SECOND AMENDMENT dated as of July 16, 1999 (this "Second
Amendment"), to the LOAN AND SECURITY AGREEMENT, dated as of August 31, 1998
(as amended on June 9, 1999, the "Existing Loan Agreement", and as it may be
further amended, restated, supplemented or modified from time to time,
including by this Amendment, the "Loan Agreement"; capitalized terms used and
not otherwise defined herein shall have the respective meanings ascribed to
such terms in the Existing Loan Agreement), between In-House Rehab, Inc., a
Kentucky corporation ("In-House"), In-House Medical Resources, Inc., a
Kentucky corporation, Doctors Rehab & Therapy, Inc., a Kentucky corporation,
Daily Rehabilitation Institute of Ponte Vedra, Inc., a Florida corporation,
Gateway Rehab, Inc., an Illinois corporation, Perennial Health Management,
Inc., a Kentucky corporation ("PHMI"), Perennial Health Systems, Inc. (f/k/a
In-house Rehab Corporation), a Colorado corporation ("Parent"), as Primary
Servicer and Guarantor and Daiwa Healthco-3 LLC, a Delaware limited liability
company, as lender (the "Lender").
Certain Events of Default are continuing under the Existing Loan
Agreement. The Borrowers have requested that the Lender restructure the
Existing Loan Agreement and make additional advances under the Loan Agreement
that are not provided for under the Existing Loan Agreement, subject to the
terms and conditions set forth herein.
▇▇▇▇▇ County Healthcare Center, Inc. ("SCHC"), a wholly owned
subsidiary of PHMI, desires to become a "Borrower" under the Loan Agreement
and each other Borrower desires that SCHC becomes a Borrower under the Loan
Agreement.
Accordingly, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged the parties hereto hereby agree to
the following:
SECTION 1 AMENDMENTS TO LOAN AGREEMENT
Effective as of the Effective Date, the Existing Loan Agreement is
hereby amended as follows:
1.1 Amendments to Articles I and II.
(a) Sections 1.01(a), 1.02(b) 1.02(c), 1.07(d), the heading
of Section 1.07(a) and the preamble to Article II are hereby amended by
deleting the word "Loan" appearing therein and substituting therefor
the phrase Revolving Loan.
(b) Section 1.09(b) is hereby amended by deleting the phrase
"Revolving Advance" appearing on the fifth and sixth lines thereof
and substituting therefor the word "Loan".
(c) Sections 1.05 and 1.06 of the Existing Loan Agreement are
hereby deleted in their entirety and the following new sections are
hereby substituted therefor:
Section 1.05. The Special Loan. (a) The Funding. The
Lender hereby agrees to lend to the Borrowers on the Effective
Date a term loan in the initial principal amount of $2,300,000
(the "Special Loan"). Amounts borrowed under this Section 1.05
and repaid or prepaid may not be reborrowed. Amounts prepaid on
the Special Loan shall be applied to the outstanding principal
amount thereof in inverse order of maturity.
(b) Application of Proceeds of the Special Loan. The
Borrower hereby directs the Lender to apply (x) $298,671.06 in
proceeds of the Special Loan to reduce the amounts outstanding
under the Revolving Loan and cure any Borrowing Base Deficiency
existing immediately prior to the Effective Date, (y)
$1,601,328.94 in proceeds of the Special Loan to fulfill the
obligation of In-House to repurchase the Promissory Note pursuant
to Section 2 of the Purchase Agreement, and (z) $400,000 to the
account of In-House.
Section 1.06. Mandatory Payment of Principal on the
Special Loan. The Borrowers shall, until payment in full of
the Special Loan and subject to earlier prepayment thereof, pay to
the Lender the principal sum of the Special Loan in 15 consecutive
monthly installments on the dates (or the next following Business
Day) and in the amounts set forth below:
Payment Date Installment Amount
November 1, 1999; December 1, 1999; and $200,000
January 2, 2000
February 1, 2000; March 1, 2000; April 1, $100,000
2000; May 1, 2000; June 1, 2000; July 1,
2000; August 1, 2000; September 1, 2000,
October 1, 2000; and November 1, 2000
provided, that in any event the last such installment shall be in
the amount necessary to repay in full the unpaid principal amount
of the Special Loan.
(d) The following new subsection (e) is hereby added to
Section 1.07 of the Existing Loan Agreement at the end of Section 1.07.
