-----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, U42xQ0GJAq90qqDCXMwblIItn7pJshj98Rt4ijg+6Inp2zs8D35c+d49GsESEbo1 rTkmpfOsQC0sp7aZGqX2fg== 0000892569-96-000352.txt : 19960402 0000892569-96-000352.hdr.sgml : 19960402 ACCESSION NUMBER: 0000892569-96-000352 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPTIMUMCARE CORP /DE/ CENTRAL INDEX KEY: 0000820474 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOSPITALS [8060] IRS NUMBER: 330218003 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-17401 FILM NUMBER: 96542780 BUSINESS ADDRESS: STREET 1: 30011 IVY GLENN DR STE 219 CITY: LAGUNA NIGUEL STATE: CA ZIP: 92677 BUSINESS PHONE: 7144951100 MAIL ADDRESS: STREET 1: 30011 IVY GLENN DR STREET 2: SUITE 210 CITY: LAGUNA MIGUEL STATE: CA ZIP: 92677 10-K 1 FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1995 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ( X ) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) for the fiscal year ended December 31, 1995 or ( ) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required) For the transition period from to ---------------- ------------- Commission File Number: 0-17401 OPTIMUMCARE CORPORATION ----------------------- (Exact name of registrant as specified in its charter) Delaware 33-0218003 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30011 Ivy Glenn Drive, Suite 219 Laguna Niguel, California 92677 ------------------------- ----- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: (714) 495-1100 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered - ------------------- ---------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value ----------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for, such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- 2 COMMON STOCK, -$.001-PAR-VALUE (TITLE OF CLASS) The aggregate market value of the voting stock held by non-affiliates of the Company on March 11, 1996 (4,094,786 shares of Common Stock) was $4,627,105 based on the bid price of the Company's voting stock on March 11, 1996.* The number of shares outstanding of each of the Company's classes of Common Stock, as of March 11, 1996 was: Common Stock, - 4,938,509 shares $.001 par value Documents Incorporated by Reference None. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will be contained to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K./ / * This value is not intended to make any representation as to value or worth of the Company's shares of Common Stock. The number of shares held by non-affiliates of the Company has been calculated by subtracting shares held by controlling persons of the Company from the number of issued and outstanding shares of the Company. 3 PART I ITEM 1 - BUSINESS (a) General Development of Business OptimumCare Corporation (the "Company") was incorporated in California on November 25, 1986 and was reincorporated in Delaware on June 29, 1987. In mid-1987, the Company commenced the development and marketing of health care facility-based programs ("Programs") to be managed by the Company for the treatment of depression and certain other mental health disorders ("PsychPrograms"), as well as programs for alcohol and drug abuse ("Treatment Programs"). After the Company obtains a contract for the establishment of one or more Programs at a host health care facility, the Company recruits and trains the staff needed to operate its programs. Typically, the host health care facility provides a specified number of beds for the Program, as well as all other support services required for the operation of the Program, including nursing, dietary, housekeeping, billing and other administrative functions. The Company recruits and trains the staff to operate the Program. The Company's staffing of a Program will usually include a medical director, a program director, a psychologist, a chief therapist and one or more counselors or social workers. Contracts are individually negotiated with the host health care facility and usually approximate 20 to 60 beds. Generally, the Company and the host health care facility negotiate a per patient management fee which depends on the scope of services provided by the Company number of beds, rates charged and reimbursements received by the facility, and in some instances, a fixed monthly administrative fee and reimbursement of certain direct program costs. The health care facility charges the patient on a daily basis in accordance with a fee schedule of prescribed rates, except where the insurer provides for payment which is limited to a maximum number of days per patient. The health care facility pays the Company a fixed management fee per patient which approximates $160 per patient day or in some cases, a reimbursement of direct costs plus a per patient per day incentive fee and a percentage of overhead fee, and a fixed management fee per visit which approximates $85 per visit or in some cases, a percentage of collected revenues for outpatient contracts. Certain contracts contain provisions which deny portions or all of the management fee should patient days be ultimately appealed and denied by the patient payor. As of March 11, 1996, the Company has thirteen (13) Programs that are hosted by six (6) hospitals: Five PsychPrograms through Huntington InterCommunity Hospital, D/B/A Humana Hospital Huntington Beach, Huntington Beach, California, two PsychPrograms at St. Francis Medical Center, Lynwood, California, one PsychProgram at Brotman Medical Center, Culver City, California, one PsychProgram at Samaritan Health System D/B/A Samaritan Medical Center, San Clemente, California, two PsychPrograms through Sherman Oaks Hospital and HealthCenter, Sherman Oaks, California, and two PsychPrograms at Mission Community Hospital, San Fernando, California. 1 4 (b) Financial Information About Industry Segments The Company competes in one industry segment which is the development, marketing and operation of Programs. (c) Narrative Description of the Business (i) and (ii) Products OptimumCare's PsychPrograms ("PsychProgram") The PsychProgram is a medically-supervised psychiatric care program for certain types of mental health disorders that is offered on both an inpatient and outpatient basis. The PsychProgram is directed at assisting the patient to return to a normal life. The PsychProgram is designed to treat patients with neuroses and personality disorders; however, the Company's marketing focus is to attract patients who exhibit symptoms of depression. Patients suffering from depressive mental illness manifest, among other things, loss of interest in the world generally, loss of activity and capacity to love, sadness, hopelessness, fatigue, boredom, restlessness, loss of belief in personal future, anxiety and feelings of ill-at-ease. At the outset, a patient receives a physical examination and diagnostic testing to eliminate any physical illnesses which may evidence some symptoms of mental disorders. Each PsychProgram also includes individual and group therapy and a full daily regimen of activities including sessions for relaxation, assertiveness training, exercise and men's and women's sexual awareness. The Company estimates that the average stay for a patient in a PsychProgram will be 7-10 days. OptimumCare's Partial Hospitalization Program ("Partial Hospitalization") Partial Hospitalization is a new behavioral medicine outpatient product that provides daytime treatment programs that employ an integrated and individualized schedule of recognized psychiatric treatment modalities. Partial Hospitalization is a treatment approach developed as an alternative to inpatient treatment. It includes the major psychiatric evaluation and treatment modalities (both psychosocial and biological), which are usually found in a comprehensive psychiatric inpatient program. It is designed for voluntary patients with serious mental disorders who require intensive and multi-disciplinary treatment which cannot be provided in an outpatient setting. By offering a medically-supervised alternative to inpatient treatment, it provides a more flexible, less costly and less restrictive form of treatment. Partial Hospitalization can be utilized by individuals who are mentally or emotionally impaired, but who are able to be maintained in the community at least part of each day, and present little risk of imminent danger to themselves or others. The Company believes that the benefits of partial hospitalization include: lessening the disruption of social, family, and community ties; allowing the patient to test new skills in a more natural environment than a hospital setting; providing a treatment milieu that fosters independence and self reliance; allowing daily feedback from the home environment thereby closely involving members of the patient's family or supportive environment in the treatment program; providing flexibility in the number of treatment days per week thus allowing a patient to pursue other activities such as a shortening of the 2 5 inpatient stay or preventing the need for full hospitalization. Expansion of Products The Company is seeking to expand the scope of psychological services it offers by acquiring entities which offer complimentary mental health services. Negotiations are currently underway to purchase Psychological Healthcare, Inc. and Care Source, Inc. Psychological Healthcare operates outpatient mental health clinics. Care Source provides management and other administrative behavioral healthcare services to skilled nursing and other similar bed and board facilities. Although there is no definitive agreement as of December 31, 1995, the Company believes that the transaction will close in the second quarter of 1996. The Company believes that it can more effectively market its services to managed care payors by increasing the scope of services it provides. Staffing The PsychProgram and Partial Hospitalization Programs are staffed by the Company with a medical director, a program manager, and in some cases, a psychologist, a chief therapist, and at least one counselor or social worker. The key staff members are the medical director and the program manager. The medical director is a licensed psychiatrist who is a staff member of the host health care facility and is engaged as an independent contractor charged with the responsibility for overseeing the administration of the Program from a medical/regulatory compliance viewpoint. In addition to the medical director who is responsible for administering the clinical aspects of the contract, the Company often engages co-medical directors in each community in which a Program is located. These co-medical directors are licensed psychiatrists or psychologists. They provide administrative assistance to a Program and represent it at various professional activities in the local community. The co-medical directors are compensated at a fixed monthly rate, depending on the amount of time they commit to supporting the Company's Programs. The Company's employees and contractors at each program are subject to approval and pre-employment screening by the host health care facility. The Company has not experienced any difficulty in locating qualified medical directors from the hospital staff to affiliate with the Company's Programs. The program manager is a full time employee of the Company and usually has completed either a bachelor's or master's degree program in psychology or social work, but is principally a marketing representative of the Company. Program managers are officed at their respective Program's facility. Contract Operations The Company provides a host health care facility with staff recruitment, a two-week pre-opening in-service nurse and hospital employee training program, program management, continuing education, community education, ongoing public relations and program quality assurance. The Company provides these training programs to the host health care facility at no charge. Nursing, dietary, X-ray, laboratory, housekeeping, admissions and billing are the responsibility of the host health care facility. 3 6 Existing contracts range from a period of one to five years and may be renewed for subsequent terms, of usually one year periods. In some cases, if the Company does not maintain a stipulated minimum average daily census for specified periods the health care facility may terminate the contract on reasonable notice to the Company. Payment for Services Patients are screened by the host healthcare facility prior to admission. Screening procedures include verification of the existence and extent of insurance coverage. It is the host health care facility's responsibility to bill and collect the fees charged to the patient for all program services. The Company in turn bills the host health facility for the total patient days of service provided at the specified contract rate. Generally, the Company bills the host health care facility fifteen (15) days after the close of the month in which the services were rendered. Except in the cases where the contracts provide for specific hold backs for ultimately denied days, the majority of the contracts do not specifically provide that the Company shall bear any risk of non-payment by the host healthcare facility. However, industry practice dictates that the Company acknowledge that a certain percentage of the fees will be uncollected by the host health care facility. Thus, accommodations are expected to be made on a case-by-case basis with each host health care facility (except where there is an express contractual provision which governs this issue) to offset some portion of Program patients' bad debts experienced by the host health care facility. Many of the hospitals the Company contracts with have a large number of Medicare and Medicaid patients. However, the Company has negotiated with these hospitals whereby they are paid either a flat per diem rate or a per diem rate with a hold back for days ultimately denied. Thus, the Company is not directly dependent on Medicare or Medicaid for payment under its contracts. It is unknown, whether in the future other contracts or programs will be dependent on a disproportionate amount of Medicare/Medicaid patients. Marketing The Company's marketing efforts are primarily directed toward increasing the number of management contracts by either the takeover of existing programs operated by others or the establishment of new Partial Hospitalization or PsychPrograms in geographically desirable areas. The Company believes that their ability to secure new contracts is based on its reputation as a quality provider coupled with its history of low length of patient stays resulting in less uncompensated care. Sales calls are primarily directed at health care facilities which may be experiencing a low or declining patient census and facilities in geographically desirable areas. After a contract is obtained, the Company prepares a detailed marketing development strategy aimed at attracting patients to the Programs. The program director for each PsychProgram at the host health care facility develops a media press kit for each Program. The program director coordinates all local advertising consistent with the Company's overall marketing plan. Each program director implements a local market development strategy to increase the public awareness of the Program, including the establishment of a media appearance and community speakers bureau which are referred to the broadcast media for further exposure. The co-medical directors direct local continuing professional education and community service programs on an as-needed basis. The host hospital's administrative and medical staffs are also encouraged to participate in community relations activities. 4 7 Direct marketing to psychiatrists, psychologists and other licensed professionals by the Company is emphasized because these individuals motivate potential patients to seek inpatient treatment for their mental health. The Company's marketing approach to physicians and clinicians emphasizes involvement through one-on-one communication with the professionals who will provide patient referrals. These professionals are invited to the Company-sponsored community relations activities, speaker programs and continuing education seminars. (iii) Raw Materials Inapplicable. (iv) Patents and Trademarks The Company holds a federal service mark, Registration #1628745, for its tradename "OptimumCare". The Company has marketed its programs under the names "OptimumCare PsychProgram" and "OptimumCare Treatment Program". (v) Seasonality The Company has noted a trend that its business appears to be susceptible to some seasonal variation. Census tends to substantially decrease near various holidays, particularly during the fourth quarter. (vi) Working Capital Items The Company expects to experience an initial one-time maximum delay of up to 90 days in receipt of revenues after each Program is opened due to the normal processing time for the billing/payment cycle of the host health care facilities. (vii) Dependence on a Few Customers The Company presently has thirteen (13) Programs operating through six (6) hospitals. If any of these Programs were terminated, or if any of the accounts receivable from these contracts were to become uncollectible, such event could have a material adverse effect on the Company. (viii) Backlog Inapplicable. (ix) Government Contracts The Company is not currently a party to any government contract. 5 8 (x) Competition The Company competes with other health care management companies for contracts with acute care hospitals. Also, the Company's Programs will compete for patients with the programs of other hospitals and other health care facilities. The success of the Company's Programs is also dependent on its ability to establish relationships with sources of patient referrals. The Company's principal competitors include Charter Medical Corporation, Community Psychiatric Centers, Comprehensive Care Corporation, Mental Health Management and Horizon Health Services, all of which have greater financial and other resources and more experience than the Company. In addition, some health maintenance organizations ("HMOs") offer competing programs; however, the HMO-owned hospitals typically do not provide inpatient psychiatric services, nor coverage for these services. Most HMOs also do not provide programs for partial hospitalization or substance abuse, but often provide coverage for these programs, usually at a reduced rate. Other health care facilities offer comparable programs which compete with the Company's Programs in each service area. The Company believes, however, that in general its marketing efforts are primarily effective within a ten (10) mile radius around the host hospital and that patients outside such radius are not directly affected by such advertising unless their personal physician has admitting privileges and recommends the Company's program at that host hospital. The Company believes that the principal competitive factors in obtaining contracts with health care facilities are experience, reputation for quality programs, the availability of program support services and price. The primary competitive factors in attracting referral sources and patients are marketing, reputation, record of success, quality of care and location and scope of services offered by a host health care facility. The Company implements active promotional programs and believes it is competitive in attracting referral sources and patients based on these factors. (xi) Research and Development Inapplicable. (xii) Government Regulation and or Environmental Protection The health care industry is extensively regulated by federal, state and local governments. Regulations which affect the Company relate to controlling the growth of health care facilities, requiring licensure of the host health care facility, requiring certification of the Program at the host facility and controlling reimbursement for health care services. Licensure of facilities and certification of Programs are state requirements, while certification for Medicare is a federal requirement. Compliance with the licensure and certification requirements is monitored by annual on-site inspections by representatives of the licensing agencies. Loss of licensure or Medicare certification by a host facility could result in termination of such contract. Certificate of need ("CON") laws in some states require approval for capital expenditures in excess of certain threshold amounts, expansion of bed capacity or facilities, acquisition of medical equipment or institution of new services. If a CON must be obtained, it may take up to 12 months to do so, and in some instances longer, depending upon the state involved and whether the application is contested by a competitor or the state agency. CON's usually are issued for 6 9 a specified maximum expenditure and require implementation of the proposed improvement within a specified period of time. Certain states, including California, Texas, Utah, Colorado and Arizona, have enacted legislation repealing CON requirements for the construction of new health care facilities, the expansion of existing facilities and the institution of new services. Some states have enacted or have under legislative consideration "sunset" provisions which require the review, modification or deletion of these statutes when no longer needed. The Company is unable to predict whether such legislative proposals will be enacted but believes that the elimination of CON requirements positively impacts its business. The Joint Commission on the Accreditation of Healthcare Organizations ("JCAHO"), at a facility's request, will participate in the periodic surveys which are conducted by state and local health agencies to ensure continuous compliance with all licensing requirements by health care facilities. JCAHO accreditation satisfies certain of the certification requirements for participation in the Medicare and Medicaid programs. A facility found substantially to comply with JCAHO standards receives accreditation. A patient's choice of a treatment facility may be affected by JCAHO accreditation considerations because most third-party payers limit coverage to services provided by an accredited facility. All of the hospitals currently under contract with the Company have received JCAHO accreditation. The laws of various states in which the Company may choose to operate, including California, generally prevent corporations from engaging in the practice of medicine. These laws (e.g., Section 2052 of the California Business and Professions Code), as well as applicable case law, were enacted to protect the public from the rendering of unnecessary medical or other services for treatment of the ill. Although the Company has not obtained a legal opinion, it believes that the establishment and operation of Programs will not cause it to be engaged in the "practice of medicine" as that term is used in such laws and regulations. These laws and regulations are subject to interpretation and, accordingly, the issue is not free from doubt. Since the Company has not sought or obtained any rulings, there can be no assurance that state authorities or courts will not determine that the Company is engaged in the unauthorized practice of medicine. If such a determination is made and is not overturned, the Company would have to terminate its operations in that state. The Company's medical directors are engaged to provide administrative services, including but not limited to planning the clinical program, supervising the clinical staff, establishing standards of professional care, advising the Company and staff on questions of policy. The co-medical directors conduct public relations activities and assist the Company in marketing. Although the Company has not obtained a legal opinion, it believes that the proposed agreements between the Company and its medical and co-medical directors do not violate any fee-sharing prohibitions. The federal prohibition, as it relates to the Medicare program, is found at 42 U.S.C. 1320a-7b. Such prohibitions are found in Section 650 of the California Business and Professional Code and Section 445 of the California Health and Safety Code, as well as comparable statutes in other states. However, future judicial, legislative or administrative interpretations of these arrangements could prohibit the Company from hiring professionals which could have a materially adverse effect on the Company. 7 10 Given the recent political mandate for health care reform, it appears likely that health care cost containment will occur. The Company is practiced in administrating "managed care type" programs and is familiar with the pressures of improving productivity and reducing costs. (xiii) Employees As of February 29, 1996, the Company employed 121 persons full-time and fifty-two (52) persons part-time. Those figures do not include physicians and psychiatrists who are medical directors of the Company's Programs and not employees. (d) Financial Information About Foreign and Domestic Operations and Export Sales Inapplicable. ITEM 2 - PROPERTIES The Company maintains its corporate offices in an approximately 2,200-square-foot suite of executive offices in Laguna Niguel, California, under a lease agreement providing for a monthly base rent of $2,880 which expires June 30, 1996. The Company began leasing an additional satellite corporate office in Playa Del Rey, California November 1, 1995 under a lease agreement providing for a monthly base rent of $1,900 which expires October 31, 1996. The Company believes that this office space is adequate for its reasonably foreseeable needs. It is expected that the terms will be extended thereafter on similar terms. The Company has also leased space under five separate lease agreements for the operation of its outpatient partial hospitalization programs. One agreement is on a month to month basis. The remaining agreements expire September 30, 1996, June 3, 1997, June 23, 1997 and June 30, 1997 respectively. The lease which expires June 30, 1997 contains five (5) one (1) year options to extend the lease. Aggregate monthly payments total $10,432,60 and are fully reimbursed through subleases with the Company's host hospitals. ITEM 3 - LEGAL PROCEEDINGS Inapplicable. ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS On December 5, 1995, the Company held its annual Meeting of Stockholders. At the meeting, Edward A. Johnson, Gary L. Dreher, Jon Jenett and Michael S. Callison were each elected as Directors of the Company with 4,601,001 shares voting for the Director nominees and 17,900 shares withholding authority to vote. The meeting was continued to December 22, 1995 for consideration of the adoption of the 1994 Stock Option Plan. The adoption of the plan requires a majority vote of the outstanding shares. The Plan was adopted with 2,503,337 shares voting for the Plan, 247,604 shares voting against the Plan and 54,974 shares abstaining from voting. 8 11 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS (a) Market Information The Company's common stock is currently quoted on the over the counter "OTC" electronic bulletin board under the symbol OPMC.
High Bid Low Bid -------- ------- 1995: - ---- Fourth Quarter 1 1/4 1 5/16 Third Quarter 1 1/4 29/32 Second Quarter 1 7/32 21/32 First Quarter 7/8 3/4 - ---------- 1994: - ---- Fourth Quarter 7/8 3/4 Third Quarter 1 23/32 Second Quarter 31/32 3/4 First Quarter 7/8 5/8
- ---------- The listed prices represent inter-dealer quotations, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. (b) Holders The approximate number of holders of record each class of the Company's common equity securities as of the close of business on March 11, 1996 is set forth below:
Approximate Title of Class Number of Record Holders -------------- ------------------------ Common Stock, $.001 par value 300
(c) Dividends The Company has never paid or declared dividends on its Common Stock. 9 12 ITEM 6 - SELECTED FINANCIAL DATA The following selected financial data should read in conjunction with the Financial Statements and Notes thereto of the Company included elsewhere herein, and such data should be read with "Management's Discussion and Analysis of Financial Condition and Results of Operations." The data at December 31, 1995 and December 31, 1994 and for each of the fiscal years in the three year period ended December 31, 1995 are derived from the Company's Financial Statements for such years audited by Ernst & Young LLP which Financial Statements are included elsewhere herein. STATEMENT OF OPERATIONS INFORMATION YEAR ENDED DECEMBER 31
================================================================================ 1995 1994 1993 1992 1991 ================================================================================ NET REVENUES $6,027,122 $5,596,283 $3,825,613 $2,314,376 $2,222,220 - -------------------------------------------------------------------------------- NET INCOME 2,070 465,045 365,189 127,045 183,037 - -------------------------------------------------------------------------------- NET INCOME PER SHARE OF COMMON STOCK .00 .09 .07 .03 .04 - -------------------------------------------------------------------------------- WEIGHTED NUMBER OF SHARES OUTSTANDING 5,432,748 5,239,503 5,139,080 4,908,909 4,888,509 ================================================================================
BALANCE SHEET INFORMATION AS OF DECEMBER 31
================================================================================ 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------- TOTAL ASSETS $2,059,537 $1,814,153 $1,299,215 $917,779 $659,369 - -------------------------------------------------------------------------------- CURRENT ASSETS 1,739,112 1,699,801 1,237,885 904,072 639,857 - -------------------------------------------------------------------------------- CURRENT LIABILITIES 381,531 333,209 269,343 249,701 118,336 - -------------------------------------------------------------------------------- NET WORKING CAPITAL 1,357,581 1,366,592 968,542 654,371 521,521 - -------------------------------------------------------------------------------- LONG-TERM OBLIGATIONS 166,000 0 0 0 0 ================================================================================
