities of the Person or any of its Consolidated
Subsidiaries, and (g) any extraordinary gain or loss realized by such Person
or
any of its Consolidated Subsidiaries during such period.
"Consolidated Subsidiaries" shall mean those entities whose assets,
liabilities and operations are consolidated with those of Borrower for
purposes
of Borrower's consolidated financial statements.
"Consolidated Trailing Twelve Months EBITDA" shall mean, for any Person
for
the immediately preceding twelve-month period ended on such date, Consolidated
Net Income of such Person for such twelve-month period, plus (a) all income
tax
expense of such Person and its Consolidated Subsidiaries for such twelve-month
period, (b) all interest expense of such Person and its Consolidated
Subsidiaries
for such twelve-month period, (c) all depreciation expense of such Person and
its
Consolidated Subsidiaries for such twelve-month period, and (d) all
amortization
expense of such Person and its Consolidated Subsidiaries for such twelve-month
period.
"Consolidated Trailing Twelve Months Free Cash Flow" shall mean for any
Person, for the immediately preceding twelve-month period ended on such date,
Consolidated Net Income of such Person for such twelve-month period, plus (a)
all
deferred income tax expense of such Person and its Consolidated Subsidiaries
for
such twelve-month period, (b) all depreciation expense of such Person and its
Consolidated Subsidiaries for such twelve-month period, and (c) all
amortization
expense of such Person and its Consolidated Subsidiaries for such twelve-month
period, less Capital Expenditures of such Person and its Consolidated
Subsidiaries for such twelve-month period.
"Conversion " or "Conversion Rights" shall mean exchange of, or the
rights
to exchange, the Principal Amount of the Loan, or any part thereof, for fully
paid and nonassessable Common Stock on the terms and conditions provided in
the
Debenture.
"Current Liabilities" shall mean all liabilities classified in accordance
with GAAP as current liabilities, but specifically including all amounts
outstanding under Borrower's revolving credit loans.
"Current Ratio" shall mean, for any Person as of any date, the ratio of
such Person's (Consolidated Current Assets to Consolidated Current Liabilities
as of such date.
"Debentures" shall mean the Debentures executed by Borrower and delivered
pursuant to the terms of this Agreement, together with any renewals,
extensions
or modifications thereof.
"Debtor Laws" shall mean all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization
or
similar laws from time to time in effect affecting the rights of creditors or
debtors generally.
"Default" or "Event of Default" shall mean any of the events specified in
Article VIII.
"Dividends," in respect of any corporation, shall mean (i) cash
distributions or any other distributions on, or in respect of, any class of
capital stock of such corporation, except for distributions made solely in
shares
of stock of the same class, and (ii) any and all funds, cash and other
payments
made in respect of the redemption, repurchase or acquisition of such stock,
unless such stock shall be redeemed or acquired through the exchange of such
stock with stock of the same class.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as
amended, together with all rules and regulations issued pursuant thereto.
"Fixed Charge Coverage Ratio" shall mean for Borrower for the immediately
preceding twelve-month period ended on such date, the ratio of (a)
Consolidated
Trailing Twelve Months Free Cash Flow, to (b) Borrower's total scheduled
payments
of principal on Indebtedness for the same twelve-month period, excluding
Indebtedness under Borrower's revolving credit loans and mandatory redemption
payments as set forth herein.
"GAAP" shall mean United States generally accepted accounting principles
applied on a consistent basis, set forth in the Opinions of the Accounting
Principles Board of the American Institute of Certified Public Accountants or
the
Financial Accounting Standards Board or their successors, which are applicable
in the circumstances as of the date in question. The requirement that such
principles be applied on a consistent basis shall mean that the accounting
principles observed in a current period are comparable in all material
respects
to those applied in a preceding period.
"Governmental Authority" shall mean any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental
authority having jurisdiction over Borrower or a Subsidiary or any of its or
their businesses, operations or properties.
"Guaranty" of any Person shall mean any contract, agreement or
understanding of such Person pursuant to which such Person in effect
guarantees
the payment of any Indebtedness of any other Person (the "Primary Obligor") in
any manner. whether directly or indirectly, including, without limitation,
agreements: (i) to purchase such Indebtedness or any property constituting
security therefor; (ii) to advance or supply funds primarily for the purpose
of
assuring the holder of such Indebtedness of the ability to the Primary Obligor
to make payment; or (iii) otherwise to assure the holder of the Indebtedness
of
the Primary Obligor against loss in respect thereof, except that "Guaranty"
shall
not include the endorsement by Borrower or a Subsidiary in the ordinary course
of business of negotiable instruments or documents for deposit or collection.
"Holder" shall mean the owner of Registrable Securities.
"Indebtedness" shall mean, with respect to any Person, without
duplication,
the following indebtedness, obligations and liabilities of such Person: (i)
indebtedness for borrowed money; (ii) all obligations of such Person in
respect
of any Guaranty; (iii) all obligations of such Person in respect of any
Capital
Lease, (iv) all obligations, indebtedness and liabilities secured by any lien
or
any security interest on any property or assets of such Person, but only to
the
extent so secured; and (v) all preferred stock of such Person which is
subject,
at the time of calculation of Indebtedness, to a mandatory redemption
requirement, valued at the greater of its involuntary redemption price or
liquidation preference plus accrued and unpaid dividends, and all extensions,
renewals, modifications and amendments thereto.
"Interest Coverage" shall mean the sum of net income, interest expense,
depreciation and amortization divided by interest expense.
"Investment" in any Person shall mean any investment, whether by means of
share purchase, loan, advance, capital contribution or otherwise, in or to
such
Person, the Guaranty of any Indebtedness of such Person, or the subordination
of
any claim against such Person to other Indebtedness of such Person; provided
however, that "Investment" shall not include (i) any demand deposits in a duly
chartered state or national bank or other cash equivalent investments (ii) any
loans permitted by Section 6.12, or (iii) any acquisitions of equity in any
other
Person.
"IRS Code" shall mean the Internal Revenue Code of 1986, as amended,
together with all rules and regulations issued thereunder.
"Lien" shall mean any lien, mortgage, security interest, tax lien,
pledge,
encumbrance, conditional sale or title retention arrangement, or any other
interest in property designed to secure the repayment of Indebtedness, whether
arising by agreement or under any statute or law, or otherwise.
"Loan" shall mean the money lent to Borrower pursuant to this Agreement,
along with any accrued. unsaid interest thereon.
"Loan Closing" or "Loan Closing Date" shall mean the disbursement of Loan
funds, which shall occur within ten ( 10) days of the execution and delivery
of
this Agreement.
"Loan Documents" shall mean this Agreement, the Debentures and any other
agreements or documents required to be executed or delivered by Borrower
pursuant
to the terms of this Agreement (and any amendments or supplements hereto or
modifications hereof).
"Lock-Up Agreement" shall mean the "lock-up" agreements to be executed by
the
executive officers, directors and principal shareholders of Borrower pursuant
to
Section 5.19 of this Agreement.
"Material Adverse Effect" or "Material Adverse Change" shall mean (i) any
change, factor or event that shall (a) have a material adverse effect upon the
validity or enforceability of any Loan Documents, (b) have a material adverse
effect upon the financial condition, results of operations, business,
properties,
operations or assets of Borrower or its Subsidiaries taken as a whole or (c)
have
a material adverse effect upon the ability of Borrower to fulfill its
obligations
under the Loan Documents, or (ii) any event that causes an Event of Default or
which, with notice or lapse of time or both, could reasonably be expected to
become an Event of Default.
"Material Indebtedness" shall mean any debt incurred by Borrower that
shall
have a Material Adverse Effect.
"Obligation" shall mean: (i) all present and future Indebtedness,
obligations
and liabilities of Borrower to the Lenders arising pursuant to this Agreement,
regardless of whether such Indebtedness, obligations and liabilities are
direct,
indirect, fixed, contingent, joint, several, or joint and several; (ii) all
present and future Indebtedness, obligations and liabilities of Borrower to
the
Lenders arising pursuant to or represented by the Debentures and all interest
accruing thereon, and reasonable attorneys' fees incurred in the enforcement
or
collection thereof; (iii) all present and future indebtedness, obligations and
liabilities of Borrower and any Subsidiary evidenced by or arising pursuant to
any of the Loan Documents; (iv) all costs incurred by the Lenders or Agent,
including, but not limited to, reasonable attorneys' fees and legal expenses
related to this transaction and (v) all renewals, extensions and modifications
of the indebtedness referred to in the foregoing clauses, or any part thereof.
"Permits" shall have the meaning set forth in Section 4. 16.
"Permitted Indebtedness" shall mean Indebtedness outstanding as of the
date
hereof or incurred in compliance with Section 6.01 and the other terms of this
Agreement that constitutes (i) Senior Obligations, (ii) obligations under
Capital
Leases, (iii) letters of credit, (iv) Current Liabilities, (v) debt associated
with Permitted Liens, (vi) any other Subordinated Debt, (vii) Acquisition
Indebtedness, (viii) purchase money Indebtedness, (ix) Indebtedness of foreign
Subsidiaries, (x) intercompany Indebtedness, (xi) Indebtedness under this
Agreement or the Debentures, and (xii) any refunding, refinancing or extension
of any of the above.
"Permitted Liens" shall mean: (i) Liens (if any) granted for the benefit
of
the Lenders; (ii) liens to secure the Permitted Indebtedness: (iii) pledges or
deposits made to secure payment of worker's compensation insurance (or to
participate in any fund in connection with worker's compensation insurance),
unemployment insurance, pensions or social security programs; (iv) Liens
imposed
by mandatory provisions of law such as for carriers', landlord's,
materialmen's,
mechanics', warehousemen's, vendors' and other like Liens arising in the
ordinary
course of business, securing Indebtedness whose payment is made within 30 days
of the date such Lien arises, or that are being contested in good faith by
appropriate proceedings as to which adequate reserves have been established to
the extent required by GAAP; (v) Liens for taxes, assessments and governmental
charges or levies imposed upon a Person or upon such Person's income or
profits
or property, if the same are not yet due and payable or if the same are being
contested in good faith and as to which adequate cash reserves have been
provided
or if an extension is obtained with respect thereto; (vi) Liens arising from
good
faith deposits in connection with tenders, leases, bids or contracts (other
than
contracts involving the borrowing of money), pledges or deposits to secure
public
or statutory obligations and deposits to secure (or in lieu of) surety, stay,
appeal or customs bonds and deposits to secure the payment of taxes,
assessments,
customs duties or other similar charges; (vii) encumbrances consisting of
zoning
restrictions, easements, reservations, licenses, covenants and other minor
irregularities of title or other restrictions on the use of real property
(whether owned or leased), provided that such items do not materially impair
the
intended use of such property, and none of which is violated by Borrower's
existing structures or land use; (viii) mortgages, financing statements,
equipment leases or other encumbrances incurred in connection with the
acquisition of property or equipment or the replacement of existing property
or
equipment, provided that such liens shall be limited to the property or
equipment
then being acquired; and (ix) Liens listed in Schedule 4.05.
"Person" shall include an individual, a corporation, a joint venture, a
general or limited partnership, a trust, an unincorporated organization or a
government or any agency or political subdivision thereof.
"Plan" shall mean an employee benefit plan or other plan maintained by
Borrower for employees of Borrower and/or any Subsidiaries and covered by
Title
IV of ERISA, or subject to the minimum funding standards under Section 412 of
the
IRS Code.
"Principal Amount" shall mean, as of any time. the then aggregate
outstanding face amount of the Debentures after any conversions or
redemptions and after
giving effect to any installment payments received by the Lenders.
"Registrable Securities" shall mean (i) the Common Stock issuable upon
Conversion of the Debentures, and (ii) any Common Stock issued upon Conversion
of the Debentures or upon exercise of any warrant, right or other security
that
is issued with respect to the Common Stock by way of (a) stock dividend; (b)
any
other distribution with respect to, or in exchange for, or in replacement of
Common Stock; (c) stock split; (d) in connection with a combination of shares,
recapitalization, merger, or consolidation excluding in all cases, however,
any
Common Stock that is not a Restricted Security and any Registrable Securities
sold or transferred by a Person in a transaction in which the rights under
this
Agreement are not assigned; and (e) up to 200,000 shares of Common Stock
issuable
to the Lenders upon exercise of options granted to them.
"Registrable Securities Then Outstanding" shall mean an amount equal to
the
number of Registrable Securities outstanding which have been issued pursuant
to
the Conversion of the Debentures.
"Renaissance III" shall mean Renaissance Capital Growth & Income Fund
III,
Inc., a Texas corporation.
"Renaissance PLC" shall mean Renaissance US Growth & Income Trust PLC, a
public limited company registered in England and Wales.
"Renaissance Group" shall mean Renaissance Capital Group, Inc., a Texas
corporation.
"Restricted Security" shall mean a security that has not been (i)
registered
under the 1933 Act or (ii) distributed to the public pursuant to Rule 144 (or
any
similar provisions that are in force) under the 1933 Act.
"SEC" shall mean the Securities and Exchange Commission, or any other
federal agency at the time administering the 1933 Act and the 1934 Act
"1933 Act" shall refer to the Securities Act of 1933, as amended, or any
similar federal statute and rules and regulations promulgated thereunder, all
as
the same may be in effect from time to time.
"1934 Act" shall refer to the Securities Exchange Act of 1934, as amended,
or any similar federal statute and rules and regulations promulgated
thereunder,
all as the same may be in effect from time to time.
"1940 Act" shall refer to the Investment Company Act of 1940, as amended,
or
any similar federal statute and rules and regulations promulgated thereunder,
all
as the same may be in effect from time
to' time
"Senior Documents" means all loan documents evidencing the Senior
Obligations, as each may now or hereafter be amended, modified, supplemented,
renewed or extended from time to time.
"Senior Obligations" means one or more senior debt facilities (including
loans and other extensions of credit under the Senior Documents) or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, capital expenditure loans, receivables
financings (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, as now existing or hereafter incurred, and
in
each case, as amended, restated, modif~ed, renewed or extended from time to
time.
"Solvent" shall mean, with respect to any Person on a particular date,
that
on such date: (i) the fair value of the assets of such Person is greater than
the
total amount of liabilities of such Person; (ii) the estimated present fair
salable value, in the ordinary course of business, of the assets of such
Person
is not less than the amount that will be required to pay the probable
liability
of such Person on its debts as they become absolute and matured; (iii) such
Person is able to realize upon its assets and pay its debts and other
liabilities, contingent obligations and other commitments as they mature in
the
normal course of business; (iv) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability
to
pay as such debts and liabilities mature; and (v) such Person is not engaged
in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's assets would constitute unreasonably
small
capital after giving due consideration to the prevailing practice in the
industry
in which such Person is engaged. In computing the amount of contingent
liabilities at any time, it is intended that such liabilities will be computed
at the amount which, in light of all the facts and circumstances existing at
such
time, represents the amount that can reasonably be expected to become an
actual
or matured liability.
"Subordinated Debt" shall mean any indebtedness of Borrower or any
Subsidiaries, now existing or hereafter incurred, which indebtedness is, by
its
terms junior in right of repayment to the payment of the Debentures.
"Subsidiary" or "Subsidiaries" shall mean any or all corporations or
entities
whether now existing or hereafter acquired of which over 50% the Voting Shares
or equity interests are owned, directly or indirectly, by Borrower.
"Subsidiary Documents" shall mean the Guaranties, Security Agreements and
any
other agreements or documents required to be executed or delivered by any
Subsidiary pursuant to the terms of this Agreement (and any amendments or
supplements hereto or modifications hereof).
"Total Capitalization" shall mean for any Person, total Indebtedness plus
shareholders' equity as defined in accordance with GAAP.
"Voting Shares" of any corporation shall mean shares of any class or
classes
(however designated) having ordinary voting power for the election of at least
a majority of the members of the Board of Directors (or other governing
bodies)
of such corporation, other than shares having such power only by reason of the
happening of a contingency.
Section 1.02. Other Definition Provisions.
(a) All terms defined in this Agreement shall have the above-defined meanings
when used in the Debentures or any other Loan Documents, certificate, report
or
other document made or delivered pursuant to this Agreement, unless the
context
therein shall otherwise require.
(b) Defined terms used herein in the singular shall import the plural and vice
versa.
(c) The words "hereof," "herein," "hereunder" and similar terms when used in
this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement.
(d) References to financial statements and reports shall be deemed to be a
reference to such statements and reports Prepared in accordance with GAAP.
(e) Accounting terms not specifically defined above in this Agreement shall be
construed in accordance with GAAP.
ARTICLE II - LOAN PROVISIONS
Section 2.01. The Loan.
(a) Subject to the terms and conditions of this Agreement, and the compliance
with such terms and conditions by all parties, each Lender agrees to lend to
Borrower, and Borrower agrees to borrow from the Lenders, the aggregate sum of
Five Million Dollars ($5,00O,000) as follows:
Renaissance Capital Growth & Income III, Inc. $2,500,000
Renaissance US Growth & Income Trust PLC $2,500,000
(b) The Loan shall be disbursed at Loan Closing, subject to the conditions
provided hereunder, and shall be evidenced by the Debentures, in the Principal
Amounts specified above. The Debentures shall rank pari passu with all
Indebtedness of Borrower, other than the Senior Obligations and the
Subordinated
debt
(c) Unless otherwise mutually agreed, the Loan Closing shall be at the offices
of Renaissance Capital Group, Inc., 8080 North Central Expressway, Suite 210,
Dallas, Texas.
(d) If, within 10 days of the date of this Agreement, (i) Borrower has failed
to
comply with the conditions precedent to the Loan Closing as specified in
Article
III hereof (unless compliance with such conditions in whole or in part has
been
waived or modified by the Lenders in their sole discretion) or (ii) the Loan
Closing has not occurred (unless the date of such Loan Closing has been
mutually
extended), other than as a result of any failure of Lenders to comply with the
terms of this Agreement, then, in either such case, the obligations of the
Lenders under this Agreement shall terminate; provided, however, that Borrower
shall be obligated for payment of the fees and expenses provided in Section
2.07
due and payable as of such date of termination.
Section 2.02. Use of Proceeds.
(a) Borrower intends to use the Loan proceeds for acquisitions, working
capital
and general corporate purposes.
(b) Borrower hereby acknowledges that the proceeds from the Loan shall be of
benefit to Borrower for the growth of its business by providing capital which
will provide additional opportunities for Borrower.
Section 2.03. Interest Rate and Interest Payments.
Interest on the Principal Amount outstanding from time to time shall accrue at
the rate of 8.50% per annum, with the first installment of accrued, unpaid
interest being due and payable on February 1, 1998 and subsequent payments of
accrued, unpaid interest being due and payable on the first day of each month
thereafter. Overdue principal and interest on the Debentures shall bear
interest
at the maximum rate permitted by applicable law. Interest on the Principal
Amount
of each Debenture shall be calculated, from time to time, on the basis of the
actual days elapsed in a year consisting of 365 days.
Section 2.04. Maturity.
If not sooner redeemed or converted, the Debentures shall mature on January
27,
2005, at which time all the remaining unpaid principal, interest and any other
charges then due under this Agreement shall be due and payable in full. The
Debentures may be prepaid without premium or penalty and shall be prepaid pro
rata with any prepayments of Indebtedness (other than Senior Obligations)
which
is pari passu with or subordinated to the Debentures.
Section 2.05. Mandatory Principal Repayment.
The Debentures shall be subject to mandatory principal repayment as provided
in
the Debentures.
Section 2.06. Redemption.
The Debentures shall be subject to redemption as provided in the Debentures.
Section 2.07. Fees and Expenses.
(a) Upon Loan Closing:
(i) Borrower shall pay to Agent a closing fee of 1.0% of the amount then
disbursed.
(ii) Borrower shall pay the legal fees and expenses of the Lenders and the
Agent
(which, in no event shall exceed $25,000) in connection with the preparation
and
negotiation of the Loan Documents and the Loan Closing.
(iii) All unpaid fees and expenses required to have been paid by Borrower
under the Preliminary Outline of Terms among the parties.
(b) Borrower shall also pay to the Agent monthly a monitoring fee of $1,000
per
month for consulting and monitoring services, and Borrower shall reimburse
Agent
for its reasonable travel and out-of pocket expenses in monitoring Borrower's
compliance with this Agreement.
Section 2.08. Finder's Fees.
Borrower represents to the Lenders that, except as set forth in Schedule 2.08,
no commissions, broker's or finder's fees were incurred by Borrower in
connection
with this Agreement or the Debentures.
Section 2.09. Taxes.
(a) Each Debenture shall be convertible into shares of Common Stock and on
such
terms as are stated in the Debentures. Such conversion shall be made without
deduction for any present or future taxes, duties, charges or withholdings,
(excluding, in the case of the Lenders, any foreign taxes, any federal, state
or
local income taxes and any franchise taxes or taxes imposed upon them by the
jurisdiction, or any political subdivision thereof, under which the Lenders
are
organized or are qualified to do business), and all liabilities with respect
thereto (herein "Taxes") shall be paid by Borrower. If Borrower shall be
required
by law to deduct any Taxes for which Borrower is responsible under the
preceding
sentence from any sum payable hereunder to the Lenders: (i) the sum payable
shall
be increased so that after making all required deductions, the Lenders shall
receive an amount equal to the sum it would have received had no such
deductions
been made; (ii) Borrower shall make such deductions; and (iii) Borrower shall
pay
the full amount deducted to the relevant taxing authority or other authority
in
accordance with applicable law. Borrower shall be entitled to any refunds or
returns from any such taxing authority.
(b) Except as otherwise set forth in this Agreement or the other Loan
Documents,
Borrower shall pay any present or future stamp or documentary taxes or any
other
excise or property taxes, charges or similar levies which arise from any
payment
made hereunder or under the Loan Documents or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or the other
Loan
Documents (hereinafter referred to as "Other Taxes").
(c) Borrower shall indemnify the Lenders tor the full amount of Taxes and
Other
Taxes reasonably paid by the Lenders or any liability (including any penalties
or interest assessed because of Borrower's defaults) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within thirty (30) days
from
the date the Lenders make written demand therefor. The Lenders shall subrogate
any and all rights and claims relating to such Taxes and Other Taxes to
Borrower
upon payment of said indemnification.
(d) Without prejudice to the survival of any other agreement of Borrower
hereunder, the agreements and obligations of Borrower in this Section 2.09
shall
survive the payment in full of the Obligation.
Section 2.10. Conversion Rights.
Each Debenture shall be convertible into shares of Common Stock on such terms
and
in such amounts as are stated in the Debenture. The holders of the shares
issued
upon exercise of the right of conversion as provided in said Debenture shall
be
entitled to all the rights of the Lenders as stated in this Agreement or the
other Loan Documents, to the extent such rights are specifically stated to
survive the surrender of the Debenture for conversion as therein provided.
ARTICLE III - CONDITIONS PRECEDENT
Section 3.01. Document Requirements.
The obligation of the Lenders to advance funds at the Loan Closing Date hereof
is subject to the condition precedent that, on or before the date of such
advance, the Lenders shall have received the following:
(a) Duly executed Debentures from Borrower in the Principal Amount of Loan,
each
in amounts as requested by the Lenders, styled "Compass Bank FBO Renaissance
Capital Growth and Income Fund III, Inc.," and "Compass Bank FBO Renaissance
U.S.
Growth and Income Trust PLC," which shall be in form and substance acceptable
to
the Lenders and their counsel.
(b) Duly executed Continuing Guaranties from each of the Subsidiaries, which
shall be in form and substance acceptable to the Lenders and their counsel.
(c) A true and correct certificate signed by the chairman of the board of
Borrower and dated as of the Loan Closing Date stating that, to the best
knowledge and belief of such officer, after reasonable and due investigation
and
review of matters pertinent to the subject matter of such certificate: (i) all
of the representations and warranties contained in Article IV hereof and the
other Loan Documents are true and correct in all material respects as of the
Loan Closing Date; and (ii) no event has occurred and is continuing, or would
result from the Loan, which constitutes, or with notice or lapse of time or
both wouldbconstitute, a Default or an Event of Default.
(d) A signed certificate of the Secretary of Borrower and each Subsidiary
which
shall certify (i) a copy of the Articles of Incorporation of Borrower and all
amendments thereto, certified by the Secretary of State of the state of
incorporation and dated within ten (10) days prior to Loan Closing, a copy of
the Articles of Incorporation of each Subsidiary and all amendments thereto,
certified by the Secretary of each such Subsidiary as of the date of such
certification; (ii) a copy of the Bylaws of Borrower and each Subsidiary and
all
amendments thereto certified by the Secretary of Borrower and each such
Subsidiary as of the date of such certification; (iii) copies of resolutions,
as
adopted by Borrower's and each Subsidiary's Board of Directors, approving the
execution, delivery and performance, as applicable, of this Agreement, the
Debentures, the Guaranties and the other Loan Documents, including the
transactions contemplated herein, stating that such resolutions have been duly
adopted, are true and correct, have not been altered or repealed and are in
full
force and effect; (iv) certificates of good standing (or other similar
instrument) for Borrower issued by the appropriate official of the state of
incorporation of Borrower and certificates of qualification and good standing
for Borrower issued by the appropriate official of each of the states for
which
Borrower is required to be qualified to do business as a foreign corporation,
dated within ten (10) days prior to Loan Closing; and (v) the names of the
officers of Borrower authorized to sign the Loan Documents to be executed by
such officer, together with the true signatures of each of such officers. It
is
herewith stipulated and agreed that the Lenders may thereafter rely
conclusively
on the validity of this certificate as a representation of the officers of
Borrower and each Subsidiary duly authorized to act with respect to the Loan
Documents until such time as the Lenders shall receive a further certificate
of
the Secretary or Assistant Secretary of Borrower and each Subsidiary canceling
or amending the prior certificate and submitting the signatures of the
officers
thereupon authorized in such further certificate.
(e) A legal opinion from counsel to Borrower, in form and substance
satisfactory
to the Lenders and heir counsel.
(f) "Lock-up" Agreements, in form and substance satisfactory to the Lenders
and
their counsel.
(g) Duly executed Stock Option Agreements from Borrower, which shall be in
form
and substance acceptable to the Lenders and their counsel.
(h) Such other information, documents and agreements as may reasonably be
required by the Lenders and the Lenders' counsel to substantiate Borrower's
compliance with the requirements of this Agreement and the Lenders' compliance
with the 1940 Act.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BORROWER
All references in this Article to Borrower shall include the Subsidiaries,
unless the context otherwise requires. To induce the Lenders to make the Loan
hereunder, Borrower represents and warrants to the Lenders that:
Section 4.01. Organization and Good Standing.
Borrower is duly organized and existing in good standing under the laws of the
state of its incorporation, is duly qualified as a foreign corporation and in
good standing in all states in which failure to qualify would have a Material
Adverse Effect, and has the corporate power and authority to own its
properties
and assets and to transact the business in which it is engaged and is or will
be
qualified in those states wherein it proposes to transact material business
operations in the future.
Section 4.02. Authorization and Power.
Borrower has the corporate power and requisite authority to execute, deliver
and
perform the Loan Documents to be executed by Borrower. Borrower is duly
authorized to, and has taken all corporate action necessary to authorize,
execute, deliver and perform the Loan Documents executed by Borrower. Borrower
is and will continue to be duly authorized to perform the Loan Documents
executed by Borrower.
Section 4.03. No Conflicts or Consents.
Except as disclosed on Schedule 4.03, neither the execution and delivery of
the
Loan Documents, nor the consummation of any of the transactions therein
contemplated, nor compliance with the terms and provisions thereof, will
contravene or materially conflict with any judgment, license, order or permit
applicable to Borrower, or any indenture, loan agreement, mortgage, deed of
trust, or other agreement or instrument to which Borrower is a party or by
which
Borrower is or becomes bound, or to which Borrower is or becomes subject, or
violate any provision of the charter or bylaws of Borrower or trigger any
preemptive rights or rights of first refusal of any third party. No consent,
approval, authorization or order of any court or governmental authority or
third
party is required in connection with the execution and delivery by Borrower of
the Loan Documents or to consummate the transactions contemplated hereby or
thereby except those that have been obtained.
Section 4.04. Enforceable Obligations.
The Loan Documents have been duly executed and delivered by Borrower and are
the
legal, valid and binding, obligations of Borrower, enforceable in accordance
with their respective terms.
Section 4.05. No Liens.
Except for Permitted Liens, all of the properties and assets owned or leased
by
Borrower are free and clear of all Liens and other adverse claims of any
nature,
and Borrower has good and marketable title to such properties and assets. A
true
and complete list of all known or recorded liens for borrowed money is
disclosed
on Schedule 4.05.
Section 4.06. Financial Condition.
Borrower has delivered to the Lenders copies of the balance sheet of Borrower
as
of December 31, 1996, and the related statement of income, stockholders'
equity
and statement of cash flow for the year then ended, audited by its independent
certified public accountant. Borrower has also delivered to the Lenders copies
of the balance sheet of Borrower as of December 31, 1997, and the related
statement of income, stockholders' equity and statement of cash flow for the
nine month period ended such date, which financial statements have not been
audited by its independent certified public accountant. Such financial
statements are true and correct in all material respects, fairly present the
financial condition of Borrower as of such dates and have been prepared in
accordance with GAAP (except that unaudited financial statements omit certain
footnotes); and as of the date hereof, there are no obligations, liabilities
or Indebtedness (including contingent and indirect liabilities and
obligations) of Borrower which are (separately or in the aggregate) material
and are not reflected in such financial statements or otherwise disclosed
herein or in the Schedules. Since the date of the above-referenced year end
financial statements and quarterly financial statements, there have not been,
except as disclosed in Schedule 4.06: (i) any Material Adverse Change; (ii)
any dividend declared or paid or distribution made on the capital stock of
Borrower or any capital stock thereof redeemed or repurchased; (iii) any
incurrence of long-term debt by Borrower; (iv) any salary, bonus or
compensation increases to any officers, key employees or agents of Borrower,
other than in the ordinary course of business and consistent with past
practice; or (v) any other material transaction entered into by Borrower,
except
in the ordinary course of business and consistent with past practice.
Section 4.07. No Default.
No event has occurred and is continuing which constitutes, or with notice or
lapse of time or both, would constitute a Default or an Event of Default under
this Agreement.
Section 4.08. Material Agreements.
Neither Borrower nor any other party is in default, and no event has occurred
and is continuing which, with notice or lapse of time or both, would
constitute a default, under any material contract, lease, loan agreement,
indenture, mortgage, security agreement, license agreement or other
agreement or obligation to which it is a party or by which any of its
properties is subject, except as described
on Schedule 4.08. To the best knowledge of Borrower, it is not a party to, or
bound by, any contract or agreement, the faithful performance of which is so
onerous so as to create or to likely create a Material Adverse Effect on the
business, operations or financial condition of Borrower.
Section 4.09. No Litigation.
Except as disclosed on Schedule 4.09, there are no actions, suits,
investigations, arbitrations or administrative proceedings pending or, to the
best knowledge of Borrower, threatened, against Borrower, and there has been
no
change in the status of any of the actions, suits, investigations, litigation
or
proceedings disclosed to the Lenders which could reasonably be expected have a
Material Adverse Effect on Borrower or on any transactions contemplated by any
Loan Document. Borrower has not been subject to any formal or informal (of
which
Borrower has received notice) investigations or proceedings of any state
department of health, the United States General Accounting Office, the Health
Care Financing Administration, the United States Department of Justice, the
Federal Trade Commission or other similar governmental agencies (except for
any
investigations being conducted in the ordinary course of business and
applicable
to all health care facilities) with respect to its business. Borrower is not
now,
and has not been, a party to any injunction, order or decree restricting the
method of the conduct of its business or the marketing of any of its services,
nor, except as disclosed on Schedule 4.09, has any governmental agency
investigated or requested (other than on a routine basis) information with
respect to such methods of business or marketing of services. Borrower has not
received any claim that Borrower currently violates any federal, state or
local
law, ordinance, rule or regulation, which could have an adverse effect on its
business and, to the best of Borrower's knowledge, no such claim is or has
been
threatened; and, except as disclosed on Schedule 4.09, there have been no
developments adverse to Borrower with respect to any pending or threatened
claim,
action or proceeding of an administrative or judicial nature, including but
not
limited to those referred to in Schedule 4.09, and including without
limitation
any such pending or threatened claim, action or proceeding arising from or
relating to (i) the assertion by any governmental authority of any retroactive
adjustment of the sums which Borrower was entitled to receive pursuant to
government or third party reimbursement programs such as (but not limited to)
Medicare and Medicaid, or (ii) any allegation by any governmental authority of
fraud or abuse by any current or former officers or employees of Borrower in
connection with the making of any application for reimbursement pursuant to
the
government or third party reimbursement programs referred to in the preceding
clause (i).
Section 4.10. Taxes.
All tax returns required to be filed by Borrower in any jurisdiction have been
filed and all taxes (including mortgage recording taxes), assessments, fees
and
other governmental charges upon Borrower or upon any of its properties, income
or franchises now due have been paid, in each case, except where the same are
being contested in good faith by appropriate proceedings, as disclosed on
Schedule 4. 10.
Except as disclosed on Schedule 4. l 0, Borrower has not received any notice
of
deficiency or other adjustment from any taxing authority that is unresolved as
of the Loan Closing. No audit or examination, claim or proposed assessment by
any
taxing authority is pending or, to the best knowledge of Borrower, threatened
against Borrower or any of its properties. All ad valorem and other property
taxes imposed on Borrower, or that may become a lien on Borrower's assets and
that are due and payable, have been paid in full. Borrower has withheld or
collected from each payment made to each of its U.S. employees the amount of
all
taxes (including federal income taxes, Federal Insurance Contributions Act
("FICA") taxes, and state and local income, payroll, and wage taxes, among
others) required to be withheld or collected.
Section 4.11. Capitalization.
The authorized capital stock of Borrower consists of 50,000,000 shares of
Common
Stock, $.02 par value, of which l1,372,575 shares of Common Stock are issued
and
outstanding as of the date hereof. All of such outstanding shares have been
duly
authorized and validly issued are fully paid and nonassessable, and were not
issued in violation of the preemptive rights or rights of first refusal of any
person. Schedule 4.ll sets forth all stock options, warrants, conversion
rights,
subscription rights, preemptive nights, rights of first refusal and other
rights
or agreements to acquire securities of Borrower and any shares held in
treasury
or reserved for issue upon exercise of such stock options, warrants or
conversion
rights, subscription rights and other rights or agreements to acquire
securities,
including the date of termination of such rights and the consideration
therefor.
As of the Loan Closing Date, Borrower does not have class of securities with
respect to which a member of a national securities exchange, broker, or dealer
may extend or maintain credit to or for a customer pursuant to rules or
regulation adopted by the Board of Governors of the Federal Reserve System
under
Section 7 of the 1934 Act. Borrower has, and will continue to have as long as
the
Debentures remain outstanding, authorized and reserved an adequate number of
shares of Common Stock to permit Conversion of the Debentures.
Section 4,12. Use of Proceeds.
Borrower intends to use proceeds from the Loan as disclosed in Section 2.02
hereof.
Section 4.13. Employee Matters.
(a) Except as set forth on Schedule 4. l 3, Borrower is not a party to any
collective bargaining agreement and is not aware of any activities of any
labor
union that is currently seeking to represent or organize its employees.
(b) Borrower is in compliance with all federal, state and municipal laws
respecting employment and employment practices, occupational health and safety
and wages and hours, except in any case where the failure to be in compliance
would not have a Material Adverse Effect, and is not engaged in any unfair
labor
practice, and there are no arrears in the payment of wages or social security
taxes;
(c) there is no unfair labor practice complaint against Borrower pending
before
the National Labor Relations Board or any state or local agency;
(d) to the best knowledge of Borrower, there is no pending labor strike or
other
material labor trouble affecting Borrower (including, without limitation, any
organizational drive);
(e) to the best knowledge of Borrower, there is no material labor grievance
pending against Borrower:
(f) there is no pending representation question respecting the employees of
Borrower before any local, state or federal agency;
(g) except as set forth on Schedule 4. 13, there are no pending proceedings
arising out of or under any collective bargaining agreement to which Borrower
is
a party, or to the best knowledge of Borrower, any basis for which a claim may
be made under any collective bargaining agreement to which Borrower is a
party;
and
(h) there are no pending proceedings arising out of any employment
discrimination claim or any basis for which any such claim may be made.
Section 4.14. Employee Benefit Plans.
Schedule 4.14 lists (i) any "employee benefit plans" as described in the
Employee
Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder ("ERISA") (other than a defined
contribution pension plan not requiring any contribution by Borrower, paid
time-off policy or vacation/holiday/sick leave policy, and employee group
life and health plans that
are fully funded through commercial insurance) and (ii) any defined benefit
"employee pension benefit plans" (as defined in ERISA). Neither Borrower nor,
to
the best knowledge of Borrower, any other person has engaged in a transaction
with respect to any employee benefit plan listed or required to be listed on
Schedule 4.14 which could subject any such plan, Borrower or the Lenders to a
penalty under ERISA or a tax under the Internal Revenue Code of 1986, as
amended
(the "Code"). Each of the employee benefit plans listed or required to be
listed
on Schedule 4.14 has been operated and administered in accordance with
applicable
law, including without limitation ERISA, except for any such failure which
would
not subject Borrower or the Lenders to any penalty or other liability and
except
for any such failure which would not have an adverse effect upon the
applicable
plan or any participant therein. Borrower has not incurred nor presently
expects
to incur any liability under Title IV of ERISA that could result in liability
to
the Lenders or Borrower. Each employee benefit plan listed or required to be
listed on Schedule 4.14 that is a group health plan within the meaning of
Section
5000(b)(1) of the Code is in compliance with the provisions of Section
4980B(f)
of the Code, except for any such non-compliance which would not subject
Borrower
or the Lenders to any penalty or liability and except for any such failure
which
would not have an adverse effect upon the applicable plan or any participant
therein. There is not any pending or, to the best knowledge of Borrower,
threatened claim by or on behalf of any employee benefit plan, by any employee
covered under any such plan, or otherwise involving any employee benefit plan
(other than routine non-contested claims for benefits).
Section 4.15. Compliance with Laws.
Borrower has all requisite licenses, permits and certificates, including
environmental, health and safety permits, from federal, state and local
authorities necessary to conduct its business and own and operate its assets
(collectively, the "Permits"). Except as set forth on Schedule 4.15, Borrower
is
not in violation of any law, regulation or ordinance relating to its business,
operations and properties, which individually or in the aggregate would have a
Material Adverse Effect, and the business and operations of Borrower do not
violate, in any material respect, any federal, state, local or foreign laws,
regulations or orders. Except as set forth on Schedule 4. 15, Borrower has not
received any notice or communication from any federal, state or local
governmental or regulatory authority or otherwise of any such violation or
noncompliance. To the best of its knowledge, Borrower has not engaged in any
practices in violation of any antitrust law or regulation of any federal,
state
or local Governmental Authority.
Section 4.16. Licenses and Permits.
Borrower and the Subsidiaries have all licenses and permits relating to the
ownership and lease of their respective facilities and operation of their
respective business as are necessary and required for such ownership and
operation. Schedule 4.16 hereto (which shall be delivered as soon as
practicable
after the date hereof) contains a complete description of all licenses,
permits,
franchises, certificates of need, and certificate of need applications and
their
respective dates of termination or renewal, owned or held by Borrower and the
Subsidiaries relating to the ownership, lease, development or operation of
their
respective facilities or its business, together with any formal and specific
notices or directives received from the agency responsible for such Schedule
4.16
item, for which noncompliance with such notice or directive would likely cause
the revocation, suspension or diminution in term for such item, all of which
are
in good standing and, except as expressly set forth on Schedule 4.16, are not
subject to renewal within less than one (1) year.
Section 4.17. Contracts.
Schedule 4.17 lists all contracts to which Borrower is a party involving
obligations in respect of the business for payment, performance of services or
delivery of goods in excess of $5,000 or which require Borrower to continue to
perform for a period of longer than twelve ( 12) months (the "Scheduled
Contracts"). Borrower has delivered to the Lenders true and correct copies of
all the Scheduled Contracts. All of such Scheduled Contracts are valid and
binding obligations of the parties thereto, are in full force and effect,
and, to the best knowledge of Borrower, are enforceable against the parties
thereto in accordance with their respective terms. Borrower has not received
any notice that the other parties to the Scheduled Contracts are (i) in
default under such Scheduled Contracts or (ii) consider Borrower to be in
default thereunder. Except as expressly noted in Schedule 4. 17, to the best
knowledge of Borrower, no party to any of the Scheduled Contracts intends to
terminate or adversely modify its agreement(s) with respect thereto or
adversely change the volume of business done thereunder.
Section 4.18. Shares Issuable Upon Conversion.
The shares of Common Stock of Borrower when issued to the Lenders upon
conversion of the Debentures will be duly and validly issued, fully paid and
nonassessable and in compliance with all applicable securities laws. Such
issuance will not give rise to preemptive rights, rights of first refusal or
similar rights by any other security holder of Borrower.
Section 4.19. Insider.
(a) Neither Borrower, nor any Person having "control" (as that term is defined
in the 1940 Act or in the regulations promulgated pursuant thereto) of
Borrower
is an "executive officer," "director," or "principal shareholder" (as those
terms are defined in the 1940 Act) of any Lender.
(b) Borrower's 1996 Annual Report on Form 10-K discloses all material
transactions required to be disclosed therein pursuant to Item 404 of
Regulation
S-K promulgated under the 1933 Act.
(c) All agreements between Borrower and any of its officers, directors, and
principal shareholders, including employment agreements, are disclosed in
reports and filings made with the SEC or listed on Schedule 4.19.
Section 4.20. Subsidiaries.
(a) All of the Subsidiaries of Borrower are listed on Schedule 4.20. Except as
disclosed on Schedule 4.20, Borrower owns all of the outstanding capital stock
or other equity interests of the Subsidiaries, free and clear of all adverse
claims, other than Liens securing the Senior Obligations. All of such
outstanding capital stock of each Subsidiary has been duly and validly
authorized and issued and is fully paid and nonassessable. All such
Subsidiaries are duly organized and existing in good standing under the laws
of the respective jurisdictions of their incorporation or organization, are
duly qualified as foreign corporations and in good standing in all
jurisdictions in which failure to qualify would have a Material Adverse
Effect, and have the corporate power and authority to own their respective
properties and assets and to transact the business in which they are engaged
and are or will be qualified in those jurisdictions wherein they propose
to transact material business operations in the future.
(b) Except as disclosed on Schedule 4.20, Borrower does not own any equity or
long-term debt interest in any other Person, or any right or option to acquire
any such interest in any such Person.
(c) There are no restrictions on the payment of dividends by or advances from
any Subsidiary to Borrower.
Section 4.21. Casualties.
Except as disclosed on Schedule 4.21, neither the business nor the properties
of
Borrower is currently affected by any environmental hazard, fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or other casualty (whether or not covered by
insurance).
Section 4.22. Investment Company Act.
Borrower is not an "investment company," as defined in Section 3 of the 1940
Act, nor a company that would be an investment company, except for the
exclusions from the definition of an investment company in Section 3(C) of
the 1940 Act, and Borrower is not controlled by such a company.
Section 4.23. Sufficiency of Capital.
Borrower is, and after consummation of this Agreement and giving effect to all
Indebtedness incurred and transactions contemplated in connection herewith
will
be, Solvent.
Section 4.24. Corporate Names.
Borrower has not, during the preceding five (5) years, done business under or
used any assumed, fictitious or trade names.
Section 4.25. Insurance.
All of the insurable properties of Borrower are insured for its benefit under
valid and enforceable policies issued by insurers of recognized responsibility
in amounts and against such risks and losses as is customary in Borrower's
industry. Schedule 4.25 sets forth all of Borrower's property insurance
policies.
Section 4.26. Intellectual Property.
Borrower owns or is licensed to use all material trademarks, service marks,
trade names, patents and copyrights presently used to conduct its business.
To the best of its knowledge, Borrower has the right to use such intellectual
property rights without infringing or violating the rights of any third
parties. No claim has been asserted by any person to the ownership of or
right to use any such rights or challenging or questioning the validity or
effectiveness of any such license
or agreement. Borrower is not in default of any such license agreements in any
material respect, and no event has occurred and is continuing which, with
notice
or lapse of time or both, would constitute a material default. Each license
agreement is enforceable in accordance with its terms and has not been
canceled,
abandoned or terminated, nor has Borrower received notice thereof. There are
no
claims for trademark or copyright infringement pending against Borrower or the
Subsidiaries or, to the best knowledge of Borrower, their respective officers
or
directors. Neither Borrower nor any Subsidiary is currently using
copyrightable
material for which Borrower or any Subsidiary needs, but does not have, a
license to conduct its existing business. Neither Borrower nor any Subsidiary
needs, but does not have, a valid character or trademark license to conduct
its existing business.
Section 4.27. Real Property.
(a) Set forth on Schedule 4.27 is an accurate description of each parcel of
real
property owned by or leased to Borrower.
(b) Borrower has delivered to the Lenders true and correct copies of all of
its
leases or subleases and all related amendments, supplements and modifications
and related documents (the "Scheduled Lease Documents"). There are no other
agreements, written or oral, between Borrower and any third parties claiming
an
interest in Borrower's interest in the Scheduled Leases or otherwise relating
to
Borrower's use and occupancy of any leased real property. All such leases are
valid and binding obligations of the parties thereto, are in full force and
effect and enforceable against the parties thereto in accordance with their
terms; and no event has occurred including, but not limited to, the executed,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby which (whether with or without notice, lapse
of
time or both) would constitute a default thereunder. No property leased under
any lease which the Lenders have agreed to assume is subject to any lien,
encumbrance, easement, right-of-way, building or use restriction, exception,
variance, reservation or limitation as might in any respect interfere with or
impair the present and continued use thereof in the usual and normal conduct
of
Borrower's business.
(c) On the Loan Closing Date, Borrower will hold of record good, marketable
and
insurable title to the property described in Schedule 4.27 free and clear of
all
title defects, liens, pledges, claims, charges, rights of first refusal,
security interests or other encumbrances and not, in the case of the real
property, subject to any rights-of-way, building or use restrictions,
exceptions, variances, reservations or limitations of any nature whatsoever,
except with respect to all such properties, (i) matters set forth in
Schedule 4.27, and (ii) liens for current taxes and assessments not in
default (collectively, the "Permitted Encumbrances"). Notwithstanding the
foregoing, Borrower's
representations and warranties regarding title defects with respect to the
real
property is limited to defects arising by, through or under Borrower, but not
otherwise. Copies of the most current title insurance policies, commitments or
binders issued to or in the possession of Borrower with respect to any of the
real property or any portion thereof, are set forth as part of Schedule 4.27.
All real property and structures owned or leased by Borrower, and all
equipment owned
or leased by Borrower, are in good operating condition and repair (ordinary
wear
and tear excepted), taking into account their respective ages and consistent
with
their past uses, and are adequate for the uses to which they are being put.
Except as set forth on Schedule 4.27, to Borrower's best knowledge, the
buildings
and improvements owned or leased by Borrower are structurally sound. Borrower
has not received any notice of any violation of any building, zoning or other
law, ordinance or regulation in respect of such property or structures or
their use by Borrower. To Borrower's best knowledge, there is no existing,
proposed or
contemplated plan to modify or realign any street or highway or any existing,
proposed or contemplated eminent domain proceeding that would result in the
taking of all or any part of the real property or that would materially
adversely
affect the current or planned use of the real property or any part thereof.
The
facilities consisting of owned personal property are subject to no liens or
encumbrances except the security interests of record set forth on Schedule
4.27,
which Schedule is a copy of a Uniform Commercial Code ("UCC") search duly
obtained by Borrower in the last thirty (30) days and which search shows
security
interests of record relating to such facilities in the State of Georgia.
Borrower
agrees to remove security interests reflected on such UCC search, if any,
prior
to the Loan Closing (except those approved by the Lenders in writing) and to
remove any other security interests filed with respect to such facilities
between
the date of such UCC search and the date of the Loan Closing. Schedule 4.27
also
describes all construction work, if any, which Borrower has contracted for and
which is presently in progress in respect of the business, and also contains a
good faith estimate, as of the date of this Agreement, of the cost and
timetable
to complete each such project. Copies of the architect's, and the
contractor's,
if any, plans and specifications with respect to such construction in progress
have been delivered to the Lenders.
Section 4.28. Certain Representations With Respect to Borrower's Business.
(a) As set forth on Schedule 4.28, Borrower's facilities are qualified for
participation in the Medicare program. Complete and accurate copies of all
such
existing Medicare contracts have been furnished to the Lenders. Borrower's
facilities are presently in compliance with all of the terms, conditions and
provisions of such contracts.
(b) As set forth on Schedule 4.28, Borrower's facilities are qualified for
participation in the Medicaid program. Complete and accurate copies of
Borrower's existing Medicaid contracts have been furnished to the Lenders.
Borrower's
facilities are presently in compliance with all of the terms, conditions and
provisions of such contracts.
(c) As set forth on Schedule 4.28, Borrower's facilities are qualified for
participation in the Champus program. Complete and accurate copies of
Borrower's
existing Champus contracts have been furnished to the Lenders. Borrower's
facilities are presently in compliance with all of the terms, conditions and
provisions of such contracts.
(d) To the best of Borrower's knowledge and belief, Borrower's facilities are
not in violation of any applicable fire code in any material respect.
(e) Except as set forth in Schedule 4.28, Borrower has not received any
written
notification that Borrower's facilities are in violation of local building
codes, ordinances or zoning laws. To the best of Borrower's knowledge and
belief, the building or buildings in which Borrower's facilities are located
comply with all
local building codes, ordinances and zoning laws and are in a state of good
condition and repair, normal wear and tear excepted.
(f) Included in Schedule 4.28 is a copy of all licensure survey reports of
Borrower's facilities by the applicable state department of health issued from
and after January 1, 1996.
(g) Complete and accurate copies of all appraisals, if any, obtained by
Borrower
since January 1, 1996 relating to any of the property described on Schedule
4.27
have been furnished to the Lenders.
(h) Borrower's facilities have been licensed by all applicable state and local
agencies. Except as set forth in Schedule 4.28, Borrower's facilities are
presently in compliance with all the terms, conditions and provisions of such
licenses. Borrower's facilities, equipment, staffing and operations satisfy,
without exception, applicable licensing requirements.
(i) At Closing or within ten ( 10) days thereafter Borrower shall provide to
Lender an amended Schedule 4.28 which shall be in full compliance with the
representations made by Borrower under this Section 4.28.
Section 4.29. Reimbursement Matters.
To the best of knowledge and belief of Borrower, the amounts set up as
provisions
for the Medicaid or Medicare adjustments and adjustments by any other third
party
payors on the audited and unaudited financial statements are sufficient to pay
any amounts for which Borrower may be liable. Borrower has not received any
written notices that either Medicare or Medicaid has any claims against it
which
may reasonably be expected to result in consolidated net offsets against
future
reimbursement in excess of that provided for in such financial statements.
Neither Borrower nor, to the best knowledge and belief of Borrower, any of its
employees has been convicted of, charged with or is the subject of an
investigation with respect to a violation of the Medicare and Medicaid fraud
and
abuse provisions of the federal Social Security Act or the physician ownership
and referral provisions of federal law.
Section 4.30. Hill-Burton Funds.
No funds have been received by or on behalf of Borrower or, to the best
knowledge of Borrower, any predecessor of Borrower to construct, improve or
acquire any of the facilities under the "Hill-Burton" Act as a result of
which Borrower may be required to pay, or otherwise satisfy, any amounts for
which there shall be any "recovery" as a result of the consummation of the
transactions contemplated by this Agreement.
Section 4.31. Environmental.
(a) Borrower is currently in compliance with all Environmental Laws (as
defined
below) which compliance includes, but is not limited to, the possession by
Borrower of all permits and other governmental authorization required under
applicable Environmental Laws, and compliance in all material respects with
the
terms and conditions thereof, except in any case where the failure to be in
compliance would not have a Material Adverse Effect;
(b) Borrower has not stored, disposed of or arranged for disposal of any
Materials of Environmental Concern (as defined below) on any of the real
property, except in compliance with applicable Environmental Laws;
(c) Borrower has not received any communication (written or oral), whether
from
a governmental authority, citizens group, employee or otherwise, that alleges
that Borrower is not in full compliance with Environmental Laws, and there are
no circumstances that may prevent or interfere with such full compliance in
the
future. There is no Environmental Claim (as defined below) pending or, to
Borrower's best knowledge, threatened against, or which has been made known
to,
Borrower.
