UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________to________________________
Commission file number 0-25176
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MEDCATH INCORPORATED
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(Exact name of registrant as specified in its charter)
North Carolina 56-1635096
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7621 Little Avenue, Suite 106, Charlotte, North Carolina 28226
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(Address of principal executive officers)
(Zip Code)
(704) 541-3228
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- --------
As of February 10, 1998, there were 11,669,359 Common Shares outstanding.
<PAGE>
MEDCATH INCORPORATED
FORM 10-Q
DECEMBER 31, 1997
TABLE OF CONTENTS
Page
No.
PART I - FINANCIAL INFORMATION (UNAUDITED)
Item 1. Condensed consolidated financial statements
(bullet)Condensed consolidated statements of income 3
(bullet)Condensed consolidated balance sheets 4
(bullet)Condensed consolidated statements of cash flows 5
(bullet)Notes to condensed consolidated financial statements 6-7
Item 2. Management's discussion and analysis of
financial condition and results of operations 8-11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
[zz]
MEDCATH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-----------------------------
1996 1997
-----------------------------
<S> <C> <C>
Net revenue $ 22,854 $ 40,798
Operating expenses:
Medical supplies and other 8,595 16,853
Personnel costs 6,145 11,478
Depreciation 1,490 3,071
Amortization 750 2,006
Provision for doubtful accounts 451 1,433
Marketing, general and administrative 1,902 1,938
-----------------------------
Total operating expenses 19,333 36,779
-----------------------------
Income from operations 3,521 4,019
Interest expense (702) (2,357)
Interest income 675 509
Minority interest in earnings of consolidated entities (570) (186)
-----------------------------
Income before income taxes 2,924 1,985
Provision for income taxes (1,170) (774)
-----------------------------
Net income $ 1,754 $ 1,211
=============================
Net income per share: $ 0.16 $ 0.10
=============================
Net income per share assuming dilution: $ 0.15 $ 0.10
=============================
Weighted average number of common and common
equivalent shares outstanding (in thousands): 11,135 11,669
=============================
Weighted average number of common and common
equivalent shares outstanding assuming dilution (in thousands): 11,669 12,204
=============================
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
MEDCATH INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
September 30, December 31,
------------------------ -----------------------
1997 1997
------------------------ -----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,607 $ 14,000
Short-term investments 25,344 23,318
Accounts receivable, net of allowance 22,360 30,105
Medical supplies 3,168 3,779
Prepaid expenses and other current assets 668 645
------------------------ -----------------------
Total current assets 69,147 71,847
Property, plant and equipment, net of accumulated depreciation 139,185 170,666
Other assets 2,470 2,871
Organization and start-up costs, net of accumulated amortization 13,737 16,129
Advances to physician groups 8,194 10,144
Intangible assets, net of accumulated amortization 26,275 34,181
------------------------ -----------------------
Total assets $ 259,008 $ 305,838
======================== =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,818 $ 5,272
Distribution payable to minority interests 1,081 1,299
Accrued liabilities 9,648 14,021
Current portion of long-term debt 5,503 11,195
Current portion of obligations under capital leases 599 606
------------------------ -----------------------
Total current liabilities 21,649 32,393
Deferred income taxes 3,731 3,998
Long-term debt 96,703 124,464
Obligations under capital leases 2,160 2,007
------------------------ -----------------------
Total liabilities 124,243 162,862
Minority interests in equity of consolidated entities 7,628 7,617
Shareholders' equity:
Common stock, $.01 par value, 20,000,000 shares authorized, and 11,168,603
and 11,669,359 shares issued and outstanding
at September 30, 1997 and December 31, 1997, respectively 112 117
Paid-in capital 109,065 116,071
Retained earnings 17,960 19,171
------------------------ -----------------------
Total shareholders' equity 127,137 135,359
------------------------ -----------------------
Total liabilities, minority interests and shareholders' equity $ 259,008 $ 305,838
======================== =======================
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
MEDCATH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
---------------------------------------
1996 1997
------------------- ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,754 $ 1,211
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,277 5,086
Minority interest (23) (376)
Deferred income taxes 50 267
(Increase) decrease in current assets:
Accounts receivable (2,787) (6,545)
Medical supplies (19) (611)
Prepaid expenses and other current assets (247) 94
Increase (decrease) in current liabilities:
Accounts payable (479) 454
Distribution payable to minority interest 185 218
Accrued liabilities 1,455 4,373
Other (9) 15
------------------- ------------------
Net cash provided by operating activities 2,157 4,186
INVESTING ACTIVITIES
Purchases of property, plant and equipment (12,027) (33,843)
Start-up and organization costs (1,489) (3,990)
Advances to physician groups (429) (1,969)
Repayments of advances to physician groups 412 19
Net sales of short-term investments 5,327 2,026
Acquisition of management contracts - (1,417)
Other investing activities - (345)
------------------- ------------------
Net cash used in investing activities (8,206) (39,519)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 9,204 33,664
Repayments of long-term debt (525) (2,027)
Repayments of convertible subordinated debt (1,908) -
Repayments of obligations under capital leases (82) (146)
Investments by minority partners 1,366 565
Other financing activities 90 (330)
------------------- ------------------
Net cash provided by financing activities 8,145 31,726
------------------- ------------------
Net increase (decrease) in cash and equivalents 2,096 (3,607)
Cash and cash equivalents, beginning of period 5,026 17,607
------------------ ------------------
Cash and cash equivalents, end of period $ 7,122 $ 14,000
=================== ==================
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
MEDCATH INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997
NOTE 1- GENERAL
The accompanying unaudited condensed consolidated financial statements of
MedCath Incorporated (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the statements of the unaudited interim periods
include all adjustments necessary for fair presentation of results for the
periods and all such adjustments are of a normal recurring nature. The
accompanying unaudited condensed consolidated results of operations for the
three month period ended December 31, 1997, are not necessarily indicative of
the results that may be expected for the year ending September 30, 1998. For
further information, refer to the audited consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1997. Unless otherwise specified, capitalized terms
used herein are used as defined in such Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates and assumptions.
NOTE 2 - NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per Share ("SFAS 128"). SFAS 128 replaced
the previously reported primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the SFAS 128 requirements.
NOTE 3 - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consisted of the following (in thousands):
SEPTEMBER 30, DECEMBER 31,
1997 1997
------------------- -------------------
<S> <C> <C>
The REIT Loans (as defined below) $ 58,781 $ 67,580
The Phoenix Loan (as defined below) 11,133 23,020
Convertible Subordinated Debt 4,452 4,452
Notes payable to various equipment lenders 27,638 40,439
Other notes payable 202 168
------------------- -------------------
102,206 135,659
Less current portion (5,503) (11,195)
==================== ===============
$ 96,703 $ 124,464
===================== ==============
</TABLE>
6
<PAGE>
MEDCATH INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997
NOTE 3 - LONG - TERM DEBT (CONTINUED)
The Company entered into mortgage loans with real estate investment trusts
("REITs") from 1994 to 1997 for the purpose of financing the land acquisition
and construction costs of the McAllen, Arkansas, and Tucson Heart Hospitals and
the Heart Hospital of Austin (collectively the "REIT Loans"). The Company
entered into the REIT Loan for the Heart Hospital of Austin in November of 1997.
The interest rates on the REIT Loans are based on a fixed premium above the
seven-year Treasury note rate and the principal and interest is payable monthly
over a seven year term using extended period amortization schedules. As of
December 31, 1997, the interest rates on the REIT Loans ranged from 9.50% to
11.54%.
In December 1997, the Company obtained financing from an equipment lender in the
amount of $7 million for the purpose of financing certain medical equipment and
fixtures in the Diagnostics Division. The term of the borrowing is for six years
and the interest rate is based on a fixed premium above the average weekly yield
of 30-Day Commercial Paper. The principal and interest is payable monthly. As of
December 31, 1997, the interest rate was 8.09%. Borrowings under the financing
agreement are secured by a pledge of the Company's interest in the financed
medical equipment and fixtures.
NOTE 4 - BUSINESS COMBINATIONS AND NEW OPERATIONS
In October 1997, the Company acquired a management service organization, through
the issuance of common stock valued at approximately $7 million, which changed
its name to MedCath Physician Management, Inc., ("MPM"). MPM has a 40-year
contract to manage Pima Heart Associates ("Pima Heart"), the Company's fourth
Managed Practice. Pima Heart is a 17-member cardiologist group located in
Tucson, Arizona. Pima Heart is a full service cardiology group that comprises
more than half of the cardiologists in the Tucson market place. The Company's
consolidated results of operations include the operating results, which are not
significant, of MPM from the date of acquisition.
The Tucson Heart Hospital, located in Tucson, Arizona, is owned and operated by
MedCath of Tucson L.L.C. (the "Tucson Company"), in which MedCath owns a
majority interest and serves as manager. The Tucson Heart Hospital, which was
completed and opened in October 1997 after a Medicare and Medicaid certification
survey was completed, is a 66-bed hospital with three surgery suites. The Tucson
Heart Hospital has four cardiac catheterization laboratories that are separately
owned and operated by CCT, L.L.C. (the "Tucson Cath Lab Company"). The Company
owns a majority interest in and manages the Tucson Cath Lab Company. The
remaining interests in the Tucson Cath Lab Company are owned by local
cardiologists.
7
<PAGE>
MEDCATH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997
The following discussion and analysis is provided to increase the understanding
of, and should be read in conjunction with, the Unaudited Condensed Consolidated
Financial Statements and accompanying notes. All References to a "Note" are to
the "Notes to Unaudited Condensed Consolidated Financial Statements" contained
herein. Unless otherwise specified, capitalized terms used herein are used as
defined in the Company's Annual Report on Form 10-K for the year ended September
30, 1997, and all references to the first quarter of 1997, and the first quarter
of 1998, refer to the quarter ended December 31, 1996, and 1997, respectively.
ACQUISITIONS AND NEW OPERATIONS
In October 1997, the Company acquired a management service organization which
changed its name to MedCath Physician Management, Inc., ("MPM"). MPM has a
40-year contract to manage Pima Heart Associates ("Pima Heart"), the Company's
fourth managed practice. Pima Heart is a 17-member cardiologist group located in
Tucson, Arizona. Pima Heart is a full service cardiology group that comprises
more than half of the cardiologists in the Tucson market place.
The Tucson Heart Hospital, located in Tucson, Arizona, is owned and operated by
MedCath of Tucson L.L.C. (the "Tucson Company"), in which MedCath owns a
majority interest and serves as manager. The Tucson Heart Hospital, which was
completed and opened in October 1997 after a Medicare and Medicaid certification
survey was completed, is a 66-bed hospital with three surgery suites. The Tucson
Heart Hospital has four cardiac catheterization laboratories that are separately
owned and operated by CCT, L.L.C. (the "Tucson Cath Lab Company"). The Company
owns a majority interest in and manages the Tucson Cath Lab Company. The
remaining interests in the Tucson Cath Lab Company are owned by local
cardiologists.
In January 1998, the Company announced that it had entered into an agreement
with Franciscan Health System of Ohio Valley, Inc. ("FHSOV") to locate the
Company's previously announced Dayton Heart Hospital on the grounds of the
Franciscan Medical Center - Dayton Campus. FHSOV will become a 30% investor in
the hospital, with the Company and local physician partners holding the
remaining interest. Under the terms of the agreement, the Company will be
managing partner, with responsibility for the day-to-day operations of the
hospital.
In January 1998, MPM acquired a 40-year contract to manage a seven-physician
cardiology practice, Valley Cardiology, Inc., located in McAllen, Texas. With
this acquisition, the Company's Practice Management Division now manages five
physician practices comprised of over 100 physicians.
The Company has announced plans to open two new fixed-site cath labs by the end
of fiscal year 1998. The labs will be located in Colorado Springs, Colorado, and
Dakota Dunes, South Dakota, and will further strengthen the Company's
Diagnostics Division. The Company has agreed to partner with local cardiologists
and own a majority interest in the Colorado Springs facility and has entered
into a long-term agreement to develop and manage the Dakota Dunes facility.
These two cath labs, in addition to the previously announced cath lab under
development in Montgomery, Alabama, will bring the total number of mobile and
fixed-site cath labs operated by the Company to 33.
8
<PAGE>
MEDCATH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, the percentage of the
Company's net revenue represented by the net revenue of each of the Company's
operating divisions and by certain items reflected in the Unaudited Condensed
Consolidated Statements of Income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------------
1996 1997
--------------- -------------
<S> <C> <C>
Net revenue:
Diagnostics Division 40.9% 20.4%
Practice Management Division 21.2 17.5
Hospital Division 37.9 61.1
Other - 1.0
---------------- -----------
Total net revenue 100.0% 100.0%
Operating Expenses:
Medical supplies, personnel & other operating expense 64.5 69.4
Depreciation and amortization expense 9.8 12.4
Provision for doubtful accounts 2.0 3.5
Marketing, general and administrative expense 8.3 4.8
----------------- ----------
Total operating expenses 84.6 90.1
------------------ ---------
Income from operations 15.4 9.9
Interest expense (3.1) (5.8)
Interest income 3.0 1.3
Minority interest in earnings of consolidated entities (2.5) (0.5)
------------------- -------
Income before income taxes 12.8 4.9
Provision for income taxes (5.1) (1.9)
----------------- ---------
Net income 7.7% 3.0%
================= =========
</TABLE>
9
<PAGE>
MEDCATH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997
RESULTS OF OPERATIONS (CONTINUED)
NET REVENUE
Consolidated net revenue increased 78.5% to $40.8 million in the first quarter
of 1998 from $22.9 million in the first quarter of 1997. Of this $17.9 million
increase, $16.2 million was attributable to increased net revenue in the
Hospital Division, which nearly tripled to $24.9 million in the first quarter of
1998 from $8.7 million in the first quarter of 1997. The increase in the
Hospital Division is primarily due to the March 1997 opening of the Company's
second Heart Hospital, the Arkansas Heart Hospital, which generated net revenue
of $12.0 million. The McAllen Heart Hospital's net revenue increased $1.5
million to $10.2 million in the first quarter of 1998. This increase was
attributable to increased procedure volumes and higher patient census levels.
The Tucson Heart Hospital, which opened in October 1997, generated net revenue
of $2.7 million in the first quarter of 1998.
Net revenue in the Practice Management Division increased $2.2 million, or 47.0%
to $7.1 million in the first quarter of 1998 from $4.9 million in the first
quarter of 1997. This increase was primarily attributable to the October 1997
acquisition of the contract to manage Pima Heart.
Net revenue in the Diagnostics Division decreased $1.0 million or 11.0% to $8.3
million in the first quarter of 1998 from $9.3 million in the first quarter of
1997. This decrease was partially due to the scheduled July 1997 closing of the
Fixed-Site Facility located in Tucson, Arizona, and also due to lower procedure
volumes at several of the Company's diagnostic facilities.
OPERATING EXPENSES AND INCOME FROM OPERATIONS
Consolidated operating expenses increased 90.2% to $36.8 million in the first
quarter of 1998 from $19.3 million in the first quarter of 1997. The increase
was attributable primarily to operating expenses in the Hospital Division.
Income from operations increased 14.1% to $4.0 million in the first quarter of
1998 from $3.5 million in the first quarter of 1997 due to an overall increase
in consolidated net revenue. Operating margins decreased to 9.9% in the first
quarter of 1998 from 15.4% in the first quarter of 1997. This decrease was
primarily attributable to the substantial growth in the Practice Management and
Hospital Divisions which operate at lower margins than those realized in the
Diagnostics Division. Consolidated EBITDA increased $3.3 million, or 57.9% to
$5.8 million in the first quarter of 1998 due to the Hospital Division's
operations.
Income from operations at the Hospital Division increased $758,000 or 74.2% to
$1.8 million in the first quarter of 1998. This increase is primarily due to the
opening of the Arkansas Heart Hospital in March 1997. Operating and EBITDA
margins in the Hospital Division decreased to 7.1% and 21.8%, respectively, in
the first quarter of 1998, from 11.8% and 24.5%, respectively, in the first
quarter of 1997. As expected, the Tucson Heart Hospital, which opened in October
1997, experienced an operating loss during the initial months of operation
resulting in the decrease in the Hospital Division's EBITDA and operating
margins. The McAllen and Arkansas Heart Hospitals both had positive operating
income during the period and had EBITDA margins of 25.1% and 30.8%,
respectively.
Income from operations in the Practice Management Division increased $12,000 or
2.3% to $543,000 in the first quarter of 1998. The increase is attributable
primarily to income from the contract to manage Pima Heart, which was acquired
in October 1997. Operating and EBITDA margins in the Practice Management
Division decreased to 7.6% and 10.2%, respectively, in the first quarter of
1998, from 10.9% and 13.2%, respectively, in the first quarter of 1997. These
decreases are due to the structure of the contract to manage Pima Heart.
Income from operations in the Diagnostics Division decreased $468,000 or 14.2%
to $2.8 million in the first quarter of 1998. Operating margins in the
Diagnostics Division decreased to 34.0% in the first quarter
10
<PAGE>
MEDCATH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997
of 1998 from 34.6% in 1997. This decrease is primarily due to the additional
depreciation expense taken on new equipment added throughout the prior fiscal
year. EBITDA margins increased to 48.0% in the first quarter of 1998 as compared
to 45.0% in the first quarter of 1997 due primarily to an increase in consulting
and management fee income.
Marketing, general and administrative expenses in the first quarter of 1998
increased 1.9% over the first quarter of 1997 primarily as a result of the
Company's continued investment in corporate infrastructure to accommodate
growth. In the first quarter of 1998, the Company continued to add personnel to
the Human Resources, Information Systems and Accounting departments.
INTEREST EXPENSE AND INTEREST INCOME
Interest expense in the first quarter of 1998 increased $1.7 million over the
first quarter of 1997 primarily as the result of interest incurred on borrowings
at the Tucson and Arkansas Heart Hospitals. Substantially all of the property,
plant and equipment at the hospitals was financed using borrowings that bear
interest at rates ranging from 8.50% to 11.54%. Interest income decreased by
$165,000 in the first quarter of 1998 compared with the first quarter of 1997
due to a decrease in average short-term investment balances.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING CASH FLOWS
Net cash provided by operating activities was $4.2 million for the three months
ended December 31, 1997. Accounts receivable increased $7.7 million during the
three months ended December 31, 1997, primarily as a result of the opening of
the Tucson Heart Hospital and increased revenue at the McAllen and Arkansas
Heart Hospitals. At December 31, 1997, the Company had working capital of $39.2
million, including $37.3 million of cash and short-term investments and $30.1
million in accounts receivable.
INVESTING CASH FLOWS
During the three months ended December 31, 1997, the Company utilized a net of
$39.5 million in investing activities primarily for the construction, purchase
of equipment and start-up costs for the Company's Heart Hospitals; consisting of
$10.1 million for the Tucson Heart Hospital, $18.1 million for the Arizona Heart
Hospital and $6.1 million for the Company's other Heart Hospitals under
construction. Additional physician advances totaled $2.0 million in the quarter,
and $5.2 million was utilized in the Company's other operations. Offsetting
these outflows was $2.0 million from the sale of short term investments.
FINANCING CASH FLOWS
Financing activities provided $31.7 million during the three month period ended
December 31, 1997, primarily from loan proceeds utilized for the construction
and development of the Arizona and Tucson Heart Hospitals, and the Heart
Hospital of Austin. In addition, the Company's Diagnostics Division borrowed
$7.0 million for the purpose of financing certain medical equipment and
fixtures.
11
<PAGE>
MEDCATH INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997
In November 1997, the Company entered into a mortgage loan with a REIT for the
purpose of financing the land acquisition and construction costs of the Heart
Hospital of Austin. The interest rate is based on a fixed premium above the
seven-year treasury note rate and the principal and interest is payable monthly
over a seven year term using an extended period amortization schedule. As of
December 31, 1997, the interest rate on the REIT was 9.50%. The Heart Hospital
of Austin's REIT provided $7.8 million of the total loan proceeds during the
first quarter of 1998.
In December 1997, the Company obtained a financing commitment for up to $29
million for the purpose of financing the land acquisition, construction and a
portion of the working capital costs of the Bakersfield Heart Hospital. The
interest rate will be at a fixed premium above LIBOR and the outstanding
principal balance will be due and payable in full three years from closing of
the note, if the Company's optional extension of one year is not exercised.
The Company expects that each of its Heart Hospitals will require working
capital advances to fund a portion of the pre-opening costs and to fund the
operations subsequent to opening in the initial start-up phase of the hospital.
Substantial investments will be required during the development phase, and the
Company expects operating losses and negative cash flow will be incurred during
the initial months of operation of each Heart Hospital.
The Company anticipates financing its future operations through a combination of
amounts available under the Revolver, financing from other real estate lenders
and various equipment lenders, capital contributions by minority partners, cash
reserves and operating cash flows. The Company believes the combination of these
sources will be sufficient to meet the Company's currently anticipated Heart
Hospital development, acquisition and working capital needs through fiscal year
1998. In addition, in order to provide funds necessary for the continued pursuit
of its business strategy, the Company expects to incur, from time to time,
additional indebtedness to banks and other financial institutions and to issue,
in public or private transactions, equity and debt securities. The availability
and terms of any such financing will depend upon market and other conditions.
There can be no assurance that such additional financing will be available on
terms acceptable to the Company.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Note dated as of November 11, 1997 from Heart Hospital IV,
L.P. to HCPI Mortgage, Inc. in the amount of $35,100,000.
10.2 Construction and Term Loan Agreement dated November 11, 1997
between Heart Hospital IV, L.P. and HCPI Mortgage, Inc.
10.3 Unconditional and Continuing Limited Guaranty dated as of
November 11, 1997 by the Company in favor of HCPI Mortgage,
Inc.
11 Statement re-computation of per share earnings
27 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K filed during the three months ended December 31,
1997 are as follows:
Date of Report Items Reported
None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDCATH INCORPORATED
DATE SIGNATURE AND TITLE
February 10, 1998 /s/ Richard J. Post
-----------------------
Richard J. Post
Chief Financial Officer, Secretary and
Treasurer
14
PROMISSORY NOTE
$35,100,000.00 Austin, Texas November 11, 1997
FOR VALUE RECEIVED, the undersigned (herein called "Borrower," whether
one or more) hereby promises to pay to the order of HCPI Mortgage Corp., a
Delaware corporation ("Lender"), by wire transfer to Lender as follows: Wells
Fargo Bank, San Francisco, CA, ABA Number: 121-000248, Account Name: HCPI
Mortgage Corp., Account Number: 4812-031920, or in such other form or at such
other place as may be from time to time designated by Lender by notice to
Borrower, the principal amount of the Loan, together with interest on the
principal amount of the Loan from day to day outstanding, as defined in and
provided in the Loan Agreement referred to below. All payments under this Note
shall be made in lawful money of the United States of America.
This Note has been executed and delivered pursuant to the Construction
Loan Agreement (the "Loan Agreement") of even date herewith between Borrower and
Lender. Capitalized terms used and not defined herein are used herein with the
meanings given them in the Loan Agreement. This Note is the "Note" referred to
in the Loan Agreement. Reference is hereby made to the Loan Agreement for all
purposes, including, but not limited to provisions regarding the payment and
prepayment hereof and the acceleration of the maturity hereof. The security for
this Note includes a Deed of Trust, Assignment, Security Agreement and Financing
Statement (the "Mortgage") of even date herewith from Borrower to Cheryl A.
Engelmann, Trustee, covering and affecting certain property in Travis County,
Texas, as more fully described therein.
Upon the occurrence of a Default, the holder hereof shall have the
right to declare the unpaid principal balance and accrued but unpaid interest on
this Note at once due and payable (and upon such declaration, the same shall be
at once due and payable), to foreclose any liens and security interests securing
payment hereof, and to exercise any of its other rights, powers and remedies
under any Loan Document, at Law or in equity. All such rights, powers, and
remedies are cumulative of each other and of any and all other rights and
remedies existing at Law or in equity, as described in the Loan Agreement.
If any holder of this Note retains an attorney in connection with any
Default or at maturity or to collect, enforce or defend this Note or any other
Loan Document in any lawsuit or in any probate, reorganization, bankruptcy or
other proceeding, or if Borrower sues any holder in connection with this Note or
any other Loan Document and does not prevail, then Borrower agrees to pay to
each such holder, in addition to principal and interest, all reasonable costs
and expenses actually incurred by such holder in trying to collect this Note or
in any such suit or proceeding, including reasonable attorneys' fees.
