-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RTjf0+1pMnLHh8w7qw4TcxtLqLff5NcmhFWydgviFEBXo1n0ieG9ZUSI3WynqEtB 7uE5WkoMZPgAAlRG/bAPEw== 0000950144-98-002585.txt : 19980312 0000950144-98-002585.hdr.sgml : 19980312 ACCESSION NUMBER: 0000950144-98-002585 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980311 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RETIREMENT CARE ASSOCIATES INC /CO/ CENTRAL INDEX KEY: 0000798540 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 431441789 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-14114 FILM NUMBER: 98563938 BUSINESS ADDRESS: STREET 1: 6000 LAKE FORREST DR STE 200 CITY: ATLANTA STATE: GA ZIP: 30328 BUSINESS PHONE: 4042557500 MAIL ADDRESS: STREET 1: 6000 LAKE FORREST DR STREET 2: STE 200 CITY: ATLANTA STATE: GA ZIP: 30328 10-Q/A 1 RETIREMENT CARE ASSOCIATES, INC. 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A Amendment No. 1 (Amending Part I - Items 1 and 2) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended December 31, 1997 Commission File No. 1-14114 RETIREMENT CARE ASSOCIATES, INC. ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Colorado 43-1441789 - ------------------------------ ----------------------------------- (State or Jurisdiction of (IRS Employer Identification Number) Incorporation or Organization) 6000 Lake Forrest Drive, Suite 200, Atlanta, Georgia 30328 ---------------------------------------------------------- (Address of Principal Executive Offices) (404) 255-7500 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) 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 report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] There were 14,749,441 shares of the Registrant's $.0001 par value Common Stock outstanding as of December 31, 1997. 2 RETIREMENT CARE ASSOCIATES AND SUBSIDIARIES FORM 10-Q/A FOR THE QUARTER ENDED DECEMBER 31, 1997 INDEX
Page(s) PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Introduction ..................................... 3 Consolidated Statements of Operations (Unaudited) - Three Months Ended December 31, 1997 and December 31, 1996 .......... 4 Consolidated Statements of Operations (Unaudited) - Six Months Ended December 31, 1997 and December 31, 1996 .......... 5 Consolidated Balance Sheets - (Unaudited) December 31, 1997 and (Audited) June 30, 1997 .... 6 - 7 Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended December 31, 1997 and December 31, 1996 ....................... 8 Notes to Consolidated Financial Statements (Unaudited) ........................... 9 - 10 Item 2. Managements' Discussion and Analysis of Results of Operations and Financial Condition ........................................ 11 - 14 PART II. OTHER INFORMATION. Item 6. Exhibits and Reports on Form 8-K.................. 15 Signatures ....................................... 16
-2- 3 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements INTRODUCTION - CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. In the opinion of Management, all adjustments, which were of a normal recurring nature, necessary to present fairly the consolidated financial position and results of operations and cash flows for the periods presented have been included. These consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Annual Report on Amended Form 10-K/A, Retirement Care Associates, Inc. (the "Company") for the fiscal year ended June 30, 1997, File No. 1-14114. The Company restated its financial information for periods commencing June 30, 1996 through the nine months ended March 31, 1997, as reflected in the Company's Quarterly Reports on Forms 10-Q/A for the quarters ended September 30, 1996, December 31, 1996 and March 31, 1997. Adjustments and reclassifications were necessary to correct entries relating to (i) receivables due from third-party payors, (ii) the Company's inventory for such periods, (iii) provisions for doubtful accounts, (iv) provisions for contractual allowances for third-party payors, (v) provisions for accrued liabilities, and (vi) pre-recorded operating leases (collectively, the "Restated Entries"). Certain statements in this Form 10-Q/A are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve a number of risks and uncertainties. Factors which may cause the Company's actual results in future periods to differ materially from forecast results include, but are not limited to: general economic and business conditions, both nationally and in the regions in which the Company operates; industry capacity; demographic changes; existing government regulations and changes in, or the failure to comply with, government regulations; legislative proposals for reform; the ability to enter into lease and management contracts and arrangements on acceptable terms; changes in Medicare and Medicaid reimbursement levels; liability and other claims asserted against the Company; competition; changes in business strategy or development plans; the ability to attract and retain qualified personnel; the significant indebtedness of the Company; and the availability and terms of capital to fund the expansion of the Company's business, including the acquisition of additional facilities. The financial information included in this report has been prepared by the Company, without audit, and should not be relied upon to the same extent as audited financial statements. -3- 4 RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31, 1997 1996 REVENUES Patient service revenue $ 68,873,798 $ 47,950,464 Medical supply revenue 10,320,899 11,471,114 Management fee revenue: From affiliates 391,500 446,334 From others 138,406 112,241 Other operating revenue 410,684 1,228,305 80,135,287 61,208,458 EXPENSES Cost of patient services 49,206,128 33,415,634 Cost of medical supplies sold 6,914,317 7,666,277 Lease expense 5,645,121 2,988,406 General and administrative 14,273,113 12,393,814 Depreciation and amortization 1,780,825 1,394,664 Interest 4,169,927 2,753,971 Provision for bad debt 380,891 989,000 82,370,322 61,601,766 (LOSS) BEFORE MINORITY INTEREST AND INCOME TAXES (2,235,035) (393,308) Minority interest (33,500) (93,500) (Loss) before income taxes and extraordinary item (2,268,535) (486,808) Income tax (benefit) -- (115,000) (Loss) before extraordinary item (2,268,535) (371,808) Extraordinary item, less applicable income taxes -- (490,000) NET (LOSS) (2,268,535) (861,808) Preferred stock dividends 30,000 1,401,971 (Loss) applicable to common stock (2,298,535) (2,263,779) Basic and diluted (loss) per common share before extraordinary item (.15) (.13) BASIC AND DILUTED NET (LOSS) PER COMMON SHARE (.15) (.17) WEIGHTED AVERAGE SHARES OUTSTANDING 14,770,938 13,301,109
-4- 5 RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31, 1997 1996 REVENUES Patient service revenue $ 135,329,589 $ 89,925,434 Medical supply revenue 22,357,734 22,777,309 Management fee revenue: From affiliates 783,000 1,252,501 From others 186,443 240,120 Other operating revenue 901,273 2,185,709 159,558,039 116,381,073 EXPENSES Cost of patient services 98,575,825 65,321,257 Cost of medical supplies sold 15,534,842 15,333,477 Lease expense 10,877,624 6,015,197 General and administrative 28,235,625 21,895,541 Depreciation and amortization 3,372,831 2,513,126 Interest 8,151,216 5,151,607 Provision for bad debt 380,891 2,009,000 165,128,854 118,239,205 (LOSS) BEFORE MINORITY INTEREST AND INCOME TAXES (5,570,815) (1,858,132) Minority interest (125,000) (13,500) (Loss) before income taxes and extraordinary item (5,695,815) (1,871,632) Income tax (benefit) (1,340,000) (460,000) (Loss) before extraordinary item (4,355,815) (1,411,632) Extraordinary item, less applicable income taxes -- (490,000) NET (LOSS) (4,355,815) (1,901,632) Preferred stock dividends 75,000 2,146,777 (Loss) applicable to common stock (4,430,815) (4,048,409) Basic and diluted (loss) per common share before extraordinary item (.30) (.27) BASIC AND DILUTED NET (LOSS) PER COMMON SHARE (.30) (.31) WEIGHTED AVERAGE SHARES OUTSTANDING 14,720,998 13,188,523
-5- 6 RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS AS OF December 31, 1997 AND AUDITED AT JUNE 30, 1997
Unaudited Audited December 31, June 30, 1997 1997 ASSETS CURRENT Cash and cash equivalents $ 11,663,691 $ 3,637,878 Accounts receivable 51,646,999 40,391,377 Inventory 10,650,558 7,255,289 Deferred tax asset 4,553,568 4,408,733 Income tax receivables 5,065,431 4,065,431 Note and accrued interest receivable 75,000 75,000 Restricted Bond Fund 6,232,411 3,068,276 Prepaid expenses and other 712,699 2,009,467 Total current assets 90,600,357 64,911,451 PROPERTY AND EQUIPMENT 160,015,560 150,492,221 OTHER ASSETS Investments in unconsolidated affiliates 793,433 734,514 Deferred lease and loan costs 13,101,975 13,065,759 Goodwill 16,106,995 16,357,532 Advances due from non-affiliates 1,181,251 1,421,405 Advances due from affiliates 5,429,584 1,411,379 Restricted bond funds 3,940,000 3,689,969 Other assets 3,243,053 3,286,736 Total other assets 43,796,291 39,967,294 $294,412,208 $255,370,966
-6- 7 RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND AUDITED AT JUNE 30, 1997
Unaudited Audited December 31, June 30, 1997 1997 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Lines of credit $ 27,331,732 $ 9,935,036 Current maturities of long-term debt 17,063,115 11,454,059 Loans payable to affiliates -- 1,478,368 Accounts payable 47,584,501 34,076,015 Accrued expenses 18,965,412 18,417,258 Deferred gain 40,000 40,000 Total current liabilities 110,984,760 75,400,736 Deferred gain 161,370 181,370 Deferred income taxes 1,098,929 1,098,929 Long-term debt and capitalized leases, less current maturities 148,532,538 141,674,131 Minority interest 4,552,509 4,520,953 Redeemable convertible preferred stock 1,200,000 1,800,000 Shareholders' equity Common stock, $.0001 par value; 300,000,000 shares authorized; 14,749,441 and 14,489,888 shares outstanding 1,479 1,450 Preferred stock 2,786,000 3,250,000 Additional paid-in capital 45,881,658 43,799,617 Retained earnings (20,787,035) (16,356,220) Total shareholders' equity 27,882,102 30,694,847 Total liabilities and shareholders' equity 294,412,208 $ 255,370,966
-7- 8 RETIREMENT CARE ASSOCIATES, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31, 1997 1996 OPERATING ACTIVITIES Net income (loss) $ (4,355,815) $ (1,901,632) Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 3,372,831 2,513,126 Provision for bad debts 380,891 2,009,000 Amortization of deferred gain (20,000) (170,000) Minority interest 125,000 13,500 Deferred income taxes (144,835) (729,641) Changes in current assets and liabilities net of effects of acquisitions: Accounts receivable (11,636,513) (16,300,244) Inventory (3,395,269) (3,674,172) Prepaid expense and other assets 1,340,451 (1,793,658) Accounts payable and accrued expenses 13,056,640 8,893,973 Increase in deferred lease and loan costs (2,947,195) Cash (used in) operating activities (1,276,619) (14,086,943) INVESTING ACTIVITIES Purchase of property and equipment (11,788,087) (39,437,345) Issuance of advances to affiliates (5,256,419) 14,316,661 Investment in unconsolidated subsidiaries (58,919) Restricted bond funds (3,414,166) (4,056,194) Changes in marketable equity securities (1,067,748) Change in receivable (957,935) Deferred loan and lease cost (893,762) Investment in unconsolidated subsidiaries (148,449) Cash (used in) investing activities (21,411,353) (31,351,010) FINANCING ACTIVITIES Dividends on preferred stock (75,000) (105,000) Redemption of preferred stock (600,000) (600,000) Net proceeds from issuance of: Line of credit 17,396,696 3,759,182 Common stock 1,988,626 70,676 Long-term debt 13,927,633 38,324,959 Preferred Stock (464,000) 9,340,000 Payments on long-term debt (1,460,170) (1,267,894) Purchase and retirement of common stock (3,800,411) Cash provided by financing activities 30,713,785 45,721,512 Net increase in cash and cash equivalents 8,025,813 283,559 Cash and cash equivalents, beginning of year 3,637,878 45,365 Cash and cash equivalents, end of year $ 11,663,691 $ 328,924
-8- 9 RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1: BASIS OF PRESENTATION The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements and the notes thereto should be read in conjunction with the consolidated financial statements included in the Company's Annual Report on Amended Form 10-K/A for the fiscal year ended June 30, 1997, File No 1-14114. In the opinion of management of the Company, the accompanying unaudited consolidated financial statements contain all necessary adjustments to present fairly the financial position, the results of operations and cash flows for the periods reported. All adjustments are of a normal recurring nature. In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which is required to be adopted for the fiscal years ending after December 15, 1997. SFAS No. 128 supersedes APB Opinion No. 15, "Earnings Per Share" and specifies the computation, presentation and disclosure requirements for earnings per share ("EPS") for entities with publicly held common stock or potential common stock. SFAS 128 essentially replaces the primary EPS and fully diluted EPS presentations under APB Opinion No. 15 with a basic EPS and a diluted EPS calculation. The Company will comply with the disclosure requirements of SFAS No. 128 commencing with its December 31, 1997 Form 10-Q. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. There currently are no additional disclosures in the financial statements of the Company that are expected to be required by the provisions of this statement. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which changes the way public companies report information about segments of their business in annual financial statements and requires segment information in quarterly reports to shareholders. SFAS 131 also requires that public companies report certain information about their products and services, the geographic areas in which they operate and their major customers. SFAS 131 is effective for fiscal years beginning after December 15, 1997. The Company has not determined what additional disclosures may be required by the provisions of SFAS 131. NOTE 2: RESTATEMENT The consolidated financial statements for the six months ended December 31, 1996, as originally reported, reflected certain balances which were subsequently determined to be incorrect and, accordingly, the consolidated financial statements for the six months ended December 31, 1996 were restated as follows (in thousands):
As Previously Reported As Restated ---------------------- ----------- Revenues $116,517 $116,381 Operating Expenses $124,548 $118,239* Net Earnings (Loss) applicable to common stock $ (5,528) $ (1,902) Shareholders' Equity $ 34,666 $ 34,462
- ------------------- * Restated Operating Expenses included (in thousands) (i) a reduction in the accrual for employee benefits of $3,700, (ii) restated inventory of $1,955,(iii) a reduction in the provision for doubtful accounts of $580, and (iv) restated general and administrative expenses of $74. NOTE 3. ACCOUNTS RECEIVABLE AND COST REIMBURSEMENTS Accounts receivable and operating revenue include net amounts reimbursed by Medicaid under the provisions of cost reimbursement formulas in effect. The Company operates under a prospective payment system with Medicare, under which annual rates are assigned based on estimated reimbursements. Differences between estimated provisions and final settlement are reflected as adjustments to future rates. -9- 10 RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 4. INVENTORIES Inventories consisting mainly of medical supplies, are valued at the lower of cost (first in, first out) or market. NOTE 5: ADVANCES TO AFFILIATES At December 31, 1997 and June 30, 1997, the Company had advances to (from) affiliates totaling approximately ($5,429,584) and $66,991, respectively, and are due on demand. NOTE 6. LONG-TERM DEBT Long-term debt consisted of the following:
December 31, June 30, 1997 1997 ------------ ------------ Amounts outstanding under Revenue Bonds secured by retirement facilities $ 81,400,000 $ 74,675,000 Other debt secured by retirement and nursing facilities 40,420,000 40,700,380 Other debt 21,802,851 15,780,008 Capitalized leases 21,972,802 21,972,802 Totals 165,595,653 153,128,190 Current maturities 17,063,115 11,454,059 Total long-term debt $148,532,538 $141,674,131
On December 15, 1997, HCFP Funding, Inc. ("HCFP"), the Company and certain subsidiaries of the Company entered into a loan and security agreement, pursuant to which HCFP granted to the Company a $14 million revolving line of credit (the "HCFP Loan"). The HCFP Loan is secured by a priority lien on all of the Company's accounts receivable and bears interest at a rate of prime plus 2%. The outstanding principal and interest under the HCFP Loan are due on December 15, 2001, and the HCFP Loan may be renewed for one-year periods thereafter upon the mutual written agreement of the parties. NOTE 7: ANCILLARY SERVICE AGREEMENTS The Company has entered into various agreements with Sun Healthcare Group, Inc. ("Sun") to provide ancillary services such as therapy services and pharmaceutical services to the Company's long-term care facilities. The agreements provided for the Company to cause all of its facilities to promptly take all reasonable action, including, without limitation, terminating existing contracts with other providers of ancillary services in accordance with the terms thereof, and to cause all facilities to begin receiving all of their required ancillary services from Sun or Sun's affiliates as soon as practicable after November 25, 1997. The Company is notifying all existing ancillary service providers of the termination of services and expects to receive all such services from Sun by February 1998. The agreements may not be terminated until 14 days after the termination of the merger agreement with Sun, at which time either party may freely terminate. NOTE 8: EARNINGS PER SHARE The Company and its subsidiaries have adopted the provisions of SFAS 128 for reporting purposes. No additional securities have been included in the computation of diluted earnings per share as they would be antidilutive. See the Company's Annual Report for the fiscal year ended June 30, 1997 for a description of securities which may potentially be dilutive in the future. NOTE 9: YEAR 2000 DISCLOSURE The Company has reviewed all of its current computer applications with respect to the date change from 1999 to the year 2000, as discussed in the Securities and Exchange Commission Staff Legal Bulletin No. 5 (the "Year 2000 Issue"). The Company believes that certain of its applications are substantially in compliance with the Year 2000 Issue and that any additional costs with respect to compliance with the Year 2000 Issue will not be material to the Company. The Company is currently unable to determine the effect of compliance with the Year 2000 Issue by its customers and suppliers. NOTE 10: AMENDMENT NO. 3 TO SUN MERGER AGREEMENT. On November 25, 1997, the Company entered into the third amendment ("Amendment No. 3") to the Agreement and Plan of Merger and Reorganization (the "Merger Agreement") between the Company and Sun. Amendment No. 3 changes the exchange ratio in the Merger Agreement from 0.520 shares of the common stock of Sun for each share the Company's common stock to that number of shares of the common stock of Sun having a market value, based on the average closing price for the common stock of Sun equal to $10.00 per share, subject to adjustment up or down in event of the significant appreciation or depreciation in the price of the common stock of Sun. Amendment No. 3 also (i) waives certain responsibilities and warranties which had become materially incorrect since the date of the original Merger Agreement; (ii) modifies the definition of "Company Material Adverse Effect" to related only to changes in the assets and liabilities of the Company; (iii) contains provisions relating to Sun and its affiliates providing ancillary services to the Company and its affiliates; (iv) contains provisions allowing the Company to obtain up to $15 million in working capital financing under certain conditions; (v) contains provisions relating to certain related company leases; (vi) modifies the conditions to Sun's obligations to consummate the merger with the Company related to the Company's representations and warranties and makes corresponding modifications to Sun's termination rights; (vii) provides a termination fee payable to the Company in the event Sun's board of directors changes its recommendation of the merger in a manner adverse to the Company; (viii) contains certain other technical provisions; and (ix) extends the date after which either party may freely terminate the Merger Agreement from November 30, 1997 (or under certain circumstances, December 31, 1997) to March 31, 1998. NOTE 11: COMMITMENTS AND CONTINGENCIES The Company is involved in legal proceedings arising in the ordinary course of business. In addition, the Company is in dispute with the Internal Revenue Service ("IRS") concerning the application of certain income and payroll tax liabilities and payments. The IRS contends that the Company is delinquent in the payment of certain taxes and has assessed taxes, penalties and interest in connection with the alleged underpayment of approximately $1.2 million. The Company contends that the IRS has misapplied payments between income and payroll taxes and between the Company and its affiliates. On advise of counsel handling the matter, the Company has estimated and accrued in the accompanying financial statements amounts for ultimate settlement of this dispute, and has recorded an accrual of $400,000 for ultimate settlement thereof. Further, the Company has filed lawsuits against the IRS related to this matter. In the opinion of management, the ultimate resolution of pending legal proceedings and the IRS dispute will not have a material effect on the Company's financial position or results of operations. -10- 11 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1996. The Company's total revenues for the three months ended December 31, 1997, were $80,135,287 compared to $61,208,458 for the three months ended December 31, 1996. Due to the increased number of facilities owned or leased by the Company, patient service revenue increased from $47,950,464 for the quarter ended December 31, 1996, to $68,873,798 for the quarter ended December 31, 1997. The Company was operating 101 facilities for the quarter ended December 31, 1997, compared to 75 for the quarter ended December 31, 1996. The cost of patient services in the amount of $49,206,128 for the quarter ended December 31, 1997, represented 71% of patient service revenue, as compared to $33,415,634, or 70%, of patient service revenue during the quarter ended December 31, 1996. Medical supply revenue decreased from $11,471,114 during the quarter ended December 31, 1996, to $10,320,899 during the quarter ended December 31, 1997. These revenues, which are revenues of Contour Medical, Inc. ("Contour"), a majority-owned subsidiary, decreased primarily due to volume. Cost of medical supplies sold as a percentage of medical supply revenue remained constant at approximately 67% during the quarter ended December 31, 1997, as compared to approximately 67% of such revenue during the same period last year. Management fees decreased from $558,575 in the quarter ended December 31, 1996 to $529,906 in the quarter ended December 31, 1997. As of December 31, 1996, the Company was managing 20 facilities, and as of December 30, 1997, the Company was only managing 8 facilities. The reduced number of facilities managed by the Company is due to the fact that the Company leased three long-term facilities and four assisted living/independent facilities and purchased one long-term care facility and two assisted living/independent living facilities from Messrs. Brogdon and Lane. In addition, two third-party assisted living/independent living facilities cancelled their management contracts with the Company. The Company purchased and leased these facilities to reduce the affiliated receivable due the Company and to increase the number of facilities owned or leased, rather than just managed, by the Company. Management anticipates that the number of facilities only managed by the Company will continue to decline as a result of the acquisition of such facilities by the Company. Owning or leasing a facility is distinctly different from managing a facility with respect to operating results and cash flows. For an owned or leased facility, the entire revenue/expense stream of the facility is recorded on the Company's income statement. In the case of a management agreement, only the management fee is recorded. The expenses associated with management revenue are somewhat indirect as the infrastructure is already in place to manage the facility. Therefore, the profitability of managing a facility appears more lucrative on a margin basis than that of an owned/leased facility. However, the risk of managing a facility is that the contract generally can be canceled on a relatively short notice, which results in loss of all revenue attributable to the contract. Furthermore, with an owned or leased property the Company benefits from the increase in value of the facility as its performance increases. With a management contract, the owner of the facility maintains the equity value. From a cash flow standpoint, a management contract is more lucrative because the Company does not have to support the ongoing operating cash flow of the facility. -11- 12 Most of the revenue from the management services division of the Company's business is received pursuant to management agreements with entities controlled by Messrs. Brogdon and Lane, two of the Company's officers and directors. These management agreements have three to five year terms and are terminable on 60 days notice with or without cause by either the Company or the owners. Therefore, Messrs. Brogdon and Lane have full control over whether or not these management agreements, and thus the management service revenue, continue in the future. Other operating revenue decreased from $1,228,305 during the quarter ended December 31, 1996, to $410,684 during the quarter ended December 31, 1997. The decrease was primarily a result of one-time referral fees of $350,000 received from a building contractor, and approximately $400,000 in interest income included in the December 31, 1996 amounts. Lease expense increased from $2,988,406 for the quarter ended December 31, 1996, to $5,645,121 for the quarter ended December 31, 1997. This increase is primarily attibutable to the increased numbers of facilities that the Company has leased. General and administrative expenses for the three months ended December 31, 1997 were $14,273,113, representing 18% of total revenues, as compared to $12,393,814, representing 20% of total revenues, for the three months ended December 31, 1996. The increase in the dollar amount is primarily due to the general and administrative expenses related to operating the additional facilities owned or leased by the Company, and approximately $400,000 was due to legal and accounting expenses related to the pending merger with Sun Healthcare Group, Inc. Interest expense rose from $2,753,971 during the quarter ended December 31, 1996, to $4,169,927 during the quarter ended December 31, 1997, as a result of the increased amount of debt carried by the Company as a result of acquisitions made over the last twelve months. At December 31, 1996, the Company had approximately $153 million in long-term debt, as compared to approximately $165 million in long-term debt at December 31, 1997. For the quarter ended December 31, 1997, the Company received no income tax benefit, as compared to a tax benefit of $115,000 which represents an effective tax benefit of 25% for the quarter ended December 31, 1996. The net loss of $2,268,535 for the quarter ended December 31, 1997, compares to a net loss of $861,808 for the quarter ended December 31, 1996. The increased loss is attributable to a deterioration in the Company's operations as a result of the pendency of and delays associated with the merger with Sun, including higher-than-normal turnover, and costs associated with the integration and operation of the Company's recently-acquired Virginia and North Carolina facilities (including certain relatory compliance problems). SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31, 1996. The Company's total revenues for the six months ended December 31, 1997, were $159,558,039 compared to $116,381,073 for the six months ended December 31, 1996. Due to the increased number of facilities owned or leased by the Company, patient service revenue increased from $89,925,434 for the six months ended December 31, 1996, to $135,329,589 for the six months ended December 31, 1997. The Company was operating 101 facilities for the six months ended December 31, 1997, compared to 75 for the six months ended December 31, 1996. The cost of patient services in the amount of $98,575,825 for the six months ended December 31, 1997, represented 73% of patient service revenue, as compared to $65,321,257, or 73%, of patient service revenue during the six months ended December 31, 1996. Medical supply revenue decreased from $22,777,309 during the six months ended December 31, 1996, to $22,357,734 during the six months ended December 31, 1997. The increased percentage if primarily a result of increases in the cost of products sold and increased competition in the medical supply industry, which has decreased the sales price of most products. These revenues, which are revenues of Contour Medical, Inc. ("Contour"), a majority-owned subsidiary, decreased primarily due to volume. Cost of medical supplies sold as a percentage of medical supply revenue increased to approximately 69% during the six months ended December 31, 1997, as compared to approximately 67% of such revenue during the same period last year. This increased percentage is primarily attributable to increases in the cost of products sold and increased competition in the medical supply industry, which has decreased the sales price of most of Contour's products. -12- 13 Management fees decreased from $1,492,621 in the six months ended December 31, 1996 to $969,443 in the six months ended December 31, 1997. As of December 31, 1996, the Company was managing 20 facilities, and as of December 30, 1997, the Company was only managing 8 facilities. The reduced number of facilities managed by the Company is due to the fact that the Company leased three long-term facilities and four assisted living/independent living facilities and purchased one long-term care facility and two assisted living/independent living facilities from Messrs. Brogdon and Lane. In addition, two third-party assisted living/independent living facilities cancelled their management contracts with the Company. The Company purchased and leased these facilities to reduce the affiliated receivable due the Company and to increase the number of facilities owned or leased, rather than just managed, by the Company. Management anticipates that the number of facilities only managed by the Company will continue to decline as a result of the acquisition of such facilities by the Company. Owning or leasing a facility is distinctly different from managing a facility with respect to operating results and cash flows. For an owned or leased facility, the entire revenue/expense stream of the facility is recorded on the Company's income statement. In the case of a management agreement, only the management fee is recorded. The expenses associated with management revenue are somewhat indirect as the infrastructure is already in place to manage the facility. Therefore, the profitability of managing a facility appears more lucrative on a margin basis than that of an owned/leased facility. However, the risk of managing a facility is that the contract generally can be canceled on a relatively short notice, which results in loss of all revenue attributable to the contract. Furthermore, with an owned or leased property the Company benefits from the increase in value of the facility as its performance increases. With a management contract, the owner of the facility maintains the equity value. From a cash flow standpoint, a management contract is more lucrative because the Company does not have to support the ongoing operating cash flow of the facility. Most of the revenue from the management services division of the Company's business is received pursuant to management agreements with entities controlled by Messrs. Brogdon and Lane, two of the Company's officers and directors. These management agreements have three to five year terms and are terminable on 60 days notice with or without cause by either the Company or the owners. Therefore, Messrs. Brogdon and Lane have full control over whether or not these management agreements, and thus the management service revenue, continue in the future. Other operating revenue decreased from $2,185,709 for the six months ended December 31, 1996, compared to $901,273 for the six months ended December 31, 1997. The decrease is primarily a result of one-time referral fees of $650,000 received from a building contractor, and approximately $580,000 in interest income from affiliated companies included in the December 31, 1996 amount. General and administrative expenses for the six months ended December 31, 1997 were $28,235,625, representing 18% of total revenues, as compared to $21,895,541, representing 18% of total revenues, for the six months ended December 31, 1996. The increase in the dollar amount is primarily due to the general and administrative expenses related to operating the additional facilities owned or leased by the Company, and approximately $800,000 was due to legal and accounting expenses related to the pending merger with Sun. Interest expense rose from $5,151,607 during the six months ended December 31, 1996, to $8,151,216 during the six months ended December 31, 1997, as a result of the increased amount of debt carried by the Company as a result of acquisitions made over the last twelve months. At December 31, 1996, the Company had approximately $153 million in long-term debt, as compared to approximately $165 million in long-term debt at December 31, 1997. For the six months ended December 31, 1997, the Company received an income tax benefit of $1,340,000, as compared to a tax benefit of $460,000 for the six months ended December 31, 1996. The net loss of $4,355,815 for the six months ended December 31, 1997, compares to a net loss of $1,901,632 for the six months ended December 31, 1996. The increased loss in attributable due to the fact that the Company's operations have deteriorated due as result of the pendency of and delays associated with the merger with Sun, including higher-than-normal turnover, and costs associated with the integration and operation of the Company's recently-acquired Virginia and North Carolina facilities (including certain regulatory compliance problems). -13- 14 LIQUIDITY AND CAPITAL RESOURCES At December 31, 1997, the Company had a deficit of $20,384,403 in working capital compared to a deficit of $10,489,285 at June 30, 1997. The funds needed to reduce the increasing deficit in working capital could be provided by increased efforts to collect accounts receivable, possible refinancing of selected facilities, extended payment terms to major vendors for food and supplies, and increased control over expenses. During the six months ended December 31, 1997, cash used by operating activities was $1,276,619, as compared to $14,086,943 during the six months ended December 31, 1996. The cash used during the six months ended December 31, 1997 was primarily due to the net loss of $4,355,815, for the six months ended December 31, 1997; increases in accounts receivable of $11,636,513 from medicare settlements, increases in receivables on the 11 facilities added in the fourth quarter of the year ended June 30, 1997 and increases in Contour accounts receivable; increases in Contour inventory of $3,395,269 for primarily two new distribution centers. Cash provided by operating activities was primarily depreciation and amortization of $3,372,831 on facilities, increases in accounts payable and accrued expenses of $13,056,640 from 11 facilities added in the fourth quarter of the year ended June 30, 1997. Cash flows used in investing activities during the six months ended December 31, 1997, totaled $21,411,535 as compared to $31,351,010 during the six months ended December 31, 1996. The Company expended $11,788,087 on the purchase of property and equipment including the purchase of a long-term facility for $5,400,000 on October 1, 1997 from individuals who are officers and directors of the Company. The facility was subject to bond debt of $4,285,000. The Company applied the remaining purchase price of $1,115,000 against amounts owed from affiliates. The Company paid $3,414,166 for restricted bond funds on facilities and advanced $5,256,419 to affiliated companies. The advances are due on demand. Cash provided by financing activities during the six months ended December 31, 1997, totaled $30,713, 785 as compared to $45,721,512 during the six months ended December 31, 1996. Sources of cash included additional lines of credit of $17,396,696 which included $14,000,000 from Health Care Financial Partners, an unrelated third party. The interest rate on the line of credit is prime plus 2% and is due on December 15, 2001, collateralized by a first lien on accounts receivable of the Company. The Company incurred long-term debt of $13,927,633 including $5,000,000 from Sun and $4,285,000 of bond debt on the acquisition of a long-term care facility from two individuals who are officers and directors of the Company. The bond debt is due 2015, with an interest rate of 9.5%. Sources of cash also included proceeds from issuance of stock options of $1,988,626. Cash used in financing activities primarily consisted of $464,000 in payments on long-term debt, $600,000 in redemption of Series AA Preferred Stock, $75,000 in dividends on preferred stock. On September 30, 1994, the Company purchased a majority of the stock of Contour Medical, Inc. in exchange for shares of the Company's common stock and preferred stock. The Company is obligated to redeem the preferred stock issued in the transaction over five years for $3,000,000 in cash. The Company paid $600,000 on September 30, 1997 pursuant to this obligation. Management intends to fund future redemptions from cash flow generated from operations. The Company believes that its long-term liquidity needs will generally be met by income from operations. If necessary, the Company believes that it can obtain an extension of its current line of credit and/or other lines of credit from commercial sources. Except as described above, the Company is not aware of any trends, demands, commitments or understandings that would impact its liquidity. The Company maintains various lines of credit with interest rates ranging from prime plus .25% to prime plus 2.0%. At December 31, 1997, the Company had approximately $3,500,000 in unused credit available under such lines. IMPACT OF PENDING FEDERAL HEALTH CARE LEGISLATION Management is uncertain what the financial impact will be of the pending federal health care reform package since the legislation has not been finalized. However, based on information which has been released to the public thus far, management doesn't believe that there will be cuts in reimbursements paid to nursing homes. Legislative and regulatory action at the state and federal level has resulted in continuing changes in the Medicare and Medicaid reimbursement programs. The changes have limited payment increases under those programs. Also, the timing of payments made under Medicare and Medicaid programs are subject to regulatory action and governmental budgetary constraints. Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to administrative rulings and interpretations which may further affect payments made under these programs. Further, the federal and state governments may reduce the funds available under those programs in the future or require more stringent utilization and quality review of health care facilities. -14- 15 Part II. Item 6. Exhibits and Reports on Form 8-k (a) Insert to Exhibit List for Retirement Care Associates, Inc. 10-Q/A dated December 31, 1997