(d) during the period the facilities have been held by Borrower, its
affiliates
or, to Borrower's best knowledge, its predecessors in interest, there have
been
no actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the generation, handling, transportation,
treatment, storage, release, emission, discharge, presence or disposal of any
Hazardous Substance (as defined below), that could form the basis of any
Environmental Claim against Borrower under any Environmental Law or Medical
Waste
Law (as defined below) in effect at, or at any time prior to, the Loan
Closing.
(e) Without in any way limiting the generality of the foregoing, to Borrower's
best knowledge, (i) there are no underground storage tanks located on the
property owned or leased by Borrower or the Subsidiaries, (ii) there is no
asbestos contained in or forming part of any building, building component,
structure or office space owned or leased by Borrower or the Subsidiaries, and
(iii) no polychlorinated biphenyls ("PCBs") are used or stored at any property
owned or leased by Borrower or the Subsidiaries.
(f) With respect to the generation, transportation, treatment, storage and
disposal or other handling or tracking of Medical Waste (as defined below),
Borrower is in compliance with all Medical Waste Laws, except in any case
where
the failure to be in compliance would not have a Material Adverse Effect.
The following terms shall have the following meanings:
"Environmental Claim" means any claim, action, cause of action,
investigation
or notice (written or oral) by any person or entity alleging potential
liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages,
property
damages, personal injuries or penalties) arising out of, based on or resulting
from (a) the presence, or release into the environment, of any Hazardous
Substances or Medical Wastes at any location, whether or not owned or operated
by Borrower or (b) circumstances forming the basis of any violation, or
alleged
violation of any Environmental Law or Medical Waste Law.
"Environmental Laws" means the federal, state and local environmental,
health
or safety laws, regulations, ordinances, rules and policies and common law in
effect on the date hereof and the Loan Closing Date relating to the use,
refinement, handling, treatment, removal, storage, production, manufacture,
transportation or disposal, emissions, discharges, releases or threatened
releases of materials of environmental concern, or otherwise relating to
protection of the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), as the same
may
be amended or modified to the date hereof and the Loan Closing Date,
including,
without limitation, the statutes listed herewith:
Federal Resources Conservation and Recovery Act of 1976, 42 U.S.C. Section
6901, et seq.
Federal Comprehensive Environmental Response, Compensation and Liability Act
of
1980, 42 U.S.C. ~ 9601, et seq.
Federal Clean Air Act, 42 U.S.C. ~ 7401, et seq.
Federal Water Pollution Control Act, Federal Clean Water Act of 1977, 33
U.S.C.
Section 1251, _ seq.
Federal Insecticide, Fungicide and Rodenticide Act, Federal Pesticide Act of
1978, Section U.S.C. ~ 136, et seq.
Federal Hazardous Materials Transportation Act, 48 U.S.C. Section 1801, et
seq.
Federal Toxic Substances Control Act, 15 U.S.C. Section 2601, seq.
Federal Safe Drinking Water Act, 42 U.S.C. Section 300f, _ seq.
"Hazardous Substances" means any toxic or hazardous waste, pollutants or
substances, including, without limitation, asbestos, PCBs, petroleum products
and byproducts, substances deemed or listed as "hazardous substance," "toxic
substance," "toxic pollutant" or similarly identified substance or mixture, in
or pursuant to any Environmental Law.
"Medical Waste" includes any substance, pollutant, materials or
containment
listed or regulated under the Medical Waste Tracking Act of 1988,42 U.S.C.
Section
6992, et seq. ("MWTA"), 42 Part 72 and 49 C.F.R. Sections 173, 386.
"Medical Waste Laws" means the following, including regulations
promulgated
and orders issued thereunder, to the extent such Medical Waste Laws regulate
Medical Waste, all as may be amended from time to time: the MWTA, the Resource
Reservation and Recovery Act, 42 U.S.C.A. ~ 6901 _ seq., the Air Pollution
Prevention and Control Act, 42 U.S.C.A. Section 7401 et seq., the Federal
Water
Pollution Control Act, 33 U.S.C.A. Section 1251 _ seq., the Marine
Protection, Research and Sanctuaries Act of 1972, 33 U.S.C.A. ~ 1401 _ 5~.,
Nuclear Regulatory Commission regulations contained in 10 C.F.R. Part 20, and
10 C.F.R. Part 61, Occupational Health Act, 29 U.S.C.A. Section 651 et seq.,
Public Health Service regulations contained in 42 C.F.R. Part 72, Food and
Drug Administration regulations contained in 21 C.F.R. Parts 58 and 211, U.S.
Department of Transportation regulations contained in 49 C.F.R. Parts 171 -
179, the Act to Prevent Pollution from Ships, 33 U.S.C.A. Section 1901 _
seq., United States Department of Agriculture regulations contained in
9 C.F.R. Parts 50 through 56, United States Postal Service regulations
contained in 39 C.F.R. Part 111, state and local environmental and safety
laws, rules, regulations and other legally binding requirements, and any
other federal, state, regional, county, municipal or other
local laws, regulations and ordinances insofar as they purport to regulate
Medical Waste, or impose requirements relating to Medical Waste.
Section 4.32. Survival of Representations and Warranties.
All representations and warranties of Borrower herein shall survive the Loan
Closing and the delivery of the Debentures, and any investigation at any time
made by or on behalf of the Lenders shall not diminish the Lenders' right to
rely on Borrower's representations and warranties as herein set forth.
Section 4.33. Full Disclosure.
Neither the representations, warranties, schedules, financial statements
referenced in Section 4.06, nor any business plan, offering memorandum,
prospectus, SEC registration statement, report or proxy statement,
certificate,
document or written statement to be delivered or caused to be delivered by
Borrower or any of its agents or representatives to the Lenders in connection
with this Agreement, contains or will contain, as of the date thereon, any
untrue statement of a material fact or omits or will omit to state any
material fact necessary to keep the statements contained herein or therein
from being misleading in any material respect.
ARTICLE V - AFFIRMATIVE COVENANTS OF BORROWER
So long as any part of the Debentures remains unpaid or has not been redeemed
or
converted hereunder, and until such payment, redemption or conversion in full,
unless the Lenders shall otherwise consent in writing. Borrower agrees that:
Section 5.01. Financial Statements! Reports and Documents.
(a) Borrower shall accurately and fairly maintain its books of account in
accordance with GAAP, retain Laney Bateler & Killinger, or other such firm of
independent certified public accountants, requested by Borrower and approved
by
the Lenders, to make annual audits of its accounts in accordance with
generally
accepted auditing standards.
(b) Borrower shall provide the following reports and information to each
Lender:
(i) As soon as available, and in any event within forty-five (45) days
after
the close of each fiscal quarter, Borrower's quarterly reports on Form 10-Q
with
exhibits for said period. As soon as available. Borrower's reports on Form 8-K
with any exhibits.
(ii) As soon as available, and in any event within ninety (90) days after
the close of each fiscal year, Borrower's annual report on Form 10-K with
exhibits for said period.
(iii) Each fiscal quarter, concurrent with the periodic report required
above, a certificate executed by the Chief Financial Officer or Chief
Executive
Officer of Borrower, (A) stating that a review of the activities of Borrower
during such fiscal period has been made under his supervision and that
Borrower
has observed, performed and fulfilled each and every obligation and covenant
contained herein and is not in default under any of the same or, if any such
default shall have occurred, specifying the nature and status thereof, and (B)
stating that Borrower and the Subsidiaries are in compliance as of the end of
such fiscal quarter with the agreed minimum financial ratios and standards set
forth in Schedule 7.01 to this Agreement.
(iv) Promptly (but in any event within five (5) business days) upon
becoming
aware of the existence of any condition or event which constitutes a Default
or
which, with notice or the passage of time or both would become a Default or an
Event of Default, written notice specifying the nature and period of existence
thereof and the action which Borrower is taking or proposes to take with
respect
thereto.
(v) Promptly (but in any event within five (5) business days) upon the
receipt thereof by Borrower or the Board of Directors of Borrower, copies of
all
reports, all management letters and other detailed information submitted to
Borrower or the Board by independent accountants in connection with each
annual
or interim audit or review of the accounts or affairs of Borrower made by such
accountants.
(vi) Promptly (but in any event within five (5) business days), such other
information relating to the finances, budgets, properties, business and
affairs
of Borrower and each Subsidiary, as the Lenders or the Agent may reasonably
request from time to time.
(vii) Promptly upon its becoming available, one copy of each financial
statement, report, press release, notice or proxy statement sent by Borrower
to
stockholders generally, and of each regular or periodic report, registration
statement or prospectus filed by Borrower with any securities exchange or the
SEC or any successor agency, and of any order issued by any Governmental
Authority
in any proceeding to which Borrower is a party.
Section 5.02. Preparation of Budgets.
(a) Prior to the beginning of Borrower's fiscal year Borrower agrees to
prepare
and submit to the Board and furnish to each Lender a copy of, an annual plan
for
such year which shall include, without limitation, plans for expansion, if
any,
plans for incurrences of Indebtedness and projections regarding other sources
of
funds, quarterly projected capital and operating expense budgets, cash flow
statements, profit and loss statements and balance sheet projections, itemized
in such detail as the Board may request.
(b) Borrower shall furnish to the Lenders monthly financial reports, including
budgets (as currently used by management in the conduct of business) within 30
days of the end of each month.
(c) Borrower agrees that it will review its operations with Agent. Such
operations reviews will be in such depth and detail as Agent shall reasonably
request and will be held as reasonably necessary, generally once a fiscal
quarter.
Section 5.03. Payment of Taxes and Other Indebtedness.
Borrower shall, and shall cause its Subsidiaries to, pay and discharge (i) all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or profits, or upon any property belonging to it, before
delinquent, (ii)
all lawful claims (including claims for labor, materials and supplies), which,
if unpaid, will give rise to a Lien upon any of its property, other than a
Permitted Lien, and (iii) all of its other Indebtedness in accordance with
their
respective terms, except as prohibited hereunder; provided, however, that
Borrower and its Subsidiaries, if any, shall not be required to pay any such
tax,
assessment, charge, levy or other claim if and so long as the amount,
applicability or validity thereof shall currently be contested in good faith
by
appropriate proceedings and appropriate accruals and reserves therefor have
been
established in accordance with GAAP.
Section 5.04. Maintenance of Existence and Rights: Conduct of Business.
Subject to Section 6.13, Borrower shall, and shall cause its operating
Subsidiaries to, preserve and maintain their respective corporate existence
and
all of their respective material rights, privileges and franchises necessary
in
the normal conduct of its business, except where the failure to maintain such
rights, privileges and franchises could reasonably be expected not to have a
Material Adverse Effect, and conduct their respective businesses in an orderly
and efficient manner consistent with good business practices and in accordance
with all valid regulations and orders of any Governmental Authority. Borrower
shall keep its Principal Place of business within the United States.
Section 5.05, SEC Filings.
So long as Borrower has a class of securities registered pursuant to Section
12
of the 1934 Act, Borrower shall duly file, when due, all reports and proxy
statements required of a company whose securities are registered for public
trading under and pursuant to the 1934 Act and any rules and regulations
issued
thereunder, and to preserve and maintain its registration thereunder.
Section 5.06. Notice.
Borrower shall promptly notify the Lenders of (i) any Material Adverse Change,
(ii) any default under any Senior Obligations, other Indebtedness having an
aggregate principal amount in excess of $50,000, material agreement, contract
or
other instrument to which it is a party or by which any of its properties are
bound, or any acceleration of the maturity of any Indebtedness having an
aggregate principal amount in excess of $50,000, if any, (iii) any material
adverse claim against or affecting Borrower or its Subsidiaries, if any, or
any
of its properties, and (iv) the commencement of, and any determination in, any
material litigation with any third party or any proceeding before any
Governmental Authority.
Section 5.07. Compliance with Loan Documents.
Borrower shall, and shall cause each of its Subsidiaries to, promptly comply
with any and all covenants and provisions of the Loan Documents.
Section 5.08, Compliance with Material Agreements.
Borrower shall, and shall cause each of its Subsidiaries to, comply in all
material respects with all material agreements, indentures, mortgages or
documents binding on it or affecting its properties or business.
Section 5.09. Operations and Properties.
Borrower shall, and shall cause each of its Subsidiaries to, act prudently and
in accordance with customary industry standards in managing or operating its
assets, properties, business and investments. Borrower shall, and shall cause
each of its Subsidiaries to, keep in good working order and condition,
ordinary
wear and tear excepted, all of its assets and properties which are necessary
to
the conduct of its business.
Section 5.10. Books and Records: Access.
Borrower shall, and shall cause each of its Subsidiaries to' maintain complete
and accurate books and records of its transactions in accordance with good
accounting practices. Borrower shall give each duly authorized representative
of
the Lenders access during all normal business hours, upon reasonable notice,
to,
and shall permit such representative to examine, copy or make excerpts from,
any
and all books, records and documents in the possession of Borrower and its
Subsidiaries and relating to its affairs, and to inspect any of the properties
of Borrower and its Subsidiaries; provided that the Lender agrees that any
such
inspection will be performed so as not to interfere with Borrower's normal
business operations. Borrower shall make a copy of this Agreement, along with
any waivers, consents, modifications or amendments, available for review at
its
principal office by the Lenders or the Lenders' representatives.
Section 5.11. Compliance with Law.
Borrower shall, and shall cause each of its Subsidiaries to, comply in all
material respects with all applicable laws, rules, regulations, ordinances and
all orders and decrees of any Governmental Authority applicable to it or any
of
its properties, businesses, or operations.
Section 5.12. Insurance.
Borrower shall, and shall cause each of its Subsidiaries to, maintain such
worker's compensation insurance, liability insurance and insurance on its
properties, assets and business, now owned or hereafter acquired, against such
casualties, risks and contingencies, and in such types and amounts, as are
consistent with customary practices and standards of companies engaged in
similar businesses.
Section 5.13. Authorizations and Approvals.
Borrower shall, and shall cause each of its Subsidiaries to, promptly obtain,
from time to time at its own expense, all such governmental licenses,
authorizations, consents, permits and approvals as may be required to enable
it
to comply with its obligations hereunder and under the other Loan Documents.
Section 5.14. ERISA Compliance.
Borrower shall (i) at all times, make prompt payment of all contributions
required under all Plans, if any, and shall meet the minimum funding standards
set forth in ERISA with respect to its Plans subject to ERISA, if any, (ii)
notify the Lenders immediately of any fact in connection with any of its
Plans,
which might constitute grounds for termination thereof by the Pension Benefit
Guaranty Corporation or for the appointment by the appropriate United States
District Court of a trustee to administer such Plan, together with a
statement,
if requested by the Lenders, as to the reason therefor and the action, if any,
proposed to be taken with respect thereto, and (iii) furnish to the Lenders,
upon their request, such additional information concerning any of its Plans
as may be reasonably requested.
Section 5.15. Further Assurances.
Borrower shall, and shall cause each of its Subsidiaries to, make,
execute
or endorse, and acknowledge and deliver or file or cause the same to be done,
all such notices, certifications and additional agreements, undertakings,
transfers, assignments, or other assurances, and take any and all such other
action, as the Lenders may, from time to time, deem reasonably necessary or
proper in connection with any of the Loan Documents, or the obligations of
Borrower or its Subsidiaries, if any, thereunder, which the Lenders may
request from time to time.
Section 5.16. Indemnity by Borrower.
Borrower shall indemnify, save, and hold harmless the Lenders and their
directors, officers, lenders, attorneys, and employees (singularly or
collectively, the "Indemnitee") from and against (i) any and all claims,
demands,
actions or causes of action that are asserted against any Indemnitee if the
claim, demand, action or cause of action directly or indirectly relates to
this
Agreement and the other Loan Documents issued pursuant thereto, the use of
proceeds of the Loans, or the relationship of Borrower and the Lenders under
this
Agreement or any transaction contemplated pursuant to this Agreement, (ii) any
administrative or investigative proceeding by any Governmental Authority
directly
or indirectly related to a claim, demand, action or cause of action described
in
clause (i) above, and (iii) any and all liabilities, losses, costs, or
expenses
(including reasonable attorneys' fees and disbursements) that any Indemnitee
suffers or incurs as a result of any of the foregoing; provided, however, that
Borrower shall have no obligation under this Section 5.16 to the Lenders with
respect to any of the foregoing arising out of the gross negligence or willful
misconduct of the Lenders or their assignees or the breach by any Lender or
their
assignees of this Agreement or any other Loan Document or other document
executed
in connection with any of the aforesaid, the breach by the Lenders or their
assignees of any intercreditor or participation agreement or commitment with
other parties, the violation or alleged violation of any law, rule or
regulation
by the Lenders or their assignees, or from the transfer or disposition by the
Lenders of any Debenture or the Common Stock issued upon conversion of the
Debenture. If any claim, demand, action or cause of action is asserted against
any Indemnitee, such Indemnitee shall promptly notify Borrower, but the
failure
to so promptly notify Borrower shall not affect Borrower's obligations under
this
Section unless such failure materially prejudices Borrower's right or ability
to
participate in the contest of such claim, demand, action or cause of action,
as
hereinafter provided. In the event that such Indemnitee's failure to properly
notify Borrower materially prejudices Borrower's right or ability to
participate
in the contest of such claim, demand, action, or cause of action, then said
Indemnitee shall have no right to receive, and Borrower shall have no
obligation
to pay, any indemnification amounts hereunder. Borrower may elect to defend
any
such claim, demand, action or cause of action (at its own expense) asserted
against said Indemnitee and, if requested by Borrower in writing and so long
as
no Default or Event of Default shall have occurred and be continuing, such
Indemnitee (at Borrower's expense) shall in good faith contest the validity,
applicability and amount of such claim, demand, action or cause of action and
shall permit Borrower to participate in such contest. Any Indemnitee that
proposes to settle or compromise any claim or proceeding for which Borrower
may
be liable for payment to or on behalf of an Indemnitee hereunder shall give
Borrower written notice of the terms of such proposed settlement or compromise
reasonably in advance of settling or compromising such claim or proceeding and
shall obtain Borrower's written concurrence thereto. In the event that said
Indemnitee fails to obtain Borrower's prior written consent to any such
settlement or compromise, said Indemnitee shall have no right to receive and
Borrower shall have no obligation to pay any indemnification amounts
hereunder.
Each Indemnitee may employ counsel, which counsel shall be reasonably
acceptable
to Borrower, in enforcing its rights hereunder and in defending against any
claim, demand, action, or cause of action covered by this Section 5. 16;
provided, however, that each Indemnitee shall endeavor in connection with any
matter covered by this Section 5.16 which also involves any other Indemnitee,
use
reasonable efforts to avoid unnecessary duplication of effort by counsel for
all
Indemnitees, including by allowing Borrower to select one lawyer for all
parties,
such selection to be subject to the approval of such parties, which approval
shall not be unreasonably withheld. Any obligation or liability of Borrower to
any Indemnitee under this Section 5. l 6 shall survive the expiration or
termination of this Agreement and the repayment of the Debentures.
Section 5.17. Reservation of Shares.
Borrower shall at all times reserve and keep available sufficient
authorized and unissued shares of Common Stock to effect the conversion of
the Debentures.
Section 5.18. Ownership of Subsidiaries.
Borrower shall own at all times all of the capital stock, or other equity
interests in, of the Subsidiaries.
Section 5.19. Retention of Stock Ownership.
(a) Borrower shall not offer, sell or otherwise dispose of any shares of
Common Stock or securities exercisable or convertible into shares of Common
Stock for a period of twelve (12) months following the Loan Closing, other
than except (i) Common Stock issued upon the conversion of any of the
Debentures; (ii) Common Stock issued upon exercise of any outstanding
warrants or options; (iii) Common Stock issued upon exercise of employee
stock options; and (iv) up to 200,000 shares of Common Stock issued upon
exercise of options granted to the Lenders.
(b) All executive officers, directors and principal shareholders of
Borrower will execute and deliver Lock-Up Agreements at the Loan Closing
which shall
provide that they will not offer, sell or otherwise dispose of the shares of
Common Stock beneficially owned or controlled by them (including subsequently
acquired shares or securities exercisable or convertible into shares), except
for intra-family transfers or estate planning purposes, for a period of twelve
(12) months following the Loan Closing. Thereafter, each such person shall
only
sell such securities pursuant to Rule 144, without the consent of the Lenders.
until the Debentures have been paid in full.
Section 5.20. Kev Man Life Insurance.
Borrower shall obtain and maintain key man life insurance on Mr.
Christopher F. Brogdon in the amount of $5,000,000 payable to Borrower.
ARTICLE VI - NEGATIVE COVENANTS OF BORROWER
So long as any part of the Debentures has not been redeemed or converted
hereunder, and until such redemption or conversion in full, unless the Lenders
shall otherwise consent in writing, Borrower agrees that
Section 6.01. Limitation on Indebtedness.
At Loan Closing, Borrower and its Subsidiaries shall not have any
outstanding
Indebtedness, except Indebtedness arising under this Agreement, the
Debentures,
the Guaranties, Permitted Indebtedness or as set forth in Schedule 6.01.
Borrower
and its Subsidiaries will not incur or guarantee any Indebtedness senior to or
pari passu with the Debentures, without the consent of the Lenders, except for
bank debt and asset-based loans for Borrower's operations and acquisitions.
Section 6.02. Limitation on Liens.
Borrower shall not, and shall not permit its Subsidiaries to, create,
cause,
incur, permit, suffer to exist any Lien upon any of its properties or assets,
other than Permitted Liens
Section 6.03. Limitation on Investments.
Borrower shall not, and shall not permit its Subsidiaries to, make or
have
outstanding any Investments in any Person, except for Borrower's or any
Subsidiary's acquisition or ownership of stock of or other equity interests in
Subsidiaries (including Persons that will be Subsidiaries after giving effect
to
such Investments), mortgages or guarantees of mortgages, loans and other
transactions between Borrower and any Subsidiaries, short term bank deposits,
money market investments, debt instruments relating to health care facilities
in
connection with Borrower's or any Subsidiary's potential acquisition of such
facility, investment-grade commercial paper, government securities and such
other
"cash equivalent" investments as the Lenders may from time to time approve,
and
customer obligations and receivables arising out of sales or leases made or
the
rendering of services in the ordinary course of business.
Section 6.04. Alteration of Material Agreements.
Borrower shall not, and shall not permit its Subsidiaries to, consent to
or
permit any alteration, amendment, modification, release, waiver or termination
of any material agreement to which it is party, other than in the ordinary
course
of business.
Section 6.05. Transactions with Affiliates.
Except as disclosed in Schedule 6 05, Borrower shall not, and shall not
permit its Subsidiaries to, enter into any transaction not in the ordinary
course
of business with, or pay any management fees to, any Affiliate, except for
intercompany transactions, without the consent of the Lenders, unless the
terms
thereof (i) are no less favorable to Borrower or such Subsidiary than those
that
could be obtained at the time of such transaction in arm's-length dealings
with
a Person who is not an Affiliate, or (ii) if such transaction involves an
amount
less than $50.000. are set forth in writing and have been approved by a
majority
of the members of the Board of Directors having no personal stake in the
transaction, or (iii) if such transaction is approved by the requisite vote of
the shareholders of the Company.
Section 6.06. Limitations on Acquisition of Nonrelated Business.
Borrower shall not, and shall not permit its Subsidiaries to, engage in
any
line of business or acquire any new product lines or business or acquire any
companies unless such new product line or business of Borrower acquired is
humanly involved in, or substantially similar or related to, Borrower's
current
lines of business.
Section 6.07. Limitation on Sale of Properties.
Borrower shall not, and shall not permit its Subsidiaries to, (i) sell,
assign, convey, exchange, lease or otherwise dispose of any of its properties,
rights, assets or business (including the capital stock of its operating
Subsidiaries), whether now owned or hereafter acquired not constituting more
than
20% in any single transaction or series of related transactions without the
consent of the Lenders, or (ii) sell, assign or discount any accounts
receivable,
except in the ordinary course of business (which shall include receivable
financing or securitization), in each case without the consent of the Lenders;
provided, however, that Borrower may sell its securities to unaffiliated third
parties for fair market value and to employees under its existing stock option
plan.
Section 6.08. Fiscal Year and Accounting Method.
Borrower shall not, and shall not permit its Subsidiaries to, change its
fiscal year or method of accounting, except as permitted by GAAP.
Section 6.09. Liquidation.
Borrower shall not, and shall not permit its Subsidiaries to, (i) dissolve
or liquidate (except for dissolution or liquidation of inactive Subsidiaries
in
the ordinary course of business) or (ii) enter into any other transaction that
has a similar effect.
PNTG to Articles of Incorporation or Bylaws.
Section 6.10. Material Amendments
Borrower shall not, and shall not permit its Subsidiaries to, amend its
Certificate or Articles of Incorporation (or other charter document) or bylaws
in any material respect, without the consent of the Lenders.
Section 6.11. Executive Compensation.
(a) Borrower will not increase the salary, bonus, or other compensation
programs (whether in cash, securities, or other property, and whether payment
is
deferred or current) of its five most senior executive officers, unless such
compensation increase is approved by a majority of the Board or a Compensation
Committee of the Board, a majority of whom shall be nonemployee Directors.
(b) Borrower shall not implement any bonus, profit sharing or other
incentive plans, until such plans are formally adopted by the majority of the
Board or a Compensation Committee of the Board of Directors, a majority of
whom
shall be nonemployee Directors. Borrower's executive compensation shall be
consistent with the general compensation policies adopted by the Compensation
Committee of the Board of Directors.
Section 6.12. Restricted Payments.
Borrower shall not (i) without the consent of the Lenders, declare or pay
any
dividend (other than stock dividends) or make any other cash distribution on
(a)
any Common Stock, (b) any Preferred Stock, if at the time of such declaration
or
payment, Borrower is in Default with respect to the Loan, (ii) purchase,
redeem,
or otherwise acquire any shares of Common Stock in excess of 5% of the shares
then outstanding in any twelve (12)-month period or any shares of Preferred
Stock, without the consent of the Lenders, (iii) make any payments of
Indebtedness (other than Senior Obligations) which are pari passu or
subordinated
to the Debentures, if at the time of such payment, Borrower is in Default with
respect to the Loan, or (iv) make any prepayments of Indebtedness (other than
Senior Obligations) which are pari passu or subordinated to the Debentures,
except mortgages and accounts receivable financings or securitizations, unless
the Debentures are prepaid on a pro rata basis, without the consent of the
Lenders. Borrower shall not permit its Subsidiaries to enter into any
agreements
restricting the payment of dividends from the Subsidiaries to Borrower without
the consent of the Lenders.
Section 6.13. Consolidation or Merger.
Borrower shall not consolidate with or merge into any other corporation,
unless the surviving corporation after such merger or consolidation will not
be
in Default and the surviving corporation becomes a party to this Agreement.
Subsidiaries shall only consolidate with or merge into Borrower or another
Subsidiary; provided, however, that a Subsidiary may merge or consolidate with
any other entity as long as such Subsidiary is the surviving corporation of
such
merger or consolidation, and Borrower is not in Default.
ARTICLE VII - COVENANTS OF MAINTENANCE OF FINANCIAL STANDARDS
Section 7.01. Financial Ratios.
So long as any of the Debentures have not been redeemed or converted
hereunder, and until such redemption or conversion has been made in full, or
unless the Lenders shall otherwise consent in writing, Borrower, on a
consolidated basis, shall be in compliance with the covenants contained in its
Senior Documents and with the agreed minimum financial ratios and standards
provided in Schedule 7.01, as of the end of each fiscal quarter of Borrower
and
as set forth in its most recent quarterly compliance certificates delivered
pursuant to Section 5.01.
ARTICLE VIII - EVENTS OF DEFAULT
Section 8.01. Events of Default.
(a) An "Event of Default" shall exist if any one or more of the following
events (herein collectively called "Events of Default") shall occur and be
continuing:
(i) Borrower shall fail to pay when due (or shall state in writing an
intention not to pay or its inability to pay) any installment of interest on
or
principal of, any Debenture or any fee, expense or other payment required
hereunder and such failure to pay shall continue unremedied for a period three
(3) days;
(ii) Any representation or warranty made under this Agreement, or any
of the other Loan Documents, or in any certificate or statement furnished or
made
to Agent pursuant hereto or in connection herewith or with the Loans
hereunder,
or in any Subsidiary Document shall prove to be untrue or inaccurate in any
material respect as of the date on which such representation or warranty was
made, provided that if the same is curable by Borrower or its Subsidiaries
through the exercise of their reasonable efforts and if Borrower or its
Subsidiaries exercise such reasonable efforts, then the Lenders may not
exercise
any nights or remedies provided in Section 8.02 hereof or in any of the Loan
Documents for a period of thirty (30) days;
(iii) Default shall occur in the performance of any of the covenants
or
agreements of Borrower or of its Subsidiaries contained herein, or in any of
the
other Loan Documents or in any Subsidiary Document, which Default is not
remedied
within ten (l0) days after the occurrence of such breach or failure to
perform;
(iv) Default shall occur in the payment of any Senior Obligations or
in
the payment of any other indebtedness having an aggregate principal amount in
excess of $50, 000, or nonmonetary default shall occur in respect of any note,
loan agreement or credit agreement relating to any Indebtedness having an
aggregate principal amount in excess of $50,000, and such default continues
for
more than the period of grace, if any, specified therein or any Indebtedness
having an aggregate principal amount in excess of $50,000, shall become due
before its stated maturity by acceleration of the maturity, or any
indebtedness
having an aggregate principal amount in excess of $50,000, shall become due by
its terms and shall not be promptly paid or extended;
(v) Any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against Borrower in accordance with the
respective terms,
or shall in any way be terminated or become or be declared by any court or by
Borrower or any Subsidiary in any legal proceeding to be ineffective or
inoperative, or shall in any way whatsoever cease to give or provide the
respective nights, titles, interests, remedies, powers or privileges stated
therein to be created thereby;
(vi) Borrower or its Subsidiaries shall (A) apply for or consent to
the
appointment of a receiver, trustee, custodian, intervenor or liquidator of
itself, or of all or substantially all of such Person's assets, (B) file a
voluntary petition in bankruptcy, admit in writing that such Person is unable
to pay such Person's debts as they become due or generally not pay such
Person's
debts as they become due, (C) make a general assignment for the benefit of
creditors, (D) file a petition or answer seeking reorganization or an
arrangement
with creditors or to take advantage of any bankruptcy or insolvency laws, (E)
file an answer admitting the material allegations of, or consent to, or
default
in answering, a petition filed against such Person in any bankruptcy,
reorganization or insolvency proceeding, or (F) take corporate action for the
purpose of effecting any of the foregoing;
(vii) An involuntary petition or complaint shall be filed against
Borrower or any of its Subsidiaries seeking bankruptcy or reorganization of
such
Person or the appointment of a receiver, custodian, trustee, intervenor or
liquidator of such Person, or all or substantially all of such Person's
assets,
and such petition or complaint shall not have been dismissed within sixty (60)
days of the filing thereof or an order, order for relief; judgment or decree
shall be entered by any court of competent jurisdiction or other competent
authority approving a petition or complaint seeking reorganization of Borrower
or its subsidiary or appointing a receiver, custodian, trustee, intervenor or
liquidator of such Person, or of all or substantially all of such Person's
assets;
(viii) Any final judgment(s) for the payment of money in excess of
the
sum of $100,000 in the aggregate shall be rendered against Borrower or any
Subsidiary and such judgment or judgments shall not be satisfied or discharged
prior to the date on which any of its assets could be lawfully sold to satisfy
such judgment; or
(ix) Borrower shall fail to issue and deliver shares of Common Stock
as
provided herein upon conversion of the Debentures.
Section 8.02. Remedies Upon Event of Default.
(a) If an Event of Default shall have occurred and be continuing, then
the
Lenders may exercise any one or more of the following nights and remedies, and
any other remedies provided in any of the Loan Documents, as the Lenders in
their
sole discretion may deem necessary or appropriate:
(i) declare the unpaid Principal Amount (after application of any
payments or installments received by the Lenders) of, and all interest then
accrued but unpaid on, the Debentures and any other liabilities hereunder to
be
forthwith due and payable, whereupon the same shall forthwith become due and
payable without presentment, demand, protest, notice of default, notice of
acceleration or of intention to accelerate or other notice of any kind, all of
which Borrower hereby expressly waives, anything contained herein or in the
Debentures to the contrary notwithstanding;
(ii) reduce any claim to judgment; and
(iii) without notice of default or demand, pursue and enforce any of
the
Lenders' rights and remedies under the Loan Documents and the Subsidiary
Documents, or otherwise provided under or pursuant to any applicable law or
agreement, all of which rights may be specifically enforced.
(b) In the event of a violation by Borrower of the covenants set forth in
Article VI, the Lenders may, in their sole discretion, (i) waive compliance
with
the covenants provided Borrower is in compliance with Section 7.01 hereof; or
(ii) require Borrower to redeem the Debentures at the higher of market value
or
the unpaid principal amount of the Debentures, together with an amount equal
to
an 18% annual yield on the principal amount through the Redemption Date,
whichever is greater.
Section 8.03. Performance by the Lenders.
Should Borrower or any Subsidiary fail to perform any covenant, duty or
agreement contained herein or in any of the other Loan Documents or in any
Subsidiary Document, any Lender or Agent may perform or attempt to perform
such
covenant, duty or agreement on behalf of Borrower. In such event, Borrower
shall,
at the request of any Lender or Agent, promptly pay any amount reasonably
expended by any Lender or Agent in such performance or attempted performance
to
any Lender or Agent at its principal office, together with interest thereon,
at
the interest rate specified in the Debenture, from the date of such
expenditure
until paid. Notwithstanding the foregoing, it is expressly understood that any
Lender or Agent assumes no liability or responsibility for the performance of
any
duties of Borrower or any Subsidiary hereunder or under any of the other Loan
Documents or under any Subsidiary Document.
Section 8.04. Payment of Expenses Incurred by the Lenders.
Upon the occurrence of a Default or an Event of Default, which occurrence
is
not cured within the notice provisions, if any, provided herein, Borrower
agrees
to pay and shall pay all costs and expenses (including reasonable attorneys'
fees
and expenses) incurred by any Lender or Agent in connection with the
preservation
and enforcement of the Lenders' nights under this Agreement, the Debentures or
any other Loan Document.
ARTICLE LY - REGISTRATION RIGHTS
Section 9.01. Demand Registration.
(a) Borrower hereby agrees to register all or any portion of the
Registrable
Securities on two occasions (but no more than one per year) within 18 months
after Loan Closing, if, and only if, it shall receive a written request from a
Holder (the Initiating Holder) that Borrower file a registration statement
under
the 1933 Act covering the registration of at least 25% of the Registrable
Securities Then Outstanding. Borrower shall, within 20 days of its receipt
thereof, give written notice of such request to all Holders of record of
Registrable Securities. The Holders of said Registrable Securities shall then
have 15 days from the date of mailing of such notice by Borrower to request
that
all or a portion of their respective Registrable Securities be included in
said
registration.
(b) If the Holders intend to distribute the Registrable Securities
covered
by their request by means of an underwriting, they shall so advise Borrower as
a part of their request made pursuant to this Agreement, and Borrower shall
include such information in the written notice to the other Holders of
Registrable Securities referred to in Section 9.01(a). In such event, the
right
of any Holder to include its Registrable Securities in such registration shall
be conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by Borrower, the underwriter, the Initiating Holder
and such Holder) is limited to the extent provided herein. All Holders
proposing
to distribute their securities through such underwriting shall (together with
Borrower as provided in Section 9.04(e)) enter into an underwriting agreement
in
customary form with the underwriter or underwriters selected for such
underwriting by mutual agreement of Borrower and the Initiating Holder, which
agreement shall not be unreasonably withheld. Notwithstanding any other
provision
of this Section 9.01, if the underwriter advises the Initiating Holder and
Borrower in writing that marketing factors require a limitation of the number
of
shares to be underwritten, then the Initiating Holder shall so advise all
Holders
of Registrable Securities which would otherwise be underwritten pursuant
hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated on a pro rata basis among all Holders that
have
requested to participate in such registration. The nights of the Holders shall
be senior to those of any Persons subsequently granted demand registration
nights.
(c) Each such registration shall remain effective for a period of 180
days,
unless the Initiating Holder otherwise determines.
Section 9.02. "Pig-Back" Registration.
If Borrower proposes to register any of its capital stock under the 1933
Act
in connection with the public offering of such securities for its own account
or
for the account of its security holders, other than Holders of Registrable
Securities pursuant hereto (a "Piggy-Back Registration Statement"), except for
(i) a registration relating solely to the sale of securities to participants
in
Borrower's stock plans or employee benefit plans or (ii) a registration
relating
solely to an transaction for which Form S4 may be used, then:
(a) Borrower shall give written notice of such determination to each
Holder
of Registrable Securities, and each such Holder shall have the right to
request,
by written notice given to Borrower within 15 days of the date that such
written
notice was mailed by Borrower to such Holder, that a specific number of
Registrable Securities held by such Holder be included in the Piggy-Back
Registration Statement (and related underwritten offering, if any);
(b) If the Piggy-Back Registration Statement relates to an underwritten
offering, the notice given to each Holder shall specify the name or names of
the
managing underwriter or underwriters for such offering. In addition, such
notice
shall also specify the number of securities to be registered for the account
of
Borrower and for the account of its shareholders (other than the Holders of
Registrable Securities), if any;
(c) If the Piggy-Back Registration Statement relates to an underwritten
offering, each Holder of Registrable Securities to be included therein must
agree
(i) to sell such Holder's Registrable Securities on the same basis as provided
in the underwriting arrangement approved by Borrower, and (ii) to timely
complete
and execute all questionnaires, powers of attorney, indemnities, hold-back
agreements, underwriting agreements and other documents required under the
terms
of such underwriting arrangements or by the SEC or by any state securities
regulatory body;
(d) If the managing underwriter or underwriters for the underwritten
offering under the Piggy-Back Registration Statement determines that inclusion
of all or any portion of the Registrable Securities in such offering would
materially adversely affect the ability of the underwriters for such offering
to
sell all of the securities requested to be included for sale in such offering
at
the best pace obtainable therefor, the aggregate number of Registrable
Securities
that may be sold by the Holders shall be limited to such number of Registrable
Securities, if any, that the managing underwriter or underwriters determine
may
be included therein without such adverse effect as provided below. If the
number
of securities proposed to be sold in such underwritten offering exceeds the
number of securities that may be sold in such offering, there shall be
included
in the offering, first, up to the maximum number of securities to be sold by
Borrower for its own account and for the account of other stockholders (other
than Holders of Registrable Securities), as they may agree among themselves,
and
second, as to the balance, if any, Registrable Securities requested to be
included therein by the Holders thereof (pro rata as between such Holders
based
upon the number of Registrable Securities initially proposed to be registered
by
each), or in such other proportions as the managing underwriter or
underwriters
for the offering may require; provided, however, that in the event that the
number of securities proposed to be sold in such underwritten offering exceeds
the number of securities that may be sold in such offering pursuant to the
terms
and conditions set forth above and the Piggy-Back Registration Statement is a
result of public offering by Borrower of its securities for its own account,
there shall be included in the offering, first, up to the maximum number of
securities to be sold by Borrower for its own account and second, as to the
balance, if any, securities to be sold for the account of Borrower's
stockholders
(both the Holders of Registrable Securities requested and such other
stockholders
of Borrower requested to be included therein) on a pro rata basis;
(e) Holders of Registrable Securities shall have the night to withdraw
their
Registrable Securities from the Piggy-Back Registration Statement, but if the
same relates to an underwritten offering, they may only do so during the time
period and on the terms agreed upon among the underwriters for such
underwritten
offering and the Holders of Registrable Securities; and
(f) The exercise of the registration nights of the Holders with respect
to
any specific underwritten offering shall be subject to a 90-day delay at the
request of the managing underwriter.
Section9.03. Shelf Registration.
Borrower shall file a "shelf' registration statement under the 1933 Act
(the
"Shelf registration") covering all of the Registrable Securities within 60
days
of the earlier of one (1) year from the Loan Closing Date or the date on which
the price per share of Common Stock is twice the initial conversion once set
forth in the Debentures, provided that the Company is eligible to use Form
S-3,
and the Company shall use its best efforts to cause the Shelf Registration to
be
declared effective and to keep the Shelf Registration continuously effective
until all of the Registrable Securities registered therein cease to be
Registrable Securities. The securities shall cease to be Registrable
Securities
(a) when the Shelf Registration shall have become effective under the 1933 Act
and such securities shall have been disposed of pursuant to the Shelf
Registration, or (b) such securities shall have been sold as permitted by Rule
144 under the 1933 Act or the date on which the Registrable Securities may be
sold pursuant to Rule 144(k), whichever is the first to occur. The holders of
the
Debentures shall utilize Rule 144 in their sole discretion to the extent it
meets
their distribution requirements. Borrower agrees, if necessary, to supplement
or
amend the Shelf Registration, as required by the registration form utilized by
Borrower or by the instructions applicable to such registration form or by the
1933 Act, and Borrower agrees to furnish to the holders of the Registrable
Securities copies of any such supplement or amendment prior to its being used.
Section 9.04. Obligations of Borrower.
Whenever required to effect the registration of any Registrable Securities
pursuant to this Agreement, Borrower shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use all reasonable efforts to cause such
registration statement to become effective, and keep such registration
statement
effective until the sooner of all such Registrable Securities having been
distributed, or until 120 days have elapsed since such registration statement
became effective (subject to extension of this period as provided below);
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the
1933 Act with respect to the disposition of all securities covered by such
registration statement, or 120 days have elapsed since such registration
statement became effective (subject to the extension of this period as
provided
below);
(c) Furnish to the Holders such numbers of copies of a prospectus,
including
a preliminary prospectus, in conformity with the requirements of the 1933 Act,
and such other documents as they may reasonably request in order to facilitate
the disposition of Registrable Securities owned by them;
(d) Use all reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that Borrower shall not be required in connection therewith or as a
condition thereto to qualify as a broker-dealer in any states or jurisdictions
or to do business or to file a general consent to service of Process in any
such
states or jurisdictions;
(e) In the event of any underwritten public offering, enter into and
perform
its obligations under an underwriting agreement with the managing underwriter
of
such offering, in usual andcustomary form reasonably satisfactory to Borrower
and
the Holders of a majority of the Registrable Securities to be included in such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement:
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto and
covered by such registration statement is required to be delivered under the
1933
Act, of the happening of any event as a result of which the prospectus
included
in such registration statement, as then in effect, includes an untrue
statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light
of the circumstances then existing; and
(g) In the event of the notification provided for in Section 9.04(f)
above,
Borrower shall use its best efforts to prepare and file with the SEC (and to
provide copies thereof to the Holders) as soon as reasonably possible an
amended
prospectus complying with the 1933 Act, and the period during which the
prospectus referred to in the notice provided for in Section 9.04(f) above
cannot
be used and the time period prior to the use of the amended prospectus
referred
to in this Section 9.04(g) shall not be counted in the 120 day period of this
Section 9.04.
Section 9.05. Furnish Information.
(a) It shall be a condition precedent to the obligations of Borrower to
take
any action pursuant to this Article IX that the selling Holders shall furnish
to
Borrower any and all information reasonably requested by Borrower, its
officers,
directors, employees, counsel, agents or representatives, the underwriter or
underwriters, if any, and the SEC or any other Governmental Authority,
including,
but not limited to: (i) such information regarding themselves, the Registrable
Securities held by them, and the intended method of disposition of such
securities, as shall be required to effect the registration of their
Registrable
Securities; and (ii) the identity of and compensation to be paid to any
proposed
underwriter or broker-dealer to be employed in connection therewith.
(b) In connection with the preparation and filing of each registration
statement registering Registrable Securities under the 1933 Act, Borrower
shall
give the Holders of Registrable Securities on whose behalf such Registrable
Securities are to be registered and their underwriters, if any, and their
respective counsel and accountants, at such Holders' sole cost and expense
(except as otherwise set forth herein), such access to copies of Borrower's
records and documents and such opportunities to discuss the business of
Borrower
with its officers and the independent public accountants who have certified
its
financial statements as shall be reasonably necessary in the opinion of such
Holders and such underwriters or their respective counsel, to conduct a
reasonable investigation within the meaning of the 1933 Act.
Section 9.06. Expenses of Registration.
All expenses, other than underwriting discounts and commissions applicable
to the Registrable Securities sold by selling Holders, incurred in connection
with the registration of the Registerable Securities pursuant to this Article,
including, without limitation, all registration, filing and qualification
fees,
printer's expenses, and accounting and legal fees and expenses of Borrower,
shall
be bome by Borrower; provided, however, selling Holders shall be responsible
for
all costs of their due diligence and legal counsel in connection with a
registration of Registrable Securities.
Section 9.07. Indemnification Regarding Registration Rights.
If any Registrable Securities are included in a registration statement under
this
Article:
(a) To the extent permitted by law, Borrower will indemnify and hold
harmless
each Holder, the officers and directors of each Holder, any underwriter (as
defined in the 1933 Act) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the 1933 Act or the 1934 Act,
against any losses, claims, damages, liabilities (joint or several) or any
legal
or other costs and expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action
to
which they may become subject under the 1933 Act, the 1934 Act or other
federal
or state law, insofar as such losses, claims, damages, costs, expenses or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (each a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact with
respect
to Borrower or its securities contained in such registration statement,
including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements therein; (ii) the omission or alleged omission to
state
therein a material fact with respect to Borrower or its securities required to
be stated therein or necessary to make the statements therein not misleading;
or
(iii) any violation or alleged violation by Borrower of the 1933 Act, the 1934
Act, any federal or state securities law or any rule or regulation promulgated
under the 1933 Act, the 1934 Act or any state securities law. Notwithstanding
the
foregoing, the indemnity agreement contained in this Section 9.07(a) shall not
apply and Borrower shall not be liable (i) in any such case for any such loss,
claim, damage, costs, expenses, liability or action to the extent that it
arises
out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person,
or
(ii) for amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the prior written consent of
Borrower, which consent shall not be unreasonably withheld.
(b) To the extent permitted by law, each Holder who participates in a
registration pursuant to the terms and conditions of this Agreement shall
indemnify and hold harmless Borrower, each of its directors and officers who
have signed the registration statement, each Person, if any, who controls
Borrower within the meaning of the 1933 Act or the 1934 Act, each of
Borrower's employees, agents, counsel and representatives, any underwriter
and any other Holder selling securities in such registration statement, or
any of its directors or officers, or any person who controls such Holder,
against any losses, claims, damages,
costs, expenses, liabilities (joint or several) to which Borrower or any such
director, officer, controlling person, employee, agent, representative,
underwriter, or other such Holder, or director, officer or controlling person
thereof, may become subject, under the 1933 Act, the 1934 Act or other federal
or state law, only insofar as such losses, claims, damages, costs, expenses or
liabilities or actions in respect thereto arise out of or are based upon any
Violation, in each case to the extent and only to the extent that such
Violation
occurs in reliance upon and in conformity with written information furnished
by
such Holder expressly for use in connection with such. Each such Holder will
indemnify any legal or other expenses reasonably incurred by Borrower or any
such director, officer, employee, agent representative, controlling person,
underwriter or other Holder, or officer, director or of any controlling person
thereof, in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this Section 9.07(b) shall not apply to amounts paid in
settlement
of any such loss, claim, damage, costs, expenses, liability or action if such
settlement is effected without the prior written consent of the Holder, which
consent shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section 9.07
of notice of the commencement of any action (including any governmental
action),
such indemnified party will, if a claim in respect thereof is to be made
against
any indemnifying party under this Section 9.07, deliver to the indemnifying
party
a written notice of the commencement thereof and the indemnifying party shall
have the night to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to
assume
the defense thereof with counsel mutually satisfactory to the parties;
provided,
however, that an indemnified party shall have the night to retain its own
counsel, with the reasonable fees and expenses of such counsel to be paid by
the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve the indemnifying party of
its
obligations under this Section 9.07, except to the extent that the failure
results in a failure of actual notice to the indemnifying party and such
indemnifying party is materially prejudiced in its ability to defend such
action
solely as a result of the failure to give such notice.
(d) If the indemnification provided for in this Section 9.07 is
unavailable
to an indemnified party under this Section in respect of any losses, claims,
damages, costs, expenses, liabilities or actions referred to herein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, costs, expenses, liabilities or actions in
such
proportion as is appropriate to reflect the relative fault of Borrower, on the
one hand and of the Holder, on the other, in connection with the Violation
that
resulted in such losses, claims, damages, costs, expenses, liabilities or
actions. The relative fault of Borrower, on the one hand, and of the Holder,
on
the other, shall be determined by reference to, among other things, whether
the
untrue or alleged untrue statement of the material fact or the omission to
state
a material fact relates to information supplied by Borrower or by the Holder,
and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
(e) Borrower, on the one hand, and the Holders, on the other, agree that
it
would not be just and equitable if contribution pursuant to this Section 9.07
were determined by a pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of losses, claims, damages, costs, expenses, liabilities and
actions referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any reasonable legal or
other expenses incurred by such indemnified party in connection with defending
any such action or claim. Notwithstanding the provisions of this Section 9.07,
neither Borrower nor the Holders shall be required to contribute any amount in
excess of the amount by which the total pace at which the securities were
offered
to the public exceeds the amount of any damages which Borrower or each such
Holder has otherwise been required to pay by reason of such Violation. No
person
guilty of fraudulent misrepresentations (within the meaning of Section l I(f)
of
the 1933 Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
Section 9.08. Reports Under the 1934 Act.
So long as Borrower has a class of securities registered pursuant to
Section
12 of the 1934 Act, with a view to making available to the Holders the
benefits
of Rule 144 promulgated under the 1933 Act ("Rule 144") and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities
of
Borrower to the public without registration or pursuant to a registration on
Form
S-3, if applicable, Borrower agrees to use its reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) File with the SEC in a timely manner all reports and other documents
required of Borrower under the 1933 Act and the 1934 Act;
(c) Use its best efforts to include all Common Stock covered by such
registration statement on NASDAQ if the Common Stock is then quoted on NASDAQ;
or list all Common Stock covered by such registration statement on such
securities exchange on which any of the Common Stock is then listed; or, if
the
Common Stock is not then quoted on NASDAQ or listed on any national securities
exchange, use its best efforts to have such Common Stock covered by such
registration statement quoted on NASDAQ or, at the option of Borrower, listed
on
a national securities exchange; and
(d) Furnish to any Holder, so long as the Holder owns any Registrable
Securities, (i) forthwith upon request a copy of the most recent annual or
quarterly report of Borrower and such other SEC reports and documents so filed
by Borrower, and (ii) such other information (but not any opinion of counsel)
as
may be reasonably requested by any Holder seeking to avail himself of any rule
or regulation of the SEC which permits the selling of any such securities
without
registration or pursuant to such form.
Section 9.09. Assignment of Registration Rights.
Subject to the terms and conditions of this Agreement, and the
Debentures,
the night to cause Borrower to register Registrable Securities pursuant to
this
Agreement may be assigned by Holder to any transferee or assignee of such
securities; provided that said transferee or assignee is a transferee or
assignee
of at least ten percent (10%) of the Registrable Securities and provided that
Borrower is, within a reasonable time after such transfer, furnished with
written
notice of the name and address of such transferee or assignee and the
securities
with respect to which such registration nights are being assigned; and
provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act; it being the intention that so long
as Holder holds any Registrable Securities hereunder, either Holder or its
transferee or assignee of at least ten percent may exercise the demand night
to
registration and piggy-back registration nights hereunder. Other than as set
forth above, the parties hereto hereby agree that the registration rights
hereunder shall not be transferable or assigned and any contemplated transfer
or
assignment in contravention of this Agreement shall be deemed null and void
and
of no effect.
Section 9.10. Other Matters.
(a) Each Holder of Registrable Securities hereby agrees by acquisition of
such Registrable Securities that, with respect to each offering of the
Registrable Securities, whether each Holder is offering such Registrable
Securities in an underwritten or nonunderwritten offering, such Holder will
comply with Rules I Ob-2, 1 Ob-6 and 10b-7 of the 1934 Act and such other or
additional anti-manipulation rules then in effect until such offering has been
completed, and in respect of any nonunderwritten offering, in writing will
inform Borrower, any other Holders who are selling shareholders, and any
national
securities exchange upon which the securities of Borrower are listed, that the
Registrable Securities have been sold and will, upon Borrower's request,
furnish
the distribution list of the Registrable Securities. In addition, upon the
request of Borrower, each Holder will supply Borrower with such documents and
information as Borrower may reasonably request with respect to the subject
matter set forth and described in this Section 9.10.