It is the intent of Lender and Borrower and all other parties to the
Loan Documents to conform to and contract in strict compliance with applicable
usury Law from time to time in effect. All agreements between Lender or any
other holder hereof and Borrower (or any other
<PAGE>
party liable with respect to any indebtedness under the Loan Documents) are
hereby limited by the provisions of this paragraph which shall override and
control all such agreements, whether now existing or hereafter arising. In no
way, nor in any event or contingency (including but not limited to prepayment,
default, demand for payment, or acceleration of maturity of any obligation),
shall the interest taken, reserved, contracted for, charged, chargeable or
received under this Note or under any of the other Loan Documents, or otherwise,
exceed the maximum nonusurious amount permitted by applicable Law (the "Maximum
Amount"). If, from any possible construction of any document, interest would
otherwise be payable in excess of the Maximum Amount, any such construction
shall be subject to the provisions of this paragraph and such document shall,
ipso facto, be automatically reformed and the interest payable shall be
automatically reduced to the Maximum Amount, without the necessity of execution
of any amendment or new document. If the holder hereof shall ever receive
anything of value that is characterized as interest under applicable Law and
that would apart from this provision be in excess of the Maximum Amount, an
amount equal to the amount that would have been excessive interest shall,
without penalty, be applied to the reduction of the principal amount owing on
the indebtedness evidenced hereby in the inverse order of its maturity and not
to the payment of interest, or refunded to Maker or the other payor thereof if
and to the extent such amount that would have been excessive exceeds such unpaid
principal. The right to accelerate maturity of this Note or any other
indebtedness does not include the right to accelerate any interest that has not
otherwise accrued on the date of such acceleration, and the holder hereof does
not intend to charge or receive any unearned interest in the event of
acceleration. All interest paid or agreed to be paid to the holder hereof shall,
to the extent permitted by applicable Law, be amortized, prorated, allocated and
spread throughout the full stated term (including any renewal or extension) of
such indebtedness so that the amount of interest on account of such indebtedness
does not exceed the Maximum Amount. As used in this paragraph, the term
"applicable Law" shall mean the Laws of the State of Texas or the federal Laws
of the United States applicable to this transaction, whichever Laws allow the
greater interest, as such Laws now exist or may be changed or amended or come
into effect in the future.
If more than one Person executes this Note as Borrower, all of said
Persons shall be jointly and severally liable for payment of the indebtedness
evidenced hereby. Borrower and all sureties, endorsers, guarantors and any other
Person now or hereafter liable for the payment of this Note in whole or in part,
hereby severally (i) waive demand, presentment for payment, notice of dishonor
and of nonpayment, protest, notice of protest, notice of intent to accelerate,
notice of acceleration and all other notice (except any notices that are
specifically required by this Note or any other Loan Document), filing of suit
and diligence in collecting this Note or enforcing any of the security herefor;
(ii) agree to any substitution, subordination, exchange or release of any such
security or the release of any Person primarily or secondarily liable hereon;
(iii) agree that the holder hereof shall not be required first to institute suit
or exhaust its remedies hereon against Borrower or others liable or to become
liable hereon or to enforce its rights against them or any security herefor;
(iv) consent to any extension or postponement of time of payment of this Note
for any period or periods of time and to any partial payments, before or after
maturity, and to any other indulgences with respect hereto, without notice
thereof to any of them; and (v) submit (and waive all rights to object) to
non-
2
<PAGE>
exclusive personal jurisdiction in the State of Texas, and venue in the
county in which payment is to be made as specified on the first page of this
Note, for the enforcement of any and all obligations under the Loan Documents.
BORROWER ACKNOWLEDGES THAT IT HAS HAD THE ADVICE OF COUNSEL OF ITS
CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY UNDER THE CONSTITUTIONS OF
THE UNITED STATES AND THE STATE OF TEXAS. BORROWER EXPRESSLY AND KNOWINGLY
WAIVES AND RELEASES ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF, OR IN CONNECTION WITH, THIS AGREEMENT, AND AGREES THAT LENDER
MAY FILE A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF BORROWER TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
This Note may not be amended except in a writing specifically intended
for such purpose and executed by the party against whom enforcement of the
amendment is sought. Any alleged amendment which is not so documented shall not
be effective as to any parties.
THIS NOTE, AND ITS VALIDITY, ENFORCEMENT AND INTERPRETATION, SHALL BE
GOVERNED BY TEXAS LAW (WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) AND
APPLICABLE UNITED STATES FEDERAL LAW.
This Note is executed and delivered by Borrower and accepted by Lender
in part in renewal, extension, modification and restatement of that certain Real
Estate Lien Note dated August 15, 1997 (the "Original Note"), executed and
delivered by Borrower, payable to the order of Lender, in the original principal
amount of One Thousand and No/100 Dollars ($1,000.00). This Note does not
constitute a novation or payment of any part of the indebtedness evidenced by
the Original Note. It is the intention of Borrower that any and all of the
instruments and documents which heretofore secured the indebtedness evidenced by
the Original Note (as such instruments and documents may have been or may
hereafter be amended, modified and/or restated) shall also secure the
indebtedness under this Note, whether or not such documents or instruments
expressly so provide.
IN WITNESS WHEREOF, Borrower has duly executed this Note as of the date
first above written.
BORROWER:
HEART HOSPITAL IV, L.P., a Texas limited
partnership
By: Hospital Management IV, Inc., a North
Carolina corporation, General Partner
By: /s/ Richard J. Post
-----------------------------------------
Name: Richard J. Post
---------------------------------------
Title: Treasurer
-------------------------------------
3
<PAGE>
CONSTRUCTION LOAN AGREEMENT
BETWEEN
HCPI MORTGAGE CORP.
AND
HEART HOSPITAL IV, L.P.
NOVEMBER 11, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE 1 - GENERAL INFORMATION...................................................................................1
1.1. Loan............................................................................................1
1.2 Purpose.........................................................................................1
1.3. Loan Documents..................................................................................1
ARTICLE 2 - THE LOAN..............................................................................................1
2.1. Commitment and Advances.........................................................................1
2.2. Budget and Amendments...........................................................................1
2.3. Loan in Balance.................................................................................2
2.4. Direct Advances to Lender.......................................................................3
2.5. Disbursement and Performance by Lender..........................................................3
2.6. Fees............................................................................................4
ARTICLE 3 - PAYMENT...............................................................................................4
3.1. Repayment at Maturity...........................................................................4
3.2. Interest........................................................................................4
3.3. Payments of Principal and Interest..............................................................5
3.4. Past-Due Obligations............................................................................5
3.5. Prepayments.....................................................................................5
3.6. Application of Payments.........................................................................6
3.7. General Provisions..............................................................................6
ARTICLE 4 - CONSTRUCTION..........................................................................................7
4.1. Plans...........................................................................................7
4.2. Contracts.......................................................................................7
4.3. Construction of the Improvements................................................................7
4.4. Changes.........................................................................................8
ARTICLE 5 - LETTERS OF CREDIT.....................................................................................9
5.1. Letters of Credit...............................................................................9
5.2. Times for Obtaining Letters of Credit...........................................................9
5.3. Amounts for Letters of Credit. ................................................................9
5.4. Uses of Letters of Credit. ....................................................................9
5.5. Prepayment of Loan.............................................................................10
ARTICLE 6 - TAXES, INSURANCE, AND CONDEMNATION...................................................................10
6.1. Hazard and Other Insurance.....................................................................10
6.2. Condemnation...................................................................................13
6.3. Restoration and Reconstruction.................................................................13
6.4. Taxes..........................................................................................13
6.5. Reserve for Insurance, Taxes and Assessments...................................................14
ARTICLE 7 - ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.....................................15
7.1. Financial Statements...........................................................................15
7.2. Litigation.....................................................................................16
7.3. Existence and Rights...........................................................................16
7.4. Authorization, Conflicts, Enforceability.......................................................16
7.5. Title to the Property..........................................................................16
7.6. Legal Requirements.............................................................................17
7.7. Utilities and Access...........................................................................17
7.8. Other Lands....................................................................................17
7.9. Full Disclosure................................................................................17
7.10. Certain Regulatory Matters.....................................................................18
7.11. Principal Office, Etc..........................................................................18
7.12. Payment and Performance........................................................................18
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<PAGE>
7.13. Inspection of the Property.....................................................................18
7.14. Use of Loan Funds..............................................................................18
7.15. Maintenance and Use............................................................................18
7.16. Notice to Lender...............................................................................18
7.17. Costs and Expenses.............................................................................19
7.18. Further Assurances.............................................................................19
7.19. No Assignment..................................................................................20
7.20. Contest of Certain Claims......................................................................20
7.21. Indemnification................................................................................20
7.22. Periodic Appraisal.............................................................................21
7.23. Estoppel Certificate...........................................................................21
7.24. Financial Covenants............................................................................22
7.25. Cost Reports...................................................................................22
7.26. Absence of Certain Business Practices..........................................................22
7.27. Fraud and Abuse................................................................................22
7.28. Health Professional's Financial Relationship...................................................23
7.29. Licensure......................................................................................23
7.30. Construction of Medical Office Building .......................................................23
ARTICLE 8 - DEFAULT AND REMEDIES.................................................................................24
8.1. Default........................................................................................24
8.2. Notice and Cure................................................................................27
8.3. Certain Remedies...............................................................................27
8.4. Completion of Construction, etc................................................................27
8.5. Rights and Remedies Cumulative.................................................................28
ARTICLE 9 - GENERAL TERMS AND CONDITIONS.........................................................................28
9.1. Loan Documents.................................................................................28
9.2. Waiver.........................................................................................28
9.3. Lender's Consent or Approval...................................................................29
9.4. Modification or Termination....................................................................29
9.5. Forum..........................................................................................29
9.6. Compliance with Usury Laws.....................................................................29
9.7. Notices........................................................................................29
9.8. No Brokers.....................................................................................31
9.9. Partial Invalidity.............................................................................31
9.10. Interpretation...................................................................................31
9.11. Disclosure of Information........................................................................31
9.12. Binding Effect...................................................................................31
9.13. Conditions for the Benefit of Lender.............................................................31
9.14. Counterparts.....................................................................................32
9.15. No Partnership, etc..............................................................................32
9.16. Publicity........................................................................................32
9.17. Loan Agreement Governs...........................................................................32
9.18. Time of Essence..................................................................................32
9.19. Applicable Law...................................................................................32
9.20. Waiver of Right to Trial by Jury.................................................................33
9.21. Survival of Representations, Warranties and Covenants............................................33
9.22. Payments Set Aside...............................................................................33
9.23. Disclaimer of Financing........................................................................33
9.24. Evidence of Satisfaction.........................................................................34
ARTICLE 10 - BASIC INFORMATION AND DEFINITIONS...................................................................34
10.1. Certain Definitions............................................................................34
ii
<PAGE>
ARTICLE 11 - EXHIBITS............................................................................................39
11.1. Exhibits.........................................................................................39
ARTICLE 12 - ENTIRE AGREEMENT....................................................................................39
12.1. Entire Agreement.................................................................................39
</TABLE>
iii
<PAGE>
CONSTRUCTION LOAN AGREEMENT
THIS CONSTRUCTION LOAN AGREEMENT ("Agreement"), dated November 11,
1997, is made by HCPI Mortgage Corp., a Delaware corporation ("Lender"), and
Heart Hospital IV, L.P., a Texas limited partnership ("Borrower"), who agree as
follows:
ARTICLE 1 -GENERAL INFORMATION
1.1. Loan. Lender has agreed to make a construction loan ("Loan") to
Borrower in an amount not to exceed Thirty-Five Million One Hundred Thousand and
No/100 Dollars ($35,100,000.00) ("Committed Sum"); provided that the Loan may,
at Lender's option as hereinafter described, exceed the Committed Sum.
1.2 Purpose. The proceeds of the Loan shall be used by Borrower only
to pay the Actual Construction Costs of the construction of all on-site and
off-site improvements to the land located in Travis County, Texas described in
Exhibit "A" ("Land") for a heart hospital and parking structure ("Facility") to
be constructed substantially in accordance with the plans and specifications
identified in Exhibit "B", as hereinafter amended with Lender's consent, to the
extent required ("Plans"), on the Land, together with all fixtures and
appurtenances now or later to be located on the Land and/or in such improvements
("Improvements") and related costs as set forth in the Budget, as hereinafter
amended with Lender's consent, to the extent required.
1.3. Loan Documents. The Loan Documents evidence the agreements of
Borrower and Lender with respect to the Loan. The Loan Documents include (a) a
Promissory Note in the principal amount of the Committed Sum, executed by
Borrower, payable to the order of Lender ("Note"), which Note is a renewal,
amendment and restatement of the Original Note, (b) a Deed of Trust, Assignment,
Security Agreement, and Financing Statement, executed by Borrower for the
benefit of Lender, granting liens and security interests in the Property to
Lender to secure repayment of the Loan ("Mortgage"), which Mortgage carries
forward the liens of the Original Mortgage, and (c) a guaranty agreement
("Guaranty") executed by MedCath Incorporated, a North Carolina corporation
("Guarantor"), guarantying Borrower's obligations under the Loan Documents to
Lender. Borrower shall comply with all Loan Documents. Article 9 contains
certain defined terms used in this Agreement. The exhibits attached to this
Agreement, which are made a part hereof and are incorporated herein, contain
terms, provisions, and conditions applicable to the Loan.
ARTICLE 2 -THE LOAN
2.1. Commitment and Advances. As a condition precedent to the Loan,
Borrower shall have satisfied all of the conditions set forth in Exhibit "D" on
or before the Closing Date or such other date specified therein. Thereafter,
Lender shall make Advances of the Loan to Borrower in accordance with Exhibit
"E" and this Agreement from the Closing Date to the earliest to occur of (a) the
Maturity Date; (b) if Lender elects, the date thirty (30) days after the Closing
Date if all conditions to the first Advance have not been satisfied on or before
such date; (c) prepayment of the Loan in full; or (d) termination under Article
7. Notwithstanding the foregoing, Lender shall have no obligation to make any
Advance (x) for the construction costs of the Improvements after the Completion
Date, except for advances of amounts retained by Lender, (y) which would cause
the unpaid principal amount of the Loan to exceed the Committed Sum, or (z) to
the extent Lender is relieved from such obligation under provisions of the Loan
Documents. The Loan is not revolving; an amount repaid may not be reborrowed.
The amount of the Loan set forth on the books and records of Lender maintained
in the ordinary course of business shall be presumptive evidence of the
principal amount thereof owing and unpaid from time to time, but the failure to
record any such amount shall not limit or affect the Obligations.
2.2. Budget and Amendments. The Loan funds are allocated for the costs
of the Project shown in the Loan Allocation column in the Budget. The Budget has
been prepared by Borrower and Borrower represents to Lender that, to Borrower's
knowledge, the Budget includes all material costs and expenses incident to the
Loan and the Project after taking into
1
<PAGE>
account the requirements of the Loan Documents. Lender shall not be required to
make any Advance (a) for any cost or purpose not set forth in the Budget; or (b)
for any line item in the Budget that, when added to all prior Advances for that
line item, exceeds the lesser of (i) the actual cost incurred by Borrower for
such line item, or (ii) the amount of Loan funds allocated in the Budget for
that line item. Borrower shall not be entitled to Advances for the purchase or
leasing of equipment to be used in connection with the Facility except for
equipment to be incorporated into the Facility and which will be deemed a real
property fixture upon installation. Lender may make Advances allocated to line
items in the Budget for other purposes or in different proportions as Lender
deems necessary or advisable. Borrower shall (a) not reallocate Loan funds from
one Budget line item to another (except to reallocate "Contingency" amounts to
another line item) or otherwise amend the Budget without the prior written
consent of Lender, which consent shall not be unreasonably withheld, except for
amendments in connection with a Borrower Funded Budget Change; and (b) notify
Lender promptly whenever Borrower becomes aware that the Budget is, or might be,
inaccurate in any material respect.
2.3. Loan in Balance. (a) The Loan shall not be "in balance" if Lender
reasonably determines that (i) the cost required to complete or pay in full any
line item in the Budget exceeds the sum of the unadvanced Loan funds allocated
to that line item to which Borrower is entitled under this Agreement plus any
available amount in the "Contingency" line item in the Budget, plus all
undisbursed cash and undrawn letters of credit provided by Borrower under this
Section for such line item or any cash to be provided by Borrower in connection
with a Borrower Funded Budget Change, (ii) there are any other unanticipated
costs not identified in the Budget which exceed the remaining amount in the
"Contingency" line item in the Budget, (iii) the funded percentage of any
contingency line item exceeds the then applicable Permitted Contingency
Percentage for such contingency line item, (iv) the Committed Sum equals or
exceeds an amount equal to eighty percent (80%) of the market value of the
Property indicated on an appraisal obtained under Section 7.22; or (v) the
unadvanced Loan funds, together with any funds to be supplied by Borrower in
connection with a Borrower Funded Budget Change, will be insufficient to
complete the construction of the Improvements substantially in accordance with
the Plans on or before the Completion Date and to pay all Actual Construction
Costs incurred in connection with such construction.
(b) If Lender reasonably determines that the Loan is not in balance,
then, within seven (7) Business Days after notice from Lender thereof, but in
any event prior, and as a condition, to any additional Advance, Borrower shall
either (i) deposit with Lender an amount in cash equal to the greater of (x) the
excess, increased, or unanticipated cost or amount by which the Committed Sum
exceeds eighty percent (80%) of such market value, or (y) the amount of
additional funds necessary in the reasonable good faith judgment of Lender, as
shall, when added to the unadvanced Loan funds, be sufficient to complete and/or
pay for the construction of the Improvements; (ii) provide Lender with evidence
satisfactory to Lender that Borrower has paid the excess, increased, or
unanticipated cost; or (iii) furnish Lender with a clean, unconditional and
irrevocable letter of credit in favor of Lender in the amount of the excess,
increased, or unanticipated cost or amount by which the Committed Sum exceeds
eighty percent (80%) of such market value, in form and content and from an
issuer satisfactory to Lender, and providing for drawing thereunder in full at
any time or in part from time to time (A) to make Advances to pay such excess,
increased, or unanticipated cost, (B) upon the Maturity Date, (C) upon the
occurrence of a Default, or (D) within thirty (30) days before the expiration
date of the letter of credit if the same is not amended or replaced before such
drawing to extend the expiration date to the earlier of an additional year or
thirty (30) days after the Maturity Date.
(c) Lender shall have no obligation to make further Advances until
Borrower has complied with subparagraph (b) above. Any funds deposited by
Borrower or drawn by Lender under any letter of credit to address subparagraph
(a)(iv) ("Additional Collateral") shall be held as additional collateral for the
Loan in an interest-bearing account with any interest earned thereon payable and
belonging to Borrower, or at Lender's option, applied to the Obligations in such
manner and order as Lender elects in its sole discretion. Any funds deposited by
Borrower or drawn by Lender under any letter of credit to address subparagraphs
(a)(i) through (a)(iii) above ("Borrower's Deposit") may be disbursed by Lender
to pay such excess, increased, or unanticipated cost before the disbursement of
any Loan funds. Any Borrower's Deposit shall be
2
<PAGE>
held by Lender in an interest-bearing account and any interest earned thereon
shall be a part of Borrower's Deposit. Advances of Borrower's Deposit shall not
constitute Advances of Loan funds and shall not bear interest. After payment in
full of such excess, increased, or unanticipated cost, any remaining undisbursed
Borrower's Deposit or undrawn portion of such letter of credit shall be returned
to Borrower if no Default or Potential Default then exists. Upon the occurrence
of a Default, Lender may (but shall have no obligation to) apply any such funds
held as a Borrower's Deposit or as Additional Collateral to any Obligations in
such manner and order Lender elects.
2.4. Direct Advances to Lender. Lender shall advance, by journal entry
or otherwise, Loan funds directly to itself from the "Interest" line item in the
Budget to pay interest when due on the Loan, and from the portion of the Loan
funds allocated in the Budget under the "Points" line item to pay any such loan
and contract administration fee(s) when due, whether or not Borrower has
included such amounts in any Advance Request until the earlier of (a) such time
as the unpaid principal amount of the Loan, including all accrued interest and
accrued fees, is equal to the Committed Sum, (b) the Conversion Date, or (c) the
occurrence of a Default or Potential Default, at which time Borrower shall
commence making interest payments directly to Lender. Each such direct Advance
shall be added to the principal amount of the Loan and shall be secured by the
Loan Documents.
2.5. Disbursement and Performance by Lender. (a) If Borrower fails to
pay or perform any Obligation within ten (10) days after the date such payment
or performance is due, and whether or not the failure constitutes a Default or
Potential Default, there exists any Default or Potential Default, or Borrower
has requested Lender to make an Advance, refrain from making an Advance or take
any action, Lender, in Borrower's name or in its own name, shall have the right,
but not the obligation, before or after the expiration of the grace or cure
period (if any) pertaining to any Default or Potential Default, to perform such
Obligation, including (i) payment to Tribunals of taxes, assessments and other
charges with respect to the Property; (ii) payment to insurers to maintain
insurance; (iii) payment to Title Insurer or the holder of any unpermitted lien
or encumbrance against the Property to remove same; (iv) performing any other
Obligation including payment to any third party Lender deems necessary or
advisable in connection with any Work or expenses incident to the Project, the
Property or the Loan; and (v) taking any action and paying any amounts Lender
deems reasonably necessary or advisable to protect and preserve the Property,
the title thereto, or any other security for the Obligations; provided, however,
that Lender's right to perform shall remain subject to Borrower's right to
contest certain claims as set forth in Section 7.20 hereof. Borrower hereby
assigns and pledges the proceeds of the Loan, any Borrower's Deposit and any
Additional Collateral to Lender for such purpose. Lender and its representatives
shall have the right, but not the obligation, to enter upon the Property at any
time upon prior reasonable notice to Borrower (except for emergencies) for the
purposes referred to in this Section. No such action, payment or disbursement,
or failure to act, pay or disburse, shall cure or waive any Default or Potential
Default, or waive any right or remedy of Lender.
(b) Any funds of Lender paid or used for any of the purposes referred
to above in this Section shall constitute an Advance of Loan funds and be a part
of the Obligations secured by the Loan Documents, even if in excess of the
Committed Sum, and Lender's obligation to make future Advances shall be
correspondingly reduced. Lender shall give Borrower prior reasonable notice of
any such funds paid or used for the purposes referred to above, provided that in
the event of an emergency or an impending deadline or date on which a penalty
will be imposed, no such prior notice shall be required so long as notice is
provided within a reasonable time thereafter. Lender may rely on any statement,
invoice, claim or notice without inquiry into the validity or accuracy thereof,
and without liability for the sufficiency or adequacy of any such action or
payment. Upon making any such payment Lender shall be subrogated to all rights
of the Person receiving such payment. The amount and nature of any such expense
or expenditure and the time when paid shall be fully established by the
statement of Lender of the amount and nature thereof.
(c) All costs, expenses and disbursements incurred by Lender under this
Section, in connection with any Default or Potential Default, to protect or
preserve the Property, or which are reimbursable by Borrower under any provision
of this Agreement or any Loan Document shall be a part of the Obligations, even
if in excess of the Committed Sum, and secured by the Loan
3
<PAGE>
Documents. Except as provided otherwise in the Loan Documents, if incurred
before the Maturity Date, such costs, expenses and disbursements shall be paid
or reimbursed to Lender upon demand and shall bear interest until paid (i) from
the date incurred or paid until the date ten (10) days after demand, at the per
annum rate equal to the lesser of the Maximum Rate or the Base Rate, provided
that if at any time the Base Rate would exceed the Maximum Rate then the Base
Rate shall be limited to the Maximum Rate, but, to the extent permitted by
applicable Laws, any subsequent reductions in the Base Rate shall not reduce the
Base Rate below the Maximum Rate until the total amount of interest accrued at
the Maximum Rate equals the amount of interest which would have accrued if the
Base Rate had not been limited by the Maximum Rate, and (ii) from and after the
date ten (10) days after demand, at the per annum rate equal to the Maximum
Rate. Except as provided otherwise in the Loan Documents, if incurred after the
Maturity Date, all such costs and expenses shall be reimbursed to Lender upon
demand and shall bear interest until paid at the per annum rate equal to the
Maximum Rate.
2.6. Fees . (a) Borrower has paid to Lender a nonrefundable commitment
fee in the amount of $100,000.00 ("Commitment Fee"), in consideration of the
commitment of Lender to make the proceeds of the Loan available to Borrower.
Notwithstanding the foregoing, an amount equal to the Commitment Fee shall be
reimbursed by Lender to Borrower at the time of the first Advance.
(b) Borrower shall pay to Lender a loan fee equal to two percent (2%)
of the Committed Sum, payable as follows: (i) 50% of such fee shall be paid at
the time of the initial Advance hereunder, and (ii) the remaining 50% of such
fee shall be paid on the Conversion Date, subject to Lender's obligation to
advance Loan funds for such fee, as set forth in Section 2.4 above on the terms
and conditions set forth therein. Such loan fee shall be included as a line item
in the Budget.
(c) Owner shall pay to Lender a construction administration fee equal
to One Thousand Five Hundred Fifty Dollars ($1,550.00) per month from the
Closing Date through the Conversion Date for the costs associated with the
administration of this Agreement and the making of Advances hereunder, subject
to Lender's obligation to advance Loan funds for such fee, as set forth in
Section 2.4 above on the terms and conditions set forth therein. Such
construction administration fee shall be included as a line item in the Budget.