EXHIBIT NO. DESCRIPTION LOCATION 10.16 Form of Amendment No. 1 to Security Filed herewith electronically Agreement dated as of January 9, 1998 10.17 Form of Amendment No. 1 to Amended Filed herewith electronically and Restated Pledge Agreement dated as of January 9, 1998 10.18 Form of Revolving Credit Note Filed herewith electronically ($10,000,000) by Capitol Care Management Company, Inc. and Retirement Management Corporation to the order of HCFP Funding, Inc. dated December 15, 1998 10.19 Form of Revolving Credit Note Filed herewith electronically ($10,000,000) by subsidiaries to the order of HCFP Funding, Inc. dated December 15, 1998 10.20 Form of Loan and Security Agreement Filed herewith electronically by Retirement Care Associates, Inc.; Capitol Care Management Company, Inc.; Retirement Management Corporation and HCFP Funding, Inc. dated December 15, 1997 10.21 Form of Loan and Security Agreement Filed herewith electronically by Subsidiaries and HCFP Funding, Inc. dated December 15, 1997 10.22 Form of Intercreditor Agreement dated Filed herewith electronically December 15, 1997
-15- 16 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. RETIREMENT CARE ASSOCIATES, INC. DATED: March 11, 1998 By:/s/ Darrell C. Tucker ----------------------------------------- Darrell C. Tucker, Treasurer -16- 17 EXHIBIT INDEX Insert to Exhibit List for Retirement Care Associates, Inc. 10-Q/A dated December 31, 1997
EXHIBIT DESCRIPTION METHOD OF FILING - ------- ------------------- ----------------------------- 10.16 Form of Amendment No. 1 to Security Filed herewith electronically Agreement dated as of January 9, 1998 10.17 Form of Amendment No. 1 to Amended Filed herewith electronically and Restated Pledge Agreement dated as of January 9, 1998 10.18 Form of Revolving Credit Note Filed herewith electronically ($10,000,000) by Capitol Care Management Company Inc. and Retirement Management Corporation to the order of HCFP Funding, Inc. dated December 15, 1998 10.19 Form of Revolving Credit Note Filed herewith electronically ($10,000,000) by subsidiaries to the order of HCFP Funding, Inc. dated December 15, 1998 10.20 Form of Loan and Security Agreement Filed herewith electronically by Retirement Care Associates, Inc.; Capitol Care Management Company, Inc.; Retirement Management Corporation and HCFP Funding, Inc. dated December 15, 1997 10.21 Form of Loan and Security Agreement Filed herewith electronically by Subsidiaries and HCFP Funding, Inc. dated December 15, 1997 10.22 Form of Intercreditor Agreement dated Filed herewith electronically December 15, 1997
EX-10.16 2 AMEND.#1 TO SECURITY AGREEMENT DATED JAN. 9,1998 1 EXHIBIT 10.16 EXECUTION COPY AMENDMENT NO. 1 TO SECURITY AGREEMENT Amendment No. 1 dated as of January 9, 1998 (this "Amendment"), to that certain Security Agreement dated July 10, 1997 (the "Security Agreement"), for the benefit of SUN HEALTHCARE GROUP, INC., a Delaware corporation ("Sun"), by RETIREMENT CARE ASSOCIATES, INC., a Colorado corporation ("RCA"). PRELIMINARY STATEMENTS 1. Sun, PEACH ACQUISITION CORPORATION, a Colorado corporation and a direct wholly-owned subsidiary of Sun ("Merger Sub"), and RCA are parties to that certain Agreement and Plan of Merger and Reorganization dated as of February 17, 1997, as amended by Amendment No. 1 thereto dated as of May 27, 1997, Amendment No. 2 thereto dated as of August 21, 1997, and Amendment No. 3 thereto dated as of November 25, 1997 (as amended, the "Merger Agreement"). 2. RCA, Capitol Care Management Company, Inc. and Retirement Management Corporation (collectively, the "Borrowers") are indebted to Sun in the amount of $5,000,000 pursuant to that certain Promissory Note dated July 10, 1997 (the "Additional Note"). The Additional Note is secured by, among other things, the Security Agreement. 3. The Borrowers and HCFP Funding, Inc. ("HCFP"), as lender, have entered into a Loan and Security Agreement (the "Loan Agreement"). Certain subsidiaries of RCA, as borrower, and HCFP, as lender, have entered into a Loan and Security Agreement (the "Affiliated Loan Agreement," the subsidiaries of RCA party thereto being referred to herein as the "Affiliated Borrowers"). In connection with the transactions contemplated by the Loan Agreement and the Affiliated Loan Agreement, the parties hereto have agreed to amend the Security Agreement as set forth herein. NOW, THEREFORE, in consideration of the premises set forth herein, the parties hereto agree as follows. SECTION 1. Security Agreement. Section 4 of the Security Agreement is amended and restated as follows: 4. Collateral Reporting. The Pledgor shall deliver to the Lender on the date hereof and on the tenth calendar day of each month a borrowing base 2 certificate, attested to by an officer of the Pledgor, indicating the amount of the Borrowing Base (the "Borrowing Base Certificate"). As used herein, the term "Borrowing Base" shall mean an amount equal to (i) one hundred percent (100.0%) of all Eligible Accounts, plus (ii) the aggregate fair market value of any property pledged to Lender in accordance with Section 22 hereof, minus (ii) the aggregate principal amount of indebtedness outstanding under (A) the Fidelity Agreement referred to in Section 21 hereof, (B) that certain Amended and Restated Promissory Note made by the Pledgor, RMC and CCMC to the Lender dated as of even date herewith, (C) that certain Loan and Security Agreement by and among Pledgor, RMC, CCMC and HCFP Funding, Inc. dated December 15, 1997, and (D) that certain Loan and Security Agreement by and among certain of Pledgor's subsidiaries and HCFP Funding, Inc. dated December 15, 1997. As used herein, the term "Eligible Accounts" shall mean all Accounts of the Pledgor, RMC, CCMC and the Subsidiary Guarantors (as defined in the Note), but not of any other subsidiary of the Pledgor, which are not more than one hundred twenty (120) days past due, which are not due and payable from any insider, affiliate, officer or shareholder of the Pledgor or any of its managed or affiliated companies, and which are not classified as "Pre-Current" in Pledgor's books and records pertaining to the Collateral. SECTION 2. Conditions of Effectiveness. Section 1 of this Amendment shall be effective as of December 15, 1997, when and if Sun shall have received counterparts of this Amendment duly executed by each of the parties hereto. SECTION 3. Reference to and Effect on the Security Agreement. (a) On or after the date hereof, each reference in the Security Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import referring to the Security Agreement, and each reference to the Security Agreement in the Additional Note and each other documents delivered in connection therewith (collectively, the "Loan Documents") shall mean and be a reference to the Security Agreement as amended hereby. (b) Except as specifically amended under Section 1 hereof, each of the Loan Documents shall remain in full force and effect and is hereby ratified and confirmed. (c) Each Borrower acknowledges and agrees that, except to the extent specifically amended under Section 1 hereof, it is obligated to comply with each and every term, covenant, agreement and condition applicable to it under each of the Loan Documents. The execution, delivery and effectiveness of this Amendment shall not otherwise operate as a waiver of any right, remedy or privilege of Sun under any of the Loan Documents, any and all of which rights, remedies and privileges are reserved. SECTION 4. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which, when 2 3 so executed and delivered, shall be an original, but all such counterparts shall together constitute one and the same agreement. SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed and delivered as of the date first above written. SUN HEALTHCARE GROUP, INC. By: --------------------------------------- Name: Title: RETIREMENT CARE ASSOCIATES, INC. By: --------------------------------------- Name: Title: 3 EX-10.17 3 AMEND.#1 TO RESTATED PLEDGE AGREEMENT,JAN. 9, 1998 1 EXHIBIT 10.17 EXECUTION COPY AMENDMENT NO. 1 TO AMENDED AND RESTATED PLEDGE AGREEMENT Amendment No. 1 dated as of January 9, 1998 (this "Amendment"), to that certain Amended and Restated Pledge Agreement dated July 10, 1997 (the "Amended Pledge Agreement"), among SUN HEALTHCARE GROUP, INC., a Delaware corporation ("Sun"), PEACH ACQUISITION CORPORATION, a Colorado corporation and a direct wholly-owned subsidiary of Sun ("Merger Sub"), and RETIREMENT CARE ASSOCIATES, INC., a Colorado corporation ("RCA"). PRELIMINARY STATEMENTS 1. Sun, Merger Sub and RCA are parties to that certain Agreement and Plan of Merger and Reorganization dated as of February 17, 1997, as amended by Amendment No. 1 thereto dated as of May 27, 1997, Amendment No. 2 thereto dated as of August 21, 1997, and Amendment No. 3 thereto dated as of November 25, 1997 (as amended, the "Merger Agreement"). 2. RCA, Capitol Care Management Company, Inc. and Retirement Management Corporation (collectively, the "Borrowers") are indebted to Sun in the amount of $9,750,000 pursuant to that certain Amended and Restated Promissory Note dated July 10, 1997 (the "Amended Note"). The Amended Note is secured by, among other things, the Amended Pledge Agreement, dated July 10, 1997, by RCA for the benefit of Sun. 3. The Borrowers and HCFP Funding, Inc. ("HCFP"), as lender, have entered into a Loan and Security Agreement (the "Loan Agreement"). Certain subsidiaries of RCA, as borrower, and HCFP, as lender, have entered into a Loan and Security Agreement (the "Affiliated Loan Agreement," the subsidiaries of RCA party thereto being referred to herein as the "Affiliated Borrowers"). In connection with the transactions contemplated by the Loan Agreement and the Affiliated Loan Agreement, the parties hereto have agreed to amend the Amended Pledge Agreement as set forth herein. NOW, THEREFORE, in consideration of the premises set forth herein, the parties hereto agree as follows. SECTION 1. Amended Pledge Agreement. Section 4 of the Amended Pledge Agreement is amended and restated as follows: 2 4. Collateral Reporting. The Pledgor shall deliver to the Lender on the date hereof and on the tenth calendar day of each month a borrowing base certificate, attested to by an officer of the Pledgor, indicating the amount of the Borrowing Base (the "Borrowing Base Certificate"). As used herein, the term "Borrowing Base" shall mean an amount equal to (i) one hundred percent (100%) of all Eligible Accounts minus (ii) the aggregate principal amount of indebtedness outstanding under (A) the Fidelity Agreement referred to in Section 21 hereof, (B) that certain Promissory Note made by the Pledgor, RMC and CCMC to the Lender dated as of even date herewith, (C) that certain Loan and Security Agreement by and among Pledgor, RMC, CCMC and HCFP Funding, Inc. dated December 15, 1997, and (D) that certain Loan and Security Agreement by and among certain of Pledgor's subsidiaries and HCFP Funding, Inc. dated December 15, 1997. As used herein, the term "Eligible Accounts" shall mean all Accounts of the Pledgor, RMC, CCMC and the Subsidiary Guarantors (as defined in the Restated Note), but not of any other subsidiary of the Pledgor, which are not more than one hundred twenty (120) days past due, which are not due and payable from any insider, affiliate, officer or shareholder of the Pledgor or any of its managed or affiliated companies, and which are not classified as "Pre-Current" in Pledgor's books and records pertaining to the Collateral. SECTION 2. Conditions of Effectiveness. Section 1 of this Amendment shall be effective as of December 15, 1997, when and if Sun shall have received counterparts of this Amendment duly executed by each of the parties hereto. SECTION 3. Reference to and Effect on the Amended Pledge Agreement. (a) On or after the date hereof, each reference in the Amended Pledge Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import referring to the Amended Pledge Agreement, and each reference to the Amended Pledge Agreement in the Amended Note and each other documents delivered in connection therewith (collectively, the "Loan Documents") shall mean and be a reference to the Amended Pledge Agreement as amended hereby. (b) Except as specifically amended under Section 1 hereof, each of the Loan Documents shall remain in full force and effect and is hereby ratified and confirmed. (c) Each Borrower acknowledges and agrees that, except to the extent specifically amended under Section 1 hereof, it is obligated to comply with each and every term, covenant, agreement and condition applicable to it under each of the Loan Documents. The execution, delivery and effectiveness of this Amendment shall not otherwise operate as a waiver of any right, remedy or privilege of Sun under any of the Loan Documents, any and all of which rights, remedies and privileges are reserved. 2 3 SECTION 4. Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which, when so executed and delivered, shall be an original, but all such counterparts shall together constitute one and the same agreement. SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed and delivered as of the date first above written. SUN HEALTHCARE GROUP, INC. By: --------------------------------------- Name: Title: PEACH ACQUISITION CORPORATION By: --------------------------------------- Name: Title: RETIREMENT CARE ASSOCIATES, INC. By: --------------------------------------- Name: Title: 4 EX-10.18 4 FORM OF REVOLVING CREDIT NOTE BY CAPITOL CARE 1 EXHIBIT 10.18 REVOLVING CREDIT NOTE $10,000,000.00 December 15, 1997 For value received, the undersigned, RETIREMENT CARE ASSOCIATES, INC., a Colorado corporation, CAPITOL CARE MANAGEMENT COMPANY, INC., a Georgia corporation and RETIREMENT MANAGEMENT CORPORATION, a Georgia corporation (collectively, "Borrower"), jointly and severally, promise to pay, in lawful money of the United States, to the order of HCFP FUNDING, INC., a Delaware corporation ("Lender"), the principal sum of Ten Million and No/100 Dollars ($10,000,000.00), or so much thereof as shall be advanced or readvanced and shall remain unpaid under the Loan established pursuant to that certain Loan and Security Agreement of even date with this Note by and among the undersigned and Lender (the "Loan Agreement"), plus interest on the unpaid balance thereof, computed on a 360-day basis, at the rate per annum that is set forth in the Loan Agreement. All capitalized terms used, and not otherwise specifically defined, in this Note shall have the meanings ascribed to them in the Loan Agreement. This Note shall evidence the undersigned's obligation to repay all sums advanced by Lender from time to time under and as part of the Loan. The actual amount due and owing from time to time under this Note shall be evidenced by Lender's records of receipts and disbursements with respect to the Loan, which shall be conclusive evidence of that amount, absent manifest error. Interest hereon shall be payable monthly, in arrears, on the first Business Day of each month hereafter (for the previous month). For purposes of this Note, a "Business Day" shall mean any day on which banks are open for business in Maryland, excluding Saturdays and Sundays. This Note shall become due and payable upon the earlier to occur of (i) the expiration of the Term, or (ii) any Event of Default under the Loan Agreement, or any other event under any other Loan Documents which would result in this Note becoming due and payable. At such time, the entire principal balance of this Note and all other fees, costs and expenses, if any, shall be due and payable in full. Lender shall then have the option at any time and from time to time to exercise all of the rights and remedies set forth in this Note and in the other Loan Documents, as well as all rights and remedies otherwise available to Lender at law or in equity, to collect the unpaid indebtedness under this Note and the other Loan Documents. This Note is secured by the Collateral, as defined in and described in the Loan Agreement. Whenever any principal and/or interest and/or fee under this Note shall not be paid when due, whether at the stated maturity or by acceleration, interest on such unpaid amounts shall thereafter be payable at a rate per annum equal to three percentage points above the stated rate of interest on this Note until such amounts shall be paid. 2 The undersigned and Lender intend to conform strictly to the applicable usury laws in effect from time to time during the term of the Loan. Accordingly, if any transaction contemplated hereby would be usurious under such laws, then notwithstanding any other provision hereof: (a) the aggregate of all interest that is contracted for, charged, or received under this Note or under any other Loan Document shall not exceed the maximum amount of interest allowed by applicable law, and any excess shall be promptly credited to the undersigned by Lender (or, to the extent that such consideration shall have been paid, such excess shall be promptly refunded to the undersigned by Lender); (b) neither the undersigned nor any other Person (as defined in the Loan Agreement) now or hereafter liable hereunder shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum interest permitted by applicable law; and (c) the effective rate of interest shall be reduced to the Highest Lawful Rate (as defined in the Loan Agreement). All sums paid, or agreed to be paid, to Lender for the use, forbearance, and detention of the debt of Borrower to Lender shall, to the extent permitted by applicable law, be allocated throughout the full term of this Note until payment is made in full so that the actual rate of interest does not exceed the Highest Lawful Rate in effect at any particular time during the full term thereof. If at any time the rate of interest under the Note exceeds the Highest Lawful Rate, the rate of interest to accrue pursuant to this Note shall be limited, notwithstanding anything to the contrary herein, to the Highest Lawful Rate, but any subsequent reductions in the Base Rate shall not reduce the interest to accrue pursuant to this Note below the Highest Lawful Rate until the total amount of interest accrued equals the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect. If the total amount of interest paid or accrued pursuant to this Note under the foregoing provisions is less than the total amount of interest that would have accrued if a varying rate per annum equal to the interest rate under this Note had been in effect, then the undersigned agrees to pay to Lender an amount equal to the difference between (a) the lesser of (i) the amount of interest that would have accrued if the Highest Lawful Rate had at all times been in effect, or (ii) the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect, and (b) the amount of interest accrued in accordance with the other provisions of this Note and the Loan Agreement. This Note is the "Note" referred to in the Loan Agreement, and is issued pursuant thereto. Reference is made to the Loan Agreement for a statement of the additional rights and obligations of the undersigned and Lender. In the event of any conflict between the terms hereof and the terms of the Loan Agreement, the terms of the Loan Agreement shall prevail. All of the terms, covenants, provisions, conditions, stipulations, promises and agreements contained in the Loan Documents to be kept, observed and/or performed by the undersigned are made a part of this Note and are incorporated herein by this reference to the same extent and with the same force and effect as if they were fully set forth herein, and the undersigned promises and agrees to keep, observe and perform them or cause them to be kept, observed and performed, strictly in accordance with the terms and provisions thereof. Each party liable hereon in any capacity, whether as maker, endorser, surety, guarantor or otherwise, (i) waives presentment for payment, demand, protest and notice of presentment, 2 3 notice of protest, notice of non-payment and notice of dishonor of this debt and each and every other notice of any kind respecting this Note and all lack of diligence or delays in collection or enforcement hereof, (ii) agrees that Lender and any subsequent holder of this Note, at any time or times, without notice to the undersigned or its consent, may grant extensions of time, without limit as to the number of the aggregate period of such extensions, for the payment of any principal, interest or other sums due hereunder, (iii) to the extent permitted by law, waives all exemptions under the laws of the State of Maryland and/or any state or territory of the United States, (iv) to the extent permitted by law, waives the benefit of any law or rule of law intended for its advantage or protection as an obligor hereunder or providing for its release or discharge from liability hereon, in whole or in part, on account of any facts or circumstances other than full and complete payment of all amounts due hereunder, and (v) agrees to pay, in addition to all other sums of money due, all cost of collection and attorney's fees, whether suit be brought or not, if this Note is not paid in full when due, whether at the stated maturity or by acceleration. No waiver by Lender or any subsequent holder of this Note of any one or more defaults by the undersigned in the performance of any of its obligations hereunder shall operate or be construed as a waiver of any future default or defaults, whether of a like or different nature. No failure or delay on the part of Lender in exercising any right, power or remedy under this Note (including, without limitation, the right to declare this Note due and payable) shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. If any term, covenant or condition of this Note, or the application of such term, covenant or condition to any party or circumstance shall be found by a court of competent jurisdiction to be, to any extent, invalid or unenforceable, the remainder of this Note and the application of such term, covenant, or condition to parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term, covenant or condition shall be valid and enforced to the fullest extent permitted by law. Upon determination that any such term is invalid, illegal or unenforceable, the undersigned shall cooperate with Lender to amend this Note so as to effect the original intent of the parties as closely as possible in an acceptable manner. No amendment, supplement or modification of this Note nor any waiver of any provision hereof shall be made except in writing executed by the party against whom enforcement is sought. This Note shall be binding upon the undersigned and its successors and assigns. Notwithstanding the foregoing, the undersigned may not assign any of its rights or delegate any of its obligations hereunder without the prior written consent of Lender, which may be withheld in its sole discretion. THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND WITHOUT RESPECT TO ANY 3 4 OTHERWISE APPLICABLE CONFLICTS-OF-LAWS PRINCIPLES, BOTH AS TO INTERPRETATION AND PERFORMANCE, AND THE PARTIES EXPRESSLY CONSENT AND AGREE TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF MARYLAND AND THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND, WAIVING ALL CLAIMS OR DEFENSES BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, INCONVENIENT FORUM OR THE LIKE. BORROWER HEREBY CONSENTS TO SERVICE OF PROCESS BY MAILING A COPY OF THE SUMMONS TO BORROWER, BY CERTIFIED OR REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER'S ADDRESS SET FORTH IN SECTION 9.4 OF THE LOAN AGREEMENT. BORROWER FURTHER WAIVES ANY CLAIM FOR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY LENDER IN GOOD FAITH. THE UNDERSIGNED HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY THE UNDERSIGNED, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF THE UNDERSIGNED'S WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, THE UNDERSIGNED HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO ANY BORROWER THAT LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. 4 5 IN WITNESS WHEREOF, the undersigned have caused their authorized officers to execute this Note as of the date first above written. BORROWER: ATTEST: RETIREMENT CARE ASSOCIATES, INC., a Colorado corporation By: By: [SEAL] ----------------------------- -------------------------- Name: Name: Title: Title: ATTEST: CAPITOL CARE MANAGEMENT COMPANY, INC. a Georgia corporation By: By: [SEAL] ----------------------------- ---------------------------- Name: Name: Title: Title: ATTEST: RETIREMENT MANAGEMENT CORPORATION a Georgia corporation By: By: [SEAL] ----------------------------- ---------------------------- Name: Name: Title: Title: 5 EX-10.19 5 FORM OF REVOLVING CREDIT NOTE BY SUBSIDIARIES 1 EXHIBIT 10.19 REVOLVING CREDIT NOTE $10,000,000.00 December 15, 1997 For value received, the undersigned, ATRIUM NURSING HOME, INC., a Florida corporation, MID-FLORIDA, INC., a Georgia corporation, SUN COAST RETIREMENT, INC., a Georgia corporation, WEST TENNESSEE, INC., a Georgia corporation, LAKE FOREST HEALTHCARE CENTER, INC., a Georgia corporation , LIBBIE REHABILITATION CENTER, INC., a Virginia corporation, BRENT-LOX HALL NURSING HOME, INC., a Virginia corporation, PHOENIX ASSOCIATES, INC., a Virginia corporation, PINE MANOR REST HOME, INC., a North Carolina corporation, STATESBORO HEALTH CARE CENTER, INC., a Georgia corporation, GARDENDALE HEALTH CARE CENTER, INC., a Georgia corporation, ROBERTA HEALTH CARE CENTER, INC., a Georgia corporation, SOUTHSIDE HEALTH CARE CENTER, INC., a Georgia corporation, CRESENT MEDICAL SERVICES, INC., a Georgia corporation, GAINESVILLE HEALTHCARE CENTER, INC., a Georgia corporation, DUVAL HEALTHCARE CENTER, INC., a Georgia corporation, JEFF DAVIS HEALTHCARE, INC., a Georgia corporation, CHARLTON HEALTHCARE, INC., a Georgia corporation, BIBB HEALTH REHABILITATION, INC., a Georgia corporation, MAPLEWOOD HEALTH CARE CENTER OF JACKSON TENNESSEE, INC., a Tennessee corporation and LAKE HEALTH CARE CENTER, INC., a Georgia corporation (collectively, "Borrower"), jointly and severally, promise to pay, in lawful money of the United States, to the order of HCFP FUNDING, INC., a Delaware corporation ("Lender"), the principal sum of Ten Million and No/100 Dollars ($10,000,000.00), or so much thereof as shall be advanced or readvanced and shall remain unpaid under the Loan established pursuant to that certain Loan and Security Agreement of even date with this Note by and among the undersigned and Lender (the "Loan Agreement"), plus interest on the unpaid balance thereof, computed on a 360-day basis, at the rate per annum that is set forth in the Loan Agreement. All capitalized terms used, and not otherwise specifically defined, in this Note shall have the meanings ascribed to them in the Loan Agreement. This Note shall evidence the undersigned's obligation to repay all sums advanced by Lender from time to time under and as part of the Loan. The actual amount due and owing from time to time under this Note shall be evidenced by Lender's records of receipts and disbursements with respect to the Loan, which shall be conclusive evidence of that amount, absent manifest error. Interest hereon shall be payable monthly, in arrears, on the first Business Day of each month hereafter (for the previous month). For purposes of this Note, a "Business Day" shall mean any day on which banks are open for business in Maryland, excluding Saturdays and Sundays. This Note shall become due and payable upon the earlier to occur of (i) the expiration of the Term, or (ii) any Event of Default under the Loan Agreement, or any other event under any 2 other Loan Documents which would result in this Note becoming due and payable. At such time, the entire principal balance of this Note and all other fees, costs and expenses, if any, shall be due and payable in full. Lender shall then have the option at any time and from time to time to exercise all of the rights and remedies set forth in this Note and in the other Loan Documents, as well as all rights and remedies otherwise available to Lender at law or in equity, to collect the unpaid indebtedness under this Note and the other Loan Documents. This Note is secured by the Collateral, as defined in and described in the Loan Agreement. Whenever any principal and/or interest and/or fee under this Note shall not be paid when due, whether at the stated maturity or by acceleration, interest on such unpaid amounts shall thereafter be payable at a rate per annum equal to three percentage points above the stated rate of interest on this Note until such amounts shall be paid. The undersigned and Lender intend to conform strictly to the applicable usury laws in effect from time to time during the term of the Loan. Accordingly, if any transaction contemplated hereby would be usurious under such laws, then notwithstanding any other provision hereof: (a) the aggregate of all interest that is contracted for, charged, or received under this Note or under any other Loan Document shall not exceed the maximum amount of interest allowed by applicable law, and any excess shall be promptly credited to the undersigned by Lender (or, to the extent that such consideration shall have been paid, such excess shall be promptly refunded to the undersigned by Lender); (b) neither the undersigned nor any other Person (as defined in the Loan Agreement) now or hereafter liable hereunder shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum interest permitted by applicable law; and (c) the effective rate of interest shall be reduced to the Highest Lawful Rate (as defined in the Loan Agreement). All sums paid, or agreed to be paid, to Lender for the use, forbearance, and detention of the debt of Borrower to Lender shall, to the extent permitted by applicable law, be allocated throughout the full term of this Note until payment is made in full so that the actual rate of interest does not exceed the Highest Lawful Rate in effect at any particular time during the full term thereof. If at any time the rate of interest under the Note exceeds the Highest Lawful Rate, the rate of interest to accrue pursuant to this Note shall be limited, notwithstanding anything to the contrary herein, to the Highest Lawful Rate, but any subsequent reductions in the Base Rate shall not reduce the interest to accrue pursuant to this Note below the Highest Lawful Rate until the total amount of interest accrued equals the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect. If the total amount of interest paid or accrued pursuant to this Note under the foregoing provisions is less than the total amount of interest that would have accrued if a varying rate per annum equal to the interest rate under this Note had been in effect, then the undersigned agrees to pay to Lender an amount equal to the difference between (a) the lesser of (i) the amount of interest that would have accrued if the Highest Lawful Rate had at all times been in effect, or (ii) the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect, and (b) the amount of interest accrued in accordance with the other provisions of this Note and the Loan Agreement. 3 This Note is the "Note" referred to in the Loan Agreement, and is issued pursuant thereto. Reference is made to the Loan Agreement for a statement of the additional rights and obligations of the undersigned and Lender. In the event of any conflict between the terms hereof and the terms of the Loan Agreement, the terms of the Loan Agreement shall prevail. All of the terms, covenants, provisions, conditions, stipulations, promises and agreements contained in the Loan Documents to be kept, observed and/or performed by the undersigned are made a part of this Note and are incorporated herein by this reference to the same extent and with the same force and effect as if they were fully set forth herein, and the undersigned promises and agrees to keep, observe and perform them or cause them to be kept, observed and performed, strictly in accordance with the terms and provisions thereof. Each party liable hereon in any capacity, whether as maker, endorser, surety, guarantor or otherwise, (i) waives presentment for payment, demand, protest and notice of presentment, notice of protest, notice of non-payment and notice of dishonor of this debt and each and every other notice of any kind respecting this Note and all lack of diligence or delays in collection or enforcement hereof, (ii) agrees that Lender and any subsequent holder of this Note, at any time or times, without notice to the undersigned or its consent, may grant extensions of time, without limit as to the number of the aggregate period of such extensions, for the payment of any principal, interest or other sums due hereunder, (iii) to the extent permitted by law, waives all exemptions under the laws of the State of Maryland and/or any state or territory of the United States, (iv) to the extent permitted by law, waives the benefit of any law or rule of law intended for its advantage or protection as an obligor hereunder or providing for its release or discharge from liability hereon, in whole or in part, on account of any facts or circumstances other than full and complete payment of all amounts due hereunder, and (v) agrees to pay, in addition to all other sums of money due, all cost of collection and attorney's fees, whether suit be brought or not, if this Note is not paid in full when due, whether at the stated maturity or by acceleration. No waiver by Lender or any subsequent holder of this Note of any one or more defaults by the undersigned in the performance of any of its obligations hereunder shall operate or be construed as a waiver of any future default or defaults, whether of a like or different nature. No failure or delay on the part of Lender in exercising any right, power or remedy under this Note (including, without limitation, the right to declare this Note due and payable) shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. If any term, covenant or condition of this Note, or the application of such term, covenant or condition to any party or circumstance shall be found by a court of competent jurisdiction to be, to any extent, invalid or unenforceable, the remainder of this Note and the application of such term, covenant, or condition to parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term, covenant or condition shall be valid and enforced to the fullest extent permitted by law. Upon determination that any such term is invalid, illegal or unenforceable, the undersigned shall cooperate with Lender to 3 4 amend this Note so as to effect the original intent of the parties as closely as possible in an acceptable manner. No amendment, supplement or modification of this Note nor any waiver of any provision hereof shall be made except in writing executed by the party against whom enforcement is sought. This Note shall be binding upon the undersigned and its successors and assigns. Notwithstanding the foregoing, the undersigned may not assign any of its rights or delegate any of its obligations hereunder without the prior written consent of Lender, which may be withheld in its sole discretion. THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND WITHOUT RESPECT TO ANY OTHERWISE APPLICABLE CONFLICTS-OF-LAWS PRINCIPLES, BOTH AS TO INTERPRETATION AND PERFORMANCE, AND THE PARTIES EXPRESSLY CONSENT AND AGREE TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF MARYLAND AND THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND, WAIVING ALL CLAIMS OR DEFENSES BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, INCONVENIENT FORUM OR THE LIKE. BORROWER HEREBY CONSENTS TO SERVICE OF PROCESS BY MAILING A COPY OF THE SUMMONS TO BORROWER, BY CERTIFIED OR REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER'S ADDRESS SET FORTH IN SECTION 9.4 OF THE LOAN AGREEMENT. BORROWER FURTHER WAIVES ANY CLAIM FOR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY LENDER IN GOOD FAITH. THE UNDERSIGNED HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY THE UNDERSIGNED, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF THE UNDERSIGNED'S WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, THE UNDERSIGNED HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY 4 5 OR OTHERWISE, TO ANY BORROWER THAT LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. 