(b) Each Holder of Registrable Securities hereby agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from Borrower of
the happening of any event which makes any statement made in the registration
statement, the prospectus or any document incorporated therein by reference,
untrue in any material respect or which requires the making of any changes in
the registration statement, the prospectus or any document incorporated
therein
by reference, in order to make the statements therein not misleading in any
material respect, such Holder will forthwith discontinue disposition of
Registrable Securities under the prospectus related to the applicable
registration statement until such Holder's receipt of the copies of the
supplemented or amended prospectus, or until it is advised in writing by
Borrower that the use of the prospectus may be resumed, and has received
copies of any additional or supplemental filings which are incorporated by
reference in the prospectus.
ARTICLE X - BOARD OF DIRECTORS
Section 10.01. Board Representation or Attendance by Observer.
(a) Borrower herewith agrees that Agent shall have the night from time to
time to designate a nominee to serve as a member of the Board of Directors of
Borrower. In the event of a monetary Default under Section 8.01 hereof, the
Agent shall have the night to designate one (1) additional nominee to serve
as a member of the Board of Directors of Borrower. Borrower will nominate
and use its best efforts to secure the election of such designee(s) as
Director(s) of Borrower. During such time as Agent has not exercised such
rights, the Agent shall have the night to designate an observer, who shall
be entitled to attend and participate (but not vote) in all meetings of the
Board of Directors and to receive all notices, information, correspondence
and communications sent by Borrower to
members of the Board of Directors. All costs and expenses incurred in
connection
therewith by any such designated Director or observer, or by Agent on behalf
of
such Director of observer, shall be reimbursed by Borrower.
(b) Any such Director or observer shall, if requested to do so, absent
himself or herself from the meeting in the event of, and so long as, the
Directors are considering and acting on matters pertaining to any nights or
obligations of Borrower or the Lender under this Agreement, the Debentures,
the
other Loan Documents or the Subsidiary Documents.
Section 10.02. Limitation of Authority of Persons Designated as a Director
Nominee.
It is provided and agreed that the actions and advice of any person while
serving pursuant to Section 10.01 as a Director or an observer at meetings of
the Board of Directors shall be construed to be the actions and advice of
that person alone and not be construed as actions of the Lender as to any
notice of requirements or rights of Lender under this Agreement, the
Debentures, the other
Loan Documents or the Subsidiary Documents nor as actions of the Lender to
approve modifications, consents, amendments or waivers thereof; and all such
actions or notices shall be deemed actions or notices of the Lender only when
duly provided in writing and given in accordance with the Provisions of this
Agreement.
Section 10,03. Nonliability of the Lenders.
The relationship between Borrower and the Lenders is, and shall at all
times
remain, solely that of borrower and lender. The Lenders neither undertake nor
assume any responsibility or duty to Borrower to review, inspect, supervise,
pass judgment upon, or inform Borrower of any matter in connection with any
phase of Borrower's business, operations, or condition, financial or
otherwise. Borrower shall rely entirely upon its own judgment with respect to
such matters, and any review, inspection, supervision, exercise of judgment,
or information supplied
to Borrower by the Lenders, or any representative or agent of the Lenders, in
connection with any such matter is for the protection of the Lenders, and
neither Borrower nor any third party is entitled to rely therein.
ARTICLE XI - AGENCY AND INTER-LENDER PROVISIONS
Section 11.01. The Lenders' Representations and Warranties to Other Lenders.
Each Lender represents and warrants to the other Lenders and the Agent:
(a) It is legal for it to make its portion of the Loan, and the making of
such portion of the Loan complies with laws applicable to it;
(b) It has made, without reliance upon any other Lenders, its own
independent review (including any desired investigations and inspections) of,
and
it accepts and approves, the Loan, this Agreement and the associated documents
and all other matters and information which it deems pertinent. It
acknowledges
that the Loan Documents and the Subsidiary Documents are a complete statement
of
all understandings and respective rights and obligations between and among the
Lenders, Subsidiaries and Borrowers regarding the Loan.
(c) None of the Lenders have made any express or implied representation
or
warranty to any other Lender with respect to this transaction.
(d) It will, independently and without reliance upon any other Lender,
and
based upon such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement, and will make such
investigation as it deems necessary to inform itself as to the Loan, the Loan
Documents, the Subsidiary Documents, Borrower and any collateral; provided,
however, nothing contained in this Section shall limit Agent's obligation to
provide the other Lenders with the information and documents Agent is
expressly
required to deliver under this Agreement.
(e) The relationship of each Lender is, and shall at all times remain,
solely that of each Lender of its respective Loan. The Lenders are not
partners
or joint venturers in connection with the Loan.
Section 11.02. Waiver of Loan Provisions or Interest or Principal Payments.
A waiver of an interest or principal payment, a declaration of a Default
or
any amendment, modification or waiver of this Agreement or the Debentures will
require the consent of the Lender
Section 11.03. Agency.
(a) Each of the Lenders hereby designates and appoints Renaissance Group
as
its Agent under this Agreement and authorizes the Agent to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and the Subsidiary Documents and to exercise such powers as are set forth
herein
or therein, together with such other powers as are reasonable incidental
thereto.
In performing its functions and duties under this Agreement, the Agent shall
act
solely as agent of the Lenders and does not assume and shall not be deemed to
have assumed any obligation toward or relationship of agency or trust with or
for
Borrower. The Agent may perform any of its duties under this Agreement, or
under
the other Loan Documents or the Subsidiary Documents, by or through its agents
or employees.
(b) The Agent shall have no duties or responsibilities except those
expressly
set forth in this Agreement, in the other Loan Documents or in the Subsidiary
Documents. Except as expressly provided herein, the duties of the Agent shall
be
mechanical and administrative in nature. The Agent shall have and may use its
sole discretion with respect to exercising or refraining from taking any
actions
which the Agent is expressly entitled to take or assert under this Agreement,
the
other Loan Documents and the Subsidiary Documents. The Agent shall not have by
reason of this Agreement a fiduciary relationship with respect to the Lenders.
Nothing in this Agreement, any of the other Loan Documents or any of the
Subsidiary Documents, express or implied, is intended to or shall be construed
to impose upon the Agent any obligations in respect of this Agreement, any of
the
other Loan Documents or any of the Subsidiary Documents except as expressly
set
forth herein or therein. If the Agent seeks the consent or approval of the
Lenders to the taking or refraining from taking any action hereunder, the
Agent
shall send notice thereof to the Lenders. The Agent may employ agents,
co-agents
and attorney-in-fact and shall not be responsible to the Lenders or Borrower,
except as to money or securities received by it or its authorized agents, for
the negligence or misconduct of any such agents or attorney-in-fact selected
by it with reasonable care.
(c) Neither the Agent nor any of its officers, directors, employees or
agents shall be liable to the Lenders for any action taken or omitted by it
or any of them under this Agreement, any of the other Loan Documents or any of
the
Subsidiary Documents, or in connection herewith or therewith, except that no
Person shall be relieved of any liability imposed by law, intentional tort or
gross negligence. The Agent shall not be not be responsible to the Lenders for
any recitals, statements, representations or warranties contained in this
Agreement or for the execution, effectiveness, genuineness, validity,
enforceability, collectability, or sufficiency of this Agreement, any of the
other Loan Documents or any of the Subsidiary Documents or any of the
transactions contemplated thereby, or for the financial condition of any of
Borrowers. The Agent shall not be required to make any inquiry concerning
either
the performance or observance of any of the terms, provisions or conditions of
this Agreement, any of the other Loan Documents or any of the Subsidiary
Documents or the financial condition of Borrower, or the existence or possible
existence of any Default or Event of Default. Agent shall give the Lenders
notice of any Default or Event of Default of which Agent has actual notice.
The Agent
may at any time request instructions from the Lenders with respect to any
actions
or approvals which by the terms of this Agreement, of any of the other Loan
Documents or of any of the Subsidiary Documents the Agent is permitted or
required to take or to grant, and if such instructions are promptly requested,
the Agent shall be absolutely entitled to refrain from taking any action or to
withhold any approval and shall not be under any liability whatsoever to any
Person for refraining from any action or withholding any approval under any of
the Loan Documents or any of the Subsidiary Documents until it shall have
received such instructions from the Lenders. Without limiting the foregoing,
the
Lenders shall not have any night of action whatsoever against the Agent as a
result of the Agent acting or refraining from acting under this Agreement, any
of the other Loan Documents or any of the Subsidiary Documents in accordance
with
the instructions of the Lenders.
(d) The Agent shall be entitled to rely upon any written notices,
statements,
certificates, orders or other documents or any telephone message believed by
it
in good faith to be genuine and correct and to have been signed, sent or made
by
the proper Person, and with respect to all matters pertaining to this
Agreement,
any of the other Loan Documents or any of the Subsidiary Documents and its
duties
hereunder or thereunder, upon advice of counsel selected by it.
(e) To the extent that the Agent is not reimbursed and indemnified by
Borrower, the Lenders will reimburse and indemnify the Agent for and against
any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments,
suits, costs, expenses, advances or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the Agent
in
any way relating to or arising out of this Agreement, any of the other Loan
Documents, or any of the Subsidiary Documents or any action taken or omitted
by
the Agent under this Agreement, any of the other Loan Documents or any of the
Subsidiary Documents. The obligations of the Lenders under this
indemnification
provision shall survive the payment in full of the Loans and the termination
of
this Agreement.
ARTICLE XII - MISCELLANEOUS
Section 12.01. Strict Compliance.
Any waiver by the Lenders of any breach or any term or condition of this
Agreement, the other Loan Documents or the Subsidiary Documents shall not be
deemed a waiver of any other breach, nor shall any failure to enforce any
provision of this Agreement, the other Loan Documents or the Subsidiary
Documents
operate as a waiver of such provision or of any other provision, nor
constitute
nor be deemed a waiver or release of Borrower for anything arising out of,
connected with or based upon this Agreement, the other Loan Documents or the
Subsidiary Documents.
Section 12.02. Waivers and Modifications.
All modifications, consents, amendments or waivers (herein "Waivers") of
any
provision of this Agreement, the Debentures, any other Loan Documents or any
Subsidiary Documents, and any consent to departure therefrom, shall be
effective
only if the same shall be in writing by the Lenders and then shall be
effective
only in the specific instance and for the purpose for which given. No notice
or
demand given in any case shall constitute a waiver of the right to take other
action in the same, similar or other instances without such notice or demand.
No
failure to exercise, and no delay in exercising, on the part of Agent or any
Lender, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof
or the exercise any other night. The nights of any Lender hereunder, under the
other Loan Documents and under the Subsidiary Documents shall be in addition
to
all other nights provided by law.
Section 12.03. Limitation on Liability.
The duties, warranties, covenants and promises arising from the Loan
Documents and the Subsidiary Documents of each Lender to Borrower shall be
several and not joint, and Borrower shall have no legal or equitable cause of
action against any Lender (or its successors or assigns) for any liability of
any other Lender (or its successors or assigns).
Section 12.04. Choice of Forum: Consent to Service of Process and
Jurisdiction.
Any suit, action or proceeding against Borrower with respect to this
Agreement or the Debentures or any judgment entered by any court in respect
thereof, may be brought in the courts of the State of Texas, County of Dallas,
or in the United States federal courts located in the State of Texas, as each
Lender in its sole discretion may elect, and Borrower hereby submits to the
nonexclusive jurisdiction of such courts for the purpose of any such suit,
action
or proceeding. Borrower hereby agrees that service of all writs, process and
summonses in any such suit, action or proceeding brought in the State of Texas
may be brought upon, and Borrower hereby irrevocably appoints, the CT
Corporation System, Dallas, Texas, as its true and lawful attorney-in-fact in
the name, place and stead of Borrower to accept such service of any and all
such writs, process and summonses. Borrower hereby irrevocably waives any
objections which it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement or
any Debenture brought in such
courts, and hereby further irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in any
inconvenient forum.
Section 12.05. Arbitration.
(a) Upon the demand of the Lenders or Borrower (collectively the
"parties"),
made before the institution of any judicial proceeding or not more than 60
days
after service of a complaint, third party complaint, cross-claim or
counterclaim
or any answer thereto or any amendment to any of the above, any Dispute (as
defined below) shall be resolved by binding arbitration in accordance with the
terms of this arbitration clause. A "Dispute" shall include any action,
dispute,
claim, or controversy of any kind, whether founded in contract, tort,
statutory
or common law, equity, or otherwise, now existing or hereafter occurring
between
the parties arising out of, pertaining to or in connection with this
Agreement,
any document evidencing, creating, governing, or securing any indebtedness
guaranteed pursuant to the terms hereof, or any related agreements, documents,
or instruments (the "Documents"). The parties understand that by this
Agreement
they have decided that the Disputes may be submitted to arbitration rather
that
being decided through litigation in court before a judge or jury and that once
decided by an arbitrator the claims involved cannot later be brought, filed,
or
pursued in court. If Borrower shall fail to pay (or shall state in writing an
intention not to pay or its inability to pay) not later than three (3) days
after
the due date, any installment of interest on or principal of, any Debenture or
any fee, expense or other payment required hereunder, the Lenders may, at
their
option, enforce their rights outside the arbitration provision found in this
Section 12.05 or any Debenture.
(b) Arbitrations conducted pursuant to this Agreement, including selection
of arbitrators, shall be administered by the American Arbitration Association
("Administrator") pursuant to the Commercial Arbitration Rules of the
Administrator. Arbitrations conducted pursuant to the terms hereof shall be
governed by the provisions of the Federal Arbitration Act (Title 9 of the
United
States Code), and to the extent the foregoing are inapplicable, unenforceable
or
invalid, the laws of the State of Texas. Judgment upon any award rendered
hereunder may be entered in any court having jurisdiction; provided, however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. 91 or similar
governing state law. Any party who fails to submit to binding arbitration
following a lawful demand by the opposing party shall bear all costs and
expenses, including reasonable attorneys' fees, incurred by the opposing Party
in compelling arbitration of any Dispute.
(c) No provision of, nor the exercise of any rights under, this
arbitration
clause shall limit the right of any party to (i) foreclose against any real or
personal property collateral or other security, (ii) exercise self-help
remedies
(including repossession and set off rights) or (iii) obtain provisional or
ancillary remedies such as injunctive relief, sequestration, attachment,
replevin, garnishment, or the appointment of a receiver from a court having
jurisdiction. Such nights can be exercised at any time except to the extent
such
action is contrary to a final award or decision in any arbitration proceeding.
The institution and maintenance of an action as described above shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the Dispute to arbitration, nor render inapplicable the compulsory
arbitration
provisions hereof. Any claim or Dispute related to exercise of any self-help,
auxiliary or other exercise of nights under this section shall be a Dispute
hereunder.
(d) Arbitrator(s) shall resolve all Disputes in accordance with the
applicable substantive law of the State of Texas. Arbitrator(s) may make an
award
of attorneys' fees and expenses if permitted by law or the agreement of the
parties. All statutes of limitation applicable to any Dispute shall apply to
any
proceeding in accordance with this arbitration clause. Any arbitrator selected
to act as the only arbitrator in a Dispute shall be required to be a
practicing
attorney with not less than five (5) years practice in commercial law in the
State of Texas. With respect to a Dispute in which the claims or amounts in
controversy do not exceed five hundred thousand dollars ($500,000), a single
arbitrator shall be chosen and shall resolve the Dispute. In such case the
arbitrator shall have authority to render an award up to but not to exceed
five
hundred thousand dollars ($500,000), including all damages of any kind
whatsoever, costs, fees and expenses. Submission to a single arbitrator shall
be
a waiver of all parties' claims to recover more than five hundred thousand
dollars ($500,000). A Dispute involving claims or amounts in controversy
exceeding five hundred thousand dollars ($500,000) shall be decided by a
majority
vote of a panel of three arbitrators ("Arbitration Panel"), one of whom must
possess the qualifications to sit as a single arbitrator in a Dispute decided
by
one arbitrator. If the arbitration is consolidated with one conducted pursuant
to the terms of a guaranty of the Indebtedness, then the Arbitration Panel
shall
be one which meets the criteria set forth between the Lenders and Borrower.
Arbitrator(s) may, in the exercise of their discretion, at the written request
of a party, (i) consolidate in a single proceeding any multiple party claims
that are substantially identical and all claims arising out of a single loan
or series of loans, including claims by or against borrower(s), guarantors,
sureties and/or owners of collateral if different from Borrower, and (ii)
administer multiple
arbitration claims as class actions in accordance with Rule 23 of the Federal
Rules of Civil Procedure. The arbitrator(s) shall be empowered to resolve any
dispute regarding the terms of this Agreement or any Dispute or any claim that
all or any part (including this provision) is void or voidable but shall have
no
power to change or alter the terms of this Agreement. The award of the
arbitrator(s) shall be in writing and shall specify the factual and legal
basis
for the award.
(e) To the maximum extent practicable, the Administrator, the
arbitrator(s)
and the parties shall take any action reasonably necessary to require that an
arbitration proceeding hereunder be concluded within 180 days of the filing of
the Dispute with the Administrator. The arbitrator(s) shall be empowered to
impose sanctions for any party's failure to proceed within the times
established
herein. Arbitration proceedings hereunder shall be conducted in Texas at a
location determined by the Administrator. In any such proceeding a party shall
state as a counterclaim any claim which arises out of the transaction or
occurrence or is in any way related to the Loan Documents which does not
require
the presence of a third party which could not be joined as a party in the
proceeding. The provisions of this arbitration clause shall survive any
termination, amendment, or expiration of the Loan Documents and repayment in
full
of sums owed to the Lenders by Borrower unless the parties otherwise expressly
agree in writing. Each party agrees to keep all Disputes and arbitration
proceedings strictly confidential, except for disclosures of information
required
in the ordinary course of business of the parties or as required by applicable
law or regulation.
Section 12.06. invalid Provisions.
If any provision of any Loan Document is held to be illegal, invalid or
unenforceable under present or future laws during the term of this Agreement,
such provision shall be fully severable; such Loan Document shall be construed
and enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of such Loan Document; and the remaining provisions of such
Loan
Document shall remain in full force and effect and shall not be affected by
the
illegal, invalid or unenforceable provision or by its severance from such Loan
Document. Furthermore, in lieu of each such illegal, invalid or unenforceable
provision shall be added as part of such Loan Document a provision mutually
agreeable to Borrower and the Lenders as similar in terms to such illegal,
invalid or unenforceable provision as may be possible and be legal, valid and
enforceable. In the event Borrower and the Lenders are unable to agree upon a
provision to be added to the Loan Document within a period of ten ( 10)
business
days after a provision of the Loan Document is held to be illegal, invalid or
unenforceable, then a provision acceptable to independent arbitrators, such to
be selected in accordance with the provisions of the American Arbitration
Association, as similar in terms to the illegal, invalid or unenforceable
provision as is possible and be legal, valid and enforceable shall be added
automatically to such Loan Document. In either case, the effective date of the
added provision shall be the date upon which the prior provision was held to
be
illegal, invalid or unenforceable.
Section 12.07. Maximum Interest Rate.
(a) Regardless of any provision contained in any of the Loan Documents,
the
Lenders shall never be entitled to receive, collect or apply as interest on
the
Debentures any amount in excess of interest calculated at the Maximum Rate,
and,
in the event that any Lender ever receives, collects or applies as interest
any
such excess, the amount which would be excessive interest shall be deemed to
be
a partial prepayment of principal and treated hereunder as such; and, if the
principal amount of the Obligation is paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid
or payable under any specific contingency exceeds interest calculated at the
Maximum Rate, Borrower and the Lenders shall, to the maximum extent permitted
under applicable law, (i) characterize any nonprincipal payment as an expense,
fee or premium rather than as interest, (ii) exclude voluntary prepayments and
the effects thereof, and (iii) amortize, pro rate, allocate and spread, in
equal
parts, the total amount of interest throughout the entire contemplated term of
the Debentures; provided that, if the Debentures are paid and performed in
full
prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds interest
calculated
at the Maximum Rate, the Lenders shall refund to Borrower the amount of such
excess or credit the amount of such excess against the principal amount of the
Debentures and, in such event, the Lenders shall not be subject to any
penalties
provided by any laws for contracting for, charging, taking, reserving or
receiving interest in excess of interest calculated at the Maximum Rate.
(b) "Maximum Rate" shall mean, on any day, the highest nonusurious rate of
interest permitted by applicable law on such day that at any time, or from
time
to time, may be contracted for, taken, reserved, charged or received on the
Indebtedness evidenced by the Debentures under the laws which are presently in
effect of the United States of America and the laws of any other jurisdiction
which are or may be applicable to the holders of the Debentures and such
Indebtedness or, to the extent permitted by law, under such applicable laws of
the United States of America and the laws of any other jurisdiction which are
or
may be applicable to the holder of the Debentures and which may hereafter be
in
effect and which allow a higher maximum nonusurious interest rate than
applicable
laws now allow.
Section 12.08. Participations and Assignments of the Debentures.
(a) The Lenders and the Agent shall have the right to enter into a
participation agreement with any other party or its Affiliates with respect to
the Debentures or to sell all or any part of the Debentures but any
participation or sale shall not affect the rights and duties of any such
Lender or the Agent
hereunder vis-a-vis Borrower. In the event that all or any portion of the Loan
shall be, at any time, assigned, transferred or conveyed to other parties, any
action, consent or waiver (except for compromise or extension of maturity), to
be given or taken by any Lender or the Agent hereunder (herein "Action"),
shall
be such action as taken by the holders of a majority in amount of the
Principal
Amount of the Debentures then outstanding, as such holders are recorded on the
books of Borrower and represented by the Agent as described in subsection (b)
below.
(b) Assignment or sale of the Debentures shall be effective on the books
of
Borrower only upon (i) endorsement of the Debenture, or part thereof, to the
proposed new holder, along with a current notation of the amount of payments
or
installments received and net Principal Amount yet unfunded or unpaid, and
presentment of such Debenture to Borrower for issue of a replacement
Debenture,
or Debentures, in the name of the new holder; and (ii) delivery of an opinion
of
counsel, reasonably satisfactory to Borrower, that transfer shall not require
registration or qualification under applicable state or federal securities
laws.
(c) The Debentures may be sold, transferred or assigned only to Affiliates
of the Lenders or permitted transferees in multiples of $100,000.
Section 12.09. Confidentiality.
(a) All financial reports or information that are furnished to the Lenders
or Holders, or their respective director designees or other representatives,
pursuant to this Agreement or pursuant to the Debentures, the other Loan
Documents or the Subsidiary Documents shall be treated as confidential unless
and to the extent that such information has been otherwise disclosed by
Borrower, but
nothing herein contained shall limit or impair the Lenders' or Holders' right
to
disclose such reports to any appropriate Governmental Authority, or to use
such
information to the extent pertinent to an evaluation of the Obligation, or to
enforce compliance with the terms and conditions of this Agreement, or to take
any lawful action which the Lenders or Holders deem necessary to protect their
respective interests under this Agreement.
(b) The Lenders and the Agent shall use their reasonable efforts to
protect
and preserve the confidentiality of such information, except for such
disclosure
as shall be required for compliance by the Lenders or their respective
director
designees with SEC reporting requirements or any administrative or judicial
proceeding or otherwise as a matter of law. The provisions of Section 5.01
notwithstanding, Borrower may refuse to provide information as required
pursuant
thereto to an assignee or successor in interest to the Lenders, unless and
until
such assignee or successor shall have executed an agreement to maintain the
confidentiality of the information as provided herein.
Section 12.10. Binding Effect.
The Loan Documents shall be binding upon and inure to the benefit of
Borrower and the Lenders and their respective successors, assigns and legal
representatives; provided, however, that Borrower may not, without the prior
written consent of the Lenders, assign any nights, powers, duties or
obligations
thereunder.
Section 12.11. No Third Party Beneficiary.
The parties do not intend the benefits of this Agreement to inure to any
third party, nor shall this Agreement be construed to make or render the
Lenders
liable to any materialman, supplier, contractor, subcontractor, purchaser or
lessee of any property owned by Borrower, or for debts or claims accruing to
any
such persons against Borrower. Notwithstanding anything contained herein, in
the
Debentures, in any other Loan Document or in any Subsidiary Document, no
conduct
by any or all of the parties hereto, before or after signing this Agreement,
any
other Loan Document nor any Subsidiary Document, shall be construed as
creating
any night, claim or cause of action against the Lenders, or any of their
respective officers, directors, agents or employees, in favor of any
materialman,
supplier, contractor, subcontractor, purchaser or lessee of any property owned
by Borrower nor to any other person or entity other than Borrower.
Section 12.12. Entirety.
This Agreement and the Debentures, the other Loan Documents, the
Subsidiary
Documents and any other documents or instruments issued or entered into
pursuant
hereto and thereto contain the entire agreement between the parties and
supersede
all prior agreements and understandings, written or oral (if any), relating to
the subject matter hereof and thereof.
Section 12.13. Headings.
Section headings are for convenience of reference only and, except as a
means of identification of reference, shall in no way affect the
interpretation
of this Agreement.
Section 12.14. Survival.
All representations and warranties made by Borrower herein shall survive
delivery of the Debentures and the making of the Loans.
Section 12.15. Multiple Counterparts,
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same agreement, and any of the
parties hereto may execute this Agreement by signing any such counterpart.
Section 12.16. Knowledge of Borrower.
As used herein or in any of the other Loan Documents, all references "to
Borrower's best knowledge" or "to the knowledge of Borrower" or words or
phrases
of similar import (whether or not modified by any additional phrase) shall in
each case mean the knowledge of Borrower, the Subsidiaries or their respective
executive officers, directors and principal shareholders.
Section 12.17. Notices.
(a) Any notices or other communications required or permitted to be given
by this Agreement or any other documents and instruments referred to herein
must
be (i) given in writing and personally delivered, mailed by prepaid certified
or
registered mail or sent by overnight service, such as FedEx, or (ii) made by
telex or facsimile transmission delivered or transmitted to the party to whom
such notice or communication is directed, with confirmation thereupon given in
writing and personally delivered or mailed by prepaid certified or registered
mail.
(b) Any notice to be mailed, sent or personally delivered shall be mailed
or delivered to the principal offices of the party to whom such notice is
addressed, as that address is specified herein below. Any such notice or other
communication shall be deemed to have been given (whether actually received or
not) on the day it is mailed, postage prepaid, or sent by overnight service or
personally delivered or, if transmitted by telex or facsimile transmission, on
the day that such notice is transmitted; provided, however, that any notice by
telex or facsimile transmission, received by any Borrower or the Lenders after
4:00 p.m., Standard Time, at the recipient's address, on any day, shall be
deemed
to have been given on the next succeeding business day. Any party may change
its
address for purposes of this Agreement by giving notice of such change to the
other parties.
If to Borrower to:
NewCare Health Corporation 6000 Lake Forest Drive, Suite 315 Atlanta, GA 30328
404/255-7500 404/255-5789 (fax)
with a copy to:
Steven E. Fox, Esq. Rogers & Hardin LLP 2700 International Tower Peachtree
Center 229, Peachtree Street, N.E. Atlanta, Georgia 30303-1601
If to the Lenders to:
Renaissance Capital Growth & Income Fund III, Inc.
Renaissance US Growth & Income Trust PLC
8080 North Central Expressway, Suite 210-LB59
Dallas, Texas 75206
214/891-8294
214/891-8291 (fax)
with a copy to:
Norman R. Miller, Esq.
Wolin, Ridley & Miller LLP
1717 Main Street, Suite 3100
Dallas, Texas 75201
214/939-4906
214/9394949 (fax)
If to Agent to:
Renaissance Capital Group, Inc.
8080 North Central Expressway, Suite 210-LB59
Dallas, Texas 75206
214/891-8294
214/891-8291 (fax)
with a copy to:
Norman R. Miller, Esq.
Wolin, Ridley & Miller LLP
1717 Main Street, Suite 3100
Dallas, Texas 75201
214/939-4906
214/939-4949 (fax)
Any notice delivered personally in the manner provided herein will be
deemed
given to the party to whom it is directed upon the party's (or its agent's)
actual receipt. Any notice addressed and mailed in the manner provided here
will
be deemed given to the party to whom it is addressed at the close of business,
local time of the recipient, on the fourth business day after the day it is
placed in the mail, or, if earlier, the time of actual receipt.
Section 12.18. Governing Law.
THIS LOAN AGREEMENT HAS BEEN PREPARED, IS BEING EXECUTED AND DELIVERED,
AND
IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE SUBSTANTIVE LAWS OF
SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF AMERICA
SHALL
GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS LOAN
AGREEMENT.
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
executed
and delivered, as of the date and year first above written.
BORROWER
NEWCARE CORPORATION
By: /s/ Chris Brogdon
Chairman of the Board
LENDERS
RENAISSANCE CAPITAL GROWTH & INCOME FUND m, INC.
By: /s/ Russell Cleveland
Russell Cleveland, President
RENAISSANCE US GROWTH & INCOME TRUST PLC
By: Renaissance Capital Group, Inc., Investment Manager
By: /s/ Russell Cleveland
Russell Cleveland, President
AGENT
RENAISSANCE CAPITAL GROUP, INC.
By: /s/ Russell Cleveland
Russell Cleveland, President<PAGE>
<PAGE>
SCHEDULES TO CONVERTIBLE LOAN AGREEMENT
Schedule 2.08 Schedule of Brokers/Finders
Schedule 4.03 Schedule of Conflicts or Consents
Schedule 4.05 Schedule of Permitted Liens
Schedule 4.06 Schedule of Any Material Adverse Change
Schedule 4.08 Schedule of Material Agreements
Schedule 4.09 Schedule of Litigation
Schedule 4.10 Schedule of Unpaid Taxes
Schedule 4.11 Schedule of Capitalization
Schedule 4.13 Schedule of Employee Matters
Schedule 4.14 Schedule of Employee Benefit Plans
Schedule 4.15 Schedule of Compliance with Laws Matters
Schedule 4.16 Schedule of Licenses and Permits
Schedule 4.17 Schedule of Contracts
Schedule 4.19 Schedule of Agreements between Borrower and any of its
officers, directors, and principal shareholders, including
employment agreements
Schedule 4.20 Schedule of Subsidiaries
Schedule 4.21 Schedule of Casualties
Schedule 4.25 Schedule of Insurance
Schedule 4.27 Schedule of Real Property
Schedule 4.28 Schedule of Representations with Respect to Borrower's
Business
Schedule 6.01 Schedule of Limitation on Indebtedness
Schedule 6.05 Schedule of Transactions with Affiliates
Schedule 7.01 Schedule of Financial Ratios
Schedule 2.08
Schedule of Brokers/Finders
Bathgate/McCulley - Associates 53SO S. Roslyn Steet Suite 380 Englewood, CO
80111-2121
Schedule 4.03
Schedule of Conflicts or Consents
No known conflicts or consents.
Schedule 4.05
Schedule of Permitted Liens
All permitted liens listed in the title policies for facilities, owned, leased
or managed:
1. Chicago Title Insurance Company Policy Number FL 5097 02 19602, dated May
23,1997
(Central Tampa Nursing Home Facility)
2. Chicago Title Insurance Company Policy Number FL 5097 02 19601, dated
Ivlay
28,1997
(Dania Nursing Facility)
3. Chicago Title Insurance Company Policy Number FL S097 02 19603, dated May
23, 1997
(Oak Manor Facility)
4. Chicago Title Insurance Company Policy Number I 1 0435 lO7 00000280, May
23,
1997
(Windward Facility)
5. Chicago Title Insurance Commitment Humber 509741600JM, dated August 20,
1997
(Remington House, Newport Richey, Florida Facility)
6. Chicago Title Insurance Company Policy Number 3097-106~02519, May 1, 1997
(Remington House, Pompano Bcach, Florida Facility)
7. Chicago Title Insurance Company Policy Number FL 5097 106 31800, September
l8, 1997. (Walkulla Facility)
8. Stewart Title Guaranty Company Policy Number ~9901424458, August 1, 1988
(Suncoast Facility)
9. Stewart Title Guaranty Company Policy Number ~9922-85720, August 23, 1988
(Victoria Martin Facility)
10. Chicago Title Insurance Company Commitment dated March 22, 1995
(Emory Facility)
l1. Chicago Title Insurance Company Commitment dated April 3, 1995
(Fitzgerald Facility)
12. Chicago Title Insurance Company Commitment dated April 12, 1995
(Ft. Vellcy Facility)
13. Any and all other title policies on various properties not listed but
owned
by NewCare
Health Corporation listed in the Corporations lO-K's and lO-Q's
Schedule 4.06
Schedule of Any Material Adverse Change
None
Schedule 4.08
Schedule of Material Agreements
No material agreements<PAGE>
<PAGE>
The securities represented by this Debenture have not been registered under
the
Securities Act of 1933, as amended ("Act"), or applicable state securities
laws
("State Acts") and shall not be sold, hypothecated, donated or otherwise
transferred unless the Company shall have received an opinion of legal counsel
for the Company, or such other evidence as may be satisfactory to legal
counsel
for the Company, to the effect that any such transfer shall not require
registration under the Act and the State Acts.
NewCare Health Corporation
8.50% Convertible Debenture
$2,500,000 No.
1
Date of Issue: January 27, 1998
NewCare Health Corporation, a Nevada corporation (the "Company" or
"Borrower"), for value received, promises to pay to
Compass Bank, Custodian FBO
Renaissance Capital Growth & Income Fund III, Inc.
or to its order, (together with any assignee, jointly or severally, the
"Holder"
or "Lender") on or before January 27, 2005 (the "Due Date") (unless this
Debenture shall have been sooner called for redemption or presented for
conversion as herein provided), the sum of Two Million Five Hundred Thousand
Dollars ($2,500,000) (the "Principal Amount") and to pay interest on the
unpaid
Principal Amount at the rate of 8.50% per annum. All payments of both
principal
and interest shall be made at the address of the Holder hereof as it appears
in
the books and records of the Borrower, or at such other place as may be
designated by the Holder hereof.
1. Interest: Interest on the Principal Amount outstanding from time to
time shall be payable in monthly installments commencing February 1, 1998, and
subsequent payments shall be made on the first day of each month thereafter
until
the Principal Amount and all accrued and unpaid interest shall have been paid
in
full. Overdue principal and interest on the Debenture shall bear interest at
the
maximum rate permitted by applicable law.
2. Maturity: If not sooner paid, redeemed or converted, this Debenture
shall mature on January 27, 2005 at which time the remaining unpaid Principal
Amount, and all accrued and unpaid interest and any other charges then due
under
the Loan Agreement, shall be due and payable in full. This Debenture may be
prepaid without premium or penalty and shall be prepaid pro rata with any
prepayments of indebtedness (other than Senior Obligations) which is pari
passu
with or subordinated to this Debenture.
3. Mandatory Principal Installments: If this Debenture is not sooner
redeemed or converted as provided hereunder, Borrower shall pay to Holder,
commending on January 27, 2001 and continuing on the first day of each
successive
month thereafter prior to maturity, mandatory principal redemption
installments,
each of such installments to be in the amount of Ten Dollars ($10) per
Thousand
Dollars ($1,000) of the then remaining Principal Amount, and further, at
maturity, Borrower shall pay to Holder a final installment of the remaining
unpaid Principal Amount, and all accrued and unpaid interest and any other
charges then due under the Loan Agreement.
4. Optional Redemption by Holder: (a) If at any time after the date
hereof (i) the Company's Common Stock, $.02 par value ("Common Stock"), is not
listed on the NASDAQ National Market System ("National Market"), the New York
Stock Exchange ("NYSE"), the American Stock Exchange ("AMEX"), or quoted on
the
NASDAQ Small Cap System ("Small Cap System"), (ii) any Person acquires more
than
a majority of the Common Stock without the written consent of the Lenders,
(iii)
there is a change of at least two-thirds of the members of the Company's Board
of Directors in any two (2) year period without the written consent of the
Lenders, (iv) all or substantially all of the assets or capital stock of the
Company or its subsidiaries are sold, or (v) the Company or its subsidiaries
are
merged or consolidated with or into unaffiliated entities, without the written
consent of Holder, the Holder shall have the right to require this Debenture
to
be redeemed by the Company at the sum equal to the Principal Amount, together
with an amount equal to an 18% annual yield on the Principal Amount through
the
date of redemption ("Redemption Date").
(b) If Mr. Christopher F. Brogdon is not elected or appointed Chief
Executive Officer of the Company by April 30, 1998, and, thereafter, does not
continue to serve the Company in such capacity, then the Holder shall have the
right to require this Debenture to be redeemed by the Company at the sum equal
to the Principal Amount, together with an amount equal to 18% annual yield on
the
Principal Amount through the Redemption Date.
(c) The Holder may exercise its right to require that the Company redeem
this Debenture pursuant to Section 4(a) or Section 4(b) prior to maturity by
giving notice thereof to the Company, which notice shall specify the terms of
redemption (including the place at which the Holder may obtain payment), the
total redemption payment and the Redemption Date, which date shall not be less
than 30 days nor more than 60 days after the date of the notice.
5. Optional Redemption by Company: (a)On any interest payment date, and
after prior irrevocable notice as provided for below, this Debenture is
redeemable, in while but not in part, at 101% of par, together with accrued
and
unpaid interest through the Redemption Date, by the Company, if all of the
following conditions are satisfied: (i) the closing bid price for the Common
Stock averages at least $9.53 per share for the 20 consecutive trading days
prior
to the irrevocable notice and the Common Stock is listed or quoted on the
National Market, the Small Cap System, AMES or NYSE; (ii) the market price at
the
date or irrevocable notice is supported by a price to earnings ratio of no
greater than 30 times fully diluted net earnings per share of Common Stock for
the trailing twelve months, determined in accordance with generally accepted
accounting principles, excluding any extraordinary gains or losses of the
Borrower; (iii) the average (20 days) daily trading volume shall be no less
than
40,000 shares, or 20,000 shares if the Common Stock trades on the AMEX or
NYSE;
and (iv) the Company shall have filed a registration statement covering the
shares of Common Stock issuable upon conversion of this Debenture, which shall
have become effective. The foregoing earnings per share and bid price tests
shall be duly adjusted for stock splits, stock dividends, subdivisions,
combinations, mergers, consolidations, and other recapitalizations. The
Company's right of redemption is subject to the Holder's prior right of
conversion of the Debenture.
(b) In the event that the conditions for an adjustment in the Conversion
Price pursuant to Section 6(b) and (c) hereof are satisfied, this Debenture is
redeemable by the Company, in whole but not in part, at the sum equal to the
Principal Amount, together with an amount equal to an 18% annual yield on the
Principal Amount through the Redemption Date.
(c) The Company may exercise its right to redeem this Debenture pursuant
to Section 5(a) or (b) prior to maturity by giving notice thereof to the
Holder
of this Debenture as such name appears on the books of the Borrower, which
notice
shall specify the terms of redemption (including the place at which the Holder
may obtain payment), the total redemption payments and the Redemption Date,
which
date shall not be less than 30 days nor more than 60 days after the date of
the
notice.
6. Conversion Right: (a) The Holder of this Debenture shall have the
right, at Holder's option, at any time, to convert all, or, in multiples of
$100,000, any part of the Debenture into such number of fully paid and
nonassessable shares of Common Stock as provided herein. The Holder of this
Debenture may exercise the conversion right by giving written notice (the
"Conversion Notice") to Borrower of the exercise of such right and stating the
name or names in which the stock certificate or stock certificates for the
shares
of Common Stock are to be issued and the address to which such certificates
shall
be delivered. The Conversion Notice shall be accompanied by the Debenture.
The
number of shares of Common Stock that shall be issuable upon conversion of the
Debenture shall equal the face amount of the Debenture divided by the
Conversion
Price (as defined below) and in effect on the date the Conversion Notice is
given; provided, however, that in the event that this Debenture shall have
been
partially redeemed, shares of Common Stock shall be issued pro rata, rounded
to
the nearest whole share. Conversion shall be deemed to have been effected on
the
date the Conversion Notice is received (the "Conversion Date"). In the case
of
any Debenture called for redemption, the conversion rights will expire at the
close of business on the Redemption Date. Within 20 business days after
receipt
of the Conversion Notice, Borrower shall issue and deliver by hand against a
signed receipt therefor or by United States registered mail, return receipt
requested, to the address designated in the Conversion Notice, a stock
certificate or stock certificates of Borrower representing the number of
shares
of Common Stock to which Holder is entitled and a check or cash in payment of
all interest accrued and unpaid on the Debenture up to and including the
Conversion Date. The conversion rights will be governed by the following
provisions:
(b) Conversion Price. On the issue date hereof and until such time as
an
adjustment shall occur, the Conversion Price shall be $3.81 per share;
provided,
however, that the Conversion Price shall be subject to adjustment at the times
and in accordance with the provisions set forth below. Any such adjustment
shall
be subject to the Company's optional right to redeem this Debenture as set
forth
in Section 5(b) hereof, upon notice given in the manner set forth in Section
5(c)
hereof.
(i) Adjustment for Issuance of Shares at Less Than the Conversion
Price. If and whenever any Additional Common Stock shall be issued by
Borrower
(the "Stock Issue Date") for a consideration per share less than the
Conversion
Price, then in each such case the initial Conversion Price shall be reduced to
a new Conversion Price in an amount equal to the price per share for the
Additional Common Stock then issued, if issued in connection with a sale of
shares, or the value of the Additional Common Stock then issued, as determined
in accordance with generally accepted accounting principles, if issued other
than
for cash, and the number of shares issuable to Holder upon conversion shall be
proportionately increased; and, in the case of Additional Common Stock issued
without consideration, the initial Conversion Price shall be reduced in amount
and the number of shares issued upon conversion shall be increased in an
amount
so as to maintain for the Holder the right to convert the Debenture into
shares
equal in amount to the same percentage interest in the Common Stock of the
Company as existed for the Holder immediately preceding the Stock Issue Date.
(ii) Sale of Shares. In case of the issuance of Additional Common
Stock for a consideration part or all of which shall be cash, the amount of
the
cash consideration therefor shall be deemed to be the gross amount of the cash
paid to Borrower for such shares, before deducting any underwriting
compensation
or discount in the sale, underwriting or purchase thereof by underwriters or
dealers or others performing similar services or for any expenses incurred in
connection therewith. In case of the issuance of any shares of Additional
Common
Stock for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor, other than cash, shall be deemed to be
the
then fair market value of the property received.
(iii) Reclassification of Shares. In case of the reclassification
of securities into shares of Common Stock, the shares of Common Stock issued
in
such reclassification shall be deemed to have been issued for a consideration
other than cash. Shares of Additional Common Stock issued by way of dividend
or
other distribution on any class of stock of Borrower shall be deemed to have
been
issued without consideration.
(iv) Stock Dividends, Stock Splits, Subdivisions or Combinations.
In the event of a stock dividend, stock split or subdivision of shares of
Common
Stock into a greater number of shares, the Conversion Price shall be
proportionately decreased, and in the event of a combination of shares of
Common
Stock into a smaller number of shares, the Conversion Price shall be
proportionately increased, such increase or decrease, as the case may be,
becoming effective at the record date.
(v) Exceptions. The term "Additional Common Stock" herein shall
mean all shares of Common Stock hereafter issued by Borrower (including Common
Stock held in the treasury of Borrower), except (A) Common Stock issued upon
the
conversion of any of the Debentures; (B) Common Stock issued upon exercise of
any
outstanding warrants or options; (C) Common Stock issued upon exercise of
outstanding employee stock options; (D) up to 300,000 shares of Common Stock
issued upon exercise of stock options to be granted subsequent to the date
hereof
to persons currently employed by Borrower or its subsidiaries; (E) up to
200,000
shares of Common Stock issued upon exercise of stock options to be granted
subsequent to the date hereof to persons subsequently employed by Borrower or
its subsidiaries; and (F) Common Stock issued upon exercise of stock options
granted to the Holders.
(c) Adjustment for Mergers and Consolidations.
(i) In the event of distribution to all Common Stock holders of any
stock, indebtedness of Borrower or assets (excluding cash dividends or
distributions from retained earnings) or other rights to purchase securities
or
assets, then, after such event, the Debenture will be convertible into the
kind
and amount of securities, cash and other property which the holder of the
Debenture would have been entitled to receive if the holder owned the Common
Stock issuable upon conversion of the Debenture immediately prior to the
occurrence of such event.
(ii) In case of any capital reorganization, reclassification of the
stock of Borrower (other than a change in par value or as a result of a stock
dividend, subdivision, split up or combination of shares), this Debenture
shall
be convertible into the kind and number of shares of stock or other securities
or property of Borrower to which the holder of the Debenture would have been
entitled to receive if the holder owned the Common Stock issuable upon
conversion
of the Debenture immediately prior to the occurrence of such event. The
provisions of the immediately foregoing sentence shall similarly apply to
successive reorganizations, reclassifications, consolidations, exchanges,
leases,
transfers or other dispositions or other share exchanges.
(iii) The term "Fair Market Value," as used herein, is the value
ascribed to consideration other than cash as determined by the Board of
Directors
of Borrower in good faith, which determination shall be final, conclusive and
binding. If the Board of Directors shall be unable to agree as to such fair
market value, then the issue of fair market value shall be submitted to
arbitration under and pursuant to the rules and regulations of the American
Arbitration Association, and the decision of the arbitrators shall be final,
conclusive and binding, and a final judgment may be entered thereon; provided,
however, that such arbitration shall be limited to determination of the fair
market value of assets tendered in consideration for the issue of Common
Stock.
(iv) In the event Borrower shall propose to take any action which
shall result in an adjustment in the Conversion Price, Borrower shall give
notice
to the Holder of this Debenture, which notice shall specify the record date,
if
any, with respect to such action and the date on which such action is to take
place. Such notice shall be given on or before the earlier of 10 days before
the
record date or the date which such action shall be taken. Such notice shall
also
set forth all facts (to the extent known) material to the effect of such
action
on the Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of this Debenture.
(d) Certificate. Following completion of an event which results in an
adjustment to the Conversion Price, Borrower shall furnish to the holder of
this
Debenture a statement, signed by the Chief Executive Officer and the Secretary
of the Borrower, of the facts creating such adjustment and specifying the
resultant adjusted Conversion Price then in effect, which statement shall
constitute an amendment to this Debenture.
7. One-Time Adjustment to Conversion Price. Notwithstanding the
provisions of Section 6 hereof, if the volume-weighted average closing bid
price
of the Common Stock, as determined by Bloomberg Financial Markets Commodities
News, for the 21 consecutive trading days following Borrower's public press
release of its December 31, 1998 fiscal year-end financial results (such
volume-weighted average closing bid price herein referred to as the "1998
Conversion
Price Adjustment") is a price less than the initial Conversion Price, then the
Conversion Price shall be adjusted downward to an amount equal to 100% of the
1998 Conversion Price Adjustment. If an adjustment is required pursuant to
this
Section 7, then the Borrower shall furnish to the holder of this Debenture a
statement, within ten days of the occurrence thereof, signed by the Chief
Financial Officer and the Secretary of Borrower, of the facts creating such
adjustment and specifying the resultant adjusted Conversion Price then in
effect,
which statement shall constitute an amendment to the Debenture. Such one-time
adjustment to the Conversion Price shall be subject to the Holder's optional
right to require the Company to redeem this Debenture at the sum equal to the
Principal Amount, together with an amount equal to an 18% annual yield on the
Principal Amount through the Redemption Date, upon notice given in the manner
set
forth in Section 4(b) hereof, if the Company reports pre-tax income of
$2,000,000, excluding extraordinary gains, for the December 31, 1998 fiscal
year.
8. Reservation of Shares: Borrower warrants and agrees that it shall at
all times reserve and keep available, free from preemptive rights, sufficient
authorized and unissued shares of Common Stock or treasury shares of Common
Stock
necessary to effect conversion of this Debenture.
9. Registration Rights: The shares of Common Stock issued upon
conversion
of the Debenture shall be restricted from transfer by the holder, unless the
shares are duly registered for sale pursuant to the Securities Act of 1933, as
amended, or the transfer is exempt from registration. The Holder has certain
rights with respect to the registration of shares of Common Stock issued upon
the conversion of this Debenture pursuant to the terms of the Loan Agreement.
In the event the Company fails (unless prevented by events outside its
control) to register the shares of Common Stock issuable upon conversion of
this Debenture within 90 days from the date on which the shelf registration
statement is
required to be filed pursuant to Section 9.03 of the Loan Agreement, the
Conversion Price shall decrease by 2.00% per month until such registration is
declared effective. Borrower agrees that a copy of the executed Loan
Agreement
and all amendments shall be available to the Holder at the offices of the
Company.
10. Taxes: The Company shall pay any documentary or other transactional
taxes attributable to the issuance or delivery of this Debenture or the shares
of Common Stock issued upon conversion by the Holder (excluding any federal,
state or local income taxes and any franchise taxes or taxes imposed upon the
Holder by the jurisdiction, or any political subdivision thereof, under which
such Holder is organized or is qualified to do business.)
11. Default:
(a) Event of Default: An "Event of Default" shall exist if an "Event of
Default" (as defined in the Loan Agreement) shall occur and be continuing.
(b) Remedies Upon Event of Default: If an Event of Default shall have
occurred and be continuing, then the Holder or Agent may exercise any one or
more of the rights and remedies provided in the Loan Documents, as the Holder
or
Agent, in its sole discretion, may deem necessary or appropriate.
(c) Remedies Nonexclusive: Each right, power or remedy of the holder
hereof upon the occurrence of any Event of Default as provided for in this
Debenture or now or hereafter existing at law or in equity or by statute shall
be cumulative and concurrent and shall be in addition to every other right,
power or remedy provided for in this Debenture or now or hereafter existing
at law or n equity or by statute, and the exercise or beginning of the
exercise
by the holder or transferee hereof of any one or more of such rights, powers
or
remedies shall not preclude the simultaneous or later exercise by the holder
of
any or all such other rights, powers or remedies.
(d) Expenses: Upon the occurrence of a Default of an Event of Default,
which occurrence is not cured within the notice provisions, if any provided
therefore, Borrower agrees to pay and shall pay all costs and expenses
(includ-
ing attorneys' fees and expenses) incurred by the Holder or Agent in con-
nection with the preservation and enforcement of Holder's rights under the
Loan Agreement, the Debenture, or any other Loan Document.
12. Failure to Act and Waiver: No failure or delay by the holder hereof
to require the performance of any term or terms of this Debenture or not to
exercise any right or any remedy shall constitute a waiver of any such term or
of any right or of any default, nor shall such delay or failure preclude the
holder hereof from exercising any such right, power or remedy at any later
time
or times. By accepting payment after the due date of any amount payable under
this Debenture, the holder hereof shall not be deemed to waive the right
either
to require payment when due of all other amounts payable, or to later declare
a
default for failure to effect such payment of any such other amount. The
failure of the holder of this Debenture to give notice of any failure or
breach of the Borrower under this Debenture shall not constitute a waiver of
any right or remedy in respect of such continuing failure or breach or any
subsequent failure or any subsequent failure or breach.
13. Consent to Jurisdiction: The Company hereby agrees and consents
that
any action, suit or proceeding arising out of this Debenture may be brought in
any appropriate court in the State of Texas, including the United States
District Court for the Norther District of Texas, or in any other court having
jurisdiction over the subject matter, all at the sole election of the Holder
hereof, and by the issuance and execution of this Debenture the Borrower
irrevocably consents to the jurisdiction of each such court. The Company
hereby
irrevocably appoints CT Corporation System, Dallas, Texas, as agent for the
Borrower to accept service of process for and on behalf of the Borrower in any
action, suit or proceeding arising out of this Debenture. Except for default
in
payment of interest or principal when and as they become due, and except as
otherwise specifically set forth herein or otherwise agreed to in writing by
the
parties, any action dispute, claim or controversy (all such herein called
"Dispute") between or among the parties as to the facts or the interpretation
of
the Debenture shall be resolved by arbitration as set forth in the Loan
Agreement.
14. Holder's Right to Request Multiple Debentures: The Holder shall,
upon
written request and presentation of the Debenture, have the right, at any
interest payment date, to request division of this Debenture into two or more
instruments, each of such to be in such amounts as shall be requested;
provided
however that no Debenture shall be issued in denominations of face amount less
than $100,000.
