-----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, Pmx2wO1j6iXG8tm4OH8T0/BXT7dfg4kA2i9YN8LIwUuyKEfxpIBtwWva45d4ItCh 6zkDGGHZxJlE91CB7pTpNA== 0000915127-02-000005.txt : 20020414 0000915127-02-000005.hdr.sgml : 20020414 ACCESSION NUMBER: 0000915127-02-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHC INC /MA/ CENTRAL INDEX KEY: 0000915127 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] IRS NUMBER: 042601571 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22916 FILM NUMBER: 02536067 BUSINESS ADDRESS: STREET 1: 200 LAKE ST STE 102 CITY: PEABODY STATE: MA ZIP: 01960 BUSINESS PHONE: 9785362777 MAIL ADDRESS: STREET 1: 200 LAKE ST STREET 2: STE 102 CITY: PEABODY STATE: MA ZIP: 01960 10-Q 1 q10q_2nd.txt FORM 10Q FOR QUARTER ENDED 12/31/01 U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) |X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2001. | | TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ Commission file number 0-22916 PHC, INC. (Exact name of small business issuer as specified in its charter) Massachusett 04-260157 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 Lake Street, Suite 102, Peabody MA 01960 (Address of principal executive offices) (Zip Code) 978-536-2777 (Issuer's telephone number) - ------------------------------------------------------------------------------- (Former Name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Applicable only to corporate issuers Number of shares outstanding of each class of common equity, as of January 29, 2002: Class A Common Stock 9,113,076 Class B Common Stock 726,991 Transitional Small Business Disclosure Format (Check one): Yes No X PHC, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - December 31, 2001 and June 30, 2001. Condensed Consolidated Statements of Operations - Three and six months ended December 31, 2001 and December 31, 2000. Condensed Consolidated Statements of Cash Flows - Six months ended December 31, 2001 and December 31, 2000. Notes to Condensed Consolidated Financial Statements. Item 2. Management's Discussion and Analysis of Plan of Operation PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits Signatures PART I. FINANCIAL INFORMATION Item 1 Financial Statements PHC, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS December 31, June 30, 2001 2001 ________________________ ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 91,040 $ 43,732 Accounts receivable, net of allowance for bad debts of $2,732,491 at December 31, 2001 and $2,632,525 at June 30, 2001 4,851,239 5,620,715 Prepaid expenses 214,175 63,940 Other receivables and advances 103,862 112,579 Deferred income tax asset 754,140 613,980 ____________ ___________ Total current assets 6,014,456 6,454,946 Accounts receivable, noncurrent 605,000 600,000 Other receivable 126,745 104,863 Property and equipment, net 1,338,287 1,338,066 Deferred financing costs, net of amortization of $91,555 at December 31, 2001 and $114,109 at June 30, 2001 16,000 20,000 Goodwill, net of accumulated amortization of $270,105 at December 31, 2001 and June 30, 2001 (Note F) 969,099 969,099 Other assets 264,115 236,478 ____________ ___________ Total assets $ 9,333,702 $ 9,723,452 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,732,975 $ 1,746,280 Notes payable--related parties 200,000 200,000 Current maturities of long-term debt 862,826 2,038,077 Revolving credit note 1,535,696 2,111,586 Current portion of obligations under capital leases 12,650 16,725 Accrued payroll, payroll taxes and benefits 383,204 460,723 Accrued expenses and other liabilities 1,305,088 1,328,820 Convertible debentures 500,000 500,000 Net current liabilities of discontinued operations (Note E) 935,839 960,552 ____________ ___________ Total current liabilities 7,468,278 9,362,763 ____________ ___________ Long-term debt 2,699,853 1,609,649 Obligations under capital leases 26,767 32,160 ____________ ___________ Total noncurrent liabilities 2,726,620 1,641,809 ____________ ___________ Total liabilities 10,194,898 11,004,572 ____________ ___________ Stockholders' equity (deficit) : Preferred stock, $.01 par value; 1,000,000 shares authorized, 140,700 and 150,700 issued and outstanding at December 31, 2001 and June 30, 2001, respectively 1,407 1,507 Class A common stock, $.01 par value; 20,000,000 shares authorized, 9,151,202 and 8,709,834 shares issued at December 31, 2001 and June 30, 2001, respectively 91,512 87,098 Class B common stock, $.01 par value; 2,000,000 shares authorized, 726,991 issued and outstanding at December 31, 2001 and June 30, 2001, convertible into one share of Class A common stock 7,270 7,270 Additional paid-in capital 18,716,992 18,696,779 Treasury stock, 38,126 shares at December 31, 2001 and 22,926 shares at June 30, 2001, at cost (30,988) (24,894) Notes receivable, common stock (80,000) (80,000) Accumulated deficit (19,567,389) (19,968,880) ____________ ___________ Total stockholders' equity (deficit) (861,196) (1,281,120) ____________ ___________ Total liabilities and stockholders' equity (deficit) $ 9,333,702 $ 9,723,452 =========== ============ See Notes to Condensed Consolidated Financial Statements. PHC, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended December 31, December 31, _______________________________________________ 2001 2000 2001 2000 _______________________________________________ Revenues: Patient care, net $5,052,946 $ 5,041,306 $10,372,090 $ 9,753,238 Management fees -- -- -- 345,111 Pharmaceutical studies 123,595 60,430 203,412 94,908 Website services 1,000 81 3,301 15,081 Contract support services 202,250 208,176 415,226 388,153 ___________ _________ ___________ __________ Total revenues 5,379,791 5,309,993 10,994,029 10,596,491 ___________ _________ ___________ __________ Operating expenses: Patient care expenses 2,570,645 2,377,760 5,243,036 4,585,095 Cost of contract support services 176,127 201,131 345,099 363,132 Provision for doubtful accounts 299,100 797,997 415,539 1,624,907 Website expenses 77,258 350,602 158,205 737,889 Administrative expenses 2,100,966 1,822,062 4,028,313 3,447,128 Practice management closing expenses (Note G) -- 4,855,966 -- 4,855,966 ___________ _________ ___________ __________ Total operating expenses 5,224,096 10,405,518 10,190,192 15,614,117 ___________ _________ ___________ __________ Income (loss) from operations 155,695 (5,095,525) 803,837 (5,017,626) ___________ _________ ___________ __________ Other income (expense): Interest income 3,706 6,586 7,048 14,486 Other income 31,763 6,171 51,090 22,127 Interest expense (183,303) (235,793) (401,133) (514,165) ___________ _________ ___________ __________ Total other expenses, net (147,834) (223,036) (342,995) (477,552) ___________ _________ ___________ __________ Income (loss) before provision for taxes 7,861 (5,318,561) 460,842 (5,495,178) Provision for income taxes -- 44,450 -- 44,450 ___________ _________ ___________ __________ Net income (loss) 7,861 (5,363,011) 460,842 (5,539,628) Dividends (28,963) (148,772) (59,351) (321,685) ___________ _________ ___________ __________ Income (loss) applicable to common shareholders $ (21,102) $(5,511,783) $ 401,491 $(5,861,313) =========== ============ ========== ============ Basic income (loss) per common share $ 0.00 $ (0.67) $ 0.04 $ (0.73) Basic weighted average number of shares outstanding 9,684,687 8,237,592 9,541,924 8,087,811 Fully diluted income (loss) per common share $ 0.00 $ (0.67) $ 0.03 $ (0.73) Fully diluted weighted average number of shares outstanding 9,684,687 8,237,592 14,510,271 8,087,811 See Notes to Condensed Consolidated Financial Statements. PHC, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended December 31 2001 2000 __________________________ Cash flows from operating activities: Net income (loss) $ 460,842 $(5,539,628) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 98,376 128,788 Goodwill impairment -- 1,545,609 Write down of accounts receivable, professional corporation -- 3,071,310 Compensatory stock options and stock and warrants issued for Obligations 32,607 11,186 Changes in: Accounts receivable 751,311 387,271 Prepaid expenses (150,235) (46,269) Other assets (167,797) (11,120) Accounts payable (13,305) 746,443 Accrued expenses and other liabilities (148,207) (347,896) Net liabilities of discontinued operations (24,713) (852,225) ____________ __________ Net cash provided by (used in) operating activities 838,879 (906,531) ____________ ___________ Cash flows from investing activities: Acquisition of property and equipment (98,597) (137,507) Web development -- (8,226) ____________ ___________ Net cash used in investing activities (98,597) (145,733) ____________ ___________ Cash flows from financing activities: Revolving debt, net (575,890) 490,616 Proceeds (repayment) of debt, net (94,515) (71,854) Deferred financing costs 4,000 18,286 Costs related to issuance of capital stock (20,775) (8,401) Purchase of treasury stock (6,094) -- Issuance of common stock 300 -- Issuance of preferred stock at a discount -- 250,000 Notes issued for stock purchase -- (90,000) ____________ ___________ Net cash provided by (used in) financing activities (692,974) 588,647 ____________ ___________ NET DECREASE IN CASH 47,308 (463,617) Beginning cash balance 43,732 551,713 ENDING CASH BALANCE $ 91,040 $ 88,096 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 375,314 $ 511,411 Income taxes 9,718 71,550 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Accrued dividends $ 59,351 $ 65,185 Conversion of preferred stock to common stock 100,000 50,000 Issuance of common stock in lieu of cash for dividends due 12,395 -- Preferred stock discount -- 90,000 Beneficial conversion feature of preferred stock -- 166,500 Common stock issued in earnout -- 297,500 See Notes to Condensed Consolidated Financial Statements. PHC, INC. and Subsidiaries Notes to Condensed Consolidated Financial Statements December 31, 2001 Note A - The Company PHC, Inc. and its wholly owned subsidiaries (the "Company") is a national health care Company specializing in behavioral health services including the treatment of substance abuse, which includes alcohol and drug dependency and related disorders and the provision of psychiatric services. The Company also provides management, administrative and online behavioral health services. The Company primarily operates under three business segments: (1) Behavioral health treatment services, including two substance abuse treatment facilities: Highland Ridge Hospital, located in Salt Lake City, Utah; and Mount Regis Center, located in Salem, Virginia, and eight psychiatric treatment locations which include Harbor Oaks Hospital, a 64-bed psychiatric hospital located in New Baltimore, Michigan and seven outpatient behavioral health locations (two in Las Vegas, Nevada operating as Harmony Healthcare, one in Overland Park, Kansas operating as Total Concept and four locations operating as Pioneer Counseling Center in the Detroit, Michigan metropolitan area); (2) Behavioral health administrative services, including delivery of management, administrative and help line services. PHC, Inc. provides management and administrative services for its behavioral health treatment subsidiaries. Pioneer Development and Support Services ("PDSS") provides help line services primarily through contracts with major railroads. Pioneer Pharmaceutical Research conducts studies of the effects of psychiatric pharmaceuticals on a controlled population through contracts with major manufacturers of these pharmaceuticals; and (3) Behavioral health online services, are provided through Behavioral Health Online, Inc., the Company's internet subsidiary, which provides Internet support services for all other subsidiaries of the Company and provides behavioral health education, training and products for the behavioral health professional, through its website Wellplace.com. In June, 1998 the Company's sub acute long-term care facility, Franvale Nursing and Rehabilitation Center, in Braintree, Massachusetts was closed in a state receivership action which was precipitated when the Company caused the owner of the Franvale facility, Quality Care Centers of Massachusetts, Inc., to institute a proceeding under Chapter 11 of the Federal Bankruptcy Code. The net liabilities of this facility are shown as net liabilities of discontinued operations in the accompanying financial statements. The liquidation of the liabilities of Franvale may result in a non-cash financial statement gain. The recognition of any gain has been deferred until final resolution of all matters. Note B - Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended December 31, 2001 are not necessarily indicative of the results that may be expected for the year ending June 30, 2002. The accompanying financial statements should be read in conjunction with the June 30, 2001 consolidated financial statements and footnotes thereto included in the Company's 10-KSB filed on September 26, 2001. Note C - Reclassifications Certain December 31, 2000 amounts have been reclassified to conform with the December 31, 2001 presentation. Note D - Business Segment Information The Company's behavioral health treatment services have similar economic characteristics, services, patients and clients. Accordingly, all behavioral health treatment services are reported on an aggregate basis under one segment. The Company's segments are more fully described in Note A above. Residual income and expenses from closed facilities are included in the administrative services segment. The administrative services segment for the quarter and six months ended December 31, 2000 include $4,855,966 of facility closing expenses for the New York operations. The following summarizes the Company's segment data: BEHAVIORAL HEALTH TREATMENT ADMINISTRATIVE ONLINE SERVICES SERVICES SERVICES ELIMINATIONS TOTAL ______________________________________________________________ For the three months ended December 31, 2001 Revenues - external customers $ 5,052,946 $ 325,845 $ 1,000 $ -- $ 5,379,791 Revenues - intersegment -- 474,000 75,000 (549,000) -- Net income (loss) 424,064 (345,640) (70,563) -- 7,861 For the three months ended December 31, 2000 Revenues - external customers $ 5,041,306 $ 268,606 $ 81 $ -- $ 5,309,993 Revenues - intersegment -- 478,698 8,697 (487,395) -- Net income (loss) 242,709 (5,389,273) (216,447) -- (5,363,011) For the six months ended December 31, 2001 Revenues - external customers $10,372,090 $ 618,638 $ 3,301 $ -- $10,994,029 Revenues - intersegment -- 948,000 150,000 (1,098,000) -- Net income (loss) 1,275,715 (665,664) (149,209) -- 460,842 Identifiable Assets 7,985,752 1,238,950 109,000 -- 9,333,702 For the six months ended December 31, 2000 Revenues - external customers $ 9,753,238 $ 828,172 $ 15,081 $ -- $10,596,491 Revenues - intersegment -- 975,396 13,520 (988,916) -- Net income (loss) 974,481 (6,058,800) (455,309) -- (5,539,628) Identifiable Assets $ 8,847,346 1,554,344 74,360 -- 10,476,050
Note E - Net Liabilities of Discontinued Operations Net Liabilities of discontinued operations relates to the Franvale closure in 1998 and consists of the following: December 31, June 30, 2001 2001 _____________________________ Debt forgiveness and reserve for Contingencies $ 2,641,537 $ 2,641,537 Less legal and other expenses incurred to date 1,705,699 1,680,986 ____________ ____________ Net liabilities of discontinued Operations $ 935,839 $ 960,552 ============= ============ The recognition of gain, if any, has been deferred until final resolution of all contingent liabilities related to the discontinued operations. Some additional charges to this account are expected, however the extent of these charges cannot be determined at this time. Note F - New Accounting Standards In June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 141, Business Combinations ("SFAS 141") and No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interest method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after July 1, 2001 and for purchase business combinations completed on or after July 1, 2001. It also may require, upon adoption of SFAS 142, that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purpose of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidelines in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. The Company elected early adoption of SFAS 142 in the quarter ended September 30, 2001. The Company's net goodwill of $969,099 was evaluated as of July 1, 2001 and no amortizable intangible assets were identified. Accordingly, the Company ceased amortization of goodwill resulting in a decrease in expenses of $41,279 for the six months ended December 31, 2001. The impact of the adoption of SFAS 142 is summarized as follows: Three Months Ended Six Months Ended December 31, December 31, 2001 2000 2001 2000 _______________________________________________ Reported net income (loss) applicable to common stockholders $ (21,102) $(5,511,783) $401,491 $(5,861,313) Add back: Goodwill amortization -- 16,425 -- 41,279 __________ ___________ ________ ___________ Adjusted net income (loss) (21,102) (5,495,358) 401,491 (5,820,034) ========== ============ ========= =========== Basic earnings per share: Reported net income (loss) applicable to common stockholders $ .00 $ (.67) $ .04 $ (.73) Goodwill amortization -- (.00) -- .01 __________ ___________ ________ ___________ Adjusted net income (loss) $ .00 $ (.67) $ .04 $ (.72) ========== ============ ========= =========== Diluted earnings per share: Reported net income (loss) applicable to common stockholders $ .00 $ (.67) $ .03 $ (.73) Goodwill amortization -- $ (.00) $ -- $ .01 __________ ___________ ________ ___________ Adjusted net income (loss) $ .00 $ (.67) $ .03 $ (.72) ========== ============ ========= ===========