5 6 IN WITNESS WHEREOF, the undersigned have caused their authorized officers to execute this Note as of the date first above written. ATRIUM NURSING HOME, INC. a Florida corporation By: ------------------------------------ Name: Title: MID-FLORIDA, INC. a Georgia corporation By: ------------------------------------ Name: Title: SUN COAST RETIREMENT, INC. a Georgia corporation By: ------------------------------------ Name: Title: WEST TENNESSEE, INC. a Georgia corporation By: ------------------------------------ Name: Title: 6 7 LAKE FOREST HEALTHCARE CENTER, INC., a Georgia corporation By: ------------------------------------ Name: Title: LIBBIE REHABILITATION CENTER, INC. a Virginia corporation By: ------------------------------------ Name: Title: BRENT-LOX HALL NURSING HOME, INC. a Virginia corporation By: ------------------------------------ Name: Title: PHOENIX ASSOCIATES, INC. a Virginia corporation By: ------------------------------------ Name: Title: PINE MANOR REST HOME, INC. a North Carolina corporation By: ------------------------------------ Name: Title: STATESBORO HEALTH CARE CENTER, INC. 7 8 a Georgia corporation By: ------------------------------------ Name: Title: GARDENDALE HEALTH CARE CENTER, INC. a Georgia corporation By: ------------------------------------ Name: Title: ROBERTA HEALTH CARE CENTER, INC. a Georgia corporation By: ------------------------------------ Name: Title: SOUTHSIDE HEALTH CARE CENTER, INC. a Georgia corporation By: ------------------------------------ Name: Title: CRESENT MEDICAL SERVICES, INC. a Georgia corporation By: ------------------------------------ Name: Title: 8 9 GAINESVILLE HEALTHCARE CENTER, INC. a Georgia corporation By: ------------------------------------ Name: Title: JEFF DAVIS HEALTHCARE, INC. a Georgia corporation By: ------------------------------------ Name: Title: DUVAL HEALTHCARE CENTER, INC. a Georgia corporation By: ------------------------------------ Name: Title: CHARLTON HEALTHCARE, INC. a Georgia corporation By: ------------------------------------ Name: Title: BIBB HEALTH REHABILITATION, INC. a Georgia corporation By: ------------------------------------ Name: Title: 9 10 MAPLEWOOD HEALTH CARE CENTER OF JACKSON TENNESSEE, INC. a Tennessee corporation By: ------------------------------------ Name: Title: LAKE HEALTH CARE CENTER, INC. a Georgia corporation By: ------------------------------------ Name: Title: 10 EX-10.20 6 FORM OF LOAN AND SECURITY AGREEMENT 1 EXHIBIT 10.20 $10,000,000.00 LOAN AND SECURITY AGREEMENT by and among RETIREMENT CARE ASSOCIATES, INC. CAPITOL CARE MANAGEMENT COMPANY, INC. RETIREMENT MANAGEMENT CORPORATION (individually, "Borrower" and collectively, "Borrowers") and HCFP FUNDING, INC. ("Lender") December 15, 1997 2 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of this 15th day of December, 1997, by and among RETIREMENT CARE ASSOCIATES, INC., a Colorado corporation, CAPITOL CARE MANAGEMENT COMPANY, INC., a Georgia corporation and RETIREMENT MANAGEMENT CORPORATION, a Georgia corporation (collectively, "Borrowers" and individually, a "Borrower"), and HCFP FUNDING, INC., a Delaware corporation ("Lender"). RECITALS A. Borrowers desire to establish certain financing arrangements with and borrow funds from Lender, and Lender is willing to establish such arrangements for and make loans and extensions of credit to Borrowers, on the terms and conditions set forth below. B. The parties desire to define the terms and conditions of their relationship and to reduce their agreements to writing. NOW, THEREFORE, in consideration of the promises and covenants contained in this Agreement, and for other consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: SECTION 1.1. ACCOUNT. "Account" means any right to payment for goods sold or leased or services rendered, whether or not evidenced by an instrument or chattel paper, and whether or not earned by performance. SECTION 1.2. ACCOUNT DEBTOR. "Account Debtor" means any Person obligated on any Account of a Borrower, including without limitation, any Insurer and any Medicaid/Medicare Account Debtor. SECTION 1.3. AFFILIATE. "Affiliate" means, with respect to a specified Person, any Person directly or indirectly controlling, controlled by, or under common control with the specified Person, including without limitation their stockholders and any Affiliates thereof. A Person shall be deemed to control a corporation or other entity if the Person possesses, directly or indirectly, the power to direct or cause the direction of the management and business of the 3 corporation or other entity, whether through the ownership of voting securities, by contract, or otherwise. SECTION 1.4. AGREEMENT. "Agreement" means this Loan and Security Agreement, as it may be amended or supplemented from time to time. SECTION 1.5. BASE RATE. "Base Rate" means a rate of interest equal to two percent (2.0%) above the "Prime Rate of Interest". SECTION 1.6. BORROWED MONEY. "Borrowed Money" means any obligation to repay money, any indebtedness evidenced by notes, bonds, debentures or similar obligations, any obligation under a conditional sale or other title retention agreement and the net aggregate rentals under any lease which under GAAP would be capitalized on the books of a Borrower or which is the substantial equivalent of the financing of the property so leased. SECTION 1.7. BORROWER. "Borrower" and "Borrowers" have the meaning set forth in the Preamble. SECTION 1.8. BORROWING BASE. "Borrowing Base" has the meaning set forth in Section 2.1(d). SECTION 1.9. BUSINESS DAY. "Business Day" means any day on which financial institutions are open for business in the States of Maryland and Georgia, excluding Saturdays and Sundays. SECTION 1.10. CLOSING; CLOSING DATE. "Closing" and "Closing Date" have the meanings set forth in Section 5.3. SECTION 1.11. COLLATERAL. "Collateral" has the meaning set forth in Section 3.1. SECTION 1.12. COMMITMENT FEE. "Commitment Fee" has the meaning set forth in Section 2.4(a). SECTION 1.13. CONCENTRATION ACCOUNT. "Concentration Account" has the meaning set forth in Section 2.3(a). SECTION 1.14. CONTROLLED GROUP. "Controlled Group" means a "controlled group" within the meaning of Section 4001(b) of ERISA. SECTION 1.15. INTENTIONALLY DELETED. SECTION 1.16. DEFAULT RATE. "Default Rate" means a rate per annum equal to three percent (3%) above the then applicable Base Rate. SECTION 1.17. ERISA. "ERISA" has the meaning set forth in Section 4.12. 4 SECTION 1.18. EVENT OF DEFAULT. "Event of Default" and "Events of Default" have the meanings set forth in Section 8.1 (a), subject to the additional provisions of Section 8.1 (b) regarding "Limited Events of Default." SECTION 1.19. GAAP. "GAAP" means generally accepted accounting principles applied in a matter consistent with the financial statements referred to in Section 4.7. SECTION 1.20. GOVERNMENTAL AUTHORITY. "Governmental Authority" means and includes any federal, state, District of Columbia, county, municipal, or other government and any department, commission, board, bureau, agency or instrumentality thereof, whether domestic or foreign. SECTION 1.21. HAZARDOUS MATERIAL. "Hazardous Material" means any substances defined or designated as hazardous or toxic waste, hazardous or toxic material, hazardous or toxic substance, or similar term, by any environmental statute, rule or regulation or any Governmental Authority. SECTION 1.22. HIGHEST LAWFUL RATE. "Highest Lawful Rate" means the maximum lawful rate of interest referred to in Section 2.7 that may accrue pursuant to this Agreement. SECTION 1.23. INSURER. "Insurer" means a Person that insures a Patient against certain of the costs incurred in the receipt by such Patient of Medical Services, or that has an agreement with a Borrower to compensate such Borrower for providing services to a Patient. SECTION 1.23. A. LEASES AND RENTS. "Leases and Rents" shall mean all rents, revenues, issues and profits payable to a Borrower with respect to its ownership of real property, all lease, occupancy or similar agreements relating to real property owned by a Borrower and any contract for the sale, exchange or other disposition of any such real property, and all books and records of a Borrower relating to any of the foregoing. SECTION 1.24. LENDER. "Lender" has the meaning set forth in the Preamble. SECTION 1.24 A. LIMITED EVENT OF DEFAULT. "Limited Event of Default" has the meaning set forth in Section 8.1 (b). SECTION 1.25. LOAN. "Loan" has the meaning set forth in Section 2.1(a). SECTION 1.26. LOAN DOCUMENTS. "Loan Documents" means and includes this Agreement, the Note, and each and every other document now or hereafter delivered in connection therewith, as any of them may be amended, modified, or supplemented from time to time. SECTION 1.27. LOAN MANAGEMENT FEE. "Loan Management Fee" has the meaning set forth in Section 2.4(c). 3 5 SECTION 1.28. LOCKBOX. "Lockbox" has the meaning set forth in Section 2.3. SECTION 1.29. LOCKBOX BANK. "Lockbox Bank" has the meaning set forth in Section 2.3. SECTION 1.30. MAXIMUM LOAN AMOUNT. "Maximum Loan Amount" has the meaning set forth in Section 2.1(a). SECTION 1.31. MEDICAID/MEDICARE ACCOUNT DEBTOR. "Medicaid/Medicare Account Debtor" means any Account Debtor which is (i) the United States of America acting under the Medicaid/Medicare program established pursuant to the Social Security Act, (ii) any state or the District of Columbia acting pursuant to a health plan adopted pursuant to Title XIX of the Social Security Act or (iii) any agent, carrier, administrator or intermediary for any of the foregoing. SECTION 1.32. MEDICAL SERVICES. Medical and health care services provided to a Patient, including, but not limited to, medical and health care services provided to a Patient and performed by a Borrower which are covered by a policy of insurance issued by an Insurer, and includes physician services, nurse and therapist services, dental services, hospital services, skilled nursing facility services, comprehensive outpatient rehabilitation services, home health care services, residential and out-patient behavioral healthcare services, and medicine or health care equipment provided by a Borrower to a Patient for a necessary or specifically requested valid and proper medical or health purpose. SECTION 1.33. NOTE. "Note" has the meaning set forth in Section 2.1(c). SECTION 1.34. OBLIGATIONS. "Obligations" has the meaning set forth in Section 3.1. SECTION 1.35. PATIENT. "Patient" means any Person receiving Medical Services from a Borrower and all Persons legally liable to pay such Borrower for such Medical Services other than Insurers. SECTION 1.36. PERMITTED LIENS. "Permitted Liens" means: (a) any and all liens, claims and encumbrances whatsoever, so long as the same do not attach to any portion of the Collateral, (b)statutory and contractual liens of depository institutions against depository accounts included within the Collateral for unpaid fees, charges and expenses, so long as a Borrower does not have an outstanding loan or credit facility with such depository institution and (c) liens listed on Schedule 1.36 hereto. SECTION 1.37. PERSON. "Person" means an individual, partnership, corporation, trust, joint venture, joint stock company, limited liability company, association, unincorporated organization, Governmental Authority, or any other entity. SECTION 1.38. PLAN. "Plan" has the meaning set forth in Section 4.12. 4 6 SECTION 1.39. PREMISES. "Premises" has the meaning set forth in Section 4.14. SECTION 1.40. PRIME RATE OF INTEREST. "Prime Rate of Interest" means that rate of interest designated as such by Fleet National Bank of Connecticut, N.A., or any successor thereto, as the same may from time to time fluctuate. SECTION 1.41. PROHIBITED TRANSACTION. "Prohibited Transaction" means a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975(c)(1) of the Internal Revenue Code. SECTION 1.42. QUALIFIED ACCOUNT. "Qualified Account" means an Account of a Borrower generated in the ordinary course of such Borrower's business from the sale of goods or rendition of medical services; provided, however, that no Account shall be a Qualified Account if: (a) the Account or any portion thereof is payable by an individual beneficiary, recipient or subscriber individually and not directly to a Borrower by a Medicaid/Medicare Account Debtor or commercial medical insurance carrier acceptable to Lender in its sole discretion; (b) the Account remains unpaid more than ninety (90) days past the claim or invoice date, (provided, however, that no more than fifteen percent (15%) of such Qualified Accounts at any time shall be between sixty-one (61) and ninety (90) days past the claim or invoice date); (c) the Account is subject to any defense, set-off, counterclaim, deduction, discount, credit, chargeback, freight claim, allowance, or adjustment of any kind; (d) any part of any goods the sale of which has given rise to the Account has been returned, rejected, lost, or damaged; (e) if the Account arises from the sale of goods by a Borrower, such sale was not an absolute sale or on consignment or on approval or on a sale-or-return basis or subject to any other repurchase or return agreement, or such goods have not been shipped to the Account Debtor or its designee; (f) if the Account arises from the performance of services, such services have not been actually been performed or were undertaken in violation of any law (it may be acknowledged and agreed that accounts payable by Florida Medicaid and all Medicare Account Debtors shall be deemed Qualified Accounts prior to billing once the applicable Medicare Services have been performed and/or goods have been delivered); (g) the Account is subject to a lien other than a Permitted Lien; (h) a Borrower knows or should reasonably have known of the bankruptcy, receivership, reorganization, or insolvency of the Account Debtor; (i) the Account is evidenced by chattel paper or an instrument of any kind, or has been reduced to judgment; (j) the Account is an Account of an Account Debtor having its principal place of business or executive office outside the United States; (k) the Account Debtor is an Affiliate or Subsidiary of a Borrower; (l) more than ten percent (10%) of the aggregate balance of all Accounts owing from the Account Debtor, except for a Medicare/Medicaid Account Debtor, obligated on the Account (excluding any Medicaid/Medicare Account Debtor) are outstanding more than one hundred twenty (120) days past their invoice date; (m) fifty percent (50%) or more of the aggregate unpaid Accounts from any individual Account Debtor except for a Medicare/Medicaid Account Debtor, are not deemed Qualified Accounts hereunder; (n) the total unpaid Accounts of the Account Debtor, except for a Medicaid/Medicare Account Debtor, exceed twenty percent (20%) of the net amount of all Qualified Accounts (including Medicaid/Medicare Account Debtors); (o) any covenant, representation or warranty contained in the Loan Documents with respect to such Account has 5 7 been breached; (p) the Account fails to meet such other reasonable specifications and requirements which may from time to time be established by Lender upon not less than ninety (90) days prior written notice to Borrowers, or (q) the Account ceases to be a Qualified Account pursuant to Section 8.2 (a) hereof. SECTION 1.43. REPORTABLE EVENT. "Reportable Event" means a "reportable event" as defined in Section 4043(b) of ERISA. SECTION 1.44. REVOLVING CREDIT LOAN. "Revolving Credit Loan" has the meaning set forth in Section 2.1(b). SECTION 1.45. TERM. "Term" has the meaning set forth in Section 2.8. ARTICLE II LOAN SECTION 2.1. TERMS. (a) The maximum aggregate principal amount of credit extended by Lender to Borrowers hereunder (the "Loan") that will be outstanding at any time is Ten Million and No/100 Dollars ($10,000,000.00) (the "Maximum Loan Amount"). Notwithstanding the above, the maximum aggregate principal amount of Revolving Credit Loans made by Lender to Borrower under this Agreement and to the Affiliated Borrowers under the Affiliated Loan Agreement (defined in Section 3.1 below) shall not at any time exceed Fourteen Million and No/100 Dollars ($14,000,000.00). (b) The Loan shall be in the nature of a revolving line of credit, and shall include sums advanced and other credit extended by Lender to or for the benefit of Borrowers from time to time under this Article II (each a "Revolving Credit Loan") up to the Maximum Loan Amount depending upon the availability in the Borrowing Base, the requests of Borrower pursuant to the terms and conditions of Section 2.2 below, and on such other basis as Lender may reasonably determine. The outstanding principal balance of the Loan may fluctuate from time to time, to be reduced by repayments made by Borrowers (which may be made without penalty or premium), and to be increased by future Revolving Credit Loans, advances and other extensions of credit to or for the benefit of Borrowers, and shall be due and payable in full upon the expiration of the Term. For purposes of this Agreement, any determination as to whether there is ability within the Borrowing Base for advances or extensions of credit shall be made by Lender in its sole discretion and is final and binding upon Borrowers. (c) At Closing, Borrowers shall execute and deliver to Lender a promissory note evidencing Borrowers' unconditional obligation to repay Lender for Revolving Credit Loans, advances, and other extensions of credit made under the Loan, in the form of Exhibit A to 6 8 this Agreement (the "Note"), dated the date hereof, payable to the order of Lender in accordance with the terms thereof. The amounts outstanding under the Note shall bear interest from the date thereof until repaid, with interest payable monthly in arrears on the first Business Day of each month, at a rate per annum (on the basis of the actual number of days elapsed over a year of 360 days) equal to the Base Rate, provided that after the occurrence and during the continuance of an Event of Default (but not a Limited Event of Default) such rate shall be equal to the Default Rate. Each Revolving Credit Loan, advance and other extension of credit shall be deemed evidenced by the Note, which is deemed incorporated by reference herein and made a part hereof. (d) Subject to the terms and conditions of this Agreement, advances under the Loan shall be made against a borrowing base equal to eighty percent (80%) of Qualified Accounts due and owing from any Medicaid/Medicare Account Debtor, Insurer or other Account Debtor (the "Borrowing Base"). SECTION 2.2. LOAN ADMINISTRATION. Borrowings under the Loan shall be as follows: (a) A request for a Revolving Credit Loan shall be made, or shall be deemed to be made, in the following manner: (i) Borrowers may give Lender notice of their intention to borrow, in which notice Borrowers shall specify the amount of the proposed borrowing and the proposed borrowing date, not later than 5:00 p.m. Eastern time one (1) Business Day prior to the proposed borrowing date; provided, however, that no such request may be made at a time when there exists an Event of Default (other than a Limited Event of Default); and (ii) the becoming due of any amount required to be paid under this Agreement, whether as interest or for any other Obligation, shall be deemed irrevocably to be a request for a Revolving Credit Loan on the due date in the amount required to pay such interest or other Obligation. With respect to any request for a Revolving Credit Loan which is made not later than 10:30 a.m. Eastern time, Lender shall use its best efforts to advance proceeds of such Revolving Credit Loan by 4:00 p.m. on the same Business Day. (b) Borrowers hereby irrevocably authorize Lender to disburse the proceeds of each Revolving Credit Loan requested, or deemed to be requested, as follows: (i) the proceeds of each Revolving Credit Loan requested under subsection 2.2(a)(i) shall be disbursed by Lender by wire transfer to such bank account as may be agreed upon by Borrowers or Lender from time to time or elsewhere if pursuant to written direction from Borrowers; and (ii) the proceeds of each Revolving Credit Loan requested under subsection 2.2(a)(ii) shall be disbursed by Lender by way of direct payment of the relevant interest or other Obligation. (c) All Revolving Credit Loans, advances and other extensions of credit to or for the benefit of Borrowers shall constitute one general Obligation of Borrowers, and shall be secured by Lender's lien upon all of the Collateral. (d) Lender shall enter all Revolving Credit Loans as debits to a loan account in the name of Borrowers and shall also record in said loan account all payments made by 7 9 Borrowers on any Obligations and all proceeds of Collateral which are indefeasibly paid to Lender, and may record therein, in accordance with customary accounting practice, other debits and credits, including interest and all charges and expenses properly chargeable to Borrowers. (e) Lender will account to Borrowers monthly with a statement of Revolving Credit Loans, charges and payments made pursuant to this Agreement, and such account rendered by Lender shall be deemed final, binding and conclusive upon Borrowers absent manifest error. SECTION 2.3. COLLECTIONS, DISBURSEMENTS, BORROWING AVAILABILITY, AND LOCKBOX ACCOUNT. Borrowers shall maintain a lockbox account (the "Lockbox") with First Union National Bank of Florida, N.A. (Jacksonville Office) (the "Lockbox Bank"), subject to the provisions of this Agreement, and shall execute with the Lockbox Bank a Lockbox Agreement in the form attached as Exhibit B, and such other agreements related thereto as Lender may require. Each Borrower shall ensure that all collections of Accounts are paid directly from Account Debtors into the Lockbox, and that all funds paid into the Lockbox are immediately transferred into a depository account maintained by Lender at Bank One Arizona, N.A. or U.S. Bank, N.A., as determined by Lender in its sole discretion and communicated to Borrower (the "Concentration Account"). Lender shall apply, on a daily basis, all funds transferred into the Concentration Account pursuant to this Section 2.3 to reduce the outstanding indebtedness under the Loan with future Revolving Credit Loans, advances and other extensions of credit to be made by Lender under the conditions set forth in this Article II. To the extent that any collections of Accounts or proceeds of other Collateral are not sent directly to the Lockbox but are received by a Borrower, such collections shall be held in trust for the benefit of Lender and immediately remitted, in the form received, to the Lockbox Bank for transfer to the Concentration Account immediately upon receipt by such Borrower. Each Borrower acknowledges and agrees that its compliance with the terms of this Section 2.3 is essential, and that upon its failure to comply with any such terms Lender shall be entitled to assess a non-compliance fee which shall operate to increase the Base Rate by two percent (2%) per annum during any period of non-compliance. Lender shall be entitled to assess such fee whether or not an Event of Default is declared or otherwise occurs. All funds transferred from the Concentration Account for application to Borrowers' indebtedness to Lender shall be applied to reduce the Loan balance but for purposes of calculating interest shall be subject to a three (3) Business Day clearance period. If as the result of collections of Accounts pursuant to the terms and conditions of this Section 2.3 a credit balance exists with respect to the Concentration Account, such credit balance shall not accrue interest in favor of Borrowers, but shall be available to Borrowers at any time or times for so long as no Event of Default (other than a Limited Event of Default) exists. SECTION 2.4. FEES. (a) At Closing, Borrower shall unconditionally pay to Lender a commitment fee equal One Hundred Forty Thousand and No/100 Dollars ($140,000.00) in the aggregate under this Agreement and the Affiliated Loan Agreement (as defined in Section 3.1 of this Agreement)(the "Commitment Fee"). 8 10 (b) For so long as the Loan is available to Borrowers, Borrowers unconditionally shall pay to Lender a monthly usage fee (the "Usage Fee") equal to one twelfth (1/12th) of one percent (1.0%) of the average amount by which Fourteen Million and No/100 Dollars ($14,000,000.00) exceeds the aggregate average amount of the outstanding principal balance of the Revolving Credit Loans during the preceding month. The Usage Fee shall be payable monthly in arrears on the first Business Day of each successive calendar month. (c) For so long as the Loan is available to Borrowers, Borrowers unconditionally shall pay to Lender a monthly loan management fee (the "Loan Management Fee") equal to Three Thousand Five Hundred and No/100 Dollars ($3,500.00) per month in the aggregate under this Agreement aand the Affiliated Loan Agreement. The Loan Management Fee shall be payable monthly in arrears on the first day of each successive calendar month. (d) Within 30 days after demand by Lender, Borrowers shall pay to Lender all audit and appraisal fees in connection with audits and appraisals of any Borrower's books and records and such other matters as Lender shall deem appropriate; provided, however, that absent the occurrence of an Event of Default (other than a Limited Event of Default) such fees shall not exceed Twenty Thousand and No/100 Dollars ($20,000.00) in the aggregate under this Agreement and the Affiliated Loan Agreement in any twelve month period. (e) Borrowers shall pay to Lender, on demand, any and all fees, costs or expenses which Lender or any participant pays to a bank or other similar institution (including, without limitation, any fees paid by Lender to any participant) arising out of or in connection with (i) the forwarding to Borrowers or any other Person on behalf of Borrowers, by Lender, of proceeds of Revolving Credit Loans made by Lender to Borrowers pursuant to this Agreement, and (ii) the depositing for collection, by Lender or any participant, of any check or item of payment received or delivered to Lender or any participant on account of Obligations. SECTION 2.5. PAYMENTS. Principal payable on account of Revolving Credit Loans shall be payable by Borrowers to Lender immediately upon the earliest of (i) the receipt by any Borrower of any proceeds of any of the Collateral, to the extent of such proceeds, (ii) the occurrence of an Event of Default in consequence of which the Loan and the maturity of the payment of the Obligations are accelerated, or (iii) the termination of this Agreement pursuant to Section 2.8 hereof; provided, however, that if any advance made by Lender in excess of the Borrowing Base shall exist at any time, Borrowers shall, immediately upon demand, repay such overadvance. Interest accrued on the Revolving Credit Loans shall be due on the earliest of (i) the first Business Day of each month (for the immediately preceding month), computed on the last calendar day of the preceding month, (ii) the occurrence of an Event of Default in consequence of which the Loan and the maturity of the payment of the Obligations are accelerated, or (iii) the termination of this Agreement pursuant to Section 2.8 hereof. Except to the extent otherwise set forth in this Agreement, all payments of principal and of interest on the Loan, all other charges and any other obligations of Borrowers hereunder, shall be made to Lender to the Concentration Account, in immediately available funds. 9 11 SECTION 2.6. USE OF PROCEEDS. The proceeds of Lender's advances under the Loan shall be used solely for working capital purposes arising in the ordinary course of Borrowers' business. SECTION 2.7. INTEREST RATE LIMITATION. The parties intend to conform strictly to the applicable usury laws in effect from time to time during the term of the Loan. Accordingly, if any transaction contemplated hereby would be usurious under such laws, then notwithstanding any other provision hereof: (i) the aggregate of all interest that is contracted for, charged, or received under this Agreement or under any other Loan Document shall not exceed the maximum amount of interest allowed by applicable law (the "Highest Lawful Rate"), and any excess shall be promptly credited to Borrowers by Lender (or, to the extent that such consideration shall have been paid, such excess shall be promptly refunded to Borrowers by Lender); (ii) neither Borrowers nor any other Person now or hereafter liable hereunder shall be obligated to pay the amount of such interest to the extent that it is in excess of the Highest Lawful Rate; and (iii) the effective rate of interest shall be reduced to the Highest Lawful Rate. All sums paid, or agreed to be paid, to Lender for the use, forbearance, and detention of the debt of Borrowers to Lender shall, to the extent permitted by applicable law, be allocated throughout the full term of the Note until payment is made in full so that the actual rate of interest does not exceed the Highest Lawful Rate in effect at any particular time during the full term thereof. If at any time the rate of interest under the Note exceeds the Highest Lawful Rate, the rate of interest to accrue pursuant to this Agreement shall be limited, notwithstanding anything to the contrary herein, to the Highest Lawful Rate, but any subsequent reductions in the Base Rate shall not reduce the interest to accrue pursuant to this Agreement below the Highest Lawful Rate until the total amount of interest accrued equals the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect. If the total amount of interest paid or accrued pursuant to this Agreement under the foregoing provisions is less than the total amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had been in effect, then Borrowers agree to pay to Lender an amount equal to the difference between (i) the lesser of (x) the amount of interest that would have accrued if the Highest Lawful Rate had at all times been in effect, or (y) the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect, and (ii) the amount of interest accrued in accordance with the other provisions of this Agreement. SECTION 2.8. TERM. (a) Subject to Lender's right to cease making Revolving Credit Loans to Borrowers upon or after the occurrence and during the continuance of any Event of Default (subject to Section 8.1 (b)), this Agreement shall be in effect for a period of three (3) years from the Closing Date, unless terminated as provided in this Section 2.8 (the "Term"), and this Agreement shall be renewed for one-year periods thereafter upon the mutual written agreement of the parties. 10 12 (b) Notwithstanding anything herein to the contrary, Lender may (subject to Section 8.1 (b)) terminate this Agreement without notice upon or after the occurrence and during the continuance of the occurrence of an Event of Default. (c) Upon at least thirty (30) days prior written notice to Lender, Borrower may terminate this Agreement prior to the third annual anniversary of the Closing Date, provided that, at the effective date of such termination, Borrowers shall pay to Lender (in addition to the then outstanding principal, accrued interest and other Obligations owing under the terms of this Agreement and any other Loan Documents) as liquidated damages for the loss of bargain and not as a penalty, an amount equal to One Hundred Forty Thousand and No/100 Dollars ($140,000.00) in the aggregate under this Agreement and the Affiliated Loan Agreement. (d) All of the Obligations shall be immediately due and payable upon the termination date stated in any notice of termination of this Agreement. All undertakings, agreements, covenants, warranties, and representations of Borrowers contained in the Loan Documents shall survive any such termination and Lender shall retain its liens in the Collateral and all of its rights and remedies under the Loan Documents notwithstanding such termination until Borrowers have paid the Obligations to Lender, in full, in immediately available funds. SECTION 2.9. JOINT AND SEVERAL LIABILITY; BINDING OBLIGATIONS. Each Borrower shall be jointly and severally liable for all of the Obligations. In addition, each Borrower hereby acknowledges and agrees that all of the representations, warranties, covenants, obligations, conditions, agreements and other terms contained in this Agreement shall be applicable to and shall be binding upon each Borrower, and shall be binding upon all such entities when taken together; provided, however, that such representations, warranties and covenants shall be deemed to be made by each Borrower as to itself, but not as to any other Borrower despite its binding nature with respect to the other entities. ARTICLE III COLLATERAL SECTION 3.1. GENERALLY. As security for the payment of all liabilities of Borrowers to Lender, including without limitation: (i) indebtedness evidenced under the Note, repayment of Revolving Credit Loans, advances and other extensions of credit, all fees and charges owing by Borrowers, and all other liabilities and obligations of every kind or nature whatsoever of Borrowers to Lender, whether now existing or hereafter incurred, joint or several, matured or unmatured, direct or indirect, primary or secondary, related or unrelated, due or to become due, including but not limited to any extensions, modifications, substitutions, increases and renewals thereof, (ii) the payment of all amounts advanced by Lender to preserve, protect, defend, and enforce its rights hereunder and in the following property in accordance with the terms of this Agreement, and (iii) the payment of all expenses incurred by Lender in connection therewith (collectively, the "Obligations"), and as further security for the payment and performance of the 11 13 obligations of Atrium Nursing Home, Inc. and other borrowers (collectively, the "Affiliated Borrower") under the Loan and Security Agreement dated December 15, 1997, as amended, modified or replaced (the "Affiliated Loan Agreement") each Borrower hereby assigns and grants to Lender a continuing first priority lien on and security interest in, upon, and to the following property (the "Collateral"): (a) All of such Borrower's now-owned and hereafter acquired or arising Accounts, accounts receivable and rights to payment of every kind and description, and any contract rights, chattel paper, documents and instruments with respect thereto but specifically excluding Leases and Rents; (b) All of such Borrower's now owned and hereafter acquired or arising general intangibles of every kind and description pertaining to its Accounts, accounts receivable and other rights to payment, including, but not limited to, all existing and future customer lists, choses in action, claims, books, records, contracts, licenses, formulae, tax and other types of refunds, returned and unearned insurance premiums, rights and claims under insurance policies, and computer information, software, records, and data but specifically excluding Leases and Rents; (c) All of such Borrower's monies and other property of every kind and nature now or at any time or times hereafter in the possession of or under the control of Lender or a bailee or Affiliate of Lender; and (d) The proceeds (including, without limitation, insurance proceeds) of all of the foregoing. SECTION 3.2. LIEN DOCUMENTS. At Closing and thereafter as Lender deems necessary in its reasonable discretion, each Borrower shall execute and deliver to Lender, or have executed and delivered (all in form and substance satisfactory to Lender in its sole discretion): (a) UCC-1 Financing statements pursuant to the Uniform Commercial Code in effect in the jurisdiction(s) in which such Borrower operates, which Lender may file in any jurisdiction where any Collateral is or may be located and in any other jurisdiction that Lender deems appropriate; provided that a carbon, photographic, or other reproduction or other copy of this Agreement or of a financing statement is sufficient as and may be filed in lieu of a financing statement; and (b) Any other agreements, documents, instruments, and writings reasonably deemed necessary by Lender or as Lender may otherwise request from time to time in its sole discretion to evidence, perfect, or protect Lender's lien and security interest in the Collateral required hereunder. 