15. Transfer: Subject to Section 12.08 of the Loan Agreement, this
Debenture may be transferred on the books of the Borrower by the registered
Holder hereof, or by Holder's attorney duly authorized in writing, in
multiples
of $100,000 only upon (i) delivery to the Borrower of a duly executed
assignment
of the Debenture, or part thereof, to the proposed new Holder, along with a
current notation of the amount of payments received and net Principal Amount
yet
unfunded, and presentment of such Debenture to the Borrower for issue of a
replacement Debenture, or Debentures, in the name of the new Holder, (ii) the
designation by the new Holder of the Lender's agent for notice, such agent to
be
the sole party to whom Borrower shall be required to provide notice when
notice
to Lender is required hereunder and who shall be the sole party authorized to
represent Lender in regard to modification or waivers under the Debenture, the
Loan Agreement, or other Loan Documents; and any action, consent or waiver,
(other than a compromise of principal and interest), when given or taken by
Lender's agent for notice, shall be deemed to be the action of the holders of
a
majority in amount of the Principal Amount of the Debenture, as such holders
are
recorded on the books of the Borrower, and (iii) in compliance with the legend
to read as follows:
"The Securities represented by this Debenture have not been registered under
the
Securities Act of 1933, as amended ("Act"), or applicable state securities
laws
("State Acts") and shall not be sold, hypothecated, donated or otherwise
transferred unless the Company shall have received an opinion of Legal Counsel
for the Company, or such other evidence as may be satisfactory to Legal
Counsel
for the Company, to the effect that any such transfer shall not require
registration under the Act and the State Acts."
The Company shall be entitled to treat any holder of record of the
Debenture as the Holder in fact thereof and of the Debenture and shall not be
bound to recognize any equitable or other claim to or interest in this
Debenture
in the name of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by applicable law.
16. Notices: All notices and communications under this Debenture shall
be in writing and shall be either delivered in person or by overnight service
such as FedEx and accompanied by a signed receipt therefor; or mailed first-
class
United States certified mail, return receipt requested, postage prepaid, and
addressed as follows: (i) if to the Borrower at its address for notice as
stated
in the Loan Agreement; and (ii) if to the Holder of this Debenture, to the
address (a) of such Holder as it appears on the books of the Borrower or (b)
in
the case of a partial assignment to one or more Holders, to the Lender's agent
for notice, as the case may be. Any notice of communication shall be deemed
given and received as of the date of such delivery if delivered; or if mailed,
then three days after the date of mailing.
17. Maximum Interest Rate: (a) Regardless of any provision contained in
this Debenture, Lender shall never be entitled to receive, collect or apply as
interest on the Debenture any amount in excess of interest calculated at the
Maximum Rate, and in the event that Lender ever receives, collects or applies
as
interest any such excess, the amount which would be excessive interest shall
be
deemed to be a partial prepayment of principal and treated hereunder as such;
and, if the principal amount of the Debenture is paid in full, any remaining
excess shall forthwith be paid to Borrower. In determining whether or not the
interest paid or payable under any specific contingency exceeds interest
calculated at the Maximum Rate, Borrower and Lender shall, to the maximum
extent
permitted under applicable law, (i) characterize any non principal payment as
an
expense, fee or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) amortize, pro rate, allocate
and
spread, in equal parts, the total amount of interest throughout the entire
contemplated term of the Debenture; provided that, if the Debenture is paid
and
performed in full prior to the end of the full contemplated term thereof, and
if
the interest received for the actual period of existence thereof exceeds
interest
calculated at the Maximum Rate, Lender shall refund to Borrower the amount of
such excess or credit the amount of such excess against the principal amount
of
the Debenture and, in such event, Lender shall not be subject to any penalties
provided by any laws for contracting for, charging, taking, reserving or
receiving interest in excess of interest calculated at the Maximum Rate.
(b) "Maximum Rate" shall mean, on any day, the highest nonusurious rate
of interest (if any) permitted by applicable law on such day that at any time,
or from time to time, may be contracted for, taken, reserved, charged or
received
on the Indebtedness evidenced by the Debenture under the laws which are
presently
in effect of the United States of America or by the laws of any other
jurisdiction which are or may be applicable to the holders of the Debenture
and
such Indebtedness or, to the extent permitted by law, under such applicable
laws
of the United States of America or by the laws of any other jurisdiction which
are or may be applicable to the holder of the Debenture and which may
hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
18. Rights Under Loan Agreement. This Debenture is issued pursuant to
the
Convertible Loan Agreement dated of even date herewith among the Company,
Renaissance III and Renaissance PLC, as Lenders, and Agent, and the holders
hereof are entitled to all the rights and benefits. Both Borrower and Lenders
have participated in the negotiation and preparation of the Loan Agreement and
of the Debenture. Borrower agrees that a copy of the Loan Agreement with all
amendments, additions and substitutions therefor shall be available to the
Holders at the offices of Borrower.
19. Defined Terms: Capitalized terms used but not defined herein shall
have the meaning given them in the Loan Agreement.
20. Governing Law: This Debenture shall be governed by and construed
and
enforced in accordance with the substantive laws of the State of Texas,
without
regard to the conflicts of laws provisions thereof, and the applicable laws of
the United States.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
issued, executed and delivered on the date and year above stated.
NEWCARE HEALTH CORPORATION
By: /s/ Christopher F. Brogdon
Christopher F. Brogdon, Chairman of the Board
<PAGE>
The securities represented by this Debenture have not been registered under
the
Securities Act of 1933, as amended ("Act"), or applicable state securities
laws
("State Acts") and shall not be sold, hypothecated, donated or otherwise
transferred unless the Company shall have received an opinion of legal counsel
for the Company, or such other evidence as may be satisfactory to legal
counsel
for the Company, to the effect that any such transfer shall not require
registration under the Act and the State Acts.
NewCare Health Corporation
8.50% Convertible Debenture
$2,500,000 No.
2
Date of Issue: January 27, 1998
NewCare Health Corporation, a Nevada corporation (the "Company" or
"Borrower"), for value received, promises to pay to
Compass Bank, Custodian FBO
Renaissance US Growth & Income Trust PLC
or to its order, (together with any assignee, jointly or severally, the
"Holder"
or "Lender") on or before January 27, 2005 (the "Due Date") (unless this
Debenture shall have been sooner called for redemption or presented for
conversion as herein provided), the sum of Two Million Five Hundred Thousand
Dollars ($2,500,000) (the "Principal Amount") and to pay interest on the
unpaid
Principal Amount at the rate of 8.50% per annum. All payments of both
principal
and interest shall be made at the address of the Holder hereof as it appears
in
the books and records of the Borrower, or at such other place as may be
designated by the Holder hereof.
1. Interest: Interest on the Principal Amount outstanding from time to
time shall be payable in monthly installments commencing February 1, 1998, and
subsequent payments shall be made on the first day of each month thereafter
until the Principal Amount and all accrued and unpaid interest shall have
been paid in full. Overdue principal and interest on the Debenture shall
bear interest at the maximum rate permitted by applicable law.
2. Maturity: If not sooner paid, redeemed or converted, this Debenture
shall mature on January 27, 2005 at which time the remaining unpaid Principal
Amount, and all accrued and unpaid interest and any other charges then due
under
the Loan Agreement, shall be due and payable in full. This Debenture may be
prepaid without premium or penalty and shall be prepaid pro rata with any
prepayments of indebtedness (other than Senior Obligations) which is pari
passu
with or subordinated to this Debenture.
3. Mandatory Principal Installments: If this Debenture is not sooner
redeemed or converted as provided hereunder, Borrower shall pay to Holder,
commending on January 27, 2001 and continuing on the first day of each
successive month thereafter prior to maturity, mandatory principal
redemption installments, each of such installments to be in the amount of
Ten Dollars ($10) per Thousand Dollars ($1,000) of the then remaining
Principal Amount, and further, at maturity, Borrower shall pay to Holder a
final installment of the remaining unpaid Principal Amount, and all accrued
and unpaid interest and any other charges then due under the Loan Agreement.
4. Optional Redemption by Holder: (a) If at any time after the date
hereof (i) the Company's Common Stock, $.02 par value ("Common Stock"), is not
listed on the NASDAQ National Market System ("National Market"), the New York
Stock Exchange ("NYSE"), the American Stock Exchange ("AMEX"), or quoted on
the
NASDAQ Small Cap System ("Small Cap System"), (ii) any Person acquires more
than
a majority of the Common Stock without the written consent of the Lenders,
(iii)
there is a change of at least two-thirds of the members of the Company's Board
of Directors in any two (2) year period without the written consent of the
Lenders, (iv) all or substantially all of the assets or capital stock of the
Company or its subsidiaries are sold, or (v) the Company or its subsidiaries
are
merged or consolidated with or into unaffiliated entities, without the written
consent of Holder, the Holder shall have the right to require this Debenture
to
be redeemed by the Company at the sum equal to the Principal Amount, together
with an amount equal to an 18% annual yield on the Principal Amount through
the
date of redemption ("Redemption Date").
(b) If Mr. Christopher F. Brogdon is not elected or appointed Chief
Executive Officer of the Company by April 30, 1998, and, thereafter, does not
continue to serve the Company in such capacity, then the Holder shall have the
right to require this Debenture to be redeemed by the Company at the sum equal
to the Principal Amount, together with an amount equal to 18% annual yield on
the Principal Amount through the Redemption Date.
(c) The Holder may exercise its right to require that the Company redeem
this Debenture pursuant to Section 4(a) or Section 4(b) prior to maturity by
giving notice thereof to the Company, which notice shall specify the terms of
redemption (including the place at which the Holder may obtain payment), the
total redemption payment and the Redemption Date, which date shall not be less
than 30 days nor more than 60 days after the date of the notice.
5. Optional Redemption by Company: (a)On any interest payment date, and
after prior irrevocable notice as provided for below, this Debenture is
redeemable, in while but not in part, at 101% of par, together with accrued
and
unpaid interest through the Redemption Date, by the Company, if all of the
following conditions are satisfied: (i) the closing bid price for the Common
Stock averages at least $9.53 per share for the 20 consecutive trading days
prior to the irrevocable notice and the Common Stock is listed or quoted on
the
National Market, the Small Cap System, AMES or NYSE; (ii) the market price at
the date or irrevocable notice is supported by a price to earnings ratio of no
greater than 30 times fully diluted net earnings per share of Common Stock for
the trailing twelve months, determined in accordance with generally accepted
accounting principles, excluding any extraordinary gains or losses of the
Borrower; (iii) the average (20 days) daily trading volume shall be no less
than
40,000 shares, or 20,000 shares if the Common Stock trades on the AMEX or
NYSE;
and (iv) the Company shall have filed a registration statement covering the
shares of Common Stock issuable upon conversion of this Debenture, which shall
have become effective. The foregoing earnings per share and bid price tests
shall be duly adjusted for stock splits, stock dividends, subdivisions,
combinations, mergers, consolidations, and other recapitalizations. The
Company's right of redemption is subject to the Holder's prior right of
conversion of the Debenture.
(b) In the event that the conditions for an adjustment in the Conversion
Price pursuant to Section 6(b) and (c) hereof are satisfied, this Debenture is
redeemable by the Company, in whole but not in part, at the sum equal to the
Principal Amount, together with an amount equal to an 18% annual yield on the
Principal Amount through the Redemption Date.
(c) The Company may exercise its right to redeem this Debenture pursuant
to Section 5(a) or (b) prior to maturity by giving notice thereof to the
Holder
of this Debenture as such name appears on the books of the Borrower, which
notice shall specify the terms of redemption (including the place at which
the Holder may obtain payment), the total redemption payments and the
Redemption Date, which date shall not be less than 30 days nor more than 60
days after the date of the notice.
6. Conversion Right: (a) The Holder of this Debenture shall have the
right, at Holder's option, at any time, to convert all, or, in multiples of
$100,000, any part of the Debenture into such number of fully paid and
nonassessable shares of Common Stock as provided herein. The Holder of this
Debenture may exercise the conversion right by giving written notice (the
"Conversion Notice") to Borrower of the exercise of such right and stating the
name or names in which the stock certificate or stock certificates for the
shares of Common Stock are to be issued and the address to which such
certificates shall be delivered. The Conversion Notice shall be accompanied
by the Debenture. The number of shares of Common Stock that shall be
issuable upon conversion of the Debenture shall equal the face amount of the
Debenture divided by the Conversion Price (as defined below) and in effect on
the date the Conversion Notice is given; provided, however, that in the event
that this Debenture shall have been partially redeemed, shares of Common
Stock shall be issued pro rata, rounded to the nearest whole share.
Conversion shall be deemed to have been effected on the date the Conversion
Notice is received (the "Conversion Date"). In the case of any Debenture
called for redemption, the conversion rights will expire at the close of
business on the Redemption Date. Within 20 business days after receipt of
the Conversion Notice, Borrower shall issue and deliver by hand against a
signed receipt therefor or by United States registered mail, return receipt
requested, to the address designated in the Conversion Notice, a stock
certificate or stock certificates of Borrower representing the number of
shares
of Common Stock to which Holder is entitled and a check or cash in payment of
all
interest accrued and unpaid on the Debenture up to and including the
Conversion
Date. The conversion rights will be governed by the following provisions:
(b) Conversion Price. On the issue date hereof and until such time as
an
adjustment shall occur, the Conversion Price shall be $3.81 per share;
provided,
however, that the Conversion Price shall be subject to adjustment at the times
and in accordance with the provisions set forth below. Any such adjustment
shall
be subject to the Company's optional right to redeem this Debenture as set
forth
in Section 5(b) hereof, upon notice given in the manner set forth in Section
5(c) hereof.
(i) Adjustment for Issuance of Shares at Less Than the Conversion
Price. If and whenever any Additional Common Stock shall be issued by
Borrower
(the "Stock Issue Date") for a consideration per share less than the
Conversion
Price, then in each such case the initial Conversion Price shall be reduced to
a new Conversion Price in an amount equal to the price per share for the
Additional Common Stock then issued, if issued in connection with a sale of
shares, or the value of the Additional Common Stock then issued, as determined
in accordance with generally accepted accounting principles, if issued other
than
for cash, and the number of shares issuable to Holder upon conversion shall be
proportionately increased; and, in the case of Additional Common Stock issued
without consideration, the initial Conversion Price shall be reduced in amount
and the number of shares issued upon conversion shall be increased in an
amount
so as to maintain for the Holder the right to convert the Debenture into
shares
equal in amount to the same percentage interest in the Common Stock of the
Company as existed for the Holder immediately preceding the Stock Issue Date.
(ii) Sale of Shares. In case of the issuance of Additional Common
Stock for a consideration part or all of which shall be cash, the amount of
the
cash consideration therefor shall be deemed to be the gross amount of the cash
paid to Borrower for such shares, before deducting any underwriting
compensation
or discount in the sale, underwriting or purchase thereof by underwriters or
dealers or others performing similar services or for any expenses incurred in
connection therewith. In case of the issuance of any shares of Additional
Common
Stock for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor, other than cash, shall be deemed to be
the
then fair market value of the property received.
(iii) Reclassification of Shares. In case of the reclassification
of securities into shares of Common Stock, the shares of Common Stock issued
in
such reclassification shall be deemed to have been issued for a consideration
other than cash. Shares of Additional Common Stock issued by way of dividend
or
other distribution on any class of stock of Borrower shall be deemed to have
been
issued without consideration.
(iv) Stock Dividends, Stock Splits, Subdivisions or Combinations.
In the event of a stock dividend, stock split or subdivision of shares of
Common
Stock into a greater number of shares, the Conversion Price shall be
proportionately decreased, and in the event of a combination of shares of
Common
Stock into a smaller number of shares, the Conversion Price shall be
proportionately increased, such increase or decrease, as the case may be,
becoming effective at the record date.
(v) Exceptions. The term "Additional Common Stock" herein shall
mean all shares of Common Stock hereafter issued by Borrower (including Common
Stock held in the treasury of Borrower), except (A) Common Stock issued upon
the
conversion of any of the Debentures; (B) Common Stock issued upon exercise of
any
outstanding warrants or options; (C) Common Stock issued upon exercise of
outstanding employee stock options; (D) up to 300,000 shares of Common Stock
issued upon exercise of stock options to be granted subsequent to the date
hereof
to persons currently employed by Borrower or its subsidiaries; (E) up to
200,000
shares of Common Stock issued upon exercise of stock options to be granted
subsequent to the date hereof to persons subsequently employed by Borrower or
its subsidiaries; and (F) Common Stock issued upon exercise of stock options
granted to the Holders.
(c) Adjustment for Mergers and Consolidations.
(i) In the event of distribution to all Common Stock holders of any
stock, indebtedness of Borrower or assets (excluding cash dividends or
distributions from retained earnings) or other rights to purchase securities
or
assets, then, after such event, the Debenture will be convertible into the
kind
and amount of securities, cash and other property which the holder of the
Debenture would have been entitled to receive if the holder owned the Common
Stock issuable upon conversion of the Debenture immediately prior to the
occurrence of such event.
(ii) In case of any capital reorganization, reclassification of the
stock of Borrower (other than a change in par value or as a result of a stock
dividend, subdivision, split up or combination of shares), this Debenture
shall
be convertible into the kind and number of shares of stock or other securities
or property of Borrower to which the holder of the Debenture would have been
entitled to receive if the holder owned the Common Stock issuable upon
conversion of the Debenture immediately prior to the occurrence of such
event. The provisions of the immediately foregoing sentence shall similarly
apply to successive reorganizations, reclassifications, consolidations,
exchanges, leases, transfers or other dispositions or other share exchanges.
(iii) The term "Fair Market Value," as used herein, is the value
ascribed to consideration other than cash as determined by the Board of
Directors of Borrower in good faith, which determination shall be final,
conclusive and binding. If the Board of Directors shall be unable to agree
as to such fair
market value, then the issue of fair market value shall be submitted to
arbitration under and pursuant to the rules and regulations of the American
Arbitration Association, and the decision of the arbitrators shall be final,
conclusive and binding, and a final judgment may be entered thereon; provided,
however, that such arbitration shall be limited to determination of the fair
market value of assets tendered in consideration for the issue of Common
Stock.
(iv) In the event Borrower shall propose to take any action which
shall result in an adjustment in the Conversion Price, Borrower shall give
notice
to the Holder of this Debenture, which notice shall specify the record date,
if
any, with respect to such action and the date on which such action is to take
place. Such notice shall be given on or before the earlier of 10 days before
the
record date or the date which such action shall be taken. Such notice shall
also
set forth all facts (to the extent known) material to the effect of such
action
on the Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable upon the
occurrence of such action or deliverable upon conversion of this Debenture.
(d) Certificate. Following completion of an event which results in an
adjustment to the Conversion Price, Borrower shall furnish to the holder of
this
Debenture a statement, signed by the Chief Executive Officer and the Secretary
of the Borrower, of the facts creating such adjustment and specifying the
resultant adjusted Conversion Price then in effect, which statement shall
constitute an amendment to this Debenture.
7. One-Time Adjustment to Conversion Price. Notwithstanding the
provisions of Section 6 hereof, if the volume-weighted average closing bid
price
of the Common Stock, as determined by Bloomberg Financial Markets Commodities
News, for the 21 consecutive trading days following Borrower's public press
release of its December 31, 1998 fiscal year-end financial results (such
volume-weighted average closing bid price herein referred to as the "1998
Conversion
Price Adjustment") is a price less than the initial Conversion Price, then the
Conversion Price shall be adjusted downward to an amount equal to 100% of the
1998 Conversion Price Adjustment. If an adjustment is required pursuant to
this
Section 7, then the Borrower shall furnish to the holder of this Debenture a
statement, within ten days of the occurrence thereof, signed by the Chief
Financial Officer and the Secretary of Borrower, of the facts creating such
adjustment and specifying the resultant adjusted Conversion Price then in
effect, which statement shall constitute an amendment to the Debenture.
Such one-time adjustment to the Conversion Price shall be subject to the
Holder's optional right to require the Company to redeem this Debenture at
the sum equal to the Principal Amount, together with an amount equal to an
18% annual yield on the Principal Amount through the Redemption Date, upon
notice given in the manner set forth in Section 4(b) hereof, if the Company
reports pre-tax income of $2,000,000, excluding extraordinary gains, for the
December 31, 1998 fiscal year.
8. Reservation of Shares: Borrower warrants and agrees that it shall at
all times reserve and keep available, free from preemptive rights, sufficient
authorized and unissued shares of Common Stock or treasury shares of Common
Stock necessary to effect conversion of this Debenture.
9. Registration Rights: The shares of Common Stock issued upon
conversion
of the Debenture shall be restricted from transfer by the holder, unless the
shares are duly registered for sale pursuant to the Securities Act of 1933, as
amended, or the transfer is exempt from registration. The Holder has certain
rights with respect to the registration of shares of Common Stock issued upon
the conversion of this Debenture pursuant to the terms of the Loan Agreement.
In the event the Company fails (unless prevented by events outside its
control) to
register the shares of Common Stock issuable upon conversion of this Debenture
within 90 days from the date on which the shelf registration statement is
required to be filed pursuant to Section 9.03 of the Loan Agreement, the
Conversion Price shall decrease by 2.00% per month until such registration is
declared effective. Borrower agrees that a copy of the executed Loan
Agreement
and all amendments shall be available to the Holder at the offices of the
Company.
10. Taxes: The Company shall pay any documentary or other transactional
taxes attributable to the issuance or delivery of this Debenture or the shares
of Common Stock issued upon conversion by the Holder (excluding any federal,
state or local income taxes and any franchise taxes or taxes imposed upon the
Holder by the jurisdiction, or any political subdivision thereof, under which
such Holder is organized or is qualified to do business.)
11. Default:
(a) Event of Default: An "Event of Default" shall exist if an "Event of
Default" (as defined in the Loan Agreement) shall occur and be continuing.
(b) Remedies Upon Event of Default: If an Event of Default shall have
occurred and be continuing, then the Holder or Agent may exercise any one or
more of the rights and remedies provided in the Loan Documents, as the Holder
or
Agent, in its sole discretion, may deem necessary or appropriate.
(c) Remedies Nonexclusive: Each right, power or remedy of the holder
hereof upon the occurrence of any Event of Default as provided for in this
Debenture or now or hereafter existing at law or in equity or by statute shall
be cumulative and concurrent and shall be in addition to every other right,
power or remedy provided for in this Debenture or now or hereafter existing
at law or in equity or by statute, and the exercise or beginning of the
exercise by the holder or transferee hereof of any one or more of such
rights, powers or remedies shall not preclude the simultaneous or later
exercise by the holder of any or all such other rights, powers or remedies.
(d) Expenses: Upon the occurrence of a Default of an Event of Default,
which occurrence is not cured within the notice provisions, if any provided
therefore, Borrower agrees to pay and shall pay all costs and expenses
(including attorneys' fees and expenses) incurred by the Holder or Agent in
connection with the preservation and enforcement of Holder's rights under
the Loan Agreement, the Debenture, or any other Loan Document.
12. Failure to Act and Waiver: No failure or delay by the holder hereof
to require the performance of any term or terms of this Debenture or not to
exercise any right or any remedy shall constitute a waiver of any such term or
of any right or of any default, nor shall such delay or failure preclude the
holder hereof from exercising any such right, power or remedy at any later
time
or times. By accepting payment after the due date of any amount payable under
this Debenture, the holder hereof shall not be deemed to waive the right
either
to require payment when due of all other amounts payable, or to later declare
a
default for failure to effect such payment of any such other amount. The
failure of the holder of this Debenture to give notice of any failure or
breach of the Borrower under this Debenture shall not constitute a waiver of
any right or remedy in respect of such continuing failure or breach or any
subsequent failure or any subsequent failure or breach.
13. Consent to Jurisdiction: The Company hereby agrees and consents
that
any action, suit or proceeding arising out of this Debenture may be brought in
any appropriate court in the State of Texas, including the United States
District
Court for the Norther District of Texas, or in any other court having
jurisdiction over the subject matter, all at the sole election of the Holder
hereof, and by the issuance and execution of this Debenture the Borrower
irrevocably consents to the jurisdiction of each such court. The Company
hereby
irrevocably appoints CT Corporation System, Dallas, Texas, as agent for the
Borrower to accept service of process for and on behalf of the Borrower in any
action, suit or proceeding arising out of this Debenture. Except for default
in
payment of interest or principal when and as they become due, and except as
otherwise specifically set forth herein or otherwise agreed to in writing by
the
parties, any action dispute, claim or controversy (all such herein called
"Dispute") between or among the parties as to the facts or the interpretation
of
the Debenture shall be resolved by arbitration as set forth in the Loan
Agreement.
14. Holder's Right to Request Multiple Debentures: The Holder shall,
upon
written request and presentation of the Debenture, have the right, at any
interest payment date, to request division of this Debenture into two or more
instruments, each of such to be in such amounts as shall be requested;
provided
however that no Debenture shall be issued in denominations of face amount less
than $100,000.
15. Transfer: Subject to Section 12.08 of the Loan Agreement, this
Debenture may be transferred on the books of the Borrower by the registered
Holder hereof, or by Holder's attorney duly authorized in writing, in
multiples
of $100,000 only upon (i) delivery to the Borrower of a duly executed
assignment
of the Debenture, or part thereof, to the proposed new Holder, along with a
current notation of the amount of payments received and net Principal Amount
yet
unfunded, and presentment of such Debenture to the Borrower for issue of a
replacement Debenture, or Debentures, in the name of the new Holder, (ii) the
designation by the new Holder of the Lender's agent for notice, such agent to
be
the sole party to whom Borrower shall be required to provide notice when
notice
to Lender is required hereunder and who shall be the sole party authorized to
represent Lender in regard to modification or waivers under the Debenture, the
Loan Agreement, or other Loan Documents; and any action, consent or waiver,
(other than a compromise of principal and interest), when given or taken by
Lender's agent for notice, shall be deemed to be the action of the holders of
a
majority in amount of the Principal Amount of the Debenture, as such holders
are
recorded on the books of the Borrower, and (iii) in compliance with the legend
to read as follows:
"The Securities represented by this Debenture have not been registered under
the
Securities Act of 1933, as amended ("Act"), or applicable state securities
laws
("State Acts") and shall not be sold, hypothecated, donated or otherwise
transferred unless the Company shall have received an opinion of Legal Counsel
for the Company, or such other evidence as may be satisfactory to Legal
Counsel
for the Company, to the effect that any such transfer shall not require
registration under the Act and the State Acts."
The Company shall be entitled to treat any holder of record of the
Debenture as the Holder in fact thereof and of the Debenture and shall not be
bound to recognize any equitable or other claim to or interest in this
Debenture
in the name of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by applicable law.
16. Notices: All notices and communications under this Debenture shall
be in writing and shall be either delivered in person or by overnight service
such as FedEx and accompanied by a signed receipt therefor; or mailed first-
class
United States certified mail, return receipt requested, postage prepaid, and
addressed as follows: (i) if to the Borrower at its address for notice as
stated in the Loan Agreement; and (ii) if to the Holder of this Debenture, to
the address (a) of such Holder as it appears on the books of the Borrower or
(b) in the case of a partial assignment to one or more Holders, to the
Lender's agent for notice, as the case may be. Any notice of communication
shall be deemed given and received as of the date of such delivery if
delivered; or if mailed, then three days after the date of mailing.
17. Maximum Interest Rate: (a) Regardless of any provision contained in
this Debenture, Lender shall never be entitled to receive, collect or apply as
interest on the Debenture any amount in excess of interest calculated at the
Maximum Rate, and in the event that Lender ever receives, collects or applies
as
interest any such excess, the amount which would be excessive interest shall
be
deemed to be a partial prepayment of principal and treated hereunder as such;
and, if the principal amount of the Debenture is paid in full, any remaining
excess shall forthwith be paid to Borrower. In determining whether or not the
interest paid or payable under any specific contingency exceeds interest
calculated at the Maximum Rate, Borrower and Lender shall, to the maximum
extent
permitted under applicable law, (i) characterize any non principal payment as
an
expense, fee or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) amortize, pro rate, allocate
and
spread, in equal parts, the total amount of interest throughout the entire
contemplated term of the Debenture; provided that, if the Debenture is paid
and
performed in full prior to the end of the full contemplated term thereof, and
if
the interest received for the actual period of existence thereof exceeds
interest calculated at the Maximum Rate, Lender shall refund to Borrower the
amount of
such excess or credit the amount of such excess against the principal amount
of
the Debenture and, in such event, Lender shall not be subject to any penalties
provided by any laws for contracting for, charging, taking, reserving or
receiving interest in excess of interest calculated at the Maximum Rate.
(b) "Maximum Rate" shall mean, on any day, the highest nonusurious rate
of interest (if any) permitted by applicable law on such day that at any time,
or from time to time, may be contracted for, taken, reserved, charged or
received on the Indebtedness evidenced by the Debenture under the laws which
are presently in effect of the United States of America or by the laws of any
other jurisdiction which are or may be applicable to the holders of the
Debenture and such Indebtedness or, to the extent permitted by law, under
such applicable laws
of the United States of America or by the laws of any other jurisdiction which
are or may be applicable to the holder of the Debenture and which may
hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
18. Rights Under Loan Agreement. This Debenture is issued pursuant to
the
Convertible Loan Agreement dated of even date herewith among the Company,
Renaissance III and Renaissance PLC, as Lenders, and Agent, and the holders
hereof are entitled to all the rights and benefits. Both Borrower and Lenders
have participated in the negotiation and preparation of the Loan Agreement and
of the Debenture. Borrower agrees that a copy of the Loan Agreement with all
amendments, additions and substitutions therefor shall be available to the
Holders at the offices of Borrower.
19. Defined Terms: Capitalized terms used but not defined herein shall
have the meaning given them in the Loan Agreement.
20. Governing Law: This Debenture shall be governed by and construed
and
enforced in accordance with the substantive laws of the State of Texas,
without
regard to the conflicts of laws provisions thereof, and the applicable laws of
the United States.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
issued, executed and delivered on the date and year above stated.
NEWCARE HEALTH CORPORATION
By: /s/ Christopher F. Brogdon
Christopher F. Brogdon, Chairman of the Board
LOAN AGREEMENT
By and Between
NATIONWIDE HEALTH PROPERTIES, INC.,
a Maryland corporation
as "Lender"
and
WINDWARD NURSING CENTER, INC.,
a Georgia corporation;
HEALTHCARE FACILITIES LIMITED PARTNERSHIP I,
a Louisiana limited partnership;
OAK MANOR NURSING HOME, LTD.,
a Florida limited partnership
and
CENTRAL TAMPA NURSING HOME, LTD.,
a Florida limited partnership
as "Borrower"
Dated as of May 14, 1997
<PAGE>
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
ARTICLE II THE LOAN
2.1 Agreement to Lend and Borrow
2.2 Evidence of Indebtedness and Maturity
2.3 Interest
2.4 Security
2.5 Environmental Indemnity
2.6 Prepayment
ARTICLE III LOAN CLOSING CONDITIONS
3.1 Indemnification Precedent
ARTICLE IV CLOSING COSTS AND PRORATIONS
4.1 Closing Costs
ARTICLE V DISBURSEMENTS OF THE LOAN
5.1 Disbursements
5.2 Disbursement of the Initial Loan Advance
5.3 Disbursement of the Final Loan Advance
5.4 Liens
ARTICLE VI REPRESENTATIONS AND WARRANTIES
6.1 Title
6.2 Utilities
6.3 Physical Condition; Completeness
6.4 Compliance
6.5 Zoning
6.6 No Notices of Non-Compliance
6.7 Due Authorization, Execution, Organization, etc
6.8 True, Correct and Complete Information
6.9 Existing Agreements
6.10Default
6.11Litigation; Condemnation
6.12No Taxes or Utilities Due
6.13Employee Benefit Plans
6.14Union Agreements
6.15Hazardous Materials Representations
ARTICLE VII COVENANTS OF BORROWER
7.1 No Liens
7.2 Compliance with Legal Requirements
7.3 Use of the Facilities
7.4 Payment of Impositions
7.6 Hazardous Material Covenants
7.7 Environmental Matters
7.8 Participation in Hazardous Materials Claims
7.9 Environmental Inspections
7.10Environmental Indemnification
7.11 Lender Inspections
7.12 Financial Statements
7.13 Statements for Facilities
7.14 Regulatory Reports
7.15 Expenses
7.16 Litigation
7.17 Representations and Warranties
7.18 Further Assurances
7.19 Operating Leases
7.20 ERISA Events
7.21 Maintenance Obligations
7.22 Upgrade Expenditures
7.23 Books and Records
7.24 Debt Service Reserve
ARTICLE VIII INSURANCE REQUIREMENTS
8.1 Insurance Types
8.3 Deductible Amounts.
8.4 Evidence of Insurance
8.5 Damages
8.6 Waiver of Subrogation
8.7 Additional Insured
8.8 No Separate Insurance
ARTICLE IX EVENT'S OF DEFAULT AND REMEDIES
9.1 Events of Default
9.2 Remedies
ARTICLE X MISCELLANEOUS
10.1 Assignment
10.2 Notices
10.3 Incorporation of Recitals and Exhibits
10.4 Titles and Headings
10.5 Brokers
10.6 Changes, Waivers, Discharge and Modifications in Writing
10.7 Choice of Law
10.8 Counterparts
10.9 Time is of the Essence
10.10 Attorneys' Fees
10.11 Authority to File Notices
10.12 Disclaimer by Lender
10.13 Indemnification
10.14 Inconsistencies with Loan Documents
10.15 Disbursements in Excess of Loan Amount
10.16 Participations
10.17 Entire Agreement
10.18 Severability
10.19 Consent to Jurisdiction and Service of Process
10.20 Waiver of Jury Trial
10.21 Terminology
10.22 Interpretation
EXHIBIT A LEGAL DESCRIPTION OF THE LAND
EXHIBIT B CLOSING CONDITIONS
EXHIBIT C QUARTERLY RECONCILIATION OF CASH FLOW INTEREST
EXHIBIT D ANNUAL RECONCILIATION OF CASH FLOW INTEREST
EXHIBIT E FORM OF CLOSING PROCEDURE LETTER
EXHIBIT F FORM OF WRITTEN AUTHORIZATION TO CLOSE
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement) is made as of the 14th day of May,
1997 by and between WINDWARD NURSING CENTER, INC., a Georgia corporation
("Windward"); HEALTHCARE FACILITIES LIMITED PARTNERSHIP I, a Louisiana
limited partnership ("HFLP"); OAK MANOR NURSING HOME, LTD., a Florida limited
partnership ("Oak Manor"), and CENTRAL TAMPA NURSING HOME, LTD., a Florida
limited partnership ("Central Tampa") (collectively "Borrower"), and
NATIONWIDE
HEALTH PROPERTIES, INC., a Maryland corporation ("Lender"), with respect to
the
following:
R E C I T A L S:
A. Borrower owns fee simple title to those certain parcels of real
property
located in the County of Hall, State of Georgia and the Counties of Pinellas,
Hillsborough and Broward, State of Florida and more particularly described in
Exhibit A attached hereto and by this reference incorporated herein (the
"Land").
B. The Land is improved with certain buildings and other Improvements (as
hereinafter defined), and the Land, together with the Improvements and the
Collateral (as hereinafter defined) located thereon, is licensed as a one
hundred
(100) bed skilled nursing facility (the "Central Tampa Facility"), an
eighty-eight (88) bed skilled nursing facility (the "Dania Facility"), a one
hundred (100) bed skilled nursing facility (the "Windward Facility") and a
four
hundred five (~105) bed CCRC facility (the "Oak Manor Facility"). The Central
Tampa Facility, the Dania Facility, the Windward Facility and the Oak Manor
Facility are sometimes collectively referred to herein as the
"Facilities."
C. Borrower desires to borrow from Lender, and Lender desires to lend to
Borrower, an amount up to Twenty-One Million Five Hundred Thousand Dollars
($21,500,000), upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the covenants and conditions herein
contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used herein (including any Exhibits attached hereto), the following
terms
shall have the meanings set forth below (unless expressly stated to the
contrary):
"Account" shall have the meaning ascribed such term in the Debt Service
Reserve Pledge Agreement.
"Adjoining Property" shall mean all roadways, sidewalks and curbs
appurtenant
to the Facilities and all utility vaults which are under Borrower's control or
which are required to be maintained by Borrower.
"Adjustment Date" shall mean the last day of each calendar month of a Loan
Year.
"Affiliate" shall mean, with respect to any Person, any other Person which
Controls, is controlled by or is under common Control with the first person.
Without limiting the generality of the foregoing, all of the following shall
be
deemed to be Affiliates of Borrower: (I) Guarantors, (ii) any subsidiaries of
Guarantor, (iii) any and all of the partners in Borrower, and (iv) any and all
of the partners and shareholders of any and all of the partners in Borrower.
"Agreed Rate" shall mean the lesser of (a) the maximum rate permitted
under
the laws of the State of Florida or (b) the Total Interest (as defined in the
Note) plus four percent (4%).
"Alterations" shall mean all changes, additions, improvements or repairs
to,
all alterations, reconstructions, renewals or removals of, and all
substitutions
or replacements for, any of the Fixtures or Improvements, whether interior or
exterior, structural or non-structural, ordinary or extraordinary. As used in
this Agreement, "Alteration" shall not include any
maintenance, repair, replacement or restoration work the cost of which is
included in the Upgrade Expenditures.
"Base Year" shall mean the twelve (12) month period beginning on June 1,
1998 and ending on May 31, 1999.
"Base Year Gross Revenues" shall mean the Gross Revenues generated by the
Facilities during the Base Year.
"Basic Interest" shall have the meaning ascribed such term in the Note.
"Borrower's Fiscal Year" shall mean the twelve (12) month period beginning
January 1 and ending December 31.
"Business Agreements" shall mean any and all leases, rental agreements,
management agreements, loan agreements, mortgages, deeds of trust, easements,
covenants, restrictions or other agreements or instruments affecting all or a
portion of the Facilities and which is binding upon Borrower or all or any
portion of the Facilities.
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which national banks in the City of New York,
State
of New York are authorized, or obligated, by law or executive order, to close.
"Cash Flow Interest" shall have the meaning ascribed such term in the
Note.
"Closing" shall mean the consummation of the loan transaction provided for
herein.
"Closing Procedure Letter" shall mean a letter to the Title Company
executed
by Lender and Borrower setting forth directions for the Title Company in
connection with the Closing and in the form of Exhibit E attached hereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" shall mean all of Borrower's interest in all Fixtures,
Personal
Property and Intangible Property.
"Common Stock Warrant" shall mean that certain Certificate of Common Stock
Purchase Warrants of even date herewith issued by NewCare in favor of Lender
with respect to One Hundred Thousand (1~,000) shares of NewCare's Common
Stock.
"Condemnation" shall mean either (a) the taking by a Condemnor of the
Facilities or any part thereof or interest therein, for public or quasi-public
use under the power of eminent domain, condemnation or otherwise, (b) a
voluntary sale or transfer of the Facilities or any part thereof or interest
therein by Borrower to any Condemnor or to any other Person either under
threat of condemnation or while legal proceedings for condemnation are
pending, (c) a de facto condemnation by a Condemnor.
"Condemnation Proceeds" shall mean all compensation, awards, damages,
rights
of action and proceeds payable to Borrower or Lender by reason of any
Condemnation of all or any portion of the Facilities or the Collateral or any
part of either.
"Condemnor" shall mean any Governmental Authority or Person having the
power
of condemnation.
"Control" and "control" with correlative meanings for the terms
"controlling", "controlled by" and "under common control with" shall mean, as
applied to any Person, the possession, directly or indirectly, of the power to
direct the management and policies of that Person, whether through ownership,
voting control, by contract or otherwise.
"Cost of Living Index" shall mean the United States Department of Labor,
Bureau of Labor Statistics Consumer Price Index for all Urban Consumers,
United
States Average, Subgroup "All Items" (1982 - 1984 = 100).
"Counties" shall mean the counties in which the Facilities are located.
"Debt Service Reserve" shall mean an amount equal to One Million One
Hundred Fifty-Nine Thousand Dollars ($1,159,000), given by Borrower to Lender
as
additional security for Borrower's obligations under this Agreement and the
other Loan Documents, which amount shall be withheld by Lender from the
Initial Loan Advance pursuant to the provisions of Sections 5.2 and 7.24
below.
"Debt Service Reserve Pledge Agreement" shall mean a pledge agreement,
between Borrower and Lender, in form and substance satisfactory to Lender,
pursuant to which Borrower shall pledge the amounts deposited therein to
Lender
as security for the loan.
"Employee Benefit Plan" shall mean any "employee benefit plan" as defined
in
Section 3(3) of ERISA which is, or was at any time, maintained or contributed
to
by Borrower or any of its ERISA Affiliates.
"Environmental Activities" shall mean the use, generation, transportation,
handling, discharge, production, treatment, storage, release or disposal of
any
Hazardous Materials at any time to or from any one or more of the Facilities
or
located on or present on or under any one or more of the Facilities.
"Environmental Indemnity" shall mean an indemnity relating to
Environmental
Activities and other environmental matters concerning the Facilities, of even
date herewith, executed by Borrower and Guarantors, in favor of Lender, in
form
and substance acceptable to Lender.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ERISA Affiliate", as applied to any Person, shall mean (a) any
corporation
which is, or was at any time, a member of a controlled group of corporations
within the meaning of Section 414(b) of the Code of which that Person is, or
was
at any time, a member; (b) any trade or business (whether or not incorporated)
which is, or was at any time, a member of a group of trades or businesses
under common control within the meaning of Section 414(c) of the Code of
which that Person is, or was at any time, a member; and (c) any
member of an affiliated service group within the meaning of Section 414(m) or
(o) of the Code of which that Person, any corporation described in clause (a)
above or any trade or business described in clause (b) above is, or was at
any time, a member.
"ERISA Event" shall mean (a) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect to
any
Pension Plan (excluding those for which the provision for 30-day notice to the
PBGC has been waived by regulation); (b) the failure to meet the minimum
funding
standard of Section 412 of the Code with respect to any Pension Plan (whether
or
not waived in accordance with Section 412(d) of the Code)
or the failure to make by its due date a required installment under Section
412(m) of the Code with respect to any Pension Plan or the failure to make any
required contribution to a Multi employer Plan; (c) the provision by the
administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a
notice of intent to terminate such plan in a distress termination described in
Section 4041(c) of ERISA; (d) the withdrawal by Borrower or any of its ERISA
Affiliates from any Pension Plan with two or more contributing sponsors or the
termination of any such Pension Plan resulting in liability pursuant to
Sections
4063 or 4064 of ERISA; (e) the institution by the PBGC of proceedings to
terminate any Pension Plan, or the occurrence of any event or condition which
might constitute grounds under ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan; (f) the imposition
of
liability on Borrower or any of its ERISA Affiliates pursuant ro Section
4062(e)
or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA;
(g) the withdrawal by Borrower or any of its ERISA Affiliates in a complete or
partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA)
from any Multi employer Plan if there is any potential liability therefor, or
the receipt by Borrower or any of its ERISA Affiliates of notice from any
Multi employer Plan that it is in reorganization or insolvency
pursuant to Section 4241 or 4245 of ERISA, or that
it intends to terminate or has terminated under Section 4041A or 4042 of
ERISA;
(h) the occurrence of an act or omission which could give rise to the
imposition
on Borrower or any of its ERISA Affiliates of fines, penalties, taxes or
related
charges under Chapter 43 of the Code or under Section 409 or 502(c), (I) or
(1)
or 4071 of ERISA in respect of any Employee Benefit
Plan; (I) the assertion of a material claim (other than routine claims for
benefits) against any Employee Benefit Plan other than a Multi employer Plan
or
the assets thereof, or against Borrower or any of its ERISA Affiliates in
connection with any such Employee Benefit Plan; (j) receipt from the Internal
Revenue Service of notice of the failure of any Pension Plan (or any other
Employee Benefit Plan intended to be qualified under Section 401(a) of the
Code)
to qualify under Section 401(a) of the Code, or the failure of any trust
forming
part of any Pension Plan to qualify for exemption from taxation under Section
501(a) of the Code; or (k) the imposition of a Lien pursuant to Section
401(a)(29) or 412(n) of the Code or pursuant to ERISA with respect to any
Pension Plan.
"Event of Default" shall mean the occurrence of any of the events listed
in
Section 9.1(a) and the expiration of any applicable notice and cure period
provided in Section 9.1(b).
"Existing Encumbrances" shall have the meaning given such term in Section
4.1(c).
"Facilities" shall have the meaning ascribed to such term in Recital B.
"Final Loan Advance" shall mean an amount equal to the sum of One Million
Eight Hundred Fifty Thousand Dollars ($1,850,000).
"Financial Statement" shall mean a financial statement of the party
delivering such statement including a balance sheet, an income statement, a
statement of cash flow, and, if applicable, a reconciliation of partnership
capital accounts and income accounts and such other information or statements
as
may be reasonably required by Lender, all prepared in accordance
with GAAP and certified as true and complete without qualification by a
general
partner or officer, as applicable, of the party delivering such statement.
"Financing Statements" shall mean WCC-1 financing statements executed by
Borrower as debtor, in favor of Lender as secured party, and perfecting
Lender's
security interest in the Collateral, in form and substance satisfactory to
Lender, to be filed in the Offices of the Secretary of State of Florida,
Georgia
and Louisiana.
"Fixture Filings" shall mean fixture filings (which may be a part of the
Mortgages if Lender so elects) executed by Borrower as debtor, in favor of
Lender
as secured party, in form and substance satisfactory to Lender, to be recorded
in the Official Records of the Counties.
"Fixtures" shall mean all permanently affixed equipment, machinery,
fixtures
and other items of real and/or personal property, including all components
thereof, now and hereafter located in, or used in connection with, or
permanently
affixed to or incorporated into any of the Improvements or the Land,
including,
without limitation, all furnaces, boilers, heaters, electrical equipment,
heating, plumbing, lighting, ventilating, refrigerating, incineration, air and
water pollution control, waste disposal, air-cooling and air-conditioning
systems and apparatus,sprinkler systems and fire and theft protection
equipment, together with all replacements, modifications, alterations and
additions thereto, all of which are hereby deemed to constitute real property.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"Governmental Authority" shall mean any governmental or quasi-governmental
agency, authority, board, bureau, commission, department, instrumentality or
public body, court, administrative tribunal or public utility.
"Gross Revenues" shall mean all revenues received or receivable from or by
reason of the operation of the Facilities, or any other use thereof,
including,
without limitation, all patient revenues received or receivable for the use of
or otherwise by reason of all rooms, beds and other facilities provided, meals
served, services performed, space or facilities subleased or goods sold on the
Facilities, including, without limitation, and except as provided below, any
other arrangements with third parties relating to the possession or use of any
portion of the Facilities; provided, however, that Gross Revenues shall not
include nonoperating revenues such as interest
income or income from the sale of assets not sold in the ordinary course of
business; and provided, further, that there shall be excluded from such
revenue:
(a) contractual allowances (relating to any period during the term of the
Loan)
for billings not paid by or received from the appropriate governmental
agencies
or third party providers:
(b) all proper patient billing credits and adjustments according to GAAP
relating
to health care accounting, including, without limitation, GAAP allowances for
uncollectible accounts;
(c) Federal, State or local sales or excise taxes and any tax based upon or
measured by said revenues which is added to or made a part of the amount
billed
to the patient or other recipient of such services or goods, whether included
in
the billing or stated separately; and
(d) sums received by Borrower for services rendered by third-party providers
(other than Affilates of Borrower) which Borrower is obligated to remit to
such
third party providers.
Guaranty" shall mean that certain Guaranty of Obligations of even date
herewith executed by Guarantors in favor of Lender.
"Guarantors" shall mean Chris Brogdon, an indi idual, and NewCare Health
Corporation, a Nevada corporation.
"Hazardous Materials" shall mean (a) any petroleum products and/or
by-products (including any fraction thereof), flammable substances,
explosives,
radioactive materials, hazardous wastes or substances, toxic wastes or
substances, kno n carcinogens or any other materials, contaminants or
pollutants
which (i) pose a hazard to any one or more of the Facilities
or to persons on or about any one or more of the Facilities or (ii) cause any
one or more of the Facilities to be in violation of any Hazardous Materials
Laws; (b)
asbestos in any form which is or could become friable; (c) urea formaldehyde
in
foam insulation or any other form; (d) transformers or other equipment which
contain dielectric fluid containing levels of polychlorinated biphenyls in
excess of fifty (50) parts per million or any other more restrictive
standard then
prevailing; (e) any chemical, material or substance defined as or included in
the definition of "hazardous substances," "hazardous wastes," "hazardous
materials,"
"extremely hazardous waste," "restricted hazardous waste," or "toxic
substances"
or words of similar import under any applicable Hazardous Material Laws; (f)
medical wastes and biohazards; (g) radon gas; and (h) any other chemical,
material or substance, exposure to which is prohibited, limited or regulated
by any Governmental Authority or may or could pose a hazard to the health and
safety of the occupants of any one or more of the Facilities or the owners
and/or occupants of property adjacent to or surrounding any one or more of
the Facilities.
"Hazardous Materials Claims" shall mean any and all enforcement, clean-up,
removal or other governmental or regulatory actions or orders threatened,
instituted or completed pursuant to any Hazardous Material Laws, together with
all claims made or threatened by any third party against any one or more of
the
Facilities, Lender or Borrower relating to damage, contribution, cost recovery
compensation, loss or injury resulting from any Hazardous
Materials.
"Hazardous Materials Laws" shall mean any federal, state or local laws,
ordinances, regulations, rules, orders, guidelines or policies relatir~g to
the
environment, health and safety, Environmental Activities, Hazardous Materials,
air and water quality, waste disposal and other environmental matters,
including, but not limited to, the Clean Water Act, Clean Air Act,
Federal Water Pollution Control Act, Solid Waste Disposal Act, Comprehensive
Enviromnental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601, et seq.; the Hazardous Materials Transportation Act, as
amended, 49 U.S.C. Section 1801, et. seq.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Section 6901, et. seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Section 1251, et seq.; and the
rules, regulations and ordinances of the Counties and municipalities in
which the Facilities are located, the State Department of Health Services, the
Regional Water Quality Control Board, the State Water Resources Control Board
(or the equivalent agencies or authorities) and the Environmental Protection
Agency or any other agency which regulates Hazardous Materials or
Environmental
Activities.
"Impositions" shall mean, collectively, all utility charges incurred by
Borrower for the benefit of the Facilities or which may become a lien against
either of the Facilities and all assessments or charge; of a similar nature,
all
taxes (including, without limitation, all ad valorem, sales and use, single
business, gross receipts, transaction privilege, rent or similar taxes as the
same relate to or art imposed upon Borrower or its business conducted upon
either
of the Facilities or are levied or imposed upon Lender with respect to the
Facilities or measured by any amount payable under the Loan Documents),
assessments (including, without limitation, all assessments for public
improvements or benefits, whether or not commenced or completed prior
to the date hereof), ground rents, water, sewer or other rents and charges,
excises, tax levies, fees (including, without limitation, license, permit,
inspection, authorization and similar fees), and all other levies or
assessments
by any Governmental Authority or private Persons (including,
without limitation, any and all mechanic's or materiaLrnen's liens, or similar
liens or encumbrances), in each case whether general or special, ordinary, or
extraordinary, or foreseen or unforeseen, of every character in respect of the
Facilities or the business conducted thereon (including all interest and
penalties thereon due to any failure in payment), which may be assessed
against
or imposed upon (a) Borrower, (b) Lender's interest in the Facilities, (c) the
Facilities or any part thereof or any rent therefrom or any estate, right,
title
or interest therein, (d) any occupancy, operation, use or possession of, or
sales
or other revenue from, or activity conducted on, or in connection with any one
or more of the Facilities or the leasing or use of the
Facilities or any part thereof by Borrower or (e) Lender as a result of or
arising with respect to the Loan; (f) provided, however, "Impositions" shall
not
include any of the following, except to the extent that any Impositions in
effect
which Borrower is obligated to pay are totally or partially repealed, and any
of
the following taxes, assessments, tax levies or charges are levied,
assessed or imposed in lieu thereof: (i) any tax based on net income related
to
the Loan imposed upon Lender, (ii) any transfer tax of Lender, or (iii) any
tax
imposed with respect to the proceeds of the Loan.
"Improvements" shall mean all buildings, improvements, structures and
Fixtures now or hereafter located on any of the Land, including, without
limitation, landscaped areas, parking lots and structures, roads, drainage and
other utility structures and other so-called "infrastructure" improvements.
"Incremental Revenues" shall mean the amount by which the Gross Revenues
for
the Loan Year for which such determination is being made exceeds the Base Year
Gross Revenues.
"Initial Loan Advance" shall mean an amount equal to the sum of Nineteen
Million Six Hundred Fifty Thousand Dollars ($19,650,000).
"Insurance Proceeds" shall mean all proceeds of insurance payable as a
result
of any fire, earthquake, act of God, or other casualty to or in connection
with
the Facilities or any part thereof.
"Insured Property" shall mean the Improvements, Fixtures and Personal
Property.