10 13 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) Liquidity and Capital Resources FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994. At fiscal year end 1995 and 1994, the Company's working capital was $1,357,581 and $1,366,592 respectively. The nature of the Company's business requires significant working capital to fund operations of its programs as well as to fund corporate expenditures until receivables can be collected. Moreover, because each of the existing contracts represents a significant portion of the Company's business, the inability to collect any of the accounts receivable could materially and adversely affect the Company's liquidity. Cash flows from operations were $159,554 and ($191,639) for the years ended December 31, 1995 and 1994, respectively. The increase was primarily attributable to increase in program accounts receivable due to an increase in program volume. Cash flows used in investing activities were ($215,196) and ($63,362) for the years ended December 31, 1995 and 1994, respectively. The decrease in cash was primarily attributable to deferred acquisition costs incurred in connection with the proposed acquisitions of two companies performing complimentary mental health services. The cash flows from financing activities was $189,917 and ($13,973) for the years ended December 31, 1995 and 1994, respectively. The increase was primarily due to draws on the Company's line of credit agreement with a bank. The credit agreement expires May 1, 1996, but is convertible into a one year term loan with an initial due date of May 1, 1997 but with a five (5) year repayment schedule. As of March 11, 1996, approximately $260,000 is available for future draws on of the line of credit agreement. The Company's principal sources of liquidity for the fiscal year 1996 are cash on hand, accounts receivable, the line of credit with a bank and continuing revenues from programs. FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993. At fiscal year end 1994 and 1993, the Company's working capital was $1,366,592 and $968,542 respectively. The increase in working capital at December 31, 1994 over December 31, 1993 was primarily due to the increase in Program accounts receivable due to the increase in Program volume. The nature of the Company's business requires significant working capital to fund operations of its Programs as well as to fund corporate expenditures until receivables can be collected. Moreover, because each of the existing contracts represents a significant portion of the Company's business, the inability to collect any of the accounts receivable would materially and adversely affect the Company's liquidity. During 1994, the Company wrote off approximately $142,000 in billings to an entity who leased facilities from a hospital which filed bankruptcy in June, 1994. 11 14 The Company's cash flow at fiscal year end 1994 declined due to the significant increase in receivables. However, through March 7, 1995, the Company collected approximately $1,000,000 against total receivables which existed at fiscal year end 1994, thereby improving the Company cash position considerably. (b) Results of Operations FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994 The Company operated seventeen (17) programs during the year ended December 31, 1995 and sixteen (16) programs during the year ended December 31, 1994. The Company currently has thirteen (13) operating programs. Net Revenues were $6,027,122 and $5,596,283 for the years ended December 31, 1995 and 1994 respectively. The increase in revenues in 1995 over 1994 is due to the greater number of total operating programs among years and a greater number of inpatient psychiatric programs operating for a greater portion of 1995 versus 1994. The Company typically earns a larger management fee on managing inpatient versus partial hospitalization programs. In addition, the volume of patient days treated through inpatient programs is greater than those treated through partial hospitalization programs. Cost of services provided were $5,022,040 and $4,238,555 for the years ended December 31, 1995 and 1994 respectively. The increase in the cost of services provided among years is primarily due to the increase in program volume among years and an expanded scope of services provided in connection with certain contracts such as nursing, transportation and lease costs. Selling, general and administrative expenses have increased over the prior year due to increased corporate marketing wages and activities, and various professional fees incurred with the Company's contract and business acquisition efforts. The provision for uncollectible accounts decreased from the prior year due to the termination of two contracts with one entity which leased facilities from a hospital which filed bankruptcy in June, 1994. Net income was $2,070 and $465,045 for the years ended December 31, 1995 and 1994, respectively. The decrease was primarily attributable to increased cost of services provided and increased sales and marketing efforts. The Company does not know of any events which are likely to materially change the costs of operating its Programs; however, if the mix of individual operating programs remains stable, and revenues increase significantly, gross profit should rise favorably and disproportionately to the increase in cost for such Programs. During 1995 and 1994, the mix of programs changed significantly. Conversely, if the patient census and the resulting revenue decreases (especially below the minimum break even level) costs will be disproportionately high in relation thereto which would adversely impact the results of operations and the Company's available resources. In that event, the Company may not have enough operating capital to continue operations. The Company's revenue is expected to increase in 1996 due to higher census under existing contracts and a larger number of programs operational for the entire year. Marketing plans for expanding the volume of the business by obtaining new contracts for programs and expanding the scope of mental health services offered by the acquisition of complementary businesses 12 15 currently exist. However, it is uncertain at this time, to what extent the Company's fixed costs will be impacted by this expansion. Due to the Company's dependence on a relatively small customer base presently consisting of only six (6) hospitals, the loss of any of its customers could have a significant adverse effect on the Company's operations. Hence, there is a special emphasis paragraph in the report of the Company's independent audit of the financial statements for the fiscal year ended December 31, 1995. In addition, the Company wrote off approximately $36,000 in billings to one entity in 1995, and $142,000 in billings to one hospital in 1994. FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993. The Company operated sixteen (16) Programs during the year ended December 31, 1994 and fourteen (14) Programs during the year ended December 31, 1993. The increase in revenues in 1994 over 1993 is due to the greater number of operating Programs among years, and increased volume at the individual Programs. This increase was compounded due to the fact that a majority of the new Programs which were opened in 1993 were opened during the latter half of the year. The increase in the cost of services provided among years is directly due to the increase in revenues. Selling, general and administrative expenses increased over the prior year due to increased wages and benefits resulting from the addition of a Vice President of Corporate Marketing and Development in 1994, as well as an executive bonus program based on the Company's profits. The provision for uncollectible accounts increased over the prior year due to the termination of two contracts with one entity which leased facilities from a hospital which filed bankruptcy in June, 1994. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OPTIMUMCARE CORPORATION INDEX TO FINANCIAL STATEMENTS AND SCHEDULES See pages F1 through F11 of this Form 10-K and Item 14. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Inapplicable. 13 16 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) and (b) Identification of Directors and Executive Officers The directors and executive officers of the Company are:
NAME AGE POSITION - ---- --- -------- Edward A. Johnson 50 President, Principal Financial Officer, Secretary and Chairman of the Board Gary L. Dreher 49 Director Michael S. Callison 57 Director, Vice President of Corporate Development Jon E. Jenett 43 Director
Each director serves for a term of one year or until his successor has been elected and qualified. Each executive officer serves at the pleasure of the Board of Directors. Directors do not receive any director's fees or other compensation for their services, as such, but receive reimbursement for their expenses in attending meetings of the Board of Directors. (c) Identification of Certain Significant Employees Inapplicable. (d) Family Relationships Inapplicable. (e) Business Experience Mr. Johnson has been President, Chief Executive Officer and Chairman of the Board of the Company since co-founding the Company in November 1986. During May, 1990, Mr. Johnson assumed the role of Principal Financial Officer following the resignation of the former Chief Financial Officer. From August 1985 through July 1986, he was Executive Vice President of Behavioral Medicine Corporation, a joint venture between The Voluntary Hospital Association of America and Comprehensive Care Corporation. Mr. Johnson's duties principally included the development of psychiatric and substance abuse programs for hospitals throughout the United States. From 1969 until August 1985, Mr. Johnson was employed in various positions with Comprehensive Care Corporation, a significant provider of management programs for psychiatric disorders and substance abuse. Mr. Johnson's most recent position at Comprehensive Care Corporation was the Executive Vice President of Operations. His principal duties were to develop and implement marketing systems for that company's programs. Mr. Johnson received a M.S. degree in Psychology from Colorado State 14 17 College in 1966 and is licensed in California as a Marriage and Family Counselor. Mr. Dreher was elected to the Board of Directors during September, 1993. He received his B.S. degree in Microbiology and Lab Technology from California State University in 1971. For the past four years, he has served as Vice President of International Sales for Apotex Scientific, an international distributor network for Esoteric Diagnostic Tests. From 1984 to 1991, he was Vice President of Sales at Ventrex Laboratories, a manufacturer of Diagnostic Tests for medical and biotechnology markets. Mr. Callison was elected to the Board of Directors during September, 1993. He received his B.A. degree in Economics from the University of Puget Sound, Tacoma, Washington in 1966. In 1994, Mr. Callison was promoted to Vice President of Marketing and Development. From 1990 to 1993, he was a sales and marketing consultant to the Company, assisting in business development and responsible for securing various key management contracts for the Company. From 1984 to 1990, Mr. Callison was a Senior Account Executive for the Hill-Rom Company, responsible for marketing hospital patient room furniture. Mr. Jenett was elected to the Board of Directors during December, 1995. He received his B.A. degree in Economics from Harvard College in 1974 and his M.B.A. from Stanford Business School in 1978. For the past five years, he has served as the Chief Financial Officer of Mission Electronics Corporation, a wholesale broker of electronic components. From 1981-1990, he was a partner of Investment Group of Santa Barbara, an investment fund specializing in small public an private companies. (f) Involvement in Certain Legal Proceedings Inapplicable. 15 18 ITEM 11 - EXECUTIVE COMPENSATION (a) Cash Compensation The following table sets forth the elements of compensation paid, earned or awarded for the sole executive of the Company. All aspects of executive compensation is determined by the Board of Directors. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ====================================================================================================== ANNUAL COMPENSATION AWARDS PAYOUTS - ------------------------------------------------------------------------------------------------------ NAME & OTHER ALL OTHER PRINCIPAL ANNUAL RESTRICTED OPTIONS PAYOUTS COMPEN- POSITION YEAR SALARY($) BONUS($) COMPEN- STOCK /SARs ($) SATION ($) SATION($) AWARDS($) - ------------------------------------------------------------------------------------------------------ 1995 $144,000 $40,259 $11,602 (1)(2) EDWARD A. JOHNSON, 1994 144,000 61,703 11,196 (1)(2) PRESIDENT 1993 154,021 32,811 8,626 (1)(2) MULU G. MICHAEL, 1995 $103,433 $30,833 VICE PRESIDENT OF 1994 67,500 14,072 CLINICAL 1993 26,500 1,692 OPERATIONS LESTER H. HARMAN 1995 $ 74,218 $38,430 $ 1,800 (1) REGIONAL 1994 60,000 37,295 1,800 (1) MARKETING 1993 45,000 11,550 1,350 (1) MANAGER ======================================================================================================
# NUMBER OF UNITS $ DOLLAR AMOUNTS (1) CAR ALLOWANCE (2) LIFE INSURANCE PREMIUMS 16 19 (b) Compensation Pursuant to Plans Stock Option Plans The Company's 1987 Stock Option Plan (the "Plan"), adopted by the Board of Directors on July 28, 1987, and approved by the stockholders on August 28, 1987, provides for the grant to officers, directors, employees and consultants of nonqualified stock options and stock options to employees that qualify as incentive stock options under Section 422A of the Internal Revenue Code of 1986. The Plan terminates on July 28, 1997. The purpose of the Plan is to enable the Company to attract and retain qualified persons as employees, officers and directors and others whose services are required by the Company, and to motivate such persons by providing them with an equity participation in the Company. A maximum of 455,000 shares of the Company's Common Stock were reserved for issuance pursuant to the Plan. Options to purchase 19,000 shares were exercised during fiscal year ended December 31, 1995. There are currently 317,500 shares subject to options outstanding under the Plan. The Plan is administered by the Board of Directors, which has, subject to specified limitations, the full authority to grant options and establish the terms and conditions under which they may be exercised. The exercise price of incentive stock options granted under the Plan is required to be not less than the fair market value of the common stock on the date of grant (110% in the case of a greater than 10% stockholder). The exercise price of nonqualified stock options can be no less than 85% of the fair market value on the date of grant, although the Company does not intend to grant any such stock options at less than fair market value. In the discretion of the Board, the exercise price may be payable in cash, by delivery of a promissory note or in Common Stock of the Company. The options are subject to forfeiture upon termination of employment or other relationship with the Company except by reason of death or disability and are nonassignable. Options may be granted for terms up to 10 years (five years in the case of incentive stock options granted to greater than 10% stockholders). No optionee may be granted incentive stock options such that the fair market value of the options which first become exercisable in any one calendar year exceeds $100,000. Options granted under the Plan to officers, employees or consultants may be exercised only while the optionee is employed or retained by the Company or within six (6) months after termination of the employment or consulting relationship by reason of death or permanent disability, and three months after termination for any other reason. On December 31, 1991, the Board of Directors granted additional options under the Plan to Edward A. Johnson to purchase 27,500 shares and Michael S. Callison to purchase 25,000 shares. The option exercise price is $ .21 per share. The options have a five year term and vest immediately. On August 23, 1993, the Board of Directors granted additional options under the Plan to Michael S. Callison to purchase 25,000 shares and Gary L. Dreher to purchase 25,000 shares. The option exercise price is $ .30 per share. The options have a five year term and vest immediately. On December 20, 1994, the Board of Directors re-adopted the Company's 1994 stock option plan. The plan was approved by the stockholders on December 22, 1995 and provides for the grant to officers, directors, employees and consultants of nonqualified stock options and stock options to employees that qualify as incentive stock options under Section 422A of the Internal Revenue 17 20 Code of 1986. The Plan terminates on March 22, 2004. The purpose of the Plan is to enable the Company to attract and retain qualified persons as employees, officers and directors and others whose services are required by the Company, and to motivate such persons by providing them with an equity participation in the Company. A maximum of 500,000 shares of the Company's Common Stock were reserved for issuance pursuant to the Plan. Options to purchase an aggregate of 250,000 shares were granted during fiscal year ended December 31, 1995 including options under the Plan to Jon E. Jenett to purchase 25,000 shares. The option exercise price is $.93 per share. The options have a five year term and vest immediately. No options were exercised during fiscal year ended December 31, 1995. There are currently 475,000 shares subject to option outstanding under the Plan. The Plan is administered by the Board of Directors, which has, subject to specified limitations, the full authority to grant options and establish the terms and conditions under which they may be exercised. The exercise price of incentive stock options granted under the Plan is required to be not less than the fair market value of the common stock on the date of grant (110% in the case of a greater than 10% stockholder). The exercise price of nonqualified stock options can be no less than 85% of the fair market value on the date of grant, although the Company does not intend to grant any such stock options at less than fair market value. In the discretion of the Board, the exercise price may be payable in cash, by delivery of a promissory note or in Common Stock of the Company. The options are subject to forfeiture upon termination of employment or other relationship with the Company except by reason of death or disability and are nonassignable. Options may be granted for terms up to 10 years (five years in the case of incentive stock options granted incentive stock options such that the fair market value of the options which first become exercisable in any one calendar year exceeds $100,000. Options granted under the Plan to officers, employees or consultants may be exercised only while the optionee is employed or retained by the Company or within six (6) months after termination of the employment or consulting relationship by reason of death or permanent disability, and three months after termination for any reason. 18 21 Options/SAR Grants in Last Fiscal Year The following table sets forth certain information concerning Options/SARs granted during 1995 to the named executives:
======================================================================================================= POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL INDIVIDUAL GRANTS RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM - ------------------------------------------------------------------------------------------------------- % OF TOTAL OPTIONS/SARs GRANTED TO EXERCISE OF GRANT DATE OPTIONS/SARs EMPLOYEES BASE PRICE EXPIRATION PRESENT NAME GRANTED IN FISCAL ($/SHARE) DATE 5%($) 10%($) VALUE ($)* YEAR - ------------------------------------------------------------------------------------------------------- JON E. JENETT 25,000 .10% $.93 8/8/2000 6,750 14,500 6,792 =======================================================================================================
* Present values were calculated using the Black-Scholes options pricing model which should not be viewed in any way as a forecast of the future performance of the Company's stock. The estimated present value of each stock option is $.35 based on the following inputs:
Stock Price (Fair Market Value) at Grant (8/8/95) $ .9375 Exercise Price .93 Expected Option Term 5 years Risk-Free Interest Rate 6.25% Stock Price Volatility 14% Dividend Yield 0%
The model assumes: (a) an Expected Option Term of 5 years which reflects the actual life of the option; (b) a Risk-Free Interest Rate that represents the interest rate on a U.S. Treasury Note with a maturity date corresponding to that of the Expected Option Term; and (c) Stock Price Volatility is calculated using quarterly stock prices over the period from January 1, 1995 to December 31, 1995. Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values The following table summarizes options and SARs exercised during 1995 and presents the value of unexercised options and SARS held by the named executives at fiscal year end: 19 22
====================================================================================================== VALUE OF NUMBER OF UNEXERCISED IN-THE- UNEXERCISED MONEY OPTIONS/SARs SHARES ACQUIRED ON OPTIONS/SARS AT AT FISCAL YEAR-END NAME EXERCISE (#) VALUE REALIZED ($) FISCAL YEAR-END (#)* ($)** - ------------------------------------------------------------------------------------------------------ EDWARD A. JOHNSON 0 0 300,000 254,625 - ------------------------------------------------------------------------------------------------------ MICHAEL S. CALLISON 0 0 100,000 68,375 - ------------------------------------------------------------------------------------------------------ GARY L. DREHER 0 0 75,000 45,475 - ------------------------------------------------------------------------------------------------------ JON E. JENETT 0 0 25,000 5,000 ======================================================================================================
* All options are exercisable at fiscal year-end ** The difference between fair market value at 3/11/96 and the exercise price. (c) Other Compensation In Addition to all other options held by him, Mr. Johnson received on December 31, 1991, five years options to purchase 222,500 shares of the Company's Common Stock. The option exercise price is $.21 per share. The options have a five year term and vest immediately. The shares issuable upon exercise of these options are subject to certain restrictions. The Company has also obtained life insurance on the life of Mr. Johnson in the amount of $2,000,000, $1,000,000 for the benefit of the Company and $1,000,000 for the benefit of his estate. (d) Compensation of Directors Directors do not receive compensation for their services although they are entitled to reimbursement for expenses incurred in attending board meetings. Michael S. Callison received $84,000 of wages as Vice President of Marketing and Development in 1995. Mr. Dreher received $20,000 in marketing fees during 1995 for the marketing of the Company's programs to the hospitals during 1995. (e) BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The entire Board of Directors is responsible for determining the Chief Executive Officer's compensation. The Board's philosophy has been to offer a stable base salary plus a monthly bonus based on a percentage of corporate monthly profits before income taxes. The committee's approach to base compensation is to offer competitive salaries in comparison with market practices. However, base salaries have become a relatively smaller element in the total executive officer compensation package as the Company has introduced incentive compensation programs which it believes reinforce strategic performance objectives. STOCK PERFORMANCE GRAPH The following graph sets forth the cumulative total shareholder return (assuming reinvestment of dividends) to Company's stockholders during the five year period ended December 31, 1995 as well as the U.S. NASDAQ stock market index and the S&P Hospital Management Index. The Company does not currently meet the standards required for trading on the NASDAQ exchange, however the Company believes that the securities traded on this exchange most closely resemble its market capitalization. 20 23 [PERFORMANCE GRAPH - PLOT POINTS IN TABLE BELOW]
OPMC S&P NASDAQ ---- --- ------ DEC 31, 1990 100 100 100 DEC 31, 1991 76 86 57 DEC 31, 1992 38 65 79 DEC 31, 1993 120 96 109 DEC 31, 1994 176 102 126 DEC 31, 1995 225 142 176
Note: The stock performance graph assumes $100 was invested on January 1, 1990. 21 24 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) and (b) Security Ownership The following table sets forth certain information regarding the ownership of the Company's Common Stock as of March 11, 1996, (i) by each person who is known by the Company to own beneficially more than 5% of the outstanding shares of Common Stock; (ii) by each of the Company's directors; and (iii) by all directors and officers of the Company as a group. Unless otherwise indicated below, the person or persons named have sole voting and dispositive power.
================================================================================ AMOUNT & NATURE OF NAME (1) BENEFICIAL OWNERSHIP PERCENT OF CLASS - -------------------------------------------------------------------------------- EDWARD A. JOHNSON 617,426 (2) 11.6% - -------------------------------------------------------------------------------- MICHAEL S. CALLISON 430,000 (3) 8.5% - -------------------------------------------------------------------------------- GARY L. DREHER 138,800 (4) 2.8% - -------------------------------------------------------------------------------- JON E. JENETT 50,000 (5) 1.0% - -------------------------------------------------------------------------------- DR. LINDSEY ROSENWALD 282,500 5.7% - -------------------------------------------------------------------------------- ALL OFFICERS AND DIRECTORS AS A GROUP (4 PERSONS) 1,236,226 (6) 22.0% ================================================================================
(1) The addresses of these persons are as follows: Mr. Johnson - 24 South Stonington Road, South Laguna, CA 92677; Mr. Callison - 21972 Summerwind Lane, Huntington Beach, CA 92646; Mr. Dreher - 6301 Acacia Hill Drive, Yorba Linda, CA 92686; Mr. Jenett - 8 South Vista De La Luna, South Laguna, CA 92677; Dr. Lindsey Rosenwald - 375 Park Avenue, Suite 1501, New York, New York 10152. (2) Includes presently exercisable options to purchase 400,000 shares of Common Stock. (3) Includes presently exercisable options to purchase 125,000 shares of Common Stock. (4) Includes presently exercisable options to purchase 100,000 shares of Common Stock. (5) Includes presently exercisable options to purchase 50,000 shares of Common Stock. (6) Includes presently exercisable options to purchase 675,000 shares of Common Stock. (c) Changes in Control Inapplicable. 22 25 ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Transactions with Management and Others On June 24, 1994, the Company loaned Mr. Johnson and Mr. Dreher $26,400 and $13,200 respectively to purchase corporate common stock in the open market. The notes accrued interest at the rate of 7.25% and were payable in monthly installments due July 1, 1995. On September 19, 1994, Mr. Dreher repaid the $13,200 note in full with interest. On July 1, 1995, Mr. Johnson repaid the note in full plus interest. On December 20, 1994, Mr. Johnson, Mr. Callison and Mr. Dreher were each granted options to purchase 50,000 shares of the Company's Common Stock at $.6375 per share. The options vest immediately and expire five years from the date of grant. On December 30, 1994, the Company converted a series of short term advances to Mr. Johnson totaling $47,000 and a promissory note for $50,000 into a $97,000 promissory note due from Mr. Johnson. The note accrues interest at 4.03% and is payable in monthly installments beginning August 1, 1995. On May 12, 1995, the Company loaned Mr. Callison $22,800. The note accrued interest at the rate of 9% and was repaid in full on May 26, 1995. On August 8, 1995, the Company granted to Mr. Jenett options to purchase 25,000 shares of the Company's common stock at $.93 per share. The options vest immediately and expire five years from the date of grant. On December 29, 1995, the Company converted a series of short-term advances to Mr. Johnson and a $97,000 note dated December 30, 1994 into a $155,000 promissory note due from Mr. Johnson. The note accrues interest at 4.03% and is due December 30, 1996. On January 16, 1996, the Company granted to Mr. Johnson options to purchase 100,000 shares of the Company's common stock and granted Mr. Callison, Mr. Dreher and Mr. Jenett options to each purchase 25,000 shares of the Company's common stock at $.901 per share. The options vest immediately and expire five years from the date of grant. During 1995, Mr. Dreher received $20,000 in marketing fees for the marketing of the Company's programs to Hospitals during 1995. (b) Certain Business Relationships Inapplicable. (c) Indebtedness of Management Inapplicable. (d) Transactions With Promoters Inapplicable. 23 26 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) List of Financial Statements Filed as a Part of this Report (Filed Under Item 8 above)
Page Number ------ Report of Ernst & Young LLP, Independent Auditors -- Balance Sheets as of December 31, -- 1995 and December 31, 1994 Statements of Income for the years -- ended December 31, 1995, 1994 and 1993 Statements of Stockholders' Equity for the -- years ended December 31, 1995, 1994 and 1993 Statements of Cash Flows for the -- year ended December 31, 1995, 1994 and 1993 Notes to Financial Statements. --