ARTICLE 3 -PAYMENT
3.1. Repayment at Maturity . Subject to any provisions of the Loan
Documents requiring repayment on any earlier date, the principal amount of the
Loan and all accrued and unpaid interest thereon shall be due and payable on the
Maturity Date.
3.2. Interest. Subject to Section 9.6, interest on the Loan shall be
calculated in accordance with the following:
(a) "Base Rate" means, on any day, a rate per annum equal to the
following: (i) from the Closing Date to the Conversion Date, the sum of the
Prime Rate for that day plus one percent (1%), and (ii) commencing on the
Conversion Date, that rate per annum which is four percent (4%) over the per
annum yield for U.S. Treasury securities, adjusted to a constant maturity of
seven (7) years, as reported in the Wall Street Journal on the third Business
Day preceding the Conversion Date, which rate shall increase by .2% on each
succeeding anniversary of the Conversion Date. Further, if Substantial
Completion of the Improvements has not been achieved by the first anniversary of
the Closing Date, the Base Rate shall be increased by .12% for each thirty-day
period after the first anniversary of the Closing Date until the date of
Substantial Completion of the Improvements. "Prime Rate" means, on any day, the
rate of interest per annum then most recently established by Bank of New York as
its "prime rate." Without notice to Borrower or any other Person, the Prime Rate
shall change automatically from time to time, as and in the amount by which Bank
of New York's prime rate changes.
(b) "Maximum Rate" means the maximum nonusurious interest rate per
annum, if any, permitted from time to time under applicable Laws to be
contracted for, taken, reserved, charged, or received by Lender with respect to
the Loan. If such maximum nonusurious interest rate shall change after the date
hereof, the Maximum Rate shall be automatically increased or decreased, as
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the case may be, from time to time as of the effective time of each change in
such maximum nonusurious interest rate, without notice to Borrower or any other
Person; provided, that the Maximum Rate shall decrease only to any extent
required by applicable Laws and shall increase only to the extent permitted by
applicable Laws. For purposes of determining the Maximum Rate under the
applicable Laws of the State of Texas, the applicable rate ceiling shall be the
indicated rate ceiling computed in accordance with Article 5069-1.04 of the
Texas Revised Civil Statutes, as hereafter amended or supplemented; provided
that, to the extent permitted by applicable Laws and subject to any notice or
other requirements under applicable Laws, Lender may from time to time change
the rate ceiling.
(c) Interest shall be computed on the basis of the 365/360 method,
which computes a daily amount of interest for a hypothetical year of 360 days,
then multiplies such amount by the actual number of days elapsed in an interest
computation period, but in no event shall such computation cause the interest
contracted for, taken, reserved, charged, or received to exceed the amount that
would be payable at the Maximum Rate, provided that interest at the Maximum Rate
shall be calculated on the basis of a year of 365 or 366 days, as applicable.
Interest on the principal amount of the Loan shall be computed on the principal
amount of the Loan that exists from time to time and shall be computed with
respect to each Advance of the Loan only from the date of that Advance. The
Maximum Rate shall be applied by taking into account all amounts characterized
by applicable Law as interest on the principal amount of the Loan, so that the
aggregate of all interest does not exceed the maximum nonusurious amount
permitted by applicable Law. Lender shall determine the interest payable in
accordance with the Loan Documents, and Lender's determination thereof shall be
conclusive in the absence of manifest error.
3.3. Payments of Principal and Interest. The principal amount of the
Loan from time to time outstanding that is not past-due shall bear interest at a
varying rate per annum equal to the lesser of the Maximum Rate or the Base Rate;
provided that if at any time the Base Rate would exceed the Maximum Rate then
the Base Rate shall be limited to the Maximum Rate, but, to the extent permitted
by applicable Laws, any subsequent reductions in the Base Rate shall not reduce
the Base Rate below the Maximum Rate until the total amount of interest accrued
at the Maximum Rate equals the amount of interest which would have accrued if
the Base Rate had not been limited by the Maximum Rate. From the Closing Date to
the second (2nd) anniversary of the Conversion Date, accrued interest only shall
be due and payable in arrears on the first day of each calendar month,
commencing on the first day of the first calendar month following the Closing
Date, subject to Lender's obligation to advance Loan funds for interest
payments, as set forth in Section 2.4 above on the terms and conditions set
forth therein. Thereafter, Borrower shall pay, on the first day of each calendar
month, monthly payments in arrears, consisting of principal and interest in an
amount calculated by Lender which would fully amortize the outstanding principal
balance of the Loan as of the Conversion Date and interest thereon in equal
monthly installments over a period of twenty-five (25) years at the Base Rate in
effect on the Conversion Date, recalculated on each anniversary of the
Conversion Date to reflect the adjustment in the Base Rate made pursuant to
Section 3.2 (a)(ii) above.
3.4. Past-Due Obligations. Any Obligation (including, to the extent
permitted by applicable law, all accrued unpaid interest on the principal amount
of the Loan) that is not paid when due (whether scheduled, accelerated, or
otherwise) shall bear interest, payable on demand, from the date due until paid,
at a rate per annum equal to the Maximum Rate; provided, however, that Borrower
shall be allowed one ten-day grace period in each twelve-month period during the
term of the Loan for payment of a past-due installment of principal and/or
interest before the Maximum Rate is applied.
3.5. Prepayments. As long as there is no Default or Potential Default,
Borrower may prepay the principal amount of the Loan in full at any time after
the Conversion Date, on any Business Day, provided (a) Borrower gives Lender at
least one (1) Business Day prior written notice, and (b) the prepayment is
accompanied by payment of all accrued unpaid interest on the outstanding
principal amount of the Loan and the Prepayment Premium. The Prepayment Premium
shall also be paid upon any acceleration of the Loan pursuant to the terms and
conditions of the Loan Documents or by law. Lender shall notify Borrower of the
amount and
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basis of determination of the Prepayment Premium. Borrower agrees that Lender
shall not be obligated actually to reinvest the amount prepaid in any Treasury
obligations as a condition precedent to receiving the Prepayment Premium.
In the event of the occurrence of a Significant Capital Raising Event
involving the refinancing of the Loan, Borrower may propose that Lender make one
or more future construction loan(s) to Borrower in the six-month period
following the Prepayment Date (the "Loan Substitution Period"), the terms of
which are consistent with the terms of the Loan, including an interest rate
equal to or greater than the interest rate on the Loan on the Prepayment Date,
secured by one or more to-be-constructed hospital(s) reasonably acceptable to
Lender. If Lender agrees to make such a loan or loans to Borrower, Lender shall
place the Prepayment Premium in an interest-bearing escrow account with an
escrow agent, and pursuant to an escrow agreement, acceptable to both Lender and
Borrower. In the event that no such loan closes during the Loan Substitution
Period, the entire Prepayment Premium shall be released to Lender. If such loan
or loans close, the funds being held shall be released upon the earlier to occur
of (i) the expiration of the Loan Substitution Period, or (ii) the closing of
the last of the loans proposed by Borrower, and shall be paid as follows: (a) to
HCPI, an amount equal to the aggregate sum of (i) one percent (1%) of the amount
prepaid on the Prepayment Date; (ii) two-tenths of one percent (.2%) of the
amount prepaid on the Prepayment Date, multiplied by the number of full calendar
months from the Prepayment Date through the closing of the last of Borrower's
proposed loans to close during the Loan Substitution Period, and (iii) if the
aggregate amount of Borrower's proposed loans which close during the Loan
Substitution Period (the "Substitute Loans") is less than the amount prepaid on
the Prepayment Date, an amount equal to the Prepayment Premium multiplied by a
fraction, the numerator of which is the amount of the Loan prepaid on the
Prepayment Date, less the amount of the Substitute Loans, and the denominator of
which is the amount prepaid on the Prepayment Date, and (b) the remainder, if
any, to Borrower.
Borrower acknowledges and agrees that the Prepayment Premium described
above is directly related to damages that Lender will suffer as a result of a
prepayment of the Note. Any involuntary partial prepayments of principal under
the Note shall not entitle Borrower to have the remaining payments of principal
and interest due under the Note reduced by reamortizing the remaining unpaid
principal balance due under the Note after such partial prepayment or by
applying such partial prepayment to the next payment of principal and interest
due under the Note.
Notwithstanding the foregoing, if at any time the principal amount of
the Loan exceeds the Committed Sum, Borrower shall immediately pay to Lender
such excess, together with all accrued unpaid interest on the outstanding
principal amount of the Loan, but Borrower shall not be required to pay a
Prepayment Premium. No Prepayment Premium shall be payable in connection with
any full or partial prepayment caused by Lender's application of condemnation or
casualty proceeds to the Loan, as described herein.
3.6. Application of Payments. Prior to the occurrence of a Default,
all payments (including prepayments) received by Lender hereunder from or on
behalf of Borrower shall be applied first to pay accrued interest then due and
payable, second to repay the principal amount of the Loan (in inverse order of
maturity, in the case of involuntary partial prepayments), and third to pay any
other Obligations in the manner and order reasonably determined by Lender in its
sole discretion. After the occurrence of a Default, all payments (including
prepayments) received by Lender hereunder from or on behalf of Borrower shall be
applied to the Obligations in the manner and order determined by Lender in its
sole discretion.
3.7. General Provisions. Each payment of principal, interest, and/or
other sums due to Lender under any other Loan Document shall be made by Borrower
to Lender before 1:00 p.m. Los Angeles, California time on the due date
therefor, without setoff or counterclaim, by wire transfer as follows: Wells
Fargo Bank, San Francisco, CA, ABA #:121-000248, Account Name: HCPI Mortgage
Corp., Account No. 4812-031920, or in such other form or at such other place as
may be from time to time designated by Lender by notice to Borrower. All
payments shall be made in lawful money of the United States of America. Should
any payment due under the Loan Documents become due and payable on a day other
than a Business Day, the date for payment
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thereof shall be extended to the next succeeding Business Day. If the date for
any payment of principal is extended by operation of Law or otherwise, interest
thereon shall be payable for the extended time at the Base Rate or the Maximum
Rate, as applicable.
ARTICLE 4 - CONSTRUCTION
Borrower represents, warrants, covenants and agrees as follows:
4.1. Plans . All construction must comply with the Plans in all
material respects. Borrower has delivered to Lender a true and correct copy of
the Plans, which have been approved and accepted by Borrower, all applicable
Tribunals, and Original Contractor, are complete in all material respects,
contain all detail necessary and adequate for the construction of the
Improvements, and to comply with those applicable Legal Requirements necessary
to avoid a Material Adverse Effect. No plans or specifications, or changes
thereto, other than Permitted Scope Changes (as hereinafter defined), shall be
part of the Plans until consented to by Lender, which consent shall not be
unreasonably withheld, and approved by all applicable Tribunals. Borrower
assumes full responsibility for compliance of the Plans and the Property with
all Legal Requirements to the extent necessary to avoid a Material Adverse
Effect and with sound building and engineering practices. As additional security
for the payment of the Loan, Borrower hereby transfers and assigns all of
Borrower's rights and interests, but not its liability, in, under and to the
Plans. Lender may use the Plans only for any purpose relating to the
Improvements.
4.2. Contracts. Borrower has delivered to Lender a true and correct
copy of the Original Contract (including all change orders thereto). The
Original Contract covers all Work required by the Plans necessary to complete
the Improvements. Borrower has not received from the Original Contractor any
notice of default or notice of intention to suspend work. To the best of
Borrower's knowledge, there are no labor controversies pending or threatened
against Borrower, Original Contractor, or any Subcontractor. Borrower shall
deliver to Lender promptly on request the names of all Persons with whom
Borrower has contracted or intends to contract for any Work. Without Lender's
prior written consent, which consent shall not be unreasonably withheld, as to
parties, terms, and all other matters, Borrower shall not (a) enter into any
contract which provides for Work in excess of $250,000.00, other than the
Original Contract and Borrower's agreement with Borrower's Architect, (b) suffer
or permit any contract for Work in excess of $250,000.00 to terminate by reason
of any failure of Borrower to meet any requirements thereof, (c) enter into any
contract for Work in excess of $250,000.00 that is not unconditionally
terminable by Borrower or any successor owner without payment or penalty on not
more than sixty (60) days notice to the other party thereunder, or (d)
terminate, cancel, or materially and adversely modify or amend any contract for
Work, except for an increase to a contract in connection with a Borrower Funded
Budget Change or a Permitted Scope Change. Borrower shall not suffer or permit
any material breach or default to occur in any of the obligations of Borrower
under any contract for any Work. All contracts for Work must be subordinate to
the Loan Documents. As additional security for the payment of the Loan, Borrower
hereby transfers and assigns all of Borrower's rights and interest, but not its
liability, in, under and to all contracts for any Work.
4.3. Construction of the Improvements. Prior to the recordation of the
Original Mortgage, no work of any kind (including the destruction or removal of
any existing improvements, site work, clearing, grading, grubbing, draining, or
fencing of the Land) was commenced or performed on the Land, no equipment or
material was delivered to or upon the Land for any purpose, and no affidavit of
commencement of construction of the Improvements was executed or recorded.
Borrower shall, if not already commenced, commence construction of the
Improvements within thirty (30) days from the date hereof, and shall prosecute
the construction of the Improvements with diligence and continuity, in a good
and workmanlike manner, with materials of high quality, and, to the extent
necessary to avoid a Material Adverse Effect, in accordance with all applicable
Legal Requirements. Borrower shall also prosecute the construction of the
Improvements in accordance with the Loan Documents and in accordance in all
material respects with sound building and engineering practices and the Plans.
Immediately upon commencement of construction of the Improvements or delivery of
materials to the Land (and in no event later than thirty (30) days thereafter),
an affidavit of commencement of
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construction, in accordance with Section 53.124 of the Texas Property Code, by
Borrower and Original Contractor, executed and dated after the date the Original
Mortgage was recorded, stating the date on which construction commenced (which
must be a date after the date the Original Mortgage was recorded), must have
been recorded in the County Clerk's Office of Travis County, Texas. There will
be no structural defects in the Improvements; and the Improvements will not
encroach upon any property line, building line, setback line, easement, or other
restricted area. The construction schedule for the Project is realistic and
feasible, and the Completion Date is a reasonable estimate of the time required
to complete the Improvements. Borrower shall obtain all permits, licenses and
approvals for the use, occupancy, and operation of the Improvements on or before
the Completion Date, free and clear of all liens except (i) as granted under the
Loan Documents, and (ii) such other liens for Work performed which do not exceed
$250,000.00 in the aggregate, and which are dismissed, discharged, stayed,
indemnified against by bond, or quashed on or before the earlier of the date any
proceeding is commenced to foreclose any such lien or the thirtieth (30th) day
after the filing of such lien. Borrower shall not permit cessation of work for a
period in excess of twenty (20) days (whether or not consecutive), except for
delays arising from unusually adverse weather conditions not taken into account
in the construction schedule, fire or other casualty, labor disputes (exclusive
of offensive lockouts or strikes resulting from the failure of Borrower,
Original Contractor, any Subcontractor, or any consultant to bargain in good
faith) or other unforeseen circumstances or events (except financial
circumstances or events or matters which may be resolved by the payment of
money) beyond the control of Borrower ("Excusable Delays"), provided Borrower
has notified Lender of such delay within five (5) calendar days of Borrower
receiving notice or otherwise becoming aware of its occurrence, and provided
that no Excusable Delay shall: (a) suspend or otherwise abate any obligation of
Borrower, any Guarantor or other Person to pay any sum of money (including
principal and interest on the Loan) under the Loan Documents; (b) suspend or
abate any other Obligation; or (c) extend the Completion Date. Borrower shall
promptly correct or cause to be corrected, at its sole cost and expense (or at
the cost and expense of Original Contractor) and not as part of the Actual
Construction Costs, (i) any material defect in the Improvements, (ii) any
material departure from the Plans, except as set forth in Section 4.4 below,
(iii) any departure from the Loan Documents, (iv) any departure from the Legal
Requirements which would constitute a Material Adverse Effect, and (v) any
material encroachment by any part of the Improvements on any property line,
building line, setback line, easement or other restricted area which any survey
or inspection reflects.
4.4. Changes. Without Lender's prior written consent, Borrower shall
not change or modify the Plans, agree to any change order or corresponding
change to the Original Contract, or allow any extras to Original Contractor,
except that Borrower may make or allow such changes or extras without Lender's
prior consent (a "Permitted Scope Change") if: (a) Borrower notifies Lender in
writing of the change or extra with appropriate supporting documentation and
information; (b) Borrower obtains the approval of Original Contractor,
Borrower's Architect, and all sureties and insurers whose approval is required;
(c) the structural integrity, quality and standard of workmanship of the
Improvements, including, without limitation, all basic building systems, is not
impaired; (d) no substantial change in architectural appearance is effected;
(e)(i) no Default or Potential Default, (ii) no default in any obligation to any
other Person which would constitute a Material Adverse Effect, or (iii)
violation of any Legal Requirement constituting a Material Adverse Effect, would
result from such change or extra; (f) except in connection with a Borrower
Funded Budget Change, the increase or reduction in cost resulting from any
single change or extra does not exceed $50,000.00 and the aggregate amount of
all such increases and/or reductions does not exceed $250,000.00; (g) Borrower
takes appropriate action under Section 2.3 resulting from the change or extra,
to the extent such action is required therein; (h) completion of the
Improvements by the Completion Date will not be affected or delayed; and (i) the
size of the Improvements is not materially increased or decreased, except for
increases in connection with a Borrower Funded Budget Change. Lender shall not
be obligated to review a proposed change unless and until Lender has received
all documents necessary to review such change, such as the change order, cost
estimates, and plans and specifications, and evidence that all approvals by all
applicable parties have been obtained.
ARTICLE 5 - LETTERS OF CREDIT
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5.1. Letters of Credit . Commencing on the Closing Date and continuing
through that date upon which any and all amounts payable under the Loan
Documents have been paid in full, Borrower shall have obtained and delivered to
Lender a letter of credit (the "Letter of Credit") from a financial institution
satisfactory to Lender but in any event with (a) not less than $100 Million in
net current assets, (b) a financial rating of not less than 60 as rated by
Sheshonoff Information Services, Inc. (or any equivalent rating thereto from any
successor or substitute rating service selected by Lender), and (c) an
investment grade rating from each of Standard and Poors Corporation and Moody's
Investors Service, naming Lender as beneficiary to secure the Obligations
hereunder, at the times, in the amounts and for the purposes set forth below.
The Letter of Credit shall be in substantially the form of Exhibit H hereto. The
Letter of Credit shall be for a term of not less than one (1) year and
irrevocable during that term. The Letter of Credit shall provide that it will be
honored upon a signed statement by Lender that Lender is entitled to draw upon
any letter of credit under this Agreement, and shall require no signature or
statement from any party other than Lender. No notice to Borrower shall be
required to enable Lender to draw upon the Letter of Credit. The Letter of
Credit shall also provide that following the honor of any drafts in any amount
less than the aggregate amount of the Letter of Credit, the financial
institution shall return the original Letter of Credit to Lender and Lender's
rights as to the remaining amount of the Letter of Credit will not be
extinguished. In the event of a transfer of Lender's interest in the Loan,
Lender shall have the right to transfer the Letter of Credit to the transferee
and thereupon shall, without any further agreement between the parties, be
released by Borrower from all liability therefor, and it is agreed that the
provisions hereof shall apply to every transfer or assignment of the Letter of
Credit to a new lender. If the financial institution from which Borrower has
obtained the Letter of Credit shall admit in writing its inability to pay its
debts generally as they become due, file a petition in bankruptcy or a petition
to take advantage of any insolvency act, make an assignment for the benefit of
its creditors, consent to the appointment of a receiver of itself or of the
whole or any substantial part of its property, or file a petition or answer
seeking reorganization or arrangement under the Federal bankruptcy laws or any
other applicable law or statute of the United States of America or any state
thereof, then Borrower shall obtain a replacement Letter of Credit within thirty
(30) days of such act from another financial institution satisfactory to Lender.
5.2. Times for Obtaining Letters of Credit. The initial Letter of
Credit shall be obtained and delivered to Lender on or prior to the Closing
Date. A replacement Letter of Credit shall be obtained and delivered to Lender
not less than thirty (30) days prior to the expiration of each then existing
Letter of Credit ("Letter of Credit Date"). The term for each such Letter of
Credit shall begin no later than the expiration date of the previous Letter of
Credit and shall comply with all requirements of this Article 5.
5.3. Amounts for Letters of Credit. The initial Letter of Credit shall
be in the amount of $883,000.00. Each replacement Letter of Credit shall be in
an amount equal to (i) prior to the Conversion Date, twenty-five percent (25%)
of the Committed Sum, multiplied by Lender's estimate of the Base Rate to be in
effect on the Conversion Date, and (ii) on and after the Conversion Date,
twenty-five percent (25%) of the outstanding principal amount of the Loan,
multiplied by the Base Rate in effect at the time of issuance of such Letter of
Credit.
5.4. Uses of Letters of Credit. Lender shall have the right to draw
upon the Letter of Credit up to its full amount whenever (a) a Default hereunder
has occurred, (b) a default or an event of default under any other Loan Document
or other agreement or instrument now or hereafter executed by and between Lender
or an Affiliate of Lender and Borrower or under any other letter of credit,
guaranty, mortgage, deed of trust, or other instrument now or hereafter executed
by Borrower in favor of Lender or an Affiliate of Lender has occurred and any
applicable cure period therefor has expired, or (c) in the event transmittal of
any notice of default may be barred by applicable law, an event or circumstance
has occurred which with notice or passage of time, or both, would constitute a
Default hereunder or a default or an event of default under any such other
lease, agreement, letter of credit, guaranty, mortgage, deed of trust or other
instrument. In addition, if Borrower fails to obtain a satisfactory replacement
letter of credit prior to the applicable Letter of Credit Date, Lender may draw
upon the full amount of the then
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existing Letter of Credit without giving any notice or time to cure to Borrower.
No such draw shall (i) cure or constitute a waiver of a Default, (ii) be deemed
to fix or determine the amounts to which Lender is entitled to recover under
this Agreement or otherwise, or (iii) be deemed to limit or waive Lender's right
to pursue any remedies provided for in this Agreement. If all or any portion of
the Letter of Credit is drawn against by Lender, Borrower shall, within five (5)
business days after demand by Lender, cause the issuer of such Letter of Credit
to issue Lender, at Borrower's expense, a replacement letter of credit in
substantially the form attached hereto as Exhibit H in the amount required
pursuant to Section 5.3.
5.5. Prepayment of Loan. Notwithstanding anything contained herein to
the contrary, Borrower may, at Borrower's sole discretion, prepay the Loan in an
amount equal to the amount of the then existing Letter of Credit, without
premium or penalty, upon at least five (5) Business Days prior written notice,
and upon receipt of such prepayment, Lender shall return the Letter of Credit to
Borrower, and Borrower shall have no further obligation to provide Lender with
letters of credit under this Article 5.
ARTICLE 6 - TAXES, INSURANCE, AND CONDEMNATION
6.1. Hazard and Other Insurance.
(a) Borrower shall at all times keep the Property, and all property
located in or on the Property, insured with the kinds and amounts of insurance
described below. This insurance shall be written by companies authorized to do
insurance business in the State in which the Property is located. All liability
type policies must name Lender as an "additional insured." All casualty and
business interruption type policies shall name Lender as "loss payee." Any loss
adjustment shall require the written consent of Lender and Borrower. The
policies shall insure against the following risks:
(i) Loss or damage by fire, vandalism and malicious mischief,
extended coverage perils commonly known as special form perils,
earthquake (including earth movement) and windstorm in an amount not
less than the insurable value on a replacement cost basis (as defined
below) and including a building ordinance coverage endorsement;
(ii) Loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus, now or hereafter installed in the
Improvements, in such limits with respect to any one accident as may be
reasonably requested by Lender from time to time;
(iii) Flood (when the Property is located in whole or in part
within a designated 100-year flood plain area) and such other hazards
and in such amounts as may be customary for comparable properties in
the area;
(iv) Business interruption in an amount not less than twelve
(12) months of principal and interest payments payable under the Note
with an endorsement extending the period of indemnity by at least
ninety (90) days (Building Ordinance-Increased Period of Restoration
Endorsement) necessitated by the occurrence of any of the hazards
described in Items (i), (ii) or (iii) above;
(v) Claims for personal injury or property damage under a
primary policy of comprehensive general public liability insurance with
amounts not less than One Million Dollars ($1,000,000.00) combined
single limit and Two Million Dollars ($2,000,000.00) in the annual
aggregate;
(vi) Medical professional liability under a primary policy
with amounts not less than One Million Dollars ($1,000,000.00) combined
single limit and Two Million Dollars ($2,000,000.00) in the annual
aggregate;
(vii) Excess liability coverage for comprehensive general
public liability insurance and medical professional liability with
amounts not less than Five Million Dollars ($5,000,000.00) combined
single limit and Five Million Dollars ($5,000,000.00) in the
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annual aggregate; and
(viii) Builder's risk insurance covering the construction of
the Improvements, in a face amount of not less than the full insurable
value of the Improvements and materials supplied in connection with the
Improvements, with appropriate provisions made to include coverage of
materials stored off the Property in an amount not less than the full
insurable value of such materials stored off the Property from time to
time.