"Intangible Property" shall mean all of Borrower's right, title and
interest
in and to (a) all rents, profits, income or revenue derived from the use of
rooms or other space within the Facilities or the providing of services in or
from the Facilities, documents, chattel paper, instruments, contract rights,
deposit accounts, general intangibles, choses in action, now owned or
hereafter acquired by Borrower (including any right to any refund of any taxes
or other charges heretofore or hen after paid to any Governmental Authority)
arising from or in connection with Borrower's operation or ownership of the
Facilities; (b) all Permits; and (c) all other intangible property or any
interest therein now or on the Loan Closing Date owned or held
by Borrower in connection with the Land, the Improvements or the Fixtures, or
any business or businesses now or hereafter conducted by Borrower or any
lessee
thereon or with the use thereof, including all rights of Borrower in and to
all
leases, contract rights, agreements, trade names, water rights and
reservations,
zoning rights, business licenses and warranties (including
those relating to construction or fabrication) related to the Land, the
Improvements or the Fixtures, or any part thereof.
"Intended Use" shall mean the use of the Facilities for operation of the
healthcare facilities described in Recital B and for such other ancillary uses
as may be necessary or incidental to such uses.
"Land" shall have the meaning ascribed to such term in Recital A.
"Legal Requnrements" shall mean all federal, State, county, municipal and
other governmental and quasi-governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions affecting any one
of
the Facilities or the construction, use or alteration thereof, whether now or
hereafter enacted and in force including, without limitation,
the Americans With Disabilities Act, 42 U.S.C. Section 12101-12213 (1991) and
including any zoning or other land use entitlements and any requirements which
may require repairs, modifications or alterations in or to the Facilities, and
all permits, licenses and authorizations and regulations relating thereto, and
all covenants, agreements, restrictions and encumbrances running in favor
of any Person, contained in any instruments, either of record or known to
Borrower, at any time in force affecting the Facilities.
"Lender" shall mean Nationwide Health Properties, Inc., a Maryland
corporation, its successors and assigns ard any party to which the Note is
assigned or otherwise transferred.
"Letter of Credit" shall mean an irrevocable letter of credit issued
pursuant to the Letter of Credit Agreement by a financial institution
mutually acceptable to Lender and Borrower in the initial face amount of the
Debt Service Reserve.
"Letter of Credit Agreement" shall mean a letter of credit agreement on
Lender's then standard form as of the applicable date of determination.
"Licensing Requirements" shall mean those Legal Requirements which
specifically relate to the use of the Facilities for the Intended Use.
"Lien" shall mean any lien. mortgage, pledge, assignment, security
interest,
charge or encumbrance of any kind (including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest) and any option,
trust or other preferential arrangement having the practical effect of any of
the foregoing.
"Loan" shall mean the loan described in this Agreement in the principal
amount of the Loan Amount.
"Loan Amount" shall mean the original principal amount of Twenty-One
Million
Five Hundred Thousand Dollars ($21,500,000), or so much thereof as is
advanced,
as such amount may be reduced through repayments by Borrower pursuant to the
Note.
"Loan Closing Date" shall mean the date on which the Initial Loan Advance
is
disbursed to or for the benefit of Borrower.
"Loan Documents" shall mean the documents described in Section 3.1 of this
Agreement.
"Loan Year" shall mean (a) the period beginning on the Loan Closing Date
and
ending on the one (1) year anniversary of the last day of the calendar month
in
which the Loan Closing Date falls, and (b) each subsequent and consecutive
twelve (12) month period.
"Maturity Date" shall mean the date set forth in the Note upon which the
entire principal amount of the Loan shall be due and payable.
"Mortgages" shall mean a deed to secure debt, mortgages and assignment of
rents, security agreement, financing statement and fixture filing in form and
substance satisfactory to Lender, executed by Borrower in favor of Lender,
creating a lien on the Land, the Facilities, the Fixtures, and the
Improvements,
and all rights and easements appurtenant thereto.
"Multiemployer Plan" shall mean a "multiemployer plan", as dehmed in
Section
3(37) of ERISA, to which Borrower or any of its ERISA Affiliates is
contributing, or ever has contributed, or to which Borrower or any of its
ERISA Affiliates has, or ever has had, an obligation to contribute.
"NewCare" shall mean NewCare Health Corporation, a Nevada corporation.
"Net Condemnation Proceeds" shall mean all Condemnation Proceeds remaining
after deduction of all expenses of collection and settlement thereof,
including,
without limitation, attorneYs' and adjustors' fees and expenses.
"Net Insurance Proceeds" shall mean all Insurance Proceeds remaining after
deduction of all expenses of collection and settlement thereof, including,
without limitation, attorneys' fees and expenses.
"Note" shall mean a secured promissory note, in the original principal
amount of Twenty-One Million Five Hundred Thousand Dollars (521,500,000),
executed by Borrower as maker, in favor of Lender as holder, in form and
substance satisfactory to Lender.
"PBGC" snall mean the Pension Benefit Guaranty Corporation (or any
successor thereto).
"Pension Plan" shall mean any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Code or Section 302
of ERISA.
"Permits" shall mean all permits, licenses, approvals, entitlements and
other governmental and quasi-governmental authorizations now owned or
hereafter
acquired by Borrower (including, without limitation, certificates of need,
health care provider licenses and certificates of occupancy) and necessary or
desirable in connection with the ownership, planning,
development, construction, use, operation or maintenance of the Facilities for
the Intended Use. As used herein, "quasi-governtnental" shall include the
providers of all utilities services to the Facilities.
"Permitted Exceptions" shall mean those title exceptions or defects which
have been approved in writing by Lender and, with respect to the Land and
Improvements, those exceptions or defects which Lender has approved in writing
to appear as exceptions on the Title Policy.
"Person" shall mean any individual, partnership, association, corporation,
Governmental Authority or other entity.
"Personal Property" shall mean all Intangible Property and all machinery,
equipment, furniture, tools, furnishings, movable walls or partitions,
computers
or trade fixtures or other personal properry (but specifically excluding
consumable inventory and supplies), acquired by or for the account of Borrower
and used or useful in the operation of Borrower's business at the
Facilities whether now owned or hereafter acquired by Borrower, together with
all accessions, additions, parts, attachments, accessories or appurtenances
thereto.
"Phase 1 Site Assessment Reports" shall mean those certain Phase 1
Environmental Site Assessment reports delivered to Lender in connection with
the
Facilities, dated May, 1997, prepared by Rust Environment and Infrastructure,
Inc.
"Potential Default" shall mean the existence of any event which, with the
giving of notice, the passage of ttrne, or both, would constitute an Event of
Default under any of the Loan Documents.
"Proceeds" shall mean the Net Insurance Proceeds or Net Condemnation
Proceeds, as applicable.
"State" shall mean the State of Florida.
"Subdivision Map Act" shall mean the applicable statutes of the State of
Florida and State of Georgia which govern the subdivision of real property for
sale, lease or finance.
"Title Company" shall mean the title insurance company selected by Lender
in
its sole discretion to provide the Title Policy.
"Title Policy" shall mean a title insurance policy in the form of an
American Land Title Association Extended Coverage Loan Policy of Title
Insurance (1970 Form B, without modification, revision or amendment),
insuring that on the date
of recordation of the Mortgages, Borrower owns fee simple title to the
Facilities and that the Mortgages are a valid first priority lien on the
Facilities in the amount of the Loan Amount. The Title Policy shall
contain such endorsements and reinsurance agreements as Lender reasonably
requires and shall be subject only to the Permitted Exceptions.
"Total Interest" shall have the meaning ascribed to such term in the Note.
"Upgrade Expenditures" shall mean an annual sum of money to be expended by
Borrower for upgrades or improvements to the Facilities which have the effect
of
maintaining or improving the competitive position of the Facilities in their
respective marketplace. Such expenditures shall include cash payments only and
shall not include any amount for depreciation, amortization, interest payments
or rent. Non-exclusive examples of Upgrade Expenditures are new or replacement
wallpaper, tiles, window coverings, lighting fixtures, painting, upgraded
landscaping, carpeting, architectural adornments, common area
amenities and the like. It is expressly understood that capital improvements
or
repairs (such as but not limited to repairs or replacements to the structural
elements of the walls, parking area, or the roof or to the electrical,
plumbing,
HVAC or other mechanical or structural systems in the Facilities) shall not be
considered to be Upgrade Expenditures.
"Written Authorization" shall mean a letter to Hughes and White, as agent
for the Title Company, in the Form of Exhibit F, executed by Borrower and
Lender, directing the Title Company to comply with the instructions in the
Closing Procedure Letter.
ARTICLE II
THE LOAN
2.1 Agreement to Lend and Borrow. Subject to the terms and conditions of
this Agreement, Lender will lend and Borrower will borrow up to the Loan
Amount.
Lender shall disburse the proceeds of the Loan in accordance with the
provisions
of Article V of this Agreement. Notwithstanding the parties' intention that
the
transaction contemplated by the Loan Documents is a loan to Borrower, Lender
shall be entitled to account for the Loan on Lender's
books in any manner that Lender elects in its sole discretion, and any such
accounting by Lender shall not be deemed or construed to affect in any manner
the rights and obligations of Borrower and Lender under the Loan Documents.
2.2 Evidence of Indebtedness and Maturity. The Loan shall be evidenced by
the Note in the principal amount of the Loan Amount. The outstanding principal
balance of the Loan, together with accrued and unpaid Total Interest thereon,
and all other amounts payable by Borrower under the terms of the Loan
Documents,
shall be due and payable on the Maturity date.
2.3 Interest. The Loan Amount shall bear interest at the rate per annum
specified in the Note, which interest shall be due and payable as specified
therein.
2.4 Security. Payment of the Note and performance of all of Borrower's
other
obligations under the Loan Documents shall be secured by the following: (a)
the
Mortgages; (b) the Financing Statements; (c) the Fixture Filings; (d) the Debt
Service Reserve Pledge Agreement; and (e) such other security interests in
property of Borrower as Lender shall require in the Loan Documents.
2.5 Environmental Indemnity. Lender shall be indemnified with respect to
environmental matters by the Environmental Indemnity.
2.6 Prepayment. Except as provided in the Note, Borrower shall have no
right
to prepay the Loan A.mount, in whole or in part, prior to the Maturity Date.
ARTICLE III
LOAN CLOSING CONDITIONS
3.1 Conditions Precedent. Lender's obligation to make the Loan and to
perform the remainder of its obligations under this Agreement are expressly
conditioned upon the occurrence of all of the following on or before the Loan
Closing Date:
(a) Lender's receipt and approval of all of the items set forth in Exhibit B;
and
(b) Borrower's delivery to Lender of the following items and documents, in
form
and content satisfactory to Lender, duly executed (and acknowledged where
necessary) by the appropriate parties thereto:
(I) This Agreement;
(ii) The Note;
(iii) The Mortgages, which shall be duly recorded in the Official
Records of the Counties:
(iv) The Financing Statements, which shall be duly filed in the
Off~ce of the Secretary of State of Florida, Georgia and Louisiana;
(v) The Fixture Filings, which shall be duly recorded in the
Official
Records of the counties;
(vi) The Debt Service Reserve Pledge Agreement;
(vii) The Environmental Indemnity;
(viii)The Guaranty; and
(ix) Such other documents that Lender may reasonably require.
(c) Upon receipt of the items described in this Article III, and upon
compliance
with the other terms and conditions of this Agreement, Borrower and Lender
shall
execute and delliver to Title Company the Written Authorization.
ARTICLE IV
CLOSING COSTS AND PRORATIONS
4.1 Closing Costs.
(a) Borrower shall pay:
(i) any and all state, municipal or other documentary or transfer taxes
payable
in connection with the delivery of any instrument or document provided in or
contemplated by this Agreement, any agreement or commitment described or
referred to herein or the transactions contemplated herein;
(ii) all escrow fees and title charges relating to the transactions
contemplated
hereunder;
(iii) the charges for or in connection with the recording andlor filing of any
instrument or document provided herein or contemplated by this Agreement or
any
agreement or document described or referred to herein;
(iv) any and all broker's fees or similar fees claimed by any party employed
by
Borrower in connection with the transactions contemplated herein;
(v) Borrower's legal, accounting and other professional fees and expenses and
the cost of all opinions, certificates, instruments, documents and papers
required
to be delivered, or to cause to be delivered, by Borrower hereunder,
including,
without limitation, the cost of all performances by Borrower of its
obligations
hereunder; and
(vi) that portion of Lender's legal fees and expenses and the costs of any
site
inspections, environmental audits and surveys which are not required to be
paid
by Lender under Section 4.1(b)(ii) below.
(b) Lender shall pay:
(i) any and all broker's fees or similar fees claimed by any party employed by
Lender in connection with the transactions hereunder, provided, however,
Lender
shall not be deemed to have employed any party by merely receiving information
concerning Borrower, the Facilities or related to the
transactions contemplated hereunder or by executing any agreement to hold such
information confidential;
(ii) the first Seventy-Five Thousand Dollars ($75,000) of Lender's legal fees
and
expenses and the costs of any site inspections, environmental audits and
surveys
performed by or on behalf of Lender, including travel and out-of-pocket
expenses
for such inspections, audits and surveys.
(c) The Facilities are presently encumbered by certain mortgages and certain
other security instruments (individually and collectively, the "Existing
Encumbrances"). Borrower shall cause the Existing Encumbrances and all
indebtedness secured thereby to be fully satisfied, released and
discharged of record on or prior to the Loan Closing Date (recognizing that
Borrower may use the proceeds of the loan contemplated hereby to satisfy the
same). Borrower acknowledges that such satisfaction, release and discharge may
involve prepayment penalties or premiums and other costs or expenses, all of
which shall be paid by Borrower at its sole cost and expense on or
before the Loan Closing Date.
ARTICLE V
DISBURSEMENTS OF THE LOANT
5.1 Disbursements. Lender shall have no obligation to make disbursements
of
the Loan except as provided in this Article V.
5.2 Disbursement of the Initial Loan Advance. Lender shall disburse the
Initial Loan Advance (less the Debt Service Reserve) upon Borrower's delivery
and
satisfaction of the conditions precedent set forth in Section 3.1 of this
Agreement. Borrower acknowledges and agrees that although Lender shall deposit
the Debt Service Reserve into the Account pursuant to the provisions of
Section
7.24 below, Borrower shall be deemed to have been advanced the full amount of
the
Initial Loan Disbursement at such time as Lender has disbursed the Loan
proceeds
in accordance with the immediately preceding sentence.
5.3 Disbursement of the Final Loan Advance. Subject to Lender's approval
of
specific plans and costs, in the event Borrower desires to renovate, improve,
enhance or expand the capabilities of the Facilities to render healthcare,
residential or custodial services (collectively, "Capital Improvements"),
Lender
shall, within thirty (30) days of Borrowers' written request therefor, provide
the funds for such Capital Improvements in an amount not to exceed, in the
aggregate for all such requests, the Final Loan
Advance, upon the following terms and conditions: (a) the Capital
Improvement(s)
for which such amounts are requested shall improve the operation and
marketability of the Facilities and, unless Lender consents otherwise, shall
not
be for any Capital Improvement which has been required by any governmental
authority and/or which is required to cause the Facilities to comply with any
law
or Licensing Requirement; provided that in no event shall the funds provided
by
Lender be used to remedy any condition which constitutes a default by Borrower
under the provisions of this Agreement; (b) such amounts shall be requested
and
such Capital Improvements shall be completed within two (2) years of the Loan
Closing Date; (c) no Event of Default or Potential Default shall have occurred
and be continuing at the time of any such request
for such amounts or any request for disbursement of such amounts; and (d)
Lender
shall have the right to impose such conditions and procedures for the
disbursement of such amounts as it deems appropriate in the exercise of its
reasonable judgment.
5.4 Liens. All construction shall be free and clear of defects and liens
or
claims for liens for materials supplied or labor or services performed in
connection with the Facilities, except for liens which are being duly
contested
in accordance with the provisions of Section 7.1 of this Agreement. No
disbursement of the Final Loan Advance shall be made by Lender during such
time
that Lender reasonably suspects that such disbursement might be junior in
priority to mechanic's or material supplier's liens or any intervening or
other
liens against the Facilities.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
As an inducement to Lender to execute this Agreement and to disburse the
proceeds of the Loan, Borrower represents and warrants to Lender the truth and
accuracy of the matters set forth in this Article VI.
6.1 Title. Borrower has, or as of the Loan Closing Date will have, good,
marketable (and insurable with respect to the Land and Improvements) title to,
and the entire right, title, and interest in, the Facilities, free and clear
of
any and all leases, Liens, encumbrances or other liabilities, subject only to
the Permitted Exceptions.
6.2 Utilities. The Facilities have available to their respective
boundaries
adequate utilities, including, without limitation, adequate water supply,
storm
and sanitary sewage facilities, telephone, gas, electricity and fire
protection,
as is required for the operation of the Facilities for the Intended Use.
6.3 Physical Condition; Completeness.
(a) The Facilities have been constructed in a good, workmnanlike and
substantial
manner, free from material defects and in accordance with all Legal
Requirements.
(b) Neither the zoning nor any other right to construct upon or to use the
Facilities is to any extent dependent upon or related to any real estate other
than the Facilities, the unprovement of such other real estate or the payment
of
any fees for the improvement of such other real estate.
(c) The Facilities, and each portion thereof, are in good condition and repair
and are free from material defects. Borrower will use its best efforts to
maintain the Facilities in good condition and repair.
(d) There are no soil conditions adversely affecting the Facilities.
(e) Other than as disclosed on the Phase I Site Assessment Reports there are
and
have been no Hazardous Materials installed or stored in or otherwise existing
at,
on, in or under any one or more of the Facilities which are or have been at
any
time in violation of any applicable Legal Requirements or which are or have
been
at any ti~ne in amounts or concentrations
sufficient to require the reporting of such materials to any Governmental
Authority.
6.4 Compliance.
(a) Borrower has obtained and shall maintain all consents, approvals,
licenses,
permits and other permissions related to the operation of the Facilities for
the
Intended Use as are required under Legal Requirements and Licensing
Requirements.
(b) Borrower has and shall maintain all Permits and all other consents,
approvals, licenses, permits and other permissions related to the operation of
the Facilities for the Intended Use as are required under Legal Requirements
and
Licensing Requirements.
(c) Notwithstanding the foregoing in (a) and (b) above, if any additional
consents, approvals, licenses, permits or other permissions are required in
connection with the operation of the Facilities for the Intended Use, Borrower
hereby agrees that Borrower shall, as promptly as practical, use its best
efforts
to obtain all such additional consents, approvals, licenses, permits and other
permissions related to such Intended Use and required under any of the Legal
Requirements or Licensing Requirements.
6.5 Zoning. The Facilities are properly and fully zoned for the Intended
Use
and the Facilities and the operation and use thereof, including, without
limitation, all boundary line adjustments to the Facilities, comply with all
applicable Legal Requirements (including, without limitation, the Subdivision
Map Act).
6.6 No Notices of Non-Compliance. Borrower has not received any notice
that
and, after due inquiry Borrower has no knowledge that (a) any Government
Authority or any employee or official thereof considers that the operation or
use
of any one or more of the Facilities for the Intended Use to have failed or
will
fail to comply with any Legal Requirements, (b) any investigation has been
commenced or is contemplated respecting any such possible or actual failure of
the operation or use of any one or more of the Facilities for the Intended Use
to comply with any of the Legal Requirements, and (c) there are any
unsatisfied
requests for repairs, restorations or alterations with regard
to any one or more of the Facilities from any Person, including, but not
limited
to, any lender, insurance carrier or Government Authority.
6.7 Due Authorization, Execution, Organization, etc.
(a) This Agreement and all of the Loan Documents are, and on the Loan Closing
Date will be, duly authorized, executed and delivered by and are binding in
accordance with their terms upon Borrower, subject to the effect of
bankruptcy,
insolvency, reorganization, moratorium or other similar laws of general
application and of legal or equitable principles generally and covenants of
good
faith and fair dealing.
(b) Windward is a duly organized, validly existing Georgia corporation and is
in
good standing to do business in the State of Florida. HFLP is a duly
organized,
validly existing Louisiana limited partnership and is in good standing to do
business in the State of Florida. Oak Manor and Central Tampa are duly
organized,
validly existing Florida limited partnerships and are in good standing to do
business in the State of Florida. Borrower has the power and authority to
enter
into this Agreement and all of the Loan Documents.
(c) Neither this Agreement nor any of the other Loan Documents nor anything
provided in or contemplated by this Agreement or any of the other Loan
Documents,
does now or shall hereafter breach, invalidate, cancel, make inoperative or
interfere with, or result in the acceleration or maturity of, any agreement,
document, instrument, right or interest, affecting or relating to Borrower or
the Facilities.
6.8 True, Correct and Complete Information.
(a) To the best of Borrower's knowledge after due inquiry, all documents,
plans,
surveys and other data or information prepared by parties other than Borrower
or
Borrower's agents or employees and provided to Lender in connection herewith,
are true, correct and complete in all material respects and disclose all
material facts with no material omissions with respect thereto.
(b) All documents and other data or information prepared by Borrower or
Borrower's agents or employees are true, correct and complete in all material
respects with no material omissions with respect thereto.
6.9 Existing Agreements. There are no material agreements or
understandings
(whether written or oral) to which Borrower is a party or is bound, including,
without limitation, any Business Agreements, relating to any one or more of
the
Facilities or the operation or use thereof other than the Permitted Exceptions
and those documents and instruments which have been delivered by Borrower to
Lender prior to the Loan Closing Date.
6.10 Default. Borrower is not in default with respect to any of its
material
obligations or liabilities pertaining to any one or more of the Facilities.
Without limiting the foregoing, the Permitted Exceptions are free from the
material default by Borrower and, to the best of Borrower's actual knowledge,
by
any other party thereto.
6.11 Litigation; Condemnation. There are no material actions, suits or
proceedings pending or threatened before or by any judicial, administrative or
union body, any arbiter or any Governmental Authority, against or affecting
Borrower or the Facilities or any portion thereof. There are no existing,
proposed or threatened eminent domain or similar proceedings which would
affect
the Land or Improvements in any manner whatsoever.
6.12 No Taxes or Utilities Due. Borrower is not in default in the payment
of
any and all insurance premiums relating to the Facilities, real and personal
property taxes and assessments on the Facilities and the cost of all gas,
water,
electricity, heat, fuel, sewer, telecommunications and other utilities
relating
to the Facilities.
6.13 Employee Benefit Plans.
(a) Borrower and each of its ERISA Affiliates are in compliance with all
applicable provisions and requirements of ERISA and the regulations and
published
interpretations thereunderwith respect to each Employee Benefit Plan, and have
performed all their obligations under each Employee Benefit Plan.
(b) No ERISA Event has occurred or is reasonably expected to occur.
(c) Except to the extent required under Section 4980B of the Code, no Employee
Benefit Plan provides health or welfare benefits (through the purchase of
insurance or otherwise) for any retired or former employees of Borrower or any
of its ERISA Affiliates.
(d) As of the most recent valuation date for any Pension Plan, the amount of
unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA),
individually or in the aggregate for all Pension Plans (excluding for purposes
of such computation any Pension Plans with respect to which assets exceed
benefit liabilities), does not exceed $20,000.
6.14 Union Agreements. Borrower has delivered to Lender true and correct
copies of all collective bargaining and other agreements with labor unions or
other employee groups or associations which include or will include Borrower's
operations at the Facilities.
6.15 Hazardous Materials Representations. The Facilities and the Intended
Use do currently, and will at all times throughout the term hereof continue
to,
comply with all applicable laws and governmental regulations including,
without
limitation, all Hazardous Materials Laws.
ARTICLE VII
COVENANTS OF BORROWER
As an inducement to Lender to execute this Agreement and to make each
disbursement of the Loan, Borrower hereby covenants as follows:
7.1 No Liens; Permitted Contests. Borrower shall not cause or permit any
Lien to be placed or assessed against the Land or the Facilities or the
operation thereof, or permit any receiver, trustee or assignee for the
benefit of creditors to be appointed to take possession of the Facilities, or
any portion thereof; provided, however, Borrower shall be permitted in good
faith and at Borrower's expense to contest the existence, amount or validity
of
any Lien upon the Facilities by appropriate proceedings sufficient to prevent
(i) the collection or other realization of the Lien or claim so contested,
(ii) the sale, forfeiture or loss of the Facilities or any portion thereof,
any (iii) any interference with the use or occupancy of the Facilities, (iv)
any interference with the payment of any amounts due under the Loan
Documents, and (v) the cancellation of any fire or other insurance policy or
policies required under any of the Loan Documents. Borrower shall provide
Lender with security satisfactory to Lender, in Lender's reasonable judgment,
to assure the payment, compliance, discharge, removal and/or other action in
connection with such Lien, including all costs, attorneys' fees, interest
and penalties that may be or become due in connection therewith. Borrower
further agrees that each contest permitted by this Section 7.1 shall be
promptly and diligently prosecuted to a final conclusion by Borrower.
Borrower hereby agrees to indemnify, defend and save Lender harmless against,
any and all losses, judgments, decrees and costs (including all reasonable
attorneys' fees and expenses) in connection with any such contest and shall,
promptly after the final determination of such contest, fully pay and
discharge the amounts which shall be levied, assessed, charged or imposed or
be determined to be payable therein or in connection therewith, together with
all penalties, fines, interest, costs and expenses thereof or in connection
therewith, and perform all acts the performance of which shall be ordered or
decreed as a result thereof. In the event Borrower does not comply with the
provisions of this Section 7.1, Lender may, but shall not be required to,
procure the release of any such Lien and in furtherance thereof may, in its
sole discretion, effect any settlement or compromise with respect thereto.
Any amounts expended by Lender in settling, compromising or arranging for the
release of any Lien shall bear interest at the Agreed Rate from the date of
expenditure by Lender and shall be payable by Borrower upon demand by Lender.
7.2 Compliance with Legal Requirements. Borrower, at its expense, shall
promptly (a) comply with all applicable Legal Requirements as well as the
certification requirements of Medicare and Medicaid (or any successor
programs)
with respect to the use, operation, maintenance, repair and restoration of the
Facilities, whether or not compliance therewith shall
require structural changes in any of the Improvements or interfere with the
use
and enjoyment of the Facilities, and (b) procure, maintain and comply with all
licenses, agreements and other authorizations required for the proper
erection,
installation, operation and maintenance of the Facilities or any part thereof.
Borrower covenants and agrees that Borrower's use of the
Facilities and the maintenance, alteration, and operation of the same, and all
parts thereof, shall at all times conform to all Legal Requirements. Borrower
shall promptly give written notice to Lender of any violation of any Legal
Requirement. Borrower and Lender have expressly agreed that Borrower's
obligation under this Agreement to comply with Legal Requirements as to the
Facilities specifically includes the requirement that Borrower comply with the
Americans with Disabilities Act, 42 U.S.C. Section 1201 et seq, and all
rules and regulations adopted thereunder.
7.3 Use of the Facilities. Borrower shall continuously use or cause to be
used the Facilities only for the Intended Use. Except with the prior written
consent of Lender, Borrower shall not decrease, or permit a decrease in, the
number of units available for residential occupancy or licensed beds being
used
for the Intended Use. No use shall be made or permitted to be made of the
Facilities, and no acts shall be done to or upon the Facilities, which will
cause the cancellation of, or make void or voidable, any insurance policy
covering the Facilities or any part thereof, nor shall Borrower sell or
otherwise provide to any Person therein, or permit to be kept, used or sold
in or about the Facilities any article which may be prohibited by law or by
any insurance policies required to be carried hereunder, or fire underwriter's
regulations. Borrower shall not use or occupy the Facilities or permit the
Facilities to be used or occupied, in a manner which would or might (a)
violate
any certificate of occupancy, or any equivalent thereof, affecting the
Facilities or any other Legal Requirement, (b) make it difficult or
impossible to obtain fire or other insurance which Borrower is required to
furnish hereunder at commercially reasonable rates, (c) cause structural
injury to any of the
Improvements, (d) constitute waste, (e) make possible a claim or claims of
adverse usage or adverse possession or of implied dedication of the Facilities
or any portion thereof. Borrower shall not use or allow the Facilities to be
used for any improper, immoral, unlawful or objectionable purpose, nor shall
Borrower cause, maintain or permit any nuisance in, on or about the
Facilities. Borrower shall comply with all Legal Requirements and/or
Licensing Requirements.
7.4 Payment of Impositions. Subject to the provisions of Section 7.1
relating to permitted contests, Borrower will pay, or cause to be paid prior
to delinquency, directly to the applicable Governmental Authority or Person,
all Impositions before any fine, penalty, interest or cost may be added for
non-payment, and Borrower will promptly, upon request by Lender, furnish to
Lender copies of official receipts or other satisfactory proof evidencing such
payments. Within ten (10) days after receipt thereof Borrower will deliver to
Lender copies of all settlements and notices pertaining to the Impositions
which
may be issued by any Governmental Authority or Person. If any such Imposition
may, at the option of Borrower, lawfully be paid without penalty in
installments
(whether or not interest shall accrue on the unpaid balance of such
Imposition),
Borrower may exercise the option to pay such Imposition,
and any accrued interest on the unpaid balance, in installments before any
fine,
penalty, premium, further interest or cost may be added thereto. Without
limiting the generality of the foregoing, Borrower will pay or reimburse
Lender for all Impositions which are sales, use, single business, gross
receipts, transaction privilege, rent or other excise taxes which are levied
or imposed upon or measured by any amount payable under the Loan Documents
7.5 Other Facilities. Borrower acknowledges that Borrower's ability to
repay
the Loan is dependent, in part, upon the concentration by Borrower, Guarantor
and their respective Affiliates of all of their business within the
geographical area in which the Facilities are located upon Borrower's
business at the Facilities so as to maximize the gross revenues earned by
Borrower therefrom, and Borrower further acknowledges that any activity by
Borrower, Guarantor and their respective Affiliates within the geographical
area of the Facilities in operating or participating in the operation of a
similar or competing business must necessarily have an adverse effect on the
gross revenues at the Facilities. Therefore, Borrower agrees that until the
Loan and all other amounts owing to Lender under the Loan Documents have
been paid in full, Lender shall be provided with the right of first refusal
to enter into sale/leaseback financing transactions with Borrower, Guarantor
and/or any of their respective Affiliates in connection with any other
facility or institution (an "Other Facility" or the "Other Facilities")
providing services or goods similar to those provided on or in connection
with the Facilities and the Intended Use thereof within a five (5) mile
radius of any one of the Facilities. Notwithstanding the foregoing, the
terms "Other Facility" and "Other Facilities" shall not include any such
facility or institution that is either owned by Lender or financed by Lender.
Upon a breach by Borrower, Guarantor or any of their respective Affiliates of
any of the provisions of this Section 7.5, Lender shall be entitled to
exercise any and all remedies available to it at law, in equity or otherwise.
In connection with any such exercise of remedies by Lender, Borrower shall
have the burden of proving that Lender could have reasonably mitigated its
damages.
7.6 Hazardous Material Covenants. Borrower shall at its expense comply,
and
cause its agents, employees, contractors, partners, directors, officers and
shareholders, to comply with all Hazardous Materials Laws, including, without
limitation, obtaining and filing all applicable notices, permits, licenses and
similar authorizations. Borrower shall not create or permit to
continue in existence any lien upon the Facilities or any portion thereof
pursuant to Hazardous Materials Laws. Subject to the provisions of Section
7.3,
Borrower shall not change or alter any use of the Facilities or any portion
thereof unless Borrower shall have notified Lender thereof in writing and
Lender
shall have determined, in its sole and absolute discretion, that
such change or modification will not result in the presence of Hazardous
Materials on the Facilities or any portion thereof in such a level that would
increase the potential liability for Hazardous Materials Claims. If Borrower
fails to comply with any provision of this Section 7.7, Lender may, at its
sole
option, but without any obligation so to do, take any and all actions as
Lender shall deem necessary to cure such failure. Any amounts so paid by
Lender,
together with interest thereon from the date of such expenditure at the Agreed
Rate, shall be payable by Borrower upon demand by Lender.
7.7 Environmental Matters.
(a) Without limiting the generality of Section 7.6, Borrower covenants and
agrees that it will not engage in nor will it permit the performance of any
Environmental Activities in connection with the Facilities or any portion
thereof, to the extent any such Environmental Activities would violate
any Hazardous Materials Laws. In the event any Environmental Activities occur
in
violation of any Hazardous Materials Laws, Borrower shall promptly and at its
sole cost and expense, (I) notify Lender of such occurrence in writing, (ii)
obtain all permits and approvals necessary to remedy any such suspected
problem
through the removal of Hazardous Materials or otherwise; and (iii) upon
Lender's
approval of the remediation plan, remedy any such problem to the
satisfaction of Lender, in accordance with all Hazardous Materials Laws and
good
business practices.
(b) Borrower shall immediately advise Lender in writing of (i) any and all
Hazardous Materials Claims against Borrower or the Facilities or any portion
thereof, (ii) any remedial action taken by Borrower in response to any (A)
Hazardous Materials on, under or about the Facilities or any portion thereof
in
violation of any Hazardous Materials Laws or (B) Hazardous Materials
Claims, and (iii) Borrower s discovery of any occurrence or condition on any
of
the Adjoining Property or in the vicinity of the Facilities that could cause
the
Facilities or any part thereof to be classified as "border-zone property"
under
the provisions of any applicable law of the State,
or to be otherwise subject to any restrictions on the ownership, occupancy,
transferability or use of the Facilities or any portion thereof under any
Hazardous Materials Laws. In addition, Borrower shall provide Lender with
copies
of all communications to or from Borrower, any Goverurnental Authority or any
other Person relating to Hazardous Materials Laws or Hazardous Materials
Claims.
7.8 Participation in Hazardous Materials Claims. Lender shall have the
right, at Borrower's sole cost and expense and with counsel chosen by Lender,
to join and participate in, as a party if it so elects, any legal proceedings
or actions initiated in connection with any Hazardous Materials Claims.
7.9 Environmental Inspections. Borrower hereby grants to Lender, its
agents,
employees, consultants and contractors, the right to enter upon the Facilities
upon reasonable advance notice, and to perform such tests on the Facilities as
Lender reasonably deems necessary and to conduct such review and/or
investigation of the Facilities as Lender deems necessary or
desirable to confirm Borrower's compliance with Section 7.6 and 7.7; provided,
however, in the exercise of such rights Lender shall take due care not to
unreasonably interfere with Borrower's operations at the Facilities. Borrower
shall pay for any such tests performed by Lender, its agents, employees,
consultants or contractors, provided that Lender has reasonable grounds to
believe that Environmental Activities in violation of the Hazardous Materials
Laws have occurred or may imminently occur. For the purposes of the preceding
sentence, Lender shall be deemed to have reasonable grounds to believe that
Environmental Activities in violation of the Hazardous Materials Laws have
occurred or may immediately occur if the tests performed by or on behalf of
Lender indicate that Environmental Activities in violation of the Hazardous
Materials Laws actually occurred. Borrower hereby acknowledges and agrees that
Lender, its agents, employees, consultants and contractors will be deemed to
be
the agents of Borrower when entering on the Facilities and performing tests
pursuant to the foregoing sentence. Notwithstanding Lender's review
and/or approval of any environment reports, assessments, or evaluations,
either
before or after the execution of this Agreement, Borrower shall have the sole
responsibility of ensuring its compliance with the provisions of Sections 7.6
and 7.7 and nothing contained in this Agreement shall be deemed or construed
as
placing any responsibility upon Lender for any of Borrower's Environmental
Activities. Borrower shall not be relieved of its responsibility as set forth
in
the preceding sentence as a result of any mistake, error, act or omission by
Lender or its agents, employees, consultants or contractors in connection with
the review, approval or enforcement of any environmental
reports, assessments or evaluations, whenever made, or the monitoring by
Lender
of Borrower's Environmental Activities. In addition tO the foregoing, no
mistake, error, act or omission by Lender or its agents, employees,
consultants or contractors shall create any rights in favor of any Person
other than Borrower, including, without limitation, third party beneficiary
rights.
7.10 Environmental Indemnification. To the fullest extent permitted by
law,
Borrower agrees to protect, indemnify, defend, save and hold harmless Lender,
its directors, officers, shareholders, agents and employees from and against
any and all foreseeable or unforeseeable claim, action, suit, proceeding,
loss, cost, damage (including, without limitation, any consequential damage),
liability, deficiency, free, penalty, damage or expense (including, without
limitation, punitive or consequential darnages) of any kind or nature,
including reasonable attorneys' fees, from any suits,
claims or demands, on account of any matter or thing, action or failure to act
arising out of or based upon (a) any Environmental Activities in connection
with
the Facilities or any residual contamination affecting any natural resource or
the environment; or (b) the violation, or alleged violation, of any Hazardous
Materials Laws with respect to the Facilities, including, without limitation,
any Hazardous Materials Claims. This indemnity shall include, without
limitation, any damage, liability, fine, penalty, punitive damage, cost or
expense arising from or out of any claim, action, suit or proceeding for
personal injury (including sickness, disease or death), tangible or
intangible property damage, compensation for lost wages, business income,
profits or other economic loss, damage to the natural resources or the
environment, nuisance, pollution, contamination, leak, spill, release or other
adverse affect upon the environment. Upon receiving knowledge of any suit,
claim
or demand asserted by a third party that Lender believes is covered by
this indemnity, Lender shall give Borrower notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel satisfactory to Lender. Lender may require Borrower to so defend the
matter or Lender may elect to defend the matter with its own counsel at
Borrower's expense. The obligations on the part of Borrower set forth in
this Section 7.10 shall survive the repayment of the Loan and the release and
reconveyance of the lien of the Mortgages.
7.11 Lender Inspections. During normal business hours and, in the event of
an emergency, at any time, Borrower shall permit Lender and Lender's
representatives, inspectors and consultants to (a) enter upon the Facilities,
(b) inspect the Facilities, and (c) examine all contracts, books and records
relating to Borrower's operations at the Facilities, and make copies of any
such items at Lender's expense.
7.12 Financial Statements.
(a) Within forty-five (45) days of the end of each quarter of Borrower's
Fiscal
Year, Borrower shall deliver to Lender a quarterly unaudited Financial
Statement
for each of the entities comprising Borrower for such quarter, certified by an
off cer of Borrower or the general partner of Borrower, as the case may be.
(b) Within ninety (90) days of the end of each of Borrower's and NewCare's
Fiscal Years, Borrower shall deliver to Lender an annual audited consolidated
Financial Statement for Borrower and NewCare for such year, prepared by an
independent certified public accountant in form acceptable to Lender.
(c) Promptly after the giving, sending or filing thereof, Borrower shall
transmit to Lender (I) copies of all reports, if any, which Borrower or any
of its subsidiaries or parent companies provide to the holders of their
respective capital stock or other securities, and(ii) all reports or filings,
if any, made by Borrower or any of its subsidiaries or parent
companies to or with the Securities Exchange Commission or any national
securities exchange.
7.13 Statements for Facilities. Within thirty (30) days of the end of each
calendar month, Borrower shall deliver to Lender an unaudited statement
certified as true and correct without qualification by Borrower setting forth
the following as to the Facilities with respect to the month covered by such
report: (a) Gross Revenues for the Facilities; (b) gross expenses for the
Facilities, including all cash expenses including management fees; (c) net
operating income for the Facilities; (d) total patient days; (e) occupancy
percentage; and (f) payor mix.
7.14 Regulatory Reports.
(a) Borrower shall, within five (5) Business Days of receipt thereof, deliver
to
Lender all federal, state and local licensing and reimbursement certification
surveys, inspections and all other reports received by Borrower as to the
Facilities from any Governmental Authority, including, without limitation, the
designated Medicare and Medicaid and other agencies
of the State or the United States governments with licensing or regulatory
oversight or other responsibility for the operation of the Facilities for the
Intended Use. Within ninety (90) days of the end of each calendar year,
Borrower
shall deliver to Lender an annual audited Medicaid cost report for the
Facilities for such year certified by an independent auditor and in form
acceptable to Lender. Within fifteen (15) days of the end of each calendar
month, Borrower shall deliver to Lender a census report for the Facilities in
form acceptable to Lender.
(b) Within two (2) Business Days of receipt thereof, Borrower shall give
Lender
written notice of any violation of any Licensing Requirement or any
suspension,
termination, restriction, threatened suspension, termination or restriction of
any such licenses, permits, approvals or certifications or of any material
litigation threatened or filed against the Facilities or
Borrower.
7.15 Expenses. Borrower shall pay all expenses, costs and disbursements of
every kind and nature incurred by or on behalf of Borrower during the term of
the Loan with respect to the operation, maintenance and management of the
Facilities. Borrower shall pay any and all valid claims of any brokers or
agents with whom it has dealt who claim a right to any fees in connection
with arranging the financing of the Facilities, and shall indemnify, defend
and hold Lender harmless from such claims, whether or not they are valid.
7.16 Litigation. Borrower shall give Lender prompt written notice of any
action or proceeding commenced or threatened against Borrower, any Guarantor
or
any one of the Facilities with an amount in controversy equal to or greater
than
Fifty Thousand Dollars ($50,000) and will deliver to Lender copies of all
notices, and other information regarding such Proceeding or action Promptly
upon
receipt or transmittal thereof.
7.17 Representations and Warranties. Until the repayment in full of the
Note
and all other obligations secured by the Mortgages, the representations and
warranties of Article VI shall remain true and complete.
7.18 Further Assurances. Borrower shall execute and deliver from time to
time, promptly after any request therefor by Lender, any and all instruments,
agreements and documents and shall take such other action as may be necessary
or
desirable in the opinion of Lender to maintain, perfect or insure Lender's
security provided for herein and in the other Loan Documents, including,
without
limitation, the execution of WCC-1 renewal statements, the execution of such
amendments to the Mortgages and the other Loan Documents and the delivery of
such endorsements to the Title Policy, all as Lender shall reasonably
require, and shall pay all fees and expenses (including reasonable attorneys'
fees) related thereto. Promptly upon the request of Lender, Borrower shall
execute and deliver a certification of non-foreign status consistent with the
requirements of Section 1445 of the Code.
7.19 Operating Leases. Other than leases entered mto by Borrower in the
ordinary course of business to occupants of the Facilities, Borrower shall not
enter into any lease of any portion of the Facilities without Lender's prior
written approval, which approval may be withheld in Lender's sole discretion.
Any of the foregoing acts without such approval shall be void, but shall, at
the option of Lender in its sole discretion, an Event of Default hereunder.
7.20 ERISA Events.
(a) Promptly upon becoming aware of the occurrence of or forthcoming
occurrence
of any ERISA Event, Borrower will deliver to Lender a written notice
specifying
the nature thereof, what action Borrower or any of the ERISA Affiliates has
taken, is taking or proposes to take with respect thereto and, when known, any
action taken or threatened by the Internal Revenue Service, the Department of
Labor or the PBGC with respect thereto.
(b) With reasonable promptness, Borrower shall deliver to Lender copies of (i)
each Schedule B (Actuarial Information) to the annual report (Form 5500
Series)
filed by Borrower or any of its ERISA Affiliates with the Internal Revenue
Service with respect to each Pension Plan; (ii) all notices received by
Borrower
or any of its ERISA Affiliates from a Multiemployer Plan sponsor concerning an
ER1SA Event; and (iii) such other documents or governmental reports or filings
relating to any Employee Benefit Plan as Lender shall
reasonably request.
7.21 Maintenance Obligations. Borrower shall keep and maintain the
Facilities in good appearance, repair and condition and maintain proper
housekeeping. Borrower shall promptly make or cause to be made all repairs,
interior and exterior, structural and nonstructural, ordinary and
extraordinary, foreseen and unforeseen, necessary to keep the Facilities in
good and lawful order and condition and in substantial compliance with
all requirements for the licensing of skilled nursing facilities and a CRCC in
the States of Florida and Georgia, as applicable, or as otherwise required
under
all applicable local, state and federal laws and to the extent applicable,
certification for participation inMedicare and Medicaid (or any successor
programs). As part of Borrower's obligations under this Section 7.21, Borrower
shall be responsible to maintain, repair and replace all Personal Property in
good condition, ordinary wear and tear excepted, consistent with prudent
industry practice.
7.22 Upgrade Expenditures.
(a) Without limiting Borrower's obligations to maintain the Facilities under
this Agreement, within thirty (30) days of the end of each Loan Year starting
with the end of the second (2nd) Loan Year, Borrower shall provide Lender
with evidence satisfactory to Lender in the reasonable exercise of Lender's
discretion that Borrower has in such Loan Year spent on Upgrade Expenditures
an annual average amount of at least Two Hundred Fifty Dollars ($250) per
living unit (as such amount is adjusted annually at the end of each
Loan Year for increases in the Cost of Living Index or a similar replacement
index since the Loan Closing Date).
(b) Borrower acknowledges and agrees that Borrower's failure to make the
Upgrade
Expenditures in any Loan Year as required by Section 7.22(a) will cause Lender
damage and loss, the exact amount of which will be very difficult or
impractical
to determine.Consequently, Borrower hereby agrees that, in addition to any
other
legal or equitable remedies or damages available to Lender, upon a breach of
Section 7.22(a), Lender shall be entitled to liquidated damages in an amount
equal to (i) the Upgrade Expenditures for the Loan Year in which such breach
occurred, minus (ii) the actual correlative expenditures made by Borrower in
such Loan Year as to the Facilities.
7.23 Books and Records. Borrower shall utilize, or cause to be utilized,
an
accounting system for the Facilities in accordance with sound business
practices
and in accordance with GAAP. Lender and its accountants and representatives,
at
Lender's expense, shall have the right from time to time to review such
records
and to audit the information set forth in the certificates and reports
delivered
to Lender pursuant to Paragraphs 4(c) and 4(d) of the Note, subject to any
legal
prohibitions or limitations on disclosure of any such records under applicable
law or regulations, including, without limitation, such limitations as may be
necessary to preserve the confidentiality of the physician-patient privilege.
If any such audit discloses a deficiency in the payment of Cash Flow Interest,
Borrower shall promptly pay to Lender the amount of the deficiency, together
with interest thereon at the Agreed Rate from the date when such payment
should have been made to the date of payment thereof.
7.24 Debt Service Reserve. Concurrently with the malcing of the Loan,
Lender
shall deposit into the Account the amount of the Debt Service Reserve, which
Debt Service Reserve shall be held by Lender as additional security for
Borrower's obligations under the Loan Documents. Lender shall not be deemed a
trustee as to the Debt Service Reserve. Lender shall be entitled to draw on
the Debt Service Reserve one or more times for the purpose of compensating
Lender for any amounts due to Lender under this Agreement or the other Loan
Documents by reason of an Event of Default occurring under any of the Loan
Documents. Any amount drawn by Lender shall not be deemed: (a) to fix or
determine the amounts to which Lender is entitled to recover under this
Agreement or otherwise; (b) to waive or cure any default under this Agreement
or the other Loan Documents; or (c) to limit or waive Lender's right to
pursue any remedies provided for hereunder or under the other Loan Documents.
If
all or any portion of the Debt Service Reserve is drawn against by Lender
pursuant to the provisions of this Section 7.24, Borrower shall, within ten
(10)
business days after written demand by Lender, deposit into the Account
immediately available funds equal to the amount so drawn by Lender,
such that at all times during the term of this Agreement Lender shall have the
ability to draw upon the entire amount of the Debt Service Reserve. Borrower
shall have the right to substitute a Letter of Credit for the Debt Service
Reserve issued by a financial institution mutually acceptable to Lender and
Borrower. In the event that Borrower substitutes a Letter of Credit,
Borrower and Lender shall execute a Letter of Credit Agreement. Upon the
satisfaction in full of all of Borrower's obligations under the Loan
Documents,
Lender shall return the Debt Service Reserve to Borrower.
ARTICLE VIII
INSURANCE REQUIREMENTS
8.1 Insurance Types.
(a) Borrower shall maintain at its sole cost and expense, the following
insurance on or in connection with each of the Facilities:
(i) Insurance against loss or damage to the Insured Property by fire and other
risks from time to time included under standard extended and additional
extended
coverage policies, including vandalism and malicious mischief, sprinkler,
flood
insurance (if such Facility is located in a flood zone) and earthquake
insurance
(if such Facility is located in an earthquake zone), in amounts not less than
the actual replacement value of such Facility, excluding footings and
foundations and other parts of the Improvements which are not
insurable (or, in the case of plate glass insurance, the replacement cost of
all
plate glass in the Facilities). Such policies shall contain replacement cost
endorsements.
(ii) General public liability insurance against claims for bodily injury,
death
or property damage occurring on, in or about the Facilities or the Adjoining
Property, including, without limitation, medical malpractice insurance and
products liability insurance, in an amount not less than Five Million Dollars
($5,000,000) for bodily injury or death to any one
person, not less than Ten Million Dollars ($10,000,000) for any one accident,
and not less than One Million Dollars ($1,000,000) for property damage;
provided that Lender shall have the right to require such higher limits as
may be reasonable and customary for transactions and properties similar to
the Facilities.
(iii) Insurance against liability imposed by law upon Borrower and its
Affiliates for damages on account of professional services rendered or which
should have been rendered by Borrower or any person for which acts Borrower
is legally liable on account of injury, sickness or disease, including death
at any time resulting therefrom, and including damages allowed for loss of
service, in a minimum amount of Two Million Dollars ($2,00.0,000) for each
claim and Five Million Dollars ($5,000,000) in the aggregate.
(iv) Worker's compensation insurance covering all persons employed by Borrower
in connection with any work done on or about the Facilities for which claims
for
death or bodily injury could be asserted against Lender, Borrower nr the
Facilities.
(v) Boiler and pressure vessel insurance, including an endorsement for boiler
business interruption insurance, on any of the Fixtures or any other equipment
on or in the Facilities which by reason of its use or existence is capable of
bursting, erupting, collapsing or exploding, in an amount not less than Five
Million Dollars ($5,000,000) for damage to property, bodily injury or death
resulting from such perils.
(vi) Business interruption insurance or rental loss insurance insuring against
loss of rental value for a period of not less than one (1) year.
(vii) Such other insurance on or in connection with the Facilities and the
Insured Property as Lender may reasonably require, which at the time is
commonly
obtained in connection with propertiessimilar to the Facilities.
(b) All insurance required to be carried pursuant to this Article VIII will be
maintained with insurance carriers licensed and approved to do business in the
State, having a general policyholders rating of not less than an "A" and
financial rating of not less than "XII" in the then most current Best's
Insurance Report. All such insurance shall be for such terms as Lender may
approve and shall be in amounts sufficient at all times to satisfy any
coinsurance requirements thereof. In no event will such insurance be
terminated or otherwise allowed to lapse during the term hereof. In the
event of Borrower's failure to comply with any of the foregoing requirements,
Lender may, but shall not be obligated to, procure such insurance. Any sums
expended by Lender in procuring such insurance shall be repaid by Borrower,
together with interest thereon at the Agreed Rate from the date of such
expenditure by Lender, upon written demand therefor by Lender. Any and all
policies of insurance required under this Agreement shall name Lender as an
additional insured and shall be on an "occurrence" basis. In addition,
Lender shall be shoun as the loss payable beneficiary under the property
insurance policy maintained by Borrower pursuant to Section 8.1(a)(i).
(c) Notwithstanding the foregoing, Borrower may provide the insurance
described
in this Article VIII in whole or in part through a "blanket" or "umbrella"
policy or policies covering other liabilities and properties of Borrower;
provided, however, that any such policy or policies shall: (i)
otherwise comply with this Article VIII, (ii) allocate to the Facilities the
full amount of insurance required hereunder, and (iii) contain, permit or
otherwise unconditionally authorize the waiver contained in Section 8.6. The
amount of insurance allocated to the Facilities pursuant to any such policy
or policies shall either be set forth in such policy or policies or a written
statement from such insurer delivered to Lender.
8.2 Replacement Cost Determination. Borrower shall have the replacement
cost
and insurable value of the Facilities determined from time to time as required
by the replacement cost endorsements and shall deliver to Lender the new
replacement cost endorsements promptly upon Borrower's receipt thereof. If, at
any time, a replacement cost endorsement is not available, Borrower shall have
the replacement cost and insurable value of the Facilities
determined at least once a year by the underwriter of fire insurance on the
Facilities, or, if such underwriter will not determine the replacement costs,
by
a qualified appraiser reasonably satisfactory to Lender. Borrower shall
deliver
such determination to Lender promptly upon Borrower's receipt thereof.
8.3 Deductible Amounts. The policies of insurance which Borrower is
required
to provide under this Article VIII will not have deductibles or self-insured
retentions in excess of Fifty Thousand Dollars ($50,000).
8.4 Evidence of Insurance. As evidence of the insurance coverage required
to
be carried by Borrower pursuant to this Article VIII, Borrower shall deliver
to
Lender original or certified policies of such insurance, but Lender may, as
Lender reasonably deems appropriate, accept certificates issued by the
insurance
carrier (meeting the criteria set forth in Section 8.1) showing
such policies in force for the specified period as evidence of such coverage.