(e) Interest on Special Loan. The Borrowers shall pay
interest on the unpaid principal amount of the Special Loan
outstanding from time to time (i) on each Interest Payment Date,
and (ii) on the Maturity Date (whether by acceleration or
otherwise) upon demand, in each case at an interest rate per annum
equal to 15%.
1.2 Amendments to Exhibit I.
(a) The defined term "Borrowing Base Deficiency" is
hereby amended by deleting the word "Loan" appearing on the second
line therein and substituting therefor the phrase "Revolving
Loan".
(b) The defined term "Interest Payment Date" is hereby
amended by deleting the word "Revolving Advance" appearing in the
second line therein and substituting therefor the word "Loan".
(c) The defined term "Interest Period" is hereby amended
by deleting the phrase "with respect to such Revolving Advance"
appearing in the second line thereof substituting the following
phrase therefor:
with respect to each Revolving Advance or the date of initial
advance of the Special Loan, as the case may be,"
(d) The defined term "Loan"is hereby amended by deleting
such term in its entirety and substituting therefor the following:
"Loan" means the Revolving Loan and the Special Loan.
(e) The defined term "Pledge Agreement" is hereby amended
by adding the phrase ", as such agreement is amended, restated,
modified, or supplemented from time to time in accordance with its
terms" at the end of such defined term.
(f) The following terms are hereby added to Exhibit I in
their appropriate alphabetical order:
"Promissory Note" means that certain Promissory Note
in the initial principal amount of $1,873,193.55, dated
November 17, 1998, made by Newcare Health Corporation, a
Nevada corporation in favor of In-House.
"Purchase Agreement" means that certain Promissory
Note Purchase Agreement, dated as of November 30, 1998,
between the Lender and In-House, pursuant to which In-House
is obligated to repurchase from the Lender the Promissory
Note.
"Revolving Loan" has the meaning set forth in Section
1.01(a).
"Special Loan" has the meaning set forth in Section
1.05(a).
SECTION 2 SPECIAL PROVISION FOR THE ADDITION OF SCHC
2.1 Addition of SCHC. SCHC hereby becomes a Borrower under the
Loan Agreement and agrees to be bound by, and to comply with the terms and
provisions of the Loan Agreement in the same manner as if it were an original
signatory thereto as a Borrower and hereby grants, as collateral security for
the Borrowers' obligations to pay the Lender Debt when due and payable, a
first priority Lien on and security interest in and right of set-off against
all of its rights, title and interest in and to (i) its interest in the
Lockbox and the Lockbox Account, (ii) its Collateral, and (iii) all Proceeds
of the foregoing.
2.2 Pledge of SCHC Stock. PHMI hereby becomes a "Grantor" under
the Pledge Agreement (as defined in therein) and hereby agrees to be bound by,
and to comply with the terms and provisions of the Pledge Agreement in the
same manner as if it were an original signatory thereto as a "Grantor". The
Grantors (as defined in the Pledge Agreement) and the Lender hereby amend
Schedule I to the Pledge Agreement by deleting such schedule in its entirety
and substituting therefor Schedule I attached hereto.
SECTION 3 SPECIAL ACKNOWLEDGMENTS RELATING TO SECURITY INTERESTS
3.l Acknowledgment of Lien in Tax Refunds. Each Borrower hereby
acknowledges, confirms, represents and agrees that proposed federal, state and
local tax refunds described in Annex 3.1 hereto (the "Tax Refunds") are,
without any further action on the part of the Borrowers or the Lender,
including as part of the definition of "Collateral" as such term is defined in
the Loan Agreement, that the Lender has a first priority security interest in
the Tax Refunds (subject to the Lender Consent and Intercreditor Agreement
referred to in Section 4.3 hereof). No Borrower will represent to any other
Person or enter into any other agreement, or suffer or permit any such action,
in contravention of such understanding without the prior written consent of
the Lender.
3.2 Acknowledgement of Lien in promissory Note. In-House hereby
acknowledges, confirms, represents and agrees that the Promissory Note is,
without any further action on the part of the Borrowers or the Lender,
including as part of the definition of "Collateral" as such term is defined in
the Loan Agreement, that the Lender has a first priority security interest in
the Promissory Note. No Borrower will represent to any other Person or enter
into any other agreement, or suffer or permit any such action, in
contravention of such understanding without the prior written consent of the
Lender. In-House agrees that it shall direct any and all payments or
distributions of any kind or nature to be paid directly to the Lender first,
in reduction of amounts outstanding under the Special Loan, and upon payment
in full of the Special Loan, in reduction of any other amounts of Lender Debt.