12 14 SECTION 3.3. COLLATERAL ADMINISTRATION. (a) All Collateral (except deposit accounts) will at all times be kept by each Borrower at its principal office(s) as set forth on Exhibit C hereto and shall not, without the prior written approval of Lender, be moved therefrom. (b) Each Borrower shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit to Lender sales and collections reports with respect thereto as required by Section 6.1 hereof. In addition, if Borrower becomes aware that Accounts in an aggregate face amount in excess of $100,000.00 have become ineligible since the date of Borrowers' last Borrowing Base Certificate because they fall within one of the specified categories of ineligibility set forth in the definition of Qualified Accounts or otherwise, Borrower shall notify Lender of such occurrence on the first Business Day following Borrowers' knowledge of such occurrence and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. (c) Whether or not an Event of Default has occurred, any of Lender's officers, employees or agents shall have the right, at any time or times hereafter, in the name of Lender, any designee of Lender or Borrowers, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise. Borrowers shall cooperate fully with Lender in an effort to facilitate and promptly conclude such verification process. (d) To expedite collection, each Borrower shall endeavor in the first instance to make collection of its Accounts for Lender. Lender retains the right at all times after the occurrence of an Event of Default (other than a Limited Event of Default), subject to applicable law regarding Medicaid/Medicare Account Debtors, to notify Account Debtors that Accounts have been assigned to Lender and to collect Accounts directly in its own name and to charge the collection costs and expenses, including attorneys' fees, to Borrowers. SECTION 3.4. OTHER ACTIONS. In addition to the foregoing, Borrowers (i) shall provide prompt written notice to each private indemnity, managed care or other Insurer who either is currently an Account Debtor or becomes an Account Debtor at any time following the date hereof that Lender has been granted a first priority lien and security interest in, upon and to all Accounts applicable to such Insurer, and hereby authorizes Lender to send any and all similar notices to such Insurers by Lender, and (ii) shall do anything further that may be lawfully required by Lender to secure Lender and effectuate the intentions and objects of this Agreement, including but not limited to the execution and delivery of lockbox agreements, continuation statements, amendments to financing statements, and any other documents required hereunder. At Lender's request, Borrowers shall also immediately deliver to Lender all items for which Lender must receive possession to obtain a perfected security interest. Borrowers shall, on Lender's demand, deliver to Lender all notes, certificates, and documents of title, chattel paper, warehouse receipts, instruments, and any other similar instruments constituting Collateral. SECTION 3.5. SEARCHES. Prior to Closing, and thereafter if an Event of Default (other than a Limited Event of Default) or event which with the passing of time, the giving of notice or both could constitute an Event of Default (other than a Limited Event of Default) has occurred and is 13 15 continuing, Borrowers shall obtain and deliver to Lender the following searches against Borrowers (the results of which are to be consistent with Borrowers' representations and warranties under this Agreement), all at its own expense: (a) Uniform Commercial Code searches with the Secretary of State and local filing offices of each jurisdiction where Borrower maintains its executive offices, a place of business, or assets; (b) Judgment, federal tax lien and corporate and partnership tax lien searches, in each jurisdiction searched under clause (a) above; and (c) Good standing certificates showing Borrower to be in good standing in its state of formation and in each other state in which it is doing and presently intends to do business for which qualification is required. SECTION 3.6. POWER OF ATTORNEY. Each of the officers of Lender is hereby irrevocably made, constituted and appointed the true and lawful attorney for each Borrower (without requiring any of them to act as such) with full power of substitution to, after the occurrence and during the continuance of an Event of Default (other than a Limited Event of Default), do the following: (i) endorse the name of such Borrower upon any and all checks, drafts, money orders, and other instruments for the payment of money that are payable to such Borrower and constitute collections on Borrower's Accounts; (ii) execute in the name of such Borrower any financing statements, schedules, assignments, instruments, documents, and statements that such Borrower is obligated to give Lender hereunder; and (iii) do such other and further acts and deeds in the name of Borrower that Lender may deem necessary or desirable to enforce any Account or other Collateral or perfect Lender's security interest or lien in any Collateral. ARTICLE IV REPRESENTATIONS AND WARRANTIES Each entity comprising the Borrower represents and warrants to Lender (with respect to itself only, and not with respect to any other Borrower), and shall be deemed to represent and warrant on each day on which any Obligations shall be outstanding hereunder, that: SECTION 4.1. SUBSIDIARIES. Except as set forth in Schedule 4.1, Borrower has no subsidiaries. SECTION 4.2. ORGANIZATION AND GOOD STANDING. Borrower is a limited partnership or corporation (as the case may be) duly organized, validly existing, and in good standing under the laws of its state of formation, is in good standing as a foreign limited partnership or corporation (as the case may be) in each jurisdiction in which the character of the properties owned or leased 14 16 by it therein or the nature of its business makes such qualification necessary, has the partnership or corporate power and authority to own its assets and transact the business in which it is engaged, and has obtained all certificates, licenses and qualifications required under all laws, regulations, ordinances, or orders of public authorities necessary for the ownership and operation of all of its properties and transaction of all of its business. SECTION 4.3. AUTHORITY. Borrower has full partnership or corporate power and authority to enter into, execute, and deliver this Agreement and to perform its obligations hereunder, to borrow the Loan, to execute and deliver the Note, and to incur and perform the obligations provided for in the Loan Documents, all of which have been duly authorized by all necessary partnership or corporate action. No consent or approval of partners or shareholders of, or lenders to, Borrower and no consent, approval, filing or registration with any Governmental Authority is required as a condition to the validity of the Loan Documents or the performance by Borrower of its obligations thereunder. SECTION 4.4. BINDING AGREEMENT. This Agreement and all other Loan Documents constitute, and the Note, when issued and delivered pursuant hereto for value received, will constitute, the valid and legally binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms. SECTION 4.5. LITIGATION. Except as disclosed in Schedule 4.5, there are no actions, suits, proceedings or investigations pending or threatened against Borrower before any court or arbitrator or before or by any Governmental Authority which, in any one case or in the aggregate, if determined adversely to the interests of Borrower, could have a material adverse effect on the business, properties, condition (financial or otherwise) or operations, present or prospective, of Borrower, or upon its ability to perform its obligations under the Loan Documents. Borrower is not in default with respect to any order of any court, arbitrator, or Governmental Authority applicable to Borrower or its properties. SECTION 4.6. NO CONFLICTS. The execution and delivery by Borrower of this Agreement and the other Loan Documents do not, and the performance of its obligations thereunder will not, violate, conflict with, constitute a default under, or result in the creation of a lien or encumbrance upon the property of Borrower under: (i) any provision of Borrower's articles of incorporation or bylaws, or articles of formation, certificate of limited partnership or operating agreement (as the case may be), (ii) any provision of any law, rule, or regulation applicable to Borrower, or (iii) any of the following: (A) any indenture or other agreement or instrument to which Borrower is a party or by which Borrower or its property is bound; or (B) any judgment, order or decree of any court, arbitration tribunal, or Governmental Authority having jurisdiction over Borrower which is applicable to Borrower. SECTION 4.7. FINANCIAL CONDITION. The annual financial statements of Borrower (prepared on a consolidated basis with the other Borrowers, and Affiliated Borrowers and its other controlled entities) as of audited by and the unaudited financial statements of Borrower as of September 30, 1997, certified by the chief 15 17 financial officer or general partner of Borrower (as the case may be), which have been delivered to Lender, fairly present the financial condition of Borrower and the results of its operations and changes in financial condition as of the dates and for the periods referred to, and have been prepared in accordance with GAAP. There are no material unrealized or anticipated liabilities, direct or indirect, fixed or contingent, of Borrower as of the dates of such financial statements which are not reflected therein or in the notes thereto. There has been no material adverse change in the business, properties, condition (financial or otherwise) or operations (present or prospective) of Borrower since September 30, 1997. Borrower's fiscal year ends on . The federal tax identification number of each entity comprising the Borrower is as described on Schedule 4.15. SECTION 4.8. NO DEFAULT. Borrower is not in default under or with respect to any obligation in any respect which could be materially adverse to its business, operations, property or financial condition, or which could materially and adversely affect the ability of Borrower to perform its obligations under the Loan Documents. No Event of Default as to such Borrower or event which, with the giving of notice or lapse of time, or both, could become an Event of Default as to such Borrower, has occurred and is continuing. SECTION 4.9. TITLE TO PROPERTIES. Borrower has good and marketable title to its properties and assets, including the Collateral and the properties and assets reflected in the financial statements described in Section 4.7, subject to no lien, mortgage, pledge, encumbrance or charge of any kind, other than Permitted Liens. Borrower has not agreed or consented to cause any of its properties or assets whether owned now or hereafter acquired to be subject in the future (upon the happening of a contingency or otherwise) to any lien, mortgage, pledge, encumbrance or charge of any kind other than Permitted Liens. SECTION 4.10. TAXES. Borrower has filed, or has obtained extensions for the filing of, all federal, state and other tax returns which are required to be filed, and has paid all taxes shown as due on those returns and all assessments, fees and other amounts due as of the date hereof. All tax liabilities of Borrower were, as of March 31, 1997 and are now, adequately provided for on Borrower's books. No tax liability has been asserted by the Internal Revenue Service or other taxing authority against Borrower for taxes in excess of those already paid. SECTION 4.11. SECURITIES AND BANKING LAWS AND REGULATIONS. (a) The use of the proceeds of the Loan and Borrower's issuance of the Note will not directly or indirectly violate or result in a violation of the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including without limitation Regulations U, T, G, or X of the Board of Governors of the Federal Reserve System. Borrower is not engaged in the business of extending credit for the purpose of the purchasing or carrying "margin stock" within the meaning of those regulations. No part of the proceeds of the Loan hereunder will be used to purchase or carry any margin stock or to extend credit to others for such purpose. 16 18 (b) Borrower is not an investment company within the meaning of the Investment Company Act of 1940, as amended, nor is it, directly or indirectly, controlled by or acting on behalf of any Person which is an investment company within the meaning of that Act. SECTION 4.12. ERISA. No employee benefit plan (a "Plan") subject to the Employee Retirement Income Security Act of 1974 ("ERISA") and regulations issued pursuant thereto that is maintained by Borrower or under which Borrower could have any liability under ERISA (a) has failed to meet minimum funding standards established in Section 302 of ERISA, (b) has failed to comply with all applicable requirements of ERISA and of the Internal Revenue Code, including all applicable rulings and regulations thereunder, (c) has engaged in or been involved in a prohibited transaction (as defined in ERISA) under ERISA or under the Internal Revenue Code, or (d) has been terminated. Borrower has not assumed, or received notice of a claim asserted against Borrower for, withdrawal liability (as defined in the Multi-Employer Pension Plan Amendments Act of 1980, as amended) with respect to any multi-employer pension plan and is not a member of any Controlled Group (as defined in ERISA). Borrower has timely made when due all contributions with respect to any multi-employer pension plan in which it participates and no event has occurred triggering a claim against Borrower for withdrawal liability with respect to any multi-employer pension plan in which Borrower participates. SECTION 4.13. COMPLIANCE WITH LAW. Except as described in Schedule 4.13, Borrower is not in violation of any statute, rule or regulation of any Governmental Authority (including, without limitation, any statute, rule or regulation relating to employment practices or to environmental, occupational and health standards and controls). Borrower has obtained all licenses, permits, franchises, and other governmental authorizations necessary for the ownership of its properties and the conduct of its business. Borrower is current with all reports and documents required to be filed with any state or federal securities commission or similar Governmental Authority and is in full compliance with all applicable rules and regulations of such commissions. SECTION 4.14. ENVIRONMENTAL MATTERS. To Borrower's knowledge, without independent inquiry no use, exposure, release, generation, manufacture, storage, treatment, transportation or disposal of Hazardous Material has occurred or is occurring on or from any real property on which the Collateral is located or which is owned, leased or otherwise occupied by Borrower (the "Premises"), or off the Premises as a result of any action of Borrower, except as described in Schedule 4.14 or at levels that comply with applicable law. SECTION 4.15. PLACES OF BUSINESS. The only places of business of Borrower, and the places where it keeps and intends to keep the Collateral and records concerning the Collateral, are at the addresses set forth in Schedule 4.15. Schedule 4.15 also lists the owner of record of each such property. SECTION 4.16. INTELLECTUAL PROPERTY. Borrower exclusively owns or possesses all the patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, franchises, licenses, and rights with respect to the foregoing necessary for the present 17 19 and planned future conduct of its business, without any conflict with the rights of others. A list of all such intellectual property (indicating the nature of Borrower's interest), as well as all outstanding franchises and licenses given by or held by Borrower, is attached as Schedule 4.16. Borrower is not in default of any obligation or undertaking with respect to such intellectual property or rights. SECTION 4.17. STOCK OWNERSHIP. The identity of the stockholders of record of all classes of the outstanding stock of Borrower, together with the respective ownership percentages held by such stockholders, are as set forth on Schedule 4.17. SECTION 4.18. MATERIAL FACTS. Neither this Agreement nor any other Loan Document nor any other agreement, document, certificate, or statement furnished to Lender by or on behalf of Borrower in connection with the transactions contemplated hereby contains any untrue statement of material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. There is no fact known to Borrower that materially and adversely affects or in the future may materially and adversely affect the business, operations, affairs or financial condition of Borrower, or any of its properties or assets. SECTION 4.19. INVESTMENTS, GUARANTEES, AND CERTAIN CONTRACTS. Borrower is not a party to any contract or agreement, or subject to any partnership or corporate restriction, which materially and adversely affects its business. SECTION 4.20. INTENTIONALLY DELETED. SECTION 4.21. NAMES. Within five years prior to the date hereof, Borrower has not conducted business under or used any other name (whether corporate, partnership or assumed) other than as shown on Schedule 4.21. Borrower is the sole owner of all names listed on that Schedule and any and all business done and invoices issued in such names are Borrower's sales, business, and invoices. Each trade name of Borrower represents a division or trading style of Borrower and not a separate Person or independent Affiliate. SECTION 4.22 INTENTIONALLY DELETED. SECTION 4.23 ACCOUNTS. Lender may rely, in determining which Accounts are Qualified Accounts, on all statements and representations made by Borrower with respect to any Account or Accounts. Unless otherwise indicated in writing to Lender, with respect to each Account: (a) It is genuine and in all respects what it purports to be, and is not evidenced by a judgment; (b) It arises out of a completed, bona fide sale and delivery of goods or rendition of services by Borrower in the ordinary course of its business and substantially in accordance with the terms and conditions of all purchase orders, contracts, certification, 18 20 participation, certificate of need, or other documents relating thereto and forming a part of the contract between Borrower and the Account Debtor; (c) It is for a liquidated amount maturing as stated in a duplicate claim or invoice covering such sale or rendition of services, a copy of which has been furnished or is available to Lender (or in the case of Accounts owed by Florida Medicaid and all Medicare Account Debtors, that Medical Services have been rendered but have not yet been invoiced as a result of applicable Medicaid or Medicare billing procedures); (d) Such Account, and Lender's security interest therein, is not, and will not (by voluntary act or omission by Borrower), be in the future, subject to any lien, claim or encumbrance, and each such Account is absolutely owing to Borrower and is not contingent in any respect or for any reason; (e) To Borrower's knowledge without independent inquiry, there are no facts, events or occurrences which in any way impair the validity or enforceability of any Accounts; (f) It has been billed and forwarded to the Account Debtor for payment in accordance with applicable laws and compliance and conformance with any and requisite procedures, requirements and regulations governing payment by such Account Debtor with respect to such Account (or in the case of Accounts owed by Florida Medicaid and all Medicare Account Debtors, that Medical Services have been rendered but have not yet been invoiced as a result of applicable Medicaid or Medicare billing procedures), and such Account if due from a Medicaid/Medicare Account Debtor is properly payable directly to Borrower; and (g) Borrower has obtained and currently has all certificates of need, Medicaid and Medicare provider numbers, licenses, permits and authorizations as necessary in the generation of such Accounts. ARTICLE V CLOSING AND CONDITIONS OF LENDING SECTION 5.1. CONDITIONS PRECEDENT TO AGREEMENT. The obligation of Lender to enter into and perform this Agreement and to make Revolving Credit Loans is subject to the following conditions precedent: (a) Lender shall have received two (2) originals of this Agreement and all other Loan Documents required to be executed and delivered at or prior to Closing (other than the Note, as to which Lender shall receive only one original), executed by Borrowers and any other required Persons, as applicable. 19 21 (b) Lender shall have received all searches and good standing certificates required by Section 3.5. (c) Borrowers shall have complied and shall then be in compliance with all the terms, covenants and conditions of the Loan Documents. (d) There shall have occurred no Event of Default and no event which, with the giving of notice or the lapse of time, or both, could constitute such an Event of Default. (e) The representations and warranties contained in Article IV shall be true and correct in all material respects. (f) Lender shall have received copies of all board of directors resolutions of the general partner or other corporate action taken by Borrowers to authorize the execution, delivery and performance of the Loan Documents and the borrowing of the Loan thereunder, as well as the names and signatures of the officers of Borrowers authorized to execute documents on its behalf in connection herewith, all as also certified as of the date hereof by each Borrower's chief financial officer or Borrower's general partner (as the case may be), and such other papers as Lender may require. (g) Lender shall have received copies, certified as true, correct and complete by a corporate officer or the corporate officer of the general partner (as the case may be)of each Borrower, of the articles of incorporation or formation and bylaws of the general partner, (as the case may be) of each Borrower, with any amendments to any of the foregoing, and all other documents necessary for performance of the obligations of Borrower under this Agreement and the other Loan Documents. (h) Lender shall have received a written opinion of counsel for Borrower, dated the date hereof, in the form of Exhibit D. (i) Lender shall have received such financial statements, reports, certifications, and other operational information required to be delivered hereunder, including without limitation an initial borrowing base certificate calculating the Borrowing Base. (j) Lender shall have received the first installment of the Commitment Fee. (k) The Lockbox and the Concentration Account shall have been established. (l) Lender shall have received an estoppel certificate substantially in the form of Exhibit E attached hereto from Borrower's landlord or sublandlord, as the case may be, with respect to each of the facilities identified on Schedule 4.15 which is a leased facility. 20 22 (m) Lender shall have received a certificate of Borrower's chief financial officer, dated the Closing Date, certifying that all of the conditions specified in this Section have been fulfilled. SECTION 5.2. CONDITIONS PRECEDENT TO ADVANCES. Notwithstanding any other provision of this Agreement, no Loan proceeds, Revolving Credit Loans, advances or other extensions of credit under the Loan shall be disbursed hereunder unless the following conditions have been satisfied or waived immediately prior to such disbursement: (a) The representations and warranties on the part of Borrowers (excluding any Borrower that is then deemed to be a Defaulted Borrower pursuant to Section 8.1 (b) hereof) contained in Article IV of this Agreement shall be true and correct in all material respects at and as of the date of disbursement or advance, as though made on and as of such date, except as follows (i) to the extent that such representations and warranties expressly relate solely to an earlier date, (ii) the references in Section 4.7 to financial statements shall be deemed to be a reference to the then most recent annual and interim financial statements of Borrowers furnished to Lender pursuant to Section 6.1 hereof, (iii) such representations and warranties shall be deemed to have been supplemented by any written updates pertaining thereto, as delivered by Borrowers to Lender from time to time and (iv) Borrower's reaffirmation of Section 4.17 shall be deemed only a representation that any changes in Borrower's ownership have been in accordance with Section 7.14 hereof. (b) No Event of Default (other than a Limited Event of Default) or event which, with the giving of notice of the lapse of time, or both, could become an Event of Default (other than a Limited Event of Default) shall have occurred and be continuing or would result from the making of the disbursement or advance. (c) No event or events have occurred which have caused a material adverse change in the condition (financial or otherwise), properties, business, or operations of Borrowers, taken as a whole, shall have occurred and be continuing with respect to Borrowers, taken as a whole, since the date hereof. SECTION 5.3. CLOSING. Subject to the conditions of this Article V, the Loan shall be made available on the date as is mutually agreed by the parties (the "Closing Date") at such time as may be mutually agreeable to the parties upon the execution hereof (the "Closing") at such place as may be requested by Lender. SECTION 5.4. WAIVER OF RIGHTS. By completing the Closing hereunder, or by making advances under the Loan, Lender does not waive a breach of any representation or warranty of any Borrower hereunder or under any other Loan Document, and all of Lender's claims and rights resulting from any breach or misrepresentation by any Borrower are specifically reserved by Lender. 21 23 ARTICLE VI AFFIRMATIVE COVENANTS Each Borrower covenants and agrees that for so long as such Borrower may borrow hereunder and until payment in full of the Note and performance of all other obligations of Borrowers under the Loan Documents: SECTION 6.1. FINANCIAL STATEMENTS AND COLLATERAL REPORTS. Borrower will furnish to Lender (a) a sales and collections report and accounts receivable aging schedule on a form acceptable to Lender within fifteen (15) days after the end of each calendar month, which shall include, but not be limited to, a report of sales, credits issued, and collections received; (b) payable aging schedules within fifteen (15) days after the end of each calendar month; (c) quarterly financial statements for Retirement Care Associates, Inc., prepared on a consolidated basis with Borrowers and any of Retirement Care Associates, Inc.'s other controlled entities; (d) annual audited financial statements on Form 10K for Retirement Care Associates, Inc., prepared on a consolidated basis with Borrowers and any of Retirement Care Associates, Inc.'s other controlled entities prepared by Retirement Care Associates, Inc., or other independent public accountants then engaged by Borrower, within one hundred thirty-five (135) days after the end of each of Borrower's fiscal years; (e) promptly upon receipt thereof, copies of any reports submitted to Borrower by the independent accountants in connection with any interim audit of the books of Borrower and copies of each management control letter provided to Borrower by independent accountants; (f) as soon as available, copies of all financial statements and notices provided by Borrower to all of its stockholders; and (g) such additional information, reports or statements as Lender may from time to time reasonably request. Annual financial statements shall set forth in comparative form figures for the corresponding periods in the prior fiscal year. All financial statements shall include a balance sheet and statement of earnings and shall be prepared in accordance with GAAP. SECTION 6.2. PAYMENTS HEREUNDER. Borrower will make all payments of principal, interest, fees, and all other payments required hereunder, under the Loan, and under any other agreements with Lender to which Borrower is a party, as and when due. SECTION 6.3. EXISTENCE, GOOD STANDING, AND COMPLIANCE WITH LAWS. Borrower will do or cause to be done all things necessary (a) to obtain and keep in full force and effect all corporate or partnership (as the case may be) existence, rights, licenses, privileges, and franchises of Borrower necessary to the ownership of its property or the conduct of its business, and comply with all applicable present and future laws, ordinances, rules, regulations, orders and decrees of any Governmental Authority having or claiming jurisdiction over Borrower; and (b) to maintain and protect the properties used or useful in the conduct of the operations of Borrower, in a prudent manner, including without limitation the maintenance at all times of such insurance upon its insurable property and operations as required by law or by Section 6.7 hereof. 22 24 SECTION 6.4. LEGALITY. Borrower will obtain any and all consents, approvals and authorizations of any Governmental Authority necessary for the making of each disbursement or advance of the loan. SECTION 6.5. INTENTIONALLY DELETED. SECTION 6.6. TAXES AND CHARGES. Borrower will timely file all tax reports and pay and discharge all taxes, assessments and governmental charges or levies imposed upon Borrower, or its income or profits or upon its properties or any part thereof, before the same shall be in default and prior to the date on which penalties attach thereto, as well as all lawful claims for labor, material, supplies or otherwise which, if unpaid, might become a lien or charge upon the properties or any part thereof of Borrower; provided, however, that Borrower shall not be required to pay and discharge or cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith and by appropriate proceedings by Borrower, and Borrower shall have set aside on their books adequate reserve therefor; and provided further, that such deferment of payment is permissible only so long as Borrower's title to, and its right to use, the Collateral is not adversely affected thereby and Lender's lien and priority on the Collateral are not adversely affected, altered or impaired thereby. SECTION 6.7. INSURANCE. Borrower will carry adequate public liability and professional liability insurance with responsible companies satisfactory to Lender in such amounts and against such risks as is customarily maintained by similar businesses and by owners of similar property in the same general area. SECTION 6.8. GENERAL INFORMATION. Borrower will furnish to Lender such information as Lender may, from time to time, reasonably request with respect to the business or financial affairs of Borrower, and, upon reasonable prior notice and during normal business hours, shall permit any officer, employee or agent of Lender to visit and inspect any of the properties, to examine the minute books, books of account and other records, including management letters prepared by Borrower's auditors, of Borrower, and make copies thereof or extracts therefrom, and to discuss its and their business affairs, finances and accounts with, and be advised as to the same by, the accountants and officers of Borrower, all at such times and as often as Lender may require. SECTION 6.9. MAINTENANCE OF PROPERTY. Borrower will maintain, keep and preserve all of its properties in good repair, working order and condition and from time to time make all needful and proper repairs, renewals, replacements, betterments and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. SECTION 6.10. NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE DEVELOPMENTS. Borrower promptly will notify Lender upon the occurrence of: (a) any Event of Default; (b) any event which, with the giving of notice or lapse of time, or both, could constitute an Event of 23 25 Default; (c) any event, development or circumstance whereby the financial statements previously furnished to Lender fail in any material respect to present fairly, in accordance with GAAP, the financial condition and operational results of Borrower as of the date of such statements; (d) any judicial, administrative or arbitration proceeding pending against Borrower, and any judicial or administrative proceeding known by Borrower to be threatened against it which, if adversely decided, could materially and adversely affect the condition (financial or otherwise) or operations (present or prospective) of the Borrowers, taken as a whole, or which may expose Borrower to uninsured liability of $100,000.00 or more; (e) any default claimed by any other creditor for Borrowed Money (in excess of $50,000) of Borrower other than Lender; and (f) any other development in the business or affairs of Borrower which could have a material and adverse effect on the business operations of Borrowers, taken as a whole, or on the ability of Borrowers to repay the Loan; in each case describing the nature thereof and (in the case of notification under clauses (a) and (b)) the action Borrower proposes to take with respect thereto. SECTION 6.11. EMPLOYEE BENEFIT PLANS. Borrower will (a) comply with the funding requirements of ERISA with respect to the Plans for its employees, or will promptly satisfy any accumulated funding deficiency that arises under Section 302 of ERISA; (b) furnish Lender, promptly after filing the same, with copies of all reports or other statements filed with the United States Department of Labor, the Pension Benefit Guaranty Corporation, or the Internal Revenue Service with respect to all Plans, or which Borrower, or any member of a Controlled Group, may receive from such Governmental Authority with respect to any such Plans, and (c) promptly advise Lender of the occurrence of any Reportable Event or Prohibited Transaction with respect to any such Plan and the action which Borrower proposes to take with respect thereto. Borrower will make all contributions when due with respect to any multi-employer pension plan in which it participates and will promptly advise Lender: (a) upon its receipt of notice of the assertion against Borrower of a claim for withdrawal liability; (b) upon the occurrence of any event which could trigger the assertion of a claim for withdrawal liability against Borrower; and (c) upon the occurrence of any event which would place Borrower in a Controlled Group as a result of which any member (including Borrower) thereof may be subject to a claim for withdrawal liability, whether liquidated or contingent. SECTION 6.12. FINANCING STATEMENTS. Borrower shall provide to Lender evidence satisfactory to Lender as to the due recording of termination statements, releases of collateral, and Forms UCC-3, and shall cause to be recorded financing statements on Form UCC-1, duly executed by Borrower and Lender, in all places necessary to release all existing security interests and other liens in the Collateral (other than as permitted hereby) and to perfect and protect Lender's first priority lien and security interest in the Collateral, as Lender may request. SECTION 6.13. FINANCIAL RECORDS. Borrower shall keep current and accurate books of records and accounts in which full and correct entries will be made of all of its business transactions, and will reflect in its financial statements adequate accruals and appropriations to reserves, all in accordance with GAAP. 24 26 SECTION 6.14. COLLECTION OF ACCOUNTS. Borrower shall continue to collect its Accounts in the ordinary course of business. SECTION 6.15. PLACES OF BUSINESS. Borrower shall give thirty (30) days' prior written notice to Lender of any change in the location of any of its places of business, of the places where its records concerning its Accounts are kept, of the places where the Collateral is kept, or of the establishment of any new, or the discontinuance of any existing, places of business. SECTION 6.16. BUSINESS CONDUCTED. Borrower shall continue in the business presently conducted by it using its best efforts to maintain its customers and goodwill. SECTION 6.17. LITIGATION AND OTHER PROCEEDINGS. Borrower shall give prompt notice to Lender of any litigation, arbitration, or other proceeding before any Governmental Authority against or affecting Borrower if the uninsured portion of the amount claimed is more than $50,000.00 SECTION 6.18. INTENTIONALLY DELETED. SECTION 6.19. SUBMISSION OF COLLATERAL DOCUMENTS. After the occurrence and during the continuance of an Event of Default (other than a Limited Event of Default), Borrower will, on demand of Lender, make available to Lender copies of shipping and delivery receipts evidencing the shipment of goods that gave rise to an Account, medical records, insurance verification forms, assignment of benefits, in-take forms or other proof of the satisfactory performance of services that gave rise to an Account, a copy of the claim or invoice for each Account and copies of any written contract or order from which the Account arose. Borrower shall promptly notify Lender if an Account becomes evidenced or secured by an instrument or chattel paper and upon request of Lender, will promptly deliver any such instrument or chattel paper to Lender. SECTION 6.20. LICENSURE; MEDICAID/MEDICARE COST REPORTS. Borrower will maintain all certificates of need, provider numbers and licenses necessary to conduct its business as presently conducted, and take any steps required to comply with any such new or additional requirements that may be imposed on providers of medical products and services. If required, all Medicaid/Medicare cost reports will be properly filed. SECTION 6.21. OFFICER'S CERTIFICATES. Together with the quarterly financial statements delivered pursuant to clause (c) of Section 6.1, and together with the audited annual financial statements delivered pursuant to clause (f) of that Section, Borrower shall deliver to Lender a certificate of its chief financial officer, in form and substance satisfactory to Lender setting forth: (a) The information (including detailed calculations) required in order to establish whether Borrower is in compliance with the requirements of Articles VI and VII as of the end of the period covered by the financial statements then being furnished; and 25 27 (b) That the signer has reviewed the relevant terms of this Agreement, and has made (or caused to be made under his supervision) a review of the transactions and conditions of Borrower from the beginning of the accounting period covered by the income statements being delivered to the date of the certificate, and that, other than any then existing Limited Event of Defaults which have been disclosed to Lender, such review has not disclosed the existence during such period of any condition or event which constitutes an Event of Default or which is then, or with the passage of time or giving of notice or both, could become an Event of Default, and if any such condition or event existed during such period or now exists, specifying the nature and period of existence thereof and what action Borrower has taken or proposes to take with respect thereto. SECTION 6.22. INTENTIONALLY DELETED. SECTION 6.23. NET WORTH. Retirement Care Associates, Inc., the ultimate parent of Borrower, will not at any time allow its net worth, as computed in accordance with GAAP, to fall below $ . ARTICLE VII NEGATIVE COVENANTS Each Borrower covenants and agrees that so long as Borrowers may borrow hereunder and until payment in full of the Note and performance of all other obligations of Borrowers under the Loan Documents: SECTION 7.1. BORROWING. Borrower shall provide Lender with written notice of any loan made to such Borrower in excess of $250,000 that is secured by real property or tangible personal property acquired by such Borrower with the proceeds of such loan (but Lender's consent shall not be required for any such loan), and will not incur, assume, or permit to exist or become contingently liable for any liability for Borrowed Money in excess of $250,000.00 where the proceeds of the loan are not used by such Borrower to acquire real property or tangible personal property without Lender's prior written consent, which shall not be unreasonably withheld or delayed. SECTION 7.2. INTENTIONALLY DELETED. SECTION 7.3. LIENS AND ENCUMBRANCES. Borrower will not create, incur, assume or suffer to exist any mortgage, pledge, lien or other encumbrance of any kind upon, or any security interest in, any of its Collateral, whether now owned or hereafter acquired, except for Permitted Liens. SECTION 7.4. MERGER, ACQUISITION, OR SALE OF ASSETS. Borrower will not enter into any merger or consolidation with or acquire all or substantially all of the assets of any Person, unless 26 28 (a) Borrower or any other Borrower is the surviving entity of such transaction or (b) Retirement Care Associates, Inc. holds a controlling interest in the surviving entity and (c) the surviving entity executes and delivers to Lender all documents deemed reasonably necessary by Lender (as determined solely by Lender in its reasonable commercial judgement) to protect Lender's rights under this Agreement and the other Loan Documents and with respect to the Collateral, all at Borrowers' cost (including without limitation, all lien search costs). Borrower will not sell, lease, or otherwise dispose of substantially all of its assets. Consistent with the foregoing, until the Obligations are repaid in full, none of the Borrowers shall transfer, assign, convey or grant to any other Person (other than another Borrower) the right to operate or control any of the nursing homes listed on Schedule 4.15, whether by lease, sublease, management agreement, joint venture agreement or otherwise. SECTION 7.5. INTENTIONALLY DELETED. SECTION 7.6. DISTRIBUTIONS AND MANAGEMENT FEES. Following an Event of Default with respect to such Borrower will not declare or pay any dividends or other distributions with respect to, purchase, redeem or otherwise acquire for value any of its outstanding stock or partnership interests (as the case may be) now or hereafter outstanding, or return any capital of its stockholders, nor shall such Borrower pay management fees or fees of a similar nature to any Person following an Event of Default. SECTION 7.7. INTENTIONALLY DELETED. SECTION 7.8. INTENTIONALLY DELETED. SECTION 7.9. INTENTIONALLY DELETED. SECTION 7.10. COMPLIANCE WITH ERISA. Borrower will not permit with respect to any Plan covered by Title IV of ERISA any Prohibited Transaction or any Reportable Event. SECTION 7.11. CERTIFICATES OF NEED. Borrower will not suspend or terminate or make provisional in any material way, any required certificate of need or provider number of any Borrower without the prior written consent of Lender, which shall not be unreasonably withheld or delayed. SECTION 7.12. TRANSACTIONS WITH AFFILIATES. Borrower will not enter into any transaction, including without limitation the purchase, sale, or exchange of property, or the loaning or giving of funds to any Affiliate or subsidiary, except in the ordinary course of business and pursuant to the reasonable requirements of Borrower's business and upon terms substantially the same and no less favorable to Borrower as it would obtain in a comparable arm's length transaction with any Person not an Affiliate or subsidiary, and so long as the transaction is not otherwise prohibited hereunder. For purposes of the foregoing, Lender consents to the transactions described on Schedule 7.12. 