Evidence of such insurance coverage shall be delivered to Lender promptly upon
the Loan Closing Date. Each policy and certificate shall be subject to
reasonable approval by Lender and shall provide that such policy shall not be
subject to material alteration to the detriment of Borrower or Lender or
to cancellation without thirty (30) days prior written notice to Lender.
Borrower shall deliver replacement policies of insurance to Lender at least
two (2) Business Days prior to the expiration of any policy of insurance
required to be carried pursuant to this Article VIII. Should any policy
expire or be cancelled and should Borrower fail to immediately procure other
insurance as specified herein, Lender reserves the right, but shall have no
obligation, to procure such insurance for the benefit of Lender and Borrower.
at
Borrower's sole cost and expense.
8.5 Damages. Nothing contained in these insurance requirements is to be
construed as limiting the type, quality or quantity of insurance Borrower
should
maintain or the extent of Borrower's responsibility for payment of damages
resulting from the breach of its obligations hereunder nor shall anything
contained herein be deemed to place any responsibility on Lender
for ensurine that the insurance required hereunder is sufficient for the
conduct
of Borrower's business.
8.6 Waiver of Subrogation. Borrower hereby waives all rights of
subrogation,
which any insurance carrier, or Borrower, may have as to Lender by reason of
any
provision in any policy of insurance required to be carried by Borrower
pursuant
to this Agreement, provided such waiver does not thereby invalidate the policy
of insurance.
8.7 Additional Insured. Lender shall be included as an additional insured
under the coverage specified in this Article VIII, with the following
endorsement or provision included within each applicable policy: "It is
understood and agreed that coverage afforded by this Policy shall also apply
to Nationwide Health Properties, Inc., a Maryland corporation, and its
officers, directors, agents, servants, employees, divisions, subsidiaries,
partners, shareholders and affiliated companies as additional insureds. This
insurance is primary and any other insurance maintained by such additional
insured is noncontributing with this insurance as respects claims or
liability arising out of or resulting from the acts or omissions of the
named insured, or of others performed on behalf of the named insured."
Lender's lenders, if any, shall also be included as an
additional insured under the coverage specified in this Article VIII. Each
insurance policy required to be carried pursuant to this Article VIII shall
(a)
contain standard non-contributory
mortgagee clauses (438 BFU) in favor of and acceptable to Lender and Lender's
lenders, if any, and (b) name Lender as a loss payee under a standard loss
payee
clause.
8.8 No Separate Insurance. Borrower shall not carry insurance concurrent
in
form or contributing in the event of loss with the insurance required by this
Article VIII unless (a) Lender, and any lender of Lender, are narned as
additional insureds as provided in Section 8.7, (b) Lender approves such
separate insurance, and (c) such separate insurance shall otherwise comply
with this Article VIII. Upon obtaining any such separate insurance,
Borrower shall immediately deliver original or certified policies of such
insurance to Lender.
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
9.1 Events of Default.
(a) Upon the expiration of any applicable cure period set forth in Section
9.1(b) below, the occurrence of any one or more of the following shall
constitute an "Event of Default" under this Agreement:
(i) the failure to make payment of any amount due under the Note or other Loan
Documents when the same becomes due and payable;
(ii) the failure to make payment of any Impositions;
(iii) a material adverse change in the assets, liabilities or financial
position
of Borrower or any Guarantor;
(iv) a material default by Borrower or any Guarantor with respect to any
obligation concerning any of the Facilities under any other lease or financing
agreement with any other party, which default is not cured within any
applicable
cure period provided in the documentation for such obligation;
(v) any material misstatement or omission of fact in any written report,
notice
or communication from Borrower or any Guarantor to Lender with respect to
Borrower, any Guarantor or the Facilities;
(vi) the commencement of any action or proceeding which seeks as one of its
remedies the dissolution of Borrower or any Guarantor;
(vii) any Governmental Authority, or any court at the instance thereof, shall
take possession of any substantial part of the property of, or assume control
over, the affairs or operations of, or a receiver or trustee shall be
appointed
over all of or of any substantial part of, or a writ or order
of attachment or garnishment shall be issued or made against any of, the
property of Borrower or any Guarantor;
(viii) Borrower or any Guarantor shall admit in writing its inability to pay
its
debts when due, or shall make an assignment for the benefit of creditors; or
Borrower or any Guarantor shall apply for or consent to the appointment of any
receiver, trustee or similar officer for Borrower or such Guarantor or for all
or any substantial part of the property of Borrower or Guarantor; or Borrower
or
any Guarantor shall institute (by petition, application, answer, consent or
otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment
of debts, dissolution, liquidation, or similar proceedings relating to
Borrower
or any Guarantor, under the laws of any jurisdiction;
(ix) an involuntary bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution or liquidation case or proceeding, or other
similar proceedings, which shall not be dismissed within sixty (60) days
(whether or not consecutive) after the same shall have been commenced, shall
be commenced (by petition. application or otherwise) seeking relief with
respect to Borrower, any Guarantor or all or a substantial part of the
property of Borrower or any Guarantor;
(x) a court of competent jurisdiction shall enter an order, judgment or decree
adjudicating Borrower or any Guarantor a bankrupt or insolvent or approving a
petition filed against Borrower or any Guarantor seeking any reorganization,
dissolution or similar relief under any present or future federal, state or
other statute, law or regulation relating to bankruptcy, insolvency or other
relief for debtors, and such order, judgment or decree shall not be
discharged or dismissed within sixty (60) days after the date of filing;
(xi) a writ of execution or attachment or any similar process shall be issued
or
levied against all or any part or interest in the Facilities, or any judgment
involving monetary damages in any such case shall be entered against Borrower
or
any Guarantor which shall become a lien on the Facilities or any portion
thereof
or Borrower's interest therein, and such writ of execution, attachment, levy
or
judgment shall not be released or discharged within
sixty (60) days after the date of filing;
(xii) any representation or warranty of Borrower or any Guarantor in (A) any
document submitted to Lender in connection with any of the Loan Documents, or
other document or agreement relating thereto, or (B) any of the Loan
Documents,
or (C) any Financial Statement, certificate or other financial information
delivered to Lender, shall be materially and adversely incorrect or misleading
as of the date made;
(xiii) a final judgment or judgments for the payment of money in excess of One
Hundred Thousand Dollars ($100,000) in the aggregate is entered against
Borrower
or any Guarantor and such judgment or judgments shall not be discharged within
a period of sixty (60) days;
(xiv) a default by Borrower or any Guarantor (or any Affiliate of them) under
any other agreement entered into by Borrower or any Guarantor (or any
Affiliate of them) in connection with any other obligation owed by Borrower or
any Guarantor (or any of their respective Affiliates) to Lender or any
Affiliate
of Lender, which default is not cured within any applicable cure period;
(xv) failure by Borrower to comply with the provisions of Section 7.5;
(xvi) if, except as a result of damage or destruction or a partial or complete
Condemnation with respect to all or any portion of the Facilities, Borrower
voluntarily or involuntarily ceases operations on the Facilities or any
material
portion of the Facilities is vacated or abandoned;
(xvii) failure to deliver replacement policies of insurance to Lender as
required by the provisions of Section 8.4;
(xviii) the institution of any proceedings, heanngs, suits or other actions
which seek to suspend, revoke or otherwise adversely impair (including,
without
limitation, the imposition of any operational restrictions) any license,
approval certificate or other authorization used or held by Borrower
in connection with the operation of the Facilities for the Intended Use;
(xix) the occurrence of a default and the failure to cure such default within
the applicable cure period, if any, under the Debt Service Reserve Pledge
Agreement, the Guaranty or under any of the other Loan Documents;
(xx) the occurrence of one or more ERISA Events which individually or in the
aggregate results in, or might reasonably be expected to result in liability
of
Borrower or any of its ERISA Affiliates in excess of $20,000 during the term
hereof; or the existence of an amount of unfunded benefit liabilities (as
defined in Section 4001(a)(18) of ERISA), individually or in the aggregate
for all Pension Plans (excluding for purposes of such computation any Pension
Plans with respect to which assets exceed benefit liabilities), which exceeds
$20,000; or
(xxi) failure to observe or perform any other term, covenant or condition of
this Agreement or any of the other Loan Documents, which cannot be cured by
the
payment of money;
(b) Cure Periods.
(i) Borrower shall not be entitled to a cure period with respect to the Events
of Default described in subsections 9. 1 (a)(iii) through (xvi), inclusive,
and
(xix) through (xx), inclusive, above.
(ii) The default described in subsection 9.l(a)(i) above is curable and shall
be
deemed cured if Borrower makes such payment within five (5) days after the
date
such payment is due.
(iii) The default described in subsection 9.l(a)(ii), above, is curable and
shall be deemed cured if Borrower makes such payment within ten (10) days
after the date such payment is due, or within such other grace period
applicable to such payment as specified elsewhere in this Agreement.
(iv) The default described in subsection 9.l(a)(xvii), above, is curable and
shall be deemed cured if Borrower delivers replacement policies of insurance
to
Lender within five (5) days of demand by Lender.
(v) The default described in subsections 9.l(a)(xviii) and (xxi), above, is
curable and shall be deemed cured, if: (A) within three (3) Business Days of
Borrower's receipt of a notice of default from Lender, Borrower gives Lender
notice of its intent to cure such default; and (B) Borrower cures
such default within thirty (30) days, or such other period as may be specified
in this Agreement, after such notice from Lender, unless such default cannot
with due diligence be cured within a period of thirty (30) days, or such
other period as may be specified in this Agreement, because of the nature of
the default or delays beyond the control of Borrower, and cure after such
period will not have a material and adverse effect upon the Facilities, in
which case such default shall not be deemed to continue if cure of such
default is promptly commenced and diligently pursued to the completion
thereof, provided, however, no such default shall continue for more than one
hundred twenty (120) days in the aggregate.
(c) All notice and cure periods provided herein or in any other Loan
Document shall run concurrently with any notice or cure periods provided by
applicable law.
9.2 Remedies.
(a) Notwithstanding any provision to the contrary herein or in any of the
other Loan Documents, upon the occurrence of any Event of Default under this
Agreement, or upon an Event of Default under any of the other Loan Documents.
(i) Lender's obligation to make further disbursements of the Loan, if any,
shall
cease, (ii) Lender shall, at its option, have the rights and
remedies provided in the Loan Documents, including, without limitation, the
option to declare all outstanding indebtedness to be immediately due and
payable
without presentment, demand, protest or further notice of any kind, to apply
any
of Borrower's funds in its possession to the outstanding indebtedness under
the
Note whether or not such indebtedness is then due, to draw on the Account (or
a
Letter of Credit if the same replaced the Account) and apply such withdrawal
to
the outstanding indebtedness under the Note whether or not such indebtedness
is
then due and to obtain the appointment of a receiver, and (iii) Lender may
pursue any remedies available to it pursuant to law or in equity. All sums
expended by Lender for such purposes shall be deemed to have been disbursed
to and borrowed by Borrower and shall be secured by the Mortgages.
(b) All remedies of Lender provided for herein are cumulative and shall be
in addition to any and all other rights and remedies provided in the Note, the
Mortgage or any of the other Loan Documents or by law. The exercise of any
rights of Lender hereunder shall not in any way constitute a cure or waiver
of a default hereunder or elsewhere, or invalidate any act done pursuant to
any notice of default, or prejudice Lender in the exercise of any of its
other rights hereunder or elsewhere unless, in the exercise of said rights,
Lender realizes all amounts owed to it hereunder and under the Note, the
Mortgage and the other Loan Documents.
ARTICLE X
MISCELLANEOUS
10.1 Assignment. Borrower shall not assign any of its rights under this
Agreement.
10.2 Notices. All notices, demands, certificates, requests, consents,
approvals and other similar instruments under this Agreement shall be made in
writing to the addresses set forth below and shall be given by any of the
following means: (a) personal service; (b) electronic communication, whether
by
telex, telegram or telecopying; (c) certified or registered mail, postage
prepaid, return receipt requested; or (d) nationally recognized courier
or delivery service. Such addresses may be changed by notice to the other
parties given in the same manner as provided above. Any notice, demand or
request sent pursuant to either subsection (a), (b) or (d) hereof shall be
deemed received upon the actual delivery thereof, and, if sent pursuant to
subsection (c) shall be deemed received five (5) days following
deposit in the mail. Refusal to accept delivery of any notice, request or
demand
shall be deemed to be delivery thereof. If Borrower is not an individual,
notice
may be made on any officer, general partner or principal thereof. In the event
Lender notifies Borrower of the name and address of Lender's lender, Borrower
shall cause a copy of all notices delivered to
Lender by Borrower to be concurrently therewith delivered to such lender.
To Lender: Nationwide Health Properties, Inc.
610 Newport Center Drive, Suite 1150
Newport Beach, California 92660
Attention: President and General Counsel
Fax No.: (714) 759-6887
with a copy to: Sherry,Coleman & Holthouse LLP
610 Newport Center Drive, Suite 1200
Newport Beach, California 92660
Attention: Kevin L. Sherry, Esq.
Fax No.: (714) 719-1212
To Borrower: c/o NewCare Health Corporation
6000 Lake Forrest Drive, Suite 200
Atlanta, Georgia 30328
Attention: Chris Brogdon & Philip M. Rees, Esq.
Fax No.: (404) 255-5789
with a copy to: Vincent, Berg. Stalzer & Menendez, P.C.
3699 Peachtree Road, N.E., Suite 1400
Atlanta, Georgia 30326
Attention: Gregory P. Youra, Esq.
Fax No.: (404) 812-5699
10.3 Incorporation of Recitals and Exhibits. The recitals and exhibits
hereto are hereby incorporated into this Agreement and made a part hereof.
10.4 Titles and Headings. The titles and headings of sections of this
Agreement are intended for convenience only and shall not in any way affect
the
meaning or construction of any provision of this Agreement.
10.5 Brokers. Lender and Borrower represent to each other that neither of
them knows of any brokerage commissions or finders' fee due or claimed with
respect to the transaction contemplated hereby. Lender and Borrower shall
indemnify and hold harmless the other party from and against any and all loss,
darnage, liability, or expense, including costs and reasonable attorney fees,
which such other party may incur or sustain by reason of or in connection with
any misrepresentation by the indemnifying party with respect to the foregoing.
10.6 Changes, Waivers, Discharge and Modifications in Writing. No
provision
of this Agreement may be changed, waived, discharged or terminated except by
an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought.
10.7 Choice of Law. Lender and Borrower agree that, except as provided in
this Section 10.7 below, the rights and obligations under this Agreement and
the
other Loan Documents shall be governed by and construed and interpreted in
accordance with the internal law of the State of Florida without giving effect
to the conflicts-of-law rules and principles of such state. Notwithstanding
the
foregoing, any Loan Documents securing the obligations due from Borrower to
Lender under the terms of the Note and this Agreement which relate to
collateral
for the Loan that is located outside the State of Florida shall be governed by
and construed and interpreted in accordance with the laws of the State is
which
such collateral is located.
10.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one agreement.
10.9 Time is of the Essence. Time is of the essence in this Agreement.
10.10 Attorneys' Fees. Borrower agrees to pay Lender all costs and
expenses,
including, without limitation, attorneys' fees and costs, incurred by Lender
in
enforcing any of the terms, covenants or conditions of this Agreement. The
terms
"attorneys' fees" or "attorneys' fees and costs" shall also include, without
limitation, all such fees and expenses incurred with
respect to appeals, arbitrations and bankruptcy proceedings, and whether or
not
any action or proceeding is brought with respect to the matter for which said
fees and expenses were incurred.
10.11 Authorit, to File Notices. Borrower irrevocably appoints Lender as
i~s
attorney-in-fact, with full power of substitution, to file for record, at the
Borrower's cost and expense and in Borrower's name, any notices that Lender
considers necessary or desirable to protect its security.
10.12 Disclaimer by Lender. Lender shall not be liable to any contractor,
subcontractor, supplier, laborer, architect, engineer or any other party for
services performed or materials supplied in connection with the Facilities.
Lender shall not be liable for any debts or claims accruing in favor of any
such
parties against Borrower or others or against the Facilities. Borrower is not
and shall not be an agent of Lender for any purpose. Lender is not a joint
venture partner with Borrower in any manner whatsoever. Approvals granted by
Lender for any matters covered under this Agreement shall be narrowly
construed
to cover only the parties and acts identified in any written approval or, if
not
in writing, such approvals shall be solely for the
benefit of Borrower.
10.13 Indemnification. To the fullest extent permitted by law, Borrower
agrees to protect, indemnify, defend and hold harmless Lender, its directors,
officers, agents and employees from and against any and all liability,
expense,
loss or damage of any kind or nature and from any suits, claims or demands,
including reasonable attorneys' fees and costs, on account of any matter or
thing or action or failure to act by Lender, whether in suit or not,
arising out of this Agreement or in connection herewith, unless such suit,
claim
or demand is caused solely by any act, omission or willful malfeasance of
Lender, its directors, officers, agents and employees. Upon receiving
knowledge of any suit, claim or demand asserted by a third party
that Lender believes is covered by this indemnity, Lender shall give Borrower
notice of the matter and an opportunity to defend it, at Borrower's sole
cost and expense, with legal counsel satisfactory to Lender. Lender may also
require Borrower to so defend the matter. This obligation on the part of
Borrower shall survive the closing of the Loan and the repayment thereof.
10.14 Inconsistencies with Loan Documents. In the event of any
inconsistencies between the terms of this Agreement and any terms of any of
the
Loan Documents, the terms of this Agreement shall govern and prevail.
10.15 Disbursements in Excess of Loan Amount. In the event the total
disbursements by Lender exceed the Loan Amount, to the extent permitted by the
laws of the State of Florida, the total of all disbursements shall be secured
by
the Mortgages. All other sums expended by Lender pursuant to this Agreement or
any other Loan Document shall be deemed to have been paid to Borrower and
shall
be secured by, among other things, the Mortgages.
10.16 Participations. Lender shall have the right at any tume to sell,
assign or transfer the Loan or the Note or to sell or grant participations in
all or any part therein, all without notice to or the consent of Borrower.
Borrower hereby acknowledges and agrees that any such disposition will give
rise to a direct obligation of Borrower to each holder of the Note or the
Loan or each participant or assignee of all or any part of the Loan or Note.
Lender may disclose to third parties, including, without limitation,
prospective
purchasers of the Loan or participation interests therein, financial or other
information in Lenderts possession regarding Borrower,
Guarantors or the Facilities.
10.17 Entire Agreement. This Agreement and the Loan Documents constitute
the
entire agreement and understanding of Lender and Borrower with respect to the
matters set forth herein and therein. No representation, warranty, covenant.
promise, understanding or condition shall be enforceable against any party
unless it is contained in this Agreement or the Loan documents.
10.18 Severability. The invalidity or unenforceability of any one or more
provisions of this Agreement or any Loan Document shall not affect the
validity
or enforceability of any other provision.
10.19 Consent to Jurisdiction and Service of Process. ALL JUDICIAL
PROCEEDINGS BROUGHT AGAINST BORROWER ARISING OUT OF OR RELATING TO THIS AGREE-
MENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF FLORIDA, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT BORROWER ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED
THEREBY IN CONNECTION WITH THIS AGREEMENT.
Borrower designates and appoints Chris Brogdon, c/o NewCare Health
Corporation,
6000 Lake Forrest Drive, Suite 200, Atlanta, Georgia 30328, and such other
Persons as may hereafter be selected by Borrower irrevocably agreeing in
writing
to so serve, as its agent to receive on its
behalf service of all process in any such proceedings in any such court, such
service being hereby acknowledged by Borrower to be effective and binding
service in every respect. A copy of any such process so served shall be
mailed by registered mail to Borrower as provided in this Agreement; provided
that, unless otherwise provided by applicable law, any failure to mail such
copy shall not affect the validity of service of such process. If any agent
appointed by Borrower refuses to accept service, Borrower hereby agrees that
service of process suffIcient for personal jurisdiction in any action against
Borrower in the State of Florida may be made by registered or certified mail,
return receipt requested, to Borrower as provided in this Agreement, and
Borrower hereby acknowledges that such service shall be effective and binding
in
every respect. Nothing herein shall affect the right to serve process in any
other manner permitted by law or shall limit the right of Lender to bring
proceedings against Borrower in the courts of any other jurisdiction.
10.20 Waiver of Jury Trial. BORROWER AND LENDER HEREBY AGREE TO
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL IN ANY ACTION, PROCEEDINGS OR
COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER IN CONNECTION
WITH ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. The scope of this waiver is
intended to be allencompassing of any and all disputes that may be filed in
any
court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims, and
all
other common law and statutory claims. Borrower and Lender each acknowledge
that
this waiver is a material inducement for Borrower and
Lender to enter into a business relationship, that Borrower and Lender have
already relied on this waiver in entering into this Agreement and the other
Loan
Documents and that each will continue to rely on this waiver in their related
future dealings. Borrower and Lender further warrant and represent that each
has
reviewed this waiver with its legal counsel, and that each knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFICATIONS
EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIlICATIONS TO THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS. In the event of litigation, this Agreement may be filed
as
a written consent to a trial by the court.
10.21 Terminology. Whenever the words "including", "include" or "includes"
are used in this Agreement, they should be interpreted in a non-exclusive
manner
as though the words, "without limitation," immediately followed the same.
Except
as otherwise indicated, all Section and Exhibit references in this Agreement
shall be deemed to refer to the Sections and Exhibits in or to this Agreement.
10.22 Interpretation. Both Borrower and Lender have been represented by
counsel and this Agreement has been freely and fairly negotiated.
Consequently,
all provisions of this Agreement shall be interpreted according to their fair
meaning and shall not be strictly construed against any party.
IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to he
executed and delivered as of the date first above written.
Witnesses: "LENDER"
Name: NATIONWIDE HEALTH PROPERTIES, INC.,
a Maryland corporation
Name:
Witnesses: By:
Its:
Name:
"BORROWER"
Name:
WINDWARD NURSING CENTER, INC.,
Witnesses: a Georgia corporation
Name:/s/ Heather M. Brogdon
By:/s/ Kathy Pifer
Name:/s/ Paulette Feis Its:President
Witnesses: HEALTHCARE FACILITIES LIMITED
PARTNERSHIP I, a Louisiana limited
Name:/s/ Heather M. Brogdon partnership
Name:/s/ Paulette Feis By: Equity General Partner, Inc.,
a Florida corporation
General Partner
By:/s/ Kathy Pifer
Its: President
Witnesses: OAK MANOR NURSING HOME, LTD.,
a Florida limited partnership
Name:/s/ Heather M. Brogdon
By: Equity General Partner, Inc.,
a Florida corporation
Name:/s/ Paulette Feis
By: /s/ Kathy Pifer
Its: President
Witnesses: CENTRAL TAMPA NURSING HOME, LTD.,
a Florida limited partnership
Name:/s/ Heather M. Brogdon
By: Equity General Partner, Inc.,
Name:/s/ Paulette Feis a Florida corporation
General Partner
By: /s/ Kathy Pifer
Its: President
EXHIBIT A
LEGAL DESCRIPTION OF THE LAND
WINDWARD
ALL THAT TRACT OR PARCEL OF LAND, TOGETHER WITH ANY AND ALL
IMPROVEMENTS THEREON, SITUATE, LYING AND BEING IN LAND LOT 97 OF
THE 8TH DISTRICT G.M., HALL COUNTY, GEORGIA, AND BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT AN IRON PIN FOUND ON THE SOUTHEASTERN RIGHT-OF-WAY
OF CANTRELL ROAD, IRON PIN STANDING 1478 FEET MORE OR LESS IN A
SOUTHWESTERLY DIRECTION FROM THE RIGHT-OF-WAY OF GEORGIA STATE
HIGHWAY 13; THENCE RUNNING WITH PROPERTIES OF WAGES, GARNER AND
WAGES S 27 43' 06" E, FOR A DISTANCE OF 700.41 FEET TO AN IRON PIN
FOUND; THENCE RUNNING WITH PROPERTY OF ATLANTA ONE LTD.
PARTNERSHIP S 60 31' 20" W, FOR A DISTANCE OF 400.10 FEET TO AN IRON
PIN FOUND; CONTINUING WITH ATLANTA ONE LTD. PARTNERSHIP N 27 41'
58" W (BASIS OF BEARINGS, P.B. 116 PAGE 120) A DISTANCE OF 700.09 FEET TO
AN IRON PIN FOUND ON THE SOUTHEASTERN RIGHT-OF-WAY OF CANTRELL
ROAD; THENCE ALONG THE RIGHT-OF-WAY OF SAID CANTRELL ROAD N 60
28' 30" E, A DISTANCE OF 399.88 FEET TO THE POINT OF BEGINNING.
CONTAINS 6.427 ACRES MORE OR LESS SHOWN ON A PLAT OF SURVEY
PREPARED BY SMITH-ROBERTS NATIONAL CORPORATION, BEARING THE
CERTIFICATION OF FULTON V. CLINKSCALES, JR. G.R.L.S. NO. 2197, DATED
APRIL 29, 1997.
THIS BEING THE SAME PROPERTY CONVEYED BY LIMITED WARRANTY DEED
FROM SOUTHMARK/NATIONAL HERITAGE, INC., A GEORGIA CORPORATION,
TO ROBERT W. HAGAN ON FEBRUARY 22, 1990, AS RECORDED IN DEED BOOK
1444, PAGES 308-310, HALL COUNTY, GEORGIA DEED RECORDS.
OAK MANOR
A TRACT OF LAND IN THE SOUTHWEST 1/4 OF SECTION 5, TOWNSHIP 30
SOUTH, RANGE 15 EAST, PINELLAS COUNTY, FLORIDA, DESCRIBED AS
FOLLOWS:
FROM THE SOUTHWEST CORNER OF SECTION 5, TOWNSHIP 30 SOUTH, RANGE
15 EAST, RUN NORTH 00 32' 53" EAST, ALONG THE WEST LINE OF SAID
SECTION 5, 337.54 FEET FOR A POINT OF BEGINNING; THENCE CONTINUE
NORTH 00 32'53" EAST, ALONG SAID SECTION LINE, 300.39 FEET TO A POINT
ON THE SOUTHERLY RIGHT-OF-WAY LINE OF INDIAN ROCKS ROAD (STATE
ROAD S-697) AS PER RIGHTOF-WAY DEED RECORDED IN OFFICIAL RECORDS
BOOK 2191, PAGE 654, OF THE PUBLIC RECORDS OF PINELLAS COUNTY,
FLORIDA; THENCE RUN NORTH 44 49'57" EAST, ALONG THE SAID RIGHT-OF-WAY LINE,
86.58 FEET; THENCE CONTINUE NORTHEASTERLY ALONG SAID RIGHT-OF-WAY LINE ALONG A
CURVE TO THE RIGHT OF 1,382.40 FEET RADIUS (CHORD BEARING NORTH
45 22'54" EAST, CHORD DISTANCE 26.50 FEET) 26.50 FEET; THENCE RUN
SOUTH 33 24'33" EAST, ALONG THE WESTERLY RIGHT-OF-WAY LINE OF
HARROR HEIGHTS DRIVE AS SHOWN IN PLAT OF HAR-ROR HEIGHTS (SEE
PLAT BOOK 44, PAGE 5O, OF THE PUBLIC RECORDS OF PINELLAS COUNTY,
FLORIDA) 57.86 FEET; THENCE RUN SOUTHERLY CONTINUING ON SAID
RIGHT-OF-WAY LINE ALONG A CURVE TO THE RIGHT OF 50.00 FEET RADIUS
(CHORD BEARING SOUTH 16 25'50" EAST, CHORD DISTANCE OF 29.20), 29.63
FEET; THENCE RUN SOUTH 00 32'53" WEST, CONTINUING ON SAID RIGHT-OF-WAY LINE,
145.62 FEET; THENCE RUN SOUTHEASTERLY CONTINUING ON
SAID RIGHT-OF-WAY LINE ALONG A CURVE TO THE LEFT OF 60.00 FEET
RADIUS (CHORD BEARING SOUTH 18 43'36" EAST, CHORD DISTANCE 39.61
FEET), 40.37 FEET; THENCE RUN SOUTH 67 42'06" WEST, ALONG THE
NORTHERLY LINE OF A LOT CONVEYED BY DEED RECORDED IN OFFICIAL
RECORDS BOOK 1709, PAGE 35, OF THE PUBLIC RECORDS OF PINELLAS
COUNTY, FLORIDA, 57.72 FEET; THENCE RUN SOUTH 00 39'52" WEST, ALONG
THE WESTERLY LINE OF SAID LOT, 100 FEET TO THE SOUTHWESTERLY
CORNER OF SAID LOT; THENCE RUN NORTH 89 20'08" WEST, ALONG A
WESTERLY EXTENSION OF THE SOUTHERLY LINE OF SAID PLAT OF HARROR
HEIGHTS, 79.67 FEET TO THE POINT OF BEGINNING; THENCE SOUTH 89 20'08"
EAST, ALONG THE SOUTH LINE OF THE ABOVE MENTIONED LEGAL AND
PLAT, 1334.30 FEET TO THE SOUTHEAST CORNER OF LOT 34, OF SAID PLAT;
THENCE ALONG THE EAST LINE OF SAID PLAT TO THE SOUTH LINE OF
HARBOR HEIGHTS MANOR, RECORDED IN PLAT BOOK 49, PAGE 15, OF THE
PUBLIC RECORDS OF PINELLAS COUNTY, FLORIDA, NORTH 00 16'52" EAST,
A DISTANCE OF 219.72 FEET; THENCE SOUTH 46 51'00" EAST, A DISTANCE OF
94.85 FEET; THENCE BY A CURVE TO THE LEFT HAVING A RADIUS OF 280.00
FEET, ARC OF 380.62 FEET, A CHORD BEARING OF SOUTH 85 47'34" EAST, A
CHORD DISTANCE OF 351.98 FEET; THENCE BY A CURVE TO THE RIGHT
HAVING A RADIUS OF 114.50 FEET, AN ARC DISTANCE OF 32.96 FEET, A
CHORD BEARING OF NORTH 63 30'39" EAST, A CHORD DISTANCE OF 32.84
FEET; THENCE SOUTH 00 11'26" WEST, A DISTANCE OF 485.73 FEET TO THE
SOUTH LINE OF SECTION 5, TOWNSHIP 30 SOUTH, RANGE 15 EAST, PINELLAS
COUNTY; THENCE ALONG SAID LINE, NORTH 89 19'54" WEST, A DISTANCE OF
450.00 FEET TO THE SOUTHEAST CORNER OF THE SOUTHWEST 1/4 OF THE
SOUTHWEST 1/4 OF SECTION 5; THENCE CONTINUE ON SAID LINE A
DISTANCE OF 1,336.40 FEET TO THE SOUTHWEST CORNER OF SAID SECTION
5, TOWNSHIP 30 SOUTH, RANGE 15 EAST; THENCE ALONG THE WEST LINE OF
SAID SECTION 5, TO~SHIP 30, RANGE 15, NORTH 00 32'53" EAST, A DISTANCE
OF 336.70 FEET TO THE POINT OF RF.(lTNNTN(~.
TOGETHER WITH AN EASEMENT FOR INGRESS AND EGRESS AS RECORDED
IN OFFICIAL RECORDS BOOK 3506, PAGE 936, AS AMENDED BY INSTRUMENT
RECORDED IN OFFICIAL RECORDS BOOK 3538, PAGE 356, OF THE PUBLIC
RECORDS OF PINELLAS COUNTY, FLORIDA.
CENTRAL TAMPA
PARCEL 1:
THE EAST 1/2 OF THE NORTHEAST 1/4 OF THE SOUTHWEST 1/4 OF THE
NORTHWEST 1/4 OF SECTION 4, TOWNSHIP 29 SOUTH, RANGE 19 EAST,
HILLSBOROUGH COUNTY, FLORIDA, LESS THE SOUTH 150 FEET; LESS THE
NORTH 180 FEET; LESS THE WEST 125 FEET AND LESS THE EAST 30 FEET FOR
RIGHT-OFWAY FOR 40TH STREET.
PARCEL 2:
THE NORTH 180 FEET OF THE EAST 1/2 OF THE NORTHEAST 1/4 OF THE
SOUTHWEST 1/4 OF THE NORTHWEST 1/4 OF SECTION 4, TOWNSHIP 29
SOUTH, RANGE 19 EAST, LESS THE WEST 125 FEET AND LESS THE EAST 30
FEET FOR R()AD RIGHT-OF-WAY. ALL LYING IN HILLSBOROUGH COUNTY,
FLORIDA.
DANIA
FROM A POINT ON THE WEST LINE OF SECTION 3, TOWNSHIP 51 SOUTH,
RANGE 42 EAST, WHICH IS 1946.1 FEET SOUTH OF THE NORTHWEST CORNER
OF SAID SECTION 3, GO EASTERLY ALONG THE NORTH LINE OF SW 5TH
STREET, AS SHOWN BY THE PLAT OF COLLEGE TRACT, ACCORDING TO THE
PLAT THEREOF RECORDED IN PLAT BOOK 19, PAGE 9, PUBLIC RECORDS OF
BROWARD COUNTY, FLORIDA, A DISTANCE OF 375 FEET TO A POINT OF
BEGINNING, SAID POINT ALSO BEING THE SOUTHWEST CORNER OF LOT 20,
BLOCK 8, OF COLLEGE TRACT 2ND ADDITION, ACCORDING TO THE PLAT
THEREOF RECORDED IN PLAT BOOK 19, PAGE 19, PUBLIC RECORDS OF
BROWARD COUNTY, FLORIDA; THENCE CONTINUE EASTERLY 277.14 FEET
TO THE INTERSECTION OF SAID NORTH LINE OF SW STH STREET WITH THE
WEST LINE OF PHIPPEN ROAD, AS SHOWN ON SAID PLAT OF COLLEGE
TRACT; THENCE GO NORTHEASTERLY ALONG THE SAID WEST LINE OF
PHIPPEN ROAD A DISTANCE OF 206.64 FEET TO THE NORTHEAST CORNER OF
LOT 14, OF SAID BLOCK 8; THENCE GO WESTERLY ALONG A LINE WHICH IS
200 FEET NORTH OF AND PARALLEL TO THE SAID NORTH LINE OF SW 5TH
STREET, A DISTANCE OF 25 FEET; THENCE GO SOUTH 9 FEET; THENCE GO
WEST 10 FEET; THENCE GO NORTH 9 FEET; THENCE CONTINUE WESTERLY
68.34 FEET TO THE NORTHWEST CORNER OF SAID LOT 14; THENCE GO
SOUTHWESTERLY ALONG A LINE 103.34 FEET WEST OF AND PARALLEL TO
THE SAID WEST LINE OF PHIPPEN ROAD A DISTANCE OF 103.34 FEET;
THENCE GO WESTERLY 199.30 FEET ALONG A LINE WHICH IS 100 FEET
NORTH OF AND PARALLEL TO THE NORTH LINE OF SW 5TH STREET; THENCE
GO SOUTH 100 FEET TO THE POINT OF BEGINNING. THE SAID DESCRIBED
LAND LYING AND BEING IN THE CITY OF DANIA, BROWARD COUNTY,
FLORIDA, AND IN SECTION 3, TOWNSHIP 51 SOUTH, RANGE 42 EAST, AND
ALSO KNOWN AS LOTS 14 TO 20, INCLUSIVE, BLOCK 8, OF COLLEGE TRACT
2ND ADDITION, ACCORDING TO THE PLAT THEREOF RECORDED IN PLAT
BOOK 19 PAGE 19, PUBLIC RECORDS OF BROWARD COUNTY. FLORIDA.
EXHIBIT B
CLOSING CONDITIONS
Lender shall not be obligated to make any disbursements of the Loan or
perform any other obligation under the Loan Documents unless all of the
following conditions precedent are satisfied orior to the date set forth in
Section 3.1 of this Agreement:
1. There shall exist no Event of Default or Potential Default under any of
the Loan Documents.
2. All representations and warranties contained in this Agreement and any
other Loan Documents shall be true and correct as of the Loan Closing Date.
3. Borrower shall have delivered to Lender each of the following items and
documents, all of which shall be in form and substance satisfactory to Lender:
(a) The Debt Service Reserve;
(b) The Common Stock Warrant;
(c) A preliminary title report or reports with respect to the Facilities and
evidence satisfactory to Lender that the Title Company is prepared to issue
the
Title Policy;
(d) A search of the records of the Offices of the Secretary of the States of
Florida, Georgia and Louisiana and the Official Records of the counties
showing
all Uniform Commercial Code financing statements and fixture filings against
Windward, HFLP, Oak Manor and Central Tampa and/or the Facilities or any part
thereof or interest therein:
(e) The policies of insurance required under this Agreement;
(f) Certified copies of Windward's articles of incorporation, bylaws and other
formation documents, together with a certificate of status from the Secretary
of
the States of Georgia and Florida;
(g) Certified copies of the certificates of limited partnership for each of
HFLP, Oak Manor and Central Tampa, the limited partnership agreements and
other
formation documents relating thereto, together with certificates of status
from
the Secretary of the States of Louisiana and Florida, as applicable;
(h) Certified copies of NewCare's articles of incorporation, bylaws and other
formation documents, together with a certificate of status from the Secretary
of
States of Nevada and Florida:
(i) Certified copies of the articles of incorporation, bylaws and other
formation documents of the corporate general partner of HFLP, Oak Manor and
Central Tampa, together with a certificate of status from the Secretary of
State of Florida;
(j) Evidence satisfactory to Lender that Borrower, the general partner of
Borrower and Guarantor have taken all necessary action to authorize it to
execute, deliver and be bound by the Loan Documents to which it is a signator,
including, without limitation, partnership borrowing authorizations and
corporate resolutions together with incumbency certificates
attached thereto.
(k) A search of the records of the Offices of the Secretary of State of
Florida
and the Official Records of the County showing all Uniform Commercial Code
financing statements and fixture filings against Borrower and/or the
Facilities
or any part thereof or interest therein;
(1) an ALTA survey with respect to each of the Facilities;
(m) Financial Statements of Borrower for Borrower's most recent fiscal year,
together with interim 1997 statements if available, certified by an officer of
Borrower or Borrower's corporate general partner, as the case may be;
(n) Satisfactory evidence that Borrower has complied with all applicable
Licensing Requirements;
(o) Satisfactory evidence that the Facilities comply with all zoning
ordinances,
including, without limitation, a statement from the appropriate Governmental
Authority setting forth the current zoning designation for the Land;
(p) The Phase I Site Assessment Reports with respect to the Facilities,
prepared
by a consultant satisfactory to Lender; and
(q) Such other documents and instruments as may be reasonably required by
Lender.
EXHIBIT C
QUARTERLY RECONCILIATION OF CASH FLOW INTEREST
Premises:
Quarter Ending:
CASH FLOW INTEREST CALCULATION
Loan Year Gross Revenue Through Current Quarter $ (A)
Base Year Gross Revenue Through Current Quarter $ (B)
Year to Date Incremental Revenue (A - B) $ (C)
Year to Date Cash Flow Interest $ (D)
Cash Flow Interest Previously Paid This Year $ (E)
Cash Flow Interest Due from Borrower (Amount to be applied by Lender) (D-E*)
* Strike out appropriate clause to indicate if payment is owed from Borrower
or
excess is to be applied by Lender.
The undersigned represents, warrants and certifies to Nationwide Health
Properties, Inc., a Maryland corporation, after due investigation, that the
foregoing information is true, correct and complete.
WINDWARD NURSING CENTER, INC., a Georgia corporation
By:
Its:
HEALTHCARE FACILITIES LIMITED
PARTNERSHIP I, a Louisiana limited
partnership
By: Equity General Partner, Inc., a Florida
corporation, General Partner
By:
Its:
OAK MANOR NURSING HOME, LTD., a
Florida Irmited partnership
By: Equity General Partner, Inc., a Florida
corporation, General Partner
By:
Its:
CENTRAL TAMPA NURSING HOME, LTD.,
a Florida limited partnership
By: Equity General Partner, Inc., a Florida
corporation, General Partner
By:
Its:
<PAGE>
EXHIBIT D
ANNUAL RECONCILIATION OF CASH FLOW INTEREST
Premises:
Year Ending:
CASH FLOW INTEREST
Current Year Gross Revenue
Base Year Gross Revenue
Annual Incremental Revenue (A - B)
Annl~nl Cnsh Flow Tnterest
$ (A)
$ (B)
$ (C)
$ (D)
CASH FLOW INTEREST PAID BY BORROWER (APPLIED BY
LENDER) FOR
CURRENT YEAR
Month 1 (Paid on )
Month 2 (Paid on )
Month 3 (Paid on )
Month 4 (Paid on )
Month 5 (Paid on )
Month 6 (Paid on )
Month 7 (Paid on )
Month 8 (Paid on_)
Month 9 (Paid on )
Month 10 (Paid on _)
Month 11 (Paid on_)
Month 12 (Paid on )
Plus or Minus Quarterly
Adjusting Payments of $
(see detail on attached Schedule 1)
Total Additional
Interest Paid
UNDERPAYMENT OF CASH FLOW INTEREST
(D - E) $
OVERPAYMENT OF CASH FLOW INTEREST
(E - D) $
The undersigned represents, warrants and certif~es to Nationwide Health
Properties, Inc., a Maryland corporation, after due investigation, that the
foregoing information is true, correct and complete.
"BORROWER"
WINDWARD NURSING CENTER9 INC., a Georgia corporation
By:
Its:
HEALTHCARE FACILITIES LIMITED
PARTNERSHIP I, a Louisiana limited partnership
By: Equity General Partner, Inc., a Florida corporation, General Partner
By:
Its:
OAK MANOR NURSSING HOME, LTD., a
Florida limited partnership
By: Equity General Partner, Inc., a Florida
corporation, General Partner
By:
Its:
CENTRAL TAMPA NURSING HOME,
LTD., a Florida limited partnership
By: Equity General Partner, Inc., a Florida
corporation, General Partner
By:
Its:<PAGE>
SCHEDULE 1
TO
ANNUAL RECONCILIATION OF CASH FLOW INTEREST
Premises:
Year Ending:
Adjusting Payments Made
Quarter Ending
Quarter Ending
Quarter Ending
Quarter Ending
Total Adjusting Payments
<PAGE>
EXHIBIT E
FORM OF CLOSING PROCEDURE LETTER
May 14, 1997
Hughes and White, as agent for Chicago Title Insurance Company Building 29,
Suite 200, 1640 Powers Ferry Road Marietta, Georgia 30067 Attention: Gregory
D. Hughes, Esq.
Re:$21,500,000 from Nationwide Health Properties, Inc., a Maryland Corporation
("Lender") to Windward Nursing Center, Inc., a Georgia corporation; Healthcare
Facilities Limited Partnership 1, a Louisiana Limited partnership; Oak Manor
Nursing Home, Ltd., a Florida limited partnership and Central Tampa Nursing
Home, Ltd., a Flonda limited partnership (collectively, "Borrower"); Your
Order No:
Ladies and Gentlemen:
Please refer to that certain Loan Agreement dated as of May 14, 1997 by
and
between Borrower and Lender, a copy of which is being delivered to you with
this
letter. Except as otherwise defined herein, all initially-capitalized terms
used
herein shall have the same meaning
given such terms in the Loan Agreement.
This letter shall constitute your instructions with respect to the "Funds"
and "Documents" described herein.
A. Delivery of Funds.
On or before May 14, 1997, Lender shall wire-transfer to you immediately
available funds in the sum of (i) the Initial Loan Advance (less the amount of
the Debt Service Reserve) and (ii) such additional funds as may be due from
Lender pursuant to the Closing Statement described in Paragraph B(3) below
(the
"Funds").
B. Deliverv of Documents.
1. Delivery of Recording Documents. Borrower or Lender shall deliver to you
one
fully executed (and acknowledged where applicable) original of each of the
following documents (the "Recording Documents"):
(a) ;
(b) ; and
(c)
2. Borrower's Delivery of Non-Recornat~on documents. borrower shall deliver to
you one fully executed original of each of the following documents (the
"NonRecordation Documents"):
(a) Pay-off letters or demands (the "Pay-Off Letters") from the then record
holders or claimants of any encumbrance or monetary lien affecting any or all
of
the Facilities, stating the cash amount required to be paid and where and to
whom such amount is to be paid in order to satisfy and discharge of record
such
encumbrances.
3. Delivery and Approval of Closing Statement. You shall prepare, and Lender
and
Borrower shall approve and execute, a closing statement showing the source and
application of funds received by you and the costs and expenses incurred in
connection herewith (the "Clos~ne Statement").
4. Definition of Documents. As used herein, "Documents" shall mean,
collectively, the Recording Documents, the Non-Recordation Documents and the
Closing Statement.
C. Conditions to Closing.
The Funds shall not be disbursed and the Documents shall not be recorded or
delivered to any person or entity until each of the following conditions are
satisfied:
1. You have received the Funds and are unconditionally and irrevocably
prepared
to disburse the same in accordance with Paragraph D hereof.
2. You have received the Documents and are unconditionally and irrevocably
prepared to record the
Recording Documents in accordance with Paragraph D hereof.
3. You are unconditionally and irrevocably committed to issue the Title
Policy,
together with a [DESCRIPTION OF ENDORSEMENTS] subject only to those exceptions
(the "Permitted Exceptions") which appear on the pro forma title policy
attached
hereto as Exhibit A.
4. You have received the Written Authorization.
D. Closing. When the conditions specified in Paraeraph C above are satisfied,
then you shall immediately deliver to Borrower and Lender a written
confimnation
of such satisfaction in the form of Exhibit B hereto (which confirmation shall
evidence your agreement to immediately take or cause to be taken the actions
hereinafter specified), and thereafter you shall irrunediately:
1. Record the Recording Documents in the order listed below in Official
Records
of Hillsborough County, Florida:
(a) the ; and
2. Record the Recording Documents in the order listed below in Official
Records
of Broward County, Florida:
(a) the ___________; and
(b)
3. Record the Recording Documents in the order listed below in Official
Records
of Pinellas County, Florida:
(a) the ; and
4. Record the Recording Documents in the order listed below in ()~-icial
Records
of Hall County, Georgia:
(a) the ; and
(b)
5. Disburse the respective amounts due to both parties \~.g ~ Ilerl HUlUrlb)
under the Closing Statement in
accordance with the respective instructions from such third parties.
6. Disburse any amounts due Lender under the Closing Statement in accordance
with the following wiring instructions:
Wells Fargo Bank 420 Montgomery Street San Francisco, California ABA No.
121000248 for the benefit of Nationwide Health Properties, Inc. Account No.
4692089329 Upon receipt, notify Mark Desmond by telephone at (714) 718-4412
7. Disburse to Borrower the remainder of the Funds pursuant to the
instructions
to be provided by Borrower.
8. Issue the Title Policy and deliver such Title Policy to Sherry, Coleman &
Holthouse LLP, at the address specified in Para~raph E hereof, within 20
working
days.
E. Deliverv of Documents. As soon as they are available, please deliver the
Documents as follows:
1. To Sherry, Coleman & Holthouse LLP, 610 Newport Center Drive, Suite 1200,
Newport Beach, California 92660, Attention: Kevin L. Sherry, Esq., the
following:
(a) the recorded originals of each of the Recording Documents, and (b) the
originals of the Documents other than the Recording Documents.
2. To Borrower, , a copy of each of the Documents.
F.Closing Costs. All closing costs incurred in carrying out your
duties under this letter are to be billed in accordance with Section 4.1 of
the
Loan Agreement.
G.Investment of Funds.
1. Lender's Funds. As soon as you receive any portion of the Funds, you shall
notify Lender of such fact. If Lender gives you written instructions to do so,
you shall invest the Funds in treasury bills (or such other short-term
investment as may be authorized by Lender) for the benefit of Lender.
The interest accrued on the Funds shall be delivered to Lender, in accordance
with Lender's wiring instructions, upon the closing (or, if sooner, from time
to
time upon the oral or written request of Lender).
H.Cancellation of Instructions. Notwithstanding anything to the
contrary herein, if the conditions specified in Paragraph C hereof are not
satisfied on or before May 14, 1997, then, if you receive written instructions
to cancel this transaction from either of the undersigned, the
instructions set forth in Paracraphs A through E above shall be deemed
cancelled, you shall immediately return the Funds (and any interest thereon)
to Lender, in accordance with Lender's wiring instructions and you shall
destroy the Documents on the next business day thereafter.
I. Limitation of Liability. You are acting solely as closing agent, and you
shall be liable solely for your failure to comply with the terms of this
letter. The foregotng will not limit your liability as title insurer under
the terms of the Title Policy (such liability being in accordance with the
terms of such policy).
J. Execution bv Counterparts: Facsimile Sianatures. This letter of
instructions
may be executed in two or more counterparts, each of which shall be an
original,
but all of which shall constitute one and the same letter of instructions. You
are hereby authorized to accept facsimile signatures on this letter of
instructions as original signatures, and such facsimile signatures are hereby
deemed originals.
K. Interpleader. Borrower and Lender expressly agree that if they give you
contradictory instructions, you shall have the right, at your election, to
file
an action in interpleader requiring the Borrower and Lender to answer and
litigate their several claims and rights between themselves and you are
authorized to deposit with the clerk of the court all documents and
funds held by you. In the event such action is filed, Borrower and Lender
agree
to pay your cancellation charges and costs, expenses and reasonable attorneys'
fees which you are required to expend or incur in the interpleader action, the
amount thereof to be fixed and judgment therefor to be rendered by the court.
Upon the filing of such an action, you shall be fully released and discharged
from all obligations to perform further any duties or obligations
imposed hereunder.
Very truly yours,
"LENDER"
NATIONWIDE HEALTH PROPERTIES, INC., a Maryland corporation
By:
Gary E. Stark, Vice President
"BORROWER"
WINDWARD NURSING CENTER, INC., a Georgia corporation
By:
Its:
HEALTHCARE FACILITIES LIMITED
PARTNERSHIP I, a Louisiana limited
partnership
By: Equity General Partner, Inc., a Florida
corporation, General Partner
By:
Its:
OAK MANOR NURSING HOME, LTD., a
Florida limited partnership
By: Equity General Partner, Inc., a Florida
corporation, General Partner
By:
Its:
CENTRAL TAMPA NURSING HOME, LTD.,
a Florida limited partnership
By: Equity General Partner, Inc., a Florida
corporation, General Partner
By:
Its:
ACCEPTED AND AGREED TO as of the
date first above written:
CHICAGO TITLE INSURANCE COMPANY
By:
Its:
SCHEDULE 1 TO EXHIBIT
E
EXHIBIT A
PRO FORMA TITLE
POLICY
[See Attached)
SECURED PROMISSORY NOTE
521,500,000 May 14, 1997
1. Principal.
For value received, in installments as herein provided, WINDWARD NURSING
CENTER,
INC., a Georgia corporation; HEALTHCARE FACILITIES LIMITED PARTERRSHIP I, a
Louisiana limited partnership; OAK MANOR NURSING HOME, LTD., a Florida limited
partnership, and CENTRAL TAMPA NURSING HONIE, LTD., a Florida limited
partnership (collectively, "Maker"), promises to pay to the order of
NATIONWIDE HEALTH PROPERTIES, INC., a Maryland corporation ("Holder"), at its
office at 610 Newport Center Drive. Suite 1150, Newport Beach, California
92660, or at such other place as the Holder hereof may from time tO time
designate in writing, the principal sum of Twenty-One Million Five Hundred
Thousand Dollars ($21,500,000), or so much thereof as shall from time to
time be outstanding hereunder, together with accrued interest from the date
of disbursement on the unpaid principal at the applicable rate as set forth
in Paragraph 4. This Note is issued pursuant to, entitled to the benefits of
and referred to as the Note in that certain Loan Agreement (the ~Loan
Agreement") of even date herewith between Maker and Holder. Initially-
capitalized terms used herein without definition shall have the
meanings set forth in the Loan Agreement.
2. Maturity Date.
The unpaid principal balance hereof, together with all unpaid Total Interest
(as
hereinaRer defined) accrued thereon, and all other amounts payable by Maker
under the terms of the Loan Documents, shall be due and payable on June 1,
2009 (the "Maturity Date"). If the Maturity Date should fall on a day
that is not a Business Day, payment of the outstanding principal shall be made
on the next succeeding Business Day and such extension of time shall be
included
in computing any interest in respect of such payment.