(a) (2) List of Financial Statement Schedules filed as a Part of this Report Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (a) (3) List of Exhibits Filed as a Part of This Report 3.1 Certificate of Incorporation incorporated by reference from Form S-18 Registration Statement (Registration No. 0033-16313-LA) filed July 28, 1988, Exhibit 3.1. 3.2 Bylaws incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 3.2. 3.3 Certificate of Amendment of Certificate of Incorporation filed February 29, 1988, incorporated by reference from Form S-18 Registration Statement (Registration No.33-16313-LA) filed July 28, 1988, Exhibit 3.5. 24 27 3.4 Restated Certificate of Incorporation, filed October 3, 1989. 10.1 Lease between the Company and Laguna Niguel Office Center dated June 23, 1988 which supersedes lease dated December 15, 1986, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.1. 10.2 Agreement between the Company and Costa Mesa Medical Center Hospital dated April 1, 1987, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.2. (Terminated) 10.3 Agreement between the Company and County of Trinity dated May 5, 1987, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.3. (Terminated) 10.4 Stock Purchase Agreement dated May 27, 1987, incorporated by reference from Form S- 18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.4. (Terminated) 10.5 Agreement between the Company and Corona Community Hospital dated July 8, 1987, incorporated by reference from Form S-18 Registration Statement (Registration No. 33- 16313-LA) filed July 28, 1988, Exhibit 10.5. (Terminated) 10.6 Amended and Restated 1987 Stock Option Plan incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.6. 10.7 Agreement between Calexico Hospital and the Company dated July 27, 1987, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.7. (Terminated) 10.8 Employment between the Company and Edward A. Johnson dated July 28, 1987, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.8. (Terminated) 10.9 Employment between the Company and John Anthony Whalen dated July 28, 1987, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.9. (Terminated) 10.10 Agreement between Pacific Coast Hospital and the Company dated July 29, 1987, incorporated by reference from Form S-18 Registration Statement (Registration No. 33- 16313-LA) filed July 28, 1988, Exhibit 10.10. (Terminated) 25 28 10.11 Agreement between Freedom Recovery Center, Inc. and the Company dated July 31, 1987, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.11. (Terminated) 10.12 Agreement between Temple Community Hospital and the Company dated September 10, 1987, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.12. (Terminated) 10.13 Agreement between Burbank Community Hospital and the Company dated November 23, 1987, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.13. (Terminated) 10.14 Stock Purchase Warrant between Equity Dynamics, Inc. and the Company dated January 20, 1988, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.14. (Expired) 10.15 Stock Purchase Warrant between Ventana Growth Fund and the Company dated January 20, 1988, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.15. (Expired) 10.16 Form of Demand Promissory Note and Stock Purchase Warrant between the Company and various purchasers, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.16. (Expired) 10.17 Form of Unsecured Promissory Note to Ventana and Equity Dynamics (issued in the aggregate of $99,700), incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.17. (Paid) 10.18 Form of Modification Agreement to Incentive Stock Option Agreement, dated January 20, 1988, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.18. 26 29 10.19 Form of Stock Purchase Warrant issued to Edward A. Johnson dated April 29, 1988, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.19. (Expired) 10.20 Agreement between Midwood Community Hospital and the Company executed March 11, 1988, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.20. (Terminated) 10.21 Commercial Promissory Note between the Company and American Valley Bank, dated May 2, 1988, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.21. (Paid) 10.22 Agreement between Middletown Regional Hospital and the Company dated July 5, 1988, incorporated by reference from Form S-18 Registration Statement (Registration No. 33-16313-LA) filed July 28, 1988, Exhibit 10.22. (Terminated) 10.23 Agreement between Bellflower Doctors Hospital and the Company dated March 10, 1989. (Terminated) 10.24 Lease amendment between the Company and Laguna Niguel Office Center dated September 27, 1989 which supersedes lease dated June 23, 1988. (Terminated) 10.25 Amendment to Agreement between Midwood Community Hospital and the Company executed November 1, 1989. (Terminated) 10.26 Agreement between Middletown Regional Hospital and the Company dated January 1, 1990, incorporated by reference from Form 10-K for the year ended December 31, 1990. (Terminated) 10.27 Amendment to agreement between Bellflower Doctors Hospital and the Company dated February 19, 1990. (Terminated) 10.28 Agreement between Washington Medical Center and the Company dated July 25, 1990. (Terminated) 10.29 Agreement between Medical Rehabilitation Incorporated and the Company dated September 1, 1990. (Terminated) 27 30 10.30 Lease amendment between the Company and Laguna Niguel Office Center dated September 24, 1990 which supersedes lease dated June 23, 1988. 10.31 Commercial Promissory Note between the Company and Monarch Bank dated March 28, 1991. (Paid) 10.32 Agreement between Phoenix Baptist Hospital and Medical Center, Inc. and the Company dated May 1, 1991. (Terminated) 10.33 Promissory Demand Note between the Company and Ventana Growth Fund L.P. dated August 30, 1991. (Paid) 10.34 Agreement between Huntington Intercommunity Hospital and the Company dated November 1, 1991. 10.35 Agreement between Medical Rehabilitation Incorporated and the Company dated June 1, 1992. (Terminated) 10.36 Agreement between General-Psych Partners and the Company dated June 14, 1992. (Terminated) 10.37 Amendment to Agreement dated June 14, 1992 between General-Psych Partners and the Company dated October 1, 1992. (Terminated) 10.38 Agreement between Huntington Intercommunity Hospital and the Company dated October 1, 1992. 10.39 Agreement between Brotman Medical Center and the Company dated October 20, 1992. 10.40 Agreement between General-Psych Partners and the Company dated November 1, 1992. (Terminated) 10.41 Promissory Note between the Company and Edward A. Johnson dated December 10, 1992. (Expired) 10.42 Agreement between GlenComm, Limited, a California Limited Partnership by Glendora Acquisition Partners, Inc., a California Corporation, General Partner, d/b/a Glendora Community Hospital and the Company dated April 20, 1993. (Terminated) 10.43 Lease amendment between the Company and Laguna Niguel Office Center dated May 12, 1993 which supersedes lease dated June 23, 1988. 28 31 10.44 Stipulation for entry of judgement between the Company and General-Psych Partners; Manohara Healthcare Investments, Inc.; Good Samaritan Hospital; Alliance Investments for Healthcare Inc. and Tri-Star Healthcare Corporation dated June 7, 1993. (Paid) 10.45 Lease agreement between Mt. Carmel Resources and the Company dated June 16, 1993. (Expired) 10.46 Sublease agreement between Glendora Community Hospital and the Company dated July 15, 1993. (Terminated) 10.47 Agreement between Samaritan Health System, an Arizona non-profit corporation d/b/a Samaritan Medical Center, San Clemente dated October 8, 1993. 10.48 Lease agreement between Columbia Healthcare Corporation and the Company dated October 18, 1993. 10.49 Consulting agreement between the Company and Harbor View Health Partners, LP, d/b/a Harbor View Medical Center dated December 1, 1993. (Terminated) 10.50 Unanimous written consent dated December 10, 1993 of the Board of Directors amending the Promissory Note between the Company and Edward A. Johnson dated December 10, 1992. 10.51 Agreement between Long Beach Doctors Hospital and the Company dated January 10, 1994. (Terminated) 10.52 Lease agreement between Whittier Narrows Business Park and the Company dated January 10, 1994. 10.53 Sublease agreements between the Company and Medical Rehabilitation Incorporated dated January 27, 1994. (Terminated) 10.54 Amendment to agreement dated January 1, 1994 between Long Beach Doctors Hospital and the Company dated February 23, 1994. (Terminated) 10.55 1994 Stock Option Plan. 10.56 Lease Agreement between Frank T. Howard and the Company dated May 4, 1994. 10.57 Promissory note between Edward A. Johnson and the Company dated June 24, 1994. (Paid) 10.58 Promissory note between Gary L. Dreher and the Company dated June 24, 1994. (Paid) 29 32 10.59 Sublease Agreements between Long Beach Doctor's Hospital and the Company dated June 24, 1994. (Terminated) 10.60 Lease amendment between the Company and Laguna Niguel Office Center dated July 7, 1994 which supersedes lease dated June 23, 1988. 10.61 Agreement between Pacifica Hospital of the Valley and the Company dated September 15, 1994. (Terminated) 10.62 Agreement between Queen of the Angels - Hollywood Presbyterian Medical Center, Inc. and the Company dated December 6, 1994. 10.63 Agreement between Pacifica Hospital of the Valley and the Company dated December 6, 1994. (Terminated) 10.64 Unanimous written consent dated December 30, 1994 of the Board of Directors amending the Promissory Note between the Company and Edward A. Johnson dated December 10, 1993. 10.65 Sublease Agreement between Pacifica Hospital of the Valley and the Company dated January 24, 1995. (Terminated) 10.66 Agreement between Sherman Oaks Hospital and Health Center dated March 30, 1995. 10.67 Loan Agreement between the Company and National Bank of Southern California dated March 31, 1995. 10.68 Lease Agreement between the Company and Laguna Niguel Office Center dated June 5, 1995 which supersedes lease dated June 23, 1988. 10.69 Sublease Agreements between the Company and Huntington Beach and Medical Center dated July 1, 1995. 30 33 10.70 Lease Agreement between the Company and 757 Pacific Partnership dated July 3, 1995. 10.71 Sublease Agreement between the Company and Huntington Beach Hospital and Medical Center dated July 24, 1995. 10.72 Lease Agreement between the Company and Columbia Healthcare Corporation dated September 14, 1995 which supersedes lease dated October 18, 1993. 10.73 Agreement between San Fernando Community Hospital, Inc. dba Mission Community Hospital and the Company dated October 6, 1995. 10.74 Lease Agreement between the Company and Solomon, Saltsman & Jameson dated October 10, 1995. 10.75 Unanimous written consent dated December 29, 1995 of the Board of Directors amending the promissory note between the Company and Edward A. Johnson dated December 30, 1994. 23 Consent of Independent Auditors 27 Financial Data Schedule (b) Reports on Form 8-K Inapplicable. 31 34 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OPTIMUMCARE CORPORATION By: /s/ Edward A. Johnson ------------------------ Edward A. Johnson, President Date: March 27, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature/Title Date --------------- ---- /s/ EDWARD A. JOHNSON March 27, 1996 - ----------------------- EDWARD A. JOHNSON, President & Principal Financial Officer & Director /s/ MICHAEL S. CALLISON March 27, 1996 - ----------------------- MICHAEL S. CALLISON, Director /s/ GARY L. DREHER March 27, 1996 - ----------------------- GARY L. DREHER, Director /s/ JON E. JENETT March 27, 1996 - ----------------------- JON E. JENETT, Director
32 35 Financial Statements OptimumCare Corporation Years ended December 31, 1995 and 1994 with Report of Independent Auditors 36 OptimumCare Corporation Financial Statements Years ended December 31, 1995 and 1994 CONTENTS Report of Independent Auditors............................................... 1 Financial Statements Balance Sheets............................................................... 2 Statements of Income......................................................... 3 Statements of Stockholders' Equity........................................... 4 Statements of Cash Flows..................................................... 5 Notes to Financial Statements................................................ 6
37 REPORT OF INDEPENDENT AUDITORS The Stockholders and Board of Directors OptimumCare Corporation We have audited the accompanying balance sheets of OptimumCare Corporation as of December 31, 1995 and 1994, and the related statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statements and schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 8 to the financial statements, the Company is dependent upon a small number of contracts, the loss of any of which could have a significant adverse effect on the Company's operations. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of OptimumCare Corporation at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP --------------------- Orange County, California March 18, 1996 38 OptimumCare Corporation Balance Sheets
DECEMBER 31 1995 1994 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 170,932 $ 36,657 Accounts receivable, net 1,536,693 1,642,040 Prepaid expenses 31,487 21,104 ----------- ----------- Total current assets 1,739,112 1,699,801 Note receivable from officer 155,000 97,000 Furniture and equipment, less accumulated depreciation of $34,382 in 1995 and $25,463 in 1994 25,617 16,093 Deferred acquisition costs 138,753 -- Intangibles, less accumulated amortization of $1,020 in 1995 and $816 in 1994 1,055 1,259 ----------- ----------- Total assets $ 2,059,537 $ 1,814,153 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 192,743 $ 152,535 Accrued expenses 188,788 180,674 ----------- ----------- Total current liabilities 381,531 333,209 Note payable to bank 166,000 -- Commitments Stockholders' equity: Common stock, $.001 par value: Authorized shares - 20,000,000 4,923,509 shares issued and outstanding in 1995; 4,904,509 shares issued and 4,896,009 shares outstanding in 1994 4,924 4,905 Paid-in-capital 2,927,593 2,919,348 Accumulated deficit (1,420,511) (1,422,581) Less cost of 8,500 shares in treasury in 1994 -- (5,075) Note receivable from officer -- (15,653) ----------- ----------- Total stockholders' equity 1,512,006 1,480,944 ----------- ----------- Total liabilities and stockholders' equity $ 2,059,537 $ 1,814,153 =========== ===========
See accompanying notes. 2 39 OptimumCare Corporation Statements of Income
YEAR ENDED DECEMBER 31 1995 1994 1993 ---- ---- ---- Net revenues $6,027,122 $5,596,283 $3,825,613 Interest income 8,741 8,487 1,158 ---------- ---------- ---------- 6,035,863 5,604,770 3,826,771 Operating expenses: Costs of services provided 5,022,040 4,238,355 2,877,383 Provision for uncollectible accounts 36,030 141,620 27,460 Selling, general and administrative 964,701 741,919 552,571 Interest 10,222 4,065 2,077 ---------- ---------- ---------- 6,032,993 5,125,959 3,459,491 ---------- ---------- ---------- Income before income taxes 2,870 478,811 367,280 Income taxes 800 13,766 2,091 ---------- ---------- ---------- Net income $ 2,070 $ 465,045 $ 365,189 ========== ========== ========== Net income per share $ .00 $ .09 $ .07 ========== ========== ==========
See accompanying notes. 3 40 OptimumCare Corporation Statements of Stockholders' Equity Years ended December 31, 1993, 1994 and 1995
Note receivable Common stock Paid-in Accumulated Treasury from Shares Amount capital deficit Shares Amount officer Total --------- ------ ---------- ------------ --------- --------- --------- ---------- Balance at December 31, 1992 4,888,509 $4,889 $2,916,004 $(2,252,815) -- $ -- $ -- $ 668,078 Exercise of stock options 8,000 8 1,672 -- -- -- -- 1,680 Purchase of treasury stock -- -- -- -- 20,000 (11,646) -- (11,646) Reissue of treasury stock -- -- -- -- (11,500) 6,571 -- 6,571 Net income -- -- -- 365,189 -- -- -- 365,189 --------- ------ ---------- ----------- ------- -------- -------- ---------- Balance at December 31, 1993 4,896,509 4,897 2,917,676 (1,887,626) 8,500 (5,075) -- 1,029,872 Note receivable from officer -- -- -- -- -- -- (15,653) (15,653) Exercise of stock options 8,000 8 1,672 -- -- -- -- 1,680 Net income -- -- -- 465,045 -- -- -- 465,045 --------- ------ ---------- ----------- ------- -------- -------- ---------- Balance at December 31, 1994 4,904,509 4,905 2,919,348 (1,422,581) 8,500 (5,075) (15,653) 1,480,944 Payment of note receivable from officer -- -- -- -- -- -- 15,653 15,653 Exercise of stock options 19,000 19 8,245 -- -- -- -- 8,264 Reissue of treasury stock -- -- -- -- (8,500) 5,075 -- 5,075 Net income -- -- -- 2,070 -- -- -- 2,070 --------- ------ ---------- ----------- ------- -------- -------- ---------- Balance at December 31, 1995 4,923,509 $4,924 $2,927,593 $(1,420,511) -- $ -- $ -- $1,512,006 ========= ====== ========== =========== ======= ======== ======== ==========
See accompanying notes. 4 41 OptimumCare Corporation Statements of Cash Flows
YEAR ENDED DECEMBER 31 1995 1994 1993 ---- ---- ---- OPERATING ACTIVITIES Net income (loss) $ 2,070 $ 465,045 $ 365,189 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,123 6,826 5,678 Provision for uncollectible accounts 36,030 141,620 27,460 Loss on sale of equipment -- 514 -- Common stock issued as bonuses 5,075 -- 6,571 Changes in operating assets and liabilities: (Increase) in accounts receivable 69,317 (1,022,363) (190,305) (Increase) decrease in prepaid expenses (10,383) 152,853 (154,588) Increase (decrease) in accounts payable 40,208 (2,728) (40,775) Increase in accrued liabilities 8,114 66,594 60,417 --------- ----------- --------- Net cash provided by (used in) operating activities 159,554 (191,639) 79,647 INVESTING ACTIVITIES Purchases of equipment (18,443) (13,362) (3,301) Deferred acquisition costs (138,753) -- -- Note receivable from officer (58,000) (47,000) (20,000) --------- ----------- --------- Net cash used in investing activities (215,196) (60,362) (23,301) FINANCING ACTIVITIES Note payable to bank 166,000 -- -- Note receivable from officer 15,653 (15,653) -- Exercise of stock options 8,264 1,680 1,680 Purchase of treasury stock -- -- (11,646) --------- ----------- --------- Net cash provided by (used in) financing activities 189,917 (13,973) (9,966) --------- ----------- --------- Net increase (decrease) increase in cash 134,275 (265,974) 46,380 Cash and cash equivalents at beginning of year 36,657 302,631 256,251 --------- ----------- --------- Cash and cash equivalents at end of year $ 170,932 $ 36,657 $ 302,631 ========= =========== ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 8,720 $ 4,065 $ 2,077 Cash paid for income taxes $ 31,201 $ 22,065 $ 2,091
See accompanying notes. 5 42 OptimumCare Corporation Notes to Financial Statements December 31, 1995 1. SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION OptimumCare Corporation (the Company) develops, markets and manages hospital-based programs for the treatment of psychiatric disorders on both an inpatient and outpatient basis. The Company's programs are currently being marketed in the United States, principally California, to independent acute general hospitals and other health care facilities. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less, when purchased to be cash equivalents. FURNITURE AND EQUIPMENT Furniture and equipment is stated at cost. Depreciation is computed by the straight-line method based upon the estimated useful lives of the related assets. INTANGIBLE ASSETS The Company's trade name became registered during December 1990. It is recorded at cost and is being amortized over its estimated useful life of 10 years using the straight-line method. Accumulated amortization is $1,020 and $816 as of December 31, 1995 and 1994, respectively. REVENUE RECOGNITION Revenues are recognized in the period services are provided and are recorded net of contractual adjustments representing the difference between standard rates and estimated net realizable amounts under reimbursement agreements with customers. INCOME TAXES Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FASB Statement No. 109, Accounting for Income Taxes. As permitted under the new rules, prior year's financial statements have not been restated. The cumulative effort of adopting Statement No. 109 as of January 1, 1993 was not material. 6 43 OptimumCare Corporation Notes to Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NET INCOME PER SHARE Net income per share is computed using the weighted average number of common shares outstanding, giving effect to common stock equivalents arising from stock options, of 5,432,748, 5,239,163 and 5,139,080 in 1995, 1994 and 1993, respectively. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about the future that affect the amounts reported in the financial statements. These estimates include assessing the collectibility of accounts receivable, the usage and recoverability of long-lived assets. The actual results could differ from those estimates. RECENTLY ISSUED ACCOUNTING STANDARDS In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), which requires pro forma disclosures of net income and earnings per share using a fair value based method of accounting for all employee stock options or similar equity instrument plans. OptimumCare Corporation will implement the disclosure provisions of SFAS 123 effective December 31, 1996. OptimumCare Corporation is required to adopt statement of Financial Accounting Standards No. 121, Accounting for the impairment of long-lived assets and for long-lived assets to be disposed of ("SFAS 121") in 1996. SFAS 121 establishes accounting standards for recording the impairment of long-lived assets, certain identifiable intangibles and goodwill. Management has not yet determined whether the adoption of SFAS 121 will have a material impact on OptimumCare Corporations financial position or the results of its operations. 7 44 OptimumCare Corporation Notes to Financial Statements (continued) 2. PROVISION FOR UNCOLLECTIBLE ACCOUNTS In June 1994, two contracts with one entity which leased facilities from one hospital were canceled due to the filing of bankruptcy by the hospital. All unpaid amounts due from the contracts have been written off in full at December 31, 1994, which totaled $141,620. 3. NOTE RECEIVABLE FROM OFFICER On December 29, 1995, the Company converted a series of short-term advances and a $97,000 note dated December 30, 1994 into a promissory note from an officer totaling $155,000. The note accrues interest at the rate of 4.03% and is due December 30, 1996. On June 24, 1994, the Company loaned two officers $26,400 and $13,200, respectively, to purchase corporate common stock in the open market. The notes accrued interest at the rate of 7.25% and were payable in monthly installments due July 1, 1995. On September 19, 1994 one officer repaid the $13,200 note in full. The other note was repaid in full on July 1, 1995. On May 12, 1995 the Company loaned an officer $22,800. The note accrued interest at the rate of 9% and was repaid in full on May 26, 1995. 4. NOTE PAYABLE TO BANK On April 12, 1995, the Company entered into a $500,000 line of credit agreement with a bank that expires May 1, 1996. At the expiration date, the then principal balance of the loan shall be convertible into a one year term loan with an initial due date of May 1, 1997, but with a five (5) year repayment schedule. The term loan is renewable for an additional term of one year. The loan bears interest at the rate of 11% per year and is secured by all the assets of the Company. At December 31, 1995, $334,000 was available for future draws on the line of credit agreement. During 1996, $72,872 of additional funds were borrowed under this agreement. 8 45 OptimumCare Corporation Notes to Financial Statements (continued) 5. LEASE COMMITMENT The Company leases two office facilities under lease agreements that expire June 30, 1996 and October 31, 1996, respectively. The Company also leased space under five separate lease agreements for the operation of four of its outpatient partial hospitalization psychiatric programs, of which one agreement is on a month-to-month basis and the remaining agreements expire, September 30, 1996, June 3, 1997, June 23, 1997 and June 30, 1997, respectively. Aggregate future minimum lease payments under these leases are as follows: 1996 $189,271 1997 59,896 -------- $249,167 ========
The lease which expires June 30, 1997 contains five one-year options to extend the lease. Subleases with two of the Company's host hospitals exist for the entire amount of aggregate future minimum lease payments above. Sublease rental income was $154,621, $48,995 and $14,876 for the years ended December 31, 1995, 1994 and 1993, respectively. Rent expense was $191,251, $119,520, and $49,436 for the years ended December 31, 1995, 1994 and 1993, respectively. 6. STOCKHOLDERS' EQUITY STOCK OPTIONS In July 1987, the Company adopted a stock option plan (the Plan) including incentive stock options and nonqualified stock options. A maximum of 455,000 shares of the Company's common stock has been reserved for issuance under the plan. Under the Plan, incentive stock options may be granted at an exercise price which is not less than 100% of the fair market value on the date of grant (110% for greater than 10% stockholders). In addition, nonqualified stock options may be granted at an exercise price which is no less than 85% of the fair market value on the date of grant. Options may be granted for terms up to 10 years (five years for greater than 10% stockholders). In 1991, the Company granted options to purchase 239,600 shares of its common stock at $.21 per share that were vested upon grant. Of these options 222,500 were granted to an officer of the Company. 9 46 OptimumCare Corporation Notes to Financial Statements (continued) 6. STOCKHOLDERS' EQUITY (CONTINUED) STOCK OPTIONS (CONTINUED) In March 1994, the Company adopted and approved the 1994 Stock Option Plan (the Plan) including incentive stock options and nonqualified stock options. In December 1995, the Company readopted and approved the 1994 Stock Option Plan (the Plan) A maximum of 500,000 shares of the Company's common stock has been reserved for issuance under the plan. Under the Plan, incentive stock options may be granted at an exercise price which is not less than 100% of the fair market value on the date of grant (110% for greater than 10% stockholders). In addition, nonqualified stock options may be granted at an exercise price which is no less than 85% of the fair market value on the date of grant. Options may be granted for terms up to 10 years (five years for greater than 10% stockholders). In December 1994, the Company granted non-qualified options to purchase 225,000 shares of its common stock at $.6375 per share that are vested upon grant. No options have been exercised under these grants. In 1995, the Company granted options to purchase 200,000 shares of its common stock at $.65 per share that are vested upon grant. No options have been exercised under these grants. During various dates in 1995, the Company granted to certain officers, directors, employees and consultants, non-qualified options to purchase 250,000 shares of its common stock at prices ranging from $.6375 to $.93 per share that are vested upon grant. No options have been exercised under these grants. 10 47 OptimumCare Corporation Notes to Financial Statements (continued) 6. STOCKHOLDERS' EQUITY (CONTINUED) STOCK OPTIONS (CONTINUED) A summary of incentive stock option activity under the 1987 plan during 1993, 1994 and 1995 is as follows:
1987 Shares under option PLAN ---- Outstanding at December 31, 1992 305,000 Granted 235,000 Exercised (8,000) Canceled (187,500) -------- Outstanding at December 31, 1993 344,500 Granted 50,000 Exercised (8,000) Canceled (25,000) -------- Outstanding at December 31, 1994 361,500 Granted -- Exercised (19,000) Canceled (25,000) ======== Outstanding at December 31, 1995 317,500 ======== Exercise price of outstanding options at December 31, 1993 $.21 to $.375 at December 31, 1994 $.21 to $.67 at December 31, 1995 $.21 to $.67 Options exercisable at December 31, 1993 294,500 at December 31, 1994 311,500 at December 31, 1995 317,500
A total of 1,394,600 and 1,194,600 shares of common stock were reserved for future issuance upon the exercise of stock options at December 31, 1995 and 1994, respectively. A total of 162,500 options were available for future grant at December 31, 1995. 11 48 OptimumCare Corporation Notes to Financial Statements (continued) 7. INCOME TAXES A reconciliation of the provision for income taxes using the federal statutory rate to the book provision for income taxes follows:
1995 1994 1993 ---- ---- ---- Statutory federal provision for income taxes $ 1,000 $ 167,583 $ 124,875 Increase (decrease) in taxes resulting from: Current use of net operating loss carryforwards (1,000) (167,583) (124,875) Federal alternative minimum tax -- 6,000 -- State tax, net of federal benefit 800 7,776 2,091 ------- --------- --------- $ 800 $ 13,766 $ 2,091 ======= ========= =========
Significant components of the provision for income taxes are as follows:
1995 1994 1993 ---- ---- ---- Current: Federal $ -- $ 6,000 $ -- State 800 7,766 2,091 ---- ------- ------ Total current 800 13,766 2,091 ---- ------- ------ Deferred: Federal -- -- -- State -- -- -- Total deferred -- -- -- ---- ------- ------ $800 $13,766 $2,091 ==== ======= ======
At December 31, 1995, the Company has unused net operating loss carryforwards of approximately $1,179,000 for federal income tax purposes which expire beginning in the year 2003. The Company has unused net operating loss carryforwards of approximately $16,000 for state income tax purposes which expire beginning in the year 2003. A valuation allowance has been recorded to entirely offset the tax benefits of this attribute. 12 49 OptimumCare Corporation Notes to Financial Statements (continued) 7. INCOME TAXES (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the net deferred tax asset at December 31, 1995 and 1994 consist of the following:
1995 1994 1993 ---- ---- ---- Net operating loss carryforwards $ 413,000 $ 401,000 $ 648,000 Alternative minimum tax credit carryforwards 4,000 4,000 -- Reserves and accruals not currently deductible for tax purposes 17,000 43,000 9,000 Depreciation not currently deductible for tax purposes -- 1,000 1,000 --------- --------- --------- Total deferred tax assets 434,000 449,000 658,000 Less valuation allowance (434,000) (449,000) (658,000) --------- --------- --------- Net deferred tax asset $ -- $ -- $ -- ========= ========= =========