27 29 SECTION 7.13. USE OF LENDER'S NAME. Borrower will not use Lender's name (or the name of any of Lender's affiliates) in connection with any of its business operations. Borrower may disclose to third parties that Borrower has a borrowing relationship with Lender. Nothing herein contained is intended to permit or authorize Borrower to make any contract on behalf of Lender. SECTION 7.14. CHANGE IN CAPITAL STRUCTURE. There shall occur no change in Borrower's capital structure as set forth in Schedule 4.17.which causes a change in control of Borrower. SECTION 7.15. CONTRACTS AND AGREEMENTS. Borrower will not become or be a party to any contract or agreement which would breach this Agreement. SECTION 7.16. INTENTIONALLY DELETED. SECTION 7.17. TRUTH OF STATEMENTS AND CERTIFICATES. Borrower will not furnish to Lender any certificate or other document that contains any untrue statement of a material fact or that omits to state a material fact necessary to make it not misleading in light of the circumstances under which it was furnished. SECTION 7.18. CENSUS. With respect to any twelve (12) month period during the Term, Borrower will not allow the average patient census for such 12-month period, for the nursing homes listed on Schedule 4.15 attached hereto when taken as a whole, to fall below eighty percent (80%) of the aggregate patient census of such nursing homes as of the Closing Date, as reflected on Schedule 4.15 ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. EVENTS OF DEFAULT. (a) Subject to the provisions of subparagraph (b) hereof, Each of the following (individually, an "Event of Default" and collectively, the "Events of Default") shall constitute an event of default hereunder: (i) A default in the payment of any installment of principal of, or interest upon, the Note when due and payable, whether at maturity or otherwise, which default shall have continued unremedied for a period of five (5) days after written notice thereof from Lender to Borrower; (ii) A default in the payment of any other charges, fees, or other monetary obligations owing to Lender arising out of or incurred in connection with this Agreement when 28 30 such payment is due and payable, which default shall have continued unremedied for a period of ten (10) days after written notice from Lender; (iii) A default in the due observance or performance by Borrowers of any other term, covenant or agreement contained in any of the Loan Documents, which default shall have continued unremedied for a period of twenty (20) days after written notice from Lender; provided, however, that if such default is not susceptible to cure within such period, no Event of Default shall be deemed to have occurred until an additional thirty (30) days have lapsed so long as Borrower is diligently endeavoring to cure such default throughout the period; (iv) If any representation or warranty made by any Borrower herein or in any of the other Loan Documents, any financial statement, or any statement or representation made in any other certificate, report or opinion delivered in connection herewith or therewith proves to have been materially incorrect or misleading in any material respect when made, which default shall have continued unremedied for a period of twenty (20) days after written notice from Lender; (v) If any obligation of a Borrower (other than its Obligations hereunder) for the payment of Borrowed Money (the outstanding amount of which is in excess of $100,000.00) is not paid when due or within any applicable grace period, or such obligation becomes or is declared to be due and payable prior to the expressed maturity thereof; (vi) If a Borrower makes an assignment for the benefit of creditors, offers a composition or extension to creditors, or makes or sends notice of an intended bulk sale of any business or assets now or hereafter conducted by such Borrower; (vii) If a Borrower files a petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any receiver of or any trustee for itself or any substantial part of its property, commences any proceeding relating to itself under any reorganization, arrangement, readjustment or debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or there is commenced against a Borrower any such proceeding which remains undismissed for a period of sixty (60) days, or any Borrower by any act indicates its consent to, approval of, or acquiescence in, any such proceeding or the appointment of any receiver of or any trustee for a Borrower or any substantial part of its property, or suffers any such receivership or trusteeship to continue undischarged for a period of sixty (60) days; (viii) If one or more final judgments against any Borrower or attachments against its property (the uninsured portion of which is in excess of $100,000.00) not fully and unconditionally covered by insurance shall be rendered by a court of record and shall remain unpaid, unstayed on appeal, undischarged, unbonded and undismissed for a period of thirty (30) days; 29 31 (ix) A Reportable Event which might constitute grounds for termination of any Plan covered by Title IV of ERISA or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan or for the entry of a lien or encumbrance to secure any deficiency, has occurred and is continuing thirty (30) days after its occurrence, or any such Plan is terminated, or a trustee is appointed by an appropriate United States District Court to administer any such Plan, or the Pension Benefit Guaranty Corporation institutes proceedings to terminate any such Plan or to appoint a trustee to administer any such Plan, or a lien or encumbrance is entered to secure any deficiency or claim; (x) If any outstanding stock or partnership interests of Borrower is sold or otherwise transferred in violation of Section 7.14; (xi) Upon the issuance of any execution or distraint process against any of the Collateral; (xii) If any indication or evidence is received by Lender that Borrower may have directly or indirectly been engaged in any type of activity which, in Lender's reasonable discretion, is reasonably likely to result in the forfeiture of any property material of Borrower to any Governmental Authority, which default shall have continued unremedied for a period of ten (10) days after written notice from Lender; (xiii) Borrower or any Affiliate of Borrower, shall challenge or contest, in any action, suit or proceeding, the validity or enforceability of this Agreement, or any of the other Loan Documents, the legality or the enforceability of any of the Obligations or the perfection or priority of any Lien granted to Lender; (xiv) Borrower shall be criminally convicted under any law that could lead to a forfeiture of any Collateral. (xv) There shall occur a material adverse change in the financial condition or business prospects of a Borrower, or if Lender in good faith deems itself insecure as a result of acts or events bearing upon the financial condition of a Borrower or the repayment of the Note, which default shall have continued unremedied for a period of ten (10) days after written notice from Lender. (b) Notwithstanding the foregoing, if an event which constitutes an Event of Default occurs with respect to three (3) or fewer of the Borrowers (inclusive of Borrowers under the Affiliate Loan Agreement) (a "Limited Event of Default"), then (i) the Accounts of each Borrower with respect to which the Event of Default occurred (each a "Defaulted Borrower") shall immediately be deemed excluded from Qualified Accounts ("Excluded Accounts") unless and until the Event of Default with respect to such Defaulted Borrower has been cured to Lender's reasonable satisfaction and (ii) Borrowers shall, within two (2) Business Days after the occurrence of the Event of Default , repay the Loan in an amount, if any, necessary to reduce the outstanding amount of the Loan to the Borrowing Base (as adjusted to delete the Accounts which have been Excluded Accounts pursuant to (i) above). Borrowers' failure to make such payment 30 32 shall constitute a payment default pursuant to Section 8.1 (a)(i) hereof, entitling Lender to immediately exercise any and all remedies set forth in Section 8.2 and 8.3 of the Agreement. Notwithstanding the foregoing, (x) no Defaulted Borrower shall be released from its obligations hereunder (nor shall the Collateral owned by such Defaulted Borrower be released from the lien created hereby) by virtue of such Defaulted Borrower's Accounts being deemed to be Excluded Accounts, and (y) if the aggregate amount of all Excluded Accounts exceeds $500,000.00, such event shall constitute an Event of Default and shall entitle Lender to immediately exercise any and all remedies set forth in Sections 8.2 and 8.3 of this Agreement. (xvi) An Event of Default shall have occurred under the Affiliated Loan Agreement. SECTION 8.2. ACCELERATION. Subject to the provisions of Section 8.1 (b) hereof, upon the occurrence of any of the foregoing Events of Default, the Note shall become and be immediately due and payable upon declaration to that effect delivered by Lender to Borrower; provided that, upon the happening of any event specified in Section 8.1(vi) hereof (subject always to Section 8.1 (b)), the Note shall be immediately due and payable failure to satisfy (i) and (ii) will be an overall Event of Default without declaration or other notice to Borrowers. SECTION 8.3. REMEDIES. (a) In addition to all other rights, options, and remedies granted to Lender under this Agreement, upon the occurrence of an Event of Default Lender (other than a Limited Event of Default) may (i) terminate the Loan, whereupon all outstanding Obligations shall be immediately due and payable, (ii) exercise all other rights granted to it hereunder and all rights under the Uniform Commercial Code in effect in the applicable jurisdiction(s) and under any other applicable law, and (iii) exercise all rights and remedies under all Loan Documents now or hereafter in effect, including the following rights and remedies (which list is given by way of example and is not intended to be an exhaustive list of all such rights and remedies): (i) The right to take possession of, send notices regarding, and collect directly the Collateral, with or without judicial process, and to exercise all rights and remedies available to Lender with respect to the Collateral under the Uniform Commercial Code in effect in the jurisdiction(s) in which such Collateral is located; (ii) The right to (by its own means or with judicial assistance) enter any of Borrower's premises and take possession of the Collateral, or render it unusable, or dispose of the Collateral on such premises in compliance with subsection (b), without any liability for rent, storage, utilities, or other sums, and Borrowers shall not resist or interfere with such action; (iii) The right to require Borrowers at Borrowers' expense to assemble all or any part of the Collateral and make it available to Lender at any place designated by Lender; 31 33 (iv) The right to reduce the Maximum Loan Amount or to use the Collateral and/or funds in the Concentration Account to repay the then outstanding Obligations for any reason; and (v) The right to relinquish or abandon any Collateral or any security interest therein. (b) Borrowers agree that a notice received by it at least ten (10) days before the time of any intended public sale, or the time after which any private sale or other disposition of the Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by applicable law, any perishable Collateral which threatens to speedily decline in value or which is sold on a recognized marked may be sold immediately by Lender without prior notice to Borrower. At any sale or disposition of Collateral, Lender may (to the extent permitted by applicable law) purchase all or any part of the Collateral, free from any right of redemption by Borrower, which right is hereby waived and released. Borrower covenants and agrees not to interfere with or impose any obstacle to Lender's exercise of its rights and remedies with respect to the Collateral. SECTION 8.4. NATURE OF REMEDIES. Lender shall have the right to proceed against all or any portion of the Collateral to satisfy in any order (i) the liabilities and Obligations of Borrower to Lender and (ii) upon the occurrence of an Event of Default under the Affiliated Loan Agreement, the liabilities and obligations of Affiliated Borrower under the Affiliated Loan Agreement. All rights and remedies granted Lender hereunder and under any agreement referred to herein, or otherwise available at law or in equity, shall be deemed concurrent and cumulative, and not alternative remedies, and Lender may proceed with any number of remedies at the same time until the Loans, and all other existing and future liabilities and obligations of Borrower to Lender, are satisfied in full. The exercise of any one right or remedy shall not be deemed a waiver or release of any other right or remedy, and Lender, upon the occurrence of an Event of Default, may proceed against Borrower, and/or the Collateral, at any time, under any agreement, with any available remedy and in any order. ARTICLE IX MISCELLANEOUS SECTION 9.1. EXPENSES AND TAXES. (a) Borrowers agree to pay, whether or not the Closing occurs, a reasonable documentation preparation fee, together with actual audit and appraisal fees and all other out-of-pocket charges and expenses incurred by Lender in connection with the negotiation, preparation and execution of each of the Loan Documents, any amendments to the Loan Documents following Closing, and preparation for Closing. Borrowers also agree to pay all out-of-pocket charges and expenses incurred by Lender (including the fees and expenses of Lender's counsel) 32 34 in connection with the enforcement, protection or preservation of any right or claim of Lender and the collection of any amounts due under the Loan Documents. (b) Borrowers shall pay all taxes (other than taxes based upon or measured by Lender's income or revenues or any personal property tax), if any, in connection with the issuance of the Note and the recording of the security documents therefor. The obligations of Borrower under this clause (b) shall survive the payment of Borrowers' indebtedness hereunder and the termination of this Agreement. SECTION 9.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other Loan Documents constitute the full and entire understanding and agreement among the parties with regard to their subject matter and supersede all prior written or oral agreements, understandings, representations and warranties made with respect thereto. No amendment, supplement or modification of this Agreement nor any waiver of any provision thereof shall be made except in writing executed by the party against whom enforcement is sought. SECTION 9.3. NO WAIVER; CUMULATIVE RIGHTS. No waiver by any party hereto of any one or more defaults by the other party in the performance of any of the provisions of this Agreement shall operate or be construed as a waiver of any future default or defaults, whether of a like or different nature. No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to any party hereto at law, in equity or otherwise. SECTION 9.4. NOTICES. Any notice or other communication required or permitted hereunder shall be in writing and personally delivered, mailed by registered or certified mail (return receipt requested and postage prepaid), sent by telecopier (with a confirming copy sent by regular mail), or sent by prepaid overnight courier service, and addressed to the relevant party at its address set forth below, or at such other address as such party may, by written notice, designate as its address for purposes of notice hereunder: (a) If to Lender, at: HCFP Funding, Inc. 2 Wisconsin Circle, Suite 320 Chevy Chase, Maryland 20815 Attention: Ethan D. Leder, President Telephone: (301) 961-1640 Telecopier: (301) 664-9860 (b) If to Borrower, at: Retirement Care Associates, Inc. 33 35 6000 Lake Forrest Drive Suite 200 Atlanta, GA 30328 Attention: Mr. Christopher F. Brogdon Philip M. Rees, Esq. Telephone: (404) 255-7500 Telecopier: (404) 255-5789 (c) With a copy to: Gregory P. Youra, Esq. Vincent, Berg, Stalzer & Menendez The Lenox Building 3399 Peachtree Road, Suite 1400, Atlanta, GA 30326 Telephone: (404) 812-5680 Telecopier: (404) 812-5699 If mailed, notice shall be deemed to be given five (5) days after being sent, if sent by personal delivery or telecopier, notice shall be deemed to be given when delivered, and if sent by prepaid courier, notice shall be deemed to be given on the next Business Day following deposit with the courier. SECTION 9.5. SEVERABILITY. If any term, covenant or condition of this Agreement, or the application of such term, covenant or condition to any party or circumstance shall be found by a court of competent jurisdiction to be, to any extent, invalid or unenforceable, the remainder of this Agreement and the application of such term, covenant, or condition to parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term, covenant or condition shall be valid and enforced to the fullest extent permitted by law. Upon determination that any such term is invalid, illegal or unenforceable, the parties hereto shall amend this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner. SECTION 9.6. SUCCESSORS AND ASSIGNS. This Agreement, the Note, and the other Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns. Notwithstanding the foregoing, Borrower may not assign any of its rights or delegate any of its obligations hereunder without the prior written consent of Lender, which may be withheld in its sole discretion. Lender may sell, assign, transfer, or participate any or all of its rights or obligations hereunder without notice to or consent of Borrower. SECTION 9.7. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one instrument. 34 36 SECTION 9.8. INTERPRETATION. No provision of this Agreement or any other Loan Document shall be interpreted or construed against any party because that party or its legal representative drafted that provision. The titles of the paragraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. Any pronoun used in this Agreement shall be deemed to include singular and plural and masculine, feminine and neuter gender as the case may be. The words "herein," "hereof," and "hereunder" shall be deemed to refer to this entire Agreement, except as the context otherwise requires. SECTION 9.9. SURVIVAL OF TERMS. All covenants, agreements, representations and warranties made in this Agreement, any other Loan Document, and in any certificates and other instruments delivered in connection therewith shall be considered to have been relied upon by Lender and shall survive the making by Lender of the Loans herein contemplated and the execution and delivery to Lender of the Note, and shall continue in full force and effect until all liabilities and obligations of Borrower to Lender are satisfied in full. SECTION 9.10. RELEASE OF LENDER. Borrower releases Lender, its officers, employees, and agents, of and from any claims for loss or damage resulting from acts or conduct of any or all of them, unless caused by Lender's recklessness, gross negligence, or willful misconduct. SECTION 9.11. TIME. Whenever Borrower is required to make any payment or perform any act on a Saturday, Sunday, or a legal holiday under the laws of the State of Maryland (or other jurisdiction where Borrower is required to make the payment or perform the act), the payment may be made or the act performed on the next Business Day. Time is of the essence in Borrower's performance under this Agreement and all other Loan Documents. SECTION 9.12. COMMISSIONS. The transaction contemplated by this Agreement was brought about by Lender and Borrower acting as principals and without any brokers, agents, or finders being the effective procuring cause. Borrower represents that it has not committed Lender to the payment of any brokerage fee, commission, or charge in connection with this transaction. If any such claim is made on Lender by any broker, finder, or agent or other person, Borrower will indemnify, defend, and hold Lender harmless from and against the claim and will defend any action to recover on that claim, at Borrower's cost and expense, including Lender's counsel fees. Borrower further agrees that until any such claim or demand is adjudicated in Lender's favor, the amount demanded will be deemed a liability of Borrower under this Agreement, secured by the Collateral. SECTION 9.13. THIRD PARTIES. No rights are intended to be created hereunder or under any other Loan Document for the benefit of any third party donee, creditor, or incidental beneficiary of Borrower. Nothing contained in this Agreement shall be construed as a delegation to Lender of Borrower's duty of performance, including without limitation Borrower's duties under any account or contract in which Lender has a security interest. SECTION 9.14. DISCHARGE OF BORROWER'S OBLIGATIONS. Lender, in its sole discretion, shall have the right at any time, and from time to time, without prior notice to Borrower if 35 37 Borrower fails to do so, to: (a) obtain insurance covering any of the Collateral as required hereunder; (b) pay for the performance of any of Borrower's obligations hereunder; (c) discharge taxes, liens, security interests, or other encumbrances at any time levied or placed on any of the Collateral in violation of this Agreement unless Borrower is in good faith with due diligence by appropriate proceedings contesting those items; and (d) pay for the maintenance and preservation of any of the Collateral. Expenses and advances shall be added to the Loan, until reimbursed to Lender and shall be secured by the Collateral. Such payments and advances by Lender shall not be construed as a waiver by Lender of an Event of Default. SECTION 9.15. INFORMATION TO PARTICIPANTS. Lender may divulge to any participant it may obtain in the Loan, or any portion thereof, all information, and furnish to such participant copies of reports, financial statements, certificates, and documents obtained under any provision of this Agreement or any other Loan Document. SECTION 9.16. INTENTIONALLY DELETED. SECTION 9.17. CHOICE OF LAW; CONSENT TO JURISDICTION. THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS. IF ANY ACTION ARISING OUT OF THIS AGREEMENT OR THE NOTE IS COMMENCED BY LENDER IN THE STATE OF MARYLAND OR FEDERAL COURT LOCATED IN THE STATE OF MARYLAND, BORROWER HEREBY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND. ANY PROCESS IN ANY SUCH ACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS DESCRIBED IN SECTION 9.4 HEREOF. SECTION 9.18. WAIVER OF TRIAL BY JURY. BORROWER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY BORROWER, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF BORROWER'S WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED, 36 38 EXPRESSLY OR OTHERWISE, TO BORROWER THAT LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first written above. LENDER: ATTEST: HCFP FUNDING, INC. a Delaware corporation By: By: [SEAL] ------------------------------ ----------------------------- Name: Name: Title: Title: BORROWER: ATTEST: RETIREMENT CARE ASSOCIATES, INC., a Colorado corporation By: By: [SEAL] ------------------------------ ----------------------------- Name: Name: Title: Title: ATTEST: CAPITOL CARE MANAGEMENT COMPANY, INC. a Georgia corporation By: By: [SEAL] ------------------------------ ----------------------------- Name: Name: Title: Title: 37 39 [Additional Signature Follows] 38 40 ATTEST: RETIREMENT MANAGEMENT CORPORATION a Georgia corporation By: By: [SEAL] ------------------------------ ---------------------------- Name: Name: Title: Title: 39 41 LIST OF EXHIBITS Exhibit A - Form of Revolving Credit Note Exhibit B - Form of Lockbox Agreement Exhibit C - Locations of Collateral Exhibit D - Form of Legal Opinion Exhibit E - Form of Estoppel Certificate 40 42 LIST OF SCHEDULES Schedule 1.36 - Permitted Liens Schedule 4.1 - Subsidiaries Schedule 4.5 - Litigation Schedule 4.7 - Tax Identification Numbers Schedule 4.13 - Non-Compliance with Law Schedule 4.14 - Environmental Matters Schedule 4.15 - Places of Business with patient census Schedule 4.16 - Licenses Schedule 4.17 - Stock Ownership Schedule 4.19 - Borrowings and Guarantees Schedule 4.21 - Trade Names Schedule 4.22 - Joint Ventures Schedule 7.12 - Transactions with Affiliates 41 EX-10.21 7 FORM OF LOAN AND SECURITY AGMT. BY SUBSIDIARIES 1 EXHIBIT 10.21 $10,000,000.00 LOAN AND SECURITY AGREEMENT by and among ATRIUM NURSING HOME, INC. MID-FLORIDA, INC. SUN COAST RETIREMENT, INC. WEST TENNESSEE, INC. LAKE FOREST HEALTHCARE CENTER, INC. LIBBIE REHABILITATION CENTER, INC. BRENT-LOX HALL NURSING HOME, INC. PHOENIX ASSOCIATES, INC. PINE MANOR REST HOME, INC. STATESBORO HEALTH CARE CENTER, INC. GARDENDALE HEALTH CARE CENTER, INC. ROBERTA HEALTH CARE CENTER, INC. SOUTHSIDE HEALTH CARE CENTER, INC. CRESENT MEDICAL SERVICES, INC. GAINESVILLE HEALTHCARE CENTER, INC. DUVAL HEALTHCARE CENTER, INC. JEFF DAVIS HEALTHCARE, INC. CHARLTON HEALTHCARE, INC. BIBB HEALTH REHABILITATION, INC. MAPLEWOOD HEALTH CARE CENTER OF JACKSON TENNESSEE, INC. LAKE HEALTH CARE CENTER, INC. (individually, "Borrower" and collectively, "Borrowers" ) and HCFP FUNDING, INC. ("Lender") December 15, 1997 2 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of this 15th day of December, 1997, by and among ATRIUM NURSING HOME, INC., a Florida corporation, MID-FLORIDA, INC., a Georgia corporation, SUN COAST RETIREMENT, INC., a Georgia corporation, WEST TENNESSEE, INC., a Georgia corporation, LAKE FOREST HEALTHCARE CENTER, INC., a Georgia corporation , LIBBIE REHABILITATION CENTER, INC., a Virginia corporation, BRENT-LOX HALL NURSING HOME, INC., a Virginia corporation, PHOENIX ASSOCIATES, INC., a Virginia corporation, PINE MANOR REST HOME, INC., a North Carolina corporation, STATESBORO HEALTH CARE CENTER, INC., a Georgia corporation, GARDENDALE HEALTH CARE CENTER, INC., a Georgia corporation, ROBERTA HEALTH CARE CENTER, INC., a Georgia corporation, SOUTHSIDE HEALTH CARE CENTER, INC., a Georgia corporation, CRESENT MEDICAL SERVICES, INC., a Georgia corporation, GAINESVILLE HEALTHCARE CENTER, INC., a Georgia corporation, DUVAL HEALTHCARE CENTER, INC., a Georgia corporation, JEFF DAVIS HEALTHCARE, INC., a Georgia corporation, CHARLTON HEALTHCARE, INC., a Georgia corporation, BIBB HEALTH REHABILITATION, INC., a Georgia corporation, MAPLEWOOD HEALTH CARE CENTER OF JACKSON TENNESSEE, INC., a Tennessee corporation and LAKE HEALTH CARE CENTER, INC., a Georgia corporation (collectively, "Borrowers" and individually, a "Borrower" ), and HCFP FUNDING, INC., a Delaware corporation ("Lender"). RECITALS A. Borrowers desire to establish certain financing arrangements with and borrow funds from Lender, and Lender is willing to establish such arrangements for and make loans and extensions of credit to Borrowers, on the terms and conditions set forth below. B. The parties desire to define the terms and conditions of their relationship and to reduce their agreements to writing. NOW, THEREFORE, in consideration of the promises and covenants contained in this Agreement, and for other consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: 3 SECTION 1.1. ACCOUNT. "Account" means any right to payment for goods sold or leased or services rendered, whether or not evidenced by an instrument or chattel paper, and whether or not earned by performance. SECTION 1.2. ACCOUNT DEBTOR. "Account Debtor" means any Person obligated on any Account of a Borrower, including without limitation, any Insurer and any Medicaid/Medicare Account Debtor. SECTION 1.3. AFFILIATE. "Affiliate" means, with respect to a specified Person, any Person directly or indirectly controlling, controlled by, or under common control with the specified Person, including without limitation their stockholders and any Affiliates thereof. A Person shall be deemed to control a corporation or other entity if the Person possesses, directly or indirectly, the power to direct or cause the direction of the management and business of the corporation or other entity, whether through the ownership of voting securities, by contract, or otherwise. SECTION 1.4. AGREEMENT. "Agreement" means this Loan and Security Agreement, as it may be amended or supplemented from time to time. SECTION 1.5. BASE RATE. "Base Rate" means a rate of interest equal to two percent (2.0%) above the "Prime Rate of Interest". SECTION 1.6. BORROWED MONEY. "Borrowed Money" means any obligation to repay money, any indebtedness evidenced by notes, bonds, debentures or similar obligations, any obligation under a conditional sale or other title retention agreement and the net aggregate rentals under any lease which under GAAP would be capitalized on the books of a Borrower or which is the substantial equivalent of the financing of the property so leased. SECTION 1.7. BORROWER. "Borrower" and "Borrowers" have the meaning set forth in the Preamble. SECTION 1.8. BORROWING BASE. "Borrowing Base" has the meaning set forth in Section 2.1(d). SECTION 1.9. BUSINESS DAY. "Business Day" means any day on which financial institutions are open for business in the States of Maryland and Georgia, excluding Saturdays and Sundays. SECTION 1.10. CLOSING; CLOSING DATE. "Closing" and "Closing Date" have the meanings set forth in Section 5.3. SECTION 1.11. COLLATERAL. "Collateral" has the meaning set forth in Section 3.1. SECTION 1.12. COMMITMENT FEE. "Commitment Fee" has the meaning set forth in Section 2.4(a). 4 SECTION 1.13. CONCENTRATION ACCOUNT. "Concentration Account" has the meaning set forth in Section 2.3(a). SECTION 1.14. CONTROLLED GROUP. "Controlled Group" means a "controlled group" within the meaning of Section 4001(b) of ERISA. SECTION 1.15. INTENTIONALLY DELETED. SECTION 1.16. DEFAULT RATE. "Default Rate" means a rate per annum equal to three percent (3%) above the then applicable Base Rate. SECTION 1.17. ERISA. "ERISA" has the meaning set forth in Section 4.12. SECTION 1.18. EVENT OF DEFAULT. "Event of Default" and "Events of Default" have the meanings set forth in Section 8.1 (a), subject to the additional provisions of Section 8.1 (b) regarding "Limited Events of Default." SECTION 1.19. GAAP. "GAAP" means generally accepted accounting principles applied in a matter consistent with the financial statements referred to in Section 4.7. SECTION 1.20. GOVERNMENTAL AUTHORITY. "Governmental Authority" means and includes any federal, state, District of Columbia, county, municipal, or other government and any department, commission, board, bureau, agency or instrumentality thereof, whether domestic or foreign. SECTION 1.21. HAZARDOUS MATERIAL. "Hazardous Material" means any substances defined or designated as hazardous or toxic waste, hazardous or toxic material, hazardous or toxic substance, or similar term, by any environmental statute, rule or regulation or any Governmental Authority. SECTION 1.22. HIGHEST LAWFUL RATE. "Highest Lawful Rate" means the maximum lawful rate of interest referred to in Section 2.7 that may accrue pursuant to this Agreement. SECTION 1.23. INSURER. "Insurer" means a Person that insures a Patient against certain of the costs incurred in the receipt by such Patient of Medical Services, or that has an agreement with a Borrower to compensate such Borrower for providing services to a Patient. SECTION 1.23. A. LEASES AND RENTS. "Leases and Rents" shall mean all rents, revenues, issues and profits payable to a Borrower with respect to its ownership of real property, all lease, occupancy or similar agreements relating to real property owned by a Borrower and any contract for the sale, exchange or other disposition of any such real property, and all books and records of a Borrower relating to any of the foregoing. SECTION 1.24. LENDER. "Lender" has the meaning set forth in the Preamble. 