(b) The term "replacement cost" shall mean the actual replacement cost
of the insured property from time to time. If Lender or Borrower believes that
the replacement cost has increased or decreased at any time, it shall have the
right to have such replacement cost redetermined by an impartial national
insurance company reasonably acceptable to both parties (the "impartial
appraiser"). The party desiring to have the replacement cost so redetermined
shall forthwith, on receipt of such determination by the impartial appraiser,
give written notice thereof to the other party. The determination of the
impartial appraiser shall be final and binding, and Borrower shall forthwith
increase or decrease the amount of the insurance carried pursuant hereto to the
amount so determined by the impartial appraiser. The party requesting such
appraisal shall pay the fee, if any, of the impartial appraiser. If Borrower has
made improvements to the Property, Lender may at Borrower's expense have the
replacement cost redetermined at any time after such improvements are made,
regardless of when the replacement cost was last determined.
(c) In addition to the insurance described above, Borrower shall at all
times maintain adequate workers' compensation coverage and any other coverage
required by Legal Requirements for all Persons employed by Borrower on the
Property and any capital improvement thereto in accordance with Legal
Requirements.
(d) All insurance policies carried by Borrower covering the Property
and any capital improvements thereto and personal property thereon including
contents, fire and casualty insurance, shall expressly waive any right of
subrogation on the part of the insurer against Lender. Borrower agrees that its
policies will include such waiver clause or endorsement. Borrower waives any
claims it has against Lender to the extent such claim is covered by insurance.
(e) All of the policies of insurance referred to herein shall be
written in form satisfactory to Lender and by insurance companies with a
policyholder rating of "A" and a financial rating of "X" in the most recent
version of Best's Key Rating Guide. Borrower shall pay all of the premiums
therefor, and deliver such policies or certificates thereof to Lender prior to
their effective date (and with respect to any renewal policy, at least fifteen
(15) days prior to the expiration of the existing policy. Each insurer shall
agree, by endorsement on the policy or polices issued by it, or by independent
instrument furnished to Lender, that it will give to Lender thirty (30) days'
written notice before the policy or policies in question shall be altered,
allowed to expire or cancelled. Each policy shall have a deductible or
deductibles, if any, which are no greater than those normally maintained for
similar facilities in the State.
(f) If Lender or Borrower shall at any time believe the limits of the
insurance required hereunder to be either excessive or insufficient, the parties
shall endeavor to agree in writing on the proper and reasonable limits for such
insurance to be carried and such insurance shall thereafter be carried with the
limits thus agreed on until further change pursuant to the provisions of this
section. If the parties shall be unable to agree thereon, the proper and
reasonable limits for such insurance to be carried shall be determined by an
impartial third party reasonably selected by Lender.
(g) Notwithstanding anything to the contrary contained in this Article,
Borrower's obligations to carry the casualty insurance provided for herein may
be brought within the coverage of a blanket policy or policies of insurance
carried and maintained by Borrower; provided, however, that the coverage
afforded Lender will not be reduced or diminished or otherwise be different from
that which would exist under a separate policy meeting all other requirements of
this Agreement by reason of the use of such blanket policy of insurance, and
provided further that the requirements of this Article are otherwise satisfied.
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(h) Borrower shall not, on Borrower's own initiative or pursuant to the
request or requirement of any third party, (i) take out separate insurance
concurrent in form or contributing in the event of loss with that required in
this Article to be furnished by, or which may reasonably be required to be
furnished by, Borrower or (ii) increase the amounts of any then existing
insurance by securing an additional policy or additional policies, unless Lender
is included therein as additional insured and the loss is payable under such
insurance in the same manner as losses are payable under this Agreement.
Borrower shall immediately notify Lender of the taking out of any such separate
insurance or of the increasing of any of the amounts of the then existing
insurance by securing an additional policy or additional policies. Nothing
contained herein shall be deemed a restriction on Borrower's right to obtain
insurance policies for equipment financed by a third party lender, to the extent
such equipment is not deemed a fixture encumbered by the Mortgage.
(i) If Borrower fails to obtain and/or maintain the insurance required
under the Loan Documents or to deliver such policies or certificates to Lender
at the times required, (i) Borrower will indemnify and hold Lender harmless from
and against any damage, loss, liability or expense resulting from all risks that
would have been covered by the required insurance if so maintained; (ii) if any
loss occurs, Lender shall nevertheless be entitled to the benefit of all
insurance covering the loss and held by or for Borrower, to the same extent as
if it had been made payable to Lender; and (iii) Lender has the right (but not
the obligation) to obtain such insurance at Borrower's expense, which may at
Lender's election be coverage for Lender's interest only, the costs and expenses
so expended by Lender, together with interest thereon at the Maximum Rate, shall
be (A) due and payable by Borrower on demand, (B) a part of the Obligations,
even if in excess of the Committed Sum, and (C) secured by the Loan Documents.
If any hazard, title, or other insurer becomes insolvent or subject to any
bankruptcy, receivership or similar proceeding or if, in Lender's reasonable
opinion the financial responsibility of such insurer is or becomes inadequate,
Borrower shall promptly obtain and deliver to Lender a like policy (or, if and
to the extent permitted by Lender, a certified copy of the policy or a
satisfactory certificate of insurance) issued by another insurer, which insurer
and policy meet the requirements of the Loan Documents.
(j) Upon any foreclosure of the Mortgage or transfer of title to the
Property in lieu of foreclosure, all of Borrower's right, title and interest in
and to the insurance policies referred to in this Section (including unearned
premiums) and all proceeds payable thereunder, to the extent allocable to the
Property, shall thereupon vest in the purchaser at foreclosure or other such
transferee to the extent permissible under such policies.
(k) Upon the occurrence of a Default, Lender has the right (but not the
obligation) to make proof of loss for, settle and adjust any claim under, and
receive the proceeds of, all insurance for loss of or damage to the Property,
and the costs and expenses (including attorneys' fees), appraisal costs, and
consultant fees incurred by Lender in the adjustment and collection of insurance
proceeds shall be due and payable by Borrower on demand, a part of the
Obligations, even if in excess of the Committed Sum, and secured by the Loan
Documents. Lender shall not be, under any circumstances, liable or responsible
for failure to collect or exercise diligence in the collection of any of such
proceeds or for the obtaining, maintaining or adequacy of any insurance or for
failure to see to the proper application of any amount paid over to Borrower.
(l) Borrower shall take all necessary action, with Lender's consent, to
obtain the benefit of any insurance proceeds lawfully or equitably payable to
Borrower or Lender in connection with any loss of or damage to the Project or
the Property, all of which shall be paid directly to Lender,
whether or not the security for the Loan has been impaired or otherwise
affected, and applied first to reimburse Lender and the Trustee for all
unreimbursed costs and expenses, including attorney's fees, incurred in
connection with the collection of such proceeds and the balance of such proceeds
shall, at Lender's option in its reasonable discretion, be (i) released to
Borrower, (ii) applied to repair or restoration, either partly or entirely, of
the Property so damaged, on conditions required by Lender, or (iii) applied to
the payment of the Obligations, whether or not due, in such order and manner as
Lender may elect in its sole discretion. In any event, the unpaid portion of the
Obligations shall remain in full force and effect and the payment thereof shall
not be excused.
6.2. Condemnation. Borrower shall take all necessary action, with
Lender's consent,
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which consent shall not be unreasonably withheld, to obtain the benefit of any
sums lawfully or equitably payable to Borrower or Lender for the condemnation of
any part of the Property for public or quasi-public use, or by virtue of private
sale in lieu thereof, and any sums which may be awarded or become payable to
Borrower for injury or damage to the Property, all of which shall be paid
directly to Lender, whether or not the security for the Loan has been impaired
or otherwise affected, and applied first to reimburse Lender and Trustee for all
unreimbursed costs and expenses, including reasonable attorney's fees, actually
incurred in connection with the collection of such sums and the balance of such
sums shall, at Lender's option in its reasonable discretion, be (i) released to
Borrower, (ii) applied to repair or restoration, either partly or entirely, of
the Property so affected, on conditions required by Lender, or (iii) applied to
the payment of the Obligations, whether or not due, in such order and manner as
Lender may elect in its sole discretion; provided, however, that so long as no
Default has occurred and is continuing under the Loan Documents, Lender agrees
not to unreasonably withhold its consent to the application of such funds to
repair or restore the Property so affected, on conditions required by Lender. In
any event the unpaid portion of the Obligations shall remain in full force and
effect and the payment thereof shall not be excused. Lender shall not be, under
any circumstances, liable or responsible for failure to collect or to exercise
diligence in the collection of any such sum or for failure to see to the proper
application of any amount paid over to Borrower. Lender is hereby authorized, in
the name of Borrower, to execute and deliver valid acquittance for, and to
participate (provided that if no Default has occurred, Borrower shall be allowed
to assume the primary role) in any appeal from, any such award, judgment or
decree, and all costs and expenses (including attorneys' fees, appraisal costs,
and consultant fees) incurred by Lender in connection with any such condemnation
shall be due and payable by Borrower on demand, a part of the Obligations, even
if in excess of the Committed Sum, and secured by the Loan Documents.
6.3. Restoration and Reconstruction. If any act or occurrence of any
kind or nature results in damage to or loss or destruction of the Property and
all available insurance or condemnation proceeds are made available to Borrower
for restoration and reconstruction, Borrower shall, whether or not such
insurance or condemnation proceeds are sufficient for the purpose, promptly
commence and continue diligently to completion to restore, repair, replace and
rebuild the Property as nearly as possible to its value, condition and character
immediately prior to the damage, loss or destruction.
Borrower further represents and warrants that to Borrower's knowledge, Borrower
would be entitled, under applicable law, to restore or reconstruct the
Improvements upon any damage to or loss or destruction of the Property.
6.4. Taxes. (a) Borrower shall pay or cause to be paid all federal,
state and local taxes, assessments and other governmental charges or levies
imposed with respect to any portion of the Property or the ownership, use,
occupancy or enjoyment thereof, as the same become due and payable and before
the same become delinquent or any penalty may be imposed, including all ad
valorem taxes assessed against any portion of the Property. Borrower shall
deliver promptly to Lender such evidence of the payment thereof as Lender may
require including providing Lender with receipted tax bills marked paid by the
applicable Tribunal, or other evidence satisfactory to Lender of payment of all
such taxes or assessments or charges on or before thirty (30) days prior to the
delinquency date for each such payment or installment thereof. Notwithstanding
the foregoing, Borrower may contest any such taxes, assessments or charges to
the extent permitted by Section 7.20.
(b) Borrower has filed all tax returns and reports required to be filed
and has paid all taxes and governmental charges thereby shown to be owing or as
otherwise due to the extent required by applicable Law. Borrower will promptly
pay (to the extent not contested by Borrower in good faith and in accordance
with applicable Laws) all income, franchise and other taxes owing by Borrower
and any stamp taxes or other taxes (unless such payment by Borrower is
prohibited by applicable Law) required to be paid with respect to the Loan
Documents.
(c) In the event of the enactment after this date of any Law applicable
to Lender, the Note, the Property or the Mortgage deducting from the value of
property for the purpose of taxation any lien or security interest thereon, or
imposing upon Lender the payment of the whole or any part of the taxes or
assessments or charges or liens herein required to be paid by Borrower, or
changing in any way the Laws relating to the taxation of deeds of trust or
mortgages or
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security agreements or debts secured by deeds of trust or mortgages or security
agreements or the interest of the mortgagee or secured party in the property
covered thereby, or the manner of collection of such taxes, so as to affect the
Mortgage, Obligations, or Lender, then Borrower, upon demand by Lender, shall
pay such taxes, assessments, charges or liens, or reimburse Lender therefor;
provided that if in the opinion of counsel for Lender it might be unlawful to
require Borrower to make such payment or the making of such payment might result
in the imposition of interest beyond the maximum amount permitted by applicable
Law, Lender may elect to declare all of the Obligations to be due and payable
sixty (60) days from the giving of written notice by Lender to Borrower.
6.5. Reserve for Insurance, Taxes and Assessments. At Lender's option
and request upon Borrower's failure to make any required tax or insurance
payment in connection with the Property, Borrower will deposit with Lender, to
secure Borrower's obligations to pay the sums referred to below in this Section,
but not in lieu of such obligations, a sum equal to ad valorem taxes,
assessments and charges against the Property for the current year and the
premiums for the current year for the policies of insurance required under the
Loan Documents, all as estimated by Lender and prorated to the end of the
calendar month following the month during which Lender's request is made, and
thereafter will deposit with Lender, on each date when an installment of
principal and/or interest is due, sufficient funds (as estimated from time to
time by Lender) to permit Lender to pay at least fifteen (15) days prior to the
due date thereof, and Lender is hereby authorized to pay, the next maturing ad
valorem taxes, assessments and charges and premiums for such policies of
insurance. Lender has the right to rely upon tax information furnished by
applicable taxing authorities in the payment of such taxes or assessments and
has no obligation to make any protest of any such taxes or assessments. Any
excess over the amounts required for such purposes shall be held by Lender for
future use, applied to any of the Obligations (whether or not due) in such
manner and order as Lender may determine in its sole discretion, or refunded to
Borrower, at Lender's option. Any deficiency in such funds so deposited shall be
made up by Borrower within ten (10) days of request by Lender. All such funds so
deposited shall bear no interest, may be mingled with the general funds of
Lender and shall be applied by Lender toward the payment of such taxes,
assessments, charges and premiums when statements therefor are presented to
Lender by Borrower (which statements shall be presented by Borrower to Lender a
reasonable time before the applicable amount is due); provided that if a Default
has occurred hereunder such funds may at Lender's option be applied to the
payment of the Obligations (whether or not due) in the manner and order
determined by Lender, and Lender may (but has no obligation to) apply all or any
part of such funds toward the payment of any past due taxes, assessments,
charges or premiums, together with any penalties or late charges or other
governmental charges with respect thereto. The conveyance or transfer of
Borrower's interest in the Property for any reason (including the foreclosure of
a subordinate lien or security interest or a transfer by operation of Law) shall
constitute an assignment of Borrower's interest in such funds held by Lender
under this Section subject to the rights of Lender.
ARTICLE 7 -ADDITIONAL REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS
Borrower represents, warrants, covenants and agrees as follows:
7.1. Financial Statements. (a) All financial statements and other
financial information regarding Borrower, General Partner, or any Guarantor
furnished by or on behalf of Borrower, General Partner, or any Guarantor to
Lender are true, correct, and complete in all material respects as of the dates
specified therein and fully and accurately present, in all material respects,
the financial condition of Borrower, General Partner, or any Guarantor as of the
dates specified; all financial statements have been prepared in accordance with
generally accepted accounting principles and practices recognized from time to
time by the Financial Accounting Standards Board, consistently applied for all
periods to properly reflect the financial condition, and the results of
operations and changes in financial position, of Borrower, General Partner, and
any Guarantor (and, on a consolidated basis, of Borrower, General Partner, and
any Guarantor and their consolidated subsidiaries, if applicable) ("GAAP"),
except for such departures from GAAP as are otherwise approved by a Big 6
accounting firm (or any generally recognized successor to
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the Big 6) and noted on such financial statements. No change has occurred in
Borrower's, General Partner's, or any Guarantor's financial condition reflected
therein since the respective dates of the financial statements for such Person
delivered to Lender which constitutes a Material Adverse Effect. Borrower,
General Partner, and any Guarantor are solvent after giving effect to all
borrowings and guaranties contemplated in the Loan Documents. Borrower will keep
accurate books and records in accordance, in all material respects, with GAAP in
which full, true and correct entries shall be promptly made with respect to the
Project and the Property and the operation thereof. Borrower shall permit
Lender, at all reasonable times and upon reasonable prior notice, to examine and
copy the books and records of Borrower pertaining to the Loan, Project,
Property, and all contracts, statements, invoices, bills, and claims for the
Work.
(b) Borrower and any Guarantor shall each furnish or cause to be
furnished to Lender the following:
(i) within one hundred twenty (120) days after the close of
each fiscal year of Borrower and within ninety (90) days after the
close of each fiscal year of any Guarantor, respectively: (Ai) a
balance sheet dated as of the close of such fiscal year; (B) an
operating statement for such fiscal year; and (C) a fully executed
certificate in the form of Exhibit "F" ("Compliance Certificate") dated
as of the delivery of such statements;
(ii) within sixty (60) days after the close of each and every
quarter of each fiscal year of Borrower or any Guarantor, as the case
may be, an unaudited: (A) balance sheet dated as of the close of such
fiscal quarter; (B) comprehensive operating statement for such fiscal
quarter; and (C) a fully executed Compliance Certificate dated as of
the delivery of such statements;
(iii) an operating statement for each month (A) during the
period commencing with the Closing Date and continuing until the
Property Net Income for any calendar month is positive, and (B) during
each period commencing with the end of any three consecutive calendar
month period for which the Property Net Income is negative and
continuing until the Property Net Income is positive for three
consecutive calendar months, which operating statement shall be
furnished within thirty (30) days after the end of the calendar month
for which such statement is being furnished; and
(v) from time to time, additional financial statements and
financial information Lender reasonably requests and which are prepared
in the normal course of Borrower's or any Guarantor's business, as the
case may be.
(c) All balance sheets and operating statements described in Section
7.1(b)(i) shall be audited by a Big 6 accounting firm (or firm of similar
stature should the Big 6 designation be discontinued at any time) selected by
Borrower and any Guarantor, respectively, and consented to by Lender without any
qualification or exception other than those acceptable to Lender; provided,
however, that Borrower shall not be required to provide audited balance sheets
and operating statements until Borrower commences its operations at the
Property. Copies of all other financial statements described above which are
audited by such accounting firm shall be provided to Lender within ten (10)
business days of receipt by Borrower or any Guarantor, as the case may be.
7.2. Litigation. There is no threatened or pending Litigation
involving or affecting the Project, the Property, Borrower, General Partner, or
any Guarantor, the validity, enforceability, or priority of any of the Loan
Documents, or which constitutes a Material Adverse Effect. If any Litigation is
threatened or commenced (a) that seeks to enjoin, prevent, or declare invalid or
unlawful Borrower's construction, occupancy, use or operation of the
Improvements; (b) that endangers, questions or attacks the title to any part of
the Property or the validity, enforceability, or priority of any Loan Document;
(c) that seeks to levy upon or seize any part of the Property; (d) for any
condemnation or taking of any part of or interest in the Property; (e) with
respect to any claimed personal injury, death or property damage on or about the
Property not covered by insurance; or (f) which constitutes a Material Adverse
Effect; then Borrower shall promptly and vigorously contest such Litigation in
good faith (provided that Borrower shall have the right to settle such
Litigation if appropriate in the good faith exercise of Borrower's business
judgment),
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resist the entry of any temporary or permanent injunction, and seek the stay of
any such injunction that may be entered. After the occurrence of a Default,
Lender may (but shall not be obligated to) commence, appear in, or defend any
such Litigation, compromise or discharge adverse claims made with respect to the
Property, purchase tax titles, remove prior liens or security interests, and pay
all necessary expenses, including attorneys' fees, incurred in connection with
such Litigation, which Borrower shall reimburse to Lender on demand and which
shall be part of the Obligations, even if in excess of the Committed Sum,
secured by the Loan Documents.
7.3. Existence and Rights. True, correct and complete copies of the
documents governing Borrower's existence and authority have been delivered to
Lender. Borrower is duly organized, validly existing, and in good standing under
the Laws of the state of its organization and under Texas Laws; is lawfully
doing business in Texas; has full power and authority to lease and/or own the
Property, as the case may be, and to construct, lease and operate the
Improvements, and enter into and perform the Loan Documents; and has not
conveyed, assigned or otherwise transferred (or agreed to do so) any development
rights, air rights, utility rights, tap-in, availability, or capacity rights,
easement or license rights, or other rights, privileges or attributes with
respect to the Project or the Property, except for the Permitted Encumbrances.
Borrower shall maintain and preserve its existence under the Laws of its
jurisdiction of organization and under Texas Laws; preserve, protect, renew and
extend all franchises, permits, licenses, privileges, concessions and other
material rights applicable to Borrower or the Property; and shall not make any
change in its name, identity, or structure or develop new lines of business
without Lender's prior written consent.
7.4. Authorization, Conflicts, Enforceability. The execution, delivery,
and performance of the Loan Documents by Borrower have been duly authorized by
Borrower and shall not cause or result in a violation or breach of, or a default
(or provide cause for acceleration of indebtedness) under, any organizational
document, agreement or other Legal Requirement (to the extent that a violation
or breach of such Legal Requirement would constitute a Material Adverse Effect)
by which Borrower or any of Borrower's property are bound or affected. Borrower
is not in default under any obligation of Borrower or any Legal Requirement, the
default of which constitutes a Material Adverse Effect. The Loan Documents
executed by Borrower constitute the valid and legally binding obligations of
Borrower enforceable in accordance with their terms, except as limited by Debtor
Relief Laws and except as the availability of certain remedies may be limited by
general principles of equity.
7.5. Title to the Property. Borrower owns and holds full legal and
equitable title to the Property, subject to no encumbrances other than the
Permitted Encumbrances. No Work shall be supplied, purchased, or installed
pursuant to agreements whereby a security interest or title is retained or any
right is reserved or accrues to remove or repossess any of the Property.
Borrower shall deliver to Lender on request true and correct copies of any
contracts, bills of sale, statements, receipted vouchers or agreements under
which Borrower claims title to any Work.
7.6. Legal Requirements. Borrower (a) has complied and will comply
with all Legal Requirements relating to or affecting the Project, Property,
Loan, or Borrower, the noncompliance with which would constitute a Material
Adverse Effect, including, without limitation, Ordinance Number 890525-D,
approving the West 38th Street Planned Unit Development; (b) has obtained, and
delivered true and correct copies to Lender of, all required permits, licenses,
approvals and consents from, and has made all filings with, any Tribunal (and
the same have not lapsed nor been rescinded or revoked) necessary in connection
with the construction of the Improvements, the execution, delivery or
enforcement of any Loan Document, and the performance of the Obligations; and
(c) has no knowledge of, and has received no notice of, any violation of any
Legal Requirement relating to or affecting the Project, the Property, Borrower,
General Partner, or any Guarantor, the violation of which would constitute a
Material Adverse Effect. The Property, and the intended use, occupancy, or
operation thereof, complies and will comply with all applicable Legal
Requirements, the noncompliance with which would constitute a Material Adverse
Effect. No part of the Property constitutes (or will constitute) a nonconforming
use under any zoning Law or similar Legal Requirement.
7.7. Utilities and Access. All utility and municipal services
required for the
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construction, occupancy, use and operation of the Improvements are available for
use and tap-in at the boundaries of the Land and will be available in sufficient
amounts for the intended use of the Improvements. All binding agreements,
allocations or commitment letters required to ensure the provision of such
services have been obtained or will be available from the applicable utility
companies and/or Tribunals providing such services. All public and private roads
necessary for the intended occupancy, use and operation of the Improvements will
be completed and available for vehicular ingress to and egress from the Land by
the Completion Date. All necessary or required utility, private roadway,
parking, access (including curb cuts), easements, covenants and permits have
been granted or issued or will be granted or issued on or before the earlier of
the Completion Date or the day the Facility is opened for business and is
prepared to accept patients. All impact, connection or other requisite fees
therefor have been paid or are included in the Budget.
7.8. Other Lands. The Land is not part of a larger tract of land owned
by Borrower, General Partner, any Guarantor, or any Affiliate of Borrower,
General Partner, or any Guarantor, and is not otherwise included under any unity
of title or similar covenant with other lands not encumbered by the Mortgage,
except to the extent set forth in a Permitted Encumbrance consented to by
Lender. On or before January 1, 1998, Borrower shall cause the Land to be
constituted a separate tax lot or lots with a separate tax assessment or
assessments for the Land and Improvements, independent of any other lands or
improvements. The Land and Improvements comply with all subdivision and platting
Legal Requirements to the extent necessary to avoid a Material Adverse Effect
and would so comply if the Land and Improvements were conveyed as a separate
parcel. No portion of the Property is (or will be) dependent on any other
property not subject to the lien of the Mortgage to fulfill any Legal
Requirement, and no other property not subject to the lien of the Mortgage is
(or will be) dependent on any portion of the Property to fulfill any Legal
Requirement.