3.3 Acknowledgment Of Lien in SCHC Collateral. Each Borrower
hereby acknowledges, confirms, represents and agrees that the Lender possesses
a first priority security interest in all of the Collateral of SCHC (subject
to the Intercreditor Agreement, dated as of December 4, 1998 among The
National City Bank of Evansville and the Lender) and in the capital stock of
SCHC (upon delivery thereof to the Agent), as collateral security for the
payment of all Lender Debt when due and payable.
3.4 Acknowledgment of Special Loan. Each Borrower hereby
acknowledges, confirms, represents and agrees that the Lender Debt includes
any and all amounts outstanding under the Special Loan.
SECTION 4 CONDITIONS TO EFFECTIVENESS
This Second Amendment and the transactions contemplated herein and
hereby shall become effective at the time and date (the "Effective Date") that
the Lender receives fully executed counterparts of this Second Amendment and
the following conditions have been fulfilled or waived, in each case, to the
satisfaction of the Lender in its sole discretion:
4.1 Execution of Second Amendment. The Lender shall have received a
fully executed copy of this Second Amendment, together with all exhibits,
annexes and attachments thereto.
4.2 Corporate Authority. The Lender shall have received evidence
that the board of directors of the Parent, In-House and each other Borrower
has approved this Second Amendment and all of the transactions contemplated
hereby.
4.3 $500,000 Investment; Lender Consent and Intercreditor
Agreement. The Lender shall have received evidence that certain investors
shall have advanced $500,000 in cash to the Borrowers pursuant to
documentation satisfactory to the Lender in its sole discretion, including a
fully executed Lender Consent and Intercreditor Agreement in the form of
Exhibit A attached hereto, and fully executed copies of each such agreement
shall have been delivered to the Lender.
4.4 Warrants. The Lender shall have received (x) a fully executed
warrant for 300,000 shares of common stock of the Parent in the form of
Exhibit B attached hereto, and (y) a fully executed warrant for 18% of the
common stock of the Parent (reducing pursuant to the terms set forth therein)
in the form of Exhibit C attached hereto.
4.5 Second Amendment to Hall Guaranty. The Lender shall have
received a fully executed copy of the Second Amendment to the Hall Guaranty in
the form of Exhibit D attached hereto.
4.6 Assignment of Promissory Note. The Lender shall have received
a fully executed Assignment of Promissory Note in the form of Exhibit E
attached hereto.
4.7 Collateral Assignment of Promissory Note. The Lender shall
have received a fully executed Assignment of Promissory Note as Collateral
Security in the form of Exhibit F attached hereto.
4.8 Subordination Agreement. The Lender shall have received a
fully executed Subordination Agreement in the form of Exhibit G attached
hereto.
4.9 Diligence Documentation. The Lender shall have received the
following documents, each in form and substance satisfactory to the Lender in
its sole discretion:
0.0.1 an executed term sheet from HealthCare Financial Partners
relating to the sale leaseback of certain "Medilodge"
facilities located in the State of Michigan;
0.0.2 a recent personal financial statement from ▇▇▇▇▇ ▇▇▇▇
together with supporting documentation;
0.0.3 evidence and related supporting documentation that the
Borrowers are entitled and plan to file for local, state and
federal tax refunds in an aggregate minimum net amount of
$1,050,000;
0.0.4 an executed and effective letter of intent between the
Borrowers and Medilodge;
0.0.5 a copy of the check register of the Borrowers for the past 90
days and all known future payment;
0.0.6 evidence supporting the cash flow forecasts of the Borrowers
previously presented to the Lender;
4.10 SCHC Stock Certificate. The Lender shall have received the
stock certificate evidencing PHMI's ownership of SCHC together with a stock
power undated and executed in blank representing 100% of the issued and
outstanding stock of SCHC.