8. MAJOR CUSTOMERS Four of the Company's hospitals accounted for $4,726,068 and five of the Company's hospitals accounted for $4,670,236 of net revenue in 1995 and 1994, respectively. In addition, these hospitals accounted for approximately $1,080,633 and $1,467,940 of accounts receivable at December 31, 1995 and 1994, respectively. As the Company is dependent upon a small number of hospitals, the loss of any contract could have a significant adverse effect on the Company's operations. Management intends to use its best efforts to retain existing contracts and expand the scope of services on these contracts, obtain new contracts, and maintain patient census at the same or higher levels than has historically been experienced. 9. DEFERRED ACQUISITION COSTS Deferred acquisition costs consist of the direct cost of fees paid to outside consultants and other professionals incurred in assisting with the proposed acquisitions of Psychological Healthcare, Inc. and Care Source Inc. The specific terms of the proposed purchases have not yet been finalized. In the event the acquisitions are not consummated these items will be expensed. The Company plans to amortize all acquisition costs over the useful life of the Psychological Healthcare and Care Source products and services. 13 50 OptimumCare Corporation Notes to Financial Statements (continued) 9. DEFERRED ACQUISITION COSTS (CONTINUED) Psychological Healthcare operates outpatient mental health clinics. Care Source provides management and other administrative behavioral healthcare services to skilled nursing and other similar board and care facilities. 14 51 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS OPTIMUMCARE CORPORATION
=================================================================================== COL. A COL. B COL. C COL. D COL. E =================================================================================== ADDITIONS Charged Balance at Charged to Other Balance Beginning to Costs Accounts Deductions At End Description of Period & Expenses Describe Describe of Period =================================================================================== YEAR ENDED DECEMBER 31, 1995 Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts $ 0 $ 36,030 $ (36,030) $0 YEAR ENDED DECEMBER 31, 1994 Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts 0 141,620 (141,620) 0 YEAR ENDED DECEMBER 31, 1993 Reserves and allowances from asset accounts: Allowance for uncollectible accounts 2,822 27,460 (30,282)(1) 0
(1) Uncollectible accounts written off, net of recoveries 33 EX-10.66 2 AGREEMENT-SHERMAN OAKS HOSPITAL 1 EXHIBIT 10.66 AGREEMENT THIS AGREEMENT is entered into as of this 30th day of March , 1995, by and between SHERMAN OAKS HOSPITAL AND HEALTH CENTER, ("Hospital") and OPTIMUMCARE(R) CORPORATION ("Manager"), a Delaware Corporation. RECITALS A. Hospital operates an acute care facility in Sherman Oaks, California and desires to develop an outpatient Partial Hospitalization Program (the "Out-Patient Program") for the treatment of psychiatric disorders, and B. Manager is in the business of providing management services for the treatment of patients with psychiatric disorders; and C. Hospital desires to retain Manager, and Manager desires to be retained, to provide the services described herein; and D. Hospital will provide (subject to the provisions of this Agreement) appropriate program and office space for the use of this Out-Patient Program during the term of this Agreement. THEREFORE, it is mutually agreed as follows: 1. DEFINITIONS (a) "Confidential Information" of the Manager shall mean all documents and other materials provided by Manager not available through sources in the public domain. Manager's documents and other materials may include, but are not limited to, memoranda, manuals, handbooks, production books and audio and visual recordings, which contain information -1- 2 relating to the Out-Patient Program (including written materials distributed to Out-Patient Program patients or for promotion of the Out-Patient Program); and all models, techniques, formulations and procedures used to provide psychiatric services to Program patients. (b) "Employee Benefits" shall include, by way of illustration and not limitation, the employer's contribution under the Federal Insurance Contributions Act, unemployment compensation and related insurance, payroll and other employment taxes, pension and retirement plan contributions, worker's compensation and related insurance, group life, health, disability and accident insurance, severance and other benefits. (c) A "Patient Day" shall be deemed to exist with each out-patient visit to the Out-Patient Program (d) "Out-Patient Program" shall mean the out-patient partial hospitalization psychiatric program managed by Manager at the Hospital. 2. TERM (a) This Agreement shall have an initial term commencing on March 30, 1995 and terminating March 29, 1998. (b) Termination provisions are in Section (10) of this Agreement. 3. COVENANTS OF HOSPITAL Hospital will: (a) Furnish necessary and identified program space and provide support, ancillary, and standard out-patient services to Out-Patient Program patients, including available diagnostic facilities as directed by each Out-Patient Program patient's attending physician. -2- 3 Medical treatment shall be provided as directed only by physicians duly licensed to practice medicine by the State of California and who are appointees to the Hospital medical staff with appropriate privileges. Hospital will cooperate with Manager in providing appropriate program space for a capacity of at least thirty (30) chairs. (b) Provide support activities including: i) maintenance of or installation of carpet and decorating of patient treatment areas as needed; ii) (a) dietary service for patients, (b) housekeeping services for patients and Manager's offices at the Hospital, (c) utilities for patient areas and Manager's offices at the Hospital, (d) staff offices, furniture, clerical support and office supplies, (e) daily patient transportation within the normal primary service area, (f) services of a nutritionist, (g) psychiatric registered nurse; and iii) other services customarily provided in the ordinary course of business to Hospital's patients (e.g. record keeping, etc.). (c) Charge and collect all Out-Patient Program charges due from Out-Patient Program patients or third party payors. (d) Staff the Out-Patient Program with qualified personnel in accordance with the Staffing Table (Exhibit A) and be solely liable to those personnel who are Hospital employees for their wages, compensation and employee benefits. Nursing staff will be supervised by inpatient head nurse. Hospital personnel shall comply with the Out-Patient Program policies and procedures as mutually agreed upon in writing by Hospital and Manager. Hospital shall not, without Manager's prior written consent (which shall not be unreasonably withheld), deviate, change or otherwise decrease the agreed staffing of the Staffing Table (Exhibit A). -3- 4 (e) Provide to Manager's Out-Patient Program staff such appropriate pre-employment and periodic diagnostic and health screening procedures as are customarily provided by Hospital for Hospital employees. (f) Maintain accreditation by the Joint Commission on Accreditation of Healthcare Organizations and pay all related fees. (g) Provide Manager's employees and contracted personnel with copies of all relevant Policies and Procedures, as amended from time to time. (h) Indemnify, save harmless, and defend Manager from all claims and liability and expenses (including reasonable attorney's fees) arising solely from the negligence of or breach of this Agreement by Hospital or its employees or contracted personnel. (i) Provide admissions and billing services. It is further understood that Hospital may deny admission to a patient who, in its opinion, is not financially qualified to meet financial obligations. (j) Provide appropriate Utilization Review and Quality Assessment services for all Out-Patient Program patients. (k) Allow Manager, if needed and available, to lease social workers to service the Out-Patient Program at such rate as the parties may agree upon in writing. (l) Maintain professional and comprehensive general liability insurance for itself and its employees and contracted personnel in an amount not less than $5,000,000 per occurrence or claim and whenever reasonably requested provide Manager with a certificate from the insurer stating that such insurance is in effect and which also states that Manager will be given at least ten (10) days advance written notice of any cancellation, non-renewal, or -4- 5 changes in policy limits, deductible, or co-insurance. Any deductible or co-insurance or aggregate limits shall be subject to Managers approval which shall not be unreasonably withheld. Manager agrees that $100,000 is an acceptable deductible or co-insurance. Hospital shall use reasonable efforts to maintain "tail" coverage if necessary for any terminated "claims made" policy so as to apply to any of its acts or omissions which occur during the term of this Agreement until the expiration of any applicable statute of limitation but not to exceed seven (7) years. (m) As a condition precedent to this Agreement, obtain appropriate California state license to operate the Out- Patient Program. (n) Contract with a physician who has appropriate privileges on the medical staff of the Hospital to be the Out-patient Program Medical Director. 4. COVENANTS OF MANAGER Manager will do the following at its own cost and expense: (a) Provide specialized management, Out-Patient Program development and marketing for the care and treatment of the Out-Patient Program's patients. (b) Out-Patient Program management and direction will be provided by OptimumCare Corporation's Out-Patient Program Director. (c) Provide the following: (i) Partial Hospitalization Coordinator; (ii) Social Services; (iii) Psychological Services; (iv) Occupational Therapy/Activities Services; (v) Medical Director (who shall be a physician duly licensed in the state wherein the Hospital is situated and shall be required to fulfill the requirements to be admitted as a member of the Hospital's medical staff) and other professional counseling staff as needed to provide -5- 6 for the professional counseling of Out-Patient Program patients and to adequately supervise and operate the Out-Patient Program. All such personnel shall be subject to Hospital approval. Such personnel shall not be deemed employees or contracted personnel or borrowed servants of Hospital. Manager shall have full responsibility for their wages, compensation and employee benefits and acts or omissions and shall indemnify, save harmless and defend Hospital from all claims and liability expenses (including reasonable attorneys' fees) arising from any claims, actions, causes of actions, damages or settlements with respect to any of the foregoing. (d) Assist Hospital in its screening, interviewing, and selecting of employees for the Out-Patient Program staff. (e) Provide Out-Patient Program orientation and training for all appropriate personnel. (f) Indemnify, save harmless, and defend Hospital from all claims and liability and expenses (including reasonable attorney's fees) (1) arising solely from the negligence of or breach of this Agreement by Manager or its employees or contracted personnel or (2) arising out of Hospital negligence if the sole basis for any such negligence consists of entering into this Agreement with Manager, failing to properly supervise, monitor, or oversee Manager or its employees or agents, or failing to properly review or act upon its review of the qualifications of Manager or its employees or contracted personnel. (g) Consult, manage and support the Out-Patient Program treatment team's effort to provide quality psychiatric treatment while maintaining prudent control of patient length of stay. (h) Maintain professional and comprehensive general liability insurance for itself and its employees and contracted personnel in an amount not less than $5,000,000 per occurrence -6- 7 or claim and whenever reasonably requested provide Hospital with a certificate from the insurer stating that such insurance is in effect and which also states that Hospital will be given at least ten (10) days advance written notice of any cancellation, non-renewal, changes in policy limits, deductible, or co-insurance or aggregate limits. Any deductible or co-insurance or aggregate limits shall be subject to Hospital's approval which shall not be unreasonably withheld. Hospital agrees that $100,000 is an acceptance deductible or co-insurance. Manager shall use reasonable efforts to maintain "tail" coverage if necessary for any terminated "claims made" policy so as to apply to any of its acts or omissions which occur during the term of this Agreement until the expiration of any applicable statute of limitation but not to exceed seven (7) years. Manager shall use reasonable efforts to have Hospital named as an additional insured on Manager's insurance with respect to any claim or liability arising solely out of any act of omission by Manager, its employees, or contracted personnel. (i) Until the expiration of four (4) years after the furnishing of any services to be provided under this Agreement make available, upon request, to the Secretary of Health and Human Services or to the Comptroller General of the United States of America, or their duly authorized representatives, this Agreement and books, documents and records which are necessary to certify the nature and extent of reimbursable costs under the Medicare laws. (j) Comply with all applicable laws (including but not limited to 42 U.S.C. 1395 (nn) (b) or any similar law or regulation), regulations, medical staff bylaws, Hospital policies and procedures, Program policies and procedures and any applicable standards of care. (k) Use reasonable efforts to resolve any issues regarding acceptability of Out-Patient -7- 8 Program personnel to Hospital personnel and to Out-Patient Program patients which may arise with respect to any of Manager's employees or contracted personnel. (l) Provide monthly written reports to Hospital regarding all aspects of the operation of the Out-Patient Program. (m) Commit no act or omission which adversely affects the Hospital license with respect to the psychiatric chairs. (n) Admit patients to the Out-Patient Program (including but not limited to Medicare and MediCal patients) only if the admission is ordered by a physician on the Hospital medical staff with admitting privileges. 5. REPRESENTATION AND WARRANTS OF HOSPITAL Hospital hereby represents to Manager as follows: (a) Hospital is owned by Triad HealthCare ("Triad)", a California, non-profit public benefit corporation duly organized and validly existing in good standing under the laws of the State of California with the power and authority to carry on the business in which it is engaged and to perform its obligations under this Agreement subject to obtaining the license described in subpart (n) of Section (3). (b) The execution of this Agreement and the performance of the obligations of the Hospital hereunder will not result in any breach of any of the terms, conditions or provisions of any agreement or other instrument to which Hospital is a party or by which it may be bound or affected, or any governmental license, franchise, permit or other authorization possessed by the Hospital, nor will such execution and performance violate any Federal, State or local law, rule or regulation. The Hospital is accredited by the Joint Commission -8- 9 on accreditation of Healthcare Organizations. (c) There is no litigation, administrative proceeding or investigation pending or threatened against Hospital (nor is the Hospital subject to any judgement, order, decree or regulation of any court or other governmental administrative agency) which would materially adversely affect the performance of Hospital's obligations hereunder (except as provided under section 6(d) as provided hereinafter). (d) No Certificate of Need is required by Hospital from any state regulatory agency for the operation of the Out-Patient Program. 6. REPRESENTATIONS OF MANAGER Manager hereby represents to Hospital as follows: (a) Manager is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware with the power and authority to carry on the business in which it is engaged and to perform its obligations under this Agreement. (b) The execution of this Agreement and the performance of the obligations of the Manager hereunder will not result in any breach of any of the terms, conditions or provisions of any agreement or other instrument to which the Manager is a party or by which it may be bound or affected, or any governmental license, franchise, permit or other authorization possessed by the Manager, nor will such execution and performance violate any Federal, State or local law, rule or regulation. (c) There is no litigation, administrative proceeding or investigation pending or threatened against Manager (nor is Manager subject to any judgement, order, decree or regulation of any court or other governmental administrative agency) which would materially adversely -9- 10 affect the performance of Manager's obligations hereunder. (d) Manager hereby acknowledges that Triad has filed for a reorganization under Chapter 11 of the Federal Bankruptcy Act which matter is pending as of the date of this Agreement. 7. MANAGEMENT FEE (a) With respect to the first three months that the program is in operation, the Hospital shall pay to Manager an initial service fee of seventy five dollars ($75.00) per patient day for each patient attending the Out-Patient Program. Manager will be paid its contractual fee forty five (45) days following the month for which services were performed. For example, the management fee for April, 1995 will be due on June 15, 1995. (b) This payment of $75.00 per patient for the first three months is intended as a loan to bridge the time between the start of the program and the actual cash beginning to be collected. Therefore, the loan will bear interest at 10%. The loan will be repaid by reducing the amount to be paid to Manager monthly on the basis of actual cash collections until such time as the loan and interest are repaid. Until the loan is repaid, the split of cash collections will be 25% to Manager and 75% to Hospital with one third (1/3) of the Hospitals 75% to be applied to interest and principal of the loan. (c) When the loan and interest have been repaid to the Hospital, the formula for paying Manager will revert to the normal intended split of cash collections of 50% to Manager and 50% to Hospital. 8. PAYMENT BY HOSPITAL (a) On or before the fifth (5th) day of each calendar month, Manager will forward to Hospital an invoice for the fees payable by Hospital under this Section 7. If any amount so -10- 11 invoiced is not paid on or prior to the end of the calendar month in which the invoice is sent, the outstanding balance shall bear simple interest from the date of said invoice at a rate of nine percent (9%) per annum until such amount shall be paid in full, but in no event will this percentage be greater than the maximum permitted by law. Any payments made thereafter and received by Manager shall be applied first to interest accrued but unpaid and then to the oldest unpaid invoice. In addition, the parties agree that a failure by Hospital to pay any such invoice by the twentieth (20th) day of the calendar month in which the invoice is sent shall be a material breach of this Agreement by written notice to Hospital delivered personally or deposited in the United States Mail, Certified or Registered, with postage prepaid and addressed to Hospital as indicated in Section 10 hereof. If contract is terminated by Hospital, all management fees are due and payable prior to the effective date of termination and any such termination of this Agreement by Manager shall not affect Hospitals obligation to pay amounts due Manager under this Agreement, but no such payment shall affect the effectiveness of such termination. 9. CONFIDENTIAL AND PROPRIETARY INFORMATION (a) Hospital agrees and acknowledges that Confidential Information is disclosed to it in confidence with the understanding that it constitutes business information developed by Manager. Hospital further agrees that it shall not use such Confidential Information for any purpose other than in connection with the Out-Patient Program. Hospital further agrees not to disclose such Confidential Information to any third party except as required by law or regulation or in order to serve the purposes of the Out-Patient Program or as permitted by written authorization of Manager. -11- 12 (b) Manager hereby grants to Hospital for the term of this Agreement, a non-exclusive license to use the registered service marks of Manager when identifying the Out-Patient Program. These service marks are the exclusive property of Manager. (c) Manager agrees not to disclose confidential information pertaining to the Hospital business or Out-Patient Program patients except as required by law or regulation or as permitted by written authorization of Hospital or the respective patient as the case may be. 10. RECRUITMENT OF EMPLOYEES AND AGENTS (a) Hospital acknowledges that Manager has expended and will continue to expend substantial time, effort, and money to train its employees and contracted personnel in the operation of the Out-Patient Program. The employees and contracted personnel of Manager who will operate the Out- Patient Program at the Hospital will have access to and possess Confidential Information of Manager. Hospital, therefore, agrees that for the earlier of one (1) year after the cessation of the employment or agency relationship between the Manager and the employee or agent or one (1) year after termination of this Agreement, it will not knowingly (and it will not induce any of its affiliates to) employ or solicit the employment of, or in any way retain the services of any employee, former employee, or contracted personnel or former agent of Manager if such individual has been employed or retained by Manager int he Out-Patient Program unless Manager gives Hospital prior written consent thereto or unless this Agreement is terminated by Hospital pursuant to paragraph (10) of this Agreement. (b) Manager agrees that during the same respective period of time, it will not knowingly (and it will not induce any of its affiliates to) employ or solicit the employment of or in any -12- 13 way retain the services of any employee, former employee, or contracted personnel or former agent of Hospital without Hospital's prior written consent thereto. 11. TERMINATION (a) Termination by Manager: (1) By written notice to Hospital, if Hospital should have a bankruptcy, reorganization or similar action filed by or against it, become insolvent, go into liquidation for any purpose except as provided under Section 6(d) hereof. (2) In the event Hospital has failed to comply with the terms of this Agreement in any material respect, including substantial completion of all refurbishing in the identified program space, Manager shall, in writing, notify all of the nature of the breach, and Hospital shall have thirty (30) days to cure such breach or else the Agreement will thereupon be terminated upon written notice to Hospital. (3) By written notice to Hospital if Hospital fails to maintain its accreditation by the Joint Commission on Accreditation of Healthcare Organizations or any license granted to it by a regulatory agency without which the Out-Patient Program would be materially and adversely affected. (4) By written notice to Hospital if Hospital fails to maintain professional and general liability insurance in the minimum amount of $5,000,000. (b) Termination by Hospital: 1. By written notice to Manager if Manager should have a bankruptcy, reorganization or similar action filed by or against it, become insolvent, or go into liquidation for any purpose. -13- 14 2. In the event Manager has failed to comply with the terms of this Agreement in any material respect, Hospital shall, in writing, notify Manager of the nature of the breach, and Manager shall have thirty (30) days to cure such breach or else the Agreement will thereupon be terminated upon written notice to Manager. 3. By written notice to Manager if Manager fails to provide professional and general liability insurance in the minimum amount of $5,000,000. 12. MISCELLANEOUS PROVISIONS (a) Dispute Resolution: In the event that any controversy or dispute arises between the parties hereto with respect to this Agreement, the parties shall use their best efforts and due diligence to reach an agreement for the resolution of such controversy or dispute. In the event that the parties are unable to resolve any such controversy or dispute, any action or proceeding whether in law or in equity, to interpret or enforce the provision of this Agreement shall be determined and conducted by reference with respect to all issues, whether of fact or law, as provided in California Code of Civil Procedure ("C.C.P.") 638(1). The parties shall jointly select and appoint a person to act as referee. If the parties cannot agree on a person to act as referee, the court shall appoint a referee in accordance with C.C.P. 645. The prevailing party in any action or proceeding pursuant to this Section 11(a) shall be entitled to its costs and expenses (including reasonable attorney's fees) incurred in connection with the arbitration from the other party. The foregoing provisions of this Section 11(a) shall not be interpreted to restrict either party's right to pursue equitable relief from a court of competent jurisdiction at any time or to terminate this Agreement in accordance with the termination provisions hereof. -14- 15 (b) Attorneys' Fees: If any legal action (including arbitration) is necessary to enforce the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees and costs awarded against the other party in addition to any other relief to which that party may be entitled. (c) Governing Law: The validity of this Agreement and of any of its terms or provisions, the interpretation of the rights and duties of the parties hereunder, and the construction of the terms or provisions hereof shall be governed in accordance with the laws of the State of California. (d) Force Majeure: If either of the parties hereto is delayed or prevented from fulfilling any of its obligations under this Agreement by force majeure, said party shall not be liable for said delay or failure, "Force majeure" means any cause beyond the reasonable control of a party, including but not limited to an act of God, act or omission of civil military authorities, fire, strike, flood, riot, war, delay of transportation, or inability due to the aforementioned causes to obtain necessary labor, materials, or facilities. (e) Severability: If any part of this Agreement is held to be void or unenforceable, such part will be treated as severable, leaving valid the remainder of this Agreement notwithstanding the part found void or unenforceable. (f) Waiver: A waiver by either party of a breach or failure to perform shall not constitute a waiver of any provision hereof or of any other breach or failure whether or not similar. There shall be no waiver unless in writing signed by the party against whom the waiver is sought to be enforced. (g) Binding Effect: This Agreement shall be binding on the successors, and assigns of the -15- 16 respective parties, provided, however, neither party may assign or otherwise transfer this Agreement or delegate obligations hereunder without the other's written consent. (h) Complete Agreement: This Agreement constitutes the complete understanding of the parties and supersedes all other agreements, either oral or in writing, between the parties hereto with respect to the subject matter hereof, and no other agreement, representation, statement, or promise relating to the subject matter of this Agreement which is not contained herein shall be valid or binding. There shall be no amendment unless in writing signed by both parties. (i) No Agency or Partnership: The relationship between Manager and Hospital is that of independent contractors and nothing in the Agreement shall be deemed to create an agency, joint venture, partnership or similar relationship between the parties hereto. Neither party shall have the right to bid for the other or enter into any contract or commitment in the name of, or on behalf of the other. (j) Notice: All notices hereunder shall be in writing, delivered personally or by U.S. Certified or Registered postal mails, postage prepaid, return receipt requested, and shall be deemed given when delivered personally or upon the earlier of actual receipt or five (5) days after deposit in said United States Mail, addressed as below with proper postage affixed, but each party may change his address by written notice in accordance with this Paragraph. -16- 17 Hospital's Address: Sherman Oaks Hospital and Health Center 4929 Van Nuys Blvd. Sherman Oaks, CA 91403 Manager's Address: OptimumCare Corporation 30011 Ivy Glenn Drive, Suite 219 Laguna Niguel, CA 92677-5018 IN WITNESS WHEREOF, this Agreement has been executed on APRIL 7, 1995, at Laguna Niguel, California. Manager Hospital OPTIMUMCARE CORPORATION SHERMAN OAKS HOSPITAL AND HEALTH CENTER By: EDWARD A. JOHNSON By: DAVID LEVINSOHN ----------------- --------------- President Chief Executive Officer -17- 18 EXHIBIT A STAFFING PATTERN FOR OPTIMUMCARE PARTIAL HOSPITALIZATION PROGRAM ================================================================================
0-10 PATIENTS/DAY - (MONDAY - FRIDAY ONLY) ------------------------------------------ FTE --- Psych R.N. 1.0 RD/Nutritionist Per Diem Unit Secretary 1.0 11-20 PATIENTS/DAY - (MONDAY - FRIDAY ONLY) ------------------------------------------- FTE --- Psych R.N. 1.5 RD/Nutritionist Per Diem Mental Health Worker 1.0 Unit Secretary 1.0 21-30 PATIENTS/DAY - (MONDAY - FRIDAY ONLY) ------------------------------------------- FTE --- Psych R.N. 2.0 RD/Nutritionist Per Diem Mental Health Worker 1.5 Unit Secretary 1.0 31-40 PATIENTS/DAY - (MONDAY - FRIDAY ONLY) ------------------------------------------- FTE --- Psych R.N. 2.0 LVN .5 RD/Nutritionist Per Diem Mental Health Workers 2.0 Unit Secretary 1.0