Note G - Practice Management Closing Expenses In December 2000 the Board decided to close its' BSC-NY, Inc. practice management operations due to deterioration of operating results. Revenues of BSC-NY, Inc were dependent on the success of the professional corporation for which it provided management services. Although the New York practice management operations reported operating income of approximately $131,000 for the fiscal year ended June 30, 2000, adverse business conditions resulted in a loss of approximately $399,000 for the six months ended December 31, 2000 before facility closing expenses of $4,855,966. These adverse operating conditions were caused by the decline in revenues produced by the professional corporation which has ceased operations. The table below outlines practice management closing expenses. Goodwill impairment $1,545,609 Write down of the receivable due from the professional corporation 3,071,310 Lease termination and other expenses 239,047 ____________ Total $4,855,966 ============ Item 2. Management's Discussion and Analysis or Plan of Operation PHC, INC. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net patient care revenue remained relatively stable at $5,052,946 for the three months ended December 31, 2001 compared to $5,041,306 for the three months ended December 31, 2000 and increased 6.0% to $10,372,090 for the six months ended December 31, 2001 from $9,753,238 for the six months ended December 31, 2000. This increase in revenue is due primarily to a 10.4% and 15.1% increase in patient days for the three months and six months ended December 31, 2001, respectively, over the same periods last year. Marketing efforts have continued to aid in increasing the census at the in patient facilities. The key indicators of profitability of inpatient facilities are patient days, or census, and payor mix. Patient days is the product of the number of patients times length of stay. Increases in the number of patient days result in higher census, which coupled with a more favorable payor mix (more patients with higher paying insurance contracts or paying privately) will usually result in higher profitability. Therefore, patient census and payor mix are monitored very closely. Income before interest, taxes, depreciation, amortization, dividends and the New York operations was $249,231 for the three months ended December 31, 2001 and $974,117 for the six months ended December 31, 2001 compared to a loss of $65,638 and income of $320,203 for the same periods last year. Management fees of $345,111 for the six months ended December 31, 2000 were related to the New York practice management Company, BSC-NY, Inc., which closed in the quarter ended December 31, 2000. Contract support services revenue provided by PDSS decreased 2.9% to $202,250 for the three months ended December 31, 2001 from $208,176 for the three months ended December 31, 2000 and increased 7.0% to $415,226 for the six months ended December 31, 2001 from $388,153 for the same period last year. The cost of providing these services decreased 12.4% for the three months ended December 31, 2001 to $176,127 from $201,131 for the three months ended December 31, 2000 and 5.0% to $345,099 for the six months ended December 31, 2001 from $363,132 for the same period last year. These changes in revenue and expenses are due primarily to a short-term contract completed last year. This contract was labor intensive and, in addition to providing additional revenue also carried with it high costs which were booked during the quarter ended December 31, 2000. Revenue from pharmaceutical studies increased 104.5% to $123,595 for the three months ended December 31, 2001 from $60,430 for the three months ended December 31, 2000 and 114.3% to $203,412 for the six months ended December 31, 2001 from $94,908 for the same period last year. This increase is due to the start up of new studies and is expected to fluctuate from period to period based on the number of studies in progress. Administrative expenses increased 15.3% to $2,100,966 for the quarter ended December 31, 2001 from $1,822,062 for the quarter ended December 31, 2000 and 16.9% to $4,028,313 for the six months ended December 31, 2001 from $3,447,128 for the same period last year. This increase is primarily due to the increases in all administrative expenses for the pharmaceutical research operations, which increased approximately 165% for the six months ended December 31, 2001 over the same period last year due to general business start-up costs and an increase number of active studies. Office expenses, including printing, increased approximately 22% for the quarter ended December 31, 2001 and 33% for the six month period ended December 31, 2001 as compared to the same periods last year. During the last quarter of the fiscal year ended June 30, 2001, the Company changed the focus of its internet services Company to provide internal support to all PHC operations. As a result of this change, website services revenue from outside sources decreased 78.1% to $3,301 for the six months ended December 31, 2001 from $15,081 for the six months ended December 31, 2000 and website expenses decreased 78.6% to $158,208 for the six months ended December 31, 2001 from $737,889 for the same period last year. Patient care expenses also increased by 8.1% to $2,570,645 for the three months ended December 31, 2001 from $2,377,760 for the three months ended December 31, 2000 and 14.4% to $5,243,036 for the six months ended December 31, 2001 from $4,585,095 for the six months ended December 31, 2000. These increases in expenses are due primarily to the increase in patient days of greater than 10% as noted above with the primary increases in expenses directly related to patient census such as payroll, food, laundry, patient transportation, hospital supplies and pharmacy. Bad debt expense decreased 62.5% to $299,100 for the three months ended December 31, 2001 from $797,997 for the three months ended December 31, 2000 and 74.4% to $415,539 for the six months ended December 31, 2001 from $1,624,907 for the same period last year. This decrease is due primarily to the elimination of approximately $500,000 in bad debt recorded for the closed New York operations in the period ended September 30, 2000 and a significant bad debt expense charged for the Michigan in-patient facility in the quarter ended December 31, 2000. Interest expense decreased 22.3% to $183,303 for the three months ended December 31, 2001 from $235,793 for the three months ended December 31, 2000 and 21.6% to $401,133 for the six months ended December 31, 2001 from $514,165 for the same period last year. This decrease is due to the general decline in interest rates and the refinancing of debt in November 2001 at a more favorable rate. Other Income increased 414.7% to $31,763 for the three months ended December 31, 2001 from $6,171 for the three months ended December 31, 2000 and 130.9% to $51,090 for the six months ended December 3,1 2001 from $22,127 for the same period last year. This increase is due the receipt of approximately 12,000 in two separate insurance settlements, one claim for electrical storm damage and the other claim for internet "theft." We have also subleased the property formerly used in the New York operations which is included at $11,500 each quarter beginning with the quarter ended September 30, 2001. The company has no provision for income taxes for the three months or six months ended December 31, 2001 due to the utilization of net operating loss carry-forward. Preferred stock dividends decreased to $28,963 for the quarter ended December 31, 2001 from $148,772 for the quarter ended December 31, 2000. The decrease in dividends is due primarily to the recording of the additional beneficial conversion feature of the series C preferred stock of $115,500 during the period ended December 31, 2000. There has also been a decrease, through conversion, in the amount of preferred stock outstanding. We continue to view receivables most conservatively by maintaining the ratio of reserves for bad debt to receivables at approximately 30% on the total accounts receivable balance, which decreased 8.6% to $8,188,730 at December 31, 2001 from $8,956,545 at September 30, 2001. The reserve for bad debt is based on the current age of accounts receivable and is expected to decrease as our more aggressive collection practices decrease the number of days our patient receivables remain unpaid. In addition to decreasing the number of days our patient receivables remain outstanding, our more timely follow-up practice has resulted in fewer accounts charged to bad debt due to untimely filing of claims since errors on claims are identified and corrected in a more timely manner than in prior years. The $605,000 shown as non-current patient accounts receivable is presented at net realizable value. These amounts are due from individuals in payment for treatment on which extended payment plans have been arranged and are being met. During the six months ended December 31, 2001 costs of $24,713 were incurred related to discontinued operations. These costs represent additional legal fees paid and accrued as a result of the ongoing expenses incurred to finalize the closure of Quality Care Centers of Massachusetts, Inc. When the bankruptcy proceedings of that subsidiary have been finalized any remaining net liabilities of discontinued operations will result in a gain and an increase in stockholders' equity. Liquidity and Capital Resources A significant factor in the liquidity and cash flow of the Company is the timely collection of its accounts receivable. Net accounts receivable from patient care decreased during the six months ended December 31, 2001 by 12.2%, approximately $764,000. This decrease is due in part to the seasonal decline in revenue recorded during the quarter ended December 31 each year. The Company continues to closely monitor its accounts receivable balances and is working to reduce amounts due consistent with growth in revenues. During the quarter ended December 31, 2001 the Company met its cash flow needs through ongoing accounts receivable financing and through debt and equity transactions as follows: In the quarter ended December 31, 2001 the Company issued 71,750 shares of class A common stock as performance bonuses to the chief executive officers of high performing facilities resulting in a non-cash compensation charge of approximately $30,500. In December 2001 the Company amended its Heller Healthcare Finance, Inc. revolving credit debt for the Virginia facility and the term notes outstanding totaling $2,575,542. The amended and restated Term Note requires monthly principle payments of $45,000 for the first year beginning December 31, 2001 and increasing to $50,000 in the second year and $55,000 in the third year with the remaining balance due and payable on November 30, 2004 and carries an interest rate of prime plus 3.5%. In conjunction with the refinancing the Company also signed an amendment to the revolving credit note to exclude the Virginia facility receivables from the borrowing base and to amend the mortgage and cross collateralization documents to reflect the new terms and amounts. This refinancing resulted in a decrease in the interest rate and a significant decrease in the amount of monthly principle payments. The Company also occasionally accesses an overline to fund short-term cash flow needs. Principal payments on an overline are generally made weekly with payoffs scheduled for less than three months. As of January 31, 2002 the balance of overline debt was approximately $185,500 with the final payment due April 12, 2002. We utilize our accounts receivable funding facilities to the maximum extent available to meet current cash needs and sustain existing operations. Our treatment facilities are operating at a profit and are collecting old outstanding receivables, which resulted in positive cash flow from operations. These additional funds were used primarily for the repayment of outstanding debt. We continue to aggressively pursue payments on accounts receivable in order to continue to reduce debt. In addition to the debt due to Heller Healthcare as described above, the Company also has $500,000 in outstanding convertible debentures, which include the provision that the holders of the debentures may put all or any portion of the debentures to the Company at the original purchase price plus unpaid interest upon 30 days written notice beginning December 3, 2001. The Company does not anticipate that the put provision will be exercised since the coupon rate is paid quarterly at 12% per annum which is a higher rate than would be available through other sources at this time. The Company believes that, with the refinancing of the debt as described above and its revolving credit facility through its primary lender, it will have sufficient financing available to fund its growing operations for the foreseeable future. The Company is concentrating on its core business and expansion of its pharmaceutical research operations through additional contracts, to continue increasing revenues and cash flows from operations. PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company's annual meeting of stockholders was held on December 19, 2001. In addition to the election of directors (with regards to which (i) proxies were solicited pursuant to Regulation 14A under the Securities and Exchange Act of 1934, as amended, (ii) there was no solicitation in opposition to the management's nominees as listed on the proxy statement, and (iii) all of such nominees were elected), the stockholders ratified the selection by the Board of Directors of BDO Seidman, LLP as the Company's independent auditors for the fiscal year ending June 30, 2002. The stockholders also voted to amend the 1993 Employee Stock Purchase and Option Plan to increase the number of shares of Class A Common Stock available for issuance under the plan from 1,000,000 to 1,750,000 shares; to amend the 1995 Employee Stock Purchase Plan to increase the number of shares of Class A Common Stock available for issuance under the plan from 150,000 to 250,000; to amend the 1995 Non-Employee Director Stock Option Plan to increase the number of shares available for issuance under the plan from 50,000 to 250,000 and increase the annual grant of options under the plan from 2,000 options to 10,000 options. Item 6 Exhibits (a) Exhibit List Exhibit No. Description 10.50 Amendment Number 3 dated December 6, 2001 to Loan and Security Agreement dated February 18, 1998 by and between PHC of Michigan, Inc., PHC of Utah, Inc., and PHC of Virginia, Inc. and Heller Healthcare Finance, Inc. providing collateral for the Loan and Security Agreement in the amount of $3,000,000. 10.51 Consolidating Amended and Restated Secured Term Note in the amount of $2,575,542 dated December 6, 2001 by and between PHC of Michigan, Inc. and Heller Healthcare Finance, Inc. 10.52 Amended and Restated Revolving Credit Note in the amount of $3,000,000 dated December 6, 2001 by and between PHC of Michigan, Inc., PHC of Utah, Inc. and PHC of Virginia, Inc. and Heller Healthcare Finance, Inc. 10.53 Amended and Restated Consolidated Mortgage Note in the amount of $5,688,598 dated December 6, 2001 by and between PHC of Michigan, Inc and Heller Healthcare Finance, Inc. 10.54 Third Amended and Restated Cross-Collateralization and Cross-Default Agreement dated December 6, 2001 by and between PHC, Inc., PHC of Michigan, Inc., PHC of Utah, Inc. and PHC of Virginia, Inc. and Heller Healthcare Finance, Inc. 10.55 Overline Credit Advance in the amount of $150,000 dated December 26, 2001 by and between PHC of Michigan, Inc., PHC of Utah, Inc., PHC of Virginia, Inc. and Heller Healthcare Finance, Inc. 10.56 Overline Credit Advance in the amount of $100,000 dated January 11, 2002 by and between PHC of Michigan, Inc., PHC of Utah, Inc., PHC of Virginia, Inc. and Heller Healthcare Finance, Inc. Signatures In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PHC, Inc. Registrant Date: February 12, 2002 /s/ Bruce A. Shear Bruce A. Shear President Chief Executive Officer Date: February 12, 2002 /s/ Paula C. Wurts Paula C. Wurts Controller Treasurer EX-10 3 ex10_50.txt AMENDMENT #3 TO LOAN AND SECURITY AGREEMENT Exhibit 10.50 $3,000,000.00 AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT originally dated as of February 18, 1998 by and among PHC OF MICHIGAN, INC. PHC OF UTAH, INC. PHC OF VIRGINIA, INC. (collectively, "Borrower") and HELLER HEALTHCARE FINANCE, INC. f/k/a HCFP FUNDING, INC. ("Lender") Amended as of December 6, 2001 AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT THIS AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT (this "Amendment") is made as of this 5th day of December, 2001, by and among PHC OF MICHIGAN, INC., a Massachusetts corporation ("PHCMI"), PHC OF VIRGINIA, INC., a Massachusetts corporation ("PHCVA") and PHC OF UTAH, INC., a Massachusetts corporation ("PHCU" and, collectively with PHCMI, the "Borrower"), and HELLER HEALTHCARE FINANCE, INC. f/k/a HCFP FUNDING, INC., a Delaware corporation ("Lender"). RECITALS WHEREAS, pursuant to that certain Loan and Security Agreement dated as of February 18, 1998 (as previously amended by that certain Amendment No. 1 to Loan and Security Agreement dated as of February 17, 2000, that certain Amendment No. 2 to Loan and Security Agreement dated May __, 2001, as amended hereby and as it may be further amended, modified and restated from time to time, collectively, the "Loan Agreement") by and among Lender, Borrower, PHCVA, PHC of Rhode Island, Inc. and Pioneer Counseling of Virginia, Inc., Lender agreed to make available to Borrower a revolving credit loan (the "Loan"); and WHEREAS, Borrower and Lender desire, among other things, to extend the initial Term (as defined below) of the Loan Agreement and to make certain other changes to the Loan Agreement identified herein. NOW, THEREFORE, in consideration of the foregoing, the terms and conditions set forth in this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower hereby agree as follows: Section 1. Definitions. Unless otherwise defined in this Amendment, all capitalized terms shall have the meanings assigned to such terms in the Loan Agreement. Section 2. Extension of Term of Loan Agreement. On and as of the Effective Date, the initial Term of the Loan Agreement shall be extended from February 18, 2003 to November 30, 2004. Section 3. Amendments to Loan Agreement. On the Effective Date, the Loan Agreement shall be modified as follows: (a) Section 1.42 of the Loan Agreement shall be modified by deleting the "or" before subparagraph (p) thereof, and by deleting the "." at the end of subparagraph (p) thereof and replacing it with a new subparagraph (q) as follows: "or (q) the Account is an Account of PHCVA." (b) New Section 1.46 shall be added to the Loan Agreement as follows: "Section 1.46. Termination Fee. "Termination Fee " shall mean a fee payable upon termination of the Agreement, as yield maintenance for the loss of bargain and not as a penalty, equal to (a) if the date of notice of a termination is on or before November 30, 2002, three percent (3%) of the Maximum Loan Amount, (b) if the date of a notice of termination is on or before November 30, 2003, two percent (2%) of the Maximum Loan Amount and (c) if the date of notice of termination is before November 30, 2004, one percent (1%) of the Maximum Loan Amount." (c) INTENTIONALLY DELETED. (d) Section 2.1(d) of the Loan Agreement shall be amended to add the following new sentence at the end of such subsection: "At Borrower's request, and subject to the approval of Lender's credit committee in its sole discretion and so long as there is not then occurring or continuing any Event of Default or event which, with the giving of notice or lapse of time or both could constitute an Event of Default, Lender may elect to make advances under the Loan in excess of the Borrowing Base; provided that to the extent Lender makes any such advance to Borrower, any commitment fee charged by Lender with respect to any such advance shall be equal not more than two and one-half percent (2.5%) of the aggregate amount of such advance." (e) The second sentence of Section 2.3 of the Loan Agreement shall be amended and restated in its entirety to read as follows: "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 (except, to the extent set forth below, for funds representing collections of Accounts or otherwise of PHCVA) are immediately transferred into a depository account maintained by Lender at Bank One Arizona, N.A. or First Union National Bank, N.A., as determined by Lender in its sole discretion and communicated to Borrower (the "Concentration Account"); provided that, notwithstanding the foregoing, (a) so long as no Event of Default is then occurring or continuing, Borrower shall be entitled, with respect to any funds representing collections of Accounts or otherwise of PHCVA, to direct the Lockbox Bank to promptly transfer such funds only back to PHCVA for use by PHCVA in its sole discretion, provided, that on the occurrence of any Event of Default, Borrower shall immediately instruct the Lockbox Bank that all collections of Accounts or otherwise of PHCVA shall, immediately as of the date of such notice to the Lockbox Bank and during the continuance of any such Event of Default shall be transferred into the Concentration Account, and (b) PHCVA shall be entitled to receive collections of Accounts directly from any of its Account Debtors, provided that PHCVA holds such collections of Accounts in trust for the benefit of Lender and immediately remits such collections, in the form received, to the Lockbox Bank, and, provided further, that so long as PHCVA complies with the requirements of the foregoing proviso with respect to collections of Accounts received by it directly, PHCVA shall not be in breach of the requirements of this Section 2.3." (f) Section 2.8(a) of the Loan Agreement shall be amended and restated in its entirety to read as follows: "(a) Subject to Lender's right to cease making Revolving Credit Loans to Borrower upon or after any Event of Default, this Agreement shall be in effect until November 30, 2004, and this Agreement shall