3 5 SECTION 1.24 A. LIMITED EVENT OF DEFAULT. "Limited Event of Default" has the meaning set forth in Section 8.1 (b). SECTION 1.25. LOAN. "Loan" has the meaning set forth in Section 2.1(a). SECTION 1.26. LOAN DOCUMENTS. "Loan Documents" means and includes this Agreement, the Note, and each and every other document now or hereafter delivered in connection therewith, as any of them may be amended, modified, or supplemented from time to time. SECTION 1.27. LOAN MANAGEMENT FEE. "Loan Management Fee" has the meaning set forth in Section 2.4(c). SECTION 1.28. LOCKBOX. "Lockbox" has the meaning set forth in Section 2.3. SECTION 1.29. LOCKBOX BANK. "Lockbox Bank" has the meaning set forth in Section 2.3. SECTION 1.30. MAXIMUM LOAN AMOUNT. "Maximum Loan Amount" has the meaning set forth in Section 2.1(a). SECTION 1.31. MEDICAID/MEDICARE ACCOUNT DEBTOR. "Medicaid/ Medicare Account Debtor" means any Account Debtor which is (i) the United States of America acting under the Medicaid/Medicare program established pursuant to the Social Security Act, (ii) any state or the District of Columbia acting pursuant to a health plan adopted pursuant to Title XIX of the Social Security Act or (iii) any agent, carrier, administrator or intermediary for any of the foregoing. SECTION 1.32. MEDICAL SERVICES. Medical and health care services provided to a Patient, including, but not limited to, medical and health care services provided to a Patient and performed by a Borrower which are covered by a policy of insurance issued by an Insurer, and includes physician services, nurse and therapist services, dental services, hospital services, skilled nursing facility services, comprehensive outpatient rehabilitation services, home health care services, residential and out-patient behavioral healthcare services, and medicine or health care equipment provided by a Borrower to a Patient for a necessary or specifically requested valid and proper medical or health purpose. SECTION 1.33. NOTE. "Note" has the meaning set forth in Section 2.1(c). SECTION 1.34. OBLIGATIONS. "Obligations" has the meaning set forth in Section 3.1. SECTION 1.35. PATIENT. "Patient" means any Person receiving Medical Services from a Borrower and all Persons legally liable to pay such Borrower for such Medical Services other than Insurers. 4 6 SECTION 1.36. PERMITTED LIENS. "Permitted Liens" means: (a) any and all liens, claims and encumbrances whatsoever, so long as the same do not attach to any portion of the Collateral, (b)statutory and contractual liens of depository institutions against depository accounts included within the Collateral for unpaid fees, charges and expenses, so long as a Borrower does not have an outstanding loan or credit facility with such depository institution and (c) liens listed on Schedule 1.36 hereto. SECTION 1.37. PERSON. "Person" means an individual, partnership, corporation, trust, joint venture, joint stock company, limited liability company, association, unincorporated organization, Governmental Authority, or any other entity. SECTION 1.38. PLAN. "Plan" has the meaning set forth in Section 4.12. SECTION 1.39. PREMISES. "Premises" has the meaning set forth in Section 4.14. SECTION 1.40. PRIME RATE OF INTEREST. "Prime Rate of Interest" means that rate of interest designated as such by Fleet National Bank of Connecticut, N.A., or any successor thereto, as the same may from time to time fluctuate. SECTION 1.41. PROHIBITED TRANSACTION. "Prohibited Transaction" means a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975(c)(1) of the Internal Revenue Code. SECTION 1.42. QUALIFIED ACCOUNT. "Qualified Account" means an Account of a Borrower generated in the ordinary course of such Borrower's business from the sale of goods or rendition of medical services; provided, however, that no Account shall be a Qualified Account if: (a) the Account or any portion thereof is payable by an individual beneficiary, recipient or subscriber individually and not directly to a Borrower by a Medicaid/Medicare Account Debtor or commercial medical insurance carrier acceptable to Lender in its sole discretion; (b) the Account remains unpaid more than ninety (90) days past the claim or invoice date, (provided, however, that no more than fifteen percent (15%) of such Qualified Accounts at any time shall be between sixty-one (61) and ninety (90) days past the claim or invoice date); (c) the Account is subject to any defense, set-off, counterclaim, deduction, discount, credit, chargeback, freight claim, allowance, or adjustment of any kind; (d) any part of any goods the sale of which has given rise to the Account has been returned, rejected, lost, or damaged; (e) if the Account arises from the sale of goods by a Borrower, such sale was not an absolute sale or on consignment or on approval or on a sale-or-return basis or subject to any other repurchase or return agreement, or such goods have not been shipped to the Account Debtor or its designee; (f) if the Account arises from the performance of services, such services have not been actually been performed or were undertaken in violation of any law (it may be acknowledged and agreed that accounts payable by Florida Medicaid and all Medicare Account Debtors shall be deemed Qualified Accounts prior to billing once the applicable Medicare Services have been performed and/or goods have been delivered); (g) the Account is subject to a lien other than a Permitted Lien; (h) a Borrower knows or should reasonably have known of the bankruptcy, receivership, 5 7 reorganization, or insolvency of the Account Debtor; (i) the Account is evidenced by chattel paper or an instrument of any kind, or has been reduced to judgment; (j) the Account is an Account of an Account Debtor having its principal place of business or executive office outside the United States; (k) the Account Debtor is an Affiliate or Subsidiary of a Borrower; (l) more than ten percent (10%) of the aggregate balance of all Accounts owing from the Account Debtor, except for a Medicare/Medicaid Account Debtor, obligated on the Account (excluding any Medicaid/Medicare Account Debtor) are outstanding more than one hundred twenty (120) days past their invoice date; (m) fifty percent (50%) or more of the aggregate unpaid Accounts from any individual Account Debtor except for a Medicare/Medicaid Account Debtor, are not deemed Qualified Accounts hereunder; (n) the total unpaid Accounts of the Account Debtor, except for a Medicaid/Medicare Account Debtor, exceed twenty percent (20%) of the net amount of all Qualified Accounts (including Medicaid/Medicare Account Debtors); (o) any covenant, representation or warranty contained in the Loan Documents with respect to such Account has been breached; (p) the Account fails to meet such other reasonable specifications and requirements which may from time to time be established by Lender upon not less than ninety (90) days prior written notice to Borrowers, or (q) the Account ceases to be a Qualified Account pursuant to Section 8.2 (a) hereof. SECTION 1.43. REPORTABLE EVENT. "Reportable Event" means a "reportable event" as defined in Section 4043(b) of ERISA. SECTION 1.44. REVOLVING CREDIT LOAN. "Revolving Credit Loan" has the meaning set forth in Section 2.1(b). SECTION 1.45. TERM. "Term" has the meaning set forth in Section 2.8. ARTICLE II LOAN SECTION 2.1. TERMS. (a) The maximum aggregate principal amount of credit extended by Lender to Borrowers hereunder (the "Loan") that will be outstanding at any time is Ten Million and No/100 Dollars ($10,000,000.00) (the "Maximum Loan Amount"). Notwithstanding the above, the maximum aggregate principal amount of Revolving Credit Loans made by Lender to Borrower under this Agreement and to the Affiliated Borrowers under the Affiliated Loan Agreement (defined in Section 3.1 below) shall not at any time exceed Fourteen Million and No/100 Dollars ($14,000,000.00). (b) The Loan shall be in the nature of a revolving line of credit, and shall include sums advanced and other credit extended by Lender to or for the benefit of Borrowers from time to time under this Article II (each a "Revolving Credit Loan") up to the Maximum 7 8 Loan Amount depending upon the availability in the Borrowing Base, the requests of Borrower pursuant to the terms and conditions of Section 2.2 below, and on such other basis as Lender may reasonably determine. The outstanding principal balance of the Loan may fluctuate from time to time, to be reduced by repayments made by Borrowers (which may be made without penalty or premium), and to be increased by future Revolving Credit Loans, advances and other extensions of credit to or for the benefit of Borrowers, and shall be due and payable in full upon the expiration of the Term. For purposes of this Agreement, any determination as to whether there is ability within the Borrowing Base for advances or extensions of credit shall be made by Lender in its sole discretion and is final and binding upon Borrowers. (c) At Closing, Borrowers shall execute and deliver to Lender a promissory note evidencing Borrowers' unconditional obligation to repay Lender for Revolving Credit Loans, advances, and other extensions of credit made under the Loan, in the form of Exhibit A to this Agreement (the "Note"), dated the date hereof, payable to the order of Lender in accordance with the terms thereof. The amounts outstanding under the Note shall bear interest from the date thereof until repaid, with interest payable monthly in arrears on the first Business Day of each month, at a rate per annum (on the basis of the actual number of days elapsed over a year of 360 days) equal to the Base Rate, provided that after the occurrence and during the continuance of an Event of Default (but not a Limited Event of Default) such rate shall be equal to the Default Rate. Each Revolving Credit Loan, advance and other extension of credit shall be deemed evidenced by the Note, which is deemed incorporated by reference herein and made a part hereof. (d) Subject to the terms and conditions of this Agreement, advances under the Loan shall be made against a borrowing base equal to eighty percent (80%) of Qualified Accounts due and owing from any Medicaid/Medicare Account Debtor, Insurer or other Account Debtor (the "Borrowing Base"). SECTION 2.2. LOAN ADMINISTRATION. Borrowings under the Loan shall be as follows: (a) A request for a Revolving Credit Loan shall be made, or shall be deemed to be made, in the following manner: (i) Borrowers may give Lender notice of their intention to borrow, in which notice Borrowers shall specify the amount of the proposed borrowing and the proposed borrowing date, not later than 5:00 p.m. Eastern time one (1) Business Day prior to the proposed borrowing date; provided, however, that no such request may be made at a time when there exists an Event of Default (other than a Limited Event of Default); and (ii) the becoming due of any amount required to be paid under this Agreement, whether as interest or for any other Obligation, shall be deemed irrevocably to be a request for a Revolving Credit Loan on the due date in the amount required to pay such interest or other Obligation. With respect to any request for a Revolving Credit Loan which is made not later than 10:30 a.m. Eastern time, Lender shall use its best efforts to advance proceeds of such Revolving Credit Loan by 4:00 p.m. on the same Business Day. 7 9 (b) Borrowers hereby irrevocably authorize Lender to disburse the proceeds of each Revolving Credit Loan requested, or deemed to be requested, as follows: (i) the proceeds of each Revolving Credit Loan requested under subsection 2.2(a)(i) shall be disbursed by Lender by wire transfer to such bank account as may be agreed upon by Borrowers or Lender from time to time or elsewhere if pursuant to written direction from Borrowers; and (ii) the proceeds of each Revolving Credit Loan requested under subsection 2.2(a)(ii) shall be disbursed by Lender by way of direct payment of the relevant interest or other Obligation. (c) All Revolving Credit Loans, advances and other extensions of credit to or for the benefit of Borrowers shall constitute one general Obligation of Borrowers, and shall be secured by Lender's lien upon all of the Collateral. (d) Lender shall enter all Revolving Credit Loans as debits to a loan account in the name of Borrowers and shall also record in said loan account all payments made by Borrowers on any Obligations and all proceeds of Collateral which are indefeasibly paid to Lender, and may record therein, in accordance with customary accounting practice, other debits and credits, including interest and all charges and expenses properly chargeable to Borrowers. (e) Lender will account to Borrowers monthly with a statement of Revolving Credit Loans, charges and payments made pursuant to this Agreement, and such account rendered by Lender shall be deemed final, binding and conclusive upon Borrowers absent manifest error. SECTION 2.3. COLLECTIONS, DISBURSEMENTS, BORROWING AVAILABILITY, AND LOCKBOX ACCOUNT. Borrowers shall maintain a lockbox account (the "Lockbox") with First Union National Bank of Florida, N.A. (Jacksonville Office) (the "Lockbox Bank"), subject to the provisions of this Agreement, and shall execute with the Lockbox Bank a Lockbox Agreement in the form attached as Exhibit B, and such other agreements related thereto as Lender may require. Each Borrower shall ensure that all collections of Accounts are paid directly from Account Debtors into the Lockbox, and that all funds paid into the Lockbox are immediately transferred into a depository account maintained by Lender at Bank One Arizona, N.A. or U.S. Bank, N.A., as determined by Lender in its sole discretion and communicated to Borrower (the "Concentration Account"). Lender shall apply, on a daily basis, all funds transferred into the Concentration Account pursuant to this Section 2.3 to reduce the outstanding indebtedness under the Loan with future Revolving Credit Loans, advances and other extensions of credit to be made by Lender under the conditions set forth in this Article II. To the extent that any collections of Accounts or proceeds of other Collateral are not sent directly to the Lockbox but are received by a Borrower, such collections shall be held in trust for the benefit of Lender and immediately remitted, in the form received, to the Lockbox Bank for transfer to the Concentration Account immediately upon receipt by such Borrower. Each Borrower acknowledges and agrees that its compliance with the terms of this Section 2.3 is essential, and that upon its failure to comply with any such terms Lender shall be entitled to assess a non-compliance fee which shall operate to increase the Base Rate by two percent (2%) per annum during any period of non-compliance. Lender shall be entitled to assess such fee whether or not an Event of Default is declared or 8 10 otherwise occurs. All funds transferred from the Concentration Account for application to Borrowers' indebtedness to Lender shall be applied to reduce the Loan balance but for purposes of calculating interest shall be subject to a three (3) Business Day clearance period. If as the result of collections of Accounts pursuant to the terms and conditions of this Section 2.3 a credit balance exists with respect to the Concentration Account, such credit balance shall not accrue interest in favor of Borrowers, but shall be available to Borrowers at any time or times for so long as no Event of Default (other than a Limited Event of Default) exists. SECTION 2.4. FEES. (a) At Closing, Borrower shall unconditionally pay to Lender a commitment fee equal One Hundred Forty Thousand and No/100 Dollars ($140,000.00) in the aggregate under this Agreement and the Affiliated Loan Agreement (as defined in Section 3.1 of this Agreement)(the "Commitment Fee"). (b) For so long as the Loan is available to Borrowers, Borrowers unconditionally shall pay to Lender a monthly usage fee (the "Usage Fee") equal to one twelfth (1/12th) of one percent (1.0%) of the average amount by which Fourteen Million and No/100 Dollars ($14,000,000.00) exceeds the aggregate average amount of the outstanding principal balance of the Revolving Credit Loans during the preceding month. The Usage Fee shall be payable monthly in arrears on the first Business Day of each successive calendar month. (c) For so long as the Loan is available to Borrowers, Borrowers unconditionally shall pay to Lender a monthly loan management fee (the "Loan Management Fee") equal to Three Thousand Five Hundred and No/100 Dollars ($3,500.00) per month in the aggregate under this Agreement aand the Affiliated Loan Agreement. The Loan Management Fee shall be payable monthly in arrears on the first day of each successive calendar month. (d) Within 30 days after demand by Lender, Borrowers shall pay to Lender all audit and appraisal fees in connection with audits and appraisals of any Borrower's books and records and such other matters as Lender shall deem appropriate; provided, however, that absent the occurrence of an Event of Default (other than a Limited Event of Default) such fees shall not exceed Twenty Thousand and No/100 Dollars ($20,000.00) in the aggregate under this Agreement and the Affiliated Loan Agreement in any twelve month period. (e) Borrowers shall pay to Lender, on demand, any and all fees, costs or expenses which Lender or any participant pays to a bank or other similar institution (including, without limitation, any fees paid by Lender to any participant) arising out of or in connection with (i) the forwarding to Borrowers or any other Person on behalf of Borrowers, by Lender, of proceeds of Revolving Credit Loans made by Lender to Borrowers pursuant to this Agreement, and (ii) the depositing for collection, by Lender or any participant, of any check or item of payment received or delivered to Lender or any participant on account of Obligations. 9 11 SECTION 2.5. PAYMENTS. Principal payable on account of Revolving Credit Loans shall be payable by Borrowers to Lender immediately upon the earliest of (i) the receipt by any Borrower of any proceeds of any of the Collateral, to the extent of such proceeds, (ii) the occurrence of an Event of Default in consequence of which the Loan and the maturity of the payment of the Obligations are accelerated, or (iii) the termination of this Agreement pursuant to Section 2.8 hereof; provided, however, that if any advance made by Lender in excess of the Borrowing Base shall exist at any time, Borrowers shall, immediately upon demand, repay such overadvance. Interest accrued on the Revolving Credit Loans shall be due on the earliest of (i) the first Business Day of each month (for the immediately preceding month), computed on the last calendar day of the preceding month, (ii) the occurrence of an Event of Default in consequence of which the Loan and the maturity of the payment of the Obligations are accelerated, or (iii) the termination of this Agreement pursuant to Section 2.8 hereof. Except to the extent otherwise set forth in this Agreement, all payments of principal and of interest on the Loan, all other charges and any other obligations of Borrowers hereunder, shall be made to Lender to the Concentration Account, in immediately available funds. SECTION 2.6. USE OF PROCEEDS. The proceeds of Lender's advances under the Loan shall be used solely for working capital purposes arising in the ordinary course of Borrowers' business. SECTION 2.7. INTEREST RATE LIMITATION. The parties intend to conform strictly to the applicable usury laws in effect from time to time during the term of the Loan. Accordingly, if any transaction contemplated hereby would be usurious under such laws, then notwithstanding any other provision hereof: (i) the aggregate of all interest that is contracted for, charged, or received under this Agreement or under any other Loan Document shall not exceed the maximum amount of interest allowed by applicable law (the "Highest Lawful Rate"), and any excess shall be promptly credited to Borrowers by Lender (or, to the extent that such consideration shall have been paid, such excess shall be promptly refunded to Borrowers by Lender); (ii) neither Borrowers nor any other Person now or hereafter liable hereunder shall be obligated to pay the amount of such interest to the extent that it is in excess of the Highest Lawful Rate; and (iii) the effective rate of interest shall be reduced to the Highest Lawful Rate. All sums paid, or agreed to be paid, to Lender for the use, forbearance, and detention of the debt of Borrowers to Lender shall, to the extent permitted by applicable law, be allocated throughout the full term of the Note until payment is made in full so that the actual rate of interest does not exceed the Highest Lawful Rate in effect at any particular time during the full term thereof. If at any time the rate of interest under the Note exceeds the Highest Lawful Rate, the rate of interest to accrue pursuant to this Agreement shall be limited, notwithstanding anything to the contrary herein, to the Highest Lawful Rate, but any subsequent reductions in the Base Rate shall not reduce the interest to accrue pursuant to this Agreement below the Highest Lawful Rate until the total amount of interest accrued equals the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect. If the total amount of interest paid or accrued pursuant to this Agreement under the foregoing provisions is less than the total amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had been in effect, then Borrowers agree to pay 10 12 to Lender an amount equal to the difference between (i) the lesser of (x) the amount of interest that would have accrued if the Highest Lawful Rate had at all times been in effect, or (y) the amount of interest that would have accrued if a varying rate per annum equal to the interest rate under the Note had at all times been in effect, and (ii) the amount of interest accrued in accordance with the other provisions of this Agreement. SECTION 2.8. TERM. (a) Subject to Lender's right to cease making Revolving Credit Loans to Borrowers upon or after the occurrence and during the continuance of any Event of Default (subject to Section 8.1 (b)), this Agreement shall be in effect for a period of three (3) years from the Closing Date, unless terminated as provided in this Section 2.8 (the "Term"), and this Agreement shall be renewed for one-year periods thereafter upon the mutual written agreement of the parties. (b) Notwithstanding anything herein to the contrary, Lender may (subject to Section 8.1 (b)) terminate this Agreement without notice upon or after the occurrence and during the continuance of the occurrence of an Event of Default. (c) Upon at least thirty (30) days prior written notice to Lender, Borrower may terminate this Agreement prior to the third annual anniversary of the Closing Date, provided that, at the effective date of such termination, Borrowers shall pay to Lender (in addition to the then outstanding principal, accrued interest and other Obligations owing under the terms of this Agreement and any other Loan Documents) as liquidated damages for the loss of bargain and not as a penalty, an amount equal to One Hundred Forty Thousand and No/100 Dollars ($140,000.00) in the aggregate under this Agreement and the Affiliated Loan Agreement. (d) All of the Obligations shall be immediately due and payable upon the termination date stated in any notice of termination of this Agreement. All undertakings, agreements, covenants, warranties, and representations of Borrowers contained in the Loan Documents shall survive any such termination and Lender shall retain its liens in the Collateral and all of its rights and remedies under the Loan Documents notwithstanding such termination until Borrowers have paid the Obligations to Lender, in full, in immediately available funds. SECTION 2.9. JOINT AND SEVERAL LIABILITY; BINDING OBLIGATIONS. Each Borrower shall be jointly and severally liable for all of the Obligations. In addition, each Borrower hereby acknowledges and agrees that all of the representations, warranties, covenants, obligations, conditions, agreements and other terms contained in this Agreement shall be applicable to and shall be binding upon each Borrower, and shall be binding upon all such entities when taken together; provided , however, that such representations, warranties and covenants shall be deemed to be made by each Borrower as to itself, but not as to any other Borrower despite its binding nature with respect to the other entities. 11 13 ARTICLE III COLLATERAL SECTION 3.1. GENERALLY. As security for the payment of all liabilities of Borrowers to Lender, including without limitation: (i) indebtedness evidenced under the Note, repayment of Revolving Credit Loans, advances and other extensions of credit, all fees and charges owing by Borrowers, and all other liabilities and obligations of every kind or nature whatsoever of Borrowers to Lender, whether now existing or hereafter incurred, joint or several, matured or unmatured, direct or indirect, primary or secondary, related or unrelated, due or to become due, including but not limited to any extensions, modifications, substitutions, increases and renewals thereof, (ii) the payment of all amounts advanced by Lender to preserve, protect, defend, and enforce its rights hereunder and in the following property in accordance with the terms of this Agreement, and (iii) the payment of all expenses incurred by Lender in connection therewith (collectively, the "Obligations"), and as further security for the payment and performance of the obligations of Retirement Care Associates, Inc. and other borrowers (collectively, the "Affiliated Borrower") under the Loan and Security Agreement dated December 15, 1997, as amended, modified or replaced (the "Affiliated Loan Agreement") each Borrower hereby assigns and grants to Lender a continuing first priority lien on and security interest in, upon, and to the following property (the "Collateral"): (a) All of such Borrower's now-owned and hereafter acquired or arising Accounts, accounts receivable and rights to payment of every kind and description, and any contract rights, chattel paper, documents and instruments with respect thereto but specifically excluding Leases and Rents; (b) All of such Borrower's now owned and hereafter acquired or arising general intangibles of every kind and description pertaining to its Accounts, accounts receivable and other rights to payment, including, but not limited to, all existing and future customer lists, choses in action, claims, books, records, contracts, licenses, formulae, tax and other types of refunds, returned and unearned insurance premiums, rights and claims under insurance policies, and computer information, software, records, and data but specifically excluding Leases and Rents; (c) All of such Borrower's monies and other property of every kind and nature now or at any time or times hereafter in the possession of or under the control of Lender or a bailee or Affiliate of Lender; and (d) The proceeds (including, without limitation, insurance proceeds) of all of the foregoing. SECTION 3.2. LIEN DOCUMENTS. At Closing and thereafter as Lender deems necessary in its reasonable discretion, each Borrower shall execute and deliver to Lender, or have executed and delivered (all in form and substance satisfactory to Lender in its sole discretion): 12 14 (a) UCC-1 Financing statements pursuant to the Uniform Commercial Code in effect in the jurisdiction(s) in which such Borrower operates, which Lender may file in any jurisdiction where any Collateral is or may be located and in any other jurisdiction that Lender deems appropriate; provided that a carbon, photographic, or other reproduction or other copy of this Agreement or of a financing statement is sufficient as and may be filed in lieu of a financing statement; and (b) Any other agreements, documents, instruments, and writings reasonably deemed necessary by Lender or as Lender may otherwise request from time to time in its sole discretion to evidence, perfect, or protect Lender's lien and security interest in the Collateral required hereunder. SECTION 3.3. COLLATERAL ADMINISTRATION. (a) All Collateral (except deposit accounts) will at all times be kept by each Borrower at its principal office(s) as set forth on Exhibit C hereto and shall not, without the prior written approval of Lender, be moved therefrom. (b) Each Borrower shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit to Lender sales and collections reports with respect thereto as required by Section 6.1 hereof. In addition, if Borrower becomes aware that Accounts in an aggregate face amount in excess of $100,000.00 have become ineligible since the date of Borrowers' last Borrowing Base Certificate because they fall within one of the specified categories of ineligibility set forth in the definition of Qualified Accounts or otherwise, Borrower shall notify Lender of such occurrence on the first Business Day following Borrowers' knowledge of such occurrence and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. (c) Whether or not an Event of Default has occurred, any of Lender's officers, employees or agents shall have the right, at any time or times hereafter, in the name of Lender, any designee of Lender or Borrowers, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise. Borrowers shall cooperate fully with Lender in an effort to facilitate and promptly conclude such verification process. (d) To expedite collection, each Borrower shall endeavor in the first instance to make collection of its Accounts for Lender. Lender retains the right at all times after the occurrence of an Event of Default (other than a Limited Event of Default), subject to applicable law regarding Medicaid/Medicare Account Debtors, to notify Account Debtors that Accounts have been assigned to Lender and to collect Accounts directly in its own name and to charge the collection costs and expenses, including attorneys' fees, to Borrowers. SECTION 3.4. OTHER ACTIONS. In addition to the foregoing, Borrowers (i) shall provide prompt written notice to each private indemnity, managed care or other Insurer who either is currently an Account Debtor or becomes an Account Debtor at any time following the date 13 15 hereof that Lender has been granted a first priority lien and security interest in, upon and to all Accounts applicable to such Insurer, and hereby authorizes Lender to send any and all similar notices to such Insurers by Lender, and (ii) shall do anything further that may be lawfully required by Lender to secure Lender and effectuate the intentions and objects of this Agreement, including but not limited to the execution and delivery of lockbox agreements, continuation statements, amendments to financing statements, and any other documents required hereunder. At Lender's request, Borrowers shall also immediately deliver to Lender all items for which Lender must receive possession to obtain a perfected security interest. Borrowers shall, on Lender's demand, deliver to Lender all notes, certificates, and documents of title, chattel paper, warehouse receipts, instruments, and any other similar instruments constituting Collateral. SECTION 3.5. SEARCHES. Prior to Closing, and thereafter if an Event of Default (other than a Limited Event of Default) or event which with the passing of time, the giving of notice or both could constitute an Event of Default (other than a Limited Event of Default) has occurred and is continuing, Borrowers shall obtain and deliver to Lender the following searches against Borrowers (the results of which are to be consistent with Borrowers' representations and warranties under this Agreement), all at its own expense: (a) Uniform Commercial Code searches with the Secretary of State and local filing offices of each jurisdiction where Borrower maintains its executive offices, a place of business, or assets; (b) Judgment, federal tax lien and corporate and partnership tax lien searches, in each jurisdiction searched under clause (a) above; and (c) Good standing certificates showing Borrower to be in good standing in its state of formation and in each other state in which it is doing and presently intends to do business for which qualification is required. SECTION 3.6. POWER OF ATTORNEY. Each of the officers of Lender is hereby irrevocably made, constituted and appointed the true and lawful attorney for each Borrower (without requiring any of them to act as such) with full power of substitution to, after the occurrence and during the continuance of an Event of Default (other than a Limited Event of Default), do the following: (i) endorse the name of such Borrower upon any and all checks, drafts, money orders, and other instruments for the payment of money that are payable to such Borrower and constitute collections on Borrower's Accounts; (ii) execute in the name of such Borrower any financing statements, schedules, assignments, instruments, documents, and statements that such Borrower is obligated to give Lender hereunder; and (iii) do such other and further acts and deeds in the name of Borrower that Lender may deem necessary or desirable to enforce any Account or other Collateral or perfect Lender's security interest or lien in any Collateral. ARTICLE IV 14 16 REPRESENTATIONS AND WARRANTIES Each entity comprising the Borrower represents and warrants to Lender (with respect to itself only, and not with respect to any other Borrower), and shall be deemed to represent and warrant on each day on which any Obligations shall be outstanding hereunder, that: SECTION 4.1. SUBSIDIARIES. Except as set forth in Schedule 4.1, Borrower has no subsidiaries. SECTION 4.2. ORGANIZATION AND GOOD STANDING. Borrower is a limited partnership or corporation (as the case may be) duly organized, validly existing, and in good standing under the laws of its state of formation, is in good standing as a foreign limited partnership or corporation (as the case may be) in each jurisdiction in which the character of the properties owned or leased by it therein or the nature of its business makes such qualification necessary, has the partnership or corporate power and authority to own its assets and transact the business in which it is engaged, and has obtained all certificates, licenses and qualifications required under all laws, regulations, ordinances, or orders of public authorities necessary for the ownership and operation of all of its properties and transaction of all of its business. SECTION 4.3. AUTHORITY. Borrower has full partnership or corporate power and authority to enter into, execute, and deliver this Agreement and to perform its obligations hereunder, to borrow the Loan, to execute and deliver the Note, and to incur and perform the obligations provided for in the Loan Documents, all of which have been duly authorized by all necessary partnership or corporate action. No consent or approval of partners or shareholders of, or lenders to, Borrower and no consent, approval, filing or registration with any Governmental Authority is required as a condition to the validity of the Loan Documents or the performance by Borrower of its obligations thereunder. SECTION 4.4. BINDING AGREEMENT. This Agreement and all other Loan Documents constitute, and the Note, when issued and delivered pursuant hereto for value received, will constitute, the valid and legally binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms. SECTION 4.5. LITIGATION. Except as disclosed in Schedule 4.5, there are no actions, suits, proceedings or investigations pending or threatened against Borrower before any court or arbitrator or before or by any Governmental Authority which, in any one case or in the aggregate, if determined adversely to the interests of Borrower, could have a material adverse effect on the business, properties, condition (financial or otherwise) or operations, present or prospective, of Borrower, or upon its ability to perform its obligations under the Loan Documents. Borrower is not in default with respect to any order of any court, arbitrator, or Governmental Authority applicable to Borrower or its properties. 