EX-10.67 3 LOAN AGREEMENT 1 EXHIBIT 10.67 CORPORATE RESOLUTION TO BORROW
- -------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS $500,000 03/31/95 05/01/96 04000928 9740 - --------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN OR ITEM. - -------------------------------------------------------------------------------- BORROWER:OPTIMUMCARE CORPORATION, LENDER:NATIONAL BANK OF SOUTHERN A DELAWARE CORPORATION CALIFORNIA NEWPORT REGIONAL OFFICE 30011 IVY GLENN DRIVE #219 4100 NEWPORT PLACE LAGUNA NIGUEL, CA 92677 NEWPORT BEACH, CA 92660 - -------------------------------------------------------------------------------- I, THE UNDERSIGNED SECRETARY OR ASSISTANCE SECRETARY OF OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION (THE "CORPORATION"), HEREBY CERTIFY THAT THE CORPORATION IS ORGANIZED AND EXISTING UNDER BY VIRTUE OF THE LAWS OF THE STATE OF DELAWARE AS A CORPORATION FOR PROFIT, WITH ITS PRINCIPAL OFFICE AT 30011 IVY GLENN DRIVE #219, LAGUNA NIGUEL, CA 92677, AND IS DULY AUTHORIZED TO TRANSACT BUSINESS IN THE STATE OF CALIFORNIA. I FURTHER CERTIFY THAT AT A MEETING OF THE DIRECTORS OF THE CORPORATION (OR BY OTHER DULY AUTHORIZED CORPORATE ACTION IN LIEU OF A MEETING), DULY CALLED AND HELD ON MARCH 31, 1995, AT WHICH A QUORUM WAS PRESENT AND VOTING, THE FOLLOWING RESOLUTIONS WERE ADOPTED: BE IT RESOLVED, THAT ANY ONE (1) OF THE FOLLOWING NAMED OFFICERS, EMPLOYEES, OR AGENTS OF THIS CORPORATION, WHOSE ACTUAL SIGNATURE IS SHOWN BELOW:
NAME POSITION ACTUAL SIGNATURE - ---- -------- ---------------- EDWARD A. JOHNSON PRESIDENT EDWARD A. JOHNSON
ACTING FOR AND ON BEHALF OF THIS CORPORATION AND AS ITS ACTA AND DEED BE, AND HE OR SHE HEREBY IS, AUTHORIZED AND EMPOWERED: BORROW MONEY. TO BORROW FROM TIME TO TIME FROM NATIONAL BANK OF SOUTHERN CALIFORNIA ("LENDER"), ON SUCH TERMS AS MAY BE AGREED UPON BETWEEN THE OFFICER, EMPLOYEE, OR AGENT AND LENDER, SUCH SUM OR SUMS OF MONEY AS IN HIS OR HER JUDGMENT SHOULD BE BORROWED; HOWEVER, NOT EXCEEDING AT ANY ONE TIME THE AMOUNT OF FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($500,000). IN ADDITION TO SUCH SUM OR SUMS OF MONEY AS MAY BE CURRENTLY BORROWED BY THE CORPORATION FROM LENDER. EXECUTE NOTES. TO EXECUTE AND DELIVER TO LENDER THE PROMISSORY NOTE OR NOTES OF THE CORPORATION, ON LENDER'S FORMS, AT SUCH RATES OF INTEREST AND ON SUCH TERMS AS MAY BE AGREED UPON, EVIDENCING THE SUMS OF MONEYS O BORROWED OR ANY INDEBTEDNESS OF THE CORPORATION TO LENDER, AND ALSO TO EXECUTE AND DELIVER TO LENDER ONE OR MORE RENEWALS, EXTENSIONS, MODIFICATIONS, REFINANCINGS, CONSOLIDATIONS, OR SUBSTITUTIONS FOR ONE OR MORE OF THE NOTES, OR ANY PORTION OF THE NOTES. GRANT SECURITY. TO MORTGAGE, PLEDGE, HYPOTHECATE, OR OTHERWISE ENCUMBER AND DELIVER TO LENDER, AS SECURITY FOR THE PAYMENT OF ANY LOANS SO OBTAINED, ANY PROMISSORY NOTES SO EXECUTED, OR ANY OTHER OR FURTHER INDEBTEDNESS OF THE 2 CORPORATION TO LENDER AT ANY TIME OWING, HOWEVER THE SAME MAY BE EVIDENCED, ANY PROPERTY NOW OR HEREAFTER BELONGING TO THE CORPORATION OR IN WHICH THE CORPORATION NOW OR HEREAFTER MAY HAVE AN INTEREST, INCLUDING WITHOUT LIMITATION ALL REAL PROPERTY AND ALL PERSONAL PROPERTY OF THE CORPORATION. SUCH PROPERTY MAY BE MORTGAGED, PLEDGED, HYPOTHECATED, OR ENCUMBERED AT THE TIME SUCH LOANS ARE OBTAINED OR SUCH INDEBTEDNESS IS INCURRED, OR AT ANY OTHER TIME OR TIMES, AND MAY BE EITHER IN ADDITION TO OR IN LIEU OF ANY PROPERTY THERETOFORE MORTGAGED, PLEDGED, HYPOTHECATED, OR ENCUMBERED. EXECUTE SECURITY DOCUMENTS. TO EXECUTE AND DELIVER TO LENDER THE FORMS OF MORTGAGE, DEED OF TRUST, PLEDGE AGREEMENT, HYPOTHECATION AGREEMENT, AND OTHER SECURITY AGREEMENTS AND FINANCING STATEMENTS WHICH MAY BE SUBMITTED BY LENDER, AND WHICH SHALL EVIDENCE THE TERMS AND CONDITIONS UNDER AND PURSUANT TO WHICH SUCH LIENS AND ENCUMBRANCES, OR ANY OF THEM, AR GIVEN; AND ALSO TO EXECUTE AND DELIVER TO LENDER ANY OTHER WRITTEN INSTRUMENTS, ANY CHATTEL PAPER, OR ANY OTHER COLLATERAL, OF ANY KIND OR NATURE, WHICH HE OR SHE MAY IN HIS OR HER DISCRETION DEEM REASONABLY NECESSARY OR PROPER IN CONNECTION WITH OR PERTAINING TO THE GIVING OF THE LIENS AND ENCUMBRANCES. NEGOTIATE ITEMS. TO DRAW, ENDORSE, AND DISCOUNT WITH LENDER ALL DRAFTS, TRADE ACCEPTANCE, PROMISSORY NOTES, OR OTHER EVIDENCES OF INDEBTEDNESS PAYABLE TO OR BELONGING TO THE CORPORATION OR IN WHICH THE CORPORATION MAY HAVE AN INTEREST, AND EITHER TO RECEIVE CASH FOR THE SAME OR TO CAYUSE SUCH PROCEEDS TO BE CREDITED TO THE ACCOUNT OF THE CORPORATION WITH LENDER, OR TO CAUSE SUCH OTHER DISPOSITION OF THE PROCEEDS DERIVED THEREFROM AS THEY MAY DEEM ADVISABLE. FURTHER ACTS. IN THE CASE OF LINES OF CREDIT, TO DESIGNATE ADDITIONAL OR ALTERNATE INDIVIDUALS AS BEING AUTHORIZED TO REQUEST ADVANCES THEREUNDER, AND IN ALL CASES, TO DO AND PERFORM SUCH OTHER ACTS AND THINGS, TO PAY ANY AND ALL FEES AND COSTS, AND TO EXECUTE AND DELIVER SUCH OTHER DOCUMENTS AND AGREEMENTS, INCLUDING AGREEMENTS WAIVING THE RIGHT TO A TRIAL BY JURY, AS HE OR SHE MAY IN HIS OTHER DISCRETION DEEM REASONABLY NECESSARY OR PROPER IN ORDER TO CARRY INTO EFFECT THE PROVISIONS OF THESE RESOLUTIONS. T HE FOLLOWING PERSON OR PERSONS ARE AUTHORIZED TO REQUEST ADVANCES AND AUTHORIZE PAYMENTS UNDER THE LINE OF CREDIT UNTIL LENDER RECEIVES WRITTEN NOTICE OF REVOCATION OF THEIR AUTHORITY: EDWARD A. JOHNSON, PRESIDENT. BE IT FURTHER RESOLVED, THAT ANY AND ALL ACTS AUTHORIZED PURSUANT TO THESE RESOLUTIONS AND PERFORMED PRIOR TO THE PASSAGE OF THESE RESOLUTIONS ARE HEREBY RATIFIED AND APPROVED, THAT THESE RESOLUTIONS SHALL REMAIN IN FULL FORCE AND EFFECT AND LENDER MAY RELY ON THESE RESOLUTIONS UNTIL WRITTEN NOTICE OF THEIR REVOCATION SHALL HAVE BEEN DELIVERED TO AN RECEIVED BY LENDER. ANY SUCH NOTICE SHALL NOT AFFECT ANY OF THE CORPORATION'S AGREEMENTS OR COMMITMENTS IN EFFECT AT THE TIME NOTICE IS GIVEN. I FURTHER CERTIFY THAT THE OFFICER, EMPLOYEE, OR AGENT NAMED ABOVE IS DULY ELECTED, APPOINTED, OR EMPLOYED BY OR FOR THE CORPORATION, AS THE CASE MAY BE AND OCCUPIES THE POSITION SET OPPOSITE THE NAME; THAT HE FOREGOING RESOLUTIONS NOW STAND OF RECORD ON THE BOOKS OF THE CORPORATION; AND THAT THE RESOLUTIONS ARE IN FULL FORCE AND EFFECT AND HAVE NOT BEEN MODIFIED OR REVOKED IN ANY MANNER WHATSOEVER. 3 IN TESTIMONY WHEREOF, I HAVE THEREUNTO SET MY HAND AFFIXED THE SEAL OF THE CORPORATION ON MARCH 31, 1995 AND ATTEST THAT THE SIGNATURES SET OPPOSITE THE NAMES LISTED ABOVE ARE THEIR GENUINE SIGNATURES. CERTIFIED TO AND ATTESTED BY: XRANDY GLICKSMAN X ------------------------------- ------------------------------- SECRETARY OR ASSISTANT SECRETARY CORPORATE SEAL NOTE: IN CASE THE SECRETARY OR OTHER CERTIFYING OFFICER IS DESIGNATED BY THE FOREGOING RESOLUTIONS AS ONE OF THE SIGNING OFFICERS, THIS CERTIFICATE SHOULD ALSO BE SIGNED BY A SECOND OFFICER OR DIRECTOR OF THE CORPORATION. 4 AGREEMENT TO PROVIDE INSURANCE
- -------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS $500,000 03/31/95 05/01/96 04000928 9740 - --------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN OR ITEM. - -------------------------------------------------------------------------------- BORROWER:OPTIMUMCARE CORPORATION, LENDER:NATIONAL BANK OF SOUTHERN A DELAWARE CORPORATION CALIFORNIA NEWPORT REGIONAL OFFICE 30011 IVY GLENN DRIVE #219 4100 NEWPORT PLACE LAGUNA NIGUEL, CA 92677 NEWPORT BEACH, CA 92660 - -------------------------------------------------------------------------------- INSURANCE REQUIREMENTS: OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION ("GRANTOR") UNDERSTANDS THAT INSURANCE COVERAGE IS REQUIRED IN CONNECTION WITH THE EXTENDING OF A LOAN OR THE PROVIDING OF OTHER FINANCIAL ACCOMMODATIONS TO GRANTOR BY LENDER. THESE REQUIREMENTS ARE SET FORTH IN THE SECURITY DOCUMENTS. THE FOLLOWING MINIMUM INSURANCE COVERAGES MUST BE PROVIDED ON THE FOLLOWING DESCRIBED COLLATERAL (THE "COLLATERAL"): COLLATERAL: ALL INVENTORY, EQUIPMENT AND FIXTURES. TYPE. ALL RISKS, INCLUDING FIRE, THEFT AND LIABILITY. AMOUNT. FULL INSURABLE VALUE. BASIS. REPLACEMENT VALUE. ENDORSEMENTS. LENDER'S LOSS PAYABLE CLAUSE WITH STIPULATION THAT COVERAGE WILL NOT BE CANCELED OR DIMINISHED WITHOUT A MINIMUM OF TEN (10) DAYS' PRIOR WRITTEN NOTICE TO LENDER. INSURANCE COMPANY. GRANTOR MAY OBTAIN INSURANCES FROM ANY INSURANCE COMPANY GRANTOR MAY CHOOSE THAT IS REASONABLY ACCEPTABLE TO LENDER. GRANTOR UNDERSTANDS THAT CREDIT MAY NOT BE DENIED SOLELY BECAUSE INSURANCE WAS NOT PURCHASED THROUGH LENDER. FAILURE TO PROVIDE INSURANCE. GRANTOR AGREES TO DELIVER TO LENDER, THIRTY (30) DAYS FROM THE DATE OF THIS AGREEMENT, EVIDENCE OF THE REQUIRED INSURANCE AS PROVIDED ABLE, WITH AN EFFECTIVE DATE OF MARCH 31, 1995, OR EARLIER. GRANTOR ACKNOWLEDGES AND AGREES THAT IF GRANTOR FAILS TO PROVIDE ANY REQUIRED INSURANCE OR FAILS TO CONTINUE SUCH INSURANCE IN FORCE, LENDER MAY DO SO AT GRANTOR'S EXPENSE AS PROVIDED IN THE APPLICABLE SECURITY DOCUMENT. THE COST OF ANY SUCH INSURANCE, AT THE OPTION OF LENDER, SHALL BE PAYABLE ON DEMAND OR SHALL BE ADDED TO THE INDEBTEDNESS AS PROVIDED IN THE SECURITY DOCUMENT. GRANTOR ACKNOWLEDGES THAT IF LENDER SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN; HOWEVER, GRANTOR'S EQUITY INT HE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS. AUTHORIZATION. FOR PURPOSES OF INSURANCE COVERAGE ON THE COLLATERAL, GRANTOR AUTHORIZES LENDER TO PROVIDE TO ANY PERSON (INCLUDING ANY INSURANCE AGENT OR COMPANY) ALL INFORMATION LENDER DEEMS APPROPRIATE, WHETHER REGARDING THE COLLATERAL, THE LOAN OR OTHER FINANCIAL ACCOMMODATIONS, OR BOTH. 5 GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MARCH 31, 1995. GRANTOR: OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION BY: EDWARD A. JOHNSON ---------------------------- EDWARD A. JOHNSON, PRESIDENT - -------------------------------------------------------------------------------- FOR LENDER USE ONLY DATE: INSURANCE VERIFICATION PHONE: ------------------- ---------------- AGENT'S NAME: ------------------------------------------------------------------- INSURANCE COMPANY: -------------------------------------------------------------- POLICY NUMBER: ------------------------------------------------------------------ EFFECTIVE DATES: ---------------------------------------------------------------- COMMENTS: ----------------------------------------------------------------------- - -------------------------------------------------------------------------------- 6 NOTICE OF INSURANCE REQUIREMENTS
- -------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS $500,000 03/31/95 05/01/96 04000928 9740 - --------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN OR ITEM. - -------------------------------------------------------------------------------- BORROWER:OPTIMUMCARE CORPORATION, LENDER:NATIONAL BANK OF SOUTHERN A DELAWARE CORPORATION CALIFORNIA NEWPORT REGIONAL OFFICE 30011 IVY GLENN DRIVE #219 4100 NEWPORT PLACE LAGUNA NIGUEL, CA 92677 NEWPORT BEACH, CA 92660 - -------------------------------------------------------------------------------- TO: DATE: MARCH 31, 1995 ---------------------------------- -------------------- DEAR INSURANCE AGENT: OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION ("BORROWER") IS OBTAINING A LOAN FROM NATIONAL BANK OF SOUTHERN CALIFORNIA. PLEASE END APPROPRIATE EVIDENCE OF INSURANCE TO NATIONAL BANK OF SOUTHERN CALIFORNIA, TOGETHER WITH THE REQUESTED ENDORSEMENTS, ON THE FOLLOWING PROPERTY, WHICH BORROWER IS GIVING AS SECURITY FOR THE LOAN. COLLATERAL: ALL INVENTORY, EQUIPMENT AND FIXTURES. TYPE. ALL RISKS, INCLUDING FIRE, THEFT AND LIABILITY. AMOUNT. FULL INSURABLE VALUE. BASIS. REPLACEMENT VALUE. ENDORSEMENTS. LENDER'S LOSS PAYABLE CLAUSE WITH STIPULATION THAT COVERAGE WILL NOT BE CANCELED OR DIMINISHED WITHOUT A MINIMUM OF TEN (10) DAYS' PRIOR WRITTEN NOTICE TO LENDER. BORROWER: OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION BY: EDWARD A. JOHNSON --------------------------------------- EDWARD A. JOHNSON, PRESIDENT MAIL TO: NATIONAL BANK OF SOUTHERN CALIFORNIA 4100 NEWPORT PLACE NEWPORT BEACH, CA 92660 7 COMMERCIAL SECURITY AGREEMENT
- -------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS $500,000 03/31/95 05/01/96 04000928 9740 - --------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN OR ITEM. - -------------------------------------------------------------------------------- BORROWER:OPTIMUMCARE CORPORATION, LENDER:NATIONAL BANK OF SOUTHERN A DELAWARE CORPORATION CALIFORNIA NEWPORT REGIONAL OFFICE 30011 IVY GLENN DRIVE #219 4100 NEWPORT PLACE LAGUNA NIGUEL, CA 92677 NEWPORT BEACH, CA 92660 - -------------------------------------------------------------------------------- THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION (REFERRED TO BELOW AS "GRANTOR"); AND NATIONAL BANK OF SOUTHERN CALIFORNIA (REFERRED TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW. DEFINITIONS. THE FOLLOWING WORDS SHALL HAVE THE FOLLOWING MEANINGS WHEN USED IN THIS AGREEMENT. TERMS NOT OTHERWISE DEFINED IN THIS AGREEMENT SHALL HAVE THE EARNINGS ATTRIBUTED TO SUCH TERMS IN THE UNIFORM COMMERCIAL CODE. ALL REFERENCES TO DOLLAR AMOUNTS SHALL MEAN AMOUNTS IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA. AGREEMENT. THE WORD "AGREEMENT' MEANS THIS COMMERCIAL SECURITY AGREEMENT, AS THIS COMMERCIAL SECURITY AGREEMENT MAY BE AMENDED OR MODIFIED FROM TIME TO TIME, TOGETHER WITH ALL EXHIBITS AND SCHEDULES ATTACHED TO THIS COMMERCIAL SECURITY AGREEMENT FROM TIME TO TIME. COLLATERAL. THE WORD "COLLATERAL" MEANS THE FOLLOWING DESCRIBED PROPERTY OF GRANTOR, WHETHER NOW OWNED OR HEREAFTER ACQUIRED, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHEREVER LOCATED: ALL INVENTORY, CHATTEL PAPER, ACCOUNT, CONTRACT RIGHTS, EQUIPMENT, GENERAL INTANGIBLES AND FIXTURES. IN ADDITION, THE WORD "COLLATERAL" INCLUDES ALL THE FOLLOWING, WHETHER NOW OWNED OR HEREAFTER ACQUIRED, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHEREVER LOCATED: ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, CONTRACT RIGHTS, EQUIPMENT, GENERAL INTANGIBLES AND FIXTURES IN ADDITION, THE WORD "COLLATERAL" INCLUDES ALL THE FOLLOWING, WHETHER NOW OWNED OR HEREAFTER ACQUIRED, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHEREVER LOCATED: (A) ALL ATTACHMENTS, ACCESSIONS, TOOLS, PARTS, SUPPLIES, INCREASES, AND ADDITIONS TO AND ALL REPLACEMENTS OF ALL SUBSTITUTIONS FOR ANY PROPERTY DESCRIBED ABOVE. 8 (B) ALL PRODUCTS AND PRODUCE OF ANY OF THE PROPERTY DESCRIBED IN THIS COLLATERAL SECTION. (C) ALL ACCOUNTS, CONTRACT RIGHTS, GENERAL INTANGIBLES, INSTRUMENTS, RENTS, MONIES, PAYMENTS, AND ALL OTHER RIGHTS, ARISING OUT OF A SALE, LEASE, OR OTHER DISPOSITION OF ANY OF THE PROPERTY DESCRIBED IN THIS COLLATERAL SECTION. (D) ALL PROCEEDS (INCLUDING PROCEEDS) FROM THE SALE, DESTRUCTION, LOSS, OR OTHER DISPOSITION OF ANY OF THE PROPERTY DESCRIBED IN THIS COLLATERAL SECTION. (E) ALL RECORDS AND DATA TO ANY OF THE PROPERTY DESCRIBED IN THIS COLLATERAL SECTION, WHETHER IN THE FORM OF A WRITING, PHOTOGRAPH, MICROFILM, MICROFICHE, OR ELECTRONIC MEDIA, TOGETHER WITH ALL OF GRANTOR'S RIGHT, TITLE, AND INTEREST IN AND TO ALL COMPUTER SOFTWARE REQUIRED UTILIZED, CREATE, MAINTAIN, AND PROCESS ANY SUCH RECORDS OR DATA ON ELECTRONIC MEDIA. EVENT OF DEFAULT. THE WORDS "EVENT OF DEFAULT" MEAN AND INCLUDE WITHOUT LIMITATION ANY OF THE EVENTS OF DEFAULT SET FORTH BELOW IN THE SECTION TITLED "EVENTS OF DEFAULT". GRANTOR. THE WORD "GRANTOR" MEANS OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION, ITS SUCCESSORS AND ASSIGNS. GUARANTOR. THE WORD "GUARANTOR" MEANS AND INCLUDES WITHOUT LIMITATION EACH AND ALL THE INDEBTEDNESS. THE WORK "INDEBTEDNESS" MEANS THE INDEBTEDNESS EVIDENCED BY THE NOTE, INCLUDING ALL PRINCIPAL AND INTEREST, TOGETHER WITH ALL OTHER INDEBTEDNESS AND COSTS AND EXPENSES FOR WHICH GRANTOR IS RESPONSIBLE UNDER THIS AGREEMENT OR UNDER ANY OF THE RELATED DOCUMENTS. LENDER. THE WORD "LENDER" MEANS NATIONAL BANK OF SOUTHERN CALIFORNIA, ITS SUCCESSORS AND ASSIGNS. NOTE. THE WORD "NOTE" MEANS THE NOTE OR CREDIT AGREEMENT DATED MARCH 31, 1995, IN THE PRINCIPAL AMOUNT OF $500,000.00 FROM GRANTOR TO LENDER, TOGETHER WITH ALL RENEWALS OF, EXTENSIONS OF, MODIFICATIONS OF, REFINANCINGS OF, CONSOLIDATIONS OF AND SUBSTITUTIONS FOR THE NOTE OR CREDIT AGREEMENT. RELATED DOCUMENTS. THE WORDS "RELATED DOCUMENTS" MEANS AND INCLUDE WITHOUT LIMITATION ALL PROMISSORY NOTES, CREDIT AGREEMENTS LOAN AGREEMENTS, ENVIRONMENTAL AGREEMENTS, GUARANTIES, SECURITY AGREEMENTS, MORTGAGES, DEEDS OF TRUSTS, AND ALL OTHER INSTRUMENTS, AGREEMENTS AND DOCUMENTS, WHETHER NOW OR HEREAFTER EXISTING, EXECUTED IN CONNECTION WITH THE INDEBTEDNESS. DEPOSIT ACCOUNTS. GRANTOR HEREBY GRANTS LENDER A CONTRACTUAL POSSESSORY SECURITY INTEREST IN AND HEREBY ASSIGNS, CONVEYS, DELIVER, PLEDGES, AND TRANSFERS ALL OF GRANTOR'S RIGHT, TITLE AND INTEREST IN AN TO GRANTOR'S ACCOUNTS WITH LENDER WHETHER CHECKING, SAVINGS, OR SOME OTHER ACCOUNT), INCLUDING ALL ACCOUNTS HELD JOINTLY WITH SOMEONE ELSE AND ALL ACCOUNTS GRANTOR MAY OPEN IN THE FUTURE, EXCLUDING HOWEVER ALL IRS, KEOGH, AND TRUST ACCOUNTS. OBLIGATIONS OF GRANTOR. GRANTOR WARRANTS AND COVENANTS TO LENDER AS FOLLOWS: PERFECTION OF SECURITY INTEREST. GRANTOR AGREES TO EXECUTE SUCH FINANCING STATEMENTS AND TO TAKE WHATEVER OTHER ACTIONS ARE REQUESTED BY LENDER TO 9 PERFECT AND CONTINUE LENDER'S SECURITY INTEREST IN THE COLLATERAL. UPON REQUEST OF LENDER, GRANTOR WILL DELIVER TO LENDER ANY AND ALL OF THE DOCUMENTS EVIDENCING OR CONSTITUTING THE COLLATERAL, AND GRANTOR WILL NOTE LENDER'S INTEREST UPON ANY AND ALL CHATTEL PAPER IF NOT DELIVERED TO LENDER FOR POSSESSION BY LENDER. GRANTOR HEREBY APPOINTS LENDER AS ITS IRREVOCABLE ATTORNEY-IN-FACT FOR THE PURPOSE OF EXECUTING ANY DOCUMENTS NECESSARY TO PERFECT OR TO CONTINUE THE SECURITY INTEREST GRANTED IN THIS AGREEMENT. LENDER MAY AT ANY TIME, AND WITHOUT FURTHER AUTHORIZATION FROM GRANTOR, FILE A CARBON, PHOTOGRAPHIC OR OTHER REPRODUCTION OF ANY FINANCING STATEMENT OR OF THIS AGREEMENT FOR USE AS A FINANCING STATEMENT. GRANTOR WILL REIMBURSE LENDER FOR ALL EXPENSES FOR THE PERFECTION AND THE CONTINUATION OF THE PERFECTION OF LENDER'S SECURITY INTEREST IN THE COLLATERAL. GRANTOR PROMPTLY WILL NOTIFY LENDER BEFORE ANY CHANGE IN GRANTOR'S NAME INCLUDING ANY CHANGE TO THE ASSUMED BUSINESS NAMES OF GRANTOR. NO VIOLATION. THE EXECUTION AND DELIVERY OF THIS AGREEMENT WILL NOT VIOLATE ANY LAW OR AGREEMENT GOVERNING GRANTOR OR TO WHICH GRANTOR IS A PARTY, AND ITS CERTIFICATE OR ARTICLES OF INCORPORATION AND BYLAWS DO NOT PROHIBIT ANY TERM OR CONDITION OF THIS AGREEMENT. ENFORCEABILITY OF COLLATERAL. TO THE EXTENT THE COLLATERAL CONSISTS OF ACCOUNTS, CONTRACT RIGHTS, CHATTEL PAPER, OR GENERAL INTANGIBLES, THE COLLATERAL IS ENFORCEABLE IN ACCORDANCE WITH ITS TERMS, IS GENUINE, AND COMPLIES WITH APPLICABLE LAWS CONCERNING FORM, CONTENT AND MANNER OF PREPARATION AND EXECUTION, AND ALL PERSONS APPEARING TO BE OBLIGATED ONT HE COLLATERAL HAVE AUTHORITY AND CAPACITY TO CONTRACT AND ARE IN FACT OBLIGATED AS THEY APPEAR TO BE ON THE COLLATERAL. AT THE TIME ANY ACCOUNT BECOMES SUBJECT TO A SECURITY INTEREST IN FAVOR OF LENDER, THE ACCOUNT SHALL BE A GOOD AND VALID ACCOUNT REPRESENTING AN UNDISPUTED, BONA FIDE INDEBTEDNESS INCURRED BY THE ACCOUNT DEBTOR, FOR MERCHANDISE HELD SUBJECT TO DELIVERY INSTRUCTIONS OR THERETOFORE SHIPPED OR DELIVERED PURSUANT TO A CONTRACT OF SALE, OR FOR SERVICES THERETOFORE PERFORMED BY GRANTOR WITH OR FOR THE ACCOUNT DEBTOR; THERE SHALL BE NO SETOFFS OR COUNTERCLAIMS AGAINST ANY SUCH ACCOUNT; AND NO AGREEMENT UNDER WHICH ANY DEDUCTIONS OR DISCOUNTS MAY BE CLAIMED SHALL HAVE BEEN MADE WITH THE ACCOUNT DEBTOR EXCEPT THOSE DISCLOSED TO LENDER IN WRITING. LOCATION OF THE COLLATERAL. GRANTOR, UPON REQUEST OF LENDER, WILL DELIVERY TO LENDER IN FORM SATISFACTORY TO LENDER A SCHEDULE OF REAL PROPERTIES AND COLLATERAL LOCATIONS RELATING TO GRANTOR'S OPERATIONS, INCLUDING WITHOUT LIMITATION THE FOLLOWING: (A) ALL REAL PROPERTY OWNED OR BEING PURCHASED BY GRANTOR; (B) ALL REAL PROPERTY BEING RENTED OR LEASED BY GRANTOR; (C) ALL STORAGE FACILITIES OWNED, RENTED, LEASED, OR BEING USED BY GRANTOR, AND (D) ALL OTHER PROPERTIES WHERE COLLATERAL IS OR MAY BE LOCATED. EXCEPT IN THE ORDINARY COURSE OF ITS BUSINESS, GRANTOR SHALL NOT REMOVE THE COLLATERAL FROM ITS EXISTING LOCATIONS WITHOUT THE PRIOR WRITTEN CONSENT OF LENDER. REMOVAL OF COLLATERAL. GRANTOR SHALL KEEP THE COLLATERAL (OR TO THE EXTENT THE COLLATERAL CONSISTS OF INTANGIBLE PROPERTY SUCH AS ACCOUNTS, THE RECORDS CONCERNING THE COLLATERAL) AT GRANTOR'S ADDRESS SHOWN ABOVE OR AT SUCH OTHER LOCATIONS AS ARE ACCEPTABLE TO LENDER. EXCEPT IN THE ORDINARY COURSE OF ITS BUSINESS, INCLUDING THE SALES OF INVENTORY, GRANTOR SHALL NOT REMOVE THE COLLATERAL FROM ITS EXISTING LOCATIONS WITHOUT THE PRIOR WRITTEN CONSENT OF LENDER. TO THE EXTENT THAT THE COLLATERAL CONSISTS OF VEHICLES, OR OTHER TITLED PROPERTY, GRANTOR SHALL NOT TAKE OR PERMIT ANY ACTION WHICH WOULD REQUIRE 10 APPLICATION FOR CERTIFICATES OF TITLE FOR THE VEHICLES OUTSIDE THE STATE OF CALIFORNIA, WITHOUT PRIOR WRITTEN CONSENT OF LENDER. TRANSACTIONS INVOLVING COLLATERAL. EXCEPT FOR INVENTORY SOLD OR ACCOUNTS COLLECTED IN THE ORDINARY COURSE OF GRANTOR'S BUSINESS, GRANTOR SHALL NOT SELL, OFFER TO SELL, OR OTHERWISE TRANSFER OR DISPOSE OF THE COLLATERAL. WHILE GRANTOR IS NOT IN DEFAULT UNDER THIS AGREEMENT, GRANTOR MAY SELL INVENTORY, BUT ONLY IN THE ORDINARY COURSE OF ITS BUSINESS AND ONLY TO BUYERS WHO QUALIFY AS A BUYER IN THE ORDINARY COURSE OF BUSINESS. A SALE IN THE ORDINARY COURSE OF GRANTOR'S BUSINESS DOES NOT INCLUDE A TRANSFER IN PARTIAL OR TOTAL SATISFACTION OF A DEBT OR ANY BULK SALE. GRANTOR SHALL NOT PLEDGE, MORTGAGE, ENCUMBER OR OTHERWISE PERMIT THE COLLATERAL TO BE SUBJECT TO ANY LIEN, SECURITY INTEREST, ENCUMBRANCE, OR CHARGE, OTHER THAN SECURITY INTEREST PROVIDED FOR IN THIS AGREEMENT, WITHOUT THE PRIOR WRITTEN CONSENT OF LENDER. THIS INCLUDES SECURITY INTERESTS EVEN IF JUNIOR IN RIGHT TO THE SECURITY INTERESTS GRANTED UNDER THIS AGREEMENT. UNLESS WAIVED BY LENDER, ALL PROCEEDS FROM ANY DISPOSITION OF THE COLLATERAL (FOR WHATEVER REASON) SHALL BE HELD IN TRUST FOR LENDER AND SHALL NOT BE COMMINGLED WITH ANY OTHER FUNDS; PROVIDED HOWEVER,THIS REQUIREMENT SHALL NOT CONSTITUTE CONSENT BY LENDER TO ANY SALE OR OTHER DISPOSITION. UPON RECEIPT, GRANTOR SHALL IMMEDIATELY DELIVER ANY SUCH PROCEEDS TO LENDER. TITLE. GRANTOR REPRESENTS AND WARRANTS TO LENDER THAT IT HOLDS GOOD AND MARKETABLE TITLE TO THE COLLATERAL, FREE AND CLEAR OF ALL LIENS AND ENCUMBRANCES EXCEPT FOR THE LIEN OF THIS AGREEMENT. NO FINANCING STATEMENT CONCERNING ANY OF THE COLLATERAL IS ON FILE IN ANY PUBLIC OFFICE OTHER THAN THOSE WHICH REFLECT THE SECURITY INTEREST CREATED BY THIS AGREEMENT OR TO WHICH LENDER HAS SPECIFICALLY CONSENTED. GRANTOR SHALL DEFEND LENDER'S RIGHTS INT HE COLLATERAL AGAINST THE CLAIMS AND DEMANDS OF ALL OTHER PERSONS. COLLATERAL SCHEDULES AND LOCATIONS. AS OFTEN AS LENDER SHALL REQUIRE, AND INSOFAR AS THE COLLATERAL CONSISTS OF ACCOUNTS AND GENERAL INTANGIBLES, GRANTOR SHALL DELIVER TO LENDER SCHEDULES OF SUCH COLLATERAL, INCLUDING SUCH INFORMATION AS LENDER MAY REQUIRE, INCLUDING WITHOUT LIMITATION NAMES AND ADDRESSES OF ACCOUNT DEBTORS AND AGINGS OF ACCOUNTS AND GENERAL INTANGIBLES. INSOFAR AS THE COLLATERAL CONSISTS OF INVENTORY AND EQUIPMENT, GRANTOR SHALL DELIVER TO LENDER, AS OFTEN AS LENDER SHALL REQUIRE, SUCH LISTS, DESCRIPTIONS, AND DESIGNATIONS OF SUCH COLLATERAL AS LENDER MAY REQUIRE TO IDENTIFY THE NATURE, EXTENT, AND LOCATION OF SUCH COLLATERAL. SUCH INFORMATION SHALL BE SUBMITTED FOR GRANTOR AND EACH OF ITS SUBSIDIARIES OR RELATED COMPANIES. MAINTENANCE AND INSPECTION OF COLLATERAL. GRANTOR SHALL MAINTAIN ALL TANGIBLE COLLATERAL IN GOOD CONDITION AND REPAIR. GRANTOR WILL NOT COMMIT OR PERMIT DAMAGE TO OR DESTRUCTION OF THE COLLATERAL OR ANY PART OF THE COLLATERAL. LENDER AND ITS DESIGNATED REPRESENTATIVES AND AGENTS SHALL HAVE THE RIGHT AT ALL REASONABLE TIMES TO EXAMINE, INSPECT, AND AUDIT THE COLLATERAL WHEREVER LOCATED. GRANTOR SHALL IMMEDIATELY NOTIFY LENDER OF ALL CASES INVOLVING THE RETURN, REJECTION, REPOSSESSION, LOSS OR DAMAGE OF OR TO ANY COLLATERAL; OF ANY REQUEST FOR CREDIT OR ADJUSTMENT OR OF ANY OTHER DISPUTE ARISING WITH RESPECT TO THE COLLATERAL; AND GENERALLY OF ALL HAPPENINGS AND EVENTS AFFECTING THE COLLATERAL OR THE VALUE OR THE AMOUNT OF THE COLLATERAL. TAXES, ASSESSMENTS AND LIENS. GRANTOR WILL PAY WHEN DUE ALL TAXES, ASSESSMENTS AND LIENS UPON THE COLLATERAL, ITS USE OR OPERATIONS, UPON THIS AGREEMENT, UPON ANY PROMISSORY NOTE OR NOTES EVIDENCING THE INDEBTEDNESS, OR UPON ANY OF THE 11 OTHER RELATED DOCUMENTS. GRANTOR MAY WITHHOLD ANY SUCH PAYMENT OR MAY ELECT TO CONTEST ANY LIEN IF GRANTOR IS IN GOOD FAITH CONDUCTING AN APPROPRIATE PROCEEDING TO CONTEST THE OBLIGATION TO PAY AND SO LONG AS LENDER'S INTEREST IN THE COLLATERAL IS NOT JEOPARDIZED IN LENDER'S SOLE OPINION. IF THE COLLATERAL IS SUBJECTED TO A LIEN WHICH IS NOT DISCHARGED WITHIN FIFTEEN (15) DAYS, GRANTOR SHALL DEPOSIT WITH LENDER CASH, A SUFFICIENT CORPORATE SURELY BOND OR OTHER SECURITY SATISFACTORY TO LENDER IN AN AMOUNT ADEQUATE TO PROVIDE FOR THE DISCHARGE OF THE LIEN PLUS ANY INTEREST COSTS, ATTORNEYS' FEES OR OTHER CHARGES THAT COULD ACCRUE AS A RESULT OF FORECLOSURE OR SALE OF THE COLLATERAL. IN ANY CONTEST GRANTOR SHALL DEFEND ITSELF AND LENDER AND SHALL SATISFY ANY FINAL ADVERSE JUDGMENT BEFORE ENFORCEMENT AGAINST THE COLLATERAL. GRANTOR SHALL NAME LENDER AS AN ADDITIONAL OBLIGEE UNDER ANY SURETY BOND FURNISHED IN THE CONTEST PROCEEDINGS. COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. GRANTOR SHALL COMPLY PROMPTLY WITH ALL LAWS, ORDINANCES, RULES AND REGULATIONS OF ALL GOVERNMENTAL AUTHORITIES, NOW OR HEREAFTER IN EFFECT, APPLICABLE TO THE OWNERSHIP, PRODUCTION, DISPOSITION, OR USE OF THE COLLATERAL. GRANTOR MAY CONTEST IN GOOD FAITH ANY SUCH LAW, ORDINANCE OR REGULATION AND WITHHOLD COMPLIANCE DURING ANY PROCEEDING, INCLUDING APPROPRIATE APPEALS, SO LONG AS LENDER'S INTEREST INT HE COLLATERAL IN LENDER'S OPINION, IS NOT JEOPARDIZED. HAZARDOUS SUBSTANCES. GRANTOR REPRESENTS AND WARRANTS THAT THE COLLATERAL NEVER HAS BEEN, AND NEVER WILL BE SO LONG AS THIS AGREEMENT REMAINS A LIEN ON THE COLLATERAL, USED FOR THE GENERATION, MANUFACTURE, STORAGE, TRANSPORTATION, TREATMENT, DISPOSAL, RELEASE OR THREATENED RELEASE OF ANY HAZARDOUS WASTE OR SUBSTANCE, AS THOSE TERMS ARE DEFINED IN THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF 1980, AS AMENDED, 42 U.S.C. SECTION 9601, ET SEQ. ("CERCLA"), THE SUPERFUND AMENDMENTS AND REAUTHORIZATION ACT OF 1986. PUB. L. NO. 99-499 ("SARA") THE HAZARDOUS MATERIALS TRANSPORTATION ACT, 49 U.S.C. SECTION 1801, ET SEQ. THE RESOURCE CONSERVATION AND RECOVERY ACT 49 U.S.C. SECTION 6901, ET SEQ. CHAPTERS 6.5 THROUGH 7.7 OF DIVISION 20 OF THE CALIFORNIA HEALTH AND SAFETY CODE, SECTION 25100, ET SEQ. OR OTHER APPLICABLE STATE OR FEDERAL LAWS, RULES, OR REGULATIONS ADOPTED PURSUANT TO ANY OF THE FOREGOING. THE TERMS "HAZARDOUS WASTE" AND "HAZARDOUS SUBSTANCE" SHALL ALSO INCLUDE, WITHOUT LIMITATION, PETROLEUM AND PETROLEUM BY-PRODUCTS OR ANY FRACTION THEREOF AND ASBESTOS. THE REPRESENTATIONS AND WARRANTIES CONTAINED HEREIN ARE BASED ON GRANTOR'S DUE DILIGENCE IN INVESTIGATING THE COLLATERAL FOR HAZARDOUS WASTES AND SUBSTANCES. GRANTOR HEREBY (A) RELEASES AND WAIVES ANY FUTURE CLAIMS AGAINST LENDER FOR INDEMNITY OR CONTRIBUTION IN THE EVENT GRANTOR BECOMES LIABLE FOR CLEANUP OR OTHER COSTS UNDER ANY SUCH LAWS, AND (B) AGREES TO INDEMNIFY AND HOLD HARMLESS LENDER AGAINST ANY AND ALL CLAIMS AND LOSSES RESULTING FROM A BREACH OF THIS PROVISION OF THIS AGREEMENT. THIS OBLIGATION TO INDEMNIFY SHALL SURVIVE THE PAYMENT OF THE INDEBTEDNESS AND THE SATISFACTION OF THIS AGREEMENT. MAINTENANCE OF CASUALTY INSURANCE. GRANTOR SHALL PROCURE AND MAINTAIN ALL RISKS INSURANCE, INCLUDING WITHOUT LIMITATION FIRE, THEFT AND LIABILITY COVERAGE TOGETHER WITH SUCH OTHER INSURANCE AS LENDER MAY REQUIRE WITH RESPECT TO THE COLLATERAL, IN FORM, AMOUNTS, COVERAGES AND BASIS REASONABLY ACCEPTABLE TO LENDER AND ISSUED BY A COMPANY OR COMPANIES REASONABLY ACCEPTABLE TO LENDER. GRANTOR, UPON REQUEST OF LENDER, WILL DELIVER TO LENDER FROM TIME TO TIME THE POLICIES OR CERTIFICATES OF INSURANCE INFORM SATISFACTORY TO LENDER, INCLUDING STIPULATIONS THAT COVERAGES WILL NOT BE CANCELED OR DIMINISHED WITHOUT AT LEAST TEN (10) DAYS' PRIOR WRITTEN NOTICE TO LENDER AND NOT INCLUDING ANY DISCLAIMER OF THE INSURER'S 12 LIABILITY FOR FAILURE TO GIVE SUCH A NOTICE. EACH INSURANCE POLICY ALSO SHALL INCLUDE AN ENDORSEMENT PROVIDING THAT COVERAGE IN FAVOR OF LENDER WILL NOT BE IMPAIRED IN ANY WAY BY ANY ACT, OMISSION OR DEFAULT OF GRANTOR OR ANY OTHER PERSON. IN CONNECTION WITH ALL POLICIES COVERING ASSETS IN WHICH LENDER HOLDS OR IS OFFERED A SECURITY INTEREST, GRANTOR WILL PROVIDE LENDER WITH SUCH LOSS PAYABLE OR OTHER ENDORSEMENTS AS LENDER MAY REQUIRE. IF GRANTOR AT ANY TIME FAILS TO OBTAIN OR MAINTAIN ANY INSURANCE AS REQUIRED UNDER THIS AGREEMENT, LENDER MAY (BUT SHALL NOT BE OBLIGATED TO) OBTAIN SUCH INSURANCE AS LENDER DEEMS APPROPRIATE, INCLUDING IF IT SO CHOOSES "SINGLE INTEREST INSURANCES", WHICH WILL COVER ONLY LENDER'S INTEREST IN THE COLLATERAL. APPLICATION OF INSURANCE PROCEEDS. GRANTOR SHALL PROMPTLY NOTIFY LENDER OF ANY LOSS OR DAMAGE TO THE COLLATERAL. LENDER MAY MAKE PROOF OF LOSS IF GRANTOR FAILS TO DO SO WITHIN FIFTEEN (15) DAYS OF THE CASUALTY. ALL PROCEEDS OF ANY INSURANCE ON THE COLLATERAL, INCLUDING ACCRUED PROCEEDS THEREON, SHALL BE HELD BY LENDER AS PART OF THE COLLATERAL. IF LENDER CONSENTS TO REPAIR OR REPLACEMENT OF THE DAMAGED OR DESTROYED COLLATERAL, LENDER SHALL, UPON SATISFACTORY PROOF OF EXPENDITURE, PAY OR REIMBURSE GRANTOR FROM THE PROCEEDS FOR THE REASONABLE COST OF REPAIR OR RESTORATION. IF LENDER DOES NOT CONSENT TO REPAIR OR REPLACEMENT OF THE COLLATERAL, LENDER SHALL RETAIN A SUFFICIENT AMOUNT OF THE PROCEEDS TO PAY ALL OF THE INDEBTEDNESS, AND SHALL PAY THE BALANCE TO GRANTOR. ANY PROCEEDS WHICH HAVE NOT BEEN DISBURSED WITHIN SIX (6) MONTHS AFTER THEIR RECEIPT AND WHICH GRANTOR HAS NOT COMMITTED