automatically renew itself for one-year periods thereafter, unless terminated as provided in this Section 2.8." (g) Section 2.8(c) of the Loan Agreement shall be amended and restated in its entirety to read as follows: "Upon at least thirty (30) days prior written notice to Lender, Borrower may terminate this Agreement prior to November 30, 2004, provided that, at the effective date of such termination, Borrower shall pay to Lender (in addition to the then outstanding principal, accrued interest and other Obligations owing under the terms of this Agreement and any other Loan Documents) as yield maintenance for the loss of bargain and not as a penalty, an amount equal to the applicable Termination Fee." Section 5. Fee. Lender hereby waives any requirement that Borrower pay to Lender a commitment or other fee in connection with the modifications to the Loan Agreement set forth in this Amendment. Section 6. Costs. Borrower shall be responsible for the payment of all costs of Lender incurred in connection with the preparation of this Amendment, including but not limited to the reasonable fees of Lender's in-house counsel. Section 7. Effective Date. The obligation of Lender to enter into and perform this Amendment and to continue to make Revolving Credit Loans under the Loan Agreement (as amended hereby) is subject to satisfaction of all of the following conditions precedent, in each case to Lender's sole satisfaction (the date of satisfaction of all of such conditions precedent to Lender's sole satisfaction, the "Effective Date"): . (a) Lender shall have received an original of this Amendment duly executed by an authorized officer of Borrower; (b) Lender shall have received that certain Consolidating Amended and Restated Secured Term Note duly executed by an authorized officer of Borrower (the "Consolidating Term Note"); (c) Lender shall have received that certain Amended and Restated Consolidated Mortgage made by Borrower as mortgagor and Lender as mortgagee (the "Amended Mortgage") covering the real property commonly known as 35031 23 Mile Road, New Baltimore, Michigan 48047, which is more particularly described on Exhibit "A" to the Amended Mortgage (the "Real Property"); (d) Lender shall have received that certain Third Amended And Restated Cross-Collateralization and Cross-Default Agreement duly executed by an authorized officer of Borrower; (v) (e) Lender shall have received all financing statements and other documents, certificates and agreements reasonably deemed necessary or appropriate by Lender to effectuate the transactions contemplated by this Amendment; (f) all representations, warranties and covenants contained in this Amendment, the Loan Agreement or the other Loan Documents or in the Consolidating Term Note or in any documents entered into in connection with the transactions contemplated by the Consolidating Term Note (collectively, the "Term Loan Documents") of, by or on behalf of Borrower shall be true and correct in all material respects; and (g) no Event of Default shall have occurred or be continuing under this Amendment, the Loan Agreement or the other Loan Documents, the Consolidating Term Note or the Term Loan Documents. Section 8. Reference to the Effect on the Loan Agreement. (a) Upon the effectiveness of this Amendment, each reference in the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of similar import shall mean and be a reference to the Loan Agreement as amended by this Amendment. (b) Except as specifically amended above, the Loan Agreement, and all other Loan Documents, shall remain in full force and effect, and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided in this Amendment, operate as a waiver of any right, power or remedy of Lender, nor constitute a waiver of any provision of the Loan Agreement, or any other documents, instruments and agreements executed or delivered in connection with the Loan Agreement. Section 9. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Maryland without regard to any otherwise applicable conflicts of law principles. Section 10. Headings. Section headings in this Amendment are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. Section 11. Counterparts. This Amendment may be executed in counterparts, and both counterparts taken together shall be deemed to constitute one and the same instrument. Section 12. Reaffirmation of Guaranty. Guarantor, by its signature below as such, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby consents and joins in this Amendment and hereby declares to and agrees with Lender that its Guaranty of the Obligations is and shall continue in full force and effect for the benefit of Lender with respect to the Obligations, as amended by this Amendment, that there are no offsets, claims, counterclaims, crossclaims or defenses of the Guarantor with respect to the Guaranty nor, to the Guarantor's knowledge, with respect to the Obligations, that the Guaranty is not released, diminished or impaired in any way by this Amendment or the transactions contemplated hereby, and that the Guaranty is hereby ratified and confirmed in all respects. Guaranty hereby acknowledges that without the foregoing consent and reaffirmation, Lender would not execute this Amendment or otherwise consent to its terms. [SIGNATURES FOLLOW] IN WITNESS WHEREOF, the parties have caused this Amendment No. 3 to Loan and Security Agreement to be executed as of the date first written above. LENDER: HELLER HEALTHCARE FINANCE, INC. f/k/a HCFP FUNDING, INC., a Delaware corporation By: /s/ Brett Robinson Name: Brett Robinson Title: Vice President BORROWER: PHC OF MICHIGAN, INC., a Massachusetts corporation By: /s/ Bruce A. Shear Name: Bruce A. Shear Title: CEO PHC OF UTAH, INC., a Massachusetts corporation By: /s/ Bruce A. Shear Name: Bruce A. Shear Title: CEO PHC OF VIRGINIA, INC., a Massachusetts corporation By: /s/ Bruce A. Shear Name: Bruce A. Shear Title: CEO [GUARANTOR'S ACKNOWLEDGEMENT SIGNATURE APPEARS ON NEXT PAGE] GUARANTOR: PHC, INC., a Massachusetts corporation By: /s/ Bruce A. Shear Name: Bruce A. Shear Title: CEO EX-10 4 ex10_51.txt AMENDED & RESTATED TERM NOTE Exhibit 10.51 CONSOLIDATING AMENDED AND RESTATED SECURED TERM NOTE $2,575,542.00 December 6, 2001 FOR VALUE RECEIVED, and intending to be legally bound, the undersigned, PHC OF MICHIGAN, INC., a Massachusetts corporation ("Borrower"), promises to pay, in lawful money of the United States, to the order of HELLER HEALTHCARE FINANCE, INC. f/k/a HCFP FUNDING, INC., a Delaware corporation, its successors and assigns ("Lender"), the principal sum of TWO MILLION FIVE HUNDRED SEVENTY-FIVE THOUSAND FIVE HUNDRED FORTY-TWO AND 00/100 DOLLARS ($2,575,542.00) (the "Principal Sum") together with interest, costs of collection and other fees as further set forth in this Consolidating Amended and Restated Secured Term Note, to be paid in accordance with the terms set forth below. This Consolidating Amended and Restated Secured Term Note (as it may be amended, modified or restated from time to time, this "Note") consolidates and combines all of the following obligations to Lender: (a) the obligations of Borrower under that certain Secured Term Note in the original principal amount of One Million One Hundred Thousand and No/100 Dollars ($1,100,000.00) made by PHCMI in favor of Lender and dated March 12, 1997 (as amended, modified or restated from time to time, the "March 1997 Term Note"), under which March 1997 Term Note approximately $619,167 remains outstanding as of the date hereof; (b) the obligations of Borrower under that certain Secured Term Note in the original principal amount of Five Hundred Thousand and No/100 Dollars ($500,000.00) made by PHCMI in favor of Lender and dated December 9, 1997 (as amended, modified or restated from time to time, the "December 1997 Term Note"), under which December 1997 Term Note approximately $353,875 remains outstanding as of the date hereof; (c) the obligations of Borrower under that certain Secured Term Note in the original principal amount of One Million and No/100 Dollars ($1,000,000.00) made by PHCMI in favor of Lender and dated November 23, 1999 (as amended, modified or restated from time to time, the "November 1999 Term Note"), under which November 1999 Term Note approximately $860,000 remains outstanding as of the date hereof; (d) the obligations of Borrower under that certain Secured Term Note in the original principal amount of Five Hundred Thousand and No/100 Dollars ($500,000.00) made by PHCMI in favor of Lender and dated May 26, 2000 (as amended, modified or restated from time to time, the "May 2000 Term Note"), under which May 2000 Term Note approximately $500,000 remains outstanding as of the date hereof; (e) that portion of the obligations under that certain Revolving Credit Note in the original principal amount of Four Million and No/100 Dollars ($4,000,000.00) made by the Borrower in favor of Lender and dated February 28, 1998 (as amended, modified or restated from time to time, the "Revolving Credit Note") which is allocated to PHC of Virginia, Inc. ("PHCVA"), an affiliate of Borrower, of which such allocated amount approximately $130,000 is outstanding as of the date hereof; and (f) the obligation of Borrower, PHCVA and PHC of Utah, Inc., an affiliate of Borrower ("PHCU" and, collectively with Borrower and PHCVA, the "Revolver Borrowers") in respect of that certain overline loan (the "Overline Loan") in the original principal amount of Three Hundred Thousand and No/100 Dollars ($300,000.00) made by the Lender to the Revolver Borrowers pursuant to that certain Letter Agreement dated as of August 9, 2001 (the "Letter Agreement"), the outstanding amount of which Overline Loan is approximately $112,500 as of the date hereof. This Note further replaces and supercedes each of the secured term notes referenced in subparagraphs (a) - (d) above (collectively with all documents executed in connection with such secured term notes, the "Original Term Loan Documents") and the Letter Agreement. Borrower represents and warrants to Lender that Borrower will benefit by the consolidation in this Note of the various obligations of each of it, PHCVA and PHCU described above, and that Borrower has received good and valuable consideration for its agreement to assume the obligations of each of PHCVA and PHCU under the Revolving Credit Note and the Letter Agreement, as the case may be. 1. Principal and Interest. (a) Beginning December 31, 2001, and on the last day of each month thereafter through and including October 31, 2004, Borrower promises to pay to Lender the Principal Sum by making a monthly installment payment equal to the amount set forth on Schedule 1 attached hereto and incorporated herein by reference, and by making a final balloon payment of all outstanding unpaid Principal Sum, together with all accrued and unpaid interest, fees and charges hereunder on November 30, 2004 (the "Maturity Date"). The term of this Note shall not be further extended unless the term of the Loan and Security Agreement dated as of February 20, 1998 by and among Borrower, the other entities identified therein as a "Borrower" and Lender, pursuant to which, among other things, the Revolving Borrowers and Lender entered into a revolving credit arrangement in a principal amount not to exceed $3,000,000.00 (as the agreement has been or may be amended, modified or restated from time to time, the "Loan Agreement") is further extended to the same date. (b) In addition to repayment of the Principal Sum, Borrower promises to pay to Lender interest on the Principal Sum on a monthly basis from the date of this Note until the Maturity Date. Interest shall be at a fluctuating rate per annum compounded daily (on the basis of the actual number of days elapsed over a year of 360 days) equal to the Prime Rate (as defined below) plus three and one-half percent (3.5%) (the "Base Rate"), provided that after an Event of Default the interest rate shall be equal to the Base Rate plus five percent (5%) (the "Default Interest Rate"). For purposes of the foregoing, the term "Prime Rate" means that rate of interest designated as such by Citibank, N.A. (the "Bank"), or any successor to the Bank, as the rate may from time to time fluctuate. If the Bank ceases to designate such a base lending rate, Lender shall reasonably select an alternate, nationally recognized commercial bank as the designator of such interest rate. Accrued interest shall be payable monthly in arrears on the last Business Day (as defined below) of each month from the date of this Note through and including the Maturity Date. After the Maturity Date, and until the entire Principal Sum plus any other amount due and unpaid hereunder shall be paid in full, without limiting any of Lender's other rights and remedies, all outstanding amounts owed by Borrower hereunder shall bear interest, payable on demand, at the Default Interest Rate; provided that in no event shall the interest payable by Borrower hereunder exceed the maximum lawful rate. (c) Repayment of Borrower's obligations under this Note is secured by, among other things, the Collateral defined and described in Section 6 of this Note. 2. Additional Payments. Borrower further promises to pay to Lender, immediately upon demand any and all other sums and charges that may at the time become due and payable under this Note, and all reasonable costs and disbursements in connection with the preparation of this Note and in the collection of any payments due under this Note and in any action, suit or proceeding to protect, sustain or enforce the rights and remedies of Lender under this Note. 3. Conditions Precedent; Prepayment. (a) Borrower hereby acknowledges that the Principal Sum has previously been made available to Borrower by Lender. This Consolidated Amended and Restated Secured Term Note shall become effective only upon satisfaction, in Lender's sole discretion, of all of the following conditions: (i) Lender shall have received an original of this Note duly executed by an authorized officer of Borrower; (ii) Lender shall have received that certain Amendment No. 3 to Loan and Security Agreement duly executed by an authorized officer of each Revolver Borrower; (iii)Lender shall have received that certain Amended and Restated Consolidated Mortgage made by Borrower as mortgagor and Lender as mortgagee (the "Amended Mortgage") covering the real property commonly known as 35031 23 Mile Road, New Baltimore, Michigan 48047, which is more particularly described on Exhibit "A" to the Amended Mortgage (the "Real Property"); (iv) Lender shall have received that certain Third Amended And Restated Cross-Co llateralization and Cross-Default Agreement duly executed by an authorized officer of each Revolver Borrower; (v) Lender shall have received all financing statements and other documents, certificates and agreements reasonably deemed necessary or appropriate by Lender to effectuate the transactions contemplated by this Note; (vi) all representations, warranties and covenants contained in the Original Term Loan Documents, the Letter Agreement, the Loan Agreement or otherwise in any document entered into or executed in connection with the Loan Agreement (collectively with the Loan Agreement, the "Revolving Loan Documents") or in this Note or otherwise made in writing in connection with this Note or in any documents entered into in connection with the transactions contemplated by this Note (collectively, the "Loan Documents") of, by or on behalf of Borrower shall be true and correct in all material respects; and (vii) no Event of Default shall have occurred or be continuing under this Note or the other Loan Documents, the Original Term Loan Documents, the Letter Agreement, the Loan Agreement or the other Revolving Loan Documents. (b) All outstanding principal, interest, fees and other amounts due under this Note shall be prepaid in full simultaneously with repayment of all Obligations under the Loan Agreement and/or the termination of the Loan Agreement. (c) Borrower may prepay all or any part of the Principal Sum outstanding without penalty, together with all interest accrued on the Principal Sum and all other sums that are payable pursuant to this Note. 4. Payment Office. The Principal Sum, the interest on the Principal Sum, and any other amounts payable under this Note are payable in lawful money of the United States of America at the office of Lender, at 2 Wisconsin Circle, Fourth Floor, Chevy Chase, Maryland 20815, Attention: Pascale Bissainthe, SVP & Chief Counsel, or at such other place as Lender may specify in writing to Borrower. Any payment by other than immediately available funds shall be subject to collection. Interest shall continue to accrue until the funds by which payment is made are available to Lender for its use. Any payment stated to be due on a day on which banks in Maryland are required or permitted to be closed for business shall be due and payable on the next business day (each such day, a "Business Day") and such extension of time shall be included in the computation of interest in connection with such payment. 