4.11 SCHC Corporate Authority. The Lender shall have received (i)
a certified copy of the certificate or articles of incorporation of SCHC; (ii)
a certificate of the Secretary of SCHC, certifying (A) that attached thereto
is a true and complete copy of SCHC By-laws as in effect on the date of such
certificate and at all times since a date prior to the date of the resolution
described in item (B) below, (B) that attached thereto is a true and complete
copy of a resolution adopted by SCHC's Board of Directors authorizing the
execution, delivery and performance of this Agreement, and that such
resolution has not been modified, rescinded or amended and is in full force
and effect, (C) that SCHC's certificate or articles of incorporation has not
been amended since the date of the last amendment thereto shown on the
certificate furnished pursuant to (i) above, and (D) as to the incumbency and
specimen signature of each of SCHC's officers executing this Agreement; and
(iii) a certificate of another of SCHC's officers as to incumbency and
signature of its Secretary.
4.12 Opinions. The Lender shall have received legal opinions of
counsel relating to this Second Amendment, each of the documents contemplated
to be delivered hereunder, the security interests of the Lender and certain
securities law matters and matters relating to the Colorado Control Share
Acquisition and Colorado Business Combination statutes.
4.13 On-Site Diligence. The Lender shall conducted on-site due
diligence at the Borrowers offices;
4.14 Credit Committee Approval. The Lender's credit committee
shall have approved the transactions contemplated herein.
4.15 Other Conditions. The Lender shall have received such other
documents as the Lender or Lender's counsel shall reasonably deem necessary.
SECTION 5 MISCELLANEOUS
5.1 Representations and Warranties. Each Borrower reaffirms and
restates the representations and warranties set forth in the Loan Agreement,
as amended by this Second Amendment, and all such representations and
warranties shall be true and correct on the date hereof with the same force
and effect as if made on such date (except for those which expressly related
to a prior date and subject to the Lender Consent and Intercreditor Agreement
described in Section 4.3 hereof and the Intercreditor Agreement referred to in
Section 3.3 hereof). Each Borrower represents and warrants (which
representations and warranties shall survive the execution and delivery
hereof) to the Lender that:
0.0.1 It has the corporate power and authority to execute, deliver
and carry out the terms and provisions of this Second
Amendment and the transactions contemplated hereby and has
taken or caused to be taken all necessary corporate action to
authorize the execution, delivery and performance of this
Second Amendment and the transactions contemplated hereby;
0.0.2 No consent of any other person (including, without
limitation, shareholders or creditors of any Borrower), and
no action of, or filing with any governmental or public body
or authority is required to authorize, or is otherwise
required in connection with the execution, delivery and
performance of this Second Amendment;
0.0.3 This Second Amendment has been duly executed and delivered on
behalf of each Borrower by a duly authorized officer, and
constitutes a legal, valid and binding obligation of each
Borrower enforceable in accordance with its terms, subject to
bankruptcy, reorganization, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights
generally and the exercise of judicial discretion in
accordance with general principles of equity; and
0.0.4 The execution, delivery and performance of this Second
Amendment will not violate any law, statute or regulation, or
any order or decree of any court or governmental
instrumentality, or conflict with, or result in the breach
of, or constitute a default under any contractual obligation
of any Borrower.
5.2 In addition the Parent hereby further represents and warrants
as follows:
0.0.1 The authorized capital stock and the issued and outstanding
shares of capital stock of the Parent are as set forth on
Schedule 5.2.1 hereto. Except as set forth on Schedule
5.2.1, there are no outstanding securities of the Parent and
no securities convertible into or exchangeable for, or
options or other rights to acquire from the Parent, or other
obligations of the Parent to issue, directly or indirectly
any shares of capital stock or other equity securities of the
Parent. True and correct copies of all documentation
relating to the issuance, sale, transfer, relative rights,
privileges and obligations and any other material terms of
the securities, options or other rights set forth on Schedule
5.2.1 have been provided to the Lender or are available on
▇▇▇▇▇. All of the issued and outstanding shares of capital
stock of the Parent have been duly authorized and validly
issued, are fully paid and nonassessable, and the holders
thereof are not be entitled or subject to any preemptive
rights, rights of first refusal or other similar rights.
3,870,601 shares of Common Stock have been duly authorized
and reserved for issuance in connection with the exercise of
the Warrants and no more than 16,266,071 shares of Common
Stock and no shares of preferred stock of the Parent will
have been reserved for issuance in connection with the
exchange, conversion or exercise of the other securities of
the Parent. The shares of capital stock to be issued upon
exercise of each of the Warrants will, upon issuance, be,
duly authorized and validly issued, fully paid and
nonassessable, free of any Liens or encumbrances and not
subject to any preemptive rights, rights of first refusal or
similar rights.