TO THE REPAIR OR RESTORATION OF THE COLLATERAL SHALL BE USED TO PREPAY THE INDEBTEDNESS. INSURANCE RESERVES. LENDER MAY REQUIRE GRANTOR TO MAINTAIN WITH LENDER RESERVES FOR PAYMENT OF INSURANCE PREMIUMS, WHICH RESERVES SHALL BE CREATED BY MONTHLY PAYMENTS FROM GRANTOR OF A SUM ESTIMATED BY LENDER TO BE SUFFICIENT TO PRODUCE, AT LEAST FIFTEEN (15) DAYS BEFORE THE PREMIUM DUE DATE AMOUNTS AT LEAST EQUAL TO THE INSURANCE PREMIUMS TO BE PAID. IF FIFTEEN (15) DAYS BEFORE PAYMENT IS DUE, THE RESERVE FUNDS ARE INSUFFICIENT, GRANTOR SHALL UPON DEMAND PAY ANY DEFICIENCY TO LENDER. THE RESERVE FUNDS SHALL BE HELD BY LENDER AS A GENERAL DEPOSIT AND SHALL CONSTITUTE A NON-INTEREST-BEARING ACCOUNT WHICH LENDER MAY SATISFY BY PAYMENT OF THE INSURANCE PREMIUMS REQUIRED TO BE PAID BY GRANTOR AS THEY BECOME DUE. LENDER DOES NOT HOLD THE RESERVE FUNDS IN TRUST FOR GRANTOR, AND LENDER IS NOT THE AGENT OF GRANTOR FOR PAYMENT OF THE INSURANCE PREMIUMS REQUIRED TO BE PAID BY GRANTOR. THE RESPONSIBILITY FOR THE PAYMENT OF PREMIUMS SHALL REMAIN GRANTOR'S SOLE RESPONSIBILITY. INSURANCE REPORTS. GRANTOR, UPON REQUEST OF LENDER, SHALL FURNISH TO LENDER REPORTS ON EACH EXITING POLICY OF INSURANCE SHOWING SUCH INFORMATION AS LENDER MAY REASONABLY REQUEST INCLUDING THE FOLLOWING: (A) THE NAME OF THE INSURER, (B) THE RISKS INSURED; (C) THE AMOUNT OF THE POLICY; (D) THE PROPERTY INSURED; (E) THE THEN CURRENT VALUE ON THE BASIS OF WHICH INSURANCE HAS BEEN OBTAINED AND THE MANNER OF DETERMINING THAT VALUE; AND (F) THE EXPIRATION DATE OF THE POLICY. IN ADDITION, GRANTOR SHALL UPON REQUEST BY LENDER (HOWEVER NOT MORE OFTEN THAN ANNUALLY) HAVE AN INDEPENDENT APPRAISER SATISFACTORY TO LENDER DETERMINE, AS APPLICABLE, THE CASH VALUE OR REPLACEMENT COST OF THE COLLATERAL. GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. UNTIL DEFAULT AND EXCEPT AS OTHERWISE PROVIDED BELOW WITH RESPECT TO ACCOUNTS, GRANTOR MAY HAVE POSSESSION OF THE TANGIBLE PERSONAL PROPERTY AND BENEFICIAL USE OF ALL THE COLLATERAL AND MAY USE IT IN ANY LAWFUL MANNER NOT INCONSISTENT WITH THIS AGREEMENT OR THE RELATED DOCUMENTS, PROVIDED THAT GRANTOR'S RIGHT TO POSSESSION AND BENEFICIAL USE 13 SHALL NOT APPLY TO ANY COLLATERAL WHERE POSSESSION OF THE COLLATERAL BY LENDER IS REQUIRED BY LAW TO PERFECT LENDER'S SECURITY INTEREST IN SUCH COLLATERAL. UNTIL OTHERWISE NOTIFIED BY LENDER, GRANTOR MAY COLLECT ANY OF THE COLLATERAL CONSISTING OF ACCOUNTS. AT ANY TIME AND EVEN THOUGH NO EVENT OF DEFAULT EXISTS LENDER MAY EXERCISE ITS RIGHTS TO COLLECT THE ACCOUNTS AND TO NOTIFY ACCOUNT DEBTORS TO MAKE PAYMENTS DIRECTLY TO LENDER FOR APPLICATION TO THE INDEBTEDNESS. IF LENDER AT ANY TIME HAS POSSESSION OF ANY COLLATERAL, WHETHER BEFORE OR AFTER AN EVENT OF DEFAULT, LENDER SHALL BE DEEMED TO HAVE EXERCISED REASONABLE CARE IN THE CUSTODY AND PRESERVATION OF THE COLLATERAL IF LENDER TAKES SUCH ACTION FOR THAT PURPOSE AS GRANTOR SHALL REQUEST OR AS LENDER, IN LENDER'S SOLE DISCRETION, SHALL DEEM APPROPRIATE UNDER THE CIRCUMSTANCES, BUT FAILURE TO HONOR ANY REQUEST BY GRANTOR SHALL NOT OF ITSELF BE DEEMED TO BE A FAILURE TO EXERCISE REASONABLE CARE. LENDER SHALL NOT BE REQUIRED TO TAKE ANY STEPS NECESSARY TO PRESERVE ANY RIGHTS IN THE COLLATERAL AGAINST PRIOR PARTIES, NOR TO PROTECT, PRESERVE OR MAINTAIN ANY SECURITY INTEREST GIVEN TO SECURE THE INDEBTEDNESS. EXPENDITURES BY LENDER. IN NOT DISCHARGED OR PAID WHEN DUE, LENDER MAY (BUT SHALL NOT BE OBLIGATED TO) DISCHARGE OR PAY ANY AMOUNTS REQUIRED TO BE DISCHARGED OR PAID BY GRANTOR UNDER THIS AGREEMENT. INCLUDING WITHOUT LIMITATION ALL TAXES, LIENS, SECURITY INTEREST, ENCUMBRANCES AND OTHER CLAIMS, AT ANY TIME LEVIED OR PLACED ON THE COLLATERAL. LENDER ALSO MAY (BUT SHALL NOT BE OBLIGATED TO) PAY ALL COSTS FOR INSURING MAINTAINING, AND PRESERVING THE COLLATERAL. ALL SUCH EXPENDITURES INCURRED OR PAID BY LENDER FOR SUCH PURPOSES WILL THEN BEAR INTEREST AT THE RATE CHARGED UNDER THE NOTE FROM THE DATE INCURRED OR PAID BY LENDER TO THE DATE OF REPAYMENT BY GRANTOR. ALL SUCH EXPENSES SHALL BECOME A PART OF THE INDEBTEDNESS AND, AT LENDER'S OPTION, WILL (A) BE PAYABLE ON DEMAND, (B) BE ADDED TO THE BALANCE OF THE NOTE AND BE APPORTIONED AMONG AND BE PAYABLE WITH ANY INSTALLMENT PAYMENTS TO BECOME DUE DURING EITHER (I) THE TERM OF ANY APPLICABLE INSURANCE POLICY OR (II) THE REMAINING TERM OF THE NOTE, OR (C) BE TREATED AS A BALLOON PAYMENT WHICH WILL BE DUE AND PAYABLE AT THE NOTE'S MATURITY. THIS AGREEMENT ALSO WILL SECURE PAYMENT OF THESE AMOUNTS. SUCH RIGHT SHALL BE IN ADDITION TO ALL OTHER RIGHTS AND REMEDIES TO WHICH LENDER MAY BE ENTITLED UPON THE OCCURRENCE OF AN EVENT OF DEFAULT. EVENTS OF DEFAULT. EACH OF THE FOLLOWING SHALL CONSTITUTE AN EVENT OF DEFAULT UNDER THIS AGREEMENT. DEFAULT ON INDEBTEDNESS. FAILURE OF GRANTOR TO MAKE ANY PAYMENT WHEN DUE ONT HE INDEBTEDNESS. OTHER DEFAULTS. FAILURE OF GRANTOR TO COMPLY WITH OR TO PERFORM ANY OTHER TERM, OBLIGATION, COVENANT OR CONDITION CONTAINED IN THIS AGREEMENT OR IN ANY OF THE RELATED DOCUMENTS OR IN ANY OTHER AGREEMENT BETWEEN LENDER AND GRANTOR. INSOLVENCY. THE DISSOLUTION OR TERMINATION OF GRANTOR'S EXISTENCE AS A GOING BUSINESS, THE INSOLVENCY OF GRANTOR, THE APPOINTMENT OF A RECEIVER FOR ANY PART OF GRANTOR' PROPERTY, ANY ASSIGNMENT FOR THE BENEFIT OF CREDITORS, ANY TYPE OF CREDITOR WORKOUT, OR THE COMMENCEMENT OF ANY PROCEEDING UNDER ANY BANKRUPTCY OR INSOLVENCY LAWS BY OR AGAINST GRANTOR. CREDITOR OR FORFEITURE PROCEEDINGS. COMMENCEMENT OF FORECLOSURE OR FORFEITURE PROCEEDINGS, WHETHER BY JUDICIAL PROCEEDING, SELF-HELP, REPOSSESSION OR ANY OTHER METHOD, BY ANY CREDITOR OF GRANTOR OR BY ANY GOVERNMENTAL AGENCY AGAINST THE COLLATERAL OR ANY OTHER COLLATERAL SECURING THE INDEBTEDNESS. THIS INCLUDES A 14 GARNISHMENT OF ANY OF GRANTOR'S DEPOSIT ACCOUNTS WITH LENDER. HOWEVER, THIS EVENT OF DEFAULT SHALL NOT APPLY IF THERE IS A GOOD FAITH DISPUTE BY GRANTOR AS TO THE VALIDITY OR REASONABLENESS OF THE CLAIM WHICH IS THE BASIS OF THE CREDITOR OR FORFEITURE PROCEEDING AND IF GRANTOR GIVE LENDER WRITTEN NOTICE OF THE CREDITOR OR FORFEITURE PROCEEDINGS AND DEPOSITS WITH LENDER MONIES OR A SURETY BOND FOR THE CREDITOR OR FORFEITURE PROCEEDING, IN AN AMOUNT DETERMINED BY LENDER, IN ITS SOLE DISCRETION, AS BEING AN ADEQUATE RESERVE OR BOND FOR THE DISPUTE. EVENTS AFFECTING GUARANTOR. ANY OF THE PRECEDING EVENTS OCCURS WITH RESPECT TO ANY GUARANTOR OF ANY OF THE INDEBTEDNESS OR SUCH GUARANTOR DIES OR BECOMES INCOMPETENT. LENDER, AT ITS OPTION, MAY, BUT SHALL NOT BE REQUIRED TO, PERMIT THE GUARANTOR'S ESTATE TO ASSUME UNCONDITIONALLY THE OBLIGATIONS ARISING UNDER THE GUARANTY IN A MANNER SATISFACTORY TO LENDER, AND, IN DOING SO, CURE THE EVENT OF DEFAULT. INSECURITY. LENDER, IN GOOD FAITH, DEEMS ITSELF INSECURE. RIGHTS AND REMEDIES ON DEFAULT. IN AN EVENT OF DEFAULT OCCURS UNDER THIS AGREEMENT, AT ANY TIME THEREAFTER, LENDER SHALL HAVE ALL THE RIGHTS OF A SECURED PARTY UNDER THE CALIFORNIA UNIFORM COMMERCIAL CODE. IN ADDITION AND WITHOUT LIMITATION, LENDER MAY EXERCISE ANY ONE OR MORE OF THE FOLLOWING RIGHTS AND REMEDIES: ACCELERATE INDEBTEDNESS. LENDER MAY DECLARE THE ENTIRE INDEBTEDNESS, INCLUDING ANY PREPAYMENT PENALTY WHICH GRANTOR WOULD BE REQUIRED TO PAY, IMMEDIATELY DUE AND PAYABLE, WITHOUT NOTICE. ASSEMBLE COLLATERAL. LENDER MAY REQUIRE GRANTOR TO DELIVER TO LENDER ALL OR ANY PORTION OF THE COLLATERAL AND ANY AND ALL CERTIFICATES OF TITLE AND OTHER DOCUMENTS RELATING TO THE COLLATERAL. LENDER MAY REQUIRE GRANTOR TO ASSEMBLE THE COLLATERAL AND MAKE IT AVAILABLE TO LENDER AT A PLACE TO BE DESIGNATED BY LENDER. LENDER ALSO SHALL HAVE FULL POWER TO ENTER UPON THE PROPERTY OF GRANTOR TO TAKE POSSESSION OF AND REMOVE THE COLLATERAL. IF THE COLLATERAL CONTAINS OTHER GOODS NOT COVERED BY THIS AGREEMENT AT THE TIME OF REPOSSESSION, GRANTOR AGREES LENDER MAY TAKE SUCH OTHER GOODS, PROVIDED THE LENDER MAKES REASONABLE EFFORTS TO RETURN THEM TO GRANTOR AFTER REPOSSESSION. SELL THE COLLATERAL. LENDER SHALL HAVE FULL POWER TO SELL, LEASE TRANSFER, OR OTHERWISE DEAL WITH THE COLLATERAL OR PROCEEDS THEREOF IN ITS OWN NAME OR THAT OF GRANTOR. LENDER MAY SELL THE COLLATERAL AT PUBLIC AUCTION OR PRIVATE SALE. UNLESS THE COLLATERAL THREATENS TO DECLINE SPEEDILY IN VALUE OR IS OF A TYPE CUSTOMARILY SOLD ON A RECOGNIZED MARKET, LENDER WILL GIVE GRANTOR REASONABLE NOTICE OF THE TIME AFTER WHICH ANY PRIVATE SALE OR ANY OTHER INTENDED DISPOSITION OF THE COLLATERAL IS TO BE MADE. THE REQUIREMENTS OF REASONABLE NOTICE SHALL BE MET IF SUCH NOTICE IS GIVEN AT LEAST TEN (10) DAYS, OR SUCH LESSER TIME AS REQUIRED BY STATE LAW, BEFORE THE TIME OF THE SALE OR DISPOSITION. ALL EXPENSES RELATING TO THE DISPOSITION OF THE COLLATERAL, INCLUDING WITHOUT LIMITATION THE EXPENSES OF RETAKING, HOLDING INSURING, PREPARING FOR SALES AND SELLING THE COLLATERAL, SHALL BECOME A PART OF THE INDEBTEDNESS SECURED BY THIS AGREEMENT AND SHALL BE PAYABLE ON DEMAND, WITH INTEREST AT THE NOTE RATE FROM DATE OF EXPENDITURE UNTIL REPAID. 15 APPOINT RECEIVER. TO THE EXTENT PERMITTED BY APPLICABLE LAW, LENDER SHALL HAVE THE FOLLOWING RIGHTS AND REMEDIES REGARDING THE APPOINTMENT OF A RECEIVER: (A) LENDER MAY HAVE A RECEIVER APPOINTED AS A MATTER OR RIGHT, (B) THE RECEIVER MAY BE AN EMPLOYEE OF LENDER AND MAY SERVE WITHOUT BOND, AND (C) ALL FEES OF THE RECEIVER AND HIS OR HER ATTORNEY SHALL BECOME A PART OF THE INDEBTEDNESS SECURED BY THIS AGREEMENT AND SHALL BE PAYABLE ON DEMAND, WITH INTEREST AT THE NOTE RATE FROM DATE OF EXPENDITURE UNTIL REPAID. COLLECT REVENUES, APPLY ACCOUNTS. LENDER EITHER ITSELF OR THROUGH A RECEIVER, MAY COLLECT THE PAYMENTS, RENTS, INCOME, AND REVENUES FROM THE COLLATERAL. LENDER MAY AT ANY TIME IN ITS DISCRETION TRANSFER ANY COLLATERAL INTO ITS OWN NAME OR THAT OF ITS NOMINEE AND RECEIVE THE PAYMENTS, RENTS, INCOME, AND REVENUES THEREFROM AND HOLD THE SAME AS SECURITY FOR THE INDEBTEDNESS OR APPLY IT TO PAYMENT OF THE INDEBTEDNESS IN SUCH ORDER OF PREFERENCE AS LENDER MAY DETERMINE. INSOFAR AS THE COLLATERAL CONSISTS OF ACCOUNTS, GENERAL INTANGIBLES, INSURANCE POLICIES, INSTRUMENTS, CHATTEL PAPER, CHOOSES IN ACTION, OR SIMILAR PROPERTY, LENDER MAY DEMAND, COLLECT RECEIPT FOR, SETTLE, COMPROMISE, ADJUST, SUE FOR, FORECLOSE, OR REALIZE ON THE COLLATERAL AS LENDER MAY DETERMINE, WHETHER OR NOT INDEBTEDNESS OR COLLATERAL IS THEN DUE. FOR THESE PURPOSES, LENDER MAY, ON BEHALF OF AND IN THE NAME OF GRANTOR, RECEIVE, OPEN AND DISPOSE OF MAIL ADDRESSED TO GRANTOR, CHANGE ANY ADDRESS TO WHICH MAIL AND PAYMENTS ARE TO BE SENT; AND ENDORSE NOTES, CHECKS, DRAFTS, MONEY ORDERS, DOCUMENTS OF TITLE, INSTRUMENTS AND ITEMS PERTAINING TO PAYMENT, SHIPMENT OR STORAGE OF ANY COLLATERAL. TO FACILITATE COLLECTION, LENDER MAY NOTIFY ACCOUNT DEBTORS AND OBLIGERS ON ANY COLLATERAL TO MAKE PAYMENTS DIRECTLY TO LENDER. OBTAIN DEFICIENCY. IF LENDER CHOOSES TO SELL ANY OR ALL OF THE COLLATERAL, LENDER MAY OBTAIN A JUDGMENT AGAINST GRANTOR FOR ANY DEFICIENCY REMAINING ON THE INDEBTEDNESS DUE TO LENDER AFTER APPLICATION OF ALL AMOUNTS RECEIVED FROM THE EXERCISE OF THE RIGHTS PROVIDED IN THIS AGREEMENT. GRANTOR SHALL BE LIABLE FOR A DEFICIENCY EVEN IF THE TRANSACTION DESCRIBED IN THIS SUBSECTION IS A SALE OF ACCOUNTS OR CHATTEL PAPER. OTHER RIGHTS AND REMEDIES. LENDER SHALL HAVE THE RIGHTS AND REMEDIES OF A SECURED CREDITOR UNDER THE PROVISIONS OF THE UNIFORM COMMERCIAL CODE, AS MAY BE AMENDED FROM TIME TO TIME. IN ADDITION, LENDER SHALL HAVE AND MAY EXERCISE ANY OR ALL OTHER RIGHTS AND REMEDIES IT MAY HAVE AVAILABLE AT LAW, IN EQUITY, OR OTHERWISE. CUMULATIVE REMEDIES. ALL OF LENDER'S RIGHTS AND REMEDIES, WHETHER EVIDENCED BY THIS AGREEMENT OR THE RELATED DOCUMENTS OR BY ANY OTHER WRITING SHALL BE CUMULATIVE AND MAY BE EXERCISED SINGULARLY OR CONCURRENTLY. ELECTION BY LENDER TO PURSUE ANY REMEDY SHALL NOT EXCLUDE PURSUIT OF ANY OTHER REMEDY, AND AN ELECTION TO MAKE EXPENDITURES OR TO TAKE ACTION TO PERFORM AN OBLIGATION OF GRANTOR UNDER THIS AGREEMENT, AFTER GRANTOR'S FAILURE TO PERFORM, SHALL NOT AFFECT LENDER'S RIGHT TO DECLARE A DEFAULT AND TO EXERCISE ITS REMEDIES. MISCELLANEOUS PROVISIONS. THE FOLLOWING MISCELLANEOUS PROVISIONS ARE A PART OF THIS AGREEMENT: AMENDMENTS. THIS AGREEMENT, TOGETHER WITH ANY RELATED DOCUMENTS, 16 CONSTITUTES THE ENTIRE UNDERSTANDING AND AGREEMENT OF THE PARTIES AS TO THE MATTERS SET FORTH IN THIS AGREEMENT. NO ALTERATION OF OR AMENDMENT TO THIS AGREEMENT SHALL BE EFFECTIVE UNLESS GIVEN IN WRITING AND SIGNED BY THE PARTY OR PARTIES SOUGHT TO BE CHARGED OR BOUND BY THE ALTERATION OR AMENDMENT. APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER INT HE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, GRANTOR, AGREES UPON LENDER'S REQUEST TO THE JURISDICTION OF THE COURTS OF ORANGE COUNTY, STATE OF CALIFORNIA. (INITIAL HERE E.A.J.) LENDER AND GRANTOR HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR GRANTOR AGAINST THE OTHER. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. ATTORNEY'S FEES; EXPENSES. GRANTOR AGREES TO PAY UPON DEMAND ALL OF LENDER'S COSTS AND EXPENSES. INCLUDING ATTORNEY'S FEES AND LENDER'S LEGAL EXPENSES, INCURRED IN CONNECTION WITH THE ENFORCEMENT OF THIS AGREEMENT. LENDER MAY PAY SOMEONE ELSE TO HELP ENFORCE THIS AGREEMENT, AND GRANTOR SHALL PAY THE COSTS AND EXPENSES OF SUCH ENFORCEMENT. COSTS AND EXPENSES INCLUDE LENDER'S ATTORNEY'S FEES AND LEGAL EXPENSES WHETHER OR NOT THERE IS A LAWSUIT, INCLUDING ATTORNEYS' FEES AND LEGAL EXPENSES FOR BANKRUPTCY PROCEEDINGS (AND INCLUDING EFFORTS TO MODIFY OR VACATE ANY AUTOMATIC TAY OR INJUNCTION), APPEALS, AND ANY ANTICIPATED POST-JUDGMENT COLLECTION SERVICES. GRANTOR ALSO SHALL PAY ALL COURT COSTS AND SUCH ADDITIONAL FEES AS MAY BE DIRECTED BY THE COURT. CAPTION HEADINGS. CAPTION HEADINGS IN THIS AGREEMENT ARE FOR CONVENIENCE PURPOSES ONLY AND ARE NOT TO BE USED TO INTERPRET OR DEFINE THE PROVISIONS OF THIS AGREEMENT. NOTICES. ALL NOTICES REQUIRED TO BE GIVEN UNDER THIS AGREEMENT SHALL BE GIVEN IN WRITING AND SHALL BE EFFECTIVE WHEN ACTUALLY DELIVERED OR WHEN DEPOSITED WITH A NATIONALLY RECOGNIZED OVERNIGHT COURIER OR DEPOSITED IN THE UNITED STATES MAIL FIRST CLASS, POSTAGE PREPAID, ADDRESSED TO THE PARTY TO WHOM THE NOTICE IS TO BE GIVEN AT THE ADDRESS SHOWN ABOVE. ANY PARTY MAY CHANGE ITS ADDRESS FOR NOTICES UNDER THIS AGREEMENT BY GIVING FORMAL WRITTEN NOTICE TO THE OTHER PARTIES, SPECIFYING THAT THE PURPOSE OF THE NOTICE IS TO CHANGE THE PARTY'S ADDRESS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, IF THERE IS MORE THAN ONE GRANTOR, NOTICE TO ANY GRANTOR WILL CONSTITUTE NOTICE TO ALL GRANTORS. FOR NOTICE PURPOSES, GRANTOR AGREES TO KEEP LENDER INFORMED AT ALL TIMES OF GRANTOR'S CURRENT ADDRESS(ES). POWER OF ATTORNEY. GRANTOR HEREBY APPOINTS LENDER AS ITS TRUE AND LAWFUL ATTORNEY-IN-FACT, IRREVOCABLY WITH FULL POWER OF SUBSTITUTION TO DO THE FOLLOWING: (A) TO DEMAND, COLLECT, RECEIVE, RECEIPT FOR, SUE AND RECOVER ALL SUMS OF MONEY OR OTHER PROPERTY WHICH MAY NOW OR HEREAFTER BECOME DUE, OWING OR PAYABLE FROM T E COLLATERAL; (B) TO EXECUTE, SIGN AND ENDORSE ANY AND ALL CLAIMS, INSTRUMENTS, RECEIPTS, CHECKS, DRAFTS OR WARRANTS DUE, ISSUED IN PAYMENT FOR THE COLLATERAL; (C) TO SETTLE OR COMPROMISE ANY AND ALL CLAIMS ARISING UNDER THE COLLATERAL AND IN THE PLACE AND SLEAD OF GRANTOR, TO EXECUTE AND DELIVER ITS RELEASE AND SETTLEMENT FOR THE CLAIM; AND (D) TO FILE ANY CLAIM OR CLAIMS OR TO TAKE ANY ACTION OR INSTITUTE OR TAKE PART IN ANY PROCEEDINGS, EITHER IN ITS OWN NAME OR IN THE NAME OF GRANTOR, OR OTHERWISE WHICH IN THE DISCRETION OF LENDER MAY SEEM TO BE 17 NECESSARY OR ADVISABLE. THIS POWER IS GIVEN AS SECURITY FORTH INDEBTEDNESS, AND THE AUTHORITY HEREBY CONFERRED IS AND SHALL BE IRREVOCABLE AND SHALL REMAIN IN FULL FORCE AND EFFECT UNTIL RENOUNCED BY LENDER. PREFERENCE PAYMENTS. ANY MONIES LENDER PAYS BECAUSE OF AN ASSERTED PREFERENCE CLAIM IN BORROWER'S BANKRUPTCY WILL BECOME A PART OF THE INDEBTEDNESS AND, AT LENDER'S OPTION, SHALL BE PAYABLE BY BORROWER AS PROVIDED ABOVE IN THE "EXPENDITURES BY LENDER" PARAGRAPH. SEVERABILITY. IF A COURT OF COMPETENT JURISDICTION FINDS ANY PROVISION OF THIS AGREEMENT TO BE INVALID OR UNENFORCEABLE AS TO ANY PERSON OR CIRCUMSTANCE, SUCH FINDING SHALL NOT RENDER THAT PROVISION INVALID OR UNENFORCEABLE AS TO ANY OTHER PERSONS OR CIRCUMSTANCES. IF FEASIBLE, ANY SUCH OFFENDING PROVISION SHALL BE DEEMED TO BE MODIFIED TO BE WITHIN THE LIMITS OF ENFORCEABILITY OR VALIDITY; HOWEVER, IF THE OFFENDING PROVISION CANNOT BE SO MODIFIED, IT SHALL BE STRICKEN AND ALL OTHER PROVISIONS OF THIS AGREEMENT IN ALL OTHER RESPECTS SHALL REMAIN VALID AND ENFORCEABLE. SUCCESSOR INTEREST. SUBJECT TO THE LIMITATIONS SET FORTH ABOVE ON TRANSFER OF THE COLLATERAL, THIS AGREEMENT SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES, THEIR SUCCESSORS AND ASSIGNS. WAIVER. LENDER SHALL NOT BE DEEMED TO HAVE WIVED ANY RIGHTS UNDER THIS AGREEMENT UNLESS SUCH WAIVER IS GIVEN IN WRITING AND SIGNED BY LENDER. NO DELAY OR OMISSION ON THE PART OF LENDER IN EXERCISING ANY RIGHT SHALL OPERATE AS A WAIVER OF SUCH RIGHT OR ANY OTHER RIGHT. A WAIVER BY LENDER OF A PROVISION OF THIS AGREEMENT SHALL NOT PREJUDICE OR CONSTITUTE A WAIVER OF LENDER'S RIGHT OTHERWISE TO DEMAND STRICT COMPLIANCE WITH THAT PROVISION OR ANY OTHER PROVISION OF THIS AGREEMENT. NO PRIOR WAIVER BY LENDER, NOR ANY COURSE OF DEALING BETWEEN LENDER AND GRANTOR, SHALL CONSTITUTE A WAIVER OF ANY OF LENDER'S RIGHTS OR OF ANY OF GRANTOR'S OBLIGATIONS AS TO ANY FUTURE TRANSACTIONS. WHENEVER THE CONSENT OF LENDER IS REQUIRED UNDER THIS AGREEMENT, THE GRANTING OF SUCH CONSENT BY LENDER IN ANY INSTANCE SHALL NOT CONSTITUTE CONTINUING CONSENT TO SUBSEQUENT INSTANCES WHERE SUCH CONSENT IS REQUIRED AND IN ALL CASES SUCH CONSENT MAY BE GRANTED OR WITHHELD IN THE SOLE DISCRETION OF LENDER. WAIVER OF CO-OBLIGATOR'S RIGHTS. IF MORE THAN ONE PERSON IS OBLIGATED OF THE INDEBTEDNESS, BORROWER IRREVOCABLY WAIVES, DISCLAIMS AND RELINQUISHES ALL CLAIMS AGAINST SUCH OTHER PERSON WHICH BORROWER HAS OR WOULD OTHERWISE HAVE BY VIRTUE OF PAYMENT OF THE INDEBTEDNESS OR ANY PART THEREOF, SPECIFICALLY INCLUDING BUT NOT LIMITED TO ALL RIGHTS OF INDEMNITY, CONTRIBUTION OR EXONERATION. GRANTER ACKNOWLEDGES HAVING READ ALL THE PROVISION OF THIS COMMERCIAL SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MARCH 31, 1995. GRANTOR; OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION BY: ---------------------------------------------------------------------- EDWARD A. JOHNSON, PRESIDENT 18 DISBURSEMENT REQUEST AND AUTHORIZATION
- -------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS $500,000 03/31/95 05/01/96 04000928 9740 - --------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN OR ITEM. - -------------------------------------------------------------------------------- BORROWER:OPTIMUMCARE CORPORATION, LENDER:NATIONAL BANK OF SOUTHERN A DELAWARE CORPORATION CALIFORNIA NEWPORT REGIONAL OFFICE 30011 IVY GLENN DRIVE #219 4100 NEWPORT PLACE LAGUNA NIGUEL, CA 92677 NEWPORT BEACH, CA 92660 LOAN TYPE. THIS IS A VARIABLE RATE (2.000% OVER PRIME RATE AS PUBLISHED IN THE WALL STREET JOURNAL. WHEN A RANGE OF RATES HAS BEEN PUBLISHED, THE LOWER OF THE RATES WILL BE USED, MAKING AN INITIAL RATE OF 11.000%), NON-REVOLVING LINE OF CREDIT LOAN TO A CORPORATION FOR $500,000.00 DUE ON MAY 1, 1996. PRIMARY PURPOSE OF LOAN. THE PRIMARY PURPOSE OF THIS LOAN IS FOR (PLEASE INITIAL): PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR PERSONAL INVESTMENT. --- --- X EAJ BUSINESS (INCLUDING REAL ESTATE INVESTMENT). --- --- SPECIFIC PURPOSE. THE SPECIFIC PURPOSE OF THIS LOAN IS: TO FINANCE LONG TERM WORKING CAPITAL FOR EXPANSION. DISBURSEMENT INSTRUCTIONS. BORROWER UNDERSTANDS THAT NO LOAN PROCEEDS WILL BE DISBURSED UNTIL ALL OF LENDER'S CONDITIONS FOR MAKING THE LOAN HAVE BEEN SATISFIED. PLEASE DISBURSE THE LOAN PROCEEDS OF $500,000.00 AS FOLLOWS: UNDISBURSED FUNDS: $500,000.00 ----------- NOTE PRINCIPAL: $500,000.00
CHARGES PAID IN CASH. BORROWER HAS PAID OR WILL PAY IN CASH AS AGREED THE FOLLOWING CHARGES: PREPAID FINANCE CHARGES PAID IN CASH: $2,500.00 $2,500.00 LOAN FEES --------- TOTAL CHARGES PAID IN CASH: $2,500.00
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS AUTHORIZATION IS DATED MARCH 31, 1995. BORROWER: OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION BY: EDWARD A. JOHNSON -------------------------------------------------- EDWARD A. JOHNSON, PRESIDENT 19 BUSINESS LOAN AGREEMENT PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT $500,000.00 3/31/95 05-01-1996 04000928 9740 - ----------------------------------------------------------------------------- OFFICER INITIALS 112 - -------------------- Borrower: OPTIMUMCARE CORPORATION, LENDER: NATIONAL BANK OF SOUTHERN A DELAWARE CORPORATION CALIFORNIA NEWPORT REGIONAL 30011 IVY GLENN DRIVE #219 OFFICE LAGUNA NIGUEL, CA 92677 4100 NEWPORT PLACE NEWPORT BEACH, CA 92660 THIS BUSINESS LOAN AGREEMENT between OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION ("BORROWER") and NATIONAL BANK OF SOUTHERN CALIFORNIA ("LENDER"), is made and executed on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans and other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. All such loans and financial accommodations, together with all future loans and financial accommodations from Lender to Borrower, are referred to in this Agreement individually as the "Loan" and collectively as the "Loans". Borrower understands and agrees that: (a) In granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements, as set forth in this Agreement; (b)the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgement and discretion; and (c) all such Loans shall be and shall remain subject to the following germs and conditions to this Agreement. TERM. This Agreement shall be effective as of March 31, 1995, and shall continue thereafter until all Indebtedness of Borrower to Lender has been performed in full and the parties terminate this Agreement in writing. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. Borrower. The word "Borrower" means OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION. The word "Borrower" also includes as applicable, all subsidiaries and affiliates of Borrower as provided below in the paragraph titled "Subsidiaries and Affiliates". CERCLA. The word "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive of extraordinary gains and income, plus depreciation and amortization. Collateral. The word "Collateral" means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract or otherwise. Debt. The word "Debt" means all of Borrower's liabilities excluding Subordinated Debt. ERISA. The word "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. Event of Default. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT". 20 03-31-1995 BUSINESS LOAN AGREEMENT Page 2 Loan No. 04000928 (Continued) - -------------------------------------------------------------------------------- Grantor. The words "Grantor" means and includes without limitation each and all of the persons or entities granting a Security Interest in any Collateral for the indebtedness, including without limitation all borrowers granting such a Security Interest. Guarantor. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodations parties in connection with any Indebtedness. Indebtedness. The word "Indebtedness" means and includes without limitation all Loans, together with all other obligations, debts and liabilities of Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower, or any one or more of them; whether now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually or jointly with others; whether Borrower may be obligated as a guarantor, surety, or otherwise; whether recovery upon such indebtedness may be or hereafter may become barred by any statute of limitations; and whether such Indebtedness may be or hereafter may become otherwise unenforceable. Lender. The word "Lender" means NATIONAL BANK OF SOUTHERN CALIFORNIA, its successors and assigns. Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus Borrower's receivables. Loan. The word "Loan" or Loans" means and includes without limitation any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans an financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. Note. The word "Note" means and includes without limitation Borrower's promissory note or notes, if any, evidencing Borrower's Loan obligations in favor of Lender as well as any substitute, replacement or refinancing note or notes therefor. Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the indebtedness. Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest. Security Interest. The words "Security Interest" mean and include without limitation any type of collateral security, whether in the form of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract or otherwise. SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of 1986 as now or hereafter amended. Subordinated Debt. The words "Subordinated Debt" means indebtedness and liabilities of Borrower which have been subordinated by written agreement to indebtedness owed by Borrower to Lender in form and substance acceptable to Lender. Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total assets excluding all intangible assets (i.e. goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) less total Debt. Working Capital. The words "Working Capital" mean Borrower's current assets, excluding prepaid expenses, less Borrower's current liabilities. 21 03-31-1995 BUSINESS LOAN AGREEMENT Page 3 Loan No. 04000928 (Continued) - -------------------------------------------------------------------------------- REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender as of the date of this Agreement and as of the date of each disbursement of Loan proceeds: Organization. Borrower is a corporation which is duly organized, validly existing, and in good standing under the laws of the State of Delaware. Borrower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in all states in which the failure to so qualify would have a material adverse effect on its businesses or financial condition. Authorization. The execution, delivery, and performance of this Agreement and all Related Documents by Borrower, to the extend to be executed, delivered or performed by Borrower, have been duly authorized by all necessary action by Borrower; do not require the consent or approval of any other person, regulatory authority or governmental body; and do not conflict with, result in a violation of, or constitute a default under (a) any provision of its articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (b) any law, governmental regulation, court decree, or order applicable to Borrower. Financial Information. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. Legal Effect. This Agreement constitutes, and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute, legal, valid and binding obligations of Borrower's enforceable against Borrower in accordance with their respective terms. Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used, or filed a financing statement under, any other name for at least the last five (5) years. Hazardous Substances. The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement shall have the same meanings as set forth in the "CERCLA", "SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant ot any of the foregoing. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (a) During the period of Borrower's ownership of the properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or substance on, under, or about any of the properties; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. Borrower authorizes Lender and its agents to enter upon the properties to make such inspections and tests as Lender may deem appropriate to determine compliance of the properties with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the properties for hazardous waste. Borrower hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the even Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer regulating from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring prior to Borrower's ownership or interest in the properties, whether or not the same was or should have been known to Borrower. The provisions of this section of the Agreement, including 22 03-31-1995 BUSINESS LOAN AGREEMENT Page 4 Loan No. 04000928 (Continued) - -------------------------------------------------------------------------------- the obligation to indemnify, shall survive the payment of the indebtedness and the termination or expiration of this Agreement and shall not be affected by Lenders' acquisition of any interest in any of the properties, whether by foreclosure or otherwise. Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims or other events. If any, that have been disclosed to and acknowledged by Lender in writing. Taxes. To the best of Borrower's knowledge, all tax returns and reports of Borrower that are or were required to be file, have been files, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral. Binding Effect. This Agreement, the Note and all Security Agreements directly or indirectly securing repayment of Borrower's Loan and Note are binding upon Borrower as well as upon Borrower's successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. Commercial Purposes. Borrower intends to use the Loan proceeds solely for business or commercial related purposes. Employee Benefit Plans. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (i) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower has not withdrawn from any such plan or initiated steps to do so, and (iii) no steps have been taken to terminate any such plan. Location of Borrower's Offices and Records. The chief place of business of Borrower and the office or offices where Borrower keeps its records concerning the Collateral is located at 30011 IVY GLENN DRIVE, #219, LAGUNA NIGUEL, CA 92677. Information. All information heretofore or contemporaneously herewith furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf of Borrower to Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. Survival of Representation and Warranties. Borrower understands and agrees that Lender is relying upon the above representations and warranties in extending Loan Advances to Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as Borrower's Loan and Note shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will: Litigation. Promptly inform Lender in writing of (a) all material adverse changes in Borrower's financial condition, and (b) all litigation and claims and all threatened litigation and claims affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. 