5. No Presentment; Acceleration. On the Maturity Date or upon the occurrence of an Event of Default (as defined in Section 10 below), the outstanding Principal Sum, accrued and unpaid interest on the Principal Sum, and all other sums owed by Borrower to Lender in connection with this Note or the other Loan Documents shall immediately become due and payable. Borrower hereby expressly waives any presentment for payment, demand for payment, notice of nonpayment or dishonor, protest and notice of protest of any kind. 6. Security Agreement. (a) This Note shall constitute a security agreement as that term is used in the UCC and Borrower hereby grants to Lender, to secure Borrower's obligations under this Note and the other Loan Documents, and under the Loan Agreement and the Revolving Loan Documents, a security interest in the following (collectively, the "Collateral"): (i) all of Borrower's now-owned and hereafter acquired or arising accounts, contract rights, general intangibles, chattel paper, documents and instruments, as such terms are defined in the UCC, including, without limitation, all obligations for the payment of money arising out of Borrower's sale of goods or rendition of services ("Accounts"), accounts receivable and rights to payment of every kind and description, and all of Borrower's contract rights, chattel paper, documents and instruments with respect thereto, and all of Borrower's rights, remedies, security and liens, in, to and in respect of the Accounts, including, without limitation, rights of stoppage in transit, replevin, repossession and reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, guaranties or other contracts of suretyship with respect to the Accounts, deposits or other security for the obligation of any Account Debtor, and credit and other insurance ("Account Debtor" means any person obligated on any Account of Borrower, including without limitation, any Insurer and any Medicaid/Medicare payor); (ii) all moneys, securities and other property and the proceeds thereof, now or hereafter held or received by, in transit to, in possession of, or under the control of Lender or a bailee or Affiliate of Lender, from or for Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all of Borrower's deposits (general or special), balances, sums and credits with Lender at any time existing ("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 its stockholders and any affiliates. A person shall be deemed to control a corporation if the person possesses, directly or indirectly, the power to direct or cause the direction of the management and business of the corporation whether through the ownership of voting securities, by contract, or otherwise); (iii) all of Borrower's right, title and interest in, to and in respect of all goods relating to, or which by sale have resulted in, Accounts, including, without limitation, all goods described in invoices or other documents or instruments with respect to, or otherwise representing or evidencing, any Account, and all returned, reclaimed or repossessed goods; (iv) all of Borrower's now or hereafter acquired deposit accounts into which Accounts are deposited, including the Lockbox Account ("Lockbox Account" means an account maintained by Borrower at Bank One Arizona, N.A. or another bank acceptable to Lender (or a successor financial institution), into which all collections of Accounts are paid directly); (v) all of Borrower's now owned and hereafter acquired or arising general intangibles and other property of every kind and description with respect to, evidencing or relating 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, ledger cards, contracts, licenses, formulae, tax and other types of refunds, returned and unearned insurance premiums, rights and claims under insurance policies, and computer programs, information, software, records, and data, as the same relates to the Accounts; (vi) all of Borrower's other general intangibles (including, without limitation, any proceeds from insurance policies after payment of prior interests), patents, unpatented inventions, trade secrets, copyrights, contract rights, goodwill, literary rights, rights to performance, rights under licenses, choses-in-action, claims, information contained in computer media (such as data bases, source and object codes, and information therein), things in action, trademarks and trademarks applied for (together with the goodwill associated therewith) and derivatives thereof, trade names, including the right to make, use, and vend goods utilizing any of the foregoing, and permits, licenses, certifications, authorizations and approvals, and the rights of Borrower thereunder, issued by any governmental, regulatory, or private authority, agency, or entity whether now owned or hereafter acquired, together with all cash and non-cash proceeds and products thereof; (vii) all of Borrower's now owned or hereafter acquired inventory of every description which is held by Borrower for sale or lease or is furnished by Borrower under any contract of service or is held by Borrower as raw materials, work in process or materials used or consumed in a business, wherever located, and as the same may now and hereafter from time to time be constituted, together with all cash and non-cash proceeds and products thereof; (viii) all of Borrower's now owned or hereafter acquired machinery, equipment, computer equipment, tools, tooling, furniture, fixtures, goods, supplies, materials, work in process, whether now owned or hereafter acquired, together with all additions, parts, fittings, accessories, special tools, attachments, and accessions now and hereafter affixed thereto and/or used in connection therewith, all replacements thereof and substitutions therefor, and all cash and non-cash proceeds and products thereof; (ix) the Real Property; and (x) the proceeds (including, without limitation, insurance proceeds) of all of the foregoing. (b) Upon the occurrence of an Event of Default under this Note or the other Loan Documents, or an Event of Default under any of the Revolving Loan Documents, Lender, in addition to all other rights, options, and remedies granted to Lender under this Note or at law or in equity, may take any of the following steps: (i) declare this Note, and all amounts owed to Lender hereunder, to be immediately due and payable; (ii) exercise all other rights granted to it under this Note and all rights under the UCC in effect in the applicable jurisdiction(s) and under any other applicable law; and (iii) exercise all rights and remedies under all Loan Documents or Revolving Loan Documents now or hereafter in effect, including but not limited to: (A) the right to take possession of, send notices regarding, and collect directly the Collateral, with or without judicial process; (B) 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 (c) below, without any liability for rent, storage, utilities, or other sums, and Borrower shall not resist or interfere with such action; and (c) the right to require Borrower at Borrower's expense to assemble all or any part of the Collateral and make it available to Lender at any place designated by Lender. (c) Borrower agrees that a notice received by it at least five (5) days before the time of any intended public sale, or the time after which any private sale or other disposition of the Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition. If permitted by applicable law, any perishable Collateral that threatens to decline rapidly in value or that is sold on a recognized market 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 following an Event of Default. (d) 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 under this Note and the other Loan Documents or (ii) upon the occurrence of an Event of Default under the Loan Agreement or the Revolving Loan Documents, the liabilities and obligations of Borrower under the Revolving Loan Documents. All rights and remedies granted Lender under this Note or under any of the other Loan Documents, 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 Principal Sum, all interest, costs, expenses and other charges due under, and all other existing and future liabilities and obligations of Borrower to Lender under, this Note 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. 7. Use of Funds. Borrower covenants and agrees that the loan of the Principal Sum, or any portion of the Principal Sum, shall be used for working capital or other commercial purposes of Borrower. 8. Representations. Each entity comprising Borrower hereby warrants and represents to Lender that: (a) Borrower is a corporation duly organized, validly existing, and in good standing under the laws of the State of Massachusetts, is in good standing as a foreign corporation in the State of Michigan and in any other jurisdiction in which the character of the properties owned or leased by it or the nature of its business makes such qualification necessary, has the corporate power and authority to own its assets and transact the business in which it is engaged, and has obtained all 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. (b) Borrower has full corporate power and authority to enter into, execute and deliver this Note, and to incur and perform its obligations under this Note and the other Loan Documents, all of which have been duly authorized by all necessary corporate action. No consent or approval of shareholders of, or lenders to, Borrower, and no consent, approval, filing or registration with any governmental authority is required as a condition to the validity of this Note or the other Loan Documents or the performance by Borrower of its obligations under this Note or the other Loan Documents. (c) This Note, when issued and delivered for value received, and all other Loan Documents constitute the valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms. (d) The execution and delivery by Borrower of this Note and the other Loan Documents do not, and the performance of Borrower's obligations under this Note and the other Loan Documents will not, violate, conflict with, constitute a default under, or result in the creation of a lien or encumbrance (other than a lien, security interest, charge or other encumbrance in favor of Lender) upon the property of Borrower under (i) any provision of Borrower's certificate of incorporation or bylaws, (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 entity applicable to Borrower or Borrower's properties or assets. (e) There are no actions, suits, proceedings or investigations pending, including, without limitation, any condemnation proceeding, or, to the knowledge of Borrower, threatened, against or adversely affecting Borrower's properties or assets or the validity or enforceability of this Note or the other Loan Documents or the ability of Borrower to perform any obligations under this Note or the other Loan Documents. Borrower is not in default with respect to any order, writ, injunction, decree or demand of any court, arbitration tribunal or governmental authority having jurisdiction over Borrower. (f) The audited financial statements of Borrower previously delivered to Lender are true, correct and complete and fairly present the financial condition of Borrower and the results of Borrower's operations and changes in financial condition as of the dates and for the periods referred to, and have been prepared in accordance with generally accepted accounting principles. There are no material unrealized or anticipated liabilities, direct or indirect, fixed or contingent, of Borrower as of the dates of such financial statements that are not reflected in the financial statements or the notes thereto. There has been no material adverse change in the business, properties, condition (financial or otherwise) of Borrower since the date of Borrower's last financial statements delivered to Lender. Borrower's fiscal year ends on June 30. (g) Borrower is not in default under or with respect to any obligation in any respect that could be adverse to its business, operations, property or financial condition, or that could adversely affect the ability of Borrower to perform its obligations under this Note or the other Loan Documents. No Event of Default or event that, with the giving of notice or lapse of time, or both, could become an Event of Default, has occurred and is continuing: (h) Borrower has good and marketable title to its properties and assets, including the Collateral and the properties and assets reflected in the financial statements in described in paragraph (f) above, subject to no lien, mortgage, pledge, encumbrance or charge of any kind. 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. (i) 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 October 31, 2001 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. (j) The use of the proceeds of the Loan and Borrower's issuance of this 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, 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 will be used to purchase or carry any margin stock or to extend credit to others for such purpose. (k) 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. (l) 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. (m) No use, exposure, release, generation, manufacture, storage, treatment, transportation or disposal of hazardous material has occurred or is occurring on or from the Real Property or any other real property on which the Collateral is located (together with the Real Property, the "Premises") or which is owned, leased or otherwise occupied by Borrower, or has occurred off the Premises as a result of any action of Borrower. All hazardous material used, treated, stored, transported to or from, generated or handled on the Premises, or off the Premises by Borrower, has been disposed of on or off the Premises by or on behalf of Borrower in a lawful manner. There are no underground storage tanks present on or under the Premises owned or leased by Borrower. No other environmental, public health or safety hazards exist with respect to the Premises. (n) 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 8(n), which also lists the owner of record of each such property. (o) 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 current 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 8(o). Borrower is not in default of any obligation or undertaking with respect to such intellectual property or rights. (p) 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 8(p). (q) Neither this Note 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 to make the statements contained in this Note or in the other Loan Documents or such other documents not misleading. There is no fact known to Borrower that adversely affects or in the future may adversely affect the business, operations, affairs or financial condition of Borrower, or any of its properties or assets. (r) Borrower does not own or hold any equity or long-term debt investments in, have any outstanding advances to, have any outstanding guarantees for the obligations of, or have any outstanding borrowings from, any Person. Borrower is not a party to any contract or agreement, or subject to any corporate restriction, which adversely affects its business. (s) Within five (5) years before the date of this Note, neither the business, property or assets, or operations of Borrower has been adversely affected in any way by any casualty, strike, lockout, combination of workers, or order of the United States of America or other governmental authority, directed against Borrower. There are no pending or threatened labor disputes, strikes, lockouts, or similar occurrences or grievances against Borrower or its business. (t) Within five (5) years before the date of this Note, Borrower has not conducted business under or used any other name (whether corporate, partnership or assumed) except as listed on Schedule 8(t). 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. (u) Borrower is not engaged in any joint venture or partnership with any other Person. 10. Affirmative and Negative Covenants. Borrower covenants and agrees that until this Note shall be repaid in full, it shall be bound by, and shall comply fully with, all of the affirmative and negative covenants set forth in Article VI and Article VII of the Loan Agreement, all of which covenants are hereby incorporated by reference into this Note. 11. Events of Default. The following events are each an "Event of Default" under this Note: (a) Borrower fails to make any payment of principal when due or fails to make any payment of interest, fees or other amounts owed to or for the account of Lender under this Note and such payment remains unpaid for five (5) Business Days after the date such payment is due; or (b) Borrower has made any representations or warranties in this Note, the other Loan Documents, any financial statement delivered to Lender or otherwise in connection with this Note or the related transaction that contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained in this Note or in such document or financial statement not misleading; or (c) Borrower shall fail to perform or observe, or cause to be performed or observed, any other term, obligation, covenant, condition or agreement contained in this Note or the other Loan Documents and any such failure shall have continued for a period of thirty (30) days after written notice of such failure; or (d) Borrower shall (i) apply for, or consent in writing to, the appointment of a receiver, trustee or liquidator; or (ii) file a voluntary petition seeking relief under the Bankruptcy Code, or be unable, or admit in writing Borrower's inability, to pay their debts as they become due; or (iii) make a general assignment for the benefit of creditors; or (iv) file a petition or an answer seeking reorganization or an arrangement or a readjustment of debt with creditors, apply for, take advantage, permit or suffer to exist the commencement of any insolvency, bankruptcy, suspension of payments, reorganization, debt arrangement, liquidation, dissolution or similar event, under the law of the United States or of any state in which Borrower is a resident; or (v) file an answer admitting the material allegations of a petition filed against Borrower in any such bankruptcy, reorganization or insolvency case or proceeding or (vi) take any action authorizing, or in furtherance of, any of the foregoing; or (e) Either (i) an involuntary case is commenced against Borrower and the petition is not contested within ten (10) days or is not dismissed within sixty (60) days after the commencement of the case or (ii) an order, judgment or decree shall be entered by any court of competent jurisdiction on the application of a creditor adjudicating Borrower bankrupt or insolvent, or appointing a receiver, trustee or liquidator of Borrower or of all or substantially all of the assets of Borrower and the order, judgment or decree shall continue unstayed and in effect for a period of sixty (60) days or shall not be discharged within thirty (30) days after the expiration of any stay of such order, judgment, or decree; or (f) Any obligation of Borrower for the payment of borrowed money is not paid when due or within any applicable grace period, or such obligation becomes or is declared to be due and payable before the expressed maturity of the obligation, or there shall have occurred an event that, with the giving of notice or lapse of time, or both, would cause any such obligation to become, or allow any such obligation to be declared to be, due and payable; (g) One or more final judgments against Borrower or attachments against its property not fully and unconditionally covered by insurance shall be rendered by a court of record and shall remain unpaid, unstayed on appeal, undischarged, unbonded and undismissed for a period of twenty (20) days; (h) Borrower ceases any material portion of its business operations as currently conducted; (i) There shall occur a material adverse change in the financial condition or business prospects of Borrower, or Lender in good faith shall deem itself insecure as a result of acts or events bearing upon the financial condition of Borrower or the repayment of this Note, which default shall have continued unremedied for a period of ten (10) days after written notice from Lender; or (j) An Event of Default occurs under the Loan Agreement or other Revolving Loan Documents. 12. Lender's Rights. (a) Upon the occurrence of an Event of Default, Lender may, in addition to its rights and remedies set forth in Sections 5 and 6 above, proceed, to the extent permitted by law, to protect and enforce its rights either by suit in equity or by action at law, or both, whether for the specific performance of any covenant, condition or agreement contained in this Note or in aid of the exercise of any power granted in this Note, or proceed to enforce the payment of this Note or to enforce any other legal or equitable right of Lender. No right or remedy in this Note, the other Loan Documents or in other agreement or instrument to the benefit of Lender is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to every other right and remedy given under this Note or now or hereafter existing at law or in equity or by statute or otherwise. Without limiting the generality of the foregoing, if the outstanding Principal Sum, or any of the other obligations of Borrower to Lender shall not be paid when due, Lender shall not be required to resort to any particular security, right or remedy or to proceed in any particular order of priority, and Lender shall have the right at any time and from time to time, in any commercially reasonable manner and in any order, to enforce its security interests with respect to the Collateral, liens, rights and remedies, or any of them, as it deems appropriate in the circumstances, and apply the proceeds of any Collateral to such obligations of Borrower as it determines in its sole discretion. (b) If an Event of Default has occurred as provided above and Borrower has not paid the all amounts outstanding, including all principal, together with interest accrued on such amounts, upon demand by Lender, then Borrower shall pay to Lender interest on such outstanding amounts at a rate per annum equal to the Default Interest Rate from the date such outstanding amounts are due until the date this Note is paid in full. Borrower promises to pay all costs of collection, including reasonable attorneys' fees, if this Note is referred to an attorney for collection after the Event of Default. 13. No Defenses. Borrower's obligations under this Note shall not be subject to any set-off, counterclaim or defense to payment that Borrower now has or may have in the future. 