0.0.2 Except as set forth on Schedule 5.2.2, (y) neither the Parent
nor any of its Subsidiaries is a party or subject to any
agreement or understanding that affects or relates to the
holding, transfer, voting or giving of consents with respect
to any security or the voting by any director of the Parent
or of its Subsidiaries and (z) to the Parent's knowledge,
there are no such agreements or other arrangements among any
Persons owning equity interests in the Parent and/or its
Subsidiaries.
0.0.3 All outstanding shares of Common Stock and all outstanding
options, warrants, rights (including conversion or preemptive
rights and rights of first refusal) or agreements for the
purchase or acquisition from the Issuer or any of its
Affiliates of any shares of its capital stock, including the
Warrants and the shares of capital stock subject to issuance
upon exercise of the Warrant, have been or will be issued or
granted in compliance with all applicable Securities Laws and
the requirements of any securities exchange or other
securities market upon which the Common Stock is listed or
quoted. The Common Stock is quoted on the OTC Bulletin
Board.
0.0.4 The Parent has taken all requisite action so that the Lender,
as a result of any of the transactions contemplated hereby,
including, but not limited to, the acquisition of 300,000
shares from the Parent, the issuance and acquisition of the
Warrant and the issuance and acquisition of shares upon
exercise of the Warrant does not become a "significant
shareholder" within the meaning of Article 106, Section 205
of the Colorado Business Corporation Act or any comparable
provision of law that may become applicable to the Company
thereby limiting the ability of the Lender to exercise any of
its rights or remedies against the Parent.
5.3 Ratification. Except as herein expressly amended, the Loan
Agreement and all other documents issued in connection therewith each hereby
ratified and confirmed in all respects and shall remain in full force and
effect in accordance with their respective terms.
5.4 Cross-References. All references to the Loan Agreement in the
Loan Agreement and the other documents and instruments delivered pursuant to
or in connection therewith shall mean the Loan Agreement as amended hereby and
as may in the future be amended, restated, supplemented or modified from time
to time.
5.5 Counterparts. This Second Amendment may be executed by the
parties hereto individually or in combination, in one or more counterparts,
each of which shall be an original and all of which shall constitute one and
the same agreement.
5.6 Delivery by Telecopy. Delivery of an executed counterpart of a
signature page to this Second Amendment by telecopier shall be effective as
delivery of a manually executed counterpart of this Second Amendment.
5.7 Governing Law. THIS SECOND AMENDMENT SHALL, IN A MANNER
CONSISTENT WITH SECTION 5-1401 OF THE GENERAL OBLIGATION LAW OF THE STATE OF
NEW YORK, BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
ANY CONFLICTS OF LAWS PRINCIPLES THEREOF THAT WOULD CALL FOR THE APPLICATION
OF THE LAWS OF ANY OTHER JURISDICTION.
5.8 Further Assurances. The parties hereto shall, at any time and
from time to time following the execution of this Second Amendment, execute
and deliver all such further instruments and take all such further actions as
may be reasonably necessary or appropriate in order to carry out the
provisions of this Second Amendment.
[Remainder of this page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Second Amendment as of the date first above written.
IN-HOUSE REHAB, INC. (individually and as
successor in interest by merger to RT Group,
Inc.), as a Borrower
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
Name:
Title: Pres.
IN-HOUSE MEDICAL RESOURCES, INC., as a
Borrower
By ▇▇▇▇▇ ▇. ▇▇▇▇
Name:
Title: Pres
▇▇▇▇▇ COUNTY HEALTHCARE ENTER, INC.,
as a Borrower
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
Name:
Title: Pres.
DOCTORS REHAB & THERAPY, INC., as a
Borrower
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
Name:
Title: Pres
DAILY REHBILITATION INSTITUTE OF
POINTE VEDRA, INC., as a Borrower
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
Name:
Title: Pres.
GATEWAY REHAB, INC., as a Borrower
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
Name:
Title: Pres.
PERENNIAL HEALTH MANAGEMENT, INC. as
a Borrower
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
Name:
Title: Pres.
PERENNIAL HEALTH SYSTEMS, INC. (f/k/a In-
House Rehab Corporation), as Primary Servicer and
Guarantor
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
Name:
Title: Pres.
DAIWA HEALTHCO-3LLC, as
Lender
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Vice President