15 17 SECTION 4.6. NO CONFLICTS. The execution and delivery by Borrower of this Agreement and the other Loan Documents do not, and the performance of its obligations thereunder will not, violate, conflict with, constitute a default under, or result in the creation of a lien or encumbrance upon the property of Borrower under: (i) any provision of Borrower's articles of incorporation or bylaws, or articles of formation, certificate of limited partnership or operating agreement (as the case may be), (ii) any provision of any law, rule, or regulation applicable to Borrower, or (iii) any of the following: (A) any indenture or other agreement or instrument to which Borrower is a party or by which Borrower or its property is bound; or (B) any judgment, order or decree of any court, arbitration tribunal, or Governmental Authority having jurisdiction over Borrower which is applicable to Borrower. SECTION 4.7. FINANCIAL CONDITION. The annual financial statements of Borrower (prepared on a consolidated basis with the other Borrowers, and Affiliated Borrowers and its other controlled entities) as of audited by and the unaudited financial statements of Borrower as of September 30, 1997, certified by the chief financial officer or general partner of Borrower (as the case may be), which have been delivered to Lender, fairly present the financial condition of Borrower and the results of its operations and changes in financial condition as of the dates and for the periods referred to, and have been prepared in accordance with GAAP. There are no material unrealized or anticipated liabilities, direct or indirect, fixed or contingent, of Borrower as of the dates of such financial statements which are not reflected therein or in the notes thereto. There has been no material adverse change in the business, properties, condition (financial or otherwise) or operations (present or prospective) of Borrower since September 30, 1997. Borrower's fiscal year ends on . The federal tax identification number of each entity comprising the Borrower is as described on Schedule 4.15. SECTION 4.8. NO DEFAULT. Borrower is not in default under or with respect to any obligation in any respect which could be materially adverse to its business, operations, property or financial condition, or which could materially and adversely affect the ability of Borrower to perform its obligations under the Loan Documents. No Event of Default as to such Borrower or event which, with the giving of notice or lapse of time, or both, could become an Event of Default as to such Borrower, has occurred and is continuing. SECTION 4.9. TITLE TO PROPERTIES. Borrower has good and marketable title to its properties and assets, including the Collateral and the properties and assets reflected in the financial statements described in Section 4.7, subject to no lien, mortgage, pledge, encumbrance or charge of any kind, other than Permitted Liens. Borrower has not agreed or consented to cause any of its properties or assets whether owned now or hereafter acquired to be subject in the future (upon the happening of a contingency or otherwise) to any lien, mortgage, pledge, encumbrance or charge of any kind other than Permitted Liens. SECTION 4.10. TAXES. Borrower has filed, or has obtained extensions for the filing of, all federal, state and other tax returns which are required to be filed, and has paid all taxes shown as due on those returns and all assessments, fees and other amounts due as of the date hereof. All 16 18 tax liabilities of Borrower were, as of March 31, 1997 and are now, adequately provided for on Borrower's books. No tax liability has been asserted by the Internal Revenue Service or other taxing authority against Borrower for taxes in excess of those already paid. SECTION 4.11. SECURITIES AND BANKING LAWS AND REGULATIONS. (a) The use of the proceeds of the Loan and Borrower's issuance of the Note will not directly or indirectly violate or result in a violation of the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including without limitation Regulations U, T, G, or X of the Board of Governors of the Federal Reserve System. Borrower is not engaged in the business of extending credit for the purpose of the purchasing or carrying "margin stock" within the meaning of those regulations. No part of the proceeds of the Loan hereunder will be used to purchase or carry any margin stock or to extend credit to others for such purpose. (b) Borrower is not an investment company within the meaning of the Investment Company Act of 1940, as amended, nor is it, directly or indirectly, controlled by or acting on behalf of any Person which is an investment company within the meaning of that Act. SECTION 4.12. ERISA. No employee benefit plan (a "Plan") subject to the Employee Retirement Income Security Act of 1974 ("ERISA") and regulations issued pursuant thereto that is maintained by Borrower or under which Borrower could have any liability under ERISA (a) has failed to meet minimum funding standards established in Section 302 of ERISA, (b) has failed to comply with all applicable requirements of ERISA and of the Internal Revenue Code, including all applicable rulings and regulations thereunder, (c) has engaged in or been involved in a prohibited transaction (as defined in ERISA) under ERISA or under the Internal Revenue Code, or (d) has been terminated. Borrower has not assumed, or received notice of a claim asserted against Borrower for, withdrawal liability (as defined in the Multi-Employer Pension Plan Amendments Act of 1980, as amended) with respect to any multi-employer pension plan and is not a member of any Controlled Group (as defined in ERISA). Borrower has timely made when due all contributions with respect to any multi-employer pension plan in which it participates and no event has occurred triggering a claim against Borrower for withdrawal liability with respect to any multi-employer pension plan in which Borrower participates. SECTION 4.13. COMPLIANCE WITH LAW. Except as described in Schedule 4.13, Borrower is not in violation of any statute, rule or regulation of any Governmental Authority (including, without limitation, any statute, rule or regulation relating to employment practices or to environmental, occupational and health standards and controls). Borrower has obtained all licenses, permits, franchises, and other governmental authorizations necessary for the ownership of its properties and the conduct of its business. Borrower is current with all reports and documents required to be filed with any state or federal securities commission or similar Governmental Authority and is in full compliance with all applicable rules and regulations of such commissions. 17 19 SECTION 4.14. ENVIRONMENTAL MATTERS. To Borrower's knowledge, without independent inquiry no use, exposure, release, generation, manufacture, storage, treatment, transportation or disposal of Hazardous Material has occurred or is occurring on or from any real property on which the Collateral is located or which is owned, leased or otherwise occupied by Borrower (the "Premises"), or off the Premises as a result of any action of Borrower, except as described in Schedule 4.14 or at levels that comply with applicable law. SECTION 4.15. PLACES OF BUSINESS. The only places of business of Borrower, and the places where it keeps and intends to keep the Collateral and records concerning the Collateral, are at the addresses set forth in Schedule 4.15. Schedule 4.15 also lists the owner of record of each such property. SECTION 4.16. INTELLECTUAL PROPERTY. Borrower exclusively owns or possesses all the patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, franchises, licenses, and rights with respect to the foregoing necessary for the present and planned future conduct of its business, without any conflict with the rights of others. A list of all such intellectual property (indicating the nature of Borrower's interest), as well as all outstanding franchises and licenses given by or held by Borrower, is attached as Schedule 4.16. Borrower is not in default of any obligation or undertaking with respect to such intellectual property or rights. SECTION 4.17. STOCK OWNERSHIP. The identity of the stockholders of record of all classes of the outstanding stock of Borrower, together with the respective ownership percentages held by such stockholders, are as set forth on Schedule 4.17. SECTION 4.18. MATERIAL FACTS. Neither this Agreement nor any other Loan Document nor any other agreement, document, certificate, or statement furnished to Lender by or on behalf of Borrower in connection with the transactions contemplated hereby contains any untrue statement of material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading. There is no fact known to Borrower that materially and adversely affects or in the future may materially and adversely affect the business, operations, affairs or financial condition of Borrower, or any of its properties or assets. SECTION 4.19. INVESTMENTS, GUARANTEES, AND CERTAIN CONTRACTS. Borrower is not a party to any contract or agreement, or subject to any partnership or corporate restriction, which materially and adversely affects its business. SECTION 4.20. INTENTIONALLY DELETED. SECTION 4.21. NAMES. Within five years prior to the date hereof, Borrower has not conducted business under or used any other name (whether corporate, partnership or assumed) other than as shown on Schedule 4.21. Borrower is the sole owner of all names listed on that Schedule and any and all business done and invoices issued in such names are Borrower's sales, 18 20 business, and invoices. Each trade name of Borrower represents a division or trading style of Borrower and not a separate Person or independent Affiliate. SECTION 4.22 INTENTIONALLY DELETED. SECTION 4.23 ACCOUNTS. Lender may rely, in determining which Accounts are Qualified Accounts, on all statements and representations made by Borrower with respect to any Account or Accounts. Unless otherwise indicated in writing to Lender, with respect to each Account: (a) It is genuine and in all respects what it purports to be, and is not evidenced by a judgment; (b) It arises out of a completed, bona fide sale and delivery of goods or rendition of services by Borrower in the ordinary course of its business and substantially in accordance with the terms and conditions of all purchase orders, contracts, certification, participation, certificate of need, or other documents relating thereto and forming a part of the contract between Borrower and the Account Debtor; (c) It is for a liquidated amount maturing as stated in a duplicate claim or invoice covering such sale or rendition of services, a copy of which has been furnished or is available to Lender (or in the case of Accounts owed by Florida Medicaid and all Medicare Account Debtors, that Medical Services have been rendered but have not yet been invoiced as a result of applicable Medicaid or Medicare billing procedures); (d) Such Account, and Lender's security interest therein, is not, and will not (by voluntary act or omission by Borrower), be in the future, subject to any lien, claim or encumbrance, and each such Account is absolutely owing to Borrower and is not contingent in any respect or for any reason; (e) To Borrower's knowledge without independent inquiry, there are no facts, events or occurrences which in any way impair the validity or enforceability of any Accounts; (f) It has been billed and forwarded to the Account Debtor for payment in accordance with applicable laws and compliance and conformance with any and requisite procedures, requirements and regulations governing payment by such Account Debtor with respect to such Account (or in the case of Accounts owed by Florida Medicaid and all Medicare Account Debtors, that Medical Services have been rendered but have not yet been invoiced as a result of applicable Medicaid or Medicare billing procedures), and such Account if due from a Medicaid/Medicare Account Debtor is properly payable directly to Borrower; and (g) Borrower has obtained and currently has all certificates of need, Medicaid and Medicare provider numbers, licenses, permits and authorizations as necessary in the generation of such Accounts. 19 21 ARTICLE V CLOSING AND CONDITIONS OF LENDING SECTION 5.1. CONDITIONS PRECEDENT TO AGREEMENT. The obligation of Lender to enter into and perform this Agreement and to make Revolving Credit Loans is subject to the following conditions precedent: (a) Lender shall have received two (2) originals of this Agreement and all other Loan Documents required to be executed and delivered at or prior to Closing (other than the Note, as to which Lender shall receive only one original), executed by Borrowers and any other required Persons, as applicable. (b) Lender shall have received all searches and good standing certificates required by Section 3.5. (c) Borrowers shall have complied and shall then be in compliance with all the terms, covenants and conditions of the Loan Documents. (d) There shall have occurred no Event of Default and no event which, with the giving of notice or the lapse of time, or both, could constitute such an Event of Default. (e) The representations and warranties contained in Article IV shall be true and correct in all material respects. (f) Lender shall have received copies of all board of directors resolutions of the general partner or other corporate action taken by Borrowers to authorize the execution, delivery and performance of the Loan Documents and the borrowing of the Loan thereunder, as well as the names and signatures of the officers of Borrowers authorized to execute documents on its behalf in connection herewith, all as also certified as of the date hereof by each Borrower's chief financial officer or Borrower's general partner (as the case may be), and such other papers as Lender may require. (g) Lender shall have received copies, certified as true, correct and complete by a corporate officer or the corporate officer of the general partner (as the case may be)of each Borrower, of the articles of incorporation or formation and bylaws of the general partner, (as the case may be) of each Borrower, with any amendments to any of the foregoing, and all other documents necessary for performance of the obligations of Borrower under this Agreement and the other Loan Documents. (h) Lender shall have received a written opinion of counsel for Borrower, dated the date hereof, in the form of Exhibit D. 20 22 (i) Lender shall have received such financial statements, reports, certifications, and other operational information required to be delivered hereunder, including without limitation an initial borrowing base certificate calculating the Borrowing Base. (j) Lender shall have received the first installment of the Commitment Fee. (k) The Lockbox and the Concentration Account shall have been established. (l) Lender shall have received an estoppel certificate substantially in the form of Exhibit E attached hereto from Borrower's landlord or sublandlord, as the case may be, with respect to each of the facilities identified on Schedule 4.15 which is a leased facility. (m) Lender shall have received a certificate of Borrower's chief financial officer, dated the Closing Date, certifying that all of the conditions specified in this Section have been fulfilled. SECTION 5.2. CONDITIONS PRECEDENT TO ADVANCES. Notwithstanding any other provision of this Agreement, no Loan proceeds, Revolving Credit Loans, advances or other extensions of credit under the Loan shall be disbursed hereunder unless the following conditions have been satisfied or waived immediately prior to such disbursement: (a) The representations and warranties on the part of Borrowers (excluding any Borrower that is then deemed to be a Defaulted Borrower pursuant to Section 8.1 (b) hereof) contained in Article IV of this Agreement shall be true and correct in all material respects at and as of the date of disbursement or advance, as though made on and as of such date, except as follows (i) to the extent that such representations and warranties expressly relate solely to an earlier date, (ii) the references in Section 4.7 to financial statements shall be deemed to be a reference to the then most recent annual and interim financial statements of Borrowers furnished to Lender pursuant to Section 6.1 hereof, (iii) such representations and warranties shall be deemed to have been supplemented by any written updates pertaining thereto, as delivered by Borrowers to Lender from time to time and (iv) Borrower's reaffirmation of Section 4.17 shall be deemed only a representation that any changes in Borrower's ownership have been in accordance with Section 7.14 hereof. (b) No Event of Default (other than a Limited Event of Default) or event which, with the giving of notice of the lapse of time, or both, could become an Event of Default (other than a Limited Event of Default) shall have occurred and be continuing or would result from the making of the disbursement or advance. (c) No event or events have occurred which have caused a material adverse change in the condition (financial or otherwise), properties, business, or operations of Borrowers, taken as a whole, shall have occurred and be continuing with respect to Borrowers, taken as a whole, since the date hereof. 21 23 SECTION 5.3. CLOSING. Subject to the conditions of this Article V, the Loan shall be made available on the date as is mutually agreed by the parties (the "Closing Date") at such time as may be mutually agreeable to the parties upon the execution hereof (the "Closing") at such place as may be requested by Lender. SECTION 5.4. WAIVER OF RIGHTS. By completing the Closing hereunder, or by making advances under the Loan, Lender does not waive a breach of any representation or warranty of any Borrower hereunder or under any other Loan Document, and all of Lender's claims and rights resulting from any breach or misrepresentation by any Borrower are specifically reserved by Lender. ARTICLE VI AFFIRMATIVE COVENANTS Each Borrower covenants and agrees that for so long as such Borrower may borrow hereunder and until payment in full of the Note and performance of all other obligations of Borrowers under the Loan Documents: SECTION 6.1. FINANCIAL STATEMENTS AND COLLATERAL REPORTS. Borrower will furnish to Lender (a) a sales and collections report and accounts receivable aging schedule on a form acceptable to Lender within fifteen (15) days after the end of each calendar month, which shall include, but not be limited to, a report of sales, credits issued, and collections received; (b) payable aging schedules within fifteen (15) days after the end of each calendar month; (c) quarterly financial statements for Retirement Care Associates, Inc., prepared on a consolidated basis with Borrowers and any of Retirement Care Associates, Inc.'s other controlled entities; (d) annual audited financial statements on Form 10K for Retirement Care Associates, Inc., prepared on a consolidated basis with Borrowers and any of Retirement Care Associates, Inc.'s other controlled entities prepared by Retirement Care Associates, Inc., or other independent public accountants then engaged by Borrower, within one hundred thirty-five (135) days after the end of each of Borrower's fiscal years; (e) promptly upon receipt thereof, copies of any reports submitted to Borrower by the independent accountants in connection with any interim audit of the books of Borrower and copies of each management control letter provided to Borrower by independent accountants; (f) as soon as available, copies of all financial statements and notices provided by Borrower to all of its stockholders; and (g) such additional information, reports or statements as Lender may from time to time reasonably request. Annual financial statements shall set forth in comparative form figures for the corresponding periods in the prior fiscal year. All financial statements shall include a balance sheet and statement of earnings and shall be prepared in accordance with GAAP. SECTION 6.2. PAYMENTS HEREUNDER. Borrower will make all payments of principal, interest, fees, and all other payments required hereunder, under the Loan, and under any other agreements with Lender to which Borrower is a party, as and when due. 22 24 SECTION 6.3. EXISTENCE, GOOD STANDING, AND COMPLIANCE WITH LAWS. Borrower will do or cause to be done all things necessary (a) to obtain and keep in full force and effect all corporate or partnership (as the case may be) existence, rights, licenses, privileges, and franchises of Borrower necessary to the ownership of its property or the conduct of its business, and comply with all applicable present and future laws, ordinances, rules, regulations, orders and decrees of any Governmental Authority having or claiming jurisdiction over Borrower; and (b) to maintain and protect the properties used or useful in the conduct of the operations of Borrower, in a prudent manner, including without limitation the maintenance at all times of such insurance upon its insurable property and operations as required by law or by Section 6.7 hereof. SECTION 6.4. LEGALITY. Borrower will obtain any and all consents, approvals and authorizations of any Governmental Authority necessary for the making of each disbursement or advance of the loan. SECTION 6.5. INTENTIONALLY DELETED. SECTION 6.6. TAXES AND CHARGES. Borrower will timely file all tax reports and pay and discharge all taxes, assessments and governmental charges or levies imposed upon Borrower, or its income or profits or upon its properties or any part thereof, before the same shall be in default and prior to the date on which penalties attach thereto, as well as all lawful claims for labor, material, supplies or otherwise which, if unpaid, might become a lien or charge upon the properties or any part thereof of Borrower; provided, however, that Borrower shall not be required to pay and discharge or cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith and by appropriate proceedings by Borrower, and Borrower shall have set aside on their books adequate reserve therefor; and provided further, that such deferment of payment is permissible only so long as Borrower's title to, and its right to use, the Collateral is not adversely affected thereby and Lender's lien and priority on the Collateral are not adversely affected, altered or impaired thereby. SECTION 6.7. INSURANCE. Borrower will carry adequate public liability and professional liability insurance with responsible companies satisfactory to Lender in such amounts and against such risks as is customarily maintained by similar businesses and by owners of similar property in the same general area. SECTION 6.8. GENERAL INFORMATION. Borrower will furnish to Lender such information as Lender may, from time to time, reasonably request with respect to the business or financial affairs of Borrower, and, upon reasonable prior notice and during normal business hours, shall permit any officer, employee or agent of Lender to visit and inspect any of the properties, to examine the minute books, books of account and other records, including management letters prepared by Borrower's auditors, of Borrower, and make copies thereof or extracts therefrom, and to discuss its and their business affairs, finances and accounts with, and be advised as to the same by, the accountants and officers of Borrower, all at such times and as often as Lender may require. 23 25 SECTION 6.9. MAINTENANCE OF PROPERTY. Borrower will maintain, keep and preserve all of its properties in good repair, working order and condition and from time to time make all needful and proper repairs, renewals, replacements, betterments and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. SECTION 6.10. NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE DEVELOPMENTS. Borrower promptly will notify Lender upon the occurrence of: (a) any Event of Default; (b) any event which, with the giving of notice or lapse of time, or both, could constitute an Event of Default; (c) any event, development or circumstance whereby the financial statements previously furnished to Lender fail in any material respect to present fairly, in accordance with GAAP, the financial condition and operational results of Borrower as of the date of such statements; (d) any judicial, administrative or arbitration proceeding pending against Borrower, and any judicial or administrative proceeding known by Borrower to be threatened against it which, if adversely decided, could materially and adversely affect the condition (financial or otherwise) or operations (present or prospective) of the Borrowers, taken as a whole, or which may expose Borrower to uninsured liability of $100,000.00 or more; (e) any default claimed by any other creditor for Borrowed Money (in excess of $50,000) of Borrower other than Lender; and (f) any other development in the business or affairs of Borrower which could have a material and adverse effect on the business operations of Borrowers, taken as a whole, or on the ability of Borrowers to repay the Loan; in each case describing the nature thereof and (in the case of notification under clauses (a) and (b)) the action Borrower proposes to take with respect thereto. SECTION 6.11. EMPLOYEE BENEFIT PLANS. Borrower will (a) comply with the funding requirements of ERISA with respect to the Plans for its employees, or will promptly satisfy any accumulated funding deficiency that arises under Section 302 of ERISA; (b) furnish Lender, promptly after filing the same, with copies of all reports or other statements filed with the United States Department of Labor, the Pension Benefit Guaranty Corporation, or the Internal Revenue Service with respect to all Plans, or which Borrower, or any member of a Controlled Group, may receive from such Governmental Authority with respect to any such Plans, and (c) promptly advise Lender of the occurrence of any Reportable Event or Prohibited Transaction with respect to any such Plan and the action which Borrower proposes to take with respect thereto. Borrower will make all contributions when due with respect to any multi-employer pension plan in which it participates and will promptly advise Lender: (a) upon its receipt of notice of the assertion against Borrower of a claim for withdrawal liability; (b) upon the occurrence of any event which could trigger the assertion of a claim for withdrawal liability against Borrower; and (c) upon the occurrence of any event which would place Borrower in a Controlled Group as a result of which any member (including Borrower) thereof may be subject to a claim for withdrawal liability, whether liquidated or contingent. SECTION 6.12. FINANCING STATEMENTS. Borrower shall provide to Lender evidence satisfactory to Lender as to the due recording of termination statements, releases of collateral, and Forms UCC-3, and shall cause to be recorded financing statements on Form UCC-1, duly 24 26 executed by Borrower and Lender, in all places necessary to release all existing security interests and other liens in the Collateral (other than as permitted hereby) and to perfect and protect Lender's first priority lien and security interest in the Collateral, as Lender may request. SECTION 6.13. FINANCIAL RECORDS. Borrower shall keep current and accurate books of records and accounts in which full and correct entries will be made of all of its business transactions, and will reflect in its financial statements adequate accruals and appropriations to reserves, all in accordance with GAAP. SECTION 6.14. COLLECTION OF ACCOUNTS. Borrower shall continue to collect its Accounts in the ordinary course of business. SECTION 6.15. PLACES OF BUSINESS. Borrower shall give thirty (30) days' prior written notice to Lender of any change in the location of any of its places of business, of the places where its records concerning its Accounts are kept, of the places where the Collateral is kept, or of the establishment of any new, or the discontinuance of any existing, places of business. SECTION 6.16. BUSINESS CONDUCTED. Borrower shall continue in the business presently conducted by it using its best efforts to maintain its customers and goodwill. SECTION 6.17. LITIGATION AND OTHER PROCEEDINGS. Borrower shall give prompt notice to Lender of any litigation, arbitration, or other proceeding before any Governmental Authority against or affecting Borrower if the uninsured portion of the amount claimed is more than $50,000.00 SECTION 6.18. INTENTIONALLY DELETED. SECTION 6.19. SUBMISSION OF COLLATERAL DOCUMENTS. After the occurrence and during the continuance of an Event of Default (other than a Limited Event of Default), Borrower will, on demand of Lender, make available to Lender copies of shipping and delivery receipts evidencing the shipment of goods that gave rise to an Account, medical records, insurance verification forms, assignment of benefits, in-take forms or other proof of the satisfactory performance of services that gave rise to an Account, a copy of the claim or invoice for each Account and copies of any written contract or order from which the Account arose. Borrower shall promptly notify Lender if an Account becomes evidenced or secured by an instrument or chattel paper and upon request of Lender, will promptly deliver any such instrument or chattel paper to Lender. SECTION 6.20. LICENSURE; MEDICAID/MEDICARE COST REPORTS. Borrower will maintain all certificates of need, provider numbers and licenses necessary to conduct its business as presently conducted, and take any steps required to comply with any such new or additional requirements that may be imposed on providers of medical products and services. If required, all Medicaid/Medicare cost reports will be properly filed. 25 27 SECTION 6.21. OFFICER'S CERTIFICATES. Together with the quarterly financial statements delivered pursuant to clause (c) of Section 6.1, and together with the audited annual financial statements delivered pursuant to clause (f) of that Section, Borrower shall deliver to Lender a certificate of its chief financial officer, in form and substance satisfactory to Lender setting forth: (a) The information (including detailed calculations) required in order to establish whether Borrower is in compliance with the requirements of Articles VI and VII as of the end of the period covered by the financial statements then being furnished; and (b) That the signer has reviewed the relevant terms of this Agreement, and has made (or caused to be made under his supervision) a review of the transactions and conditions of Borrower from the beginning of the accounting period covered by the income statements being delivered to the date of the certificate, and that, other than any then existing Limited Event of Defaults which have been disclosed to Lender, such review has not disclosed the existence during such period of any condition or event which constitutes an Event of Default or which is then, or with the passage of time or giving of notice or both, could become an Event of Default, and if any such condition or event existed during such period or now exists, specifying the nature and period of existence thereof and what action Borrower has taken or proposes to take with respect thereto. SECTION 6.22. INTENTIONALLY DELETED. SECTION 6.23. NET WORTH. Retirement Care Associates, Inc., the ultimate parent of Borrower, will not at any time allow its net worth, as computed in accordance with GAAP, to fall below $ . ARTICLE VII NEGATIVE COVENANTS Each Borrower covenants and agrees that so long as Borrowers may borrow hereunder and until payment in full of the Note and performance of all other obligations of Borrowers under the Loan Documents: SECTION 7.1. BORROWING. Borrower shall provide Lender with written notice of any loan made to such Borrower in excess of $250,000 that is secured by real property or tangible personal property acquired by such Borrower with the proceeds of such loan (but Lender's consent shall not be required for any such loan), and will not incur, assume, or permit to exist or become contingently liable for any liability for Borrowed Money in excess of $250,000.00 where the proceeds of the loan are not used by such Borrower to acquire real property or tangible personal property without Lender's prior written consent, which shall not be unreasonably withheld or delayed. 26 28 SECTION 7.2. INTENTIONALLY DELETED. SECTION 7.3. LIENS AND ENCUMBRANCES. Borrower will not create, incur, assume or suffer to exist any mortgage, pledge, lien or other encumbrance of any kind upon, or any security interest in, any of its Collateral, whether now owned or hereafter acquired, except for Permitted Liens. SECTION 7.4. MERGER, ACQUISITION, OR SALE OF ASSETS. Borrower will not enter into any merger or consolidation with or acquire all or substantially all of the assets of any Person, unless (a) Borrower or any other Borrower is the surviving entity of such transaction or (b) Retirement Care Associates, Inc. holds a controlling interest in the surviving entity and (c) the surviving entity executes and delivers to Lender all documents deemed reasonably necessary by Lender (as determined solely by Lender in its reasonable commercial judgement) to protect Lender's rights under this Agreement and the other Loan Documents and with respect to the Collateral, all at Borrowers' cost (including without limitation, all lien search costs). Borrower will not sell, lease, or otherwise dispose of substantially all of its assets. Consistent with the foregoing, until the Obligations are repaid in full, none of the Borrowers shall transfer, assign, convey or grant to any other Person (other than another Borrower ) the right to operate or control any of the nursing homes listed on Schedule 4.15, whether by lease, sublease, management agreement, joint venture agreement or otherwise. SECTION 7.5. INTENTIONALLY DELETED. SECTION 7.6. DISTRIBUTIONS AND MANAGEMENT FEES. Following an Event of Default with respect to such Borrower will not declare or pay any dividends or other distributions with respect to, purchase, redeem or otherwise acquire for value any of its outstanding stock or partnership interests (as the case may be) now or hereafter outstanding, or return any capital of its stockholders, nor shall such Borrower pay management fees or fees of a similar nature to any Person following an Event of Default. SECTION 7.7. INTENTIONALLY DELETED. SECTION 7.8. INTENTIONALLY DELETED. SECTION 7.9. INTENTIONALLY DELETED. SECTION 7.10. COMPLIANCE WITH ERISA. Borrower will not permit with respect to any Plan covered by Title IV of ERISA any Prohibited Transaction or any Reportable Event. SECTION 7.11. CERTIFICATES OF NEED. Borrower will not suspend or terminate or make provisional in any material way, any required certificate of need or provider number of any Borrower without the prior written consent of Lender, which shall not be unreasonably withheld or delayed. 