14. No Waiver. No failure or delay on the part of Lender in exercising any right, power or privilege under this Note or the other Loan Documents, nor any course of dealing between Borrower and Lender, shall operate as a waiver of the right, power or privilege, nor shall a single or partial exercise of any right, power or privilege preclude any other or further exercise of, or the exercise of any other, right, power or privilege. 15. Writing Required. No modification or waiver of any provisions of this Note or any other Loan Documents, and no consent to any departure by Borrower, shall in any event be effective, without respect to any course of dealing between the parties, unless the modification or waiver shall be in a writing executed by Lender and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on Borrower in any case shall thereby entitle Borrower to any other or further notice or demand in the same, similar or other circumstances. 16. Usury Limitation. Notwithstanding anything contained to the contrary in this Note, Lender shall never be entitled to receive, collect or apply as interest any amount in excess of the maximum rate of interest permitted to be charged by applicable law. If Lender receives, collects or applies as interest any such excess, the amount that would be excessive interest shall be applied to the reduction of the Principal Sum; and if the Principal Sum is paid in full, any remaining excess shall be paid to Borrower. In determining whether or not the interest paid or payable in any specific case exceeds the highest lawful rate, Lender and Borrower shall to the maximum extent permitted under applicable law: (i) characterize any non-principal payment as an expense, fee or premium rather than as interest; and (ii) "spread" the total amount of interest throughout the entire term of the obligation so that the interest rate is deemed to have been uniform throughout the entire term. 17. Notices. Any notice or demand given under this Note shall be given by delivering it, sending by fax (with a confirming copy by regular mail), or by mailing it by certified or registered mail, postage prepaid, return receipt requested, or sent by prepaid overnight courier service addressed to Borrower at 200 Lake Street, Suite 102, Peabody, Massachusetts 01960 Attention: Paula Wurts, Chief Financial Officer, telephone (978) 536-2777, fax (978) 536-2677. Any notice to be given to Lender under this Note shall be given by personally delivering it, sending it by fax (with a confirming copy by regular mail), mailing it by certified mail, return receipt requested, or sending it by prepaid overnight courier service, addressed to Lender at: 2 Wisconsin Circle, Fourth Floor, Chevy Chase, Maryland 20815 Attention: Pascale Bissainthe, SVP & Chief Counsel, telephone (301) 961-1640, fax (301) 664-9866, or at such other place as Lender may specify in writing to Borrower. Each party may designate a change of address by notice to the other given in accordance with this Section 16 at least fifteen (15) days before such change of address is to become effective. A notice given under this Note shall be deemed received upon receipt if it is personally delivered or sent by telecopier or overnight courier service and five (5) days after it is deposited in the U.S. mail if it is sent by regular mail. 18. Section Headings. The headings of the several paragraphs of this Note are inserted solely for convenience of reference and are not a part of and are not intended to govern, limit or aid in the construction of any term or provision. 19. Severability. If any term, provision, covenant or condition of this Note or the application of such term, provision, 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, provision, 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, provision, covenant or condition shall be valid and enforced to the fullest extent permitted by law. Upon determination that any such term, provision, covenant or condition is invalid, illegal or unenforceable, Lender may, but is not obligated to, advance funds to Borrower under this Note until Borrower and Lender amend this Note so as to effect the original intent of the parties as closely as possible in a valid and enforceable manner. 20. Survival of Terms. All covenants, agreements, representations and warranties made in this Note or in any financial statements delivered pursuant to this Note shall survive Borrower's execution and delivery of this Note to Lender and shall continue in full force and effect so long as this Note or any other obligation under this Note shall be outstanding and unpaid or any other obligation of Borrower to Lender or its affiliates under this Note shall remain unperformed. 21. Indemnity. Borrower hereby agrees to indemnify and hold harmless Lender, its partners, officers, agents and employees (collectively, "Indemnitee") from and against any liability, loss, cost, expense, claim, damage, suit, action or proceeding ever suffered or incurred by Lender (including reasonable attorneys' fees and expenses) arising from Borrower's failure to observe, perform or discharge any of its covenants, obligations, agreements or duties under this Note or from the breach of any of the representations or warranties contained in this Note. In addition, Borrower shall defend Indemnitee against and save it harmless from all claims of any Person with respect to the Collateral. Notwithstanding any contrary provision in this Agreement, the obligations of Borrower under this Section 21 shall survive the payment in full of the all obligations under this Note and the termination of this Note. 22. Governing Law; Consent to Jurisdiction. 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 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 17 ABOVE. BORROWER FURTHER WAIVES ANY CLAIM FOR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY LENDER IN GOOD FAITH. 23. Waiver of Trial by Jury. EACH OF BORROWER AND LENDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUES 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 HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY EACH OF BORROWER AND LENDER, 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. EACH PARTY IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES TO THIS NOTE, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF THE FOREGOING WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, EACH OF BORROWER AND LENDER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. 24. Confession of Judgment. BORROWER IRREVOCABLY AUTHORIZES AND EMPOWERS ANY ATTORNEY OF RECORD, OR THE PROTHONOTARY, CLERK OR SIMILAR OFFICER OF ANY COURT IN ANY COUNTY OF THE STATE OF MARYLAND OR OF BALTIMORE CITY, MARYLAND, OR IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND, AS ATTORNEY FOR BORROWER, AS WELL AS FOR ANY PERSONS CLAIMING UNDER, BY OR THROUGH BORROWER, TO APPEAR FOR BORROWER IN ANY SUCH COURT IN ANY SUCH ACTION BROUGHT AGAINST BORROWER AT THE SUIT OF LENDER TO CONFESS JUDGMENT AGAINST BORROWER IN FAVOR OF LENDER IN THE FULL AMOUNT DUE ON THIS NOTE (INCLUDING PRINCIPAL, ACCRUED INTEREST AND ANY AND ALL CHARGES, FEES AND COSTS) PLUS ATTORNEYS FEES FOR FIFTEEN PERCENT (15%) OF THE AMOUNT DUE, PLUS COURT COSTS, ALL WITHOUT PRIOR NOTICE OR OPPORTUNITY OF BORROWER FOR PRIOR HEARING. BORROWER WAIVES THE BENEFIT OF ANY AND EVERY STATUTE, ORDINANCE, OR RULE OF COURT WHICH MAY BE LAWFULLY WAIVED CONFERRING UPON BORROWER ANY RIGHT OR PRIVILEGE OF EXEMPTION, HOMESTEAD RIGHTS, STAY OF EXECUTION, OR SUPPLEMENTARY PROCEEDINGS, OR OTHER RELIEF FROM THE ENFORCEMENT OR IMMEDIATE ENFORCEMENT OF A JUDGMENT OR RELATED PROCEEDINGS ON A JUDGMENT. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST BORROWER SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, OR BY ANY IMPERFECT EXERCISE THEREOF, AND SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT THERETO; SUCH AUTHORITY AND POWER MAY BE EXERCISED ON ONE OR MORE OCCASIONS FROM TIME TO TIME, IN THE SAME OR DIFFERENT JURISDICTIONS, AS OFTEN AS LENDER SHALL DEEM NECESSARY, CONVENIENT AND PROPER. 25. Reaffirmation of Guaranty. Each Guarantor, by its signature below as such, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby declares to and agrees with Lender that its guaranty of Borrower's obligations under one or more of the Original Term Loan Documents (the "Guaranty") is and shall continue in full force and effect for the benefit of Lender with respect to the obligations of Borrower under this Note on the terms and subject to the limitations set forth in the documents executed by each such Guarantor in respect of such Guaranty, that there are no offsets, claims, counterclaims, crossclaims or defenses of the Guarantor with respect to the Guaranty nor, to the Guarantor's knowledge, with respect to the obligations of Borrower under this Note, that the Guaranty is not released, diminished or impaired in any way by this Note or the transactions contemplated hereby, and that the Guaranty is hereby ratified and confirmed in all respects. Guaranty hereby acknowledges that without the foregoing consent and reaffirmation, Lender would not consent to the terms and provisions of this Note. [SIGNATURES ON FOLLOWING PAGE] IN WITNESS WHEREOF, intending to be legally bound, and intending that this Consolidating Amended and Restated Secured Term Note constitutes an instrument executed under seal, Borrower has caused this Consolidating Amended and Restated Secured Term Note to be executed under seal as of the date first written above. BORROWER: PHC OF MICHIGAN, INC., a Massachusetts corporation By: /s/ Bruce A. Shear (SEAL) Name: Bruce A. Shear Title: President GUARANTORS: PHC, INC., a Massachusetts corporation By: /s/ Bruce A. Shear (SEAL) Name: Bruce A. Shear Title: CEO /s/ Bruce A. Shear (SEAL) BRUCE A. SHEAR Limited to $150,000 per previous guarantee Exhibit A Principal Amortization Payment Date Amount of Principal Repayment December 31, 2001 $45,000 January 31, 2002 $45,000 February 28, 2002 $45,000 March 31, 2002 $45,000 April 30, 2002 $45,000 May 31, 2002 $45,000 June 30, 2002 $45,000 July 31, 2002 $45,000 August 31, 2002 $45,000 September 30, 2002 $45,000 October 31, 2002 $45,000 November 30, 2002 $45,000 December 31, 2002 $50,000 January 31, 2003 $50,000 February 28, 2003 $50,000 March 31, 2003 $50,000 April 30, 2003 $50,000 May 31, 2003 $50,000 June 30, 2003 $50,000 July 31, 2003 $50,000 August 31, 2003 $50,000 September 30, 2003 $50,000 October 31, 2003 $50,000 November 30, 2003 $50,000 December 31, 2003 $55,000 January 31, 2004 $55,000 February 28, 2004 $55,000 March 31, 2004 $55,000 April 30, 2004 $55,000 May 31, 2004 $55,000 June 30, 2004 $55,000 July 31, 2004 $55,000 August 31, 2004 $55,000 September 30, 2004 $55,000 October 31, 2004 55,000 November 30, 2004 All then outstanding Principal Sum, and accrued and unpaid interest, fees and charges EX-10 5 ex10_52.txt AMENDED & RESTATED REVOLVING CREDIT NOTE12/06/01 Exhibit 10.52 AMENDED AND RESTATED REVOLVING CREDIT NOTE $3,000,000.00 DECEMBER 6,200L FOR VALUE RECEIVED, the undersigned, PHC OF MICHIGAN, INC., a Massachusetts corporation, PHC OF UTAH, INC., a Massachusetts corporation, and PHC OF VIRGINIA, INC., a Massachusetts corporation (collectively, "Borrower")jointly and severally, promise to pay, in lawful money of the United States, to the order of HELLER HEALTHCARE FINANCE, INC., F/K/A HCFP FUNDING, INC., a Delaware corporation (together with its successors and assigns, "Lender"), the principal sum of Three Million and No/100 Dollars ($3,000,000.00), or so much of such principal sum as shall be advanced or readvanced and shall remain unpaid under the Loan established pursuant to that certain Loan and Security Agreement , as amended, dated as of even date with this Note, by and among the undersigned and Lender (as amended, modified, restated or replaced from time to time, 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. This Amended and Restated Revolving Credit Note amends, restates and replaces in its entirety the Revolving Credit Note dated February 18, 1998 previously executed and delivered by Borrower, PHC of Rhode Island and Pioneer Counseling of Virginia, Inc. and made payable to Lender. 1. All capitalized terms used and not otherwise specifically defined in this amended and Restated Revolving Credit Note (as amended, modified, restated or replaced from time to time, the "Note")shall have the meanings given to them in the Loan Agreement. 2. This Note shall evidence the undersigned's obligation to repay all sums advanced by Lender from time to time under the Loan Agreement 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. 3. Interest due pursuant to this Note shall be payable monthly, in arrears, on the first Business Day of each month after the date of this Note (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. 4. This Note shall become due and payable upon the earlier to occur of (i)the expiration of the Term, or (ii) the occurrence of 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. 5. 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 he payable at a rate per annum equal to five (5)percentage points above the stated rate of interest on this Note until such amounts shall be paid. 6. 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 by the Loan Agreement or this Note 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 this Note exceeds the Highest Lawful Rate, the rate of interest to accrue pursuant to this Note shall be limited, notwithstanding anything to the contrary in this Note, 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 (x)the lesser of (A)the amount of interest that would have accrued if the Highest Lawful Rate had at all times been in effect, or (B)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 (y)the amount of interest accrued in accordance with the other provisions of this Note and the Loan Agreement. 7. This Note is the "Note" referred to in the Loan Agreement, and is issued pursuant to the Loan Agreement. 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 of this Note 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 into this Note by this reference to the same extent and with the same force and effect as if they were fully set forth in this Note; 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. 8. Each party liable on this Note in any capacity, whether as maker, endorser, surety, guarantor or otherwise, (a)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; (b)agrees that Lender 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; (c)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; (d)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 under this Note or providing for its release or discharge from liability on this Note, in whole or in part, on account of any facts or circumstances other than full and complete payment of all amounts due under this Note; and (e)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. 9. No waiver by Lender of any one or more defaults by the undersigned in the performance of any of its obligations under this Note 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 of such right, power or remedy nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise of such right, power or remedy or the exercise of any other right, power or remedy. 10. If any term, provision, covenant or condition of this Note or the application of any term, provision, covenant or condition of this Note to any party or circumstance shall be found by a court of competent jurisdiction to be, to any extent, invalid or unenforceable. then the remainder of this Note and the application of such term, provision, 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, provision, covenant or condition shall be valid and enforced to the fullest extent permitted by law. Upon determination that any such term, provision, covenant or condition is invalid, illegal or unenforceable, Lender may, but is not obligated to, advance funds to Borrower under this Note until Borrower and Lender amend this Note so as to effect the original intent of the parties as closely as possible in a valid and enforceable manner. 11. No amendment, supplement or modification of this Note nor any waiver of any provision of this Note shall be made except in writing executed by the party against whom enforcement is sought. 12. This Note shall he 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 under this Note without the prior written consent of Lender, which may be withheld in its sole discretion. 13. Bach entity constituting Borrower shall be jointly and severally liable for all of the obligations of Borrower under this Note. 14. 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. 15. In any litigation, trial, arbitration or other dispute resolution proceeding relating to this Note or any of the other Loan Documents, all directors, officers, employees and agents of Borrower or of its Affiliates shall be deemed to be employees or managing agents of Borrower for purposes of all applicable law or court rules regarding the production of witnesses by notice for testimony (whether in a deposition, at trial or otherwise). Borrower agrees that Lender's counsel in any such dispute resolution proceeding may examine any of these individuals as if under cross-examination and that any discovery deposition of any of them may be used in that proceeding as if it were an evidence deposition. Borrower in any event will use all commercially reasonable efforts to produce in any such dispute resolution proceeding, at the time and in the manner requested by Lender, all Persons, documents (whether in tangible, electronic or other form) or other things under its control and relating to the dispute in any jurisdiction that recognizes that (or any similar)distinction. 16. 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. 17. THE UNDERSIGNED HEREBY AUTHORIZES ANY ATTORNEY ADMITTED TO PRACTICE BEFORE ANY COURT OF RECORD IN THE UNITED STATES OR THE CLERK OF SUCH COURT TO APPEAR ON BEHALF OF THE UNDERSIGNED IN ANY COURT IN ONE OR MORE PROCEEDINGS, OR BEFORE ANY CLERK THEREOF OF PROTHONOTARY OR OTHER COURT OFFICIAL, AND TO CONFESS JUDGMENT AGAINST THE UNDERSIGNED IN FAVOR OF LENDER IN THE FULL AMOUNT DUE ON THIS NOTE (INCLUDING PRINCIPAL, ACCRUED INTEREST AND ANY AND ALL CHARGES, FEES AND COSTS)PLUS ATTORNEYS FEES EQUAL TO FIFTEEN PERCENT (15%)OF THE AMOUNT DUE, PLUS COURT COSTS, ALL WITHOUT PRIOR NOTICE OR OPPORTUNITY OF BORROWER FOR PRIOR HEARING. THE UNDERSIGNED AGREES AND CONSENTS THAT VENUE AND JURISDICTION SHALL BE PROPER IN THE CIRCUIT COURT OF ANY COUNTY OF THE STATE OF MARYLAND OR OF BALTIMORE CITY, MARYLAND, OR IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND. THE UNDERSIGNED WAIVES THE BENEFIT OF ANY AND EVERY STATUTE, ORDINANCE, OR RULE OF COURT WHICH MAY BE LAWFULLY WAIVED CONFERRING UPON BORROWER ANY RIGHT OR PRIVILEGE OF EXEMPTION, HOMESTEAD RIGHTS, STAY OF EXECUTION, OR SUPPLEMENTARY PROCEEDINGS, OR OTHER RELIEF FROM THE ENFORCEMENT OR IMMEDIATE ENFORCEMENT OF A JUDGMENT OR RELATED PROCEEDINGS ON A JUDGMENT. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST THE UNDERSIGNED SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, OR BY ANY IMPERFECT EXERCISE THEREOF, AND SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT THERETO; SUCH AUTHORITY AND POWER MAY BE EXERCISED ON ONE OR MORE OCCASIONS FROM TIME TO TIME, IN THE SAME OR DIFFERENT JURISDICTIONS, AS OFTEN AS LENDER SHALL DEEM NECESSARY, CONVENIENT, OR PROPER [SIGNATURES FOLLOW) IN WITNESS WHEREOF, intending to be legally bound, and intending that this Amended and Restated Revolving Credit Note constitutes an instrument executed under seal, the Borrower has caused this Amended and Restated Revolving Credit Note to be executed under seal as of the date first written above. BORROWER: PHC OF MICHIGAN, INC., a Massachusetts corporation By: /s/ Bruce A. Shear (SEAL) Name: Bruce A. Shear Title: CEO PHC OF UTAH, INC., a Massachusetts corporation By: /s/ Bruce A. Shear (SEAL) Name: Bruce A. Shear Title: CEO PHC OF VIRGINIA, INC., a Massachusetts corporation By: /s/ Bruce A. Shear (SEAL) Name:Bruce A. Shear Title: CEO EX-10 6 ex10_53.txt CONSOLIDATED MORTGAGE Exhibit 10.53 AMENDED AND RESTATED CONSOLIDATED MORTGAGE $5,688,598.00 MORTGAGOR: PHC OF MICHIGAN, INC. MORTGAGEE: HELLER HEALTHCARE FINANCE, INC. December 6, 2001 Prepared by and after recording, return to: Katherine R. Lofft, Esq. Heller Healthcare Finance, Inc. 2 Wisconsin Circle, 4th Floor Chevy Chase, Maryland 20815 AMENDED AND RESTATED CONSOLIDATED MORTGAGE THIS INSTRUMENT (the "Amended Consolidated Mortgage") WITNESSES: That PHC OF MICHIGAN, INC., a Massachusetts corporation having its principal place of business at 200 Lake Street, Suite 102, Peabody, Massachusetts 01960, as "Mortgagor", and HELLER HEALTHCARE FINANCE, INC., a Delaware corporation having its principal office at 2 Wisconsin Circle, 4th Floor, Chevy Chase, Maryland 20815, as "Mortgagee". RECITALS WHEREAS, that certain Consolidated Restated Mortgage was previously made by Mortgagor in favor of Mortgagee dated March ___, 2001, and recorded in the official records of the Macomb County, Michigan registrar of deeds (the "Macomb County Records" at Liber ____ Page __ on ___________ __, 2001 (as it may be amended from time to time, the "Original Consolidated Mortgage"), and which Original Consolidated Mortgage secured the obligations of Mortgagor under those certain notes identified in the Recitals to the Consolidated Restated Mortgage and more specifically identified as follows: (a) that certain Secured Term Note in the original principal amount of One Million One Hundred Thousand and No/100 Dollars ($1,100,000.00) made by Mortgagor in favor of Mortgagee's predecessor-in-interest and dated March 12, 1997 (as amended, modified or supplemented from time to time, the "March 1997 Term Note"); (b) that certain Revolving Credit Note in the original principal amount of Four Million and No/100 Dollars ($4,000,000.00) made by Mortgagor, PHC of Utah, Inc. ("PHCU"), PHC of Virginia, Inc. ("PHCVA"), PHC of Rhode Island, Inc. ("PHCRI") and Pioneer Counseling of Virginia, Inc. in favor of Mortgagee's predecessor-in-interest and dated February 20, 1998 (as amended, modified or supplemented from time to time, the "February 1998 Revolving Credit Note"), which February 1998 Revolving Credit Note was subsequently amended to reduce the principal amount of such note to Three Million and No/100 Dollars ($3,000,000.00); (c) that certain Secured Term Note in the original principal amount of Five Hundred Thousand and No/100 Dollars ($500,000.00) made by Mortgagor in favor of Mortgagee's predecessor-in-interest and dated December 9, 1997 (as amended, modified or supplemented from time to time, the "December 1997 Term Note"); (d) that certain Secured Term Note in the original principal amount of One Million and No/100 Dollars ($1,000,000.00) made by Mortgagor in favor of Mortgagee and dated November 23, 1999 (as amended, modified or supplemented from time to time, the "November 1999 Term Note"); and (e) that certain Secured Term Note in the original principal amount of Five Hundred Thousand and No/1000 Dollars ($500,000.00) made by Mortgagor in favor of Mortgagee and dated May 26, 2000 (as amended, modified or supplemented from time to time, the "May 2000 Term Note"); WHEREAS, the Mortgagor, PHCU and PHCVA have entered into a Consolidating Amended and Restated Secured Term Note dated of even date with this Amended Consolidated Mortgage pursuant to which, among other things, the following obligations have been consolidated and combined: (a) the obligations of Mortgagor under (i) the March 1997 Term Note, (ii) the December 1997 Term Note, (iii) the November 1999 Term Note and (iv) the May 2000 Term Note, (b) the obligations of Mortgagor, PHCU and PHCVA under that certain Letter Agreement dated as of August 9, 2001 (the "Letter Agreement") in respect of the Overline Loan (as defined in the Letter Agreement) made by Lender to Borrower pursuant to the Letter Agreement, and (c) the obligations of PHCVA allocated to it under the February 1998 Revolving Credit Note; and WHEREAS, the Mortgagee and the Mortgagor desire to amend the Original Consolidated Mortgage to (a) reference the new Consolidating Amended and Restated Term Note and (b) increase the amount secured by the Original Consolidated Mortgage to reflect an increase in the obligations of Borrower secured thereby. NOW, THEREFORE, for value received, Mortgagor mortgages and warrants to Mortgagee the property situated in the City of New Baltimore, County of Macomb, and State of Michigan, with a street address of 35031 23 Mile Road, New Baltimore, Michigan 48047, and legally described as shown on the attached Exhibit A; together with the easements, rights-of-way, licenses, privileges, hereditaments, and appurtenances belonging to the property, and all the rents, issues, leases, and profits, the interest of Mortgagor in the property, either at law or in equity, all buildings, structures, and improvements, and all fixtures located in, on, or affixed to the property, and used or usable in connection with the operation of the property (all of the above-stated property are collectively referred to in this Amended Consolidated Mortgage as the "premises"). This Amended Consolidated Mortgage is given to secure the following: a. payment of the indebtedness evidenced by the Consolidating Amended and Restated Term Note; b. payment of the indebtedness of Mortgagor and PHCU only evidenced by the February 1998 Revolving Credit Note; c. payment by Mortgagor to Mortgagee of all sums expended or advanced by Mortgagee pursuant to any term or provision of this Amended Consolidated Mortgage; d. performance of the covenants, conditions, and agreements contained in this Amended Consolidated Mortgage and in any other documents securing the indebtedness evidenced by the notes described in (a) and (b) above (as amended, modified or restated from time to time, together, the "Notes"); and e. all other indebtedness and obligations of Mortgagor currently or subsequently owing to Mortgagee, including but not limited to all future advances under this Amended Consolidated Mortgage or on the Notes, any loan agreements, security agreements, pledge agreements, assignments, mortgages, leases, guarantees, and any other agreements, instruments, or documents previously or subsequently signed by Mortgagor, whether the indebtedness or obligations are direct or indirect, absolute or contingent, primary or secondary, or related or unrelated to the premises or the transaction of which this Mortgage is a part, and any and all partial or full extensions or renewals of this indebtedness or other indebtedness and obligations (all of the foregoing obligations as the same may be amended, modified or restated from time to time are collectively referred to as the "indebtedness"). Mortgagor hereby warrants, covenants, and agrees that: 1. Title. Mortgagor is seized of the premises, in fee simple. Mortgagor had the right and power to mortgage and warrant the premises as set forth in this Mortgage. The premises are free from all liens and encumbrances except easements and restrictions of record disclosed in Lawyers Title Insurance Policy, Schedule B, Policy No. 135-01-844628, dated May 6, 1997, relating to the premises. Mortgagor will defend the premises against all claims and demands. 2. Payment of Indebtedness. Mortgagor will pay all indebtedness when due, including the principal and interest, as provided in the Term Notes. 3. Taxes and Assessments. Until the indebtedness is fully satisfied, Mortgagor will pay all taxes, assessments, and other similar charges and encumbrances levied on the premises before they become delinquent, and will promptly deliver to Mortgagee, without demand, receipts showing the payment. 4. INTENTIONALLY DELETED. 5. Change of Law. If, after the date of this Mortgage, any statute or ordinance is passed that changes in any way the laws now in force for the taxation of mortgages or mortgaged debts or the manner in which those taxes are collected, so as to affect this Mortgage or the interest of Mortgagee, the whole of the principal sum secured by this Mortgage, with all interest and charges, if any, at the option of Mortgagee, shall become due and payable. 6. Insurance. Mortgagor will procure, deliver to, and maintain for the benefit of Mortgagee during the term of this Amended Consolidated Mortgage: a. a policy of hazard insurance, providing an all-risk extended coverage endorsement, in an amount equal to the highest replacement value of the premises; b. a policy of comprehensive public liability insurance insuring against bodily injury, with a coverage limit of at least $1,000,000 per occurrence (and $3,000,000 in the aggregate), and against property damage, with a coverage limit of at least $3,000,000, from any accident or occurrence with respect to the premises. All policies of insurance required by this paragraph shall be in a form, with companies, and in amounts acceptable to Mortgagee, and shall contain a mortgagee endorsement clause acceptable to Mortgagee, with loss payable to Mortgagee. Mortgagor will pay when due the premiums on any policy of insurance required by Mortgagee, and will deliver to Mortgagee renewals of all policies at least ten (10) days before their expiration date(s). Duplicates of all policies shall be delivered to Mortgagee. In the event of any loss or damage to the premises, Mortgagor will give immediate written notice to Mortgagee, and Mortgagee may then make proof of the loss or damage, if it is not promptly made by Mortgagor. All proceeds of insurance shall be payable to Mortgagee, and any affected insurance company is authorized and directed to make payment directly to Mortgagee. Mortgagee is authorized to settle, adjust, or compromise any claims for loss, damage, or destruction under any policy of insurance. 7. Maintenance and Repair. Mortgagor will not cause or permit the commission of waste on the premises and will keep the premises in good condition and repair. No building or other improvement on the premises shall be removed, demolished, or materially altered without the prior written consent of Mortgagee. Mortgagor will comply with all laws, ordinances, regulations, and orders of all public authorities having jurisdiction over the premises. If the premises, in the sole judgment of Mortgagee, require inspection or repair, Mortgagee may enter upon the premises and inspect and/or repair the premises as Mortgagee may deem advisable, and may take other action as Mortgagee may deem appropriate to preserve the premises. Mortgagor will pay when due all charges for utilities or services contracted for by Mortgagor. 8. Environmental Matters. No use, exposure, release, generation, manufacture, storage, treatment, transportation or disposal of Hazardous Material (as defined) has occurred or is occurring on or from the property. All Hazardous Material used, treated, stored, transported to or from, generated or handled on the property has been disposed of on or off the property by or on behalf of Borrower in a lawful manner. There are no underground storage tanks present on or under the property. No other environmental, public health or safety hazards exist with respect to the property. "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 federal, state or local governmental authority. 9. Waste. The failure of Mortgagor to meet its maintenance obligations or to pay any taxes assessed against the premises or any insurance premium on policies covering any property located on the premises shall constitute waste as provided by MCLA 600.2927, MSA 27A.2927, and shall entitle Mortgagee to appoint a receiver of the property for the purpose of preventing the waste. The receiver may collect the rents and income from the premises. 10. Condemnation. If the premises, or any part, are taken under the power of eminent domain, the entire award, to the full extent of the indebtedness, shall be paid to Mortgagee. Mortgagee is empowered in the name of Mortgagor to receive and give acquittance for any award, whether it is joint or several. However, Mortgagee shall not be held responsible for failing to collect any award. 11. Mortgagee Expenses. If Mortgagor fails to meet any of its obligations under this Amended Consolidated Mortgage, Mortgagee shall have the right, but not the obligation, to perform in the place of Mortgagor. If Mortgagee incurs or expends any sums, including reasonable attorney fees, whether or not in connection with any action or proceeding, to (a) sustain the lien of this Amended Consolidated Mortgage or its priority, (b) protect or enforce any of Mortgagee's rights, (c) recover any part of the indebtedness, (d) meet an obligation of Mortgagor under this mortgage, or (e) collect insurance or condemnation proceeds, then those sums shall become immediately due and payable by Mortgagor with interest at the highest of the default rates set forth in the Notes from the date of Mortgagee's payment until paid by Mortgagor. The sums expended in this manner by Mortgagee shall be secured by this Amended Consolidated Mortgage and be a lien on the premises prior to any right, title, or interest on the premises attaching or accruing subsequent to the lien of this Amended Consolidated Mortgage. 12. Assignment of Contracts and Licenses. Mortgagor assigns to Mortgagee, as further security for payment of the indebtedness, Mortgagor's interest in all agreements, contracts (including any contracts for the lease or sale of the premises), licenses, and permits affecting the premises. The assignment shall not be construed as a consent by Mortgagee to any agreement, contract, license or permit so assigned, or to impose any obligations on Mortgagee. Mortgagor shall not cancel, amend, permit, or cause a default or termination of any of the agreements, contracts, licenses, and permits used in conjunction with the operation of the premises without the written approval of Mortgagee. 13. Assignment of Rents and Leases. As additional security for the payment of the indebtedness, Mortgagor assigns and transfers to Mortgagee, pursuant to 1953 PA 210, as amended by 1966 PA 151 (MCLA 554.231 et seq., MSA 26.1137(1) et seq.), all the rents, profits, and income under all leases, occupancy agreements, or arrangements upon or affecting the premises (including any extensions or amendments) now in existence or coming into existence during the period this Amended Consolidated Mortgage is in effect. This assignment shall run with the land and be good and valid as against Mortgagor and those claiming under or through Mortgagor. This assignment shall continue to be operative during foreclosure or any other proceedings to enforce this Amended Consolidated Mortgage. If a foreclosure sale results in a deficiency, this assignment shall stand as security during the redemption period for the payment of the deficiency. This assignment is given only as collateral security and shall not be construed as obligating Mortgagee to perform any of the covenants or undertakings required to be performed by Mortgagor in any leases. In the event of default in any of the terms or covenants of this Amended Consolidated Mortgage, Mortgagee shall be entitled to all of the rights and benefits of MCLA 554.231B.233, MSA 26.1137(1)B(3) and 1966 PA 151, and Mortgagee shall be entitled to collect the rents and income from the premises, to rent or lease the premises on the terms that it may deem best, and to maintain proceedings to recover rents or possession of the premises from any tenant or trespasser. Mortgagee shall be entitled to enter the premises for the purpose of delivering notices or other communications to the tenants and occupants. Mortgagee shall have no liability to Mortgagor as a result of those acts. Mortgagee may deliver all of the notices and communications by ordinary first-class U.S. mail. If Mortgagor obstructs Mortgagee in its efforts to collect the rents and income from the premises or unreasonably refuses or neglects to assist Mortgagee in collecting the rent and income, Mortgagee shall be entitled to appoint a receiver for the premises and the income, rents, and profits, with powers that the court making the appointment may confer. Mortgagor shall at no time collect advance rent in excess of one month under any lease pertaining to the premises, and Mortgagee shall not be bound by any rent prepayment made or received in violation of this paragraph. Mortgagee shall not have any obligation to collect rent or to enforce any other obligations of any tenant or occupant of the premises to Mortgagor. No action taken by Mortgagee under this paragraph shall cause Mortgagee to become a "mortgagee in possession." 14. Performance of Leases. Mortgagor shall observe and perform all obligations contained in any lease affecting the premises. Mortgagor shall not default in performing any of the obligations imposed on Mortgagor by any lease if such a default gives the lessee the right to terminate or cancel the lease or offset against rentals. Upon request, Mortgagor shall furnish to Mortgagee a statement, in any reasonable detail that Mortgagee may request, of all leases relating to the premises and executed counterparts of any and all leases. 15. Records. With respect to the premises and its operations, Mortgagor shall keep proper books in accordance with generally accepted accounting principles consistently applied. Mortgagee shall have the right to examine the books at reasonable times as Mortgagee may elect. Upon request, Mortgagor shall furnish to Mortgagee within sixty (60) days after the end of each calendar year, a financial statement of Mortgagor for the calendar year, in reasonable detail and stating in comparative form the figures as of the end of the previous calendar year, including statements of income and expense relating to operations of the premises, certified by an independent certified public accountant acceptable to Mortgagee. In addition, Mortgagor shall furnish to Mortgagee, in a form acceptable to Mortgagee, interim financial statements that Mortgagee may request, certified by Mortgagor. 16. Waiver. If Mortgagee (a) grants any extension of time with respect to the payment of any part of the indebtedness, (b) takes other or additional security for the payment of the indebtedness, (c) waives or fails to exercise any right granted by this Amended Consolidated Mortgage or the Notes, (d) grants any release on any part of the security held for the payment of the indebtedness, or (e) amends any of the terms or provisions of this Amended Consolidated Mortgage or the Notes, such act, taking, waiver, omission, or amendment, as the case may be, shall not release Mortgagor under any covenant of this Amended Consolidated Mortgage or the Notes, nor preclude Mortgagee from exercising any right or power granted, nor impair the lien or priority of this Amended Consolidated Mortgage. 17. Use of Premises. Mortgagor shall not make, or permit, without the prior written consent of Mortgagee, (a) any use of the premises for any purpose other than that for which they are now used; (b) any alterations of the buildings, improvements, and fixtures located on the premises; (c) any purchase, lease of, or agreement for any fixtures to be placed on the premises under which title is reserved in the vendor. Mortgagor shall execute and deliver documents that may be requested by Mortgagee to confirm the lien of this Amended Consolidated Mortgage on any fixtures, machinery, and equipment. 