7.9. Full Disclosure. There is no material fact or information that
Borrower has not disclosed to Lender that could materially adversely affect the
Project, Property, or the condition (financial, business, or otherwise) of
Borrower, General Partner, or any Guarantor. As of the date hereof, there has
been no material adverse change in any of the plans, budgets, schedules,
certificates, confirmations, statements, applications, affidavits, agreements,
contracts, reports, studies, tests, opinions and other materials and factual
information from the matters submitted or disclosed to Lender prior to the
Closing Date, and no change will hereafter be made in or to, or will occur with
respect to the information contained in, any of such plans, budgets, schedules,
certificates, confirmations, statements, applications, affidavits, agreements,
contracts, reports, studies, tests, opinions and other materials and factual
information which would constitute a Material Adverse Effect.
7.10. Certain Regulatory Matters. The proceeds of the Loan are not
being used and shall not be used to purchase or carry any "margin stock" within
the meaning of Regulation "U" of the Board of Governors of the Federal Reserve
System, nor to extend credit to others for that purpose. Borrower is in
compliance (and will comply) in all material respects with the Employee
Retirement Income Security Act of 1974, as amended, and Borrower has not
incurred (and will not incur) any liability to the Pension Benefit Guaranty
Corporation or any Tribunal succeeding to any or all of its functions
thereunder. Borrower is not a "foreign person" within the meaning of the
Internal Revenue Code of 1986, Sections 1445 and 7701.
7.11. Principal Office, Etc. The principal office, chief executive
office and principal place of business of Borrower is at Borrower's address for
notices as specified in this Agreement. Borrower maintains its principal records
and books at Borrower's address for notices as specified in this Agreement and
upon completion of the Facility, at 3801 North Lamar, Austin, Texas 78756. The
Loan is solely for business purposes, and is not for personal, family, household
or agricultural purposes.
7.12. Payment and Performance . No Default or Potential Default exists.
Borrower, General Partner, and each Guarantor are in compliance with the Loan
Documents. Borrower shall perform all the Obligations in accordance with the
Loan Documents. Borrower shall promptly pay or cause to be paid when due all
costs, expenses, debts and liabilities of any character (including all debts and
liabilities for Work and for utilities serving the Property) incurred in the
ownership, development, construction, management, maintenance, repair,
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restoration or operation of the Property; provided Borrower may contest certain
claims under Section 7.20.
7.13. Inspection of the Property. Lender and its representatives may
enter upon the Property to inspect the Property at all reasonable times, upon
reasonable prior notice. Borrower will cooperate and assist in such inspections,
including furnishing all Plans, shop drawings and specifications relating to the
Improvements.
7.14. Use of Loan Funds. All Work paid for with Loan funds shall be
used solely on the Project and for no other purpose. Borrower shall use the Loan
funds only for the specific purposes for which advanced and Borrower shall
receive all such funds as a trust fund for the sole purpose of paying the
specific costs of the Project in accordance with this Agreement.
7.15. Maintenance and Use. Borrower will keep the Property in good
order, repair, operating condition and appearance, ordinary wear and tear
excepted, causing all necessary repairs, renewals, replacements, additions and
improvements to be promptly made, and will not allow any of the Property to be
misused, abused or wasted or to deteriorate. Borrower will not, without the
prior written consent of Lender, (a) remove from the Property any fixtures or
personal property covered by the Loan Documents except such as is replaced by
Borrower by an article of equal suitability and value, owned by Borrower, free
and clear of any lien or security interest, except those created by the Loan
Documents; (b) make any structural alteration to the Property after completion
of the Improvements or any other alteration thereto which impairs the value
thereof; (c) initiate or permit any zoning reclassification of the Property,
seek any variance under existing zoning ordinances, or use or permit the use of
the Property in a manner that is a nonconforming use under applicable zoning
ordinances or other Legal Requirements; (d) impose any easement, restrictive
covenant or encumbrance upon the Property (other than any Permitted
Encumbrance), execute or file any subdivision plat or condominium declaration
affecting the Property, or consent to the annexation of the Property to any
municipality; (e) perform, or consent to (to the extent Borrower has the right
to perform or consent to), any drilling or exploration for or extraction,
removal or production of any mineral, hydrocarbon, gas, natural element,
compound or substance (including sand and gravel) from the surface or subsurface
of the Land, or (f) use or occupy or allow the use or occupancy of the Property
in any manner which violates any Legal Requirement (the violation of which would
constitute a Material Adverse Effect), constitutes a public or private nuisance,
or makes void, voidable or cancelable, or increases the premium of, any
insurance.
7.16. Notice to Lender. Borrower shall promptly notify Lender in
writing of any of the following events, specifying in each case the action
Borrower has taken or proposes to take with respect thereto: (a) the existence
of any Default; (b) any default by Borrower, General Partner, or any Guarantor
under any Legal Requirement, or any default by Borrower, General Partner, or any
Guarantor in the performance of any obligation which constitutes a Material
Adverse Effect; (c) the existence of (i) any action, suit, investigation or
proceeding pending or threatened against or affecting Borrower, General Partner,
or any Guarantor or any of their respective properties or rights, including,
without limitation, the Property, before any court or by or before any
governmental body, arbitration board or tribunal, or any material development in
any such action, suit, investigation or proceeding, or (ii) any judgment,
decree, injunction or order of any court, governmental department, commission,
agency, instrumentality or arbitrator against Borrower, to the extent any such
action, suit, investigation, proceeding, judgment, decree, injunction, or order
could constitute a Material Adverse Effect; (d) any actual or threatened
condemnation or other taking of any portion of the Property, any negotiations
with respect thereto, or any loss of or substantial damage to any portion of the
Property; (e) any labor controversy pending or threatened against Borrower,
Original Contract, or any Subcontractor or any material development therein,
exclusive of ordinary course of employment matters involving not more than one
employee; (f) any cancellation, adverse alteration or non-renewal of any
insurance coverage with respect to the Property; (g) any material default under
the Original Contract, or any event or condition which would permit termination
by Original Contractor of the Original Contract or suspension of work
thereunder, or any notice given with respect to any of the foregoing; and (h)
receipt by Borrower of a notice or claim that the construction of any of the
Improvements, or the Project or the Property, or any use or condition thereof is
not in compliance with any Legal
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Requirement, the noncompliance with which would constitute a Material Adverse
Effect.
7.17. Costs and Expenses. Without limitation of any Loan Document and
to the extent not prohibited by applicable Laws, Borrower shall pay when due,
and reimburse to Lender and/or the Trustee to the extent paid by Lender and/or
such Trustee on demand, and indemnify Trustee and Lender from, all out-of-pocket
fees, costs and expenses paid or incurred by Lender and/or such Trustee in
connection with the negotiation, preparation and execution of this Agreement and
the other Loan Documents (and any amendments, approvals, consents, waivers and
releases requested, required, proposed or done from time to time), or in
connection with the disbursement, administration or collection of the Loan or
the enforcement of the Obligations or the exercise of any right or remedy of
Lender, including (a) fees and expenses of Lender's counsel and any consultants
and additional legal counsel hired by Lender's counsel, provided that Borrower's
obligation to reimburse Lender for reasonable attorneys' fees and expenses (at
the regular hourly rates of such attorneys) in connection with the closing of
the Loan shall not exceed the aggregate of $75,000.00 plus 50% of any fees and
expenses in excess of $75,000.00; (b) appraisal and survey costs; (c) title
insurance charges and premiums; (d) title search or examination costs, including
abstracts, abstractors' certificates, and uniform commercial code searches; (e)
escrow fees; (f) fees and costs of environmental investigations and site
assessments; (g) transfer taxes and mortgage taxes, (h) filing and recording
fees, and (i) loan brokerage fees. Notwithstanding the foregoing, the
transaction costs described as items (a) through (h) above may be advanced from
the Loan, subject to the conditions to Advances in Section 2.1, and the Budget
shall reflect the inclusion of such amounts. Borrower shall pay all costs and
expenses incurred by Lender, including reasonable attorneys' fees, if the
Obligations or any part thereof are sought to be collected by or through an
attorney at law, whether or not involving probate, appellate, administrative or
bankruptcy proceedings. Borrower shall pay all costs and expenses of complying
with the Loan Documents, whether or not such costs and expenses are included in
the Budget. Borrower's obligations under this Section shall survive the delivery
of the Loan Documents, the making of Advances, the payment in full of the
Obligations, the release or termination of the Loan Documents, the foreclosure
of the Mortgage or conveyance in lieu of foreclosure, any bankruptcy or other
debtor relief proceeding, and any other event whatsoever.
7.18. Further Assurances . Borrower will, on request of Lender, (a)
promptly correct any defect, error or omission in any Loan Document; (b)
execute, acknowledge, deliver, procure, record or file such further instruments
and do such further acts deemed reasonably necessary, desirable or proper by
Lender to carry out the purposes of the Loan Documents and to identify and
subject to the liens and security interests of the Loan Documents any property
intended to be covered thereby, including any renewals, additions,
substitutions, replacements, or appurtenances to the Property; (c) execute,
acknowledge, deliver, procure, file or record any document or instrument deemed
reasonably necessary, desirable, or proper by Lender to protect the liens or the
security interests under the Loan Documents against the rights or interests of
third persons; and (d) provide such certificates, documents, reports,
information, affidavits and other instruments and do such further acts deemed
reasonably necessary, desirable or proper by Lender to comply with the
requirements of any agency having jurisdiction over Lender.
7.19. No Assignment. Borrower shall not assign, transfer or encumber
its rights or Obligations under any Loan Document or any proceeds of the Loan
without the prior written consent of Lender, which consent will be made in
Lender's reasonable discretion. Lender may condition its consent upon (a) any
successor borrower having financial strength and operational expertise equal to
or greater than that of Borrower at the time of assignment, (b) such successor
borrower executing a written assumption agreement containing such terms as
Lender may require, and (c) the parent of the successor borrower guaranteeing
the Obligations. Notwithstanding the foregoing, the Loan may be assumed by an
Affiliate of Borrower without Lender's consent, but Borrower shall not be
released from its liability for the Obligations.
7.20. Contest of Certain Claims. Notwithstanding anything to the
contrary contained herein, Borrower may, to the extent and in the manner
permitted by applicable Law, contest the payment of any claim for payment for
Work, or any tax, assessment or other governmental charge against the Property,
and the failure of Borrower to pay the contested claim pending such contest
shall not be or become a Default, if (a) Borrower has notified Lender of
Borrower's intent to
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contest such payment prior to commencing the contest; (b) Borrower has made any
deposit or payment under protest, or posted security, with any Tribunal if, as
and to the extent such deposit, payment under protest or posted security is
required by applicable Law; (c) to the extent (i) not otherwise adequately
covered by the statutory payment and performance bonds provided to Lender in
connection with the closing of the Loan and (ii) not required pursuant to the
Ground Lease Documents, Borrower has furnished to Lender an indemnity bond
satisfactory to Lender with a surety satisfactory to Lender, in an amount
satisfactory to Lender (or in the statutory amount, in the case of bond
authorized by statute), which bond shall assure payment of the matters under
contest and prevent any sale or forfeiture of any part of the Property, and in
the case of a claim for Work which does or could result in a lien against the
Property, Borrower has provided (x) to the extent required by Lender and
available under applicable Law, a bond which under applicable Law releases the
lien from the Property, and (y) such security, assurances and other items, if
any, as the Title Insurer may require to insure around the lien; (d) Borrower
diligently and in good faith contests the same by appropriate legal proceedings
which shall operate to prevent the enforcement or collection of the same and the
sale of any part of the Property to satisfy the same; (e) Borrower promptly upon
final determination thereof pays the amount of any such claim so determined,
together with all costs, interest and penalties payable in connection therewith;
(f) the failure to pay the claim does not constitute a default under any other
deed of trust, mortgage or security interest covering or affecting any part of
the Property, and does not subject Lender to any civil or criminal liability or
to any damages or expense; and (g) the aggregate amount of all claims being
contested shall not exceed the lesser of (i) ten percent (10%) of the Committed
Sum or (ii) any amounts retained by Lender pursuant to Paragraph 3 of Exhibit
"E" at any one time. Notwithstanding the forgoing, Borrower shall immediately
upon request of Lender pay (and if Borrower shall fail so to do, Lender may, but
shall not be required to, pay or cause to be discharged or bonded against) any
such claim notwithstanding such contest if, in the reasonable opinion of Lender,
the Property is in jeopardy or in danger of being forfeited or foreclosed.
Lender may pay over any such cash deposit or part thereof to the claimant
entitled thereto at any time when, in the judgment of Lender, the entitlement of
such claimant is established.
7.21. Indemnification. Borrower shall indemnify and hold harmless
Lender and the Trustee and the directors, officers, partners, employees, agents,
heirs, representatives, successors and assigns of Lender and Trustee,
respectively, and any Persons owned or controlled by, owning or controlling, or
under common control or affiliated with Lender or Trustee, respectively, from
and against, and reimburse them on demand for, any and all Indemnified Matters
(defined below). Without limitation, the foregoing indemnities shall apply to
each indemnified Person with respect to matters which in whole or in part are
caused by or arise out of the negligence of such (and/or any other) indemnified
Person. However, such indemnities shall not apply to a particular indemnified
Person to the extent that the subject of the indemnification is caused by or
arises out of the gross negligence or willful misconduct of that indemnified
Person. Any amount to be paid under this Section by Borrower to an indemnified
Person shall be a demand obligation owing by Borrower (which Borrower hereby
promises to pay) to Lender, part of the Obligations, even if in excess of the
Committed Sum, and secured by the Loan Documents. Nothing in this Section,
elsewhere in this Agreement or in any other Loan Document shall limit or impair
any rights or remedies of Lender, Trustee, or any other indemnified Person
(including without limitation any rights of contribution or indemnification)
against Borrower or any other Person under any other provision of this
Agreement, any other Loan Document, any other agreement or any applicable Legal
Requirement. As used herein, the term "Indemnified Matters" means any and all
claims, demands, liabilities (including strict liability), losses, damages
(including consequential damages), causes of action, judgments, penalties,
fines, costs and expenses (including without limitation, reasonable fees and
expenses of attorneys and other professional consultants and experts, and of the
investigation and defense of any claim, whether or not such claim is ultimately
defeated, and the settlement of any claim or judgment including all value paid
or given in settlement) of every kind, known or unknown, foreseeable or
unforeseeable, which may be imposed upon, asserted against or incurred or paid
by Lender, Trustee or any indemnified Person at any time and from time to time,
whenever imposed, asserted or incurred, because of, resulting from, in
connection with, or arising out of any transaction, act, omission, event or
circumstance in any way connected with the Project or the Property or with this
Agreement or any other Loan Document, including disbursement of the Loan
proceeds, the condition of the Property, any bodily injury or death or
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property damage occurring in or upon or in the vicinity of the Property through
any cause whatsoever at any time on or before the Release Date, any act
performed or omitted to be performed hereunder or under any other Loan Document,
any failure by Borrower to perform its obligations under the Original Contract,
and any Default or Potential Default. The term "Release Date" as used herein
means the earlier of: (i) the date on which the Obligations have been paid and
performed in full and the Loan Documents have been released, or (ii) the date on
which the lien of the Mortgage is fully and finally foreclosed or a conveyance
by deed in lieu of such foreclosure is fully and finally effective, and
possession of the Property has been given to the purchaser or grantee free of
occupancy and claims to occupancy by Borrower and Borrower's heirs, devisees,
representatives, successors and assigns; provided, that if such payment,
performance, release, foreclosure or conveyance is challenged, in bankruptcy
proceedings or otherwise, the Release Date shall be deemed not to have occurred
until such challenge is rejected, dismissed or withdrawn with prejudice. The
indemnities in this Section shall not terminate upon the Release Date or upon
the release, foreclosure or other termination of any Loan Document but as to
Indemnified Matters attributable to any act, omission, event or circumstance
prior to the Release Date or any act or omission of Borrower, General Partner,
any Guarantor or their employees, partners, agents, or representatives at any
time, will survive the Release Date, foreclosure of the Mortgage or conveyance
in lieu of foreclosure, the payment of the Obligations, the discharge and
release of the Loan Documents, any bankruptcy or other debtor relief proceeding,
and any other event whatsoever.
7.22. Periodic Appraisal. Lender may obtain at Borrower's expense once
every three (3) years (or, upon the occurrence of a Default, more often as
required by Lender but in no event more often than once in each calendar year)
an appraisal of any part of the Property prepared in accordance with written
instructions from Lender by a third-party appraiser engaged directly by Lender.
Each such appraiser and appraisal shall be satisfactory to Lender (including
satisfaction of applicable regulatory requirements). The costs of each such
appraisal shall be due and payable on demand, part of the Obligations, and
secured by the Loan Documents.
7.23. Estoppel Certificate. Borrower shall at any time furnish within
ten (10) days of request by Lender a written statement in such form as may be
required by Lender, stating (i) that the Loan Documents are valid, binding and
enforceable obligations of Borrower; (ii) the outstanding principal balance of
the Loan; (iii) the date to which interest is paid; (iv) that the Loan Documents
have not been released, subordinated or modified; (v) that there are no offsets
or defenses against the enforcement of the Loan Documents, and (vi) any such
other matters reasonably requested by Lender. If any of the foregoing statements
are untrue, Borrower shall, alternatively, specify the reasons therefor.
7.24. Financial Covenants (a) Each Guarantor shall maintain, as of the
end of each fiscal quarter, a ratio of current assets to current liabilities of
not less than 1.75 to 1.0, as determined in accordance with generally accepted
accounting principles, consistently applied, excluding therefrom any loan
proceeds received from an Affiliate of such Guarantor.
(b) Each Guarantor shall maintain, at all times, Net Worth in an amount
not less than $100,000,000.00, reduced or increased by the application of any
changes to GAAP, with at least $4,000,000.00 in cash or cash equivalents.
(c) Borrower shall, on the Closing Date, have a Net Worth of not less
than $2,300,000.00. Borrower will not voluntarily reduce its partners' equity
capital through partnership distributions, loans to any Persons or otherwise
(except for the payment of reasonable expenses in the ordinary course of
Borrower's business) until such time as Borrower's Net Worth equals or exceeds
$3,000,000.00, at which time Borrower will be allowed to voluntarily reduce its
partners' equity capital through partnership distributions, loans to any Persons
or otherwise so long as such reductions do not result in Borrower's Net Worth
being less than $3,000,000.00 at any time thereafter.
(d) Borrower shall maintain, at all times, except the first eighteen
(18) months following the Conversion Date, a ratio of (i) the sum of Net Income,
depreciation, amortization, income taxes and interest expense to (ii) interest
expense, of not less than 1.5 to 1.0.
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(e) Borrower shall maintain, at all times, a line of credit with any
Guarantor, MedCath Finance Company, or any third party lender, secured by
receivables, of not less than $10,000,000.00 and not more than $19,000,000.00.
7.25. Cost Reports . All costs reports required to be filed by Borrower
under Titles XVIII and XIX of the Social Security Act, or any other applicable
governmental laws or regulations or private provider rules, will be prepared and
filed in accordance with applicable Legal Requirements to the extent necessary
to avoid a Material Adverse Effect.
7.26. Absence of Certain Business Practices. Neither Borrower nor any
officer, director, employee or agent of Borrower, nor any other person or entity
acting on behalf of Borrower, acting alone or together, will: (i) receive,
directly or indirectly, any rebates, payments, commissions, promotional
allowances or any other economic benefits, regardless of their nature or type,
from any customer, governmental employee or other person or entity with whom
Borrower will do business directly or indirectly, or (ii) directly or
indirectly, agree to give any gift or similar benefit to any customer,
governmental employee or other person or entity who is or may be in a position
to help or hinder the business of Borrower (or assist Borrower in connection
with any actual or proposed transaction) which, in the case of either clause (i)
or clause (ii) above, would reasonably be expected to subject Borrower to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding.
7.27. Fraud and Abuse. Neither Borrower nor any of its officers and
directors, nor any Affiliates of Borrower or their respective officers and
directors, will engage in any activities which are prohibited under the federal
Medicare and Medicaid statutes (which include, but are not limited to, 42 U.S.C.
ss.ss. 1320a-7, 1320a-7a and 1320a-7b), the federal CHAMPUS statute, the Federal
False Claims Act (31 U.S.C. ss. 3729), the regulations promulgated pursuant to
such federal statutes, or related state or local statutes or regulations (which
include, but are not limited to, Texas Lab Code Annotated ss. 413.041 and Texas
Health & Safety Code ss. 161.091), or which are prohibited by rules of
professional conduct, including but not limited to the following:
(a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment;
(b) knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining rights to
any benefit or payment;
(c) presenting or causing to be presented a claim for reimbursement for
services that is for an item or service that was known or should have been known
to be (i) not provided as claimed, or (ii) false or fraudulent;
(d) failing to disclose knowledge of the occurrence of any event
affecting the initial or continued right to any benefit or payment on its own
behalf or on behalf of another, with intent to fraudulently secure any such
benefit or payment;
(e) knowingly and willfully offering, paying, soliciting or receiving
any remuneration (including any kickback, bribe, or rebate), directly or
indirectly, overtly or covertly, in cash or in kind (i) in return for referring
an individual to a person for the furnishing or arranging for the furnishing of
any item or service for which payment may be made in whole or in part by
CHAMPUS, Medicare, Medicaid, or other state health care program, or (ii) in
return for purchasing, leasing, or ordering or arranging for or recommending
purchasing, leasing, or ordering any good, facility, service, or item for which
payment may be made in whole or in part by CHAMPUS, Medicare, Medicaid or other
state health care program; or
(f) knowingly or willfully making or causing to be made or inducing or
seeking to induce the making of any false statement or representation (or omit
to state a fact required to be stated therein or necessary to make the
statements contained therein not misleading) of a material fact with respect to
(i) a facility in order that the facility may qualify for CHAMPUS, Medicare,
Medicaid or other state health care program certification, or (ii) information
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required to be provided under ss. 1124A of the Social Security Act (42 U.S.C.
ss. 1320a-3).
7.28. Health Professional's Financial Relationship. The operation of
Borrower will comply with and not otherwise violate the federal Medicare and
Medicaid statutes regarding health professional self-referrals, 42
U.S.C.ss.1395nn and 42 U.S.C.ss.1396b, or the regulations promulgated pursuant
to such statute, or similar state or local statutes or regulations. In the case
of any designated health services provided by the hospital, the referring
physicians shall be authorized to perform such services at the hospital, and the
physicians' ownership or investment interest, if any, shall be in the hospital
itself (and not merely in a subdivision of the hospital). For purposes of this
Section, the term "financial relationship" and "designated health services" has
the meaning set forth in 42 U.S.C.ss.1395nn.
7.29. Licensure. Borrower will have, at all times, lawful authority
and all material state, federal, special or local governmental authorizations,
licenses or permits (including, but not limited to, licensure as a hospital
under Texas Health & Safety Code ss. 241.021, certification and approval to
participate in the Medicare and Medicaid programs under Titles XVIII and XIX of
the Social Security Act) required to conduct its businesses.
7.30 Construction of Medical Office Building. Borrower will construct,
or will cause the construction, of such additional improvements on the Land as
are or may hereafter be required pursuant to the Ground Lease Documents,
including, without limitation, a medical/general office building (the
"Additional Improvements") satisfying the requirements set forth in the Ground
Lease Documents. Borrower shall prosecute, or cause the prosecution of,
construction of the Improvements with diligence and continuity, in a good and
workmanlike manner, in accordance in all material respects with sound building
and engineering practices, and, to the extent necessary to avoid a Material
Adverse Effect, in accordance with all applicable Legal Requirements. The
construction schedule for the Additional Improvements, as set forth on Exhibit
"I" attached hereto is realistic and feasible, and Borrower shall complete, or
cause the completion of, construction of the Additional Improvements in
accordance with such completion schedule, free and clear of all liens except as
granted under the Loan Documents. Borrower shall not permit cessation of work on
the Additional Improvements after the commencement of construction thereof for a
period in excess of twenty (20) days (whether or not consecutive), except for an
Excusable Delay, provided Borrower has notified Lender of such delay within five
(5) calendar days of Borrower receiving notice or otherwise becoming aware of
its occurrence, and provided that no Excusable Delay shall: (a) suspend or
otherwise abate any obligation of Borrower, any Guarantor or other Person to pay
any sum of money (including principal and interest on the Loan) under the Loan
Documents; (b) suspend or abate any other Obligation; or (c) extend the
completion date for the Additional Improvements set forth in Exhibit "I".
ARTICLE 8 -DEFAULT AND REMEDIES
8.1. Default . The occurrence of any of the following shall be a
default ("Default"):
(a) Failure to Pay Obligations. Borrower fails to pay the principal
amount of the Loan, any installment thereof, any interest thereon, or any other
amount required to be paid to Lender under the Loan Documents within ten (10)
days of the date such amount is due and payable, whether scheduled, accelerated,
or otherwise.
(b) Nonperformance of Covenants. Borrower fails timely and properly to
observe, keep or perform any covenant, agreement or condition required in any
Loan Document, other than those covenants, agreements, or conditions addressed
as a Default in this Section 8.1, and with respect to only a failure which is
curable, such failure continues for thirty (30) days after written notice to
Borrower thereof.