27 29 SECTION 7.12. TRANSACTIONS WITH AFFILIATES. Borrower will not enter into any transaction, including without limitation the purchase, sale, or exchange of property, or the loaning or giving of funds to any Affiliate or subsidiary, except in the ordinary course of business and pursuant to the reasonable requirements of Borrower's business and upon terms substantially the same and no less favorable to Borrower as it would obtain in a comparable arm's length transaction with any Person not an Affiliate or subsidiary, and so long as the transaction is not otherwise prohibited hereunder. For purposes of the foregoing, Lender consents to the transactions described on Schedule 7.12. SECTION 7.13. USE OF LENDER'S NAME. Borrower will not use Lender's name (or the name of any of Lender's affiliates) in connection with any of its business operations. Borrower may disclose to third parties that Borrower has a borrowing relationship with Lender. Nothing herein contained is intended to permit or authorize Borrower to make any contract on behalf of Lender. SECTION 7.14. CHANGE IN CAPITAL STRUCTURE. There shall occur no change in Borrower's capital structure as set forth in Schedule 4.17.which causes a change in control of Borrower. SECTION 7.15. CONTRACTS AND AGREEMENTS. Borrower will not become or be a party to any contract or agreement which would breach this Agreement. SECTION 7.16. INTENTIONALLY DELETED.. SECTION 7.17. TRUTH OF STATEMENTS AND CERTIFICATES. Borrower will not furnish to Lender any certificate or other document that contains any untrue statement of a material fact or that omits to state a material fact necessary to make it not misleading in light of the circumstances under which it was furnished. SECTION 7.18. CENSUS. With respect to any twelve (12) month period during the Term, Borrower will not allow the average patient census for such 12-month period, for the nursing homes listed on Schedule 4.15 attached hereto when taken as a whole, to fall below eighty percent (80%) of the aggregate patient census of such nursing homes as of the Closing Date, as reflected on Schedule 4.15 ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. EVENTS OF DEFAULT. (a) Subject to the provisions of subparagraph (b) hereof, Each of the following (individually, an "Event of Default" and collectively, the "Events of Default") shall constitute an event of default hereunder: 28 30 (i) A default in the payment of any installment of principal of, or interest upon, the Note when due and payable, whether at maturity or otherwise, which default shall have continued unremedied for a period of five (5) days after written notice thereof from Lender to Borrower; (ii) A default in the payment of any other charges, fees, or other monetary obligations owing to Lender arising out of or incurred in connection with this Agreement when such payment is due and payable, which default shall have continued unremedied for a period of ten (10) days after written notice from Lender; (iii) A default in the due observance or performance by Borrowers of any other term, covenant or agreement contained in any of the Loan Documents, which default shall have continued unremedied for a period of twenty (20) days after written notice from Lender; provided, however, that if such default is not susceptible to cure within such period, no Event of Default shall be deemed to have occurred until an additional thirty (30) days have lapsed so long as Borrower is diligently endeavoring to cure such default throughout the period; (iv) If any representation or warranty made by any Borrower herein or in any of the other Loan Documents, any financial statement, or any statement or representation made in any other certificate, report or opinion delivered in connection herewith or therewith proves to have been materially incorrect or misleading in any material respect when made, which default shall have continued unremedied for a period of twenty (20) days after written notice from Lender; (v) If any obligation of a Borrower (other than its Obligations hereunder) for the payment of Borrowed Money (the outstanding amount of which is in excess of $100,000.00) is not paid when due or within any applicable grace period, or such obligation becomes or is declared to be due and payable prior to the expressed maturity thereof; (vi) If a Borrower makes an assignment for the benefit of creditors, offers a composition or extension to creditors, or makes or sends notice of an intended bulk sale of any business or assets now or hereafter conducted by such Borrower; (vii) If a Borrower files a petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any receiver of or any trustee for itself or any substantial part of its property, commences any proceeding relating to itself under any reorganization, arrangement, readjustment or debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or there is commenced against a Borrower any such proceeding which remains undismissed for a period of sixty (60) days, or any Borrower by any act indicates its consent to, approval of, or acquiescence in, any such proceeding or the appointment of any receiver of or any trustee for a Borrower or any substantial part of its property, or suffers any such receivership or trusteeship to continue undischarged for a period of sixty (60) days; 29 31 (viii) If one or more final judgments against any Borrower or attachments against its property (the uninsured portion of which is in excess of $100,000.00) not fully and unconditionally covered by insurance shall be rendered by a court of record and shall remain unpaid, unstayed on appeal, undischarged, unbonded and undismissed for a period of thirty (30) days; (ix) A Reportable Event which might constitute grounds for termination of any Plan covered by Title IV of ERISA or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan or for the entry of a lien or encumbrance to secure any deficiency, has occurred and is continuing thirty (30) days after its occurrence, or any such Plan is terminated, or a trustee is appointed by an appropriate United States District Court to administer any such Plan, or the Pension Benefit Guaranty Corporation institutes proceedings to terminate any such Plan or to appoint a trustee to administer any such Plan, or a lien or encumbrance is entered to secure any deficiency or claim; (x) If any outstanding stock or partnership interests of Borrower is sold or otherwise transferred in violation of Section 7.14; (xi) Upon the issuance of any execution or distraint process against any of the Collateral; (xii) If any indication or evidence is received by Lender that Borrower may have directly or indirectly been engaged in any type of activity which, in Lender's reasonable discretion, is reasonably likely to result in the forfeiture of any property material of Borrower to any Governmental Authority, which default shall have continued unremedied for a period of ten (10) days after written notice from Lender; (xiii) Borrower or any Affiliate of Borrower, shall challenge or contest, in any action, suit or proceeding, the validity or enforceability of this Agreement, or any of the other Loan Documents, the legality or the enforceability of any of the Obligations or the perfection or priority of any Lien granted to Lender; (xiv) Borrower shall be criminally convicted under any law that could lead to a forfeiture of any Collateral. (xv) There shall occur a material adverse change in the financial condition or business prospects of a Borrower, or if Lender in good faith deems itself insecure as a result of acts or events bearing upon the financial condition of a Borrower or the repayment of the Note, which default shall have continued unremedied for a period of ten (10) days after written notice from Lender. (b) Notwithstanding the foregoing, if an event which constitutes an Event of Default occurs with respect to three (3) or fewer of the Borrowers (inclusive of Borrowers under the Affiliated Loan Agreement) ( a "Limited Event of Default"), then (i) the Accounts of each Borrower with respect to which the Event of Default occurred (each a "Defaulted Borrower") 30 32 shall immediately be deemed excluded from Qualified Accounts ("Excluded Accounts") unless and until the Event of Default with respect to such Defaulted Borrower has been cured to Lender's reasonable satisfaction and (ii) Borrowers shall, within two (2) Business Days after the occurrence of the Event of Default, repay the Loan in an amount, if any, necessary to reduce the outstanding amount of the Loan to the Borrowing Base (as adjusted to delete the Accounts which have been Excluded Accounts pursuant to (i) above). Borrowers' failure to make such payment shall constitute a payment default pursuant to Section 8.1 (a)(i) hereof, entitling Lender to immediately exercise any and all remedies set forth in Section 8.2 and 8.3 of the Agreement. Notwithstanding the foregoing, (x) no Defaulted Borrower shall be released from its obligations hereunder (nor shall the Collateral owned by such Defaulted Borrower be released from the lien created hereby) by virtue of such Defaulted Borrower's Accounts being deemed to be Excluded Accounts, and (y) if the aggregate amount of all Excluded Accounts exceeds $500,000.00, such event shall constitute an Event of Default and shall entitle Lender to immediately exercise any and all remedies set forth in Sections 8.2 and 8.3 of this Agreement. (xvi) An Event of Default shall have occurred under the Affiliated Loan Agreement. SECTION 8.2. ACCELERATION. Subject to the provisions of Section 8.1 (b) hereof, upon the occurrence of any of the foregoing Events of Default, the Note shall become and be immediately due and payable upon declaration to that effect delivered by Lender to Borrower; provided that, upon the happening of any event specified in Section 8.1(vi) hereof (subject always to Section 8.1 (b)), the Note shall be immediately due and payable failure to satisfy (i) and (ii) will be an overall Event of Default without declaration or other notice to Borrowers. SECTION 8.3. REMEDIES. (a) In addition to all other rights, options, and remedies granted to Lender under this Agreement, upon the occurrence of an Event of Default Lender (other than a Limited Event of Default) may (i) terminate the Loan, whereupon all outstanding Obligations shall be immediately due and payable, (ii) exercise all other rights granted to it hereunder and all rights under the Uniform Commercial Code in effect in the applicable jurisdiction(s) and under any other applicable law, and (iii) exercise all rights and remedies under all Loan Documents now or hereafter in effect, including the following rights and remedies (which list is given by way of example and is not intended to be an exhaustive list of all such rights and remedies): (i) The right to take possession of, send notices regarding, and collect directly the Collateral, with or without judicial process, and to exercise all rights and remedies available to Lender with respect to the Collateral under the Uniform Commercial Code in effect in the jurisdiction(s) in which such Collateral is located; (ii) The right to (by its own means or with judicial assistance) enter any of Borrower's premises and take possession of the Collateral, or render it unusable, or dispose of 31 33 the Collateral on such premises in compliance with subsection (b), without any liability for rent, storage, utilities, or other sums, and Borrowers shall not resist or interfere with such action; (iii) The right to require Borrowers at Borrowers' expense to assemble all or any part of the Collateral and make it available to Lender at any place designated by Lender; (iv) The right to reduce the Maximum Loan Amount or to use the Collateral and/or funds in the Concentration Account to repay the then outstanding Obligations for any reason; and (v) The right to relinquish or abandon any Collateral or any security interest therein. (b) Borrowers agree that a notice received by it at least ten (10) days before the time of any intended public sale, or the time after which any private sale or other disposition of the Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by applicable law, any perishable Collateral which threatens to speedily decline in value or which is sold on a recognized marked may be sold immediately by Lender without prior notice to Borrower. At any sale or disposition of Collateral, Lender may (to the extent permitted by applicable law) purchase all or any part of the Collateral, free from any right of redemption by Borrower, which right is hereby waived and released. Borrower covenants and agrees not to interfere with or impose any obstacle to Lender's exercise of its rights and remedies with respect to the Collateral. SECTION 8.4. NATURE OF REMEDIES. Lender shall have the right to proceed against all or any portion of the Collateral to satisfy in any order (i) the liabilities and Obligations of Borrower to Lender and (ii) upon the occurrence of an Event of Default under the Affiliated Loan Agreement, the liabilities and obligations of Affiliated Borrower under the Affiliated Loan Agreement. All rights and remedies granted Lender hereunder and under any agreement referred to herein, or otherwise available at law or in equity, shall be deemed concurrent and cumulative, and not alternative remedies, and Lender may proceed with any number of remedies at the same time until the Loans, and all other existing and future liabilities and obligations of Borrower to Lender, are satisfied in full. The exercise of any one right or remedy shall not be deemed a waiver or release of any other right or remedy, and Lender, upon the occurrence of an Event of Default, may proceed against Borrower, and/or the Collateral, at any time, under any agreement, with any available remedy and in any order. 32 34 ARTICLE IX MISCELLANEOUS SECTION 9.1. EXPENSES AND TAXES. (a) Borrowers agree to pay, whether or not the Closing occurs, a reasonable documentation preparation fee, together with actual audit and appraisal fees and all other out-of-pocket charges and expenses incurred by Lender in connection with the negotiation, preparation and execution of each of the Loan Documents, any amendments to the Loan Documents following Closing, and preparation for Closing. Borrowers also agree to pay all out-of-pocket charges and expenses incurred by Lender (including the fees and expenses of Lender's counsel) in connection with the enforcement, protection or preservation of any right or claim of Lender and the collection of any amounts due under the Loan Documents. (b) Borrowers shall pay all taxes (other than taxes based upon or measured by Lender's income or revenues or any personal property tax), if any, in connection with the issuance of the Note and the recording of the security documents therefor. The obligations of Borrower under this clause (b) shall survive the payment of Borrowers' indebtedness hereunder and the termination of this Agreement. SECTION 9.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other Loan Documents constitute the full and entire understanding and agreement among the parties with regard to their subject matter and supersede all prior written or oral agreements, understandings, representations and warranties made with respect thereto. No amendment, supplement or modification of this Agreement nor any waiver of any provision thereof shall be made except in writing executed by the party against whom enforcement is sought. SECTION 9.3. NO WAIVER; CUMULATIVE RIGHTS. No waiver by any party hereto of any one or more defaults by the other party in the performance of any of the provisions of this Agreement shall operate or be construed as a waiver of any future default or defaults, whether of a like or different nature. No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to any party hereto at law, in equity or otherwise. SECTION 9.4. NOTICES. Any notice or other communication required or permitted hereunder shall be in writing and personally delivered, mailed by registered or certified mail (return receipt requested and postage prepaid), sent by telecopier (with a confirming copy sent by regular mail), or sent by prepaid overnight courier service, and addressed to the relevant party 33 35 at its address set forth below, or at such other address as such party may, by written notice, designate as its address for purposes of notice hereunder: (a) If to Lender, at: HCFP Funding, Inc. 2 Wisconsin Circle, Suite 320 Chevy Chase, Maryland 20815 Attention: Ethan D. Leder, President Telephone: (301) 961-1640 Telecopier: (301) 664-9860 (b) If to Borrower, at: Retirement Care Associates, Inc. 6000 Lake Forrest Drive Suite 200 Atlanta, GA 30328 Attention: Mr. Christopher F. Brogdon Philip M. Rees, Esq. Telephone: (404) 255-7500 Telecopier: (404) 255-5789 (c) With a copy to: Gregory P. Youra, Esq. Vincent, Berg, Stalzer & Menendez The Lenox Building 3399 Peachtree Road, Suite 1400, Atlanta, GA 30326 Telephone: (404) 812-5680 Telecopier: (404) 812-5699 If mailed, notice shall be deemed to be given five (5) days after being sent, if sent by personal delivery or telecopier, notice shall be deemed to be given when delivered, and if sent by prepaid courier, notice shall be deemed to be given on the next Business Day following deposit with the courier. SECTION 9.5. SEVERABILITY. If any term, covenant or condition of this Agreement, or the application of such term, covenant or condition to any party or circumstance shall be found by a court of competent jurisdiction to be, to any extent, invalid or unenforceable, the remainder of this Agreement and the application of such term, covenant, or condition to parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term, covenant or condition shall be valid and enforced to the fullest extent permitted by law. Upon determination that any such term is invalid, illegal or 34 36 unenforceable, the parties hereto shall amend this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner. SECTION 9.6. SUCCESSORS AND ASSIGNS. This Agreement, the Note, and the other Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns. Notwithstanding the foregoing, Borrower may not assign any of its rights or delegate any of its obligations hereunder without the prior written consent of Lender, which may be withheld in its sole discretion. Lender may sell, assign, transfer, or participate any or all of its rights or obligations hereunder without notice to or consent of Borrower. SECTION 9.7. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one instrument. SECTION 9.8. INTERPRETATION. No provision of this Agreement or any other Loan Document shall be interpreted or construed against any party because that party or its legal representative drafted that provision. The titles of the paragraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. Any pronoun used in this Agreement shall be deemed to include singular and plural and masculine, feminine and neuter gender as the case may be. The words "herein," "hereof," and "hereunder" shall be deemed to refer to this entire Agreement, except as the context otherwise requires. SECTION 9.9. SURVIVAL OF TERMS. All covenants, agreements, representations and warranties made in this Agreement, any other Loan Document, and in any certificates and other instruments delivered in connection therewith shall be considered to have been relied upon by Lender and shall survive the making by Lender of the Loans herein contemplated and the execution and delivery to Lender of the Note, and shall continue in full force and effect until all liabilities and obligations of Borrower to Lender are satisfied in full. SECTION 9.10. RELEASE OF LENDER. Borrower releases Lender, its officers, employees, and agents, of and from any claims for loss or damage resulting from acts or conduct of any or all of them, unless caused by Lender's recklessness, gross negligence, or willful misconduct. SECTION 9.11. TIME. Whenever Borrower is required to make any payment or perform any act on a Saturday, Sunday, or a legal holiday under the laws of the State of Maryland (or other jurisdiction where Borrower is required to make the payment or perform the act), the payment may be made or the act performed on the next Business Day. Time is of the essence in Borrower's performance under this Agreement and all other Loan Documents. SECTION 9.12. COMMISSIONS. The transaction contemplated by this Agreement was brought about by Lender and Borrower acting as principals and without any brokers, agents, or finders being the effective procuring cause. Borrower represents that it has not committed Lender to the payment of any brokerage fee, commission, or charge in connection with this 35 37 transaction. If any such claim is made on Lender by any broker, finder, or agent or other person, Borrower will indemnify, defend, and hold Lender harmless from and against the claim and will defend any action to recover on that claim, at Borrower's cost and expense, including Lender's counsel fees. Borrower further agrees that until any such claim or demand is adjudicated in Lender's favor, the amount demanded will be deemed a liability of Borrower under this Agreement, secured by the Collateral. SECTION 9.13. THIRD PARTIES. No rights are intended to be created hereunder or under any other Loan Document for the benefit of any third party donee, creditor, or incidental beneficiary of Borrower. Nothing contained in this Agreement shall be construed as a delegation to Lender of Borrower's duty of performance, including without limitation Borrower's duties under any account or contract in which Lender has a security interest. SECTION 9.14. DISCHARGE OF BORROWER'S OBLIGATIONS. Lender, in its sole discretion, shall have the right at any time, and from time to time, without prior notice to Borrower if Borrower fails to do so, to: (a) obtain insurance covering any of the Collateral as required hereunder; (b) pay for the performance of any of Borrower's obligations hereunder; (c) discharge taxes, liens, security interests, or other encumbrances at any time levied or placed on any of the Collateral in violation of this Agreement unless Borrower is in good faith with due diligence by appropriate proceedings contesting those items; and (d) pay for the maintenance and preservation of any of the Collateral. Expenses and advances shall be added to the Loan, until reimbursed to Lender and shall be secured by the Collateral. Such payments and advances by Lender shall not be construed as a waiver by Lender of an Event of Default. SECTION 9.15. INFORMATION TO PARTICIPANTS. Lender may divulge to any participant it may obtain in the Loan, or any portion thereof, all information, and furnish to such participant copies of reports, financial statements, certificates, and documents obtained under any provision of this Agreement or any other Loan Document. SECTION 9.16. INTENTIONALLY DELETED. SECTION 9.17. CHOICE OF LAW; CONSENT TO JURISDICTION. THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS. IF ANY ACTION ARISING OUT OF THIS AGREEMENT OR THE NOTE IS COMMENCED BY LENDER IN THE STATE OF MARYLAND OR FEDERAL COURT LOCATED IN THE STATE OF MARYLAND, BORROWER HEREBY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND. ANY PROCESS IN ANY SUCH ACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS DESCRIBED IN SECTION 9.4 HEREOF. 36 38 SECTION 9.18. WAIVER OF TRIAL BY JURY. BORROWER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY BORROWER, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF BORROWER'S WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO BORROWER THAT LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. 37 39 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first written above. LENDER: HCFP FUNDING, INC. a Delaware corporation By:_____________________________ [SEAL] Name: Title: BORROWER: ATRIUM NURSING HOME, INC. a Florida corporation By: ________________________________ Name: Title: MID-FLORIDA, INC. a Georgia corporation By: ________________________________ Name: Title: SUN COAST RETIREMENT, INC. a Georgia corporation By: ________________________________ Name: Title: 38 40 WEST TENNESSEE, INC. a Georgia corporation By: ________________________________ Name: Title: LAKE FOREST HEALTHCARE CENTER, INC., a Georgia corporation By: ________________________________ Name: Title: LIBBIE REHABILITATION CENTER, INC. a Virginia corporation By: ________________________________ Name: Title: BRENT-LOX HALL NURSING HOME, INC. a Virginia corporation By: ________________________________ Name: Title: PHOENIX ASSOCIATES, INC. a Virginia corporation By: ________________________________ Name: Title: 39 41 PINE MANOR REST HOME, INC. a North Carolina corporation By: ________________________________ Name: Title: STATESBORO HEALTH CARE CENTER, INC. a Georgia corporation By: ________________________________ Name: Title: GARDENDALE HEALTH CARE CENTER, INC. a Georgia corporation By: ________________________________ Name: Title: ROBERTA HEALTH CARE CENTER, INC. a Georgia corporation By: ________________________________ Name: Title: SOUTHSIDE HEALTH CARE CENTER, INC. a Georgia corporation By: ________________________________ Name: Title: 40 42 CRESENT MEDICAL SERVICES, INC. a Georgia corporation By: ________________________________ Name: Title: GAINESVILLE HEALTHCARE CENTER, INC. a Georgia corporation By: ________________________________ Name: Title: JEFF DAVIS HEALTHCARE, INC. a Georgia corporation By: ________________________________ Name: Title: DUVAL HEALTHCARE CENTER, INC. a Georgia corporation By: ________________________________ Name: Title: 41 43 CHARLTON HEALTHCARE, INC. a Georgia corporation By: ________________________________ Name: Title: BIBB HEALTH REHABILITATION, INC. a Georgia corporation By: ________________________________ Name: Title: MAPLEWOOD HEALTH CARE CENTER OF JACKSON TENNESSEE, INC. a Tennessee corporation By: ________________________________ Name: Title: LAKE HEALTH CARE CENTER, INC. a Georgia corporation By: ________________________________ Name: Title: 42 44 LIST OF EXHIBITS Exhibit A - Form of Revolving Credit Note Exhibit B - Form of Lockbox Agreement Exhibit C - Locations of Collateral Exhibit D - Form of Legal Opinion Exhibit E - Form of Estoppel Certificate 43 45 LIST OF SCHEDULES Schedule 1.36 - Permitted Liens Schedule 4.1 - Subsidiaries Schedule 4.5 - Litigation Schedule 4.7 - Tax Identification Numbers Schedule 4.13 - Non-Compliance with Law Schedule 4.14 - Environmental Matters Schedule 4.15 - Places of Business with patient census Schedule 4.16 - Licenses Schedule 4.17 - Stock Ownership Schedule 4.19 - Borrowings and Guarantees Schedule 4.21 - Trade Names Schedule 4.22 - Joint Ventures Schedule 7.12 - Transactions with Affiliates 44 EX-10.22 8 FORM OF INTERCREDITOR AGREEMENT 1 EXHIBIT 10.22 INTERCREDITOR AGREEMENT This Intercreditor Agreement ("Intercreditor Agreement") is dated as of December 15, 1997, by and among HCFP FUNDING, INC., a Delaware corporation ("HCFP"), SUN HEALTHCARE GROUP, INC., a Delaware corporation (the "Subordinated Lender"), RETIREMENT CARE ASSOCIATES, INC., RETIREMENT MANAGEMENT CORPORATION, and CAPITOL CARE MANAGEMENT COMPANY, INC., (collectively, the "Sun Borrowers") ATRIUM NURSING HOME, INC., MID-FLORIDA, INC., SUN COAST RETIREMENT, INC., WEST TENNESSEE, INC., LAKE FOREST HEALTHCARE CENTER, INC., LIBBIE REHABILITATION CENTER, INC., BRENT-LOX HALL NURSING HOME, INC., PHOENIX ASSOCIATES, INC., PINE MANOR REST HOME, INC., STATESBORO HEALTH CARE CENTER, INC., GARDENDALE HEALTH CARE CENTER, INC., ROBERTA HEALTH CARE CENTER, INC., SOUTHSIDE HEALTH CARE CENTER, INC., CRESENT MEDICAL SERVICES, INC., GAINESVILLE HEALTHCARE CENTER, INC., DUVAL HEALTHCARE CENTER, INC., JEFF DAVIS HEALTHCARE, INC., CHARLTON HEALTHCARE, INC., BIBB HEALTH REHABILITATION, INC., MAPLEWOOD HEALTH CARE CENTER OF JACKSON TENNESSEE, INC. and LAKE HEALTH CARE CENTER, INC., a Georgia corporation (collectively, the "Atrium Borrowers")(the Sun Borrowers and the Atrium Borrowers shall be collectively known as the "Borrower"). NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The term "HCFP Obligations", as used in this Intercreditor Agreement, shall be deemed to mean and include all of the Borrower's obligations arising under or in connection with that certain Loan and Security Agreement dated as of December 15, 1997 by and among the Sun Borrowers and HCFP, as the same may be amended, replaced, supplemented or otherwise modified from time to time (the "Sun Loan Agreement"), and that certain Loan and Security Agreement dated as of December 15, 1997 by and among the Atrium Borrowers and HCFP, as the same may be amended, replaced, supplemented or otherwise modified from time to time (the "Atrium Loan Agreement") (the Sun Loan Agreement and the Atrium Loan Agreement shall be collectively known as the "Loan Agreement") and all documents and instruments ancillary to the Loan Agreement (the "Loan Documents"), provided, however, that the HCFP Obligations shall not include any obligations in excess of an aggregate principal amount of $15 million plus accrued interest, reasonable fees and expenses applicable thereto as provided for under the Loan Documents, or any obligations having a final maturity after December 31, 2000. All capitalized terms used and not otherwise defined in this Intercreditor Agreement shall have the meanings ascribed to them in the Loan Agreement. 2. The term "Subordinated Indebtedness", as used in this Intercreditor Agreement, shall be deemed to mean and include the indebtedness owed by Retirement Care Associates, Inc., Retirement Management Corporation, and Capitol Care Management Company, Inc. to the Subordinated Lender, pursuant to the Promissory Note and the Amended and Restated Promissory Note, each dated July 10, 1997 and the other loan documents listed on Exhibit A 2 attached hereto, and all other documents related thereto (the "Subordinated Lender Documents"). 3. Subordinated Lender does hereby agree that all of its rights with respect to the following collateral described in clauses (i) through (v) immediately below to the extent that it comprises collateral for the Subordinated Indebtedness (collectively, the "Collateral") shall be in all respects subject and subordinate to the rights of HCFP with respect to such Collateral to the extent that it comprises collateral for the HCFP Obligations. (i) All of the Borrower's now-owned and hereafter acquired or arising accounts receivable and rights to payment of every kind and description, and any contract rights, chattel paper, documents and instruments with respect thereto; (ii) All of the Borrower's now owned and hereafter acquired or arising general intangibles of every kind and description pertaining to its accounts receivable and other rights to payment, including, but not limited to, all existing and future customer lists, choses in action, claims, books, records, contracts, licenses, formulae, tax and other types of refunds, returned and unearned insurance premiums, rights and claims under insurance policies, and computer information, software, records, and data; (iii) All of the Borrower's now or hereafter acquired deposit accounts into which accounts receivable are deposited; (iv) All of the Borrower's monies and other property of every kind and nature now or at any time or times hereafter in the possession of or under the control of Lender or a bailee or Affiliate of Lender; and (v) The proceeds (including, without limitation, insurance proceeds) of all of the foregoing. The parties hereby acknowledge and agree that the subordination of the Subordinated Lender's rights to the rights of HCFP as set forth in this Section 3 shall be irrespective of: (i) The time, order, manner or method of creation, attachment or perfection of the respective security interests, liens and/or other rights granted to the Subordinated Lender or HCFP; (ii) The time or manner of the filing of their respective financing statements; (iii) Whether the Subordinated Lender or HCFP or any bailee or agent thereof holds possession of any or all of the property or assets of the Borrower; (iv) The dating, execution or delivery of any agreement, document or 2 3 instrument granting the Subordinated Lender or HCFP security interests and/or liens in or on any or all of the property or assets of the Borrower; (v) The giving or failure to give notice of the acquisition or expected acquisition of any purchase money or other security interest; and (vi) Any provision of the UCC or any other applicable law to the contrary. 4. Notwithstanding anything to the contrary in this Intercreditor Agreement, the Subordinated Indebtedness may be evidenced and/or secured by one or more UCC-1 financing statements, a security agreement or other agreements, provided that any liens of Subordinated Lender with respect to the Collateral shall be subject and subordinate to the lien of HCFP to the extent provided in this Intercreditor Agreement. 5. Without affecting the rights of HCFP under this Intercreditor Agreement, the Subordinated Lender agrees and consents that any Collateral for the HCFP Obligations, in whole or in part, may be exchanged, sold or surrendered by HCFP for other Collateral as it may deem advisable and that any balance or balances of funds with HCFP at any time outstanding to the credit of the Borrower may, from time to time, in whole or in part, be surrendered or released by HCFP as it may deem advisable, subject, however, to the terms of the HCFP Obligations and Subordinated Lender's subordinated security interest in the Collateral. 6. The Subordinated Lender hereby agrees to furnish HCFP with a copy of any default notice sent to the Borrower under the Subordinated Loan Documents or any document relating thereto simultaneously with giving such notice to the Borrower. In respect of any default under the Subordinated Lender Documents, for a period from the date of such notice through and including the period ending on the later to occur of (i) the 20th day thereafter or (ii) July 31, 1998, without HCFP's prior written consent, the Subordinated Lender (a) shall take no action to assert, sue upon, set off against, collect, or enforce all or any part of the Subordinated Indebtedness, including without limitation outstanding principal and interest; and (b) shall not initiate a collection suit or exercise set-off against the Borrower with respect to the Subordinated Indebtedness. 7. HCFP and each Borrower hereby agree to furnish the Subordinated Lender with a copy of any notice sent by it to any other party under the Loan Documents or any documents relating thereto simultaneously with giving such notice to such other party. Notwithstanding any other provision of this Intercreditor Agreement, if an Event of Default has occurred under the Loan Documents, and HCFP shall have given the Subordinated Lender written notice thereof in a notice (a "Blockage Notice") invoking the provisions of this Section 7 by identifying itself as a "Blockage Notice" hereunder, then until such Event of Default has been cured and the Subordinated Lender has been notified in writing of such cure by HCFP, the HCFP Obligations have been paid in full, or HCFP shall have consented in writing, the Borrower shall not pay, and the Subordinated Lender shall not receive, whether directly or indirectly by way of 3 4 setoff or otherwise, any payments, or accelerated payments on account of any of the Subordinated Indebtedness; provided, however, that (i) this Section 7 (but not Section 6 or any other Section of this Agreement) shall cease to be effective on the later to occur of the (i) 45th day following HCFP's delivery of any Blockage Notice , or (ii) July 31, 1998, unless prior to such 45th day (or July 31, 1998, as the case may be) the HCFP Obligations shall have been accelerated or otherwise become due and payable in full and (ii) any Blockage Notice delivered within twelve (12) months of any earlier Blockage Notice shall be of no effect hereunder. 8. In the event of any distribution or payment to the Subordinated Lender on the Subordinated Indebtedness, whether partial or complete, voluntary or involuntary, by operation of law or otherwise, that is a contravention of any provision of this Intercreditor Agreement (including specifically but without limitation Sections 6 and 7) then, and in any such event, any such payment or distribution with respect to the Subordinated Indebtedness, whether due or not due and whether secured or unsecured, shall immediately be delivered to HCFP in the form of its receipt (except for the addition of any endorsement or assignment necessary to effect a transfer of all rights therein to HCFP), and HCFP is irrevocably authorized to supply any endorsement or assignment which may have been omitted or insufficient. Until so delivered, any such distribution or payment shall be held in trust by the Subordinated Lender for the benefit of HCFP. 10. This Intercreditor Agreement shall be governed by and construed in accordance with the laws of the State of New York, and shall be binding upon the undersigned and the respective successors and assigns of the undersigned. 11. No finding of invalidity of any provision of this Intercreditor Agreement shall affect the continuing validity of all other provisions of this Intercreditor Agreement. 12. This Intercreditor Agreement shall terminate and be of no further force or effect upon the payment in full of the HCFP Obligations. 13. This Intercreditor Agreement defines the relative rights of the Subordinated Lender and HCFP only. Without limiting the generality of the foregoing, this Intercreditor Agreement shall not impair, as between the Borrowers and the Subordinated Lender, the obligation of the Borrowers to pay the Subordinated Indebtedness in accordance with the terms of the Subordinated Lender Documents or the Subordinated Lender's right to exercise available remedies upon or in respect of any default under the Subordinated Lender Documents. 14. This Intercreditor Agreement may be executed in one or more counterparts, each of which for all purposes shall be deemed an original. 15. Any notice or other communication required or permitted hereunder shall be in writing and personally delivered, mailed by registered or certified mail (return receipt requested and postage prepaid), sent by facsimile (with a confirming copy sent by regular mail), or sent by prepaid overnight courier service, and addressed to the relevant party at its address set 4 5 forth below, or at such other address as such party may, by written notice, designate as its address for purposes of notice hereunder: (a) If to Lender at: HCFP Funding, Inc. 2 Wisconsin Circle, Suite 320 Chevy Chase, Maryland 20815 Attention: Ethan D. Leder, President Telephone: (301) 961-1640 Facsimile: (301) 664-9860 (b) If to Borrower at: Retirement Care Associates, Inc. 6000 Lake Forrest Drive Suite 200 Atlanta, GA 30328 Telephone: (404) 255-7500 Facsimile: (404) 255-5789 With a copy to: Gregory P. Youra, Esq. Vincent, Berg, Stalzer & Menendez The Lenox Building 3399 Peachtree Road, Ste 1400 Atlanta, GA 30326 Telephone: (404) 812-5680 Facsimile: (404) 812-5699 (c) If to Subordinated Lender at: Sun Healthcare Group, Inc. 101 Sun Lane, NE Albuquerque, New Mexico 87109 Attention: Robert F. Murphy Telephone: (505) 821-3355 Facsimile: (505) 856-0747 with copy to: Brobeck Phleger & Harrison LLP One Market Street 5 6 Spear Street Tower San Francisco, CA 94105 Attention: Michael J. Kennedy Telephone: (415) 442-0900 Facsimile: (415) 442-1010 If mailed, notice shall be deemed to be given five (5) days after being sent, if sent by personal delivery or facsimile, notice shall be deemed to be given when delivered, and if sent by prepaid courier, notice shall be deemed to be given on the next Business Day following deposit with the courier. 6 7 IN WITNESS WHEREOF, the parties have executed or caused this Intercreditor Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. HCFP FUNDING, INC. a Delaware corporation By: ------------------------------------ Name: Title: SUN HEALTHCARE GROUP, INC. a Delaware corporation By: ------------------------------------ Name: Title: RETIREMENT CARE ASSOCIATES, INC. a Colorado corporation By: ------------------------------------ Name: Title: RETIREMENT MANAGEMENT CORPORATION a Georgia corporation By: ------------------------------------ Name: Title: 7 8 CAPITOL CARE MANAGEMENT COMPANY, INC. a Georgia corporation By: ------------------------------------ Name: Title: ATRIUM NURSING HOME, INC. a Florida corporation By: ------------------------------------ Name: Title: MID-FLORIDA, INC. a Georgia corporation By: ------------------------------------ Name: Title: SUN COAST RETIREMENT, INC. a Georgia corporation By: ------------------------------------ Name: Title: WEST TENNESSEE, INC. a Georgia corporation By: ------------------------------------ Name: Title: 8 9 LAKE FOREST HEALTHCARE CENTER, INC., a Georgia corporation By: ------------------------------------ Name: Title: LIBBIE REHABILITATION CENTER, INC. a Virginia corporation By: ------------------------------------ Name: Title: BRENT-LOX HALL NURSING HOME, INC. a Virginia corporation By: ------------------------------------ Name: Title: PHOENIX ASSOCIATES, INC. a Virginia corporation By: ------------------------------------ Name: Title: PINE MANOR REST HOME, INC. a North Carolina corporation By: ------------------------------------ Name: Title: 9 10 STATESBORO HEALTH CARE CENTER, INC. a Georgia corporation By: ------------------------------------ Name: Title: GARDENDALE HEALTH CARE CENTER, INC. a Georgia corporation By: ------------------------------------ Name: Title: ROBERTA HEALTH CARE CENTER, INC. a Georgia corporation By: ------------------------------------ Name: Title: SOUTHSIDE HEALTH CARE CENTER, INC. a Georgia corporation By: ------------------------------------ Name: Title: 10 11 CRESENT MEDICAL SERVICES, INC. a Georgia corporation By: ------------------------------------ Name: Title: GAINESVILLE HEALTHCARE CENTER, INC. a Georgia corporation By: ------------------------------------ Name: Title: JEFF DAVIS HEALTHCARE, INC. a Georgia corporation By: ------------------------------------ Name: Title: DUVAL HEALTHCARE CENTER, INC. a Georgia corporation By: ------------------------------------ Name: Title: 11 12 CHARLTON HEALTHCARE, INC. a Georgia corporation By: ------------------------------------ Name: Title: BIBB HEALTH REHABILITATION, INC. a Georgia corporation By: ------------------------------------ Name: Title: MAPLEWOOD HEALTH CARE CENTER OF JACKSON TENNESSEE, INC. a Tennessee corporation By: ------------------------------------ Name: Title: LAKE HEALTH CARE CENTER, INC. a Georgia corporation By: ------------------------------------ Name: Title: 12 13 EXHIBIT A Subordinated Lender Documents 13 -----END PRIVACY-ENHANCED MESSAGE-----