23 03-31-1995 BUSINESS LOAN AGREEMENT Page 5 Loan No. 04000928 (Continued) - -------------------------------------------------------------------------------- Financial Records. Maintain its books and records in accordance with generally accepted accounting principles, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times. Additional Information. Furnish such additional information and statements, lists of assets and liabilities, aging of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may request from time to time. Financial Covenants and Ratios. Comply with the following covenants and ratios: Tangible Net Worth. Maintain a minimum Tangible Net Worth of not less than $1,375,000.00. Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net Worth of less than 1.50 to 1.00. For the purposes of this Agreement and to the extent the following terms are utilized in this Agreement, the term "Tangible Net Worth" shall mean Borrower's total asset excluding all intangible assets (i.e. goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) less total Debt. The term "Debt" shall mean all of Borrower's liabilities excluding Subordinated Debt. The term "Subordinated Debt" shall mean indebtedness and liabilities of Borrower which have been subordinated by written agreement to indebtedness owed by Borrower to Lender in form and substance acceptable to Lender. The term "Working Capital" shall mean Borrower's current assets, excluding prepaid expenses, less Borrower's current liabilities. The term "Liquid Assets" shall mean Borrower's cash on hand plus Borrower's receivables. The term "Cash Flow" shall mean net income after taxes, and exclusive of extraordinary gains and income, plus depreciation and amortization. Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis and certified by Borrower as being true and correct. Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages, and with insurance companies reasonably acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverage will not be cancelled or diminished without at least ten (10) day's prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in factor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. IN connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such loss payable or other endorsements as Lender may require. Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing Insurance policy showing such information as Lender may reasonable request, including without limitation the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy;Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished. Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Security Agreement to create a valid and perfected Security Interest) at any time and for any reason. Insolvency. The dissolution or termination Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. 24 03-31-1995 BUSINESS LOAN AGREEMENT Page 6 Loan No. 04000928 (Continued) - -------------------------------------------------------------------------------- Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower, any creditor of any Grantor against any collateral securing the Indebtedness, or by any governmental agency. This incudes a garnishment, attachment, or levy on or of any of Borrower's deposit accounts with lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower or Grantor, as the case may be, as to the validity or reasonableness of the claim, which is the basis of the creditor or forfeiture proceeding, and if Borrower or Grantor gives Lender written notice of the creditor or forfeiture proceeding and furnishes reserves or a surety bond for the creditor or forfeiture proceeding satisfactory to Lender. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or such Guarantor dies or becomes incompetent or any Guarantor revokes any guaranty of the indebtedness. Lender, at its option, may, but shall not be required to, permit the Guarantor's estate to assume unconditionally the obligations arising under the guaranty in a manner satisfactory to Lender, and, in doing so, cure the Event of Default. Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. Right to Cure. If any default, other than a Default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured (and no Event of Default will have occurred) if Borrower or Grantor, as the case may be, after receiving written notice from Lender demanding cure of such default; (a) cures the default within five (5) days; or (b) if the cure requires more than five (5) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make Loan Advances or disbursements), and, at Lender's option, all Loans Immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Applicable Law. This Agreement has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of ORANGE County, the State of California. (Initial Here EAJ). Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. This Agreement shall be governed by and construed in accordance with the laws of the State of California. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. 25 03-31-1995 BUSINESS LOAN AGREEMENT Page 7 Loan No. 04000928 (Continued) - -------------------------------------------------------------------------------- Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now, or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy it may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loans irrespective of the failure or insolvency of any holder of any interest in the Loans. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. Costs and Expenses. Borrower agrees to pay upon demand all of Lender's out-of-pocket expenses, including without limitation attorneys' fees incurred in connection with the preparation, execution, enforcement and collection of this Agreement or in connection with the Loans made pursuant to this Agreement. Lender may pay someone else to help collect the Loans and to enforce this Agreement, and Borrower will pay that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorney's fees for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgement collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. Notices. All notices required to be given under this Agreement shall be given in writing and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extend permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address(es). Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be strictest and all other provisions of this Agreement in all other respects shall remain valid and enforceable. Subsidiaries and Affiliates of Borrower. To the extend the context of any provisions of this Agreement make it appropriate, including without limitation any representation, warranty or covenant,k the word "Borrower" as used herein shall include all subsidiaries and affiliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodations to any subsidiary or affiliate of Borrower. Successors and Assigns. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Borrower shall not, however have the right to assign its rights under this Agreement or any interest therein, without the prior written consent of Lender. Survival. All warranties, representations, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement shall be considered to have been relied upon by Lender and will survive the making o the Loan and delivery to Lender of the Related Documents, regardless of any investigation made by Lender or on Lender's behalf. 26 03-31-1995 BUSINESS LOAN AGREEMENT Page 8 Loan No. 04000928 (Continued) - -------------------------------------------------------------------------------- Time is of the Essence. Time is of the essence in the performance of this Agreement. Waiver. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any Lender's rights or of any obligations of Borrower of any Grantor as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent in subsequent instances where such consent is required, and in all cases such consent is required, and in all cases such consent may be granted or withheld in the sole discretion of Lender. 27 BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISION OF THIS BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF MARCH 31, 1995. BORROWER: OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION BY: EDWARD A. JOHNSON --------------------------- EDWARD A. JOHNSON, PRESIDENT LENDER: NATIONAL BANK OF SOUTHERN CALIFORNIA BY: --------------------------- AUTHORIZED OFFICER - ------------------------------------------------ 28 PROMISSORY NOTE - --------------------------------------------------- PRINCIPAL|LOAN |DATE |MATURITY|LOAN NO.|CALL |COLLATERAL|ACCOUNT|OFFICER|INITIALS| $500,000 |03/31/95|05/01/96|04000928|9740 | | | | | |
- --------------------------------------------------- REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN OR ITEM. - --------------------------------------------------- BORROWER:OPTIMUMCARE CORPORATION, LENDER:NATIONAL BANK OF SOUTHERN A DELAWARE CORPORATION CALIFORNIA NEWPORT REGIONAL OFFICE 30011 IVY GLENN DRIVE #219 4100 NEWPORT PLACE LAGUNA NIGUEL, CA 92677 NEWPORT BEACH, CA 92660 PRINCIPAL AMOUNT:$500,000.00 INITIAL RATE:11.000% DATE OF NOTE:MARCH 31, 1995 PROMISE TO PAY. OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION ("BORROWER") PROMISES TO PAY TO NATIONAL BANK OF SOUTHER CALIFORNIA ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF FIVE HUNDRED THOUSAND & 00/100 DOLLARS ($500,000.00) OR SO MUCH AS MAY BE OUTSTANDING TOGETHER WITH INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE. PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON MAY 1, 1996. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST BEGINNING MAY 1, 1995, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ONT HE SAME DAY OF EACH MONTH AFTER THAT. INTEREST ON THIS NOTE IS COMPUTED ON A 365/365 SIMPLE INTEREST BASIS; THAT IS, BY APPLYING THE RATIO OF THE ANNUAL INTEREST RATE OVER THE NUMBER OF DAYS IN A YEAR, MULTIPLIED BY THE OUTSTANDING PRINCIPAL BALANCE, MULTIPLIED BY THE ACTUAL NUMBER OF DAYS THE PRINCIPAL BALANCE IS OUTSTANDING. BORROWER WILL PAY LENDER AT LENDER'S ADDRESS SHOWN ABOVE OR AT SUCH OTHER PLACE AS LENDER MAY DESIGNATE IN WRITING. UNLESS OTHERWISE AGREED OR REQUIRED BY APPLICABLE LAW, PAYMENTS WILL BE APPLIED FIRST TO ANY UNPAID COLLECTION COSTS AND ANY LATE CHARGES, THEN TO ANY UNPAID INTEREST, AND ANY REMAINING AMOUNT TO PRINCIPAL. VARIABLE INTEREST RATE. THE INTEREST RATE ON THIS NOTE IS SUBJECT TO CHANGE FROM TIME TO TIME BASED ON CHANGES IN AN INDEPENDENT INDEX WHICH IS THE PRIME RATE AS PUBLISHED IN THE WALL STREET JOURNAL. WHEN A RANGE OF RATES HAS BEEN PUBLISHED, THE LOWER OF THE RATES WILL BE USED (THE "INDEX"). THE INDEX IS NOT NECESSARILY THE LOWEST RATE CHARGED BY LENDER ON ITS LOANS. IF THE INDEX BECOMES UNAVAILABLE DURING THE TERM OF THIS LOAN, LENDER MAY DESIGNATE A SUBSTITUTE INDEX AFTER NOTICE TO BORROWER. LENDER WILL TELL BORROWER THE CURRENT INDEX RATE UPON BORROWER'S REQUEST. BORROWER UNDERSTANDS THAT LENDER MAY MAKE LOANS BASED ON OTHER RATES AS WELL. THE INTEREST RATE CHANGE WILL NOT OCCUR MORE OFTEN THAT EACH DAY. THE INDEX CURRENTLY IS 9.000% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 2.000 PERCENTAGE POINT OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 11.000% PER ANNUM. NOTICE: UNDER NO CIRCUMSTANCES WILL THE INTEREST RATE ON THIS NOTE BE MORE THAN THE MAXIMUM RATE ALLOWED BY APPLICABLE LAW. PREPAYMENT: MINIMUM INTEREST CHARGE. BORROWER AGREES THAT ALL LOAN FEES AND OTHER PREPAID FINANCE CHARGES ARE EARNED FULLY AS OF THE DATE OF THE LOAN AND WILL NOT BE SUBJECT TO REFUND UPON EARLY PAYMENT (WHETHER VOLUNTARY OR AS A RESULT OF DEFAULT), EXCEPT AS OTHERWISE REQUIRED BY LAW. IN ANY EVENT, EVEN UPON FULL PREPAYMENT OF THIS NOTE, BORROWER UNDERSTANDS THAT LENDER IS ENTITLED TO A MINIMUM INTEREST CHARGE OF $100.00. OTHER THAN BORROWER'S OBLIGATION TO PAY ANY MINIMUM INTEREST CHARGE, BORROWER MAY PAY WITHOUT PENALTY ALL OR A PORTION OF THE AMOUNT OWED EARLIER THAN IT IS DUE. EARLY PAYMENTS WILL NOT, UNLESS AGREED TO BY LENDER IN WRITING, RELIEVE BORROWER OF BORROWER'S OBLIGATION TO CONTINUE TO MAKE PAYMENTS OF ACCRUED UNPAID INTEREST. RATHER, THEY WILL 29 REDUCE THE PRINCIPAL BALANCE DUE. LATE CHARGE. IF A PAYMENT IS 10 DAYS OR MORE LATE, BORROWER WILL BE CHARGED 5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $10.00, WHICHEVER IS GREATER. DEFAULT. BORROWER WILL BE IN DEFAULT IF ANY OF THE FOLLOWING HAPPENS: (A) BORROWER FAILS TO MAKE ANY PAYMENT WHEN DUE, (B) BORROWER BREAKS ANY PROMISE BORROWER HAS MADE TO LENDER, OR BORROWER FAILS TO PERFORM PROMPTLY AT THE TIME AND STRICTLY IN THE MANNER PROVIDED IN THIS NOTE OR ANY AGREEMENT RELATED TO THIS NOTE, OR IN ANY OTHER AGREEMENT OR LOAN BORROWER HAS WITH LENDER, (C) BORROWER DEFAULTS UNDER ANY LOAN, EXTENSION OF CREDIT, SECURITY AGREEMENT, PURCHASE OR SALES AGREEMENT, OR ANY OTHER AGREEMENT IN FAVOR OF ANY OTHER CREDITOR OR PERSON THAT MAY MATERIALLY AFFECT ANY OF BORROWER'S PROPERTY OR BORROWER'S ABILITY TO REPAY THIS NOTE OR PERFORM BORROWER'S OBLIGATIONS UNDER THIS NOTE OR ANY OF THE RELATED DOCUMENTS, (D) ANY REPRESENTATION OR STATEMENT MADE OR FURNISHED TO LENDER BY BORROWER OR ON BORROWER'S BEHALF IS FALSE OR MISLEADING IN ANY MATERIAL RESPECT, (E) BORROWER BECOMES INSOLVENT, A RECEIVER IS APPOINTED FOR ANY PART OF BORROWER'S PROPERTY, BORROWER MAKES AN ASSIGNMENT FOR THE BENEFIT OF CREDITORS, OR ANY PROCEEDING IS COMMENCED EITHER BY BORROWER OR AGAINST BORROWER UNDER ANY BANKRUPTCY INSOLVENCY LAWS, (F) ANY CREDITOR TRIES TO TAKE ANY OF BORROWER'S PROPERTY ON OR IN WHICH LENDER HAS A LIEN OR SECURITY INTEREST. THIS INCLUDES A GARNISHMENT OF ANY OF BORROWER'S ACCOUNTS WITH LENDER, (G) ANY OF THE EVENTS DESCRIBED IN THIS DEFAULT SECTION OCCURS WITH RESPECT TO ANY GUARANTOR OF THIS NOTE. IF ANY DEFAULT, OTHER THAN A DEFAULT IN PAYMENT, IS CURABLE AND IF BORROWER HAS NOT BEEN GIVEN A NOTICE OF A BREACH OF THE SAME PROVISION OF THIS NOTE WITHIN THE PRECEDING TWELVE (12) MONTHS, IT MAY BE CURED (AND NO EVENT OF DEFAULT WILL HAVE OCCURRED) IF BORROWER, AFTER RECEIVING WRITTEN NOTICE FROM LENDER DEMANDING CURE OF SUCH DEFAULT: (A) CURES THE DEFAULT WITHIN FIVE (5) DAYS; OR (B) IF THE CURE REQUIRES MORE THAN FIVE (5) DAYS, IMMEDIATELY INITIATES STEPS WHICH LENDER DEEMS IN LENDER'S SOLE DISCRETION TO BE SUFFICIENT TO CURE THE DEFAULT AND THEREAFTER CONTINUES AND COMPLETES ALL REASONABLE AND NECESSARY STEPS SUFFICIENT TO PRODUCE COMPLIANCE AS SOON AS REASONABLY PRACTICAL. LENDER'S RIGHTS. UPON DEFAULT, LENDER MAY DECLARE THE ENTIRE UNPAID PRINCIPAL BALANCE ON THIS NOTE AND ALL ACCRUED UNPAID INTEREST IMMEDIATELY DUE, WITHOUT NOTICE AND THEN BORROWER WILL PAY THAT AMOUNT. UPON BORROWER'S FAILURE TO PAY ALL AMOUNTS DECLARED DUE PURSUANT TO THIS SECTION, INCLUDING FAILURE TO PAY UPON FINAL MATURITY, LENDER, AT ITS OPTION, MAY ALSO, IF PERMITTED UNDER APPLICABLE LAW, DO ONE OR BOTH OF THE FOLLOWING: (A) INCREASE THE VARIABLE INTEREST RATE ON THIS NOTE TO 7.000 PERCENTAGE POINT OVER THE INDEX, AND (B) ADD ANY UNPAID ACCRUED INTEREST TO PRINCIPAL AND SUCH SUM WILL BEAR INTEREST THEREFROM UNTIL PAID AT THE RATE PROVIDED IN THIS NOTE (INCLUDING ANY INCREASED RATE). LENDER MAY HIRE OR PAY SOMEONE ELSE TO HELP COLLECT THIS NOTE IF BORROWER DOES NOT PAY. BORROWER ALSO WILL PAY LENDER THAT AMOUNT. THIS INCLUDES, SUBJECT TO ANY LIMITS UNDER APPLICABLE LAW, LENDER'S ATTORNEY'S FEES AND LENDER'S LEGAL EXPENSES WHETHER OR NOT THERE IS A LAWSUIT, INCLUDING ATTORNEY'S FEES AND LEGAL EXPENSES FOR BANKRUPTCY PROCEEDINGS (INCLUDING EFFORTS TO MODIFY OR VACATE ANY AUTOMATIC STAY OR INJUNCTION), APPEALS, AND ANY ANTICIPATED POST-JUDGMENT COLLECTION SERVICES. BORROWER ALSO WILL PAY ANY COURT COSTS IN ADDITION TO ALL OTHER SUMS PROVIDED BY LAW. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF ORANGE COUNTY, THE STATE OF CALIFORNIA, (INITIAL HERE E.A.J.) LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. DEPOSIT ACCOUNTS. BORROWER GRANTS TO LENDER A CONTRACTUAL POSSESSORY SECURITY INTEREST IN, AND HEREBY ASSIGNS, CONVEYS, DELIVERS, PLEDGES, AND TRANSFERS TO LENDER ALL BORROWER'S RIGHT, TITLE AND INTEREST IN AND TO, BORROWER'S ACCOUNTS WITH LENDER (WHETHER CHECKING, SAVINGS, OR SOME OTHER ACCOUNT), INCLUDING WITHOUT LIMITATION ALL ACCOUNTS HELD JOINTLY WITH SOMEONE ELSE AND ALL ACCOUNTS BORROWER MAY OPEN IN THE FUTURE, EXCLUDING HOWEVER ALL IRA, KEOGH, AND TRUST ACCOUNTS. 30 LINE OF CREDIT. THIS NOTE EVIDENCES A STRAIGHT LINE OF CREDIT. ONCE THE TOTAL AMOUNT OF PRINCIPAL HAS BEEN ADVANCED, BORROWER IS NOT ENTITLED TO FURTHER LOAN ADVANCES. ADVANCES UNDER THIS NOTE MAY BE REQUESTED ORALLY BY BORROWER OR BY AN AUTHORIZED PERSON. LENDER MAY, BUT NEED NOT, REQUIRE THAT ALL ORAL REQUESTS BE CONFIRMED IN WRITING. ALL COMMUNICATIONS, INSTRUCTIONS, OR DIRECTIONS BY TELEPHONE OR OTHERWISE TO LENDER ARE TO BE DIRECTED TO LENDER'S OFFICE SHOWN ABOVE. THE FOLLOWING PARTY OR PARTIES ARE AUTHORIZED TO REQUEST ADVANCES UNDER THE LINE OF CREDIT UNTIL LENDER RECEIVES FROM BORROWER AT LENDER'S ADDRESS SHOWN ABOVE WRITTEN NOTICE OF REVOCATION OF THEIR AUTHORITY: EDWARD A. JOHNSON, PRESIDENT. BORROWER AGREES TO BE LIABLE FOR ALL SUMS EITHER: (A) ADVANCED IN ACCORDANCE WITH THE INSTRUCTIONS OF AN AUTHORIZED PERSON OR (B) CREDITED TO ANY OF BORROWER'S ACCOUNTS WITH LENDER. THE UNPAID PRINCIPAL BALANCE OWING ON THIS NOTE AT ANY TIME MAY BE EVIDENCED BY ENDORSEMENTS ON THIS NOTE OR BY LENDER'S INTERNAL RECORDS. INCLUDING DAILY COMPUTER PRINTOUTS. LENDER WILL HAVE NO OBLIGATION TO ADVANCE FUNDS UNDER THIS NOTE IF: (A) BORROWER OR ANY GUARANTOR IS IN DEFAULT UNDER THE TERMS OF THIS NOTE OR ANY AGREEMENT THAT BORROWER OR ANY GUARANTOR HAS WITH LENDER, INCLUDING ANY AGREEMENT MADE IN CONNECTION WITH THE SIGNING OF THIS NOTE; (B) BORROWER OR ANY GUARANTOR CEASES DOING BUSINESS OR IS INSOLVENT; (C) ANY GUARANTOR SEEKS CLAIMS OR OTHERWISE ATTEMPTS TO LIMIT, MODIFY OR REVOKE SUCH GUARANTOR'S GUARANTEE OF THIS NOTE OR ANY OTHER LOAN WITH LENDER,; OR (D) BORROWER HAS APPLIED FUNDS PROVIDED PURSUANT TO THIS NOTE FOR PURPOSES OTHER THAN THOSE AUTHORIZED BY LENDER. GENERAL PROVISIONS. THIS NOTE IS PAYABLE ON DEMAND. THE INCLUSION OF SPECIFIC DEFAULT PROVISIONS OR RIGHTS OF LENDER SHALL NOT PRECLUDE LENDER'S RIGHT TO DECLARE PAYMENT OF THIS NOTE ON ITS DEMAND. LENDER MAY DELAY OR FORGO ENFORCING ANY OF ITS RIGHTS OR REMEDIES UNDER THIS NOTE WITHOUT LOSING THEM. BORROWER AND ANY OTHER PERSON WHO SIGNS, GUARANTEES OR ENDORSES THIS NOTE, TO THE EXTENT ALLOWED BY LAW, WAIVE ANY APPLICABLE STATUTE OF LIMITATIONS, PRESENTMENT, DEMAND FOR PAYMENT, PROTEST AND NOTICE OF DISHONOR. UPON ANY CHANGE IN THE TERMS OF THIS NOTE, AND UNLESS OTHERWISE EXPRESSLY STATED IN WRITING, NO PARTY WHO SIGNS THIS NOTE, WHETHER AS MAKER, GUARANTOR, ACCOMMODATION MAKER OR ENDORSER, SHALL BE RELEASED FROM LIABILITY. ALL SUCH PARTIES AGREE THAT LENDER MAY RENEW OR EXTEND (REPEATEDLY AND FOR ANY LENGTH OF TIME) THIS LOAN, OR RELEASE ANY PARTY OR GUARANTOR OR COLLATERAL; OR IMPAIR, FAIL TO REALIZE UPON OR PERFECT LENDER'S SECURITY INTEREST IN THE COLLATERAL; AND TAKE ANY OTHER ACTION DEEMED NECESSARY BY LENDER WITHOUT THE CONSENT OF OR NOTICE TO ANYONE. ALL SUCH PARTIES ALSO AGREE THAT LENDER MAY MODIFY THIS LOAN WITHOUT THE CONSENT OF OR NOTICE TO ANYONE OTHER THAN THE PARTY WITH WHOM THE MODIFICATION IS MADE. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPTS OF A COMPLETED COPY OF THE NOTE. BORROWER: OPTIMUMCARE CORPORATION, A DELAWARE CORPORATION BY: EDWARD A. JOHNSON --------------------------- EDWARD A. JOHNSON, PRESIDENT 31 STATE OF CALIFORNIA UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1 This financing Statement is presented for filing and will remain effective, with certain exceptions, for five years from the date of filing, pursuant to Section 9403 of the California Uniform Commercial Code - ---------------------------------------------------- 1. DEBTOR 1A. SOCIAL SECURITY OR FEDERAL TAX NO. OPTIMUMCARE CORPORATION 33-0218003 - ---------------------------------------------------- 1B. MAILING ADDRESS 1C. CITY,STATE 1D. ZIP CODE 30011 IVY GLENN DRIVE #219 LAGUNA NIGUEL, CA 92677 - ---------------------------------------------------- 2. ADDITIONAL DEBTOR 2A. SOCIAL SECURITY OR FEDERAL TAX NO. - ---------------------------------------------------- 3. DEBTOR'S TRADE NAMES OR STYLES 3A. FEDERAL TAX NO. - ---------------------------------------------------- 4. SECURED PARTY 4A. FEDERAL TAX. NO. NATIONAL BANK OF SOUTHERN CALIFORNIA 95-3748495 NEWPORT REGIONAL OFFICE 4100 NEWPORT PLACE NEWPORT BEACH, CA 92660 - ---------------------------------------------------- 5. ASSIGNEE OF SECURED PARTY 5A. FEDERAL TAX NO. - ---------------------------------------------------- 6. THIS FINANCING STATEMENT COVERS THE FOLLOWING TYPE OF PROPERTY: ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, CONTRACT RIGHTS, EQUIPMENT, GENERAL INTANGIBLES AND FIXTURES; WHETHER ANY OF THE FOREGOING IS OWNED NOW OR ACQUIRED LATER; ALL ACCESSIONS, ADDITIONS, REPLACEMENTS, AND SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING; ALL RECORDS OF ANY KIND RELATING TO ANY OF THE FOREGOING; ALL PROCEEDS RELATING TO ANY OF THE FOREGOING (INCLUDING INSURANCE, GENERAL INTANGIBLES AND OTHER ACCOUNTS PROCEEDS). - ---------------------------------------------------- 7A. X PRODUCTS OF COLLATERAL ARE ALSO COVERED - ---------------------------------------------------- 7B. DEBTOR(S) SIGNATURE NOT REQUIRED IN ACCORDANCE WITH INSTRUCTION 5(A) ITEM: (1) (2) (3) (4) - ---------------------------------------------------- 8. DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC SECTION 9105 (1) (n) - ---------------------------------------------------- 9. DATE:03/31/1995 |C| 10. THIS SPACE FOR USE OF EDWARD A. JOHNSON |O| FILING OFFICER (DATE, TIME, SIGNATURE OF DEBTOR(S) |D| FILE NUMBER AND FILING |E| OFFICER) - ---------------------------------------------------- EDWARD A. JOHNSON, PRESIDENT |1| |2| - ---------------------------------------------------- |3| SIGNATURE(S) OF SECURED PARTY(IES)|4| |5| - ---------------------------------------------------- NATIONAL BANK OF SOUTHERN CALIF. |6| |7| - ---------------------------------------------------- 11. RETURN COPY TO: NATIONAL BANK OF SOUTHERN CALIF. |8| 4100 NEWPORT PLACE |9| 32 NEWPORT BEACH, CA 92660 |0| | | (1) FILING OFFICER COPY FORM | | | | 33 STATE OF DELAWARE UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1 THIS FINANCING STATEMENT IS IF TO BE FILED WITH RECORDER PRESENTED TO A FILING OF DEEDS INDICATE TAX PARCEL OFFICER FOR FILING PURSUANT NO.(S). TO THE UNIFORM COMMERCIAL CODE. NO. OF ADDITIONAL SHEETS PRESENTED . - ----------------------------------------------------------- PARTIES | PARTIES DEBTOR (OR ASSIGNOR) LAST NAME | SECURED PARTY(IES) (LAST NAME FIRST IF INDIVIDUAL) AND MAILING | FIRST IF INDIVIDUAL) AND ADDRESS: OPTIMUMCARE CORPORATION | ADDRESS: NATIONAL BANK OF A DELAWARE CORPORATION, 30011 | SOUTHERN CALIFORNIA, 4100 IVY GLENN DRIVE #219, LAGUNA | NEWPORT PLACE, NEWPORT BEACH, NIGUEL, CA 92677 | CA 92660 - ----------------------------------------------------------- | DEBTOR (OR ASSIGNOR) (LAST NAME | ASSIGNEE (IF ANY) OF SECURED FIRST IF INDIVIDUAL) AND MAILING | PARTY(IES) AND ADDRESS OF ADDRESS: | ASSIGNEE: | - ----------------------------------------------------------- THIS STATEMENT IS FILED WITHOUT | SPECIAL TYPES OF PARTIES (CHECK THE DEBTOR'S SIGNATURE TO | X IN APPLICABLE BOX(ES) PERFECT A SECURITY INTEREST IN | THE TERMS "DEBTOR" AND COLLATERAL (CHECK X IN APPLICABLE| "SECURED PARTY" MEAN "LESSEE" BOX(ES) | AND "LESSOR", RESPECTIVELY. ALREADY SUBJECT TO A SECURITY | THE TERMS "DEBTOR" AND INTEREST IN ANOTHER JURISDICTION | "SECURED PARTY" MEAN "COSIGNEE WHEN IT WAS BROUGHT INTO THIS | AND "COSIGNOR", RESPECTIVELY. STATE. | DEBTOR IS A TRANSMITTING ALREADY SUBJECT TO A SECURITY | UTILITY. INTEREST IN ANOTHER JURISDICTION | DEBTOR ACTING IN REPRESEN- WHEN THE DEBTOR'S LOCATION | TATIVE CAPACITY (E.G., AS CHANGED TO THIS STATE. | TRUSTEE). WHICH IS PROCEEDS OF THE | ORIGINAL COLLATERAL DESCRIBED | FILED WITH: DEPARTMENT OF BELOW IN WHICH A SECURITY | OF STATE OF DELAWARE INTEREST IS PERFECTED. | ACQUIRED AFTER A CHANGED OF |PREPARED BY (NAME AND ADDRESS): NAME, IDENTITY OF CORPORATE | STRUCTURE OF DEBTOR. | AS TO WHICH THE FILING HAS | LAPSED. | | - ------------------------------- BY: | SIGNATURE OF SECURED PARTY(IES) | - ------------------------------- | TITLE | CHECK TO REQUEST CONTINUATION (REQUIRED ONLY IF ITEM IS CHECKED|STATEMENT NOTICE FOR ADDITIONAL |FEE. - ------------------------------- THIS FINANCING STATEMENT COVERS THE FOLLOWING TYPES (OR ITEMS) OF PROPERTY: CHECK ONLY IF APPLICABLE. X PRODUCTS OF COLLATERAL ARE ALSO COVERED. ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, CONTRACT RIGHTS, EQUIPMENT, GENERAL INTANGIBLES AND FIXTURES; WHETHER ANY OF THE FOREGOING IS OWNED NOW OR ACQUIRED LATER; ALL ACCESSIONS, ADDITIONS, REPLACEMENTS, AND SUBSTITUTIONS RELATING TO ANY OF THE FOREGOING; ALL RECORDS OF ANY KIND RELATING TO ANY OF THE FOREGOING; ALL PROCEEDS RELATING TO ANY OF THE FOREGOING (INCLUDING INSURANCE, GENERAL INTANGIBLES AND OTHER ACCOUNT PROCEEDS). 34 - ------------------------------- IF THE COLLATERAL IS CROPS, THE CROPS ARE GROWING OR TO BE GROWN ON THE FOLLOWING DESCRIBED REAL ESTATE: - ------------------------------- IF THE COLLATERAL IS (A) GOODS THAT ARE OR ARE TO BECOME FIXTURES; (B|) TIMBER TO BE CUT; OR (C) MINERALS OR THE LIKE (INCLUDING OIL AND GAS) OR ACCOUNTS RESULTING FROM THE SALE THEREOF AT THE WELLHEAD OR MINEHEAD, THE DESCRIPTION OF THE REAL ESTATE CONCERNED IS: (CHECK X IN APPLICABLE BOX(ES) X FIXTURES TIMBER MINERALS OR ACCOUNTS RESULTING FROM - --- --- --- SALE THEREOF AT WELLHEAD OR MINEHEAD AND THIS FINANCING STATEMENT IS TO BE FILED IN THE REAL ESTATE RECORDS WHERE A MORTGAGE ON SUCH REAL ESTATE WOULD BE RECORDED. IF THE DEBTOR DOES NOT HAVE AN INTEREST OF RECORD, THE NAME OF A RECORD OWNER IS: - ------------------------------- | THIS SPACE FOR USE OF FILING | OFFICER (DATE, TIME, NUMBER, FILING | OFFICER) BY: EDWARD A. JOHNSON, | PRESIDENT | - ------------------------------- | SIGNATURE OF DEBTOR (OR | ASSIGNOR) TITLE | - ------------------------------- | BY: EDWARD A. JOHNSON, | PRESIDENT | - ------------------------------- | SIGNATURE OF DEBTOR (OR | ASSIGNOR) TITLE | | 35 ADDENDUM TO BUSINESS LOAN AGREEMENT This Addendum to Business Loan Agreement amends and replaces in their entirety the sections on page 3 entitled "NEGATIVE COVENANTS" and "ADDITIONAL PROVISIONS". NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: INDEBTEDNESS AND LIENS. (a) Create, incur or assume any Indebtedness other than (i) trade payable incurred in the normal course of business, (ii) indebtedness to Lender contemplated by this Agreement, (iii) indebtedness in connection with capital leases in excess of an aggregate of $40,000 in any calendar year, and (iv) contractual obligation to suppliers and customers in the ordinary course of business; (b) sell, transfer, assign, pledge, lease or grant a security interest or encumber any of Borrower's assets except for purchase money security interest, if any, granted in the ordinary course of business; or (c) sell with recourse any of Borrower's accounts, except to Lender. CONTINUITY OF OPERATIONS. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged; (b) cease operations, liquidate, merge or consolidate with any other entity, dissolve or transfer or sell Collateral out of the ordinary course of business; (c) make any other material change in its capital structure or operations which would adversely affect the repayment of the Indebtedness. LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or assets in one or more transactions which in the aggregate exceed $100,000 in any calendar year; (b) purchase, create or acquire any interest in any other enterprise or entity which transaction involves a cost in excess of $100,000; or (c) incur any obligation as surety or guarantor other than in the ordinary course of business. ADDITIONAL PROVISIONS. 1. Lender agrees that on May 1, 1996, the then principal balance of the Loan shall be converted to a one year term loan with an initial due date of May 1, 1997; ("Term Loan"), payable at the same rate as the Loan, but with a repayment schedule amortized over a full five (5) year term with all unpaid principal and accrued interest due on May 1, 1997; provided, however, the Term Loan may be renewed at the Lender's sole discretion for an additional term of one year until May 1, 1998. 2. Within 90 days after fiscal year end, Borrower shall supply Lender with audited financial statements and Borrower's Form 10-K and within 45 days after each fiscal quarter Borrower shall supply Lender with Borrower's Form 10-Q for such quarter (which will include the quarterly financial statement). 3. Borrower shall maintain its principal depository relationship with Lender. 4. Borrower shall maintain a ratio of net worth to Indebtedness at the end of each fiscal year of at least 1.5 to 1. 5. Borrower shall not incur capital expenditures in any fiscal year in an amount in excess of $50,000 over Borrower's annual depreciation and amortization expense for such fiscal year. 6. Borrower shall maintain at all times a maximum indebtedness to eligible receivables margin of 75% to be calculated on a quarterly basis. Eligible receivables do not include over 90 day accounts, current affected accounts (25%), concentration (25%), foreign, government or contra accounts; provided, however, the following accounts are excluded from the concentration limitation: St. Francis Hospital, Humana Hospital and Ornda Hospital. 7. In the event Borrower obtains additional equity financing, whether through a public or private offering or venture capital financing and such funding exceeds, in one or more transactions, an aggregate of at least $2 million, Lender may request that the loan be repaid in full unless Borrower shall satisfy Lender that the disposition of such funding will not adversely impact the repayment of the Loan. Borrower: Lender: OPTIMUMCARE CORPORATION NATIONAL BANK OF SOUTHERN 36 CALIFORNIA BY:EDWARD A. JOHNSON BY: --------------------------- -------------------- EDWARD A. JOHNSON, PRESIDENT EX-10.68 4 LEASE AGREEMENT 1 EXHIBIT 10.68 LEASE AMENDMENT That certain OFFICE BUILDING LEASE dated June 23, 1988 by and between LAGUNA NIGUEL OFFICE, a California Limited Partnership, as Landlord and OPTIMUMCARE CORPORATION, a Delaware Corporation, as Tenant, is hereby amended as follows: 1. Lease has been extended for a period of one (1) year. New termination date shall be June 30, 1996. 