(c) Representations and Warranties. Any statement, representation or
warranty by Borrower, General Partner, any Guarantor, or any Affiliate of
Borrower, General Partner or any Guarantor in any Loan Documents, or in any
financial statement or any other writing heretofore or hereafter delivered to
Lender in connection with the Obligations is false, fraudulent, misleading
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or erroneous in any material respect, and with respect to only a failure which
is curable, such failure is not cured within thirty (30) days after written
notice to Borrower thereof.
(d) Construction Related Defaults. The execution and/or filing of any
affidavit of commencement stating that construction on the Land commenced on a
date prior to the day after the date on which the Original Mortgage was filed
for record; the cessation of construction of the Improvements or the Additional
Improvements for more than twenty (20) days (whether or not consecutive), except
for Excusable Delays; failure of Borrower to satisfy any condition precedent to
an Advance within thirty (30) days after an Advance Request has been submitted
by Borrower to Lender; a reasonable determination by Lender that the
Improvements will not be completed within thirty (30) days after the Completion
Date; the failure of Borrower to complete the Improvements within thirty (30)
days after the Completion Date; the failure of Borrower to complete construction
of any portion of the Additional Improvements or to obtain any required
documentation in connection therewith by the respective scheduled date therefor
set forth in Exhibit "I" hereto; any failure of Borrower to take the actions
required under Section 2.3; or any court enjoins or prohibits construction,
occupancy, maintenance or operation of any of the Improvements, or Borrower or
Lender from performing the Loan Documents, and such proceeding is not properly
contested and such injunction or order is not vacated within forty-five (45)
days after the granting thereof.
(e) Bankruptcy or Insolvency. Borrower, General Partner, or any
Guarantor:
(i) (A) executes an assignment of substantially all of its
respective assets for the benefit of creditors, or takes any action in
furtherance thereof; (B) admits in writing its inability to pay, or
fails to pay, its debts generally as they become due; (C) as a debtor,
files a petition, case, proceeding or other action pursuant to, or
voluntarily seeks the benefit of any Debtor Relief Law, or takes any
action in furtherance thereof; or (D) seeks the appointment of a
receiver, trustee, custodian or liquidator of any part of the Property
or of any significant portion of its other property; or
(ii) suffers the filing of a petition, case, proceeding or
other action against it as a debtor under any Debtor Relief Law or
seeking appointment of a receiver, trustee, custodian or liquidator of
any part of the Property or of any significant portion of its other
property, and (A) admits, acquiesces in or fails to contest diligently
the material allegations thereof; (B) the petition, case, proceeding or
other action results in entry of any order for relief or order granting
relief sought against it; (C) in a proceeding under Title 11 of the
United States Code, the case is converted from one chapter to another;
or (D) fails to have the petition, case, proceeding or other action
permanently dismissed or discharged on or before the earlier of trial
thereon or sixty (60) days next following the date of its filing; or
(iii) conceals, removes, or permits to be concealed or
removed, any part of its property, with intent to hinder, delay or
defraud its creditors or any of them, or makes or suffers a transfer of
any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar Law; or suffers or permits, while
insolvent, any creditor to obtain a lien (other than as described in
subparagraph (iv) below) upon any of its property through legal
proceedings which are not vacated and such lien discharged prior to
enforcement of such lien and in any event within sixty (60) days from
the date thereof; or
(iv) with respect to Borrower and any Guarantor, fails to have
discharged within a period of twenty (20) days any attachment,
sequestration, or similar writ of $500,000.00 or more levied upon any
of its property; or
(v) with respect to Borrower and any Guarantor, fails to pay
any final non-appealable money judgment of $500,000.00 or more against
it within twenty (20) days after the entry of such judgment.
(f) Transfer of the Property. Any sale, lease, conveyance, assignment,
transfer or
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other disposition of all or any part of or interest in the Property, or
the vesting of title to any interest in the Property in any Person other than
Borrower in any manner whatsoever, whether by operation of law or otherwise,
voluntarily or involuntarily, without Lender's prior written consent, determined
in Lender's reasonable discretion, except to the extent (if any) otherwise
specifically permitted by any Loan Document. The written consent of Lender
required in this paragraph may be refused or may be conditioned upon such one or
more of the following, as Lender may require: (i) the grantee's financial
strength and operational expertise being equal to or greater than that of
Borrower at the time of the transfer, (ii) grantee executing, prior to such sale
or transfer, a written assumption agreement containing such terms as Lender may
require, and (iii) the parent company of such grantee, if any, executing a
guarantee agreement in form satisfactory to Lender, guaranteeing the
Obligations.
(g) Encumbrance of the Property. Without the prior written consent of
Lender, except as otherwise specifically permitted in any Loan Document,
including, without limitation, any Permitted Encumbrance, Borrower (or any other
owner of the Property) creates, places or permits to be created or placed, or
through any act or failure to act voluntarily acquiesces in the placing of, or
allows to remain, by operation of law or otherwise, any deed of trust, mortgage,
voluntary or involuntary lien (whether statutory, constitutional or
contractual), encumbrance or charge, security interest, financing statement,
equipment lease, chattel mortgage, conditional bill of sale, title retention
contract, or other security device or instrument, against or covering the
Property or any part thereof, whether by operation of law or otherwise
regardless of whether the same is expressly or otherwise subordinate to the lien
or security interest of the Mortgage.
(h) Transfer or Encumbrance of Ownership of Borrower. The sale, pledge,
encumbrance, assignment, transfer or other disposition, voluntarily or
involuntarily, by operation of law or otherwise, of any interest in Borrower
held by General Partner or any Affiliate of General Partner or any Guarantor (if
Borrower is not a natural person), without the prior written consent of Lender
(including, if Borrower is a partnership or joint venture, the withdrawal from
or admission into it of any general partner or joint venturer). The written
consent of Lender required in this paragraph may be refused or may be
conditioned upon such one or more of the following as Lender may require: the
grantee's integrity, reputation, character, creditworthiness and management
ability being satisfactory to Lender and grantee executing, prior to such sale
or transfer, a written assumption agreement containing such terms as Lender may
require, a principal paydown on the Note, an increase in the rate of interest
payable under the Note, a transfer fee, and any other modification of the Loan
Documents as Lender may require, all of which must be satisfactory to Lender.
(i) Abandonment. Borrower (or any other owner of the Property) abandons
any or all of the Property.
(j) Default Under Other Lien. A default or event of default occurs
under any lien, security interest or assignment covering any part of the
Property (whether or not Lender has consented to such lien and without hereby
implying Lender's consent to any such lien, security interest or assignment not
created under the Loan Documents) and is not cured within any applicable cure
period provided, or the holder of any such lien, security interest or assignment
declares a default (which is not cured within any applicable cure period
provided therefor) or institutes foreclosure or other proceedings for the
enforcement of its remedies thereunder.
(k) Destruction. The Property is so demolished, destroyed or damaged
that, in the reasonable opinion of Lender, it cannot be restored or rebuilt to a
profitable condition with funds available to Borrower and to which Borrower is
entitled under the Loan Documents within a reasonable period of time and in any
event prior to the Maturity Date.
(l) Condemnation. (i) Any Tribunal requires, or commences any
proceeding for, the demolition of any building or structure comprising a part of
the Property, or (ii) there is commenced any proceeding to condemn or otherwise
take, or a contract for sale or conveyance in lieu of such a taking is executed
which provides for the transfer of, a material portion of the Property,
including the taking (or transfer in lieu thereof) of any portion which would
result in the blockage or substantial impairment of access or utility service to
the Property, cause the Property
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to fail to comply with any Legal Requirement (the noncompliance with which would
constitute a Material Adverse Effect), or would, in Lender's judgment,
materially interfere with the construction and operation of the Improvements for
their intended purposes.
(m) Liquidation. The liquidation, termination, dissolution, merger,
consolidation or failure to maintain good standing in the States of Texas or
North Carolina, as the case may be (or in the case of a natural person, the
death or legal incapacity) of Borrower, General Partner or any Guarantor (or any
general partner or joint venturer of any such Person); provided, however, that
the liquidation, termination, dissolution, merger or consolidation of any
Guarantor shall be deemed a Default only if no successor entity remains liable
under the Guaranty after such event, or if the applicable successor entity which
remains liable under the Guaranty does not satisfy the financial covenants of
Guarantor contained in this Loan Agreement.
(n) Material Adverse Change. Any circumstance or event of whatever
nature (including the filing of, or any adverse determination or development in,
any Litigation) occurs which (a) adversely affects the validity or
enforceability of any Loan Document, (b) materially and adversely affects all or
any portion of the Project, or (c) impairs the ability of Borrower, General
Partner, or any Guarantor to fulfill any material Obligation.
(o) Enforceability; Priority. Any Loan Document or the liens, mortgages
or security interests of Lender in any of the Property shall for any reason
cease to be in full force and effect, be declared null and void or unenforceable
in whole or in part, cease to have the priority required herein, or the validity
or enforceability thereof, in whole or in part, shall be challenged or denied.
(p) Environmental Agreement. Any default under, or violation or breach
of, the Environmental Agreement, and the expiration of any applicable cure
period therefor, including the failure of the Property for any reason to comply
with the Environmental Agreement.
(q) Ground Lease Documents. The occurrence of any default or event of
default by Borrower under the Ground Lease Documents and the expiration of any
applicable grace period, or the termination by any party of any Ground Lease
Document(s).
(r) Other Loan Documents. A default or event of default occurs under
any Loan Document, other than this Agreement, and the same is not remedied
within the applicable period of grace (if any) provided in such Loan Document.
8.2. Notice and Cure. If any Loan Document provides for Lender to give
to Borrower or any other party any notice regarding a Default or Potential
Default, and if Lender fails to give such notice to Borrower or to any such
other party as provided, the sole and exclusive remedy of Borrower for such
failure shall be to seek appropriate equitable relief to enforce the agreement
to give such notice and to have any acceleration of the maturity of the
Obligations postponed or revoked and foreclosure proceedings in connection
therewith delayed or terminated pending or upon the curing of such Potential
Default to Lender's satisfaction in the manner and during the period of time
permitted by such agreement, if any, and Borrower waives any and all right to
damages and any other relief.
8.3. Certain Remedies. Any Default under this Agreement shall also
constitute a Default under the other Loan Documents. Should a Default occur,
Lender may but without any obligation to do so, at its option and at any time,
and without presentment, demand, or protest, notice of default, dishonor,
demand, non-payment, or protest, notice of intent to accelerate all or any part
of the Obligations, notice of acceleration of all or any part of the
Obligations, or notice of any other kind, all of which Borrower and each
Guarantor hereby expressly waive except for any notice required by applicable
statute which cannot be waived, (a) declare the Obligations, or any part
thereof, immediately due and payable, whereupon the same shall be due and
payable; (b) terminate Lender's commitment to make Advances of the Loan and any
obligation to disburse any Borrower's Deposit or other funds hereunder; (c)
reduce any claim to judgment; (d) to the maximum extent permitted under
applicable Laws, set-off and apply any and all deposits (general or special,
time or demand, provisional or final), funds, or assets at any time held and any
and all other indebtedness at any time owing by Lender to or for the credit or
the account of Borrower
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against any and all Obligations, whether or not Lender exercises any other right
or remedy hereunder and whether or not such Obligations are then matured; and/or
(e) exercise any and all rights and remedies afforded by any of the Loan
Documents, or by Law or equity or otherwise, as Lender deems appropriate.
8.4. Completion of Construction, etc. Upon a Default, Lender shall have
the right, in addition to any other right or remedy of Lender, but not the
obligation, in its own name or in the name of Borrower, with or without the
appointment of a receiver, subject to applicable law, to enter into possession
of the Property, to perform all work necessary to complete the construction of
the Improvements substantially in accordance with the Plans, Loan Documents, and
Legal Requirements, and to employ watchmen and other safeguards to protect the
Property. All sums expended by Lender for such purposes shall be included in the
Obligations, even if in excess of the Committed Sum, shall bear interest at the
Maximum Rate, be secured by the Loan Documents, and be due and payable on
demand. Borrower hereby appoints Lender as the attorney-in-fact of Borrower with
full power of substitution, and in the name of Borrower, if Lender elects to do
so, upon the occurrence of a Default, to (a) use for completion of the
Improvements such sums as are necessary, including any proceeds of the Loan, any
casualty or condemnation proceeds and any Borrower's Deposit or Additional
Collateral; (b) make such changes or corrections in the Plans, and employ such
architects, engineers, contractors, supervisors, managers and inspectors as may
be required for the purpose of completing the construction of the Improvements
substantially in accordance with the Plans, Legal Requirements, and the Loan
Documents; (c) execute all applications, certificates and other writings in the
name of Borrower which may be required by the Original Contract or Legal
Requirement or otherwise for completion of construction of the Improvements; (d)
endorse the name of Borrower on any checks or drafts representing proceeds of
any insurance policies, or other checks or instruments payable to Borrower with
respect to the Property; (e) do every act with respect to the construction of
the Improvements which Borrower may do; (f) prosecute or defend any action or
proceeding incident to the Property, and take such actions and require such
performances as Lender may deem necessary in its sole discretion; (g) pay,
settle or compromise any and all bills or claims with respect to the Project;
and (h) do any and every act with respect to the construction and marketing of
the Improvements which Borrower could do on Borrower's own behalf. The power of
attorney granted hereby is a power coupled with an interest, is irrevocable and
shall not terminate on disability of the principal. Lender has no obligation to
undertake any of the foregoing actions, and, if Lender should do so, it has no
liability to Borrower for the sufficiency or adequacy of any such actions taken
by Lender.
8.5. Rights and Remedies Cumulative. All rights and remedies provided
for in the Loan Documents are cumulative of each other and of any and all other
rights and remedies existing at Law or in equity, and Lender shall, in addition
to the rights and remedies provided in any Loan Document, be entitled to avail
itself of all such other rights and remedies now or hereafter existing at Law or
in equity for the collection and enforcement of the Obligations and the
foreclosure of the liens and security interests evidenced by the Loan Documents.
The resort to any right or remedy provided for under any Loan Documents or
provided for by Law or in equity shall not prevent the concurrent or subsequent
employment of any other appropriate right or rights or remedy or remedies.
ARTICLE 9 -GENERAL TERMS AND CONDITIONS
Borrower and Lender further covenant and agree as follows:
9.1. Loan Documents. All documents, certificates, insurance policies,
and other items required under this Agreement to be executed and/or delivered to
Lender shall be in form and content satisfactory to Lender.
9.2. Waiver. Lender may at any time by a specific writing, waive
compliance by Borrower with any covenant in any Loan Document, consent to
Borrower's doing any act which in any Loan Document Borrower is prohibited from
doing, or to Borrower's failing to do any act which in any Loan Document
Borrower is required to do, release any part of the Property or any interest
therein from the lien and security interest of the Mortgage, or release any
Person liable for any part of the Obligations without impairing or releasing the
liability of any other Person. Lender
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may waive any Default or Potential Default without waiving any other prior or
subsequent Default or Potential Default. Lender may remedy any Default or
Potential Default without waiving the Default or Potential Default remedied.
Neither failure by Lender to exercise, nor delay by Lender in exercising, nor
discontinuance of the exercise of any right, power or remedy upon any Default or
Potential Default shall be construed as a waiver of such Default or Potential
Default or as a waiver of the right to exercise any such right, power or remedy
(including the right to accelerate the maturity of the Obligations or any part
thereof) at a later date. No single or partial exercise by Lender of any right,
power or remedy under any Loan Document shall exhaust the same or shall preclude
any other or further exercise thereof, and every such right, power or remedy
under any Loan Document may be exercised at any time and from time to time. No
modification or waiver of any provision of any Loan Document nor consent to any
departure by Borrower therefrom shall in any event be effective unless in
writing signed by Lender and then such waiver or consent shall be effective only
in the specific instance, for the purpose for which given and to the extent
therein specified. No notice to or demand on Borrower or any Guarantor in any
case shall of itself entitle Borrower or any Guarantor to any other or further
notice or demand in similar or other circumstances. Remittances in payment of
any part of the Obligations other than in the required amount in immediately
available U.S. funds shall not, regardless of any receipt or credit issued
therefor, constitute payment until the required amount is actually received by
Lender in immediately available U.S. funds and shall be made and accepted
subject to the condition that any check or draft may be handled for collection
in accordance with the practice of the collecting bank or banks. Acceptance by
Lender of any payment which is past due or which is in an amount less than the
amount then due on any Obligation shall be deemed an acceptance on account only
and shall not in any way excuse the existence of a Default or Potential Default,
waive, extinguish or impair any of Lender's rights, including the rights to
accelerate the maturity of the Obligations or any part thereof, or nullify any
prior exercise of any of such rights, constitute a waiver of the requirement of
punctual payment and performance, or constitute a novation in any respect.
9.3. Lender's Consent or Approval. Except where otherwise expressly
provided in the Loan Documents, in any instance where the approval, consent or
the exercise of judgment of Lender is required, the granting or denial of such
approval or consent and the exercise of such judgment shall be (a) within the
sole discretion of Lender; and (b) deemed to have been given only by a specific
writing intended for the purpose and executed by Lender. Each provision for
consent, approval, inspection, review, or verification by Lender is for Lender's
own purposes and benefit only.
9.4. Modification or Termination. The Loan Documents may only be
modified, supplemented, or terminated by a written instrument or instruments
intended for that purpose and executed by the party against which enforcement of
the modification, supplement, or termination is asserted. Any alleged
modification, supplement, or termination which is not so documented shall not be
effective as to any party.
9.5. Forum. Borrower hereby irrevocably submits generally and
unconditionally for itself and in respect of its property to the non-exclusive
jurisdiction of any Texas state court, or any United States federal court,
sitting in the City of Austin, Texas, and to the non-exclusive jurisdiction of
any state or United States federal court sitting in the state in which any of
the Property is located, over any suit, action or proceeding arising out of or
relating to the Loan Documents or the Obligations.
9.6. Compliance with Usury Laws. It is the intent of Borrower and
Lender to conform to and contract in strict compliance with applicable usury
Laws from time to time in effect. All agreements between Borrower and Lender are
hereby limited by the provisions of this Section which shall override and
control all such agreements, whether now existing or hereafter arising. In no
way, nor in any event or contingency (including but not limited to prepayment,
default, demand for payment, or acceleration of the maturity of any obligation),
shall the interest taken, reserved, contacted for, charged or received under any
Loan Document, or otherwise, exceed the maximum amount permissible under
applicable Laws. If, from any possible construction of any document, interest
would otherwise be payable in excess of the maximum lawful amount, any such
construction shall be subject to the provisions of this Section and such
document shall be automatically reformed and the interest payable shall be
automatically reduced to the maximum amount permitted under applicable Laws,
without the necessity of execution of any amendment or
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new document. If Lender shall ever receive anything of value which is
characterized as interest under applicable Laws and which would apart from this
provision be in excess of the maximum lawful amount, an amount equal to the
amount which would have been excessive interest shall, without penalty, be
applied to the reduction of the principal amount of the Loan in the inverse
order of its maturity and not to the payment of interest, or refunded to
Borrower or the other payor thereof if and to the extent such amount which would
have been excessive exceeds the principal amount of the Loan. The right to
accelerate maturity of the Obligations does not include the right to accelerate
any interest which has not otherwise accrued on the date of the acceleration,
and Lender does not intend to charge or receive any unearned interest in the
event of acceleration. All interest taken, reserved, contracted for, charged or
received shall, to the extent permitted by applicable Law, be amortized,
prorated, allocated and spread throughout the full stated term (including any
renewal or extension) of such indebtedness so that the amount of interest on
account of such indebtedness does not exceed the maximum permitted by applicable
Laws. As used in this Section, the term "applicable Laws" means the Laws of the
State of Texas or the federal Laws of the United States, whichever Laws allow
the greater interest, as such Laws now exist or may be changed or amended or
come into effect in the future.
9.7. Notices. Unless specifically provided otherwise, any notice,
consent, approval, demand or other communication for purposes of this Agreement
or any other Loan Document shall be given in writing and may be served
personally, by prepaid, registered or certified mail (return receipt requested),
by facsimile (fax) transmission, or by a nationally recognized overnight courier
service which provides written proof of delivery, and shall be addressed or
delivered as follows:
If to Lender:
HCPI Mortgage Corp.
4675 MacArthur Court, Suite 900
Newport Beach, California 92660
Attn: President
Fax: (714) 221-0607
with a copy to: Cheryl A. Engelmann
P.O. Box 50489
Dallas, TX 75250
Fax: (214) 741-6644
For purposes of originals of Requests for Advances
and Change Orders Only (with a copy to Lender at its
address set forth above):
HCPI Mortgage Corp.
6610 West Central Avenue
Toledo, Ohio 43617
Attn: Thomas J. Zarse,
Vice President-Development
Fax: (419) 843-7770
If to Borrower:
(prior to the
Conversion Date) Heart Hospital IV, L.P.
911 West 38th Street, Suite 2000
Austin, Texas 78705
Attn: Michael Zucker
(on or after the
Conversion Date) Heart Hospital IV, L.P.
3801 North Lamar
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Austin, Texas 78756
Attn: Michael Zucker
with copies to: Hal Levinson
Moore & Van Allen
NationsBank Corporate Center
100 North Tryon Street, Floor 47
Charlotte, NC 28202-4003
and
MedCath Incorporated
7621 Little Avenue, Suite 106
Charlotte, NC 28226
Attention: Chief Financial Officer
If sent by prepaid, registered or certified mail (return receipt requested), the
notice shall be deemed effective when the receipt is signed or when the
attempted initial delivery is refused or cannot be made because of a change of
address of which the sending party has not been notified; if transmitted by
facsimile, the notice shall be effective upon confirmation of receipt in legible
form; if transmitted by personal delivery, the notice shall be effective when
received. No notice of change of address shall be effective except upon actual
receipt, and service of a notice required by Texas Property Code ss. 51.002, as
amended from time to time, shall be considered complete when the requirements of
that statute are met. This Section shall not be construed in any way to affect
or impair any waiver of notice or demand provided in any Loan Document or to
require giving of notice or demand to or upon any Person in any situation or for
any reason.
9.8. No Brokers. Borrower indemnifies Lender from any liability,
claims or losses arising by reason of claims for any such brokerage commission
made by any Person claiming to have dealt with Borrower or any Affiliate of
Borrower. The provisions of this Section shall survive the repayment of the Loan
and shall continue in full force and effect so long as the possibility of such
liability (including attorneys' fees), claims or losses exists.
9.9. Partial Invalidity. A determination that any provision of any Loan
Document is unenforceable or invalid shall not affect the enforceability or
validity of any other provision and the determination that the application of
any provision of any Loan Document to any Person or circumstance is illegal or
unenforceable shall not affect the enforceability or validity of such provision
as it may apply to other Persons or circumstances.
9.10. Interpretation. If this Agreement is signed by more than one
Person as "Borrower", then the term "Borrower" as used in this Agreement shall
refer to all such Persons jointly and severally, and all promises, agreements,
covenants, waivers, consents, representations, warranties and other provisions
in this Agreement are made by and shall be binding upon each and every such
undersigned Person, jointly and severally. The term "Lender" shall be deemed to
include any subsequent holder(s) of the Note. Whenever the context of any
provisions hereof shall require it, words in the singular shall include the
plural, words in the plural shall include the singular, and pronouns of any
gender shall include the other genders. Captions and headings in the Loan
Documents are for convenience only and shall not affect the construction of the
Loan Documents. All references in this Agreement to Schedules, Exhibits,
Articles, Sections, Subsections, paragraphs and subparagraphs refer to the
respective subdivisions of this Agreement, unless such reference specifically
identifies another document. The terms "herein," "hereof," "hereto," "hereunder"
and similar terms refer to this Agreement and not to any particular Section or
other subdivision of this Agreement. The terms "includes" and "including" shall
be interpreted as if followed by the words "without limitation". All references
in this Agreement to sums denominated in dollars or with the symbol "$" refer to
the lawful currency of the United States of America, unless such reference
specifically identifies another currency.
9.11. Disclosure of Information. Lender may assign, or offer to assign,
to one or more assignees all or any part of, or may grant, or offer to grant,
participations of at least $5 million each to one or more participants (so long
as Lender continues to be the "lead lender") in or to all or any part of, the
Loan and the Loan Documents, and may disclose to any of such assignees,
participants, or prospective assignees or participants any financial statements
and any other
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information Lender may from time to time have regarding the Loan, Borrower,
General Partner, any Guarantor (or any of their respective partners, principals
or other constituents), the Project, or the Property, provided that such parties
have executed confidentiality agreements in form reasonably acceptable to
Borrower. Lender also may disclose any such information to any regulatory body
having jurisdiction over Lender and to any agent or attorney of Lender and in
such other circumstances and to such other parties as necessary or appropriate
in Lender's reasonable judgment. To the extent, if any, specified in any such
assignment or participation, such assignees or participants shall have the
rights and benefits with respect to the Loan and the Loan Documents as such
assignees or participants would have if such assignees or participants were
Lender hereunder.