3. Prepayment.
Maker shall have no right to prepay the Eoan, in whole or in part, prior to
June
1, 2006. Provided no Event of Default then exists under any of the Loan
Documents from and after June 1, 2006 Maker shall have the privilege, upon
ninety (90) days advance written notice, of prepaying the outstanding
principal balance under this Note together with the Yield Maintenance
Premium. Notwithstanding the foregoing, if prepayment is deemed to have
occurred prior to June 1, 2006 because Holder has exercised its remedies as a
result of an Event of Default by Maker under the Loan Documents, Maker shall
pay the full amount of the outstanding principal balance under this Note, all
accrued but unpaid interest and other sums owed to Holder under this Note and
the other Loan Documents, together with the Yield Maintenance Premium. In no
event shall the foregoing be deemed or construed to allow Maker to
voluntarily prepay the Loan prior to June 1, 2C06. As used herein, "Yield
Maintenance Premium" shall mean the amount calculated as follows:
(a) Calculate the Rein,,estment Yield. The "Reinvestment Yield" shall be
the annualized yield, as published in The Wall Street Journal five (5)
business days prior to the date of prepayment, on the United States Treasury
notes having the closest maturity date (month and year) to the Maturity Date.
If the Reinvestment Yield is greater than or equal to the interest rate
then in effect with respect to the Loan, the Yield Maintenance Premium shall
be
equal to zero.
(b) Calculate the Reinvestment Pavrnents. The"Reinvestment Payments"
shall
be the monthly interest payments that would be received by Holder through the
Maturity Date, if the principal amount prepaid or deemed prepaid were to be
invested at the Reinvestment Yield.
(c) Calculate the Payment Differential. The "Payment Differential" shall
be
computed on a monthly basis from the date the Loan is prepaid or deemed
prepaid
until the Maturity Date and shall be equal to the difference between the
Reinvestment Payments and the Basic Interest payments to be made by Maker
during
such period pursuant to Paraeraph 4 below.
(d) Calculate the Yield Maintenance Premium. The "Yield Maintenance
Premium" shall be the present value of the Payment Differential for the
number of months (or partial months) remaining from the date the Loan is
prepaid or deemed prepaid to the Maturity Date discounted at the Reinvestment
Yield.
In no event shall the foregoing be deemed or construed to allow Maker to
voluntarily prepay the Loan except as expressly provided herein.
4. Payments of Principal and Interest.
(a) Commencing on the 1st day of June, 1997 and continuing on the 1st day of
each calendar month thereafter through the Maturity Date, Maker shall make
monthly payments of Basic Interest (as hereinafter deftned). Subject to the
provisions of subparagraph (f) below, commencing with the third Loan Year and
in
addition to the Basic Interest, Maker shall make monthly payments of Cash Flow
Interest (as hereinafter defined). As used herein, "Cash [low Interest" shall
mean, with respect to any given Loan Year, an amount equal to ten percent
(10%)
of the Incremental Revenues for such Loan Year.
(b) Commencing on the Loan Closing Date, the unpaid principal balance hereof
shall bear interest at the following ratec (the "Basic Interes,t"): (i)
commencing on the date of disbursement of any proceeds of the Loan by Holder
and
continuing through the first Loan Year, a per annum rate equal to Ten and
Seventy-Eight one hundredths percent (10.78%); and (ii) during the second Loan
Year and thereafter, a per annum rate equal to Eleven and Three one-hundredths
percent (11.03%). Notwithstanding the foregoing, in the e~ent that Holder or
its
Affiliates, as landlord, and NewCare or its Affiliates, as tenant, have failed
for any reason whatsoever by December 1, 1998 to enter into lease financing
transactions for healthcare facilities w ith respect to which Holder and/or
its
Affiliates have invested at least Twenty-Five Million Dollars ($25,000,000),
Basic Interest shall be retroactively increased to the
following rates: (x) commencing on the date of disbursement of any proceeds of
the Loan by Holder and continuing through the first Loan Year, a per annum
rate
equal to Ten and Ninety-Three one-hundredths percent (10.93%); and (y) during
the Second Loan Year and thereafter, a per annum rate equal to Eleven and
Eighteen one-hundredths percent (11.18 % ). All accrued and unpaid interest
through November 30, 1998 which results from any such retroactive increase
in Basic Interest shall be due and payable on December 1, 1998 (the "Accrued
Basic Interest"). The total Basic Interest and Cash Flow Interest required to
be paid by Maker from time to time shall be referred to herein as the "Total
Interest."
(c) Maker shall calculate Cash Flow Interest on each Adjustment Date for the
portion of the Loan Year then completed based upon Maker's good faith estimate
of Incremental Revenues for the portion of the Loan Year then completed equal
to
Gross Revenues for the months of the applicable Loan Year then completed,
minus
Gross Revenues for the same months of the Base Year. Within forty-five (45)
days
of each third Adjustment Date in each Loan Year following the Base Year, Maker
shall deliver to Holder a certificate in the form attached as Exhibit C to the
Loan Agreement setting forth the foregoing calculation for the portion of the
Loan Year then completed. If the dollar amount resulting from such calculation
exceeds the cumulative Cash Flow Interest previously paid to Holder by Maker
with respect to such Loan Year, Maker shall a company such certificate with a
payment of Cash Flow Interest equal to such excess. If the cumulative Cash
Flow Interest previously paid to Holder by Maker with respect to such Loan
Year exceeds the dollar amount resulting from such calculation, Holder shall
apply such excess amount to the next succeeding payment of interest or
principal, as applicable, due from Maker pursuant to this Note.
(d) Within sixty (60) days of the end of each Loan Year, Maker shall deliver
to
Holder a report in the form attached as Exhibit D to the Loan Agreement,
certified by an officer of Maker, setting forth the actual Gross Revenues for
the Loan Year then just ended and the final calculation of Cash Flow Interest
for such Loan Year.
(e) If the final Cash Flow Interest as shown in the repon delivered to Holder
pursuant to subparagraph (d), abose, exceeds the cumulative payments of Cash
Flow Interest previously paid by Maker with respect to such Loan Year, Maker
shall pay such excess to Holder concurrently with Maker's delivery of such
report. If the Cash Flow Interest for such Loan Year as finally determined is
less than the amount of Cash Flow Interest previously paid to Holder by
SIaker with respect to such Loan Year, Holder shall apply such excess amount
to the next succeeding payment of interest or principal, as applicable, due
from Maker pursuant to this Note. Any adjustments to Cash Flow Interest as
provided in this subparagraph (e) shall be deemed to be an adjustment of the
Cash Flow Interest payable for the Loan Year in which such adjustment is made.
(f) Notwithstanding the foregoing but subject to the provisions of
subparagraph
(g) below, commencing with the Third Loan Year and continuing through the
final
Loan Year, in no event shall (i) the Total Interest payable by Maker for any
given Loan Year increase by more than two and one-half percent (2.5%) from the
sum of the Total Interest payable by Maker during the immediately preceding
Loan
Year; and (ii) the Cash Flow Interest payable by Maker decrease from the sum
of
the Cash Flow Interest payable by Maker during the immediately preceding Loan
Year. To the extent that this subparagraph (f) serves to reduce or increase
any
amounts which would otherwise be payable by Malcer under this Note, Holder may
elect, in its sole discretion, to account for such reduction or increase as a
reduction or increase of Basic Interest or Cash Flow Interest. If this
subparagraph (f) results in an overpayment by Maker, Holder shall apply the
amount of such overpayment to the next amounts due under this Note in such
order
as Holder may elect.
(g) For the purpose of comparing the Total Interest from Loan Year to Loan
Year
pursuant to subparagraph (f) above, any increase in Basic Interest by reason
of
any disbursement by Holder of any portion of the Final Loan Advance and/or the
accrual of Basic Interest pursuant to subparagraph (b) above shall be treated
as
follows: (I) for the purpose of comparing the Total Interest in the Loan Year
in
which such disbursement or accrual is made against the Tota1 Interest in the
preceding Loan Year, such increase in Basic Interest shall be ignored, and
(ii)
for the purpose of comparing the Total Interest in the Loan Year following the
Loan Year in which such disbursements or accrual are made to the Total
Interest
in the Loan Year in which such disbursements or accrual are made, the increase
in Basic Interest resulting from such disbursements or accrual shall be deemed
effective on the first day of the Loan Year iQ which such disbursement and/or
accrual is made.
(h) All interest payments required to be made by Maker under this Note shall
be
due and payable monthly (i) with respect to interest for the month of May,
1997,
on June 1, 1997; and (ii) with respect to interest for the month of June, 1997
and each month thereafter, on the first day of the month after which such
interest accrues.
(i) All payments of principal and interest due hereunder shall be made
without
deduction of any present and future taxes, levies, imposts, deductions,
charges
or withholdings from or on payments due from Maker (excluding taxation of the
overall net income of Holder), which amounts shall be paid by Maker. Maker
will
pay the amounts necessar`; such that the gross amount of the principal and
interest received by Holder is not less than that required by this Note. All
stamp and documentary taxes shall be paid by Maker. If, notwithstanding the
foregoing, Holder pays such taxes, Maker will reimburse Holder for the amount
paid. Maker will furnish Holder with official
tax receipts or other evidence of payment of all taxes.
(j) Throughout the term of this Note, interest shall be calculated on the
basis
of a 360 day year and shall be computed on the basis of a 30-day month. If any
payment of interest to be made by Maker hereunder shall become due on a day
which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in
computing any interest in respect of such payment.
5. Lawful Money
Principal and interest are payable in lawful money of the United States of
America.
6. Applications of Payments; Late Charges.
(a) Except as provided in subparacraph 4(f), any payments received by Holder
pursuant to the terms hereof shall be applied first to sums, other than
principal and interest, due Holder pursuant to the Loan Documents, next to
the payment of all interest accrued to the date of such payment, and the
balance, if any, to the payment of principal.
(b) Maker acknowledges that the late payment of any amount due hereunder will
cause Holder tO lose the use of such money and incur costs and expenses not
contemplated under the Loan Documents, including, without limitation,
administrative and collection costs and processing and accounting expenses,
the
exact amount of which is extremely difficult to ascertain. Therefore, if any
installment of Basic Interest or other charges due under the Loan Documents is
not received by Holder on the due date thereof, then in addition to the
remedies
conferred upon Holder pursuant to Paragraph 10 hereof and the other Loan
Documents, (1) a late charge of five percent (5%) of the amount due and unpaid
will be added to the delinquent amount to compensate Holder for the expense of
handling the delinquency (a "Late Charge"); provided, however, such Late
Charge
shall be imposed on the date when such payment is due subsequent to any time
that Maker fails to make installment payments within five (5) days of the due
date thereof either for (A) three (3) consecutive months, or (B) four (4)
months in any consecutive twelve (12) month period, and (2) the amount due
and unpaid, including the Late Charge, shall bear interest at the lesser of
the highest annual rate which may lawfully be charged and collected
under applicable law on the obligation evidenced by this Note or an annual
rate
which shall be four percent (4$) higher than the Basic Interest (the "Agreed
Rate"), computed from the date on which the amount was due and payable until
paid.
7. Security.
This Note is secured by, inter alia, the Mortgages. which Mortgages create a
first prioriry lien on the Facilities, and by the Debt Service Reserve Pledge
Agreement and the other Loan Documents, as applicable.
8. Acceleration by Reason of Transfer.
(a) Each of the Mortgages contains the following limitation on the right of
Maker to transfer any of the Facilities:
"Transfer of Collateral by Mortgagor. The financial stability and managerial
and
operational ability of Mortgagor and NewCare are substantial and material
considerations to Mortgagee in its agreement to make the loan to Mortgagor
upon
the terms set forth in, and to accept from Mortgagor, the Loan
Documents. Mortgagor understands and acknowledges that a transfer of the
Collateral may significantly and materially alter and reduce Mortgagee's
security or the indebtedness evidenced or guarantied by the Note, the Loan
Agreement and the other Loan Documents, as the case may be. Therefore, in
order to induce Mortgagee to make the loan secured hereby, Mortgagor agrees
that, except as expressly permitted hereunder, Mortgagor will not transfer
the Collateral, or any portion thereof, without the prior written consent of
Mortgagee, which consent may be withheld in its sole discretion. In the event
of any transfer of the Collateral, or any portion thereof, that is not
expressly permitted hereunder and is without the prior written consent of
Mortgagee, Mortgagee shall have the absolute right at its option, without
prior demand or notice, to declare all of the Obligations immediately due and
payable. Consent to one such transfer shall not be deemed to be a waiver of
the requirement of consent to future or successive transfers. If consent
should be given to a transfer and if this Instrument is not released to the
extent of the transferred portion of the Collateral by a writing signed by
Mortgagee and recorded in the proper city, town, county or parish records,
then any such transfer shall be subject to this Instrument and any such
transferee shall assume all obligations hereunder and agree to be bound by
all provisions contained herein. Any such assumption shall not, however,
release Mortgagor or any maker or guarantor of the indebtedness evidenced or
guarantied by the Note, the Loan Agreement and the other Loan Documents,
as the case may be, from any liability thereunder without the prior written
consent of Mortgagee. As used herein, "transfer" shall include (i) the sale,
agreement to sell, transfer or conveyance of the Collateral or any portion
thereof or interest therein, whether voluntary, involuntary, by operation of
law
or otherwise; (ii) the execution of any installment land sale contract or
similar instrument affecting all or a portion of the Collateral; (iii)
the lease or sublease of all or a portion of the Collateral (excluding leases
in
the ordinary course of business to occupants of the Premises); (iv) the use of
any part of the surface, or subsurface to a depth of 500 feet below the
surface,
of the Premises for the prospecting or drilling for, or the
production (including injection and other production or withdrawal
operations),
mining, extraction, storing or removal of, any oil. gas or other minerals
whether from the Premises or elsewhere; (v) any transfer by way of security,
including the placing or the permitting of the placing, subsequent to the
date hereof, of any mortgage, deed of trust, deed to secure debt, assignment
of rents or other security device on the Premises or any part thereof, or
(vi) any transfer, sale, convesance, encumbrance or other disposition of the
stock, partnership interest or beneficial interest in Mortgagor or NewCare,
or the occurrence of any other event which may or does cause a change in
control of Mortgagor or NewCare. Without limiting the generality of the
foregoing, the transfer, on a cumulative basis, of twenty-f~ve percent (25%)
or more of the voting or ownership control of Mortgagor to any Person (or in
the aggregate to any Persons which are Affiliates of such Person) shall be
deemed to constitute a change in control of Mortgagor for the purposes
hereof. Notwithstanding the foregoing, "transfer" as used herein shall not
include any of the following events: any transfer, sale, conveyance or other
disposition of the stock, partnership interest or beneficial interest in
Mortgagor or NewCare to an Affiliate of Mortgagor or NewCare or in
connection with a stock or other securities offering of Mortgagor or NewCare
registered with the Securities and Exchange Commission. The covenants set
forth herein shall run with the Land and remain in full force and effect
until all of the Obligations are paid and fully performed, and Mortgagee may,
without notice to Mortgagor, deal with any transferees with reference to the
Obligations in the same manner as the Mortgagor, without in any way altering
or discharging Mortgagor's liability or the liability of any guarantor of
Mortgagor with respect thereto."
9. Event of Default.
The occurrence of any of the following shall be deemed to be an event of
default
("Event of Default") hereunder:
(a) a default in the payment of principal or interest (including, without
limitation, Basic Interest, Accrued Basic Interest, Cash Flow Interest or
interest at the Agreed Rate) within five (5) days of when due pursuant to the
terms hereof; or
(b) the occurrence of an Event of Default under any of the Loan Documents or
under any deed of trust, mortgage, security agreement, lease assigarnent,
guaranty or other agreement (including any amendment, modification or
extension
thereof now or hereafter securing this Note.
10. Remedies.
Upon the occurrence of an Event of Default and the expiration of any cure
period
therefor as provided in the Loan Agreement, then at the option of Holder, the
entire balance of principal together with all accrued interest thereon and the
Yield Maintenance Premium shall, without demand or notice, immediately become
due and payable. Upon the occurrence of an Event of Default (and so long as
such Event of Default shall continue), the entire balance of principal
together with all accrued interest shall bear interest at the Agreed Rate.
No delay or omission on the part of the holder hereof in exercising any right
under this Note or under any of the other Loan Documents hereof shall
operate as a uaiver of such right.
1 1. Waiver.
Maker hereby waives diligence, presentment, protest and demand, notice of
protest, dishonor and nonpayment of this Note, and expressly agrees that,
without in any way affecting the liability of Maker hereunder, Holder may
extend any maturity date or the time for payment of any installment
due hereunder, accept additional security, release any party liable
hereunder and release any security now or hereafter securing this Note.
Maker further waives, to the full extent permitted by law, the right to
plead any and all statutes of limitations as a defense to any demand on this
Note, or on any mortgage, security agreement, lease assignment, guaranty or
other agreement now or hereafter securing this Note
12. Attorneys' Fees.
If this Note is not paid when due or if any Event of Default occurs, Maker
promises to pay all costs of enforcement and collection, including but not
l~mited to, reasonable attorneys' fees, whether or not any action or
proceeding
is brought to enforce the provisions hereof. As used in this Note,
"attorneys' fees" and "attorneys' fees and costs" shall have the meanings
given
to such terms in the Loan Agreement.
13. Severability.
Every provision of this Note is intended to be severable. In the event any
term
or provision hereof is declared by a court of competent jurisdiction to be
illegal or invalid for any reason whatsoever, such illegality or invalidity
shall not affect the balance of the terms and provisions hereof, which
terms and provisions shall remain binding and enforceable.
14. Interest Rate Limitation.
Holder and Maker stipulate and agree that none of the terms and provisions
contained herein or in any of the loan instruments shall ever be construed to
create a contract for the use, forbearance or detention of money requiring
payment of interest or finance charge (as defined by the laws of the
State of Florida) at a rate in excess of the maximum interest rate or finance
charge (as defined by the laws of the State of Florida) permitted to be
charged
by the laws of the State of Florida. In such event, if any Holder of this Note
shall collect monies which are deemed to constitute interest or
finance charge (as defined by the laws of the State of Florida) which would
otherwise increase the effective interest rate or finance charge (as defined
by
the laws of the State of Florida) on this Note to a rate in excess of the
maximum rate permitted to be charged by the laws of the State of Florida,
all such sums deemed to constitute interest or finance charge (as defined by
the
laws of the State of Florida) in excess of such maximum rate shall, at the
option of Holder, be credited to the payment of the sums due hereunder or
returned to Maker.
15. Number and Gender.
In this Note the singular shall include the plural and the masculine shall
include the feminine and neuter gender, and vice versa, if the context so
requires.
16. Headings.
Headings at the beginning of each numbered Paragraph of this Note are intended
solely for connvenience and are not to be deemed or construed to be a part of
this Note.
17. Choice of Law.
THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF FLORIDA,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
$10,000,000.00
LOAN AND SECURITY AGREEMENT
by and among
NEWCARE HEALTH CORPORATION
NEWCARE, INC.
OAK MANOR NURSING HOME, LTD.
HEALTHCARE FACILITIES LIMITED PARTNERSHIP I
SUNCOAST NURSING HOME, LTD.
VICTORIA MARTIN NURSING HOME, LTD.
CENTRAL TAMPA NURSING HOME, LTD.
MEMORIAL NURSING CENTER, INC.
CIMERRON HEALTH CARE, INC.
FITZGERALD HEALTHCARE, INC.
FITZGERALD NURSING CENTER, INC.
FORT VALLEY NURSING CENTER, INC.
WINDWARD NURSING CENTER, INC.
KMH ENTERPRISES, INC.
WHIGHAM HEALTH & REHABILITATION, INC.
(individually, "Borrower" and collectively, "Borrowers" )
and
HCFP FUNDING, INC.
("Lender")
June 30, 1997
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of this
30th
day of June, 1997, by and among NEWCARE HEALTH CORPORATION, a Nevada
corporation, NEWCARE, INC., a Florida corporation, OAK MANOR NURSING HOME,
LTD., a Florida limited partnership, HEALTHCARE FACILITIES LIMITED
PARTNERSHIP I, a Louisiana limited partnership, SUNCOAST NURSING HOME, LTD.,
a Florida limited partnership, VICTORIA MARTIN NURSING HOME, LTD., a Florida
limited partnership, CENTRAL TAMPA NURSING HOME, LTD., a Florida limited
partnership, MEMORIAL NURSING CENTER, INC., a Georgia corporation, CIMERRON
HEALTH CARE, INC., a Georgia corporation, FITZGERALD HEALTHCARE, INC., a
Georgia corporation, FITZGERALD NURSING CENTER,
INC., a Georgia corporation, FORT VALLEY NURSING CENTER, INC., a Georgia
corporation, WINDWARD NURSING CENTER, INC., a Georgia corporation, KMH
ENTERPRISES, INC., a Georgia corporation and WHIGHAM HEALTH & REHABILITATION,
INC., a Georgia corporation (collectively, "Borrowers" and individually, a
"Borrower" ), and HCFP FUNDING, INC., a Delaware corporation ("Lender").
RECITALS
A. Borrowers desire to establish certain financing arrangements with and
borrow funds from Lender, and Lender is willing to establish such arrangements
for and make loans and extensions of credit to Borrowers, on the terms and
conditions set forth below.
B. The parties desire to define the terms and conditions of their
relationship and to reduce their agreements to writing.
NOW, THEREFORE, 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 a 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 (2.0%) 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 a Borrower or which is the substantial
equivalent
of the financing of the property so leased.
Section 1.7. Borrower. "Borrower" and "Borrowers" have 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 States of Maryland and Georgia,
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.
Section 1.12. 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. Intentionally Deleted.
Section 1.16. Default Rate. "Default Rate" means a rate per annum equal
to
three percent (3%) 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 (a), subject to the additional
provisions of Section 8.1 (b) regarding "Limited Events of Default."
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. Governmental 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 a Borrower to compensate such Borrower
for providing services to a Patient.
Section 1.23. A. Leases and Rents. "Leases and Rents" shall mean all
rents,
revenues, issues and profits payable to a Borrower with respect to its
ownership
of real property, all lease, occupancy or similar agreements relating to real
property owned by a Borrower and any contract for the sale, exchange or other
disposition of any such real property, and all books and records of a Borrower
relating to any of the foregoing.
Section 1.24. Lender. "Lender" has the meaning set forth in the Preamble.
Section 1.24 A. Limited Event of Default. "Limited Event of Default" has
the meaning set forth in Section 8.1 (b).
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 2.1 (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 a Borrower 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 out-patient behavioral healthcare services, and
medicine or health care equipment provided by a 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 a Borrower and all Persons legally liable to pay such Borrower
for
such Medical Services other than Insurers.
Section 1.36. Permitted Liens. "Permitted Liens" means: (a) any and all
liens, claims and encumbrances whatsoever, so long as the same do not attach
to
any portion of the Collateral, (b)statutory and contractual liens of
depository
institutions against depository accounts included within the Collateral for
unpaid fees, charges and expenses, so long as a Borrower does not have an
outstanding loan or credit facility with such depository institution and (c)
liens listed on Schedule l lA hereto,
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
a Borrower generated in the ordinary course of such Borrower's business from
the
sale of goods or rendition of medical services; provided, however, that 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 a 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 sixty (60) days past the
claim or invoice date, or one hundred twenty (120) days past the claim or
invoice date in the case only of Georgia Medicaid Account Debtors (provided,
however, that with respect to Georgia Medicaid Qualified Accounts no more
than fifteen percent (15%) of such Georgia Medicaid Qualified Accounts at
any time shall be between sixty-one (61) and ninety (90) days past the claim
or invoice date, and no more than ten percent (10%) of such Georgia Medicaid
Qualified Accounts at any time shall be between ninety-one (91) and one
hundred twenty (120) 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 part
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 a 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 (it may be acknowledged and agreed
that accounts payable by Florida Medicaid and all Medicare Account Debtors
shall be deemed Qualified Accounts prior to billing once the applicable
Medicare Services have been performed and/or goods have been delivered); (g)
the Account is subject to a lien other than a Permitted Lien; (h) a Borrower
knows or should reasonably have known of the 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; G) 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 a Borrower; (l) more
than ten percent (10%) of the aggregate balance of all Accounts owing from
the Account Debtor, except for a Medicare/Medicaid Account Debtor, obligated
on
the Account (excluding any Medicaid/Medicare Account Debtor) are outstanding
more than one hundred fifty (150) days past their invoice date; (m) fifty
percent (50%) or more of the aggregate unpaid Accounts from any individual
Account Debtor except for a Medicare/Medicaid 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; (p) the Account fails to meet such other reasonable specifications
and requirements which may from time to time be established by Lender upon
not less than ninety (90) days prior written notice to Borrowers, or (q) the
Account ceases to be a Qualified Account pursuant to Section 8.2 (a) hereof.
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 II
LOAN
Section 2.1. Terms.
(a) The maximum aggregate principal amount of credit extended by Lender
to
Borrowers hereunder (the ''Loan") that will be outstanding at any time is Ten
Million and No/100 Dollars ($10,000 000.00) (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 Borrowers from time to time under this Article II (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 Borrowers
(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 Borrowers, 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 ability 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 Borrowers.
(c) At Closing, Borrowers shall execute and deliver to Lender a
promissory
note evidencing Borrowers' 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 thereof until repaid,
with interest payable 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
the occurrence and during the continuance of an Event of Default (but not a
Limited 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 Account Debtor,
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) Borrowers may give Lender notice of
their intention to borrow, in which notice Borrowers shall specify the amount
of
the proposed borrowing and the proposed borrowing date, not later than 5:00
p.m.
Eastern time one (1) Business Day 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 (other than a Limited 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. With respect to any
request for a Revolving Credit Loan which is made not later than 10:30 a.m.
Eastern time, Lender shall use its best efforts to advance proceeds of such
Revolving Credit Loan by 4:00 p.m. on the same Business Day.
(b) Borrowers hereby irrevocably authorize 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 Borrowers or Lender from time to time or elsewhere if
pursuant to written direction from Borrowers; 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 Borrowers shall constitute one general Obligation of
Borrowers, 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 Borrowers and shall also record in said loan account
all
payments made by Borrowers 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 Borrowers.
(e) Lender will account to Borrowers 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
Borrowers absent manifest error.
Section 2.3. Collections. Disbursements, Borrowing Availability, and
Lockbox Account. Borrowers shall maintain a lockbox account (the "Lockbox")
with
Fidelity National Bank, Atlanta, Georgia (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. Each 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 a Borrower, such collections
shall be held in trust for the benefit of Lender and immediately remitted, in
the form received, to the Lockbox Bank for transfer to
the Concentration Account immediately upon receipt by such Borrower. Each
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 Borrowers'
indebtedness to Lender shall be applied to reduce the Loan balance but for
purposes of calculating interest shall be subject to a three (3) Business
Day clearance period. If as the result of collections of Accounts pursuant
to the terms and conditions of this Section 2.3 a credit balance exists with
respect to the Concentration Account, such credit balance shall not accrue
interest in favor of Borrowers, but shall be available to Borrowers at any
time or times for so long as no Event of Default (other than a Limited Event
of Default) exists.
Section 2.4. Fees.
(a) Borrowers shall pay to Lender a commitment fee (the "Commitment Fee")
equal to one percent (1.0%) of the Maximum Loan Amount, which commitment fee
shall be payable in installments as set forth below if, as and when aggregate
outstanding Revolving Credit Loans first exceed the following thresholds:
Outstanding Revolving Credit Loans Portion of Commitment Fee Due
$0 to $3,000,000 $30,000 (payable at Closing)
$3,000,001 to $5,000,000 Additional $20,000
$5,000,001 to $7,000,000 Additional $20,000
$7,000,001 to $10,000,000 Additional $30,000
(b) For so long as the Loan is available to Borrowers, Borrowers
unconditionally shall pay to Lender a monthly usage fee (the "Usage Fee")
equal
to one twelfth (1/12th) of one percent (1.0%) of the average amount by which
one
third (1/3) of the then applicable Borrowing Base exceeds the average amount
of
the outstanding principal balance of the Revolving Credit Loans during the
preceding month. The Usage Fee shall be payable monthly in arrears on the
first
Business Day of each successive calendar month.
(c) For so long as the Loan is available to Borrowers, Borrowers
unconditionally shall pay to Lender a monthly loan management fee (the "Loan
Management Fee") equal to two tenths of one percent (0.20%) of the average
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) Within 30 days after demand by Lender, Borrowers shall pay to Lender
all audit and appraisal fees in connection with audits and appraisals of any
Borrower's books and records and such other matters as Lender shall deem
appropriate; provided, however, that absent the occurrence of an Event of
Default (other than a Limited Event of Default) such fees shall not exceed
Ten Thousand and No/100 Dollars ($10,000.00) in any twelve month period until
the number of nursing homes or other facilities being financed under this
Agreement exceeds twenty (20), at which time the parties shall in good faith
agree upon a revised, increased annual cap.
(e) Borrowers shall pay to Lender, on demand, any and all 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
Borrowers or any other Person on behalf of Borrowers, by Lender, of proceeds
of Revolving Credit Loans made by Lender to Borrowers 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 Borrowers to Lender immediately upon the earliest of
(i) the receipt by any 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, Borrowers shall, immediately upon
demand, repay such over advance. 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 Borrowers 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 for working capital and for other costs of Borrowers
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 be
usurious under such laws, then notwithstanding any other provision hereof: (i)
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 Borrowers by Lender (or, to the
extent that such consideration shall have been paid, such excess shall be
promptly refunded to Borrowers by Lender); (ii) neither Borrowers 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 (iii) 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 Borrowers 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 effect 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 Borrowers agree to pay
to
Lender an amount equal to the difference between (i) the lesser of (x) the
amount of interest that would have accrued if the Highest Lawful Rate had at
all times been in effect, or (y) 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 (ii) 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
Borrowers upon or after the occurrence and during the continuance of any Event
of Default (subject to Section 8.1 (b)), 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 (subject
to Section 8.1 (b)) terminate this Agreement without notice upon or after the
occurrence and during the continuance of 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,
Borrowers 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) three percent (3%) of
the Borrowing Base as in effect on the effective date of termination if the
effective date of such termination by Borrowers is on or prior to the first
annual anniversary of the Closing Date, and (ii) two percent (2%) of the
Borrowing Base as in effect on the on the effective date of termination if
the effective date of such termination by Borrowers is after the first
annual anniversary of the Closing Date and prior to the second annual
anniversary of the Closing Date, and (iii) one percent ( 1 %) of the
Borrowing Base as in effect if the effective date of such termination by
Borrowers is after the second annual anniversary and prior to the third 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 this Agreement. All
undertakings, agreements, covenants, warranties, and representations of
Borrowers contained in the Loan Documents shall survive any such termination
and Lender shall retain its liens in the Collateral and all of its rights and
remedies under the Loan Documents notwithstanding such termination until
Borrowers have paid the Obligations to Lender, in full, in immediately
available funds.
Section 2.9. Joint and Several Liability; Binding Obligations. Each
Borrower shall be jointly and severally liable for all of the Obligations. In
addition, each 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 Borrower, and shall be binding upon all such entities when
taken together; provided, however, that such representations, warranties and
covenants shall be deemed to be made by each Borrower as to itself, but not as
to any other Borrower despite its binding nature with respect to the other
entities.
ARTICLE III
COLLATERAL
Section 3.1. Generally. As security for the payment of all liabilities of
Borrowers 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 Borrowers, and all other
liabilities and obligations of every kind or nature whatsoever of Borrowers 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 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 expenses incurred by Lender in
connection therewith (collectively, the "Obligations"), each 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 such Borrower's now-owned and hereafter acquired or arising
Accounts, accounts receivable and rights to payment of every kind and
description, and any contract rights, chattel paper, documents and instruments
with respect thereto but specifically excluding Leases and Rents;
(b) All of such 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, causes 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 but
specifically excluding Leases and Rents;
(c) All of such 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
(d) 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 reasonable discretion, each 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) WCC-1 Financing statements pursuant to the Uniform Commercial Code in
effect in the jurisdiction(s) in which such 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 reasonably
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
each 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) Each Borrower shall keep accurate and complete records of its
Accounts
and all payments and collections thereon and shall submit to Lender sales and
collections reports with respect thereto as required by Section 6.1 hereof. In
addition, if Borrower becomes aware that Accounts in an aggregate face amount
in
excess of $100,000.00 have become ineligible since the date of Borrowers' last
Borrowing Base Certificate 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 Borrowers' knowledge of such occurrence and the Borrowing Base
shall thereupon be adjusted to reflect such occurrence.
(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 Borrowers, to
verify
the validity, amount or any other matter relating to any Accounts by mail,
telephone, telegraph or otherwise. Borrowers shall cooperate fully with Lender
in an effort to facilitate and promptly conclude such verification process.
(d) To expedite collection, each 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 (other than a Limited
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 Borrowers.
Section 3.4. Other Actions. In addition to the foregoing, Borrowers (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, Borrowers shall also immediately
deliver to Lender all items for which Lender must receive possession to
obtain a perfected security interest. Borrowers 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 if an Event of
Default (other than a Limited Event of Default) or event which with the
passing
of time, the giving of notice or both could constitute an Event of Default
(other than a Limited Event of Default) has occurred and is continuing,
Borrowers shall obtain and deliver to Lender the following searches against
Borrowers (the results of which are to be consistent with Borrowers'
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
each Borrower (without requiring any of them to act as such) with full power
of
substitution to, after the occurrence and during the continuance of an Event
of
Default (other than a Limited Event of Default), do the following: (i) endorse
the name of such Borrower upon any and all checks, drafts, money orders, and
other instruments for the payment of money that are payable to such Borrower
and
constitute collections on Borrower's Accounts; (ii) execute in the name of
such
Borrower any financing statements, schedules, assignments, instruments,
documents, and statements that such Borrower is obligated to give Lender
hereunder; and (iii) 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
(with
respect to itself only, and not with respect to any other Borrower), and shall
be deemed to represent and warrant on each day on which any Obligations shall
be
outstanding hereunder, that:
Section 4.1. Subsidiaries. Except as set forth in Schedule 4.l, Borrower
has no subsidiaries.
Section 4.2. Organization and Good Standing. Borrower is a limited
partnership or corporation (as the case may be) duly organized, validly
existing, and in good standing under the laws of its state of formation, is
in good standing as a foreign limited partnership or corporation (as the
case may be) 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 partnership or corporate power and
authority to own its assets and transact the business in which it is
engaged, and has obtained all 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 partnership or 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 partnership or corporate
action. No consent or approval of partners or 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: (i) any provision of Borrower's articles of incorporation or
bylaws, or articles of formation, certificate of limited partnership or
operating agreement (as the case may be), (ii) any provision of any law,
rule, or regulation applicable to Borrower, or (iii) any of the following:
(A) any indenture or other agreement or instrument to which Borrower is a
party or by which Borrower or its property is bound; or (B) 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 (prepared on a consolidated basis with the other Borrowers, NewCare
Health Corporation and its other controlled entities) as of December 31, 1996
audited by Laney, Boteler & Killinger and the unaudited financial statements
of
Borrower as of March 31, 1997, certified by the chief financial officer or
general partner of Borrower (as the case may be), 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 are not reflected therein or in the notes thereto. There has been no
material adverse change in the business, properties, condition (financial or
otherwise) or operations (present or prospective) of Borrower since March 31,
1997. Borrower's fiscal year ends on December 31. The federal tax
identification number of each entity comprising the Borrower is as described
on Schedule 4. 15.
Section 4.8. No Default. Borrower is not in default under or with respect
to any obligation in any respect which could be materially adverse to its
business, operations, property or financial condition, or which could
materially
and adversely affect the ability of Borrower to perform its obligations under
the Loan Documents. No Event of Default as to such Borrower or event which,
with the giving of notice or lapse of time, or both, could become an Event of
Default as to such Borrower, 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. 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 March 3 l, l 997 and are now, adequately provided for
on Borrower'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.
Section 4.11. Securities and 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 l 933 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 carry 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 l 940, 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 l 974 ("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 participates.
Section 4.13. Compliance with Law. Except as described in Schedule 4.l3,
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 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. To Borrower's knowledge, without
independent inquiry 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 or at levels that comply with applicable law.
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.l5.
Schedule 4.l5 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,
service marks, 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 conflict with the rights of others. A list of
all such intellectual property (indicating the nature of Borrower's
interest), as well as all outstanding franchises and licenses given by or
held by Borrower, is attached as Schedule 4. l 6. Borrower is not in default
of any obligation or undertaking with respect to such intellectual property
or rights.
Section 4.17. Stock Ownership. The identity of the stockholders of record
of all classes of the outstanding stock of Borrower, together with the
respective ownership percentages held by such stockholders, and the
partnership company structures of each entity comprising the Borrower,
together with the partnership interests held by each partner of the limited
partnerships comprising the Borrower are as set forth on Schedule 4.l7
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 transactions
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 materially
and adversely affects or in the future may materially and 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 is
not a party to any contract or agreement, or subject to any partnership or
corporate restriction, which materially and adversely affects its business.
Section 4.20. Intentionally Deleted.
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 4.2 l . 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 Intentionally Deleted.
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
substantially 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 (or in the case of Accounts owed by
Florida
Medicaid and all Medicare Account Debtors, that Medical Services have been
rendered but have not yet been invoiced as a result of applicable Medicaid or
Medicare billing procedures);
(d) Such Account, 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
lien, claim or encumbrance, and each such Account is absolutely owing to
Borrower and is not contingent in any respect or for any reason;
(e) To Borrower's knowledge without independent inquiry, there are no
facts, events or occurrences which in any way impair the validity or
enforceability of any Accounts;
(f) 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 (or in the case of Accounts owed
by
Florida Medicaid and all Medicare Account Debtors, that Medical Services have
been rendered but have not yet been invoiced as a result of applicable
Medicaid
or Medicare billing procedures), and such Account if due from a Medicaid/
Medicare Account Debtor is properly payable directly to Borrower; and
(g) 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. The obligation of Lender
to enter Loto and perform this Agreement and to make Revolving Credit Loans 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 Borrowers and any other required Persons, as
applicable.
(b) Lender shall have received all searches and good standing
certificates
required by Section 3.5.
(c) Borrowers 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 in all material respects.
(f) Lender shall have received copies of all board of directors
resolutions
of the General Partner or other corporate action taken by Borrowers 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
Borrowers authorized to execute documents on its behalf in connection
herewith,
all as also certified as of the date hereof by each Borrower's chief financial
officer or Borrower's general partner (as the case may be), and such other
papers as Lender may require.
(g) Lender shall have received copies, certified as true, correct and
complete by a corporate officer or the corporate officer of the general
partner
(as the case may be)of each Borrower, of the articles of incorporation or
formation and bylaws of the general partner, (as the case may be) 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 Exhibit D.
(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 first installment of the Commitment
Fee.
(k) The Lockbox and the Concentration Account shall have been
established.
(1) Lender shall have received an estoppel certificate substantially in
the
form of Exhibit E attached hereto from Borrower's landlord or sublandlord, as
the case may be, with respect to each of the facilities identified on Schedule
4.15 which is a leased facility.
(m) 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 Borrowers
(excluding
any Borrower that is then deemed to be a Defaulted Borrower pursuant to
Section
8.1 (b) hereof) contained in Article IV of this Agreement shall be true and
correct in all material respects at and as of the date of disbursement or
advance, as though made on and as of such date, except as follows (i) to the
extent that such representations and warranties expressly relate solely to an
earlier date, (ii) the 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 Borrowers furnished to Lender pursuant to Section 6.1 hereof,
(iii) such representations and warranties shall be deemed to have been
supplemented by any written updates pertaining thereto, as delivered by
Borrowers to Lender from time to time and (iv) Borrower's reaffirmation of
Section 4.17 shall be deemed only a representation that any changes in
Borrower's ownership have been in accordance with Section 7.14 hereof.
(b) No Event of Default (other than a limited Event of Default) or event
which, with the giving of notice of the lapse of time, or both, could become
an
Event of Default (other than a Limited Event of Default) shall have occurred
and
be continuing or would result from the making of the disbursement or advance.
(c) No event or events have occurred which have caused a material adverse
change in the condition (financial or otherwise), properties, business, or
operations of Borrowers, taken as a whole, shall have occurred and be
continuing
with respect to Borrowers, taken as a whole, 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 any Borrower hereunder or under any other Loan
Document, and all of Lender's claims and rights resulting from any breach or
misrepresentation by any Borrower are specifically reserved by Lender.
ARTICLE VI
AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that for so long as such Borrower may
borrow hereunder and until payment in full of the Note and performance of all
other obligations of Borrowers under the Loan Documents:
Section 6.1. Financial Statements 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 be 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) quarterly
financial statements for NewCare Health Corporation, prepared on a
consolidated
basis with Borrowers and any of NewCare Health Corporation's other controlled
entities; (d) annual audited financial statements on Form 1OK for NewCare
Health
Corporation, prepared on a consolidated basis with Borrowers and any of
NewCare
Health Corporation's other controlled entities prepared by Laney, Boteler and
Killinger, or other independent public accountants then engaged by Borrower,
within one hundred thirty-five (135) days after the end of each of Borrower's
fiscal years; (e) 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; (f) as soon as available, copies of
all
financial statements and notices provided by Borrower to all of its
stockholders;
and (g) such additional information, reports or statements as Lender may from
time to time reasonably 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 or partnership (as the case may be) 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. Borrower will obtain any and all consents,
approvals
and authorizations of any Governmental Authority necessary for the making of
each disbursement or advance of the loan
Section 6.5. Intentionally Deleted.
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 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, reasonably request with respect
to
the business or financial affairs of Borrower, and, upon reasonable prior
notice
and during normal business hours, shall 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 as of the date of
such statements; (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 materially and
adversely
affect the condition (financial or otherwise) or operations (present or
prospective) of the Borrowers, taken as a whole, or which may expose Borrower
to
uninsured liability of $100,000.00 or more; (e) any default claimed by any
other
creditor for Borrowed Money (in excess of $50,000)of Borrower other than
Lender;
and (f) any other development in the business or affairs of Borrower which
could
have a material and adverse effect on the business operations of Borrowers,
taken
as a whole, or on the ability of Borrowers to repay the Loan; 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 shall provide to Lender
evidence satisfactory to Lender as to the due recording of termination
statements, releases of collateral, and Forms WCC-3, and shall cause to be
recorded financing statements on Form WCC-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.
Section 6.13. Financial Records. Borrower shall keep 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 shall continue to collect
its Accounts in the ordinary course of business.
Section 6.15. Places of Business. Borrower shall give thirty (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.
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 uninsured portion
of
the amount claimed is more than $50.000.00.
Section 6.18. Intentionally Deleted.
Section 6.19. Submission of Collateral Documents. After the occurrence
and
during the continuance of an Event of Default (other than a Limited Event of
Default), Borrower will, on demand of Lender, make available to Lender copies
of
shipping and delivery receipts evidencing the shipment of goods that gave rise
to an Account, 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 quarterly
financial
statements delivered pursuant to clause (c) of Section 6. l, 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, other than any then existing Limited Event of Defaults
which have been disclosed to Lender, 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. Intentionally Deleted.
Section 6.23. Net Worth. NewCare Health Corporation, the ultimate parent
of Borrower, will not at any time allow its net worth, as computed in
accordance
with GAAP, to fall below $4,000,000.00.
ARTICLE VII
NEGATIVE COVENANTS
Each Borrower covenants and agrees that so long as Borrowers may borrow
hereunder and until payment in full of the Note and performance of all other
obligations of Borrowers under the Loan Documents:
Section 7.1. Borrowing. Borrower (other than NewCare Health Corporation)
shall provide Lender with written notice of any loan made to such Borrower in
excess of $250,000 that is secured by real property or tangible personal
property
acquired by such Borrower with the proceeds of such loan (but Lender's consent
shall not be required for any such loan), and will not incur, assume, or
permit
to exist or become contingently liable for any liability for Borrowed Money in
excess of $250,000.00 where the proceeds of the loan are not used by such
Borrower to acquire real property or tangible personal property without
Lender's
prior written consent, which shall not be unreasonably withheld or delayed.
Section 7.2. Intentionally Deleted.
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 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 of any Person, unless (a) Borrower or any other Borrower is the
surviving entity of such transaction or (b) NewCare Health Corporation or
Equity
General Partner, Inc. ("EGP") holds a controlling interest in the surviving
entity and (c) the surviving entity executes and delivers to Lender all
documents
deemed reasonably necessary by Lender (as determined solely by Lender in its
reasonable commercial judgement) to protect Lender's rights under this
Agreement
and the other Loan Documents and with respect to the Collateral, all at
Borrowers' cost (including without limitation, all lien search costs).
Borrower
will not sell, lease, or otherwise dispose of substantially all of its assets.
Consistent with the foregoing, until the Obligations are repaid in full, none
of
the Borrowers shall transfer, assign, convey or grant to any other Person
(other
than another Borrower, EGP or NewCare Health Corporation) the right to operate
or control any of the nursing homes listed on Schedule 4. l 5, whether by
lease,
sublease, management agreement, joint venture agreement or otherwise.
Section 7.5. Intentionally Deleted.
Section 7.6. Distributions and Management Fees. Following an Event of
Default with respect to such 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 or partnership interests (as the case may
be)
now or hereafter outstanding, or return any capital of its stockholders, nor
shall such Borrower pay management fees or fees of a similar nature to any
Person following an Event of Default.
Section 7.7. Intentionally Deleted.
Section 7.8. Intentionally Deleted.
Section 7.9. Intentionally Deleted.
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. Certificates of Need. Borrower will not suspend or
terminate
or make provisional in any material way, any required certificate of need or
provider number of any Borrower without the prior written consent of Lender,
which shall not be unreasonably withheld or delayed.
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.l2.
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 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 Capital Structure. There shall occur no change in
Borrower's capital structure as set forth in Schedule 4. l 7.which causes a
change in control of Borrower.
Section 7.15. Contracts and Agreements. Borrower will not become or be a
party to any contract or agreement which would breach this Agreement.
shall have continued unremedied for a period of twenty (20) days after written
notice from Lender;
(v) If any obligation of a Borrower (other than its Obligations
hereunder)
for the payment of Borrowed Money (the outstanding amount of which is in
excess
of $100,000.00) 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;
(vi) If a 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 such
Borrower;
(vii) If a 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, read-
justment
or debt, dissolution or liquidation law or statute of any jurisdiction,
whether
now or hereafter in effect, or there is commenced against a 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;
(viii) If one or more final judgments against any Borrower or attachments
against its property (the uninsured portion of which is in excess of
$100,000.00)
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 thirty (30) days;
(ix) 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;
(x) If any outstanding stock or partnership interests of Borrower is sold
or otherwise transferred in violation of Section 7.14;
(xi) Upon the issuance of any execution or distraint process against any
of the Collateral;
(xii) 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 reasonable discretion, is reasonably likely to result in the
forfeiture
of any property material of Borrower to any Governmental Authority, which
default
shall have continued unremedied for a period of ten ( 10) days after written
notice from Lender;
(xiii) 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 enforce-
ability
of any of the Obligations or the perfection or priority of any Lien granted to
Lender;
(xiv) Borrower shall be criminally convicted under any law that could
lead
to a forfeiture of any Collateral.
(xv) There shall occur a material adverse change in the financial
condition
or business prospects of a Borrower, or if Lender in good faith deems itself
insecure as a result of acts or events bearing upon the financial condition of
a 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.
(b) Notwithstanding the foregoing, if an event which constitutes an Event
of Default occurs with respect to three (3) or fewer of the Borrowers ( a
"Limited Event of Default"), then (i) the Accounts of each Borrower with
respect
to which the Event of Default Occurred (each a "Defaulted Borrower") shall
immediately be deemed excluded from Qualified Accounts ("Excluded Accounts)
unless and until the Event of Default with respect to such Defaulted Borrower
has
been cured to Lender's reasonable satisfaction and (ii) Borrowers shall,
within
two (2) Business Days after the occurrence of the Event of Default, repay the
Loan in an amount, if any, necessary to reduce the outstanding amount of the
Loan
to the Borrowing Base (as adjusted to delete the Accounts which have been
Excluded Accounts pursuant to (i) above). Borrowers' failure to make such
payment
shall constitute a payment default pursuant to Section 8.1 (a)(I) hereof,
entitling Lender to immediately exercise any and all remedies set forth in
Section 8.2 and 8.3 of the Agreement. Notwithstanding the foregoing, (x) no
Defaulted Borrower shall be released from its obligations hereunder (nor shall
the Collateral owned by such Defaulted Borrower be released from the lien
created
hereby) by virtue of such Defaulted Borrower's Accounts being deemed to be
Excluded Accounts, and (y) if the aggregate amount of all Excluded Accounts
exceeds $500,000.00, such event shall constitute an Event of Default and shall
entitle Lender to immediately exercise any and all remedies set forth in
Sections 8.2 and 8.3 of this Agreement.
Section 8.2. Acceleration. Subject to the provisions of Section 8.1 (b)
hereof, 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 (vi) hereof (subject always to Section 8.1 (b)), the
Note shall be immediately due and payable failure to satisfy (i) and (ii) will
be an overall Event of Default without declaration or other notice to
Borrowers.
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
(other than a Limited Event of Default) 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 Borrowers shall not resist or interfere with such action;
(iii) The right to require Borrowers at Borrowers' expense to assemble
all
pr 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 to repay the then outstanding
Obligations for any reason; and
(v) The right to relinquish or abandon any Collateral or any security
interest therein.
(b) Borrowers agree that a notice received by it at least ten (10) 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, Lender may
(to the extent permitted by applicable law) purchase all or any part of the
Collateral, free from any right 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 shall have the right to proceed
against all or 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) Borrowers agree to pay, whether or not the Closing occurs, a
reasonable
documentation preparation fee not to exceed $8,000.00, together with actual
audit and appraisal fees and all other out-of-pocket charges and expenses
incurred by
Lender in connection with the negotiation, preparation and execution of each
of
the Loan Documents, any amendments to the Loan Documents following Closing,
and
preparation for Closing. Borrowers also agree to pay all out-of-pocket charges
and expenses incurred by Lender (including the 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) Borrowers 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 Borrowers' 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 as a waiver of any
future default or defaults, whether of a like or different nature. No failure
or
delay on the part of any 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 or 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 required or
permitted hereunder shall be in writing and personally delivered, mailed by
registered or certified mail (return receipt requested and postage prepaid),
sent by telecopier (with a confirming copy sent by 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:
NewCare, Inc.
6000 Lake Forrest Drive
Suite 200
Atlanta, GA 30328
Attention: Mr. Christopher F. Brogdon
Philip M. Rees, Esq.
Telephone: (404) 255-7500
Telecopier: (404) 255-5789
(c) With a copy to:
Gregory P. Youra, Esq.
Vincent, Berg, Stalzer & Menendez
The Lenox Building
3399 Peachtree Road, Suite 1400,
Atlanta, GA 30326
Telephone: (404) 812-5680
Telecopier: (404) 812-5699
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 given
on
the next Business Day following deposit with the courier.
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 be 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 9.11. 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 further 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, without
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. Intentionally Deleted.
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 NONEXCLUSIVE
JURISDICTION OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE
IN THE STATE OF MARYLAND. ANY PROCESS IN ~NY 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 EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY BORROWER, AND THIS WAIVER IS
INTENDED TO ENCOMPASS 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.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first written above.
LENDER:
ATTEST: HCFP FUNDING, INC.
By: By: /s/ [SEAL]
Name: Name:
Title: Title:
BORROWER:
ATTEST: NEWCARE HEALTH CORPORATION,
A Nevada Corporation
By:/s/ Philip M. Rees By: /s/ Chris F. Brogdon [SEAL]
Name: Name:
Title: Title:
ATTEST: NEWCARE, INC., a Florida
Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Name: Kathy Pifer
Title: Title: President
ATTEST: OAK MANOR NURSING HOME, LTD.,
A Florida limited partnership
By: Equity General Partner, Inc.
Its: General Partner
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Name: Kathy Pifer
Title: Title: President
ATTEST: HEALTHCARE FACILITIES LIMITED PARTNERSHIP,
A Louisiana limited partnership
By: Equity General Partner, Inc.
Its: General Partner
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Name: Kathy Pifer
Title: Title: President
ATTEST: SUNCOAST NURSING HOME, LTD.,
A Florida limited partnership
By: Equity General Partner, Inc.
Its: General Partner
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Name: Kathy Pifer
Title: Title: President
ATTEST: CENTRAL TAMPA NURSING HOME, LTD.
A Florida limited partnership
By: Equity General Partner, Inc.
Its: General Partner
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Name: Kathy Pifer
Title: Title: President
ATTEST: VICTORIA MARTIN NURSING HOME, LTD.
A Florida limited partnership
By: Equity General Partner, Inc.