18. Events of Default. The occurrences listed below shall be deemed events of default and shall entitle Mortgagee, at its option and without notice except as required by law, to exercise any one or any combination of remedies under this Amended Consolidated Mortgage or permitted by law: a. the failure by Mortgagor to (i) make any payment when due under the Notes, or (ii) to perform any of the other terms, covenants, or conditions of this Amended Consolidated Mortgage within a period of ten (10) days after written notice from Mortgagee of Mortgagor's failure; b. the institution of foreclosure or other proceedings to enforce any junior lien or encumbrance on the premises; c. the appointment by a court of a receiver or trustee of Mortgagor or for any property of Mortgagor; d. a decree by a court adjudicating Mortgagor a bankrupt or insolvent, or for the sequestration of any of Mortgagor's property; e. the filing of a petition in bankruptcy by or against Mortgagor under the federal Bankruptcy Code or any similar statute that is in effect; f. an assignment by Mortgagor for the benefit of creditors or a written admission by Mortgagor of the inability to pay debts generally as they become due; g. the failure to comply with all of the terms and covenants of any leases or other agreements, documents, or restrictions that now encumber, affect, or pertain to the premises; h. Mortgagor, without the written consent of Mortgagee, sells, conveys, or transfers the premises, any interest in the premises, or any rents or profits from the premises, or causes or allows any mortgage, lien, or other encumbrance, or any writ of attachment, garnishment, execution, or other legal process to be placed on the premises, or any part of the premises is transferred by operation of law; i. all or any part of the premises is damaged or destroyed by fire or other casualty, regardless of whether such damages or destruction is covered, in whole or in part, by a policy or policies of insurance, or all or any part of the premises is taken by power of eminent domain. 19. Default Remedies. Upon the occurrence of any event of default of this Amended Consolidated Mortgage, Mortgagee shall have the option, in addition to and not in lieu of all other rights and remedies provided by law, to do any or all of the following: a. Without notice, except as expressly required by law, to declare the principal sum secured by the Amended Consolidated Mortgage, together with all interest and all other sums secured by this mortgage, to be immediately due and payable; to demand any installment payment due or to accelerate the Notes; and to institute any proceedings that Mortgagee deems necessary to collect and otherwise to enforce the indebtedness and obligations secured by this Mortgage and to protect the lien of this Amended Consolidated Mortgage. b. Commence foreclosure proceedings against the premises pursuant to applicable laws. Mortgagee's commencement of a foreclosure shall be deemed an exercise by Mortgagee of its option to accelerate the due date of all sums secured by this Amended Consolidated Mortgage. Mortgagor grants to Mortgagee, in the event of the occurrence of an event of default, the power to sell the premises at public auction by advertisement, without notice or hearing, except as required by Michigan statutes. c. To enter into peaceful possession of the premises and/or to receive the rent, income, and profits, and to apply those in accordance with paragraph 13. Mortgagor acknowledges having been advised that Mortgagee believes that the value of the security covered by this Amended Consolidated Mortgage is inextricably intertwined with the effectiveness of the management, maintenance, and general operation of the premises, and that Mortgagee would not make the loan secured by this Amended Consolidated Mortgage unless it could be assured that it would have the right to take possession of the premises in order to manage, control management, and enjoy the income, rents, and profits, immediately upon default by Mortgagor, notwithstanding that foreclosure proceedings may not have been instituted, or are pending, or that the redemption period may not have expired. Accordingly, Mortgagor knowingly and voluntarily waives all right to possession of the premises from and after the date of default, upon demand for possession by Mortgagee. 20. Sale of Premises as a Whole or in Parcels. Upon any foreclosure sale of the premises, the premises may be sold either as a whole or in parcels, as Mortgagee may elect, and if in parcels, to be divided as Mortgagee may elect, or, at the election of Mortgagee, the premises may be offered first in parcels and then as a whole, with the offer producing the highest price for the entire property to prevail. 21. Assignment. Mortgagor shall not make a conveyance of any interest in the premises. A "conveyance" of Mortgagor's interest in the premises shall include without limitation any voluntary or involuntary disposition or dilution of legal or beneficial title to the premises by any means. If ownership of the premises, or any part, becomes vested in a person other than Mortgagor (with or without Mortgagee's consent), Mortgagee may, without notice to Mortgagor, deal with the successors in interest with reference to this Amended Consolidated Mortgage or the Notes without in any way releasing or otherwise affecting Mortgagor's liability under the Notes and this Amended Consolidated Mortgage. 22. Application of Proceeds. In the event of the payment to Mortgagee, pursuant to this Amended Consolidated Mortgage, of any rents or profits, or proceeds of any insurance or condemnation award, or proceeds from the sale of the premises upon foreclosure, Mortgagee shall have the right to apply the rents, profits, or proceeds, in amounts and proportions that Mortgagee shall, in its sole discretion, determine, against the cost and expenses incurred by Mortgagee in exercising its rights under this mortgage, payment of the interest and principal due under the Notes, payment of any other portion of the indebtedness, and payment of expenses incurred in preserving the premises. Application by Mortgagee of any proceeds toward the last maturing installments of principal and interest to become due or then due under the Notes shall not excuse Mortgagor from making the regularly scheduled payments due under the Notes and this Amended Consolidated Mortgage, nor shall the application reduce the amount of the payments. In the event of the payment of proceeds as a result of an insurance or condemnation award, Mortgagee shall have the right, but not the obligation, to require all or part of the proceeds of any insurance or condemnation award to be used to restore any part of the premises damaged or taken by reason of the occurrence which gave rise to the payment of the proceeds. CAUTION: PARAGRAPH 23 CONTAINS A WAIVER OF IMPORTANT LEGAL RIGHTS 23. Waiver of Rights. This Amended Consolidated Mortgage contains a power of sale which permits Mortgagee to cause the premises to be sold in the event of a default. Mortgagee may elect to cause the premises to be sold by advertisement rather than pursuant to court action, and Mortgagor voluntarily and knowingly waives any right Mortgagor may have by virtue of any applicable constitutional provision or statute to any notice or court hearing prior to the exercise of the power of sale, except as may be expressly required by the Michigan statute governing foreclosures by advertisement. In addition, Mortgagor knowingly and voluntarily waives any right Mortgagor may have to remain in possession of the premises or to collect any rents or income therefrom during the pendency of any foreclosure proceedings and during any applicable redemption period. Also, paragraphs 18 and 21 above entitle Mortgagee to require immediate payment of the balance of the indebtedness in full if the premises are sold or otherwise transferred. By execution of this mortgage, Mortgagor represents and acknowledges that the meaning and consequences of these paragraphs have been discussed as fully as desired by Mortgagor with Mortgagor's legal counsel. 24. Environmental Matters. Mortgagor agrees to indemnify Mortgagee against, and hold it harmless from, all obligations and liabilities relating to the premises arising out of claims made or suits brought for investigation, study, remedial work, monitoring, or other costs and expenses arising from or associated with response to any environmental matters, including but not limited to any (a) water pollution, air pollution, noise, odor, spills, leaks, or inadvertent discharges, emissions, or releases, or the generation, transportation, storage, treatment, or disposal of solid waste, including hazardous waste, hazardous substances, pollutants and contaminants; (b) injury, sickness, disease, or death of any person; or (c) damage to any property, regardless of whether the cause of the injury or damage occurred before or after the date of this Amended Consolidated Mortgage. Mortgagor further agrees that Mortgagee shall have no liability for any environmental contamination associated with Mortgagor's business or the premises, and that any involvement of Mortgagee with Mortgagor's business to protect its security interest in the premises shall not constitute Mortgagor as an "owner or operator" of Mortgagor's business for purposes of determining environmental liability. In any event, if Mortgagee becomes obligated, by judicial or administrative judgment or settlement of a claim, to pay any amounts for response to any environmental contamination associated or connected with Mortgagor's business or the premises, any payment by Mortgagee shall be deemed additional indebtedness secured by the lien of this mortgage, shall be immediately due and payable to Mortgagee, and shall bear interest until paid at the highest of the default interest rates specified in the Notes. 25. Covenants Run with Land. All of the terms and covenants of this Amended Consolidated Mortgage shall run with the land and shall be binding on and inure to the benefit of the respective legal representatives and successors of the parties. 26. Release of Amended Consolidated Mortgage. If Mortgagor pays to Mortgagee the money required by the Notes, in the manner and at the times provided in the Notes, and all other sums of the indebtedness payable by Mortgagor to Mortgagee, and keeps and performs the terms, covenants, and agreements of Mortgagor with Mortgagee, then this Amended Consolidated Mortgage shall be satisfied, and Mortgagee shall release this Amended Consolidated Mortgage. 27. Notice. All notices, demands, and requests required or permitted to be given to Mortgagor or by law shall be deemed delivered when deposited in the United States mail, with postage prepaid, addressed to Mortgagor or Mortgagee at their last known addresses. 28. Severability. If any provision of this Amended Consolidated Mortgage is in conflict with any statute or rule of law of the State of Michigan or is otherwise unenforceable for any reason, then that provision shall be deemed null and void to the extent of the conflict or unenforceability, but shall be deemed separable from and shall not invalidate any other provision of this Amended Consolidated Mortgage. 29. Venue and Jurisdiction. All provisions of this Amended Consolidated Mortgage shall be governed by and construed in accordance with the laws of the State of Michigan. Venue shall be in Macomb County, Michigan for any action brought with regard to this Mortgage. Mortgagor consents to personal jurisdiction over it by any Michigan courts to the extent that personal jurisdiction may be necessary to enforce any of the provisions of this Amended Consolidated Mortgage. [SIGNATURES FOLLOW] Signed on the date set forth above. MORTGAGOR: WITNESSES: PHC OF MICHIGAN, INC., a Massachusetts corporation /s/ Janet Esterkes By: /s/ Bruce A. Shear Name: Bruce A. Shear President /s/ Erica H. Cashell Name: ACKNOWLEDGMENT STATE OF MASSACHUSETTS ) COUNTY OF ESSEX ) The foregoing instrument was acknowledged before me on December 10, 2001, by Bruce A. Shear, the President of PHC of Michigan, Inc., a Massachusetts corporation, on behalf of the corporation. /s/ Paul C. Wurts Notary Public, Essex County My commission expires November 29, 2002. Exhibit "A" Legal Description Lots 32 and 33 of ASSESSOR'S CRICKLEWOOD PLAT, excepting therefrom that portion which lies Southerly of a line which is 50 feet Northerly of (as measured at right angles) and parallel to the Southerly line of fractional Section 13, Town 3 North, Range 14 East, City of New Baltimore, Macomb County, Michigan. Plat recorded in Liber 35 of Plats, Page 12, Macomb County Records. ALSO EXCEPTING a portion of Lot 32 of "Assessor's Cricklewood Plat", described as follows: Commencing at the original Southeast corner of said Lot 32 of said "Assessor's Cricklewood Plat"; thence North 01 degrees 41 minutes West 17.00 feet to the point of beginning, said point being on the Northerly right-of-way line of 23 Mile Road (50 feet wide); thence North 89 degrees 19 minutes West along said right-of-way 5.36 feet; thence leaving said right-of-way line North 00 degrees 59 minutes 17 seconds West, 576.95 feet to the Northerly line of said Lot 32; thence North 88 degrees 04 minutes East along said North line 8.43 feet to the Northeast corner of said Lot 32; thence South 00 degrees 41 minutes East along the Easterly line of said Lot 32, 577.25 feet back to the point of beginning. EX-10 7 ex10_54.txt CROSS-COLLATERALIZATION CROSS-DEFAULT AGREEMENT Exhibit 10.54 THIRD AMENDED AND RESTATED CROSS-COLLATERALIZATION AND CROSS-DEFAULT AGREEMENT BY AND AMONG PHC, INC. PHC OF MICHIGAN, INC. PHC OF UTAH, INC. PHC OF VIRGINIA, INC. (collectively, "Borrower") AND HELLER HEALTHCARE FINANCE, INC. ("Lender") December 6, 2001 Prepared by and after recording, return to: Katherine R. Lofft, Esq. Heller Healthcare Finance, Inc. 2 Wisconsin Circle, 4th Floor Chevy Chase, Maryland 20815 THIRD AMENDED AND RESTATED CROSS-COLLATERALIZATION AND CROSS-DEFAULT AGREEMENT THIS THID AMENDED AND RESTATED CROSS-COLLATERALIZATION AND CROSS-DEFAULT AGREEMENT made as of the 6th day of December, 2001, is executed by and among PHC, INC., a Massachusetts corporation ("PHC"), PHC OF MICHIGAN, INC., a Massachusetts corporation having its principal place of business at 200 Lake Street, Suite 102, Peabody, Massachusetts 01960 ("PHCM"), PHC OF UTAH, INC., a Massachusetts corporation ("PHCU"), PHC OF VIRGINIA, INC., a Massachusetts corporation ("PHCVA" and collectively with PHCM and PHCU, the "Borrower"), and HELLER HEALTHCARE FINANCE, INC. f/k/a HCFP Funding, Inc., a Delaware corporation having its principal office at 2 Wisconsin Circle, 4th Floor, Chevy Chase, Maryland 20815 ("HHF"), the assignee of HealthCare Financial Partners-Funding II, L.P. ("HCFPII")) (collectively, the "Lender"). RECITALS WHEREAS, Borrower, together with PHC of Rhode Island, Inc. ("PHCRI") and Pioneer Counseling of Virginia, Inc. ("Pioneer" and, collectively with Borrower and PHCRI, the "Original Borrower"), and HCFP Funding, Inc. ("HCFP Funding"), HCFPII and U.S. Bank National Association entered into that certain Cross-Collateralization and Cross-Default Agreement (the "Agreement") dated as of July 13, 1998, and recorded in the official records of the Macomb County, Michigan registrar of deeds (the "Macomb County Records") at Liber 09402 Page 208 on March 7, 2000, pursuant to which Original Borrower agreed, among other things, to cross-collateralize the Loans (as defined therein) with one another and to provide for the cross-default of the Loans with one another (as amended and restated by that certain Amended and Restated Cross-Collateralization and Cross-Default Agreement dated as of May 26, 2000 by and among the Original Borrower and HHF and by that certain Second Amended and Restated Cross-Collateralization and Cross-Default Agreement dated as of March ___, 2001 by and among PHC, Original Borrower and HHF, as amended and restated hereby and as it may be further amended, restated, supplemented or modified from time to time, the "Agreement"). WHEREAS, Borrower is currently indebted to Lender pursuant to the following existing loans (collectively, the "Existing Loans"): (a) a secured term loan (as it may be increased or decreased from time to time, the "December 2001 Secured Term Loan") from Lender to the Original Borrower in the maximum aggregate principal amount of Two Million Six Hundred Eighty-Eight Thousand Five Hundred Ninety-Eight and No/100 Dollars ($2,688,598.00), which December 2001 Secured Term Loan is evidenced by that certain Consolidating Amended and Restated Secured Term Note dated of even date herewith and executed by Borrower in favor of Lender (as it may be amended, modified or restated from time to time, the "Consolidating Term Note"); and (b) a revolving credit loan (as it may be increased or decreased from time to time, the "February 1998 Revolving Loan") from Lender to the Original Borrower in the original maximum aggregate principal sum of Four Million and No/100 Dollars ($4,000,000.00), which February 1998 Revolving Loan is evidenced by that certain Loan and Security Agreement dated as of February 20, 1998 by and among the Original Borrowers and HCFP Funding (as it may be amended, modified or restated from time to time, the "Loan Agreement") and that certain Revolving Credit Note dated as of February 20, 1998 made by Original Borrowers in favor of HCFP Funding (as it may be amended, modified or restated from time to time, the "Revolving Credit Note"), and the maximum aggregate principal sum of which February 1998 Revolving Loan has been reduced to Three Million and No/100 Dollars ($3,000,000.00); WHEREAS, to secure all of the Existing Loans, PHCM has executed that certain Amended and Restated Consolidated Mortgage dated of even date herewith (the "Amended Consolidated Mortgage"), which Consolidated Mortgage, among other things, secures all of the Existing Loans with a lien on the PHCM property described therein; WHEREAS, Lender has agreed to maintain the Existing Loans, provided that each of the entities comprising Borrower agrees to execute this Agreement providing for, among other things, the cross-collateralization and cross-defaulting of all of the Existing Loans, and that each of the entities comprising Borrower further agrees that this Agreement shall be submitted promptly for recording in the Macomb County Records together with the Amended Consolidated Mortgage; and WHEREAS, the entities comprising Borrower are all affiliated entities under common control and ownership (except that PHC is a public company) and will receive direct and indirect benefits from the continuance of the Existing Loans and of the financing arrangements represented thereby, which benefits, among others, provide adequate consideration for them to enter into this Agreement. NOW, THEREFORE, in consideration of the foregoing Recitals, to induce Lender to continue the Existing Loans and the financing arrangements represented thereby and by the other Loan Documents (as defined below) and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower agrees with Lender and Lender agrees with Borrower, as follows: 1. Loan Documents. As used in this Agreement, the term "Loan Documents" shall mean any and all loan documents evidencing or securing any or all of the February 1998 Revolving Loan and the December 2001 Secured Term Loan. 2. Cross-Collateralization. Each of the Existing Loans is hereby cross-collateralized with each of the other Existing Loans, and Borrower agrees that the collateral described in the Loan Documents with respect to any Existing Loan shall, in addition to securing such Existing Loan as described in such Loan Documents, secure the obligations of any or all of the entities comprising Borrower, as the case may be, under all of the other Existing Loans and the respective Loan Documents relating thereto, including without limitation: (a) the obligation of any Borrower or its Affiliates to pay the principal and interest on any or all of the Existing Loans, as the case may be, as the same may hereafter be renewed, modified, amended or extended, and to pay all other indebtedness or other fees, expenses or other charges with respect thereto, and to perform all of the terms and conditions under the Loan Documents in respect of any or all of the Existing Loans, and (b) the obligation of PHC with respect to the real property encumbered by the Amended Consolidated Mortgage that secures all of the Existing Loans as set forth above. 