9.12. Binding Effect. This Agreement shall be binding upon the parties
hereto and their respective successors and assigns and shall inure only to the
benefit of Lender and its successors and assigns and Borrower and Borrower's
successors and assigns (and no other Person shall be deemed a benefitted party
hereunder under any circumstances), subject to Section 7.19.
9.13. Conditions for the Benefit of Lender. All conditions of the
obligations of Lender hereunder, including the obligation to make Advances, are
imposed solely and exclusively for the benefit of Lender, and may be freely
waived in whole or in part by Lender at any time. No other Person is a
beneficiary of such conditions, has standing to require satisfaction of such
conditions, or is entitled to assume that Lender will make Advances or refuse to
make Advances in the absence of strict compliance therewith. Notwithstanding any
approval, consent, inspection, verification, or receipt and review of
information or documents by Lender, Lender has no obligation or responsibility
whatsoever, and assumes no duty or obligation, for the adequacy, form, or
content of the Plans, Budget, any contract, change orders, Original Contract,
Subcontracts, Original Contractor, Subcontractors, the Property or its
condition, the existence or non-existence of any facts related thereto, the
performance or quality of any Work or workmanship regarding the Project or the
Property or the absence therefrom of defects, the financial condition, or the
reporting thereof, of Borrower, General Partner, any Guarantor, or the Property,
or the compliance of any of the foregoing with any Legal Requirement. Lender's
acceptances of an assignment of the Plans shall not constitute approval of the
Plans. Any inspection or audit of the Property or the books and records of
Borrower, or the procuring of documents and financial and other information, by
or on behalf of Lender shall be for Lender's protection only, and shall not
constitute any assumption of responsibility to Borrower or anyone else with
regard to the condition, construction, maintenance or operation of the Property,
or relieve Borrower of any of the Obligations. Lender has no duty to supervise
or inspect any of the Work, the books and records pertaining to the Property or
the financial records of Borrower, General Partner, or any Guarantor, or to
inform Borrower or any other Person of the existence of any defect, nor shall
Lender have any liability for the performance or default of Borrower, Borrower's
Architect, Original Contractor, any Subcontractor, or any other Person, or for
any failure to construct, complete, protect or insure the Improvements, or to
pay any costs of the Work, or for the performance of any obligation of Borrower
whatsoever. Failure by Lender to inspect any Work concerning the Project, or
inspection not followed by notice of default, shall not constitute a waiver of
any of Lender's rights hereunder or under any other Loan Document or otherwise
or a representation that there has been compliance with any Legal Requirement or
any other of Borrower's obligations hereunder or that any such Work is free from
defects.
9.14. Counterparts. This Agreement has been executed in several
counterparts, all of which are identical, each of which shall be deemed an
original, and all of which counterparts together shall constitute one and the
same instrument.
9.15. No Partnership, etc. The relationship between Lender and Borrower
is solely that of lender and borrower. Lender has no fiduciary or other special
relationship with or duty to Borrower and none is created hereby. Nothing
contained in the Loan Documents, and no action taken pursuant to the Loan
Documents, is intended or shall be construed to create any partnership, joint
venture, association, or special relationship between Borrower and Lender or in
any way make Lender a co-principal with Borrower with reference to the Project,
the Property or otherwise. In no event shall Lender's rights and interests under
the Loan Documents be construed to give Lender the right to control, or be
deemed to indicate that Lender is in control of, the
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business, properties, management or operations of Borrower.
9.16. Publicity. Lender may, at Lender's expense, erect and maintain on
the Property one or more advertising signs indicating that the construction
financing for the Improvements has been provided by Lender. Lender reserves the
right, at its own expense, to otherwise disclose or publicize the financing
provided for the Project by Lender and the identity of Borrower. Borrower shall
not, however, use Lender's name in connection with any advertising, marketing,
or other publicity concerning the Project without the prior written consent of
Lender.
9.17. Loan Agreement Governs. In the event of any conflict between the
terms of this Agreement and any terms of any other Loan Document, the terms of
this Agreement shall govern. All of the Loan Documents are by this reference
incorporated into this Agreement.
9.18. Time of Essence. Time shall be of the essence in this Agreement.
9.19. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ARE
CONTRACTS MADE IN, AND UNDER THE LAWS OF, THE STATE OF TEXAS, AND THE LOAN
DOCUMENTS AND THEIR VALIDITY, ENFORCEMENT AND INTERPRETATION, SHALL FOR ALL
PURPOSES BE GOVERNED BY TEXAS LAW (WITHOUT REGARD TO ANY CONFLICT OF LAWS
PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL LAW. Chapter 15 of Subtitle 3,
Title 79, of the Revised Civil Statutes of the State of Texas, as in effect on
the date hereof and as the same may hereafter be amended or supplemented from
time to time, shall not apply to the Loan, any Advance or any Loan Document.
9.20. Waiver of Right to Trial by Jury. EACH OF BORROWER AND LENDER
ACKNOWLEDGES THAT IT HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO
ITS RIGHTS TO TRIAL BY JURY UNDER THE CONSTITUTIONS OF THE UNITED STATES AND THE
STATE OF TEXAS. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT
TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING
UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO,
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE A COPY OF
THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
/s/ R. J. P. /s/ E.T.H.
------------ ----------
Borrower's Initials Lender's Initials
9.21. Survival of Representations, Warranties and Covenants. The
obligations of Borrower and any Guarantor and the rights of Lender under the
Loan Documents shall continue until all Obligations have been paid in full and
as provided in Section 9.22. All representations, warranties and covenants
(including, without limitation, indemnities) made by Borrower, General Partner,
and/or any Guarantor in any Loan Document shall survive the delivery of the Loan
Documents to Lender, the making of Advances, and the termination of Lender's
commitment to make Advances of the Loan, and, with respect to such indemnities
(and any other provisions in any Loan Document specified to survive), shall
survive the payment in full of the Obligations and the release or termination of
the Loan Documents, the foreclosure of the Mortgage or conveyance in lieu of
foreclosure, any bankruptcy or other debtor relief proceeding, and any other
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event whatsoever. No investigation at any time made by or on behalf of Lender
shall diminish Lender's right to rely on all representations and warranties made
by Borrower, General Partner, and/or any Guarantor under any Loan Document.
9.22. Payments Set Aside. To the extent that Borrower or any other
Person pays the Obligations or any part thereof to Lender, or Lender enforces
any of its rights under any Loan Document, and such payment or enforcement or
any part thereof is subsequently invalidated, declared to be fraudulent or
preferential, set aside, and/or required to be repaid to Borrower or such other
Person, its estate, a trustee, receiver, or any other Person under any Law, then
to the extent of such repayment, the Obligations or part thereof originally
intended to be satisfied, together with all Loan Documents (including all the
terms thereof and all Lender's rights thereunder), notwithstanding any prior
termination and/or delivery of the Loan Documents to Borrower (it being agreed
that the provisions of this Section shall survive any such termination and/or
delivery), shall be revived and continued in effect as if such payment had not
been made or such enforcement had not occurred. Lender shall be entitled to
retain the Loan Documents in its possession for one (1) year after the date on
which all Obligations have been paid in full; provided, that Lender's retention
or non-retention of such documents after payment in full of all Obligations
shall not impair the revival provisions in this Section or the survival
provisions in Section 9.21.
9.23. Disclaimer of Financing. Lender has not made any commitment or
agreement, express or implied, to extend the term of the Loan past the Maturity
Date or to provide Borrower with any financing except as expressly described in
this Agreement.
9.24. Evidence of Satisfaction. As part of satisfying or performing any
condition or obligation under the Loan Documents, Borrower shall deliver to
Lender evidence of such satisfaction or performance satisfactory to Lender.
ARTICLE 10 -BASIC INFORMATION AND DEFINITIONS
10.1. Certain Definitions. As used in this Agreement, the following
capitalized terms shall have the respective meanings set forth below:
"Actual Construction Costs" means the actual cost of all line items
shown in the Budget, including interest, loan fees, certain prepaid land lease
payments pursuant to the Ground Lease Documents, legal fees and expenses, title
insurance costs, appraisal fees, architectural fees, environmental and
engineering fees, construction costs, and construction administration fees, all
of which costs shall reflect all cost savings in completing the Improvements.
"Additional Collateral" is defined in Section 2.3.
"Additional Improvements" is defined in Section 7.30.
"Advance" is defined in Exhibit "E".
"Advance Request" is defined in Exhibit "E".
"Affiliate" of any Person means any individual or entity who directly
or indirectly controls, is controlled by, or is under common control with, such
Person. For purposes of this definition only, "control", "controlled by", and
"under common control with" mean the possession, directly or indirectly, of
power (i) to direct or cause the direction of management or policies (whether
through ownership of voting securities, by contract, or otherwise) of the
controlled Person, or (ii) to vote more than fifty percent (50%) of the
securities having ordinary voting power for the election of directors of the
controlled Person. The term "Affiliate" shall expressly exclude, however, those
Persons whose sole affiliation is by reason of being managed by any Guarantor or
one of Guarantor's subsidiaries.
"Applicable Laws" is defined in Section 9.6.
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"Base Rate" is defined in Article 3.
"Borrower" is defined in the introductory paragraph of this Agreement.
"Borrower Funded Budget Change" means any single change to the Budget
which does not exceed $250,000.00, and which, when added with any other Borrower
Funded Budget Change(s), does not exceed $1,000,000.00 in the aggregate, and
which is funded entirely at the cost and expense of Borrower. All Borrower
Funded Budget Changes shall be aggregated and paid by Borrower at the time of
each Advance Request by multiplying the amount to be paid pursuant to such
Advance Request (excluding any retainage) by a fraction, the numerator of which
is the aggregate amount of all unfunded Borrower Funded Budget Changes and the
denominator of which is the remaining amount to be paid under the Budget, as
increased by the Borrower Funded Budget Changes.
"Borrower's Architect" means Henningson, Durham and Richardson, Inc.
"Borrower's Deposit" is defined in Section 2.3.
"Budget" shall mean that certain budget attached hereto as Exhibit C,
together with the detailed estimate report prepared by Original Contractor and
attached to such Exhibit C as Schedule 1, which report provides a detailed cost
breakdown of the "Construction Cost" line items shown on Exhibit C, and (ii) any
other detailed budget information as Lender may reasonably request and approve
from Borrower, including a further breakdown of Construction Costs to a level of
detail that will allow Lender to determine the actual cost and percentage of
completion of construction as of the date of any Advance Request, as such budget
may have been revised from time to time as expressly permitted under this
Agreement.
"Business Day" means a day other than a Saturday, Sunday or other day
on which national banks in New York, New York are authorized or required to be
closed.
"Closing Date" means the date of this Agreement.
"Commitment Fee" is defined in Section 2.6.
"Completion Date" means that date which is the same day of the month as
the Closing Date in that month which is the sixteenth (16th) month succeeding
the Closing Date.
"Compliance Certificate" is defined in Section 7.1.
"Conversion Date" means the earliest of (i) the date on which
Substantial Completion of the Improvements has occurred, (ii) the day the
Facility is opened for business, is prepared to accept patients, and has
received the permit necessary to receive Medicare reimbursement [which date
shall be no later than forty-five (45) days after the date the Facility is
opened for business and is prepared to accept patients], or (iii) the Completion
Date.
"Current Date" means a date within 30 days prior to the Closing Date.
"Debtor Relief Laws" means any applicable Laws pertaining to
liquidation, conservatorship, bankruptcy, moratorium, rearrangement, insolvency,
reorganization, receivership, composition, extension or adjustment of debt, or
similar Laws, domestic or foreign, affecting the rights or remedies of creditors
generally, in effect from time to time.
"Default" is defined in Article 8.
"Discount Rate" means (i) for a Significant Capital Raising Event, the
rate which, when compounded monthly, is equivalent to the Treasury Rate, and
(ii) for all other prepayments, the rate which, when compounded semi-annually,
is equivalent to the Treasury Rate plus one quarter of one percent (.25%).
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"Environmental Agreement" means the Indemnity Agreement of even date
herewith executed by Borrower for the benefit of Lender with respect to the
Property.
"Excusable Delays" is defined in Section 4.3.
"Facility" is defined in Section 1.2.
"GAAP" is defined in Section 7.1(a).
"General Partner" means Hospital Management IV, Inc., a North Carolina
corporation.
"Ground Lease Documents" means (a) that certain Lease Agreement dated
December 11, 1990, by and between Ground Lessor, as lessor, and Sublessor, as
lessee, as amended by First Amendment to Lease Agreement dated May 6, 1991, a
memorandum of which was recorded in Volume 11602, Page 858 of the Real Property
Records of Travis County, Texas, and (b) that certain Sublease Agreement dated
January 9, 1997, as amended by First Amendment to Sublease Agreement dated June
17, 1997, by and between Sublessor, as sublessor, and Guarantor, as sublessee,
as assigned by Guarantor to Grantor pursuant to Assignment of Sublease Agreement
dated August 8, 1997, a memorandum of the Sublease Agreement having been
recorded in Volume 13006, Page 2132 of the Real Property Records of Travis
County, Texas.
"Ground Lessor" means the State of Texas, acting by and through the
Texas Department of Mental Health and Mental Retardation.
"Guaranty" is defined in Section 1.3.
"Guarantor" is defined in Section 1.3.
"Improvements" is defined in Section 1.2.
"Indemnified Matters" is defined in Section 7.21.
"Land" is defined in Section 1.2.
"Laws" means all constitutions, treaties, statutes, laws, ordinances,
codes, regulations, rules, orders, decisions, writs, injunctions, or decrees of
the United States of America or any other Tribunal, now in effect and as
hereafter amended, issued, promulgated, or otherwise coming into effect.
"Legal Requirements" means all Laws, and all recorded or unrecorded
agreements, covenants, restrictions, easements or conditions (including any
requirement of any insurance or surety company or any board of fire
underwriters), as now in effect and as hereafter amended, issued, promulgated,
or otherwise coming into effect.
"Lender" is defined in the introductory paragraph of this Agreement.
"Letter of Credit" is defined in Section 5.1.
"Letter of Credit Date" is defined in Section 5.2.
"Litigation" means any proceeding, claim, suit, action, case or
investigation by, before or involving any Tribunal.
"Loan" is defined in Section 1.1.
"Loan Documents" means this Agreement, the Note, the Mortgage, each
Guaranty, the Letter of Credit, each Environmental Agreement, each Advance
Request, the Budget, and all other documents now or hereafter pertaining to the
Loan, as renewed, extended, amended, supplemented, increased, modified, or
replaced.
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"Loan Substitution Period" is defined in Section 3.5.
"Major Subcontractors" means each Subcontractor performing Work with a
cost in excess of $25,000.00.
"Material Adverse Effect" means an effect resulting from any
circumstance or event of whatever nature (including the filing of, or any
adverse determination or development in, any Litigation) which does, or could
reasonably be expected to, (i) adversely affect the validity or enforceability
of any Loan Document, (ii) materially and adversely affect the condition
(financial or otherwise), operations, business or assets of Borrower or any
Guarantor, taken as a whole for each such entity, (iii) impair the ability of
Borrower or any Guarantor to fulfill any material Obligation, (iv) materially
and adversely affect all or any portion of the Project or the Property,
including, without limitation, the value of the Property or the cost or date of
completion of all or any portion of the Project, or (v) cause a Default.
"Maturity Date" means the earlier to occur of (i) the seventh (7th)
anniversary of the Conversion Date, or (ii) any earlier maturity resulting from
acceleration of the Loan.
"Maximum Rate" is defined in Article 3.
"Mortgage" is defined in Section 1.3.
"Net Income" means Borrower's consolidated net income after taxes and
before extraordinary losses and extraordinary gains, determined in accordance
with GAAP.
"Net Worth" means, as of any date, (i) for a corporation, the total
shareholders' equity (including capital stock, additional paid-in capital and
retained earnings after deducting treasury stock), and (ii) for a partnership,
the total partners' equity capital (as reflected in their respective capital
accounts), which would appear on a balance sheet of such entity prepared as of
such date in accordance with generally accepted accounting principles.
"Note" is defined in Section 1.3.
"Obligations" means (i) the unpaid principal balance of the Loan,
together with all accrued unpaid interest thereon, (ii) all other outstanding
indebtedness, fees, costs, expenses, charges, covenants, and obligations payable
or performable by Borrower or any Guarantor to Lender under any Loan Document,
and (iii) all renewals, extensions, amendments, modifications, increases and
supplements thereof. Borrower acknowledges and agrees that the Obligations may,
under the circumstances described in the Loan Documents, exceed the Committed
Sum.
"Original Contract" means the contract for Work with Original
Contractor.
"Original Contractor" means Faulkner Construction Company, or any
successor thereto if the Original Contract is terminated by either party
thereto.
"Original Mortgage" means that certain Deed of Trust dated August 15,
1997, executed by Borrower to Trustee for the benefit of Lender, recorded in
Volume 13006, Page 2151 of the Real Property Records of Travis County, Texas,
the liens of which are being carried forward pursuant to the terms of the
Mortgage.
"Original Note" means that certain Real Estate Lien Note dated August
15, 1997, by Borrower, payable to the order of Lender, in the original principal
amount of $1,000.00.
"Permitted Encumbrances" is defined in the Mortgage.
"Permitted Scope Change" is defined in Section 4.4.
"Person" means firms, associations, partnerships (including limited
partnerships), joint ventures, trusts, corporations and other legal entities,
including public or governmental bodies,
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agencies or instrumentalities, as well as natural persons.
"Potential Default" means any condition or event which after notice
and/or lapse of time would constitute a Default.
"Plans" is defined in Section 1.2.
"Prepayment Date" means that date on which a prepayment is made.
"Prepayment Premium" means that amount equal to the Present Value of
the Loan evidenced by the Note less the amount of principal being prepaid
including accrued interest, if any, calculated as of the Prepayment Date.
"Present Value of the Loan" means an amount determined by discounting
all scheduled monthly payments of principal and interest (i.e. at the Base Rate
or Maximum Rate, as applicable) remaining to be paid under the Note through the
seventh (7th) anniversary of the Conversion Date, attributed to the amount being
prepaid, at the Discount Rate. If a prepayment occurs on a date other than a
date on which a scheduled monthly payment is due under the Note, the actual
number of days remaining from the Prepayment Date to the next scheduled monthly
payment date will be used to discount within this period.
"Prime Rate" is defined in Section 3.2.
"Project" means the acquisition of the Land, the construction of the
Improvements and the leasing and operation of the Improvements.
"Property" means the Land, the Improvements and all other real or
personal property defined as the "Mortgaged Property" in the Mortgage or
otherwise subject to a lien or security interest under any Loan Document.
"Release Date" is defined in Section 7.21.
"Significant Capital Raising Event" means the financing or refinancing
by Borrower, any Guarantor or any Affiliate of Borrower or any Guarantor, of two
or more hospitals, one of which is the Facility, which financing may also
include funding of certain corporate purposes such as equipment financing, with
total financing or refinancing proceeds equal to or greater than $75,000,000.00.
"Subcontract" means each contract for Work other than the Original
Contract.
"Subcontractor" means each Person, other than Borrower or Original
Contractor, who is a party to a Subcontract.
"Sublessor" means West 38th Street, Ltd.
"Substantial Completion" means that date upon which Borrower has
received all of the following: (i) a certificate of substantial completion from
Borrower's Architect, in the form attached hereto as Exhibit G, (ii) a
certificate of occupancy or its equivalent issued by the appropriate Tribunal
having jurisdiction over the Property, which permits the occupancy of the
Improvements, and (iii) all other licenses, authorizations and permits, if any,
required by any Tribunal for the use and operation of the Facility.
"Substitute Loans" is defined in Section 3.5.
"Survey" means a current certified survey of the Land and the
improvements thereon in form satisfactory to Lender.
"Title Agent" means Heritage Title Company of Austin, Inc.
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"Title Insurance" means the mortgagee title insurance policy (or
policies) (Form T-2), acceptable to Lender and Lender's counsel, together with a
leasehold endorsement, issued by the Title Insurer in the amount of the
Committed Sum, effective as of the date of recordation of the Mortgage, showing
Lender as the insured mortgagee and insuring the lien of the Mortgage as a valid
first-lien on the Property, subject only to exceptions approved by Lender,
together with such re-insurance agreement (or agreements) as may be required by
Lender.
"Title Insurer" means First American Title Insurance Company.
"Treasury Rate" means the semi-annual yield on the Treasury Constant
Maturity Series with maturity equal to the remaining weighted average life of
the Loan evidenced by the Note, for the week prior to the Prepayment Date, as
reported in Federal Reserve Statistical Release H.15- Selected Interest Rates,
conclusively determined by Lender on the Prepayment Date. The rate will be
determined by linear interpolation between the yields reported in Release H.15,
if necessary. In the event Release H.15 is no longer published, Lender shall
select a comparable publication to determine the Treasury Rate.
"Tribunal" means any state, commonwealth, county, municipal, federal,
foreign, territorial or other governmental body, court, administrative
department, commission, board, bureau, district, authority, agency, or
instrumentality, or any arbitration authority.
"Trustee" means the Trustee defined in the Mortgage.
"Work" means the furnishing of labor, materials, components, furniture,
furnishings, fixtures, appliances, machinery, equipment, tools, power, water,
fuel, lubricants, supplies, goods and/or services with respect to the Project or
the Property.
ARTICLE 11 - EXHIBITS
11.1. Exhibits. This Agreement includes the exhibits attached hereto
and all of such exhibits are hereby made a part hereof for all purposes.
ARTICLE 12 - ENTIRE AGREEMENT
12.1. Entire Agreement. The Loan Documents constitute the entire
understanding and agreement between the parties hereto with respect to the
transactions arising in connection with the Loan and supersede all prior
understandings and agreements between the parties hereto with respect to the
matters addressed in the Loan Documents. Except as incorporated in writing in
the Loan Documents, there are not, and were not, and no Persons are or were
authorized to make, on behalf of Lender any representations, understandings,
stipulations, agreements or promises with respect to the matters addressed in
the Loan Documents.
THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
EXECUTED and DELIVERED as of the date first recited above.
BORROWER'S TAX BORROWER:
IDENTIFICATION
NO.: 56-1962571 HEART HOSPITAL IV, L.P., a Texas limited
partnership
By: Hospital Management IV, Inc., a North
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Carolina corporation, General Partner
By: /s/ Richard J. Post
------------------------
Name: Richard J. Post
---------------------
Title: Treasurer
----------------
LENDER:
HCPI MORTGAGE CORP., a Delaware
corporation
By: /s/ Edward J. Henning
--------------------------
Name: Edward J. Henning
------------------------
Title: Senior Vice President
----------------------------
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GUARANTY
(Secured Loan)
THIS GUARANTY (Secured Loan) (this "Guaranty") is made as of November
11, 1997, by MEDCATH INCORPORATED, a North Carolina corporation ("Guarantor") in
favor of HCPI MORTGAGE CORP., a Delaware corporation ("Lender").
R E C I T A L S
A. Pursuant to the terms of that certain Construction Loan Agreement of
even date herewith, by and between Heart Hospital IV, L.P., a Texas limited
partnership ("Borrower"), as borrower, and Lender, as lender (the "Loan
Agreement"), Borrower and Lender have agreed to the terms and conditions of the
Loan (as defined in the Loan Agreement). Those terms used herein with their
initial letter capitalized shall have the meanings given them in the Loan
Agreement, unless otherwise defined herein.
B. The Loan is evidenced by the Note and secured by certain other Loan
Documents. The Loan Documents include this Guaranty.
THEREFORE, to induce Lender to enter into the Loan Agreement and to
consummate the transactions contemplated thereby, and in consideration thereof,
Guarantor unconditionally guarantees and agrees as follows:
1. Guaranty. Guarantor hereby unconditionally and irrevocably
guarantees, subject to the limitations set forth in Paragraph 19 hereof, to
Lender:
(a) Full and timely payment when due (whether at maturity, by
acceleration, or otherwise) of all of the indebtedness of Borrower now
or hereafter existing under the Loan Documents (or any of them),
whether for principal, interest, penalties, expenses, costs, and fees,
including, without limitation, reasonable attorneys' fees, court costs,
inspection fees, accounting costs, investigation expenses, and other
reasonable related costs and expenses incurred by, or on behalf of,
Lender, together with all renewals, extensions, modifications,
rearrangements, and restatements of such indebtedness; and
(b) Full and timely performance and satisfaction when due of
all of the agreements, covenants, terms and conditions to be performed
by, or on behalf of, Borrower pursuant to the Loan Documents, together
with all renewals, extensions, modifications, rearrangements, and
restatements of such agreements, covenants, and conditions,
irrespective of the validity, regularity, or enforceability of the Loan
Documents.