Its: General Partner
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Name: Kathy Pifer
Title: Title: President
ATTEST: MEMORIAL NURSING CENTER, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Name: Kathy Pifer
Title: Title: President
ATTEST: CIMMERON HEALTH CARE, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Name: Kathy Pifer
Title: Title: President
ATTEST: FITZGERALD HEALTHCARE, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Name: Kathy Pifer
Title: Title: President
ATTEST: FITZGERALD NURSING CENTER, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Name: Kathy Pifer
Title: Title: President
ATTEST: FORT VALLEY NURSING CENTER, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Name: Kathy Pifer
Title: Title: President
ATTEST: WINWARD NURSING CENTER, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Name: Kathy Pifer
Title: Title: President
ATTEST: KMH ENTERPRISES, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Name: Kathy Pifer
Title: Title: President
ATTEST: WHIGHAM HEALTH & REHABILITATION,
INC., a Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Name: Kathy Pifer
Title: Title: President
<PAGE>
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
Exhibit E - Form of Estoppel Certificate
<PAGE>
LIST OF SCHEDULES
Schedule 1.36 - Permitted Liens
Schedule 4.1 - Subsidiaries
Schedule 4.5 - Litigation
Schedule 4.7 - Tax Identification Numbers
Schedule 4.13 - Non-Compliance with Law
Schedule 4.14 - Environmental Matters
Schedule 4.15 - Places of Business with patient consensus
Schedule 4.16 - Licenses
Schedule 4.17 - Stock Ownership
Schedule 4.19 - Borrowings and Guarantees
Schedule 4.21 - Trade Names
Schedule 4.22 - Joint Ventures
Schedule 7.12 - Transactions with Affiliates
<PAGE>
SCHEDULE 1.36
Permitted Liens
DEBTOR DATE JURISDICTION SECURED PARIY COMMENTS
Oak Manor 7/20/93 State of Orix Credit accounts,
Nursing Home Florida Alliance, Inc A/R etc.
930000152589
Central Tampa 5/23/91 State of Nationwide personal
Nursing Home, Florida Health prop in
Ltd Properties, connection
Inc with R/E
970000113108--9 excludes A/r
but does not
mention books
and records
Central Tampa 5/23/97 State of Nationwide personal
Nursing Home, Florida Health prop. in
Ltd Properties, connection
Inc with R/E
970000113111--
Windward 5/27/97 Fulton Nationwide excludes A/R
Nursing County, GA Health but does not
Center, Inc. Properties, mention
Inc. books, records
Central Tampa 5/23/97 Hilsborough Nationwide personal
Nursing Home, County, Health prop. in
Ltd Florida Properties, connection
Inc with R/E
OFF REC 8575
PG 0495
Emory Nursing 9/16/91 Fulcon Writ of Fieri $790.00
Center County, GA Facias
Book 01524
Page 006
Memorial 2/1/96 De Kalb Retirement accounts,
Nursing County, GA Care a/
Center, Inc. Associates,
Inc.
441996001306
Fitzgerald 4/28/92 Fulton, GA Towers all accounts
Healthcare, expired Financial
Inc Corporation
775130
Fitzgerald 2/28/97 Ben Hill, GA PFC all accounts
Nursing Corporation
Center, Inc.
Fitzgerald 11/30/94 Ben Hill, GA Union Planters all A/r
Health Care, Bank contract
Inc. rights etc
related to
R/E
Victoria 3/25/94 Pinellas First Union All
Martin Nursing County, National Bank contracts,
Home, Ltd. Florida of Florida, NA licenses etc
in connection
with property
Victoria 3/28/94 St of First Union All
Martin Nursing Florida National Bank contracts,
Home, Ltd of Florida, NA licenses etc
in connection
with property
Healthcare 5/28/97 Broward Nationwide excludes A/R
Facilities County, FL Health but does not
Limited Properties, mention
Partnership I Inc. books, records
Healthcare 8/23/93 Broward First Union All
Facilities County, FL National Bank contracts,
Limited of Florida, NA licenses etc
Partnership I in connection
with property
Healthcare 5/23/97 St of Nationwide excludes A/R
Facilities Florida Health but does not
Limited Properties, mention books,
Partnership I Inc. records
Healthcare 6/7/93 St of First Union All
Facilities Florida National Bank contracts,
Limited of Florida, NA licenses etc
Partnership I in connection
with property
Windward 4/26/96 Fulton Georgia Dept $3,633.25
Nursing County, GA of Revenue
Center, Inc
Windward 5/23/97 Hall County, Nationwide excludes A/R
Nursing GA Health but does not
Center, Inc. Properties, mention
Inc. books, records
<PAGE>
SCHEDULE 4.1
Subsidiaries
1. NewCare, Inc.
Equity General Partner, Inc.
Nursing Home Management, Inc.
Healthcare Facilities, Inc.
2. Oak Manor Nursing Home, Ltd.
None
3. Healthcare Facilities Limited Partnership I
None
4. Suncoast Nursing Home, Ltd.
None
5. Victoria Martin Nursing Home, Ltd.
None
6. Central Tampa Nursing Home, Ltd.
None
7. Memorial Nursing Center, Inc.
None
8. Cimerron Health Care, Inc.
Fitzgerald Healthcare, Inc.
Fitzgerald Nursing Center, Inc.
Fort Valley Nursing Center,
Windward Nursing Center, Inc.
KMH Enterprises, Inc.
9. Fitzgerald Healthcare, Inc.
None
10. Fitzgerald Nursing Center, Inc.
None
11. Fort Valley Nursing Center, Inc.
None
12. Windward Nursing Center, Inc.
None
13. KMH Enterprises, Inc.
None
14. Whigham Health & Rehabilitation, Inc.
None.
<PAGE>
SCHEDULE 4.5
Litigation
1. NewCare, Inc.
None
2. Oak Manor Nursing Home, Ltd.
None
3. Healthcare Facilities Limited Partnership I
None
4. Suncoast Nursing Home, Ltd.
None
5. Victoria Martin Nursing Home, Ltd.
None
6. Central Tampa Nursing Home, Ltd.
None
7. Memorial Nursing Center, Inc.
None
8. Cimerron Health Care, Inc.
None
9. Fitzgerald Healthcare, Inc.
None
10. Fitzgerald Nursing Center, Inc.
None
11. Fort Valley Nursing Center, Inc.
None
12. Windward Nursing Center, Inc.
None
13. KMH Enterprises, Inc.
None
14. Whigham Health & Rehabilitation, Inc.
None
<PAGE>
SCHEDULE 4.7
Federal Taxpayer Identification Numbers
1. NewCare, Inc.
59-3169945
2. Oak Manor Nursing Home, Ltd.
59-2994778
3. Healthcare Facilities Limited Partnership I
59-2783793
4. Suncoast Nursing Home, Ltd.
59-2890055
5. Victoria Martin Nursing Home, Ltd.
59-2892048
6. Central Tampa Nursing Home, Ltd.
59-3330171
7. Memorial Nursing Center, Inc.
58-2218367
8. Cimerron Health Care, Inc.
58-1974327
9. Fitzgerald Healthcare, Inc.
58-1406360
10. Fitzgerald Nursing Center, Inc.
58-1915327
11. Fort Valley Nursing Center, Inc.
58-2020035
12. Windward Nursing Center, Inc.
58-2014986
13. KMH Enterprises, Inc.
58-2087408
14. Whigham Health ~ Rehabilitation, Inc.
58-2314186<PAGE>
SCHEDULE 4.13
Existing Violation of Law
1. NewCare, Inc.
None
2. Oak Manor Nursing Home, Ltd.
None
3. Healthcare Facilities Limited Partnership I
None
4. Suncoast Nursing Home, Ltd.
None
5. Victoria Martin Nursing Home, Ltd.
None
6. Central Tampa Nursing Home, Ltd.
None
7. Memorial Nursing Center, Inc.
None
8. Cimerron Health Care, Inc.
None
9. Fitzgerald Healthcare, Inc.
None
10. Fitzgerald Nursing Center, Inc.
None
11. Fort Valley Nursing Center, Inc.
None
12. Windward Nursing Center, Inc.
None
13. KMH Enterprises, Inc.
None
14. Whigham Health & Rehabilitation, Inc.
None
SCHEDULE 4.14
Environmental Matters
1. NewCare, Inc.
None
2. Oak Manor Nursing Home, Ltd.
None
3. Healthcare Facilities Limited Partnership I
None
4. Suncoast Nursing Home, Ltd.
None
5. Victoria Martin Nursing Home, Ltd.
None
6. Central Tampa Nursing Home, Ltd.
None
7. Memorial Nursing Center, Inc.
None
8. Cimerron Health Care, Inc.
None
9. Fitzgerald Healthcare, Inc.
None
10. Fitzgerald Nursing Center, Inc.
None
11. Fort Valley Nursing Center, Inc.
None
12. Windward Nursing Center, Inc.
None
13. KMH Enterprises, Inc.
None
14. Whigham Health & Rehabilitation, Inc.
None<PAGE>
SCHEDULE 4.15
Places of Business
1. NewCare Health Corporation
6000 Lake Forrest Drive, Suite 315
Atlanta, Georgia 30328
2. NewCare, Inc.
6000 Lake Forrest Drive, Suite 315
Atlanta, Georgia 30328
3. Oak Manor Nursing Home, Ltd.
3500 and 3600 Oak Manor Lane
Largo, Florida 34644
4. Healthcare Facilities Limited Partnership I
440 Phippen Road
Dania, Florida 33004
5. Suncoast Nursing Home, Ltd.
2000 17th Avenue South
St. Petersburg, Florida 33712
6. Victoria Martin Nursing Home, Ltd.
555 31st Street South
St. Petersburg, Florida 33712
7. Central Tampa Nursing Home, Ltd.
5010 40th Street
Tampa, Florida 33610
8. Memorial Nursing Center, Inc.
1466 Oxford Road
Atlanta, Georgia 30307
9. Cimerron Health Care, Inc.
6000 Lake Forrest Drive, Suite 200
Atlanta, Georgia 30328
10. Fitzgerald Healthcare, Inc.
176 Lincoln Avenue P.O. Box 1289
Fitzgerald, Georgia 31750
11. Fitzgerald Nursing Center, Inc.
176 Lincoln Avenue
P.O. Box 1289
Fitzgerald, Georgia 31750
12. Fort Valley Nursing Center, Inc.
604 North Camellia Blvd.
P.O. Box 1237
Fort Valley, Georgia 31030
13. Windward Nursing Center, Inc.
4595 Cantrell Road
P.O. Box 640
Flowery Branch, Georgia 30542
14. KMH Enterprises, Inc.
475 Washington Street
P.O. Box 713
Metter, Georgia 30439
15. Whigham Health & Rehabilitation, Inc.
P.O. Box 46 - Hwy 179 McGriff Road
Whigham, Georgia 31797-0046
<PAGE>
SCHEDULE 4.16
Licenses
1. NewCare, Inc
None
2. Oak Manor Nursing Home, Ltd.
None
3. Healthcare Facilities Limited Partnership I
None
4. Suncoast Nursing Home, Ltd.
None
5. Victoria Martin Nursing Home, Ltd
None
6. Central Tampa Nursing Home, Ltd.
None
7. Memorial Nursing Center, Inc
None
8. Cimerron Health Care, Inc
None
9. Fitzgerald Healthcare, Inc
None
10. Fitzgerald Nursing Center, Inc.
None
11. Fort Valley Nursing Center, Inc
None
12. Windward Nursing Center, Inc
None
13. KMH Enterprises, Inc.
None
14. Whigham Health & Rehabilitation, Inc.
None<PAGE>
SCHEDULE 4.17
Ownership
1. NewCare, Inc.
Shareholder Name Ownership Percentage
Newcare Health Corp. 100%
2. Oak Manor Nursing Home, Ltd.
Partner Name GP or LP Ownership Percentage
Equity General Partner, Inc. GP 0.24%
Healthcare Facilities, Inc. LP 5.76%
NewCare, Inc. LP 91.12%
Gloworth, Inc. LP 2.88%
3. Healthcare Facilities Limited
Partner Name GP or LP Ownership Percentage
Equity General Partner GP 1%
NewCare, Inc. LP 97%
4. Suncoast Nursing Home, Ltd.
Partner Name GP or LP Ownership Percentage
Equity General Partner GP 3%
NewCare, Inc. LP 97%
5. Victoria Martin Nursing Home, Ltd.
Partner Name GP or LP Ownership Percentage
Equity General Partner GP 3%
NewCare, Inc. LP 97%
6. Central Tampa Nursing Home, Ltd.
Partner Name GP or LP Ownership Percentage
Equity General Partner GP 1%
NewCare, Inc. LP 99%
7. Memorial Nursing Center, Inc.
Shareholder Name Ownership Percentage
Newcare Health Corp. 100%
8. Cimerron Health Care, Inc.
Shareholder Name Ownership Percentage
Newcare Health Corp. 100%
9. Fitzgerald Healthcare, Inc.
Shareholder Name Ownership Percentage
Cimmeron Health Care, Inc. 100%
10. Fitzgerald Nursing Center, Inc.
Shareholder Name Ownership Percentage
Cimmeron Health Care, Inc. 100%
11. Fort Valley Nursing Center, Inc.
Shareholder Name Ownership Percentage
Cimmeron Health Care, Inc. 100%
12. Windward Nursing Center, Inc.
Shareholder Name Ownership Percentage
Cimmeron Health Care, Inc. 100%
13. KMH Enterprises, Inc.
Shareholder Name Ownership Percentage
Cimmeron Health Care, Inc. 100%
14. Whigham Health & Rehabilitation, Inc.
Shareholder Name Ownership Percentage
Newcare Health Corp. 100%
<PAGE>
SCHEDULE 4.19
Loans and Guaranties
1. NewCare, Inc.
None
2. Oak Manor Nursing Home, Ltd.
- - $13,600,000.00 loan from Nationwide Health Properties, Inc. (May 14, 1997)
3. Healthcare Facilities Limited Partnership I
- - $2,500,000.00 loan from Nationwide Health Properties, Inc. (May 14, 1997)
4. Suncoast Nursing Home, Ltd.
- - $770,000.00 loan by NCNB National Bank of Florida (July 28, 1988)
- - $200,000.00 loan by Florida Suncoast Villas, Inc., Hugh B. Clark and
Lucette P. Clark (July 28, 1988)
5. Victoria Martin Nursing Home, Ltd.
- - $2,900,000.00 from NCNB National Bank of Florida (August 22,1988)
6. Central Tampa Nursing Home, Ltd.
- - $2,900,000.00 by Nationwide Health Properties, Inc. (May 14, 1997)
7. Memorial Nursing Center, Inc.
None
8. Cimerron Health Care, Inc.
None
9. Fitzgerald Healthcare, Inc.
- - Loan from General Trust Company and Development Authority of Ben Hill
County
- - Loan from Loan from W.E. Stuckey, Sr., Right T. Harrell, W. Tom Land and
Albert H. Dallas
10. Fitzgerald Nursing Center, Inc.
None
11. Fort Valley Nursing Center, Inc.
- - $1,000,000.00 loan from Middle Georgia Bank (December 1, 1983)
12. Windward Nursing Center, Inc.
$2,500,000.00 loan from Nationwide Health Properties, Inc. (May 14, 1997)
13. KMH Enterprises, Inc.
None
14. Whigham Health & Rehabilitation, Inc.
None
15. NewCare Health Corporation
Guaranty of $21,500,00.00 loan from Nationwide Health Properties, Inc. (May
14, 1997)
<PAGE>
SCHEDULE 4.21
Trade Names
1. NewCare, Inc.
None
2. Oak Manor Nursing Home, Ltd.
None
3. Healthcare Facilities Limited Partnership I
Dania Nursing Home
4. Suncoast Nursing Home, Ltd.
None
5. Victoria Martin Nursing Home, Ltd.
None
6. Central Tampa Nursing Home, Ltd.
None
7. Memorial Nursing Center, Inc.
Emory Nursing Center
8. Cimerron Health Care, Inc.
None
9. Fitzgerald Healthcare, Inc
None
10. Fitzgerald Nursing Center, Inc.
None
11. Fort Valley Nursing Center, Inc
None
12. Windward Nursing Center, Inc.
None
13. KMH Enterprises, Inc.
Pleasant View Nursing Center
14. Whigham Health & Rehabilitation, Inc.
None<PAGE>
SCHEDULE 4.22
Joint Venture Arrangements
1. NewCare, Inc.
None
2. Oak Manor Nursing Home, Ltd.
None
3. Healthcare Facilities Limited Partnership I
None
4. Suncoast Nursing Home, Ltd.
None
5. Victoria Martin Nursing Home, Ltd.
None
6. Central Tampa Nursing Home, Ltd.
None
7. Memorial Nursing Center, Inc.
None
8. Cimerron Health Care, Inc.
None
9. Fitzgerald Healthcare, Inc.
None
10. Fitzgerald Nursing Center, Inc.
None
11. Fort Valley Nursing Center, Inc.
None
12. Windward Nursing Center, Inc.
None
13. KMH Enterprises, Inc
None
14. Whigham Health & Rehabilitation, Inc.
None<PAGE>
Schedule 7.12
Contracts with Affiliates
1. NewCare, Inc.
None
2. Oak Manor Nursing Home, Ltd.
None
3. Healthcare Facilities Limited Partnership I
None
4. Suncoast Nursing Home, Ltd
None
5. Victoria Martin Nursing Home, Ltd.
None
6. Central Tampa Nursing Home, Ltd.
None
7. Memorial Nursing Center, Inc.
None
8. Cimerron Health Care, Inc.
None
9. Fitzgerald Healthcare, Inc.
None
10. Fitzgerald Nursing Center, Inc.
None
11. Fort Valley Nursing Center, Inc.
None
12. Windward Nursing Center, Inc.
None
13. KMH Enterprises, Inc.
None
14. Whigham Health & Rehabilitation, Inc.
None<PAGE>
<PAGE>
$10,000,000.00
AMENDMENT NO. 3 TO
LOAN AND SECURITY AGREEMENT
by and among
NEWCARE NURSING CORPORATION
NEWCARE HEALTH CORPORATION
NEWCARE, INC.
OAK MANOR NURSING HOME, LTD.
HEALTHCARE FACILITIES LIMITED PARTNERSHIP I
SUNCOAST NURSING HOME, LTD.
VICTORIA MARTIN NURSING HOME, LTD.
CENTRAL TAMPA NURSING HOME, LTD;
MEMORIAL NURSING CENTER, INC.
CIMERRON HEALTH CARE, INC.
FITZGERALD HEALTHCARE, INC.
FITZGERALD NURSING CENTER, INC.
FORT VALLEY NURSING CENTER, INC.
WINDWARD NURSING CENTER, INC.
KMH ENTERPRISES, INC.
WHIGHAM HEALTH CARE REHABILITATION, INC.
NEWCARE HOSPITAL CORPORATION
and
HCFP FUNDING. INC.
January 30, 1998
AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT ("Amendment") is
made as of this 30th day of January, 1998, by and among NEWCARE HEALTH
CORPORATION, a Nevada corporation, NEWCARE, INC., a Florida corporation,
OAK MANOR NURSING HOME, LTD., a Florida limited partnership, HEALTHCARE
FACILITIES LIMITED PARTNERSHIP I, a Louisiana limited partnership, SUNCOAST
NURSING HOME, LTD., a Florida limited partnership, VICTORIA MARTIN NURSING
HOME, LTD., a Florida limited partnership, CENTRAL TAMPA NURSING HOME,
LTD., a Florida limited partnership, MEMORIAL NURSING CENTER, INC., a
Georgia corporation, CIMERRON HEALTH CARE, INC., a Georgia corporation,
FITZGERALD HEALTHCARE, INC., a Georgia corporation, FITZGERALD NURSING
CENTER, INC., a Georgia corporation, FORT VALLEY NURSING CENTER, INC., a
Georgia corporation, WINDWARD NURSING CENTER, INC., a Georgia corporation,
KMH ENTERPRISES, INC., a Georgia corporation and WHIGHAM HEALTH &
REHABILITATION, INC., a Georgia corporation, NEWCARE HOSPITAL
CORPORATION, a Georgia corporation ("Original Borrowers"), NEWCARE NURSING
CORPORATION, a Georgia corporation ("New Borrower") (Original Borrowers and
New Borrower are collectively called "Borrower") and HCFP FUNDING, INC. a
Delaware corporation ("Lender").
RECITALS
A. Pursuant to that certain Loan and Security Agreement dated June 30,
1997 by and between the Original Borrowers and Lender as it has been
amended from time to time (the "Loan Agreement"), the parties have
established certain financing arrangements that allow Borrower to borrow
funds from Lender in accordance with the terms and conditions set forth in
the Loan Agreement.
B. New Borrower has executed a Secured Bridge Note dated January ~,
1998, in favor of HCFP Funding II, Inc., a Delaware corporation ("Funding
II"), in the amount of Three Million and No/100 Dollars ($3 000 000.00)
(the "Venice Secured Bridge Note").
C. The parties now desire to amend the Loan Agreement simultaneously
with the execution and delivery of the Note, in accordance with the terms
and conditions hereinafter set forth
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, Lender and Borrower have agreed to the following amendments
to the Loan Agreement. Capitalized terms defined in the Loan Agreement and
used in this Amendment shall have the same meanings set forth in the Loan
Agreement unless otherwise specified in this Amendment.
1. Amendment to Loan Agreement. Effective as of the date of this
Amendment, the Loan Agreement is amended as follows:
1.01 Original Borrowers and Lender agree that the New Borrower shall
from now and hereafter be included within "Borrowers" for all purposes of
the Loan Agreement and other documents.
1.02. For purposes of Article II, Section 2.3 of the Loan Agreement,
Borrowers agree to maintain a separate Lockbox, Lockbox Agreement and
Borrowing Base for the New Borrower, if so requested by Lender.
1.03. Section 3.1 is restated in its entirety to read as follows:
"Section 3.1. Generally. As security for the payment of all
liabilities of Borrowers 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 Borrowers, and all
other
liabilities and obligations of every kind or nature whatsoever of Borrowers
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
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,
(iii) the payment of all expenses incurred by Lender in connection
therewith
(collectively, the "Obligations"), and as further security for (y) the
payment
and performance of the obligations of Borrowers under the Secured Bridge
Note in
the amount of $4,500,000.00 dated as of July 31, 1997 as amended, modified
or
replaced, and (z) the payment and performance of the obligations of
Borrowers
under the Venice Secured Bridge Note in the amount of $3,000,000.00 dated
as of
January , 1998 as amended, modified or replaced, each 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 such Borrower's now-owned and hereafter acquired or arising
Accounts, accounts receivable and rights to payment of every kind and
description, and any contract rights, chattel paper, documents and
instruments
with respect thereto but specifically excluding Leases and Rents;
(b) All of such 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, choses 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 but specifically
excluding
Leases and Rents;
(c) All of such 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
(d) The proceeds (including, without limitation, insurance proceeds)
of all
of the foregoing."
1.04. Section 8.1 of the Loan Agreement (Events of Default) is hereby
amended to add the following clause:
"(xvii) An Event of Default shall have occurred under the Venice
Secured
Bridge Note."
1.05. Section 8.4 of the Loan Agreement is deleted in its entirety and
replaced as follows:
"Section 8.4. Nature of Remedies. Lender shall have the rigl1t to
proceed
against all or any portion of the Collateral to satisfy, in any order, (a)
the
liabilities and Obligations of Borrower to Lender under this Agreement, (b)
upon
the occurrence of an Event of Default under the Secured Bridge Note, the
liabilities and Obligations of Borrower to Funding II thereunder, or (c)
upon the
occurrence of an Event of Default under the Venice Secured Bridge Note, the
liabilities and Obligations of Borrower to Funding II thereunder. 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
hereunder or under the Secured Bridge Note or the Venice Secured Bridge
Note, may
proceed against Borrower, and/or the Collateral, at any time, under any
agreement, with any available remedy and in any order."
2. Reference to the Effect on the Loan Agreement.
2.01 Upon the effectiveness of Section 1 of this Amendment, on and
after
the date of this Amendment, each reference in the Loan Agreement to "this
Agreement," "hereunder," "hereof," "herein" or words of similar import
shall mean
and be a reference to the Loan Agreement as amended by tl1is Amendment.
2.02 Except as specifically amended above, the Loan Agreement, and all
other Loan Documents, shall remain in full force and effect, and are hereby
ratified and confirmed.
2.03 The execution, delivery and effectiveness of this Amendment shall
not,
except as expressly provided in this Amendment, operate as a waiver of any
right,
power or remedy of Lender, nor constitute a waiver of any provision of the
Loan
Agreement, or any other documents, instruments and agreements executed or
delivered in connection with tile Loan Agreement.
3. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Maryland.
4. Headings. Section headings in this Amendment are included for
convenience of reference only and shall not constitute a part of this
Amendment
for any other purpose.
5. Counterparts. This Amendment may be executed in counterparts, and
each
counterpart taken together shall be deemed to constitute one and the same
instrument.
IN WITNESS WHEREOF, the parries have caused this AMENDMENT NO. 1 TO
LOAN
AND SECURITY AGREEMENT to be executed as of the date first written above.
LENDER:
ATTEST: HCFP FUNDING, INC.
By: By: [SEAL]
Name: Name:
Title: Title:
BORROWER:
ATTEST: NEWCARE HEALTH CORPORATION,
A Nevada Corporation
By:/s/ Philip M. Rees By: /s/ Chris F. Brogdon [SEAL]
Name: Philip M. Rees Name: Chris Brogdon
Title: Secretary Title: President
ATTEST: NEWCARE, INC., a Florida
Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: OAK MANOR NURSING HOME, LTD.,
A Florida limited partnership
By: Equity General Partner, Inc.
Its: General Partner
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: HEALTHCARE FACILITIES LIMITED PARTNERSHIP,
A Louisiana limited partnership
By: Equity General Partner, Inc.
Its: General Partner
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: SUNCOAST NURSING HOME, LTD.,
A Florida limited partnership
By: Equity General Partner, Inc.
Its: General Partner
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: CENTRAL TAMPA NURSING HOME, LTD.
A Florida limited partnership
By: Equity General Partner, Inc.
Its: General Partner
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: VICTORIA MARTIN NURSING HOME, LTD.
A Florida limited partnership
By: Equity General Partner, Inc.
Its: General Partner
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: MEMORIAL NURSING CENTER, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: CIMMERON HEALTH CARE, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: FITZGERALD HEALTHCARE, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: FITZGERALD NURSING CENTER, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: FORT VALLEY NURSING CENTER, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: WINWARD NURSING CENTER, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: KMH ENTERPRISES, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: WHIGHAM HEALTH & REHABILITATION,
INC., a Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: NEWCARE HOSPITAL CORPORATION,
a Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Arthur M. Doloresco [SEAL]
Name: Philip M. Rees Name: Arthur M. Doloresco
Title: Secretary Title: President
ATTEST: NEWCARE HEALTH CORPORATION,
a Nevada Corporation
By:/s/ Philip M. Rees By: /s/ Chris Brogdon [SEAL]
Name: Philip M. Rees Name: Chris Brogdon
Title: Secretary Title: President<PAGE>
<PAGE>
REVOLVING CREDIT NOTE
$10,000,000.00 January 30, 1998
For value received, the undersigned, NEWCARE HEALTH CORPORATION, a
Nevada
corporation, NEWCARE, INC., a Florida corporation, OAK MANOR NURSING HOME,
LTD.,
a Florida limited partnership, HEALTHCARE FACILITIES LIMITED PARTNERSHIP I,
a
Louisiana limited partnership, SUNCOAST NURSING HOME, LTD., a Florida
limited
partnership, VICTORIA MARTIN NURSING HOME, LTD., a Florida limited
partnership,
CENTRAL TAMPA NURSING HOME, LTD., a Florida limited partnership, MEMORIAL
NURSING
CENTER, INC., a Georgia corporation, CIMMERON HEALTH CARE, INC., a Georgia
corporation, FITZGERALD HEALTHCARE, INC., a Georgia corporation, FITZGERALD
NURSING CENTER, INC., a Georgia corporation, FORT VALLEY NURSING CENTER,
INC.,
a Georgia corporation, WINDWARD NURSING CENTER, INC., a Georgia
corporation, KMH
ENTERPRISES, INC., a Georgia corporation, WHIGHAM HEALTH & REHABILITATION,
INC.,
a Georgia corporation and NEWCARE HOSPITAL CORPORATION, a Georgia
corporation,
and NEWCARE NURSING CORPORATION, a Georgia corporation (collectively,
"Borrower"), jointly and severally, promise to pay, in lawful money of the
United
States, to the order of HCFP FUNDING, INC., a Delaware corporation
("Lender"),
the principal sum of Ten Million and No/100 Dollars ($ 10,000,000.00), or
so much
thereof as shall be advanced or readvanced and shall remain unpaid under
the Loan
established pursuant to that certain loan and Security Agreement of even
date
with this Note by and among the undersigned and Lender (the "Loan
Agreement"),
plus interest on the unpaid balance thereof, computed on a 360-day basis,
at the
rate per annum that is set forth in the Loan Agreement. All capitalized
terms
used, and not otherwise specifically defined, in this Note shall have the
meanings ascribed to them in the Loan Agreement.
This Note amends, restates and replaces in its entirety the Revolving
Credit Note dated July 31, 1997.
This Note shall evidence the undersigned's obligation to repay all
sums
advanced by Lender from time to time under and as part of the Loan. The
actual
amount due and owing from time to time under this Note shall be evidenced
by
Lender's records of receipts and disbursements with respect to the Loan,
which
shall be conclusive evidence of that amount, absent manifest error.
Interest hereon shall be payable monthly, in arrears, on the first
Business
Day of each month hereafter (for the previous month). For purposes of this
Note,
a "Business Day" shall mean any day on which banks are open for business in
Maryland, excluding Saturdays and Sundays.
This Note shall become due and payable upon the earlier to occur of
(i) the
expiration of the Term, or (ii) any Event of Default under the Loan
Agreement,
or any other event under any other Loan Documents which would result in
this Note
becoming due and payable. At such time, the entire principal balance of
this Note
and all other fees, costs and expenses, if any, shall be due and payable in
full.
Lender shall then have the option at any time and from time to time to
exercise
all of the rights and remedies set forth in this Note and in the other Loan
Documents, as well as all rights and remedies otherwise available to Lender
at
law or in equity, to collect the unpaid indebtedness under this Note and
the
other Loan Documents. This Note is secured by the Collateral, as defined in
and
described in the Loan Agreement.
Whenever any principal and/or interest and/or fee under this Note
shall not
be paid when due, whether at the stated maturity or by acceleration,
interest on
such unpaid amounts shall thereafter be payable at a rate per annum equal
to
three percentage points above the stated rate of interest on this Note
until such
amounts shall be paid.
The undersigned and Lender 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 be 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 Note or under any
other
Loan Document shall not exceed the maximum amount of interest allowed by
applicable law, and any excess shall be promptly credited to the
undersigned by
Lender (or, to the extent that such consideration shall have been paid,
such
excess shall be promptly refunded to the undersigned by Lender); (b)
neither the
undersigned nor any other Person (as defined in the Loan Agreement) 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 maximum interest permitted by
applicable law; and (c) the effective rate of interest shall be reduced to
the
Highest Lawful Rate (as defined in the Loan Agreement). All skims 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 this Note until payment is made in full so that
the
actual rate of interest does not exceed the Highest Lawful Rate in effect
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 Note 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 Note 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 Note 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 this Note had been in
effect,
then the undersigned 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 Note
and the
Loan Agreement.
This Note is the "Note" referred to in the Loan Agreement, and is
issued
pursuant thereto. Reference is made to the Loan Agreement for a statement
of the
additional rights and obligations of the undersigned and Lender. In the
event of
any conflict between the terms hereof and the terms of the Loan Agreement,
the
teens of the Loan Agreement shall prevail. All of the terms, covenants,
provisions, conditions, stipulations, promises and agreements contained in
the
Loan Documents to be kept, observed and/or performed by the undersigned are
made
a part of this Note and are incorporated herein by this reference to the
same
extent and with the same force and effect as if they were fully set forth
herein,
and the undersigned promises and agrees to keep, observe and perform them
or
cause them to be kept, observed and performed, strictly in accordance with
the
terms and provisions thereof.
Each party liable hereon in any capacity, whether as maker, endorser,
surety, guarantor or otherwise, (i) waives presentment for payment, demand,
protest and notice of presentment, notice of protest, notice of non-payment
and
notice of dishonor of this debt and each and every other notice of any kind
respecting this Note and all lack of diligence or delays in collection or
enforcement hereof, (ii) agrees that Lender and any subsequent holder of
this
Note, at any time or times, without notice to the undersigned or its
consent, may
grant extensions of time, without limit as to the number of the aggregate
period
of such extensions, for the payment of any principal, interest or other
sums due
hereunder, (iii) to the extent permitted by law, waives all exemptions
under the
laws of the State of Maryland. and/or any state or territory of the United
States, (iv) to the extent permitted by law, waives the benefit of any law
or
rule of law intended for its advantage or protection as an obligor
hereunder or
providing for its release or discharge from liability hereon, in whole or
in
part, on account of any facts or circumstances other than full and complete
payment of all amounts due hereunder, and (v) agrees to pay, in addition to
all
other sums of money due, all cost of collection and attorney's fees,
whether suit
be brought or not, if this Note is not paid in full when due, whether at
the
stated maturity or by acceleration.
No waiver by Lender or any subsequent holder of this Note of any one
or
more defaults by the undersigned in the performance of any of its
obligations
hereunder shall operate or be construed as a waiver of any future default
or
defaults, whether of a like or different nature. No failure or delay on the
part
of Lender in exercising any right, power or remedy under this Note
(including,
without limitation, the right to declare this Note due and payable) shall
operate
as a waiver thereof, nor shall any single or partial exercise of any such
right,
power or remedy preclude any other or further exercise thereof or the
exercise
of any other right, power or remedy.
If any term, covenant or condition of this Note, 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 Note 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 be valid and enforced to the fullest extent permitted by
law.
Upon determination that any such term is invalid, illegal or unenforceable,
the
undersigned shall cooperate with Lender to amend this Note so as to effect
the
original intent of the parties as closely as possible in an acceptable
manner.
No amendment, supplement or modification of this Note nor any waiver
of any
provision hereof shall be made except in writing executed by the party
against
whom enforcement is sought.
This Note shall be binding upon the undersigned and its successors and
assigns. Notwithstanding the foregoing, the undersigned 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.
THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS
OF THE STATE OF MARYLAND WITHOUT RESPECT TO ANY OTHERWISE APPLICABLE
CONFLICTS-OF-LAWS PRINCIPLES, BOTH AS TO INTERPRETATION AND PERFORMANCE,
AND THE
PARTIES EXPRESSLY CONSENT AND AGREE TO THE NON-EXCLUSIVE JURISDICTION OF
THE
COURTS OF THE STATE OF MARYLAND AND THE UNITED STATES DISTRICT COURT FOR
THE
DISTRICT OF MARYLAND AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND,
WAIVING
ALL CLAIMS OR DEFENSES BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE,
INCONVENIENT FORUM OR THE LIKE. BORROWER HEREBY CONSENTS TO SERVICE OF
PROCESS
BY MAILING A COPY OF THE SUMMONS TO BORROWER, BY CERTIFIED OR REGISTERED
MAIL,
POSTAGE PREPAID, TO BORROWER'S ADDRESS SET FORTH IN SECTION 9.4 OF THE LOAN
AGREEMENT. BORROWER FURTHER WAIVES ANY CLAIM FOR CONSEQUENTIAL DAMAGES IN
RESPECT OF ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY LENDER IN GOOD FAITH.
THE UNDERSIGNED 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
EXIST.
THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY
THE
UNDERSIGNED, AND THIS WAIVER IS INTENDED TO ENCOMPASS 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 NOTE TO ANY COURT
HAVING
JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE
AS
CONCLUSIVE EVIDENCE OF THE UNDERSIGNED'S WAIVER OF THE RIGHT TO JURY TRIAL.
FURTHER, THE UNDERSIGNED HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT
OF
LENDER INCLUDING LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
TO
ANY BORROWER THAT LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF JUDGMENT
TO JURY
TRIAL PROVISION.
IN WITNESS WHEREOF, the parries have caused their authorized officers
to
execute this note as of the date first above written.
BORROWER:
ATTEST: NEWCARE HEALTH CORPORATION,
A Nevada Corporation
By:/s/ Philip M. Rees By: /s/ Chris F. Brogdon [SEAL]
Name: Philip M. Rees Name: Chris Brogdon
Title: Secretary Title: Chairman
ATTEST: NEWCARE, INC., a Florida
Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: OAK MANOR NURSING HOME, LTD.,
A Florida limited partnership
By: Equity General Partner, Inc.
Its: General Partner
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: HEALTHCARE FACILITIES LIMITED PARTNERSHIP,
A Louisiana limited partnership
By: Equity General Partner, Inc.
Its: General Partner
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: SUNCOAST NURSING HOME, LTD.,
A Florida limited partnership
By: Equity General Partner, Inc.
Its: General Partner
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: CENTRAL TAMPA NURSING HOME, LTD.
A Florida limited partnership
By: Equity General Partner, Inc.
Its: General Partner
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: VICTORIA MARTIN NURSING HOME, LTD.
A Florida limited partnership
By: Equity General Partner, Inc.
Its: General Partner
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: MEMORIAL NURSING CENTER, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: CIMMERON HEALTH CARE, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: FITZGERALD HEALTHCARE, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: FITZGERALD NURSING CENTER, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: FORT VALLEY NURSING CENTER, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: WINWARD NURSING CENTER, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: KMH ENTERPRISES, INC.
A Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: WHIGHAM HEALTH & REHABILITATION,
INC., a Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Kathy Pifer [SEAL]
Name: Philip M. Rees Name: Kathy Pifer
Title: Secretary Title: President
ATTEST: NEWCARE HOSPITAL CORPORATION,
a Georgia Corporation
By:/s/ Philip M. Rees By: /s/ Darrell C. Tucker [SEAL]
Name: Philip M. Rees Name: Arthur M. Doloresco
Title: Secretary Title: President
ATTEST: NEWCARE NURSING CORPORATION,
a Nevada Corporation
By:/s/ Philip M. Rees By: /s/ Chris Brogdon [SEAL]
Name: Philip M. Rees Name: Chris Brogdon
Title: Secretary Title: President
GUARANTY AGREEMENT
In consideration of the sum of Ten and No/100 Dollars ($10.00) and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged by the undersigned, and the agreement of SENTINEL TRUST
COMPANY, a Tennessee trust company having its principal trust office at 8122
Sawyer Brown Road, Suite 201, Nashville, Tennessee 37221-0558 (hereinafter
referred to as "Trustee"), to act as Trustee under that certain Trust
Indenture, dated as of December 1, 1997, between Development Authority of
Rockdale County (the "Issuer") and the Trustee (the "Indenture") for the
$8,500,000 Development Authority of Rockdale County First Mortgage Revenue
Bonds (Conyers Retirement, L.P. Project), Convertible Series 1997A (the
"Series 1997A Bonds") and $500,000 Development Authority of Rockdale County
First Mortgage Revenue Bonds (Conyers Retirement, L.P. Project), Taxable
Series 1997B (the "Series 1997B Bonds") (the Series 1997A Bonds and Series
1997B Bonds are referred to hereinafter collectively as
the "Series 1997 Bonds") for the benefit of Conyers Retirement, L.P., a Georgia
limited partnership (the "Borrower"), the undersigned, NewCare Health
Corporation, a Nevada corporation authorized to do business in the State of
Georgia (the "Guarantor") unconditionally and irrevocably guarantees to the
Issuer and to the Trustee the prompt payment and performance according to
their terms of all of the Obligations (as herein defined) and does agree that if
the Obligations will immediately do so. This instrument is hereinafter
referred to as the "guaranty."
The term "Obligations" as used herein means all obligations of the
Borrower to Issuer and Trustee now existing or hereafter coming into existence,
whether now or hereafter owned by Issuer or Trustee, including without
limitation any and all (i) obligations of the Borrower arising from, by
reason of, or in any way relating to the Loan Agreement (the "Agreement"),
dated as of December 1, 1997, between Issuer and Borrower, or any of the
other financing documents as referred to in the Agreement, including, but
not limited to, the indemnification provision of Section 5.2 of the
Agreement, together with any and all reasonable costs or
expenses (including, without limitation, attorneys' fees and expenses)
which may be paid or incurred by the Issuer, the Trustee or the Bondholders
(defined in the Indenture) in pursuing the remedies under the Indenture or
in collecting any or all of the foregoing, (ii) obligations of the Borrower
to Issuer or Trustee
arising from, by reason of, or in any way relating to any other loan
agreement,
security agreement, security deed, other security instrument, or any
promissory
note executed by (whether alone or together with another or others) in
favor of
Issuer or Trustee or any loan or advance by Issuer or Trustee to the
Borrower
under or in connection with any of the foregoing, (ii) other indebtedness
now or
hereafter owing by the Borrower to Issuer or Trustee, however evidenced or
created, whether direct, indirect or by way of assignment, whether joint or
several, absolute or contingent, or due or to become due, and (iv)
renewals,
extensions or modifications, in whole or in part, of any of the foregoing.
This guaranty shall be effective regardless of the solvency or
insolvency of the Borrower, the dissolution of the Borrower, the institution
by or against
the Borrower of any proceeding under the Federal Bankruptcy Code, any
reorganization, merger or consolidation of the Borrower, or any change in
the ownership, composition or nature of the Borrower.
In the event any proceeding is instituted by or against the Borrower
under
the Federal Bankruptcy Code or any other bankruptcy, insolvency or
moratorium
law, as between the undersigned and Issuer or Trustee, all of the
obligations
shall be immediately due and payable, without notice or demand of any kind,
and
the undersigned agrees immediately to pay the Obligations in full,
irrespective
of whether the Obligations can be accelerated against the Borrower and
irrespective of any right which the Borrower may have under any bankruptcy,
insolvency or moratorium law to cure defaults and reinstate the maturities
of the Obligations.
The undersigned hereby consents and agrees that Issuer or Trustee may
at
any time, either with or without consideration, surrender any property or
other
security of any kind or nature whatsoever held by it, or by any person,
firm or
corporation on its behalf or for its account, securing any of the
Obligations or
substitute any collateral so held by it for other collateral of like kind
or of
any kind without notice to or further consent from the undersigned, and
such
surrender or substitution shall not in any way affect the liability of the
undersigned hereunder.
Payment by the Guarantor under this guaranty shall be due and payable
upon
notice ("Notice of Nonpayment") from the Trustee, by telex, fax or
telegram, that
the Borrower has failed to deposit the funds required for payment of
principal,
interest, or premium, if any, due and payable on the Bonds in accordance
with the Agreement.
The Guarantor covenants that so long as the guaranty is in effect, it
will
maintain its existence and will not merge or consolidate with any other
corporation or sell or otherwise dispose of all or substantially all of its
assets; provided that the Guarantor may, subject to the approval of the
Issuer,
merger or consolidate with another corporation or other business entity all
or
substantially all of its assets as an entirety and thereafter dissolve,
provided
any surviving, resulting or transferee entity (i) is authorized to do
business
in the State of Georgia, (ii) is a domestic corporation, partnership or
other
entity, or, if a natural person, is a resident of the United States of
America,
(iii) assumes in writing all of the obligations of the Guarantor under this
guaranty and (iv) has net worth (as certified by a certified public
accountant
after giving effect to such transaction) at least equal to that of the
Guarantor
immediately prior to such transaction; and provided further that the
Guarantor
may merge other entities into it without the consent of the Issuer so long
as
requirements (I), (ii) and (iv) above of this paragraph are satisfied.
Failure by Issuer or Trustee to give the undersigned (i) notice of the
creation of any of the Obligations, (ii) notice of nonpayment or default by
the
Borrower under any of the Obligations or under any agreement now or
hereafter
existing between Issuer or Trustee and the Borrower, (iii) notice of
presentment,
(iv) demand, (v) notice of dishonor , (vi) protest, (vii) notice of
acceptance
of this guaranty or of the creation or extension or renewal of any
Obligation,
or (viii) any other notice whatsoever shall not affect or impair, or
release the
undersigned from its liability under, this guaranty. The undersigned
further
agrees that no modification of any of the Obligations, and that no waiver,
extension, renewal, indulgence, settlement, compromise or failure to
exercise due
diligence in collection, for any period or periods, whether or not longer
than
the original period, or any substitution or release of any other person
directly
or indirectly liable for any of the obligations, including without
limitation any
other guarantor of the Obligations, shall affect or impair, or release the
undersigned for its liability under, this guaranty.
Guarantor acknowledges that the Trustee is not required, as a
precondition
to the enforcement of this guaranty, to seek payment of the Obligations
from any
other elements of security described in the Indenture and/or the Agreement,
and
that the Trustee may satisfy the payment of the Obligations directly from
the
Guarantor pursuant to the terms of this guaranty in the event of
non-payment by the Borrower of such Obligations.
This guaranty is absolute and unconditional and irrevocable and shall
remain in full force and effect until such time as all of the Obligations
have
been paid or performed in full, and this guaranty is binding upon the
Guarantor and its successors and assigns.
The obligations of Guarantor hereunder shall be absolute,
unconditional,
and irrevocable without regard to the validity, legality or enforceability
of the
Agreement, the Indenture, the Series 1997 Bonds or any other instrument
delivered
under or in connection with any of the foregoing, or any other
circumstances
which might otherwise constitute a legal or equitable discharge of a surety
or
guarantor, it being agreed that the obligations of Guarantor hereunder
shall not
be discharged except by final payment in full as herein provided or
fulfillment of all of the Obligations.
In the event any claim hereunder is referred to an attorney-at-law for
collection, the undersigned shall be liable to Issuer and Trustee for all
costs
of collection including reasonable attorneys' fees actually incurred.
The undersigned agrees that no act or omission on the part of Issuer
or Trustee shall in any way affect or impair this guaranty.
The liability of the undersigned hereunder is primary, and Issuer or
Trustee may proceed against the undersigned hereunder without first
proceeding
against the Borrower, or any other person (including, without limitation
and
other guarantor of the Obligations) primarily or secondarily liable on any
of the
Obligations, or any collateral securing any of the Obligations.
Whenever Issuer or Trustee in good faith believes that the prospect of
payment of any of the Obligations is impaired, Issuer or Trustee, without
notice
or demand of any kind, may hold and set off against such Obligations
(whether
matured or unmatured) as Issuer and Trustee may elect, any balance or
amount to
the credit of the undersigned in any deposit, agency, reserve, holdback or
other
account of any nature whatsoever maintained by or on behalf of the
undersigned
with Issuer or Trustee at any of their offices, regardless of whether such
accounts are individual or joint.
Guarantor hereby assents to all of the terms of the Agreement, the
Indenture and the Bonds and hereby waivers the right to require application
in
respect of the property of the Borrower and waives any right to require
that any
resort be had by the Trustee to any security held for payment of the
Obligations
or to any balance of any deposit account or credit on the books of the
Trustee
in favor of the Borrower or any other person; and waives notice of
acceptance of
its guarantee hereunder, presentment, demand, protest, notice of the
occurrence
of an event of default under the Agreement, the Indenture or the Bonds or
any or
all of the Obligations, other than notice of nonpayment, and promptness in
making
any claim or demand hereunder, it being the intention of Guarantor that no
act
or omission of any kind shall in any way affect or impair its guarantee or
its payment obligations.
This guaranty is subject to all the terms, conditions, agreement, and
stipulations contained in any agreements, deeds, notes, instruments or
other
documents evidencing the Obligations, and the undersigned agrees that the
terms,
conditions and provisions of such agreements, deeds, notes, instruments or
other
documents shall, simultaneously with their execution, become a part of this
guaranty.
Guarantor will not exercise any rights which it may have acquired by
way
of subrogation under this guaranty, by any payment made hereunder or
otherwise, unless and until all the Obligations shall have been paid in
full, and if any
payment shall be made to Guarantor on account of such subrogation rights at
any
time when all the Obligations shall not have been paid in full, each and
every
amount so paid will be forthwith paid to the Trustee to be credited and
applied
to any of the Obligations, whether matured or unmatured, in accordance with
the terms of the Indenture.
This guaranty is a continuing guarantee of payment and not of
collection
and (i) shall remain in full force and effect until payment of the
Obligations,
(ii) shall be binding upon Guarantor, its successors and assigns, but
Guarantor
may not assign or transfer its rights or obligations hereunder and (iii)
shall
inure to the benefit of, and be enforceable by, the Issuer, the Trustee and
their
respective successors and assigns under the Indenture and the Agreement,
and the
registered Bondholders (defined in the Indenture) in accordance with the
provisions of the Indenture.
Each payment by the Guarantor hereunder shall reduce pro tanto the
Obligations which the Guarantor is obliged to pay hereunder.
Notwithstanding
anything to the contrary, any payment by the Borrower of principal of, any
premium, if any, or interest on the Bonds (which payment shall not be the
subject
of a claim or dispute by any third party) shall eliminate a corresponding
obligation of the Guarantor to make the same payment.
If at any time any provision hereof is or becomes invalid, illegal or
unenforceable in any respect under the law of any jurisdiction, neither the
validity, legality or enforceability of such provision under the law of any
other
jurisdiction shall in any way be affected or impaired thereby.
This guaranty and all instruments delivered hereunder shall be
construed
and governed in accordance with the laws of the State of Georgia. Guarantor
hereby (a) consents and submits to the nonexclusive jurisdiction of, and
consents
to any suit, legal action or proceedings with respect to this guaranty
being, at
the option of the Issuer or the Trustee, brought by the Issuer or the
Trustee in
any state or federal court sitting in the State of Georgia; and (b)
consents to
any such suit, legal action or proceeding being brought in the courts of
whatever
jurisdiction the Issuer may select to execute or otherwise to enforce any
judgment for beach of this guaranty obtained against Guarantor or any of
its undertakings, property or assets.
The obligations of the Guarantor set forth in this guaranty shall
terminate, and this guaranty shall be of no further force or effect upon
final
payment in full as herein provided or fulfillment of all of the
Obligations.
This guaranty shall cover all Obligations to Issuer or Trustee
purporting
to be made on behalf of the Borrower by any officer or agent of the
Borrower
without regard to the actual authority of such officer or agent or whether
or not
the Borrower is legally or properly organized.
The words "Issuer" or "Trustee" as herein used shall include
transferees,
assigns and successors of Issuer or Trustee, and all rights of Issuer and
Trustee
hereunder shall inure to the benefit of their respective transferees,
successors and assigns.
Words importing the singular number hereunder shall include the plural
number and vice versa, and any pronouns used herein shall be deemed to
cover all
genders. The term "person" as used herein means any individual,
corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated association or government or any agency or political
subdivision
thereof.
Wherever possible, each provision of this guaranty shall be
interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this guaranty shall be prohibited by or invalid under
applicable
law, such provision shall be ineffective only the extent of such
prohibition or
invalidity, without invalidating the remainder of such provisions or the
remaining of this guaranty.
SIGNED, SEALED AND DELIVERED as of the 1st day of December, 1997.
NEWCARE HEALTH CORPORATION
By: /s/ Ashok Dalal
President
Attest: Philip M. Rees
Secretary
SUBSIDIARIES OF THE REGISTRANT
State of Incorporation Other Names
Name or Organization Used in Business
- ------------------- ---------------------- ----------------
NewCare, Inc. Florida None
Equity General Partner, Inc. Florida None
Oak Manor Nuring Home, Ltd. Florida None
Healthcare Facilities Limited
Partnership I Louisiana None
Suncoast Nursing Home, Ltd. Florida None
Victoria Martin Nursing Home, Ltd. Florida None
Central Tampa Nursing Home, Ltd. Florida None
Bay to Bay Nursing Home, Ltd. Florida None
Healthcare Facilities, Inc. Florida None
Memorial Nursing Center, Inc. Georgia None
Cimerron Health Care, Inc. Georgia None
Fitzgerald Healthcare, Inc. Georgia None
Fitzgerald Nursing Center, Inc. Georgia None
Ft. Valley Nursing Center, Inc. Georgia None
Windward Nursing Center, Inc. Georgia None
KMH Enterprises, Inc. Georgia Pleasant View
Nursing Center
Whigham Health & Rehabilitation, Inc. Georgia None
NewCare Hospital Corporation Georgia None
NewCare Nursing Corporation Georgia None
NewCare Retirement Corporation Georgia None
NewCare Hospital Management Corporation Georgia None
NewCare Dallas Hospital Management Georgia None
Corporation
NewCare Texas Nursing, Inc. Georgia None
NewCare Mass Nursing, Inc. Georgia None
Park Place, Ltd. Texas None
Tyler Park Place, Inc. Texas None
Wakulla Manor, Inc. Florida None
Wakulla Acquisition, Inc. Delaware None