3. Cross-Default. Each of the Existing Loans is hereby cross-defaulted with each of the other Existing Loans, and Borrower agrees that the occurrence of an Event of Default as defined in, and pursuant to any of the Loan Documents with respect to any Existing Loan, which Event of Default is not cured within the applicable period as set forth therein, shall constitute an immediate Event of Default (without need of notice or the expiration of any additional cure period other than as specified in such Loan Documents) under all of the other Existing Loans and the respective Loan Documents relating thereto. 4. Severability. In case any provision of this Agreement shall be invalid, illegal, or unenforceable, such provision shall be deemed to have been modified to the extent necessary to make it valid, legal and enforceable. The validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 5. No Modification Except in Writing. None of the terms of this Agreement may be waived, altered, amended or otherwise changed except by an instrument in writing duly executed by all of the parties hereto. 6. Further Assurances. Each entity comprising Borrower shall execute and deliver such further instruments and perform such further acts as may be requested by Lender from time to time to confirm the provisions of this Agreement and the Loan Documents, to carry out more effectively the purposes of this Agreement and the Loan Documents, or to confirm the priority of any lien created by any of the Loan Documents. 7. Enforceability. Each entity comprising Borrower represents and warrants to Lender that this Agreement and the Loan Documents are the legal, valid and binding obligations of each entity constituting Borrower, jointly and severally, and are enforceable against each such entity in accordance with their respective terms. 8. Recording; Binding Effect. (a) This Agreement will be recorded in the Macomb County Records and the official records of the City of Salem, Virginia. In connection with the recordation of this Agreement, all necessary recording, intangible, or documentary stamp taxes will be duly paid by the Borrower. THIS AGREEMENT IS BEING GIVEN AS ADDITIONAL COLLATERAL TO SECURE THE OBLIGATIONS OF THE RESPECTIVE ENTITIES COMPRISING BORROWER UNDER THEIR RESPECTIVE LOAN DOCUMENTS. (b) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, administrators, successors and assigns. 9. Controlling Law. This Agreement shall be governed by the laws of the State of Maryland without regard to any otherwise applicable conflicts of law principles. 10. Release. Except for Lender's obligations, if any, to Borrower under the Loan Documents, each entity comprising Borrower, on behalf of itself and its partners, affiliates, successors and assigns (collectively, the "Releasing Parties"), hereby releases and forever discharges Lender and each of its parents, subsidiaries and affiliated corporations and partnerships (including the partners therein and thereof), and the partners, partners of partners, subsidiaries, divisions, affiliates, officers, directors, shareholders, trustees, employees, agents, attorneys and advisors of each of the foregoing, and each of their respective heirs, successors and assigns (collectively, the "Released Parties", all of whom are intended to be the beneficiaries of this release) from any and all claims and causes of action of whatever kind and nature based upon acts or omissions by any of them, whether such claims, causes of action, acts or omissions are or were known or unknown, suspected or unsuspected, which the Releasing Parties or any of them may have or have had, in whole or in part, prior to the date of this Agreement. 11. WAIVER OF JURY TRIAL. EACH ENTITY COMPRISING BORROWER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE EXISTING LOANS, OR (B) IN ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALINGS OF LENDER AND/OR BORROWER WITH RESPECT TO THE LOAN DOCUMENTS OR IN CONNECTION WITH THIS AGREEMENT OR THE EXERCISE OF ANY PARTY'S RIGHTS AND REMEDIES UNDER THIS AGREEMENT OR OTHERWISE, OR THE CONDUCT OR THE RELATIONSHIP OF THE PARTIES HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. EACH ENTITY COMPRISING BORROWER AGREES THAT LENDER MAY FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY, AND BARGAINED AGREEMENT OF BORROWER IRREVOCABLY TO WAIVE THEIR RIGHTS TO TRIAL BY JURY, AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY WHATSOEVER (WHETHER OR NOT MODIFIED HEREIN) BETWEEN BORROWER AND LENDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. IN WITNESS WHEREOF, each party hereto has caused this Agreement to be properly executed on the date of the respective notarial acknowledgment set forth below. BORROWER: WITNESS: PHC, INC., a Massachusetts corporation /s/ Paula C. Wurts Name: /s/ Janet Esterkes By: /s/ Bruce A. Shear Name: Name: Bruce A. Shear Title: President WITNESS: PHC OF MICHIGAN, INC., a Massachusetts corporation /s/ Paula C. Wurts Name: /s/ Janet Esterkes By: /s/ Bruce A. Shear Name: Name: Bruce A. Shear Title: President WITNESS: PHC OF UTAH, INC., a Massachusetts corporation /s/ Paula C. Wurts Name: /s/ Janet Esterkes By: /s/ Bruce A. Shear Name: Name: Bruce A. Shear Title: President [SIGNATURES CONTINUED ON NEXT PAGE] WITNESS: PHC OF VIRGINIA, INC., a Massachusetts corporation /s/ Paula C. Wurts Name: /s/ Janet Esterkes By: /s/ Bruce A. Shear Name: Name: Bruce A. Shear Title: President LENDER: HELLER HEALTHCARE FINANCE, INC. f/k/a HCFP FUNDING, INC., a Delaware corporation, the assignee of HealthCare Financial Partners-Funding II, L.P. WITNESS: __________________________ By: /s/ Brett Robinson Name: Name: Brett Robinson Title: Vice President _________________________ Name: NOTARY ACKNOWLEDGMENT STATE OF MASSACHUSETTS) COUNTY OF ESSEX) Before me, a Notary Public in and for said County and State, on this day personally appeared Bruce A. Shear known to me (or proved to me on the oath of ____________) to be the person whose name is subscribed to the foregoing instrument, and known to me to be the managing member of PHC, INC., a Massachusetts corporation, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed, as the act of said corporation. Given under my hand and seal this 10th day of December, 2001: Paula C. Wurts Notary Public My Commission Expires: November 29, 2002. NOTARY ACKNOWLEDGMENT STATE OF MASSACHUSETTS) COUNTY OF ESSEX) Before me, a Notary Public in and for said County and State, on this day personally appeared Bruce A. Shear known to me (or proved to me on the oath of ____________) to be the person whose name is subscribed to the foregoing instrument, and known to me to be the managing member of PHC OF MICHIGAN, INC., a Massachusetts corporation, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed, as the act of said corporation. Given under my hand and seal this 10th day of December, 2001: Paula C. Wurts Notary Public My Commission Expires: November 29, 2002. NOTARY ACKNOWLEDGMENT STATE OF MASSACHUSETTS) COUNTY OF ESSEX) Before me, a Notary Public in and for said County and State, on this day personally appeared Bruce A. Shear known to me (or proved to me on the oath of ____________) to be the person whose name is subscribed to the foregoing instrument, and known to me to be the managing member of PHC OF UTAH, INC., a Massachusetts corporation, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed, as the act of said corporation. Given under my hand and seal this 10th day of December, 2001: Paula C. Wurts Notary Public My Commission Expires: November 29, 2002. NOTARY ACKNOWLEDGMENT STATE OF MASSACHUSETTS) COUNTY OF ESSEX) Before me, a Notary Public in and for said County and State, on this day personally appeared Bruce A. Shear known to me (or proved to me on the oath of ____________) to be the person whose name is subscribed to the foregoing instrument, and known to me to be the managing member of PHC OF VIRGINIA, INC., a Massachusetts corporation, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed, as the act of said corporation. Given under my hand and seal this 10th day of December, 2001: Paula C. Wurts Notary Public My Commission Expires: November 29, 2002. NOTARY ACKNOWLEDGMENT STATE OF ____________________) COUNTY OF __________________) Before me, a Notary Public in and for said County and State, on this day personally appeared Bruce A. Shear known to me (or proved to me on the oath of ____________) to be the person whose name is subscribed to the foregoing instrument, and known to me to be the of HELLER HEALTHCARE FINANCE, INC., a Delaware corporation, and acknowledged to me that he executed said instrument for the purposes and consideration therein expressed, as the act of said corporation. Given under my hand and seal this _____ day of ________, 2001: ________________________________ Notary Public My Commission Expires: _________________________ This Instrument prepared by, and upon recording should be returned to: Katherine R. Lofft, Esq. Heller Healthcare Finance, Inc. 2 Wisconsin Circle, 4th Floor Chevy Chase, Maryland 20815 EX-10 8 ex10_55.txt OVERLINE CREDIT ADVANCE DATED DECEMBER 26, 2001 Exhibit 10.55 December 26, 2001 Heller Healthcare Finance, Inc. f/k/a HCFP Funding, Inc. 2 Wisconsin Circle, 4th Floor Chevy Chase, Maryland 20815 Attention: David Moore, Senior Vice President Dear Mr. Moore: Reference is made to that certain Loan and Security Agreement originally dated as of February 18, 1998 by and among the Borrowers identified therein and Heller Healthcare Finance, Inc. f/k/a HCFP Funding, Inc., as Lender (as previously amended, as amended hereby and as otherwise amended, modified or supplemented from time to time, the "Loan Agreement"). All capitalized terms used but not defined in this letter (this "Letter Agreement") shall have the meaning given them in the Loan Agreement. We are writing to request that Lender agree to lend and Borrower hereby agree to make an additional Revolving Credit Loan in the form of an "overline advance" (i.e., an advance which exceeds the Borrowing Base). We understand that the Lender has agreed to provide such overline advance, provided the Borrower agree to the terms and conditions set forth herein. Accordingly, the Borrower and Lender hereby agree as follows: 1. The aggregate amount of all advances under the June Overline Loan shall not exceed One Hundred Fifty Thousand and No/100 Dollars ($150,000.00) (the "Overline Loan"). The Overline Loan shall bear interest at the Base Rate as specified in the Loan Agreement. 2. Except as expressly modified by the terms of this Letter Agreement, the Overline Loan will be treated for all purposes as a Revolving Credit Loan under the Loan Agreement, and all principal, interest, fees and other costs and expenses relating to the Overline Loan (the "Overline Obligations") shall be treated as additional Obligations under the Loan Agreement and the other Loan Documents. The Maximum Loan Amount shall be inclusive of, and shall not be deemed to be increased by, the Overline Obligations. 3. The Overline Loan shall be repaid in full by Borrower making fourteen (14) consecutive principal payments each equal to $10,000 beginning on January 4, 2002 and continuing through and including April 5, 2002, and by Borrower making a final payment on April 12, 2002 (the "Maturity Date") equal to $10,000 plus all then outstanding Overline Obligations. 4. In consideration for Lender's agreement to enter into this Letter Agreement with Borrower, Borrower hereby agrees to pay to Lender a fee (the "Overline Fee") equal to Three Thousand Seven Hundred Fifty and No/100 Dollars ($3,750.00). The Overline Fee shall constitute a portion of the Obligations evidenced and secured by the Loan Documents and shall be due and payable promptly following demand therefor by Lender. To the extent that Borrower shall not have paid the Overline Fee promptly following demand therefor by Lender, Borrower shall be deemed to have authorized and hereby does authorize Lender to deduct the amount of such Overline Fee from the proceeds of the any subsequent Revolving Credit Loan(s) made by Lender to Borrower under the Loan Agreement. In addition, Borrower shall pay Lender for all reasonable costs and expenses of Lender (including but not limited to the reasonable documentation fees of Lender's in-house counsel) in connection with the preparation of this Overline Letter. 5. Any breach by Borrower of any of the provisions of this Letter Agreement, including but not limited to any failure of Borrower to repay the Overline Obligations on or before the Maturity Date as required hereunder, shall constitute an immediate and automatic Event of Default under the Loan Agreement without further action or notice by Lender. Upon the occurrence of such an Event of Default, and in addition to the other rights to which Lender may be entitled under the Loan Agreement, or at law or in equity, upon such failure, Lender shall be entitled to apply amounts transferred to the Concentration Account pursuant to Section 2.3 of the Loan Agreement in satisfaction of Borrower's obligations with respect to the Overline Loan and the Overline Obligations. 6. Except as specifically modified by this Letter Agreement, the Loan Agreement, and all other Loan Documents, shall remain in full force and effect, and are hereby ratified and confirmed. 7. The execution, delivery and effectiveness of this Letter Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Lender, nor constitute a waiver of any provision of the Loan Agreement, or any other documents, instruments and agreements executed or delivered in connection therewith, nor shall it be construed as a waiver of any other Event of Default, whether now existing of hereafter arising. Lender hereby reserves all of its rights and remedies under the Loan Documents and applicable law. 8. This Letter Agreement shall be governed by and construed in accordance with the laws of the State of Maryland without regard to any otherwise applicable conflicts of law provisions thereof. 9. This Letter Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 10. By execution and delivery of this Letter Agreement, the Borrower agrees to be legally bound by the provisions hereof. Very truly yours, PHC OF MICHIGAN, INC. PHC OF UTAH, INC. PHC OF VIRGINIA, INC., each a Massachusetts corporation By: /s/ Paula C. Wurts Name: Paula C. Wurts Title: Chief Financial Officer [LENDER'S ACKNOWLEDGEMENT SIGNATURE APPEARS ON NEXT PAGE] ACKNOWLEDGED AND AGREED TO as of this ____ day of December, 2001: HELLER HEALTHCARE FINANCE, INC. f/k/a HCFP FUNDING, INC., a Delaware corporation By: ____________________________________________ Name: Title: EX-10 9 ex10_56.txt OVERLINE CREDIT ADVANCE DATED JANUARY 11, 2002 Exhibit 10.56 January 11, 2002 Heller Healthcare Finance, Inc. f/k/a HCFP Funding, Inc. 2 Wisconsin Circle, 4th Floor Chevy Chase, Maryland 20815 Attention: David Moore, Senior Vice President Dear Mr. Moore: Reference is made to that certain Loan and Security Agreement originally dated as of February 18, 1998 by and among the Borrowers identified therein and Heller Healthcare Finance, Inc. f/k/a HCFP Funding, Inc., as Lender (as previously amended, as amended hereby and as otherwise amended, modified or supplemented from time to time, the "Loan Agreement"). All capitalized terms used but not defined in this letter (this "Letter Agreement") shall have the meaning given them in the Loan Agreement. We are writing to request that Lender agree to lend and Borrower hereby agree to make an additional Revolving Credit Loan in the form of an "overline advance" (i.e., an advance which exceeds the Borrowing Base). We understand that the Lender has agreed to provide such overline advance, provided the Borrower agree to the terms and conditions set forth herein. Accordingly, the Borrower and Lender hereby agree as follows: 1. The aggregate amount of all advances under the June Overline Loan shall not exceed One Hundred Thousand and No/100 Dollars ($100,000.00) (the "Overline Loan"). The Overline Loan shall bear interest at the Base Rate as specified in the Loan Agreement. 2. Except as expressly modified by the terms of this Letter Agreement, the Overline Loan will be treated for all purposes as a Revolving Credit Loan under the Loan Agreement, and all principal, interest, fees and other costs and expenses relating to the Overline Loan, including but not limited to those described in paragraph 4 of this Letter Agreement (the "Overline Obligations") shall be treated as additional Obligations under the Loan Agreement and the other Loan Documents. The Maximum Loan Amount shall be inclusive of, and shall not be deemed to be increased by, the Overline Obligations. 3. The Overline Loan, together with the Overline Fee (as defined in paragraph 4 of this Letter Agreement), shall be repaid in full by Borrower making eight (8) consecutive principal payments each equal to $12,222 beginning on January 18, 2002 and continuing through and including March 8, 2002, and by Borrower making a final payment on March 15, 2002 (the "Maturity Date") equal to $12,224 plus all then outstanding Overline Obligations due and payable under this Letter Agreement. 4. In consideration for Lender's agreement to make the Overline Loan to Borrower, Borrower hereby agrees to pay to Lender a fee (the "Overline Fee") equal to Ten Thousand and No/100 Dollars ($10,000.00). The Overline Fee shall constitute a portion of the Obligations evidenced and secured by the Loan Documents, shall be deemed earned by Lender as of the date of this Letter Agreement and shall be payable as set forth in paragraph 3 of this Letter Agreement. In addition, Borrower shall pay Lender for all reasonable costs and expenses of Lender (including but not limited to the reasonable documentation fees of Lender's in-house counsel) in connection with the preparation of this Letter Agreement. 5. Any breach by Borrower of any of the provisions of this Letter Agreement, including but not limited to any failure of Borrower to repay the Overline Obligations on or before the Maturity Date as required hereunder, shall constitute an immediate and automatic Event of Default under the Loan Agreement without further action or notice by Lender. Upon the occurrence of such an Event of Default, and in addition to the other rights to which Lender may be entitled under the Loan Agreement, or at law or in equity, upon such failure, Lender shall be entitled to apply amounts transferred to the Concentration Account pursuant to Section 2.3 of the Loan Agreement in satisfaction of Borrower's obligations with respect to the Overline Loan and the Overline Obligations. 6. Except as specifically modified by this Letter Agreement, the Loan Agreement, and all other Loan Documents, shall remain in full force and effect, and are hereby ratified and confirmed. 7. The execution, delivery and effectiveness of this Letter Agreement shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of Lender, nor constitute a waiver of any provision of the Loan Agreement, or any other documents, instruments and agreements executed or delivered in connection therewith, nor shall it be construed as a waiver of any other Event of Default, whether now existing of hereafter arising. Lender hereby reserves all of its rights and remedies under the Loan Documents and applicable law. 8. This Letter Agreement shall be governed by and construed in accordance with the laws of the State of Maryland without regard to any otherwise applicable conflicts of law provisions thereof. 9. This Letter Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 10. By execution and delivery of this Letter Agreement, the Borrower agrees to be legally bound by the provisions hereof. Very truly yours, PHC OF MICHIGAN, INC. PHC OF UTAH, INC. PHC OF VIRGINIA, INC., each a Massachusetts corporation By: /s/ Bruce A. Shear Name: Bruce A. Shear Title: President [LENDER'S ACKNOWLEDGEMENT SIGNATURE APPEARS ON NEXT PAGE] ACKNOWLEDGED AND AGREED TO as of this ____ day of January, 2002: HELLER HEALTHCARE FINANCE, INC. f/k/a HCFP FUNDING, INC., a Delaware corporation By: ---------------------------------------------------------------------- Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----