<PAGE>
2. Construction Obligations. Without limiting the foregoing and subject
to the limitations of Paragraph 19 hereof, Guarantor unconditionally and
irrevocably guarantees to Lender (a) the construction and completion of the
Improvements in accordance in all material respects with the Plans and within
the time periods, in the manner and in accordance with the other requirements
set forth in the Loan Agreement, including, without limitation, satisfaction of
those conditions precedent set forth in Exhibit E to the Loan Agreement for
payment of the final advance; (b) the payment without demand, and without right
to reimbursement therefor, of all development, construction and related costs of
the Project incurred for any reason whatsoever in excess of the Committed Sum;
and (c) the construction and completion of all other improvements required
pursuant to Article 5 of that certain Sublease Agreement dated January 9, 1997
(the "Sublease"), by and between West 38th Street, Ltd., as sublessor, and
Guarantor, as sublessee (Guarantor's interest therein having been thereafter
assigned to Borrower), as amended by First Amendment to Sublease Agreement dated
June 17, 1997, which improvements include, without limitation, the
medical/general office building described therein. If for any reason whatsoever
Borrower: (i) fails or neglects to complete the Improvements as contemplated by,
and in accordance with the requirements set forth in, the Loan Agreement,
including the time and manner therein specified; (ii) fails to prosecute with
diligence and continuity the construction of the Improvements in accordance with
the Loan Agreement; (iii) commits, or permits to exist, a Default; or (iv) is
unable to satisfy, within fifteen (15) days after Lender's written request
therefor, any condition precedent to obtaining an Advance requested by Borrower
pursuant to the Loan Agreement, then Lender, in addition to its other rights,
remedies and recourses, whether existing hereunder, under the Loan Documents or
otherwise, may require Guarantor to complete the Improvements and take such
other action as hereinafter described. Within thirty (30) calendar days from the
date Lender notifies Guarantor of Borrower's failure to satisfy any of the
construction obligations described above, Guarantor agrees, at its sole cost and
expense, to commence completion of construction of the Improvements and to
diligently pursue such construction in order to complete the Improvements within
the time and in the manner specified in the Loan Agreement. Guarantor shall pay
all reasonable costs and expenses in connection with such construction and shall
indemnify and hold Lender harmless from any and all losses, costs, liabilities,
or expenses incurred in connection with such completion.
3. Rights of Lender. Guarantor authorizes Lender, without giving notice
to Guarantor or obtaining Guarantor's consent and without affecting the
liability of Guarantor hereunder, from time to time to: (a) renew or extend all
or any portion of Borrower's or any other person's obligations due under the
Note or any of the other Loan Documents; (b) declare all sums owing to Lender
under the Note and any of the other Loan Documents due and payable upon the
occurrence of a default or event of default under the Loan Documents; (c) make
changes in the dates specified for payments of any sums payable in periodic
installments under the Note or any of the other Loan Documents, and accept or
deny, in Lender's sole discretion, partial payments on or performance of the
Note; (d) otherwise modify the terms of any of the Loan Documents, except for
(i) increases in the principal amount of the
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Note in excess of the Committed Sum as a result of additional advances made
directly to Borrower after the Conversion Date, (ii) changes in the manner by
which interest rates, fees or charges are calculated under the Note or any of
the other Loan Documents (Guarantor acknowledges that, if the Note or any of the
other Loan Documents so provides, said interest rates, fees and charges may vary
from time to time), or (iii) accelerate the maturity date of the Note where no
default or event of default has occurred under the Loan Documents; (e) take and
hold additional security for the performance of Borrower's or any other person's
obligations under the Note and the other Loan Documents and abandon, fail to
perfect, exchange, enforce, waive or release any such additional or existing
security; (f) apply such additional or existing security for the Note and direct
the order or manner of sale thereof as Lender in its sole discretion may
determine; (g) release, substitute or add any one or more endorsers of the Note
or guarantors of Borrower's or any other person's obligations under the Note or
any of the other Loan Documents; (h) apply payments received by Lender from
Borrower or any other person to any obligations of Borrower or such other person
under the Note and the other Loan Documents, in such order as Lender shall
determine, in its sole discretion, whether or not any such obligations are
covered by this Guaranty; (i) consent, in the sole discretion of Lender, to the
merger, consolidation, restructuring, dissolution or other change in the
structure of Borrower or any other person; and (j) assign this Guaranty in whole
or in part.
4. Guarantor's General Waivers. Guarantor waives: (a) any defense now
existing or hereafter arising based upon any legal disability or other defense
of Borrower, Guarantor or any other guarantor or other person, or by reason of
the cessation or limitation of the liability of Borrower, Guarantor or any other
guarantor or other person from any cause other than full payment and performance
of all obligations due under the Note or any of the other Loan Documents; (b)
any defense based upon any lack of authority of the officers, directors,
partners or agents acting or purporting to act on behalf of Borrower or any
other person, or any defect in the formation of Borrower or any other person;
(c) the unenforceability or invalidity of any security or guaranty or the lack
of perfection or continuing perfection, or failure of priority of any security
for the obligations guarantied hereunder; (d) any defense based upon Lender's
election of any remedy against Guarantor, Borrower or any other person; (e) any
defense based upon Lender's failure to disclose to Guarantor any information
concerning Borrower's or any other person's financial condition or any other
circumstances bearing on Borrower's or any other person's ability to pay and
perform all obligations due under the Note or any of the other Loan Documents;
(f) any failure by Lender to give notice to Borrower, Guarantor or any other
person of the sale or other disposition of security held for the Note, and any
defect in notice given by Lender in connection with any such sale or disposition
of security held for the Note; (g) any failure of Lender to comply with
applicable laws in connection with the sale or disposition of security held for
the Note, including, without limitation, any failure by Lender to conduct a
commercially reasonable sale or other disposition of such security; (h) any
defense based upon any statute or rule of law which provides that the obligation
of a surety must be neither larger in amount nor in any other respects more
burdensome than that of a principal, or that reduces a
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surety's or guarantor's obligations in proportion to the principal's obligation;
(i) any use of cash collateral under Section 363 of the Federal Bankruptcy Code;
(j) any defense based upon Lender's election, in any proceeding instituted under
the Federal Bankruptcy Code, of the application of Section 1111(b)(2) of the
Federal Bankruptcy Code or any successor statute; (k) any defense based upon any
borrowing or any grant of a security interest under Section 364 of the Federal
Bankruptcy Code; (l) prior to payment in full of all of the Obligations, any
right of subrogation, any right to enforce any remedy which Lender may have
against Borrower or any other person and any right to participate in, or benefit
from, any security now or hereafter held by Lender for the obligations due under
the Note or any of the other Loan Documents; (m) presentment, demand, protest
and notice of any kind, including, without limitation, notice of acceptance of
this Guaranty and of the existence, creation or incurring of new or additional
guaranteed obligations and notice of intent to accelerate and of acceleration of
the indebtedness under the Note; (n) the benefit of any statute of limitations
affecting the liability of Borrower or any other person, enforcement of the Note
or any other Loan Documents, the liability of Guarantor hereunder or the
enforcement hereof; and (o) any failure of Lender to pursue, or delay in
pursuing, any other remedy in Lender's power. Guarantor agrees that the payment
and performance of all obligations due under the Note or any of the other Loan
Documents or any part thereof or other act which tolls any statute of
limitations applicable to the Note or the other Loan Documents shall similarly
operate to toll the statute of limitations applicable to Guarantor's liability
hereunder. Without limiting the generality of the foregoing or any other
provision hereof, Guarantor hereby expressly waives the provisions of: (a)
Sections 34.02 and 34.03 of the Texas Business and Commerce Code; (b) Section
17.001 of the Texas Civil Practice and Remedies Code; (c) Rule 31 of the Texas
Rules of Civil Procedure, (d) comparable provisions of the laws of any other
jurisdiction, and (e) all other suretyship defenses to the extent such laws are
applicable to this Guaranty or the agreements, covenants, or obligations of
Guarantor hereunder.
5. Waiver of Rights of Subrogation. Notwithstanding anything to the
contrary contained herein or in any other document to which Guarantor is a
party, until all obligations under this Guaranty are fully paid and performed,
Guarantor hereby expressly waives with respect to Borrower and any other person
(including any surety) any and all rights at law or in equity to subrogation, to
reimbursement, to exoneration, to contribution, to setoff or to any other rights
that could accrue to a surety against a principal, to a guarantor against a
maker or obligor, to an accommodation party against the party accommodated, or
to a holder or transferee against a maker, and which Guarantor may have or
hereafter acquire against Borrower or any other person in connection with or as
a result of Guarantor's execution, delivery and/or performance of this Guaranty
or any other document to which Guarantor is a party. Guarantor agrees that
Guarantor shall not have or assert any such rights against Borrower or any other
person (including any surety), either directly or as an attempted setoff to any
action commenced against Guarantor by Borrower or any other person (whether as
borrower or in any other capacity) or by Lender. Guarantor hereby acknowledges
and agrees that this waiver is intended to benefit Lender and shall not limit or
otherwise affect Guarantor's
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liability hereunder, under any other document to which Guarantor is a party, or
the enforceability hereof or thereof.
6. Guarantor's Warranties and Covenants. Guarantor warrants and
acknowledges that: (a) Lender would not enter into the Loan Agreement and
consummate the transactions contemplated thereby but for this Guaranty; (b)
Guarantor has read and understands the Loan Agreement, the Note and the other
Loan Documents; (c) there are no conditions precedent to the effectiveness of
this Guaranty and this Guaranty shall be in full force and effect and binding on
Guarantor as of the date hereof, regardless of whether Lender obtains other
collateral or any guaranties from others or takes any other action not
contemplated by Guarantor; (d) Guarantor has established adequate means of
obtaining from sources other than Lender, on a continuing basis, financial and
other information pertaining to Borrower's financial condition, and the status
of Borrower's payment and performance of all obligations due under the Note and
the other Loan Documents, and Guarantor agrees to keep adequately informed from
such means of any facts, events or circumstances which might in any way affect
Guarantor's risks hereunder, and Lender has made no representation to Guarantor
as to any such matters; (e) the most recent financial statements of Guarantor
delivered to Lender are true and correct in all material respects, have been
prepared in accordance with generally accepted accounting principles
consistently applied (or other principles disclosed in writing and acceptable to
Lender) and fairly present, in all material respects, the financial condition of
Guarantor as of the respective dates thereof, and no material adverse change has
occurred in the financial condition of Guarantor since the respective dates
thereof; and (f) Guarantor has not and shall not, without the prior written
consent of Lender, sell, lease, assign, encumber, hypothecate, transfer or
otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein, without Lender's prior written consent, which consent may be
given or withheld in Lender's sole discretion, unless (i) either Guarantor or a
successor entity remains liable under the Guaranty, and (ii) Guarantor or such
successor entity, whichever remains liable under the Guaranty, satisfies the
financial covenants of Guarantor set forth in the Loan Agreement.
7. Subordination. Until all the obligations under this Guaranty are
fully paid and performed, Guarantor hereby subordinates all present and future
indebtedness owing by Borrower to Guarantor to the obligations at any time owing
by Borrower to Lender under the Note and the other Loan Documents; provided,
however, that Borrower shall be entitled to make reasonable payments of
principal and interest on the $19,000,000 line of credit provided by MedCath
Finance Group to Borrower. Guarantor agrees to make no claim for such
indebtedness until all obligations of Borrower and any other person under the
Note and any of the other Loan Documents and all other direct and indirect
obligations of Guarantor to Lender have been fully discharged. Guarantor further
agrees not to assign to any party other than Lender all or any part of such
indebtedness, unless (a) Lender shall give its prior written consent to such
assignment, which consent may be given or withheld in Lender's sole discretion
and (b) such assignment shall be made subject to the terms of this Guaranty.
Within five (5) days after Lender's request (i) all instruments evidencing such
indebtedness shall be
5
<PAGE>
duly endorsed and delivered to Lender, (ii) all security for such indebtedness
shall be duly assigned and delivered to Lender, (iii) if a Default has occurred,
such indebtedness shall be enforced, collected and held by Guarantor as trustee
for Lender and shall be paid over to Lender on account of the obligations
guaranteed hereunder but without reducing or affecting in any manner the
liability of Guarantor under the other provisions of this Guaranty, and (iv)
Guarantor shall execute, file and record such documents and instruments and take
such other action as Lender deems necessary or appropriate to perfect, preserve
and enforce Lender's rights in and to such indebtedness and any security
therefor. If Guarantor fails to take any such action and a Default has occurred
under the Loan Agreement, Lender, as attorney-in-fact for Guarantor, is hereby
authorized to do so in the name of Guarantor. The foregoing power of attorney is
coupled with an interest and cannot be revoked.
8. Bankruptcy of Borrower or Any Other Person; Reinstatement and
Revival. In any bankruptcy or other proceeding in which the filing of claims is
required by law, Guarantor shall file, on or before the date which is twenty
(20) days prior to the expiration of the prescribed statutory period for filing
of claims, all claims which Guarantor may have against Borrower or any other
person relating to any indebtedness of Borrower to Guarantor and shall assign to
Lender all rights of Guarantor thereunder. If Guarantor does not timely file any
such claim, Lender, as attorney-in-fact for Guarantor, is hereby authorized to
do so in the name of Guarantor or, in Lender's discretion, to assign the claim
to a nominee and to cause a proof of claim to be filed in the name of Lender's
nominee. The foregoing power of attorney is coupled with an interest and cannot
be revoked. Lender or its nominee shall have the right, in its reasonable
discretion, to accept or reject any plan proposed in such proceeding and to take
any other action which a party filing a claim is entitled to do. In all such
cases, whether in administration, bankruptcy or otherwise, the person or persons
authorized to pay such claim shall pay to Lender the amount payable on such
claim and, to the full extent necessary for that purpose, Guarantor hereby
assigns to Lender all of Guarantor's rights to any such payments or
distributions; provided, however, Guarantor's obligations hereunder shall not be
satisfied except to the extent that Lender receives cash by reason of any such
payment or distribution. If Lender receives anything hereunder other than cash,
the same shall be held as collateral for amounts due under this Guaranty. The
liability of Guarantor hereunder shall be reinstated and revived, and the rights
of Lender shall continue, with respect to any amount at any time paid by
Borrower or any other person on account of the Note or any of the other Loan
Documents, which Lender shall be required to restore or return upon the
bankruptcy, insolvency or reorganization of Borrower or any other person or for
any other reason, all as though such amount had not been paid.
9. Disclosure of Information. Lender shall have the right at any time
to sell, assign, transfer, negotiate or, so long as Lender continues to be the
"lead lender", grant participations of at least $5 million each in, all or any
part of the Loan, the Note and/or the other Loan Documents, including, without
limitation, this Guaranty, and Guarantor acknowledges and agrees that, in
connection with any such action by Lender, Lender may forward to each actual or
prospective assignee, transferee or participant all documents and
6
<PAGE>
information in Lender's possession, relating to this Guaranty or to Guarantor,
whether such documents and information were furnished by Borrower or Guarantor
to Lender or otherwise, provided that such parties have executed confidentiality
agreements in form reasonably acceptable to Guarantor.
10. Additional, Independent and Unsecured Obligations. This is a
guaranty of payment and not of collection and the obligations of Guarantor
hereunder shall be in addition to and shall not limit or in any way affect the
obligations of Guarantor under any other existing or future guaranties unless
said other guaranties are expressly modified or revoked in writing. This
Guaranty is independent of the obligations of Borrower and any other person
under the Note and the other Loan Documents. Lender may bring a separate action
to enforce the provisions hereof against Guarantor without taking action against
Borrower or any other person or joining Borrower or any other person as a party
to such action, and without first or concurrently proceeding against any
security held by Lender. This Guaranty is secured and shall be deemed to be
secured by any security instrument which recites that it secures this Guaranty.
11. Attorneys' Fees; Enforcement. Notwithstanding anything contained
herein to the contrary, if any attorney is engaged by Lender to enforce or
defend any provision of this Guaranty or any of the other Loan Documents, or as
a consequence of any default or event of default under this Guaranty or any of
the other Loan Documents, with or without the filing of any legal action or
proceeding, then Guarantor shall immediately pay on demand all Attorneys' Fees
and Costs, as defined below, incurred by Lender in connection therewith,
together with interest thereon from the date of such demand until paid, at the
rate of interest then applicable to the principal owing under the Note. As used
in this Guaranty, "Attorneys' Fees and Costs" shall mean all the reasonable fees
and expenses of counsel to Lender incurred after a Default, which may include,
without limitation, costs incurred for printing, photostating, duplicating,
facsimile transmissions, record searches, appraisals, air freight charges,
discovery, investigation and other expenses, and fees billed for law clerks,
paralegals, experts and witnesses, accountants, and others not admitted to the
bar but performing services under the supervision of or on behalf of an
attorney. The term "Attorneys' Fees and Costs" shall also include, without
limitation, all such reasonable fees and expenses incurred with respect to legal
actions, appeals, arbitrations, and bankruptcy proceedings, whether or not any
action or proceeding is brought with respect to the matter for which said fees
and expenses were incurred.
12. Effect of Waivers. Guarantor warrants and agrees that each of the
waivers set forth in this Guaranty are made with Guarantor's full knowledge of
their significance and consequences, and that under the circumstances the
waivers are reasonable. If any of said waivers shall hereafter be determined by
a court of competent jurisdiction to be contrary to any applicable law or
against public policy, such waivers shall be effective only to the maximum
extent permitted by law.
7
<PAGE>
13. Rules of Construction. The word "Borrower" as used herein shall
include the named Borrower and any other person at any time assuming or
otherwise becoming primarily liable for all or any part of the obligations of
the named Borrower under the Note or any of the other Loan Documents. The term
"person" as used herein shall include any individual, company, trust or other
legal entity of any kind whatsoever. If this Guaranty is executed by more than
one person, the term "Guarantor" shall include all such persons. When the
context and construction so require, all words used in the singular herein shall
be deemed to have been used in the plural and vice versa. All headings appearing
in this Guaranty are for convenience only and shall be disregarded in construing
this Guaranty. Any capitalized term not defined in this Guaranty shall have the
meaning given to such term in the Loan Agreement or the other Loan Documents.
14. Governing Law. This Guaranty shall be governed by, and construed in
accordance with, the laws of the State of Texas, except to the extent preempted
by Federal laws. Guarantor and all persons and entities in any manner obligated
to Lender under this Guaranty consent to the jurisdiction of any Federal or
State Court within the State of Texas, and also consent to service of process by
any means authorized by Texas or Federal law.
15. No Third Party Beneficiaries. This Guaranty is solely for the
benefit of Lender and its successors and assigns, and is not intended to nor
shall it be deemed to be for the benefit of any third party, including, without
limitation, Borrower.
16. Amendments. Neither this Guaranty nor any provision hereof may be
amended, modified, waived, discharged or terminated except by an instrument in
writing duly signed by or on behalf of Lender and Guarantor.
17. Miscellaneous. The provisions of this Guaranty shall bind and
benefit the heirs, executors, administrators, legal representatives, successors
and assigns of Guarantor and Lender. The liability of all persons and entities
who are in any manner obligated hereunder shall be joint and several. If any
provision of this Guaranty shall be determined by a court of competent
jurisdiction to be invalid, illegal or unenforceable, that portion shall be
deemed severed from this Guaranty and the remaining parts shall remain in full
force as though the invalid, illegal or unenforceable portion had never been
part of this Guaranty.
18. Waiver of Right to Trial by Jury. GUARANTOR ACKNOWLEDGES THAT IT
HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL
BY JURY UNDER THE CONSTITUTIONS OF THE UNITED STATES AND THE STATE OF TEXAS.
GUARANTOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS GUARANTY OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH
OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF
LENDER AND GUARANTOR WITH RESPECT
8
<PAGE>
TO THIS GUARANTY OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO,
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE; AND GUARANTOR HEREBY AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY, AND THAT LENDER MAY FILE A COPY OF THIS SECTION WITH ANY COURT
AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTOR TO THE WAIVER OF ITS RIGHT TO
TRIAL BY JURY.
Guarantor's Initials: /s/ RJP
------------
19. Limitation of Liability. (a) Notwithstanding anything contained in
this Guaranty to the contrary, Guarantor's liability to Lender under this
Guaranty for principal under the Note will be reduced on the Initial Guaranty
Reduction Date (as defined below) to the greater of (i) $13,500,000.00, or (ii)
that amount which is equal to the outstanding principal amount of the Loan on
the Conversion Date less Nine Million Dollars ($9,000,000.00). As used herein,
the term "Initial Guaranty Reduction Date" shall mean the later to occur of (A)
the completion of construction of all improvements required pursuant to Article
5 of the Sublease, including, without limitation, the medical/general office
building described therein (such date being hereinafter referred to as the
"Construction Completion Date"); or (B) that date upon which Borrower has
maintained, for a minimum of each of eight (8) consecutive calendar quarters, a
ratio ("Fixed Charge Ratio") of (1) the sum of Net Income, depreciation,
amortization, income taxes, and interest expense, to (2) interest expense, of
not less than 1.5 to 1.0.
(b) If Borrower has maintained a Fixed Charge Ratio of not less than
1.5 to 1.0 for each of the previous eight (8) consecutive calendar quarters as
of the first anniversary of the Initial Guaranty Reduction Date (or any
subsequent anniversary thereof) (such subsequent reduction date being referred
to herein as the "Second Guaranty Reduction Date"), Guarantor's liability to
Lender under this Guaranty for principal under the Note will be reduced to the
greater of (i) $13,500,000.00, or (ii) that amount which is equal to the
outstanding principal amount on the Loan on the Conversion Date less Eighteen
Million Dollars ($18,000,000.00).
(c) If Borrower has maintained a Fixed Charge Ratio of not less than
1.5 to 1.0 for each of the previous eight (8) consecutive calendar quarters as
of any anniversary of the Second Guaranty Reduction Date, Guarantor's liability
to Lender under this Guaranty for principal under the Note will be reduced to
the greater of (i) $13,500,000.00, or (ii) that amount which is equal to the
outstanding principal amount on the Loan on the Conversion Date less
Twenty-Seven Million Dollars ($27,000,000.00).
(d) In addition to the Guarantor's liability for principal, as set
forth above, Guarantor shall also at all times remain liable for all fees, costs
and other obligations under this Guaranty without limit and for all interest on
the principal amount guaranteed hereunder (exclusive of
9
<PAGE>
interest payments satisfied by advances under the Loan and added to the
principal amount of the Loan as described in Section 2.4 of the Loan Agreement,
which amounts will be governed by the limitations set forth in subparagraphs (a)
through (c) above). Any payments received or recovery realized by Lender may,
except to the extent paid by Guarantor on the indebtedness for which Guarantor
is liable under this Guaranty, be applied in Lender's sole discretion to
indebtedness of Borrower to Lender other than the portion of the indebtedness
for which Guarantor is liable under this Guaranty.
20. Additional Provisions. Such additional terms, covenants and
conditions as may be set forth on any exhibit executed by Guarantor and attached
hereto which recites that it is an exhibit to this Guaranty are incorporated
herein by this reference.
10
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date first
written above.
GUARANTOR:
MEDCATH INCORPORATED,
a North Carolina corporation
By: /s/ Richard J. Post
-------------------------------------
Name: Richard J. Post
-----------------------------------
Title: Treasurer
----------------------------------
11
<TABLE>
<CAPTION>
STATEMENT RE: COMPUTATION
OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
---------------- ---------------
1996 1997
----------------- --------------
<S> <C> <C>
Weighted Average Common Shares Outstanding (A) 11,135 11,669
Dilutive Effect of Stock Options computed by use
of treasury stock method 216 217
Assumed conversion of Convertible Subordinated Debt
into Common Shares 318 318
-------------- -------------
Weighted Average Common and Common Equivalent
Shares Outstanding assuming dilution (B) 11,669 12,204
============== ============
Net Income (C) $ 1,754 $ 1,211
Interest Expense - Convertible Subordinated Debt (net of tax) 27 27
-------------- ------------
Adjusted Net Income (D) $ 1,781 $ 1,238
============== ============
Net Income Per Share:
Net Income (C)/(A) $ 0.16 $ 0.10
============= ==========
Net Income, Assuming Dilution (D)/(B) $ 0.15 $ 0.10
=========== ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AT DECEMBER 31, 1997
(UNAUDITED) AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE
THREE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000931782
<NAME> MEDCATH INCORPORATED
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 14,000
<SECURITIES> 23,318
<RECEIVABLES> 32,537
<ALLOWANCES> (2,432)
<INVENTORY> 3,779
<CURRENT-ASSETS> 71,847
<PP&E> 193,776
<DEPRECIATION> (23,110)
<TOTAL-ASSETS> 305,838
<CURRENT-LIABILITIES> 32,393
<BONDS> 126,471
0
0
<COMMON> 117
<OTHER-SE> 135,242
<TOTAL-LIABILITY-AND-EQUITY> 305,838
<SALES> 0
<TOTAL-REVENUES> 41,307
<CGS> 0
<TOTAL-COSTS> 35,346
<OTHER-EXPENSES> 186
<LOSS-PROVISION> 1,433
<INTEREST-EXPENSE> 2,357
<INCOME-PRETAX> 1,985
<INCOME-TAX> 774
<INCOME-CONTINUING> 1,211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,211
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