2. Rental rate shall remain the same. 3. Suite 218 & 219 touch up paint and carpet cleaned, if requested at Landlord's expense. 4. All other terms and conditions of the original lease shall remain unchanged. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of June 5, 1995. LAGUNA NIGUEL OFFICE CENTER, OPTIMUMCARE CORPORATION, a California Limited Partnership a Delaware Corporation By: CARL J. GREENWOOD, By: EDWARD JOHNSON, ------------------------ ------------------- GENERAL PARTNER PRESIDENT (LANDLORD) (TENANT) EX-10.69 5 SUBLEASE AGREEMENTS DATED JULY 1, 1995 1 EXHIBIT 10.69 July 1, 1995 Mr. David Decolati Huntington Beach Hospital & Medical Center 17772 Beach Blvd. Huntington Beach, CA 92647-6899 RE: SUBLEASE OF SPACE UNITS D & E, 1170 DURFEE AVE., S. EL MONTE, CA. Dear Mr. Decolati: This letter will outline our understanding of the sublease of the above mentioned space with OptimumCare Corporation. Agreement with OptimumCare Corporation: (a) You shall rent 2,946 square feet on the first floor of the mentioned location at a base rate of $3,240.60 per month. (b) You will not be entitled to assign or otherwise transfer interest in all or any portion of the rented space. (c) You agree to pay a Security Deposit equal to one month's rent. (d) Your lease shall commence on July 1, 1995 and terminate February 15, 1996. You will provide OptimumCare Corporation with written notice not less than thirty (30) days prior to your intention to vacate the rented space. OptimumCare Corporation will provide you with written notice of not less than thirty (30) days prior to the last day of your tenancy providing reasonable cause for such notice exists. (e) Rent is due on the first day of each month and is payable to OptimumCare Corporation. You will receive an invoice on the first of each month which will reflect charges for rent. (f) You agree to pay sublessee's prorata share of common area operating expenses. 2 Mr. David Decolati July 1, 1995 Page Two If the terms of this letter meets with your understanding, please execute both duplicate originals and return them to me along with your check. We will return a fully executed copy to you for your files. CAROL FREEMAN, Chief Executive Officer Date Huntington Beach Hospital and Medical Center ADAM MILSTEIN, President Date Whittier Narrow Business Park Lessors Written Consent for Sublease EDWARD A. JOHNSON, President Date OptimumCare Corporation 3 July 1, 1995 Mr. David Decolati Huntington Beach Hospital & Medical Center 17772 Beach Blvd. Huntington Beach, CA 92647-6899 RE: SUBLEASE OF SPACE 14100 E. FRANCISQUITO AVE., SUITES 5 & 12, BALDWIN PARK, CA. Dear Mr. Decolati: This letter will outline our understanding of the sublease of the above mentioned space with OptimumCare Corporation. Agreement with OptimumCare Corporation: (a) You shall rent 1,400 square feet on the first floor of the mentioned location at a base rate of $1,400 per month for Suite #12. (b) You shall reimburse OptimumCare $2,000 per month payable to Contract Service Center for Suite #5. (c) You will not be entitled to assign or otherwise transfer interest in all or any portion of the rented space. (d) You agree to pay a Security Deposit equal to one month's rent. (e) Your lease shall commence on July 1, 1995 and terminate August 31, 1995. You will provide OptimumCare Corporation with written notice not less than thirty (30) days prior to your intention to vacate the rented space. OptimumCare Corporation will provide you with written notice of not less than thirty (30) days prior to the last day of your tenancy providing reasonable cause for such notice exists. (f) Rent is due on the first day of each month and is payable to OptimumCare Corporation. You will receive an invoice on the first of each month which will reflect charges for rent. (g) You agree to pay sublessee's prorata share of common area operating expenses. 4 Mr. David Decolati July 1, 1995 Page Two If the terms of this letter meets with your understanding, please execute both duplicate originals and return them to me along with your check. We will return a fully executed copy to you for your files. CAROL FREEMAN, Chief Executive Officer Date Huntington Beach Hospital and Medical Center Columbia Healthcare Corporation Date EDWARD A. JOHNSON, President Date OptimumCare Corporation EX-10.70 6 LEASE AGREEMENT-757 PACIFIC PARTNERSHIP 1 EXHIBIT 10.70 July 24, 1995 Ms. Carol Freeman Huntington Beach Hospital & Medical Center 17772 Beach Blvd. Huntington Beach, CA 92647-6899 RE: SUBLEASE OF SPACE - 757 PACIFIC AVENUE, LONG BEACH, CA 90813 Dear Ms. Freeman: This letter will outline our understanding of the sublease of the above mentioned space with OptimumCare Corporation. Agreement with OptimumCare Corporation: (a) You shall rent 3,200 square feet of the mentioned location at the rate of $2,950.00 per month. (b) You will not be entitled to assign or otherwise transfer interest in all or any portion of the rented space. (c) Your lease shall commence on July 3, 1995 and terminate July 3, 1996. You will provide OptimumCare Corporation with written notice not less than thirty (30) days prior to your intention to vacate the rented space. OptimumCare Corporation will provide you with written notice of not less than thirty (30) days prior to the last day of your tenancy providing reasonable cause for such notice exists. (d) Rent is due on the first day of each month and is payable to OptimumCare Corporation. You will receive an invoice on the first of each month which will reflect charges for rent. If the terms of this letter meets with your understanding, please execute both duplicate originals and return them to me along with your check. We will return a fully executed copy for your files. CAROL FREEMAN 7/24/95 - ------------- Carol Freeman, Chief Executive Officer Date HELEN TANG 7/25/95 - ---------- Helen Tang, 757 Pacific Partnership Date EDWARD A. JOHNSON 7/25/95 - ----------------- Edward A. Johnson, President/CEO Date OptimumCare Corporation EX-10.71 7 SUBLEASE AGREEMENT-HUNTINGTON BEACH HOSPITAL 1 EXHIBIT 10.71 COMMERCIAL LEASE THIS LEASE is made on the 3rd day of July, 1995. The Landlord hereby agrees to lease to the Tenant, and the Tenant hereby agrees to hire and take form the Landlord, the Lease Premises described below pursuant to the terms and conditions specified herein: LANDLORD: 757 Pacific Partnership 1250 Pacific Avenue Long Beach, CA 90813 TENANT(S): OptimumCare Corporation 30011 Ivy Glenn Drive Suite 219 Laguna Niguel, CA 92677 1. Leased Premises. The Leased Premises are those premises described as: 757 Pacific Avenue, Long Beach, CA 90813 2. Term. The term of the Lease shall be for a period of 2 years commencing on the 3rd day of July, 1995 ending on the 3rd day of June, 1997, unless sooner terminated as hereinafter provided. If Tenant remains in possession of the Leased Premises with the written consent of the Landlord after the lease expiration date stated above, this Lease will be converted to a month-to-month Lease and each party shall have the right to terminate the Lease by giving at least one month's prior written notice to the other party. 3. Rent. The Tenant agrees to pay the ANNUAL RENT of $35,400.00 Dollars ($35,400.00) payable in equal installments $2,950.00 in advance on the first day of each and every calendar month during the full term of this Lease. 4. Rent Adjustment. If in any tax year commencing with the fiscal year N/A, the real estate taxes on the land and buildings, of which the Leased Premises are a part, are in excess of the amount of the real estate taxes thereon for the fiscal year (hereinafter called the "Base Year"), Tenant will pay to Landlord as additional rent hereunder, when and as designated by notice in writing by Landlord, N/A percent of such excess that may occur in each year of the term of this Lease or any extension or renewal thereof and proportionately for any part of a fiscal year. 5. Security Deposit. The sum of Dollars ($ ) is deposited by the Tenant with the landlord as security for the faithful performance of all the covenants and conditions of the lease by the said Tenant. If the Tenant faithfully performs all the covenants and conditions on his part to be performed, then the sum deposited shall be returned to the Tenant. 6. Delivery of Possession. If for any reason the Landlord cannot deliver possession of the leased property to the Tenant when the lease term commences, this Lease shall not be 2 void or voidable, nor shall the Landlord be liable to the Tenant for any loss or damage resulting therefrom. However, there shall be an abatement of rent for the period between the commencement of the lease term and the time when the Landlord delivers possession. 7. Use of Leased Premises. The Leased Premises may be used only for the following purpose: Medical and general office use. 8. Utilities. Except as specified below, the Tenant shall be responsible for all utilities and services that are furnished to the Leased Premises. The application for an connecting of utilities, as well as all services shall be made by and only in the name of the Tenant: (List exceptions, if any) N/A. 9. Condition of Lease Premise; Maintenance and Repair. The Tenant acknowledges that the Leased Premises are in good order and repair. The Tenant agrees to take good care of and maintain the Leased Premises in good condition throughout the term of the Lease. The Tenant, at his expense, shall make all necessary repairs and replacements to the Leased Premises, including the repair and replacement of pipes, electrical wiring, heating and plumbing systems, fixtures and all other systems and appliances and their appurtenances. The quality and class of all repairs and replacements shall be equal to the original worth. If Tenant defaults in making such repairs or replacements, Landlord may make them for Tenant's account, and such expenses will be considered additional rent. 10. Compliance with Laws and Regulations. Tenant, at its expense, shall promptly comply with all federal, state, and municipal laws, orders and regulations and with all lawful directives of public officers, which impose any duty upon it or Landlord with respect to the Leased Premises. The Tenant at its expense, shall obtain all required licenses or permits for the conduct of its business within the terms of this lease or for the making of repairs, alterations, improvements, or additions. Landlord, when necessary will join with the Tenant in applying for all such permits or licenses. 3 11. Alterations and Improvements. Tenant shall not make any alterations, additions or improvements to, or install any fixtures on the Leased Premises without Landlord's prior written consent. If such consent is given, all alterations, additions, and improvements made, and fixtures installed, by Tenant shall become Landlord's property upon the expiration or sooner termination of this Lease. Landlord may, however required Tenant to remove such fixtures, at Tenant's cost, upon the termination hereof. 12. Assignment/Subletting Restrictions. Tenant nay not assign this agreement or sublet the Leased Premises without the prior written consent of the Landlord. Any assignment, sublease or the purported license to use the Leased Premises by Tenant without the Landlord's consent shall be void and shall (at Landlord's option) terminate this Lease. 13. Insurance. (i) By Landlord. Landlord shall at all times during the term of this Lease, at its expense, insure and keep in effect on the building in which the Leased Premises is located fire insurance with extended coverage. The Tenant shall not permit any use of the Leased Premises which will make voidable any insurance on the property of which the leased Premises are a part, or on the contents of said property or which shall be contrary to any law or regulation from time to time established by the applicable fire insurance rating association. Tenant shall on demand reimburse the Landlord, and all other tenants, all extra insurance premiums caused by the Tenants use of the premises. 14. Indemnification of Landlord. Tenant shall defend, indemnify, and hold Landlord harmless from and against any claim, loss, expense or damage to any person or property in or upon the Leased Premises, arising out of Tenant's use or occupancy of the Leased Premises, or arising out of any act or neglect of Tenant or its servants, employees, agents, or invitees. 15. Condemnation. If all or any part of the Leased Premises is taken by eminent domain, this lease shall expire on the date of such taking, and the rent shall be apportioned as of that date. No part of any award shall belong to Tenant. 16. Destruction of Premises. If the building in which the Leased Premises is located is damaged by fire or other casualty, without Tenant's fault, and the damage is so extensive to effectively constitute a total destruction of the property or building, this Lease shall terminate and the rent shall be apportioned to the time of the damage. In all other cases of damage without Tenant's fault, Landlord shall repair the damage with reasonable dispatch, and if the damage has rendered the Leased Premises wholly or partially untenantable, the rent shall be apportioned until the damage is repaired. In determining what constitutes reasonable dispatch, consideration shall be given to delays caused by strikes, adjustment of insurance, and other causes beyond the Landlord's control. 17. Landlord's Rights upon Default. In the event of any breach of this lease by the Tenant, which shall not have been cured within TEN (10) DAYS, then the Landlord, besides other rights or remedies it may have, shall have the immediate right of reentry and may remove 4 all persons an property from the Leased Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of, and for the account of, the Tenant. 18. Quiet Enjoyment. The Landlord agrees that if the Tenant shall pay the rent as aforesaid and perform the covenants and agreements herein contained on its part to be performed, the Tenant shall peaceably hole and enjoy the said rented premises without hindrance or interruption by the Landlord or by any other person or persons acting under or through the landlord. 19. Landlord's Right to Enter. Landlord may, at reasonable times, enter the Leased Premises to inspect it, to make repairs or alterations, and to show it to potential buyers, lenders or tenants. 20. Subordination. This lease, and the Tenant's leasehold interest, is and shall be subordinate, subject and inferior to any and all liens an encumbrances now and thereafter placed on the Leased Premises by Landlord, any and all extensions of such liens and encumbrances and all advances paid under such liens and encumbrances. 22. Additional Provisions: N/A 23. Miscellaneous Terms. (i) Notices. Any notice, statement, demand or other communication by one party to the other,m shall be given by personal delivery or by mailing the same, postage prepaid, addressed to the Tenant at the premises, or to the Landlord at the address set forth above. (ii) Severability. If any clause or provision herein shall be adjudged invalid or unenforceable by a court of competent jurisdiction or by operation of any applicable law, it shall not affect the validity of any other clause or provision, which shall remain in full force and effect. 5 (iii)Waiver. The failure of either party to enforce any of the provisions of this lease shall not be considered a waiver of that provision or the right of the party to thereafter enforce the provision. (iv) Complete Agreement. This lease constitutes the entire understanding of the parties with respect to the subject matter hereof and may not be modified except by an instrument in writing and signed by the parties. (v) Successors. This Lease is binding on all parties who lawfully succeed to the rights or take the place of the landlord or Tenant. IN WITNESS WHEREOF the parties have set their hands and seals on this 13th DAY OF NOVEMBER, 1995. HELEN TANG EDWARD A. JOHNSON, - ---------- ------------------ OptimumCare Corporation Landlord Tenant Helen Tang for 757 Pacific Partnership EX-10.72 8 LEASE AGREEMENT-COLUMBIA HEALTHCARE CORPORATION 1 EXHIBIT 10.72 MEDICAL OFFICE BUILDING LEASE THIS LEASE is made and entered into this 14th day of September, 1995, by and between Columbia/HCA Healthcare corporation, a Delaware Corporation ("Landlord"), and OptimumCare Corporation, a California Corporation ("Tenant"). Landlord hereby leases to Tenant and Tenant hereby leases from Landlord Suite No. 12 on the first floor, containing 1,400 gross rentable square feet ("Premises") in the building located at 14100 E. Francisquito Avenue, Baldwin Park, CA 91706 ("Building") for the term and upon the conditions and agreements hereinafter set forth ("Lease"). this Lease shall constitute a binding agreement between the parties effective as of the date set forth above, which shall be added by either Landlord or Tenant, whichever party is last to sign the Lease ("Effective Date"). ARTICLE I. TERM The term of this lease shall begin on the "Commencement Date" (Commencement Date being defined as the date Tenant occupies the Premises which shall be the 1st day of October, 1995) and terminate 1 year thereafter on the 30th day of September, 1996 ("Term"). "Lease Year" shall be defined as each 365 consecutive day period throughout the Term, beginning on the Commencement Date. If the Premises are occupied for a fraction of a month at the beginning or the end of the Term, Tenant shall pay a proportionate part of the applicable monthly installment. Schedule B shall apply to this Lease. SCHEDULE B First Lease Year Base Rent Monthly Rent Installment 10/1/95 $16,800.00 $1,400.00 ARTICLE III. ADDITIONAL RENT In addition to the Base Rent reserved in Article II herein, Tenant shall pay Landlord "Additional Rent", which term shall be defined to include the following: (1) any sum owed for costs incurred by Landlord which are in excess of the sum of any tenant improvement allowance upon which Landlord and Tenant have agreed; (2) any sum owed for separately metered utilities and/or as a Surcharge, as defined in Article V, Building Services; (3) any other sums owed by Tenant in connection with Tenant's occupancy of the Premises, including, but not limited to, the cost of collection and disposal of any wastes generated at the Premises. For purposes of this Lease, Base Rent and Additional Rent shall hereinafter be collectively referred to as "Rent". ARTICLE IV. USE OF PREMISES Tenant shall use and occupy the Premises as a medical office exclusively for Tenant's practice of medicine and for no other purpose. Tenant shall not use or occupy the Premises in violation of law or of the Certificate of Use or Occupancy issued for the Building of which the premises are a part and shall immediately discontinue any use of the Premises which is declared by either any governmental authority having jurisdiction or the Landlord to be a violation of any law, code, regulation or a violation of said Certificate of Use of occupancy. Tenant shall comply with any direction of any governmental authority having jurisdiction which shall, by reason of the nature of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or with respect to the use or occupation thereof. 2 Tenant shall not do nor permit to be done anything which will invalidate or increase the cost of any fire an extended coverage insurance policy covering the building and/or property located therein, and shall comply with all rules, orders, regulations and requirements of the appropriate Fire Rating Bureau or any other organization performing a similar function. Tenant shall promptly upon demand reimburse Landlord for any additional premium charged of such policy by reason of Tenant's failure to comply with the provisions of this paragraph. Tenant shall not do or permit anything to be done in, on or about the Premises which would in any way obstruct or interfere with the rights of the tenants or occupants of the Building, or use or allow the Premises to be used for any immortal, unlawful or objectionable purpose, nor shall Tenant maintain or permit any nuisance or commit or suffer to be committed any waste in, on or about the Premises. Tenant shall not dispense any drugs or medicines to persons other than Tenant's own patients. In the practice of medicine at the Premises, Tenant shall have the right to perform only such laboratory tests and diagnostic procedures which are ancillary and incidental to the care and treatment of Tenant's patients, and not for third parties or for an independent profit motive. Prior to the installation and use of any diagnostic, laboratory or radiology equipment, Tenant shall provide Landlord with a list of such equipment and its intended use, a list of any hazardous substances, wastes or materials, as hereinafter defined, which will be used or generated in connection with such laboratory and/or diagnostic tests; and Tenant's proposed procedures for the use, storage and disposal of any hazardous substances, wastes or materials, including but not limited to the procedure for silver recovery for any radiology equipment. Tenant shall not cause or permit the release or disposal of any hazardous substances, wastes or materials, or any medical, special or infectious wastes, on or about the Premises or the Building of which they are a part. Hazardous substances, wastes or materials shall include those which are defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 USC Section 9601 et seq; the Resource Conservation and Recovery Act, as amended, 42 USC Section 6901 et seq; the Toxic Substances Control Act, as amended, 15 USC Section 2601 et seq; and medical, special or infectious wastes shall include those which are defined pursuant to the medical waste regulations which have been promulgated by the state in which the Premises are located, and as further set forth in any state or local laws and ordinances, and their corresponding regulations. Tenant shall comply with all rules and policies set by Landlord, and with all federal, state and local laws, regulations and ordinances which govern the use, storage, handling and disposal of hazardous substances, wastes or materials and medical, special or infectious wastes. Tenant shall indemnify, defend and hold Landlord harmless from and against any claims or liability arising out of or connected with Tenant's failure to comply with the terms of this Article IV, which terms shall survive the expiration or earlier termination of this Lease. Landlord, may at its option, terminate this Lease int he event Tenant engages in a prohibited use and fails to cure such violation within thirty (30) days following Tenant's receipt of written notice form Landlord. ARTICLE V. BUILDING SERVICES 1. All utilities for the Premises which are not separately metered as well as all utilities for the common areas of the Building and maintenance services will be paid for by Landlord. Heat and air-conditioning required to be furnished by Landlord will be furnished whenever the same shall, in Landlord's reasonable judgement, be required for Tenant's comfortable use and occupancy of the Premises during reasonable business hours. If Tenant requires or utilizes more water or electric power than is considered reasonable or normal by Landlord, Landlord may reasonably determine and require Tenant to pay as Additional Rent, the cost incurred as a result of such additional usage ("Surcharge"). Tenant agrees to pay all separately metered utilities required and used by Tenant in the Premises. Landlord reserves the privilege of stopping any or all of such services in case of accident or breakdown, or for the purpose of making alterations, repairs or improvements, and shall not be liable for the failure to 3 furnish or delay in furnishing any or all of such services when same is caused by or is the result of strikes, labor disputes, labor, fuel or material scarcity, or governmental or other lawful regulations or requirements, or the failure of any corporation, firm or person with whom the Landlord may contract for any such service, or for any service incident thereto, to furnish same, or is due to any cause other than the gross negligence of the Landlord; and the failure to furnish any of such services in such event shall not be deemed or construed as an eviction or relieve Tenant from the performance of any of the obligations imposed upon Tenant by this Lease. Landlord shall not be responsible to the Tenant for loss of property in or from the Premises, or for any damage done to furniture, furnishings or effects therein, however occurring, except where such damages occur through the gross negligence of Landlord; nor shall Landlord be responsible should any equipment or machinery break down or for any cause cease to function properly on account of any such interruption of service. Tenant shall be solely responsible for and shall promptly pay all charges for telephone and other communication services. 2. At all times during the initial Term or any extension thereof, Landlord, at no cost or expense to Tenant, shall promptly and in a workmanlike manner perform all maintenance and make all repairs and replacements required, in the opinion of Landlord, to keep the Premises and the Building in good order, condition and repair, except if the need for such maintenance, repairs or replacements is caused by the fault or negligence of Tenant (reasonable wear and tear excepted), in which event Landlord will perform the maintenance, repairs or replacements required and charge Tenant therefore, such changes being due in full upon tenant being billed for same. ARTICLE VI. ALTERATIONS Tenant may not make any changes, additions, alterations, improvements or additions to the Premises or attach or affix any articles thereto without Landlord's prior written consent. All alterations, additions, or improvements which may be made upon the Premises by Landlord or Tenant (except unattached trade fixtures and office furniture and equipment owned by Tenant) shall not be removed by Tenant, but shall become and remain the property of landlord. All alterations, improvements, and additions to the Premises (as permitted by Landlord) shall be done only by Landlord or contractors or mechanics approved by Landlord, and shall be at Tenant's sole expense and at such times and in such manner as Landlord may approve. If Tenant shall make any alterations, improvements or additions to the Premises, Landlord may require Tenant, at the expiration of the Lease, to restore the Premises to substantially the same condition as existed at the commencement of the Term. Any mechanics' or materialmen's lien for which Landlord has received a notice of intent to file or which has been filed against the Premises or the Building arising out of work done for, or materials furnished to Tenant, shall be discharged, bonded over, or otherwise satisfied by Tenant within ten (10 ) days following the earlier of the date Landlord receives (1) notice of intent to file a lien or (2) notice that the lien has been filed. If Tenant fails to discharge, bond over, or otherwise satisfy any such lien, Landlord may do so at tenant's expense, and the amount expended by Landlord, including reasonable attorney's fees, shall be paid by Tenant within ten (10) days following Tenant's receipt of a bill from Landlord. ARTICLE VII. DAMAGE TO PROPERTY - INJURY TO PERSONS Tenant shall and hereby does indemnify and hold Landlord harmless form and against any and all claims arising from: 1) Tenant's use of the Premises or the conduct of Tenant's business or profession; 2) any activity, work, or thing done, permitted or suffered by the Tenant in or about the Premises; 3) any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease; or 4) any negligent acts or omissions of Tenant, or of Tenant's agents or employees. tenant shall and hereby does further indemnify, defend and hold Landlord harmless from and against all costs, attorney's fees, expenses and liabilities incurred in connection with any such claim or any action or proceeding brought thereon. In case 4 any action nor proceeding is brought against Landlord by reason of any such claim. Tenant, upon notice from Landlord, shall defend same at Tenant's expense by counsel reasonably satisfactory to Landlord. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to persons in, upon, or about the Premises from any cause other than Landlord's gross negligence, and Tenant hereby waives all claims in respect thereof against Landlord. During the term hereof, Tenant shall maintain comprehensive general liability insurance on the Premises of at least $100,000 per occurrence, $300,000 aggregate. As evidence thereof, on or before the Commencement Date. Tenant shall provide to Landlord Certificates of Insurance evidencing such coverage during the Term. Tenant shall also maintain All Risk (as defined in Article XX(v)) property insurance on all property owned or used by Tenant in the Premises. Neither Landlord nor its agents shall be liable for any damage to property entrusted to employees of the Building, nor for loss of or damage to any property by theft or otherwise, nor for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the Building or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface, or from any other place or resulting from dampness or any other cause whatsoever, unless caused by or due to the gross negligence of Landlord, its agents, servants or employees. Neither Landlord nor its agents shall be liable for any latent defect in the Premises or in the Building. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Premises or in the Building or of defects therein or in the fixtures or equipment. Tenant hereby acknowledges that Landlord shall not be liable for any interruption to Tenant's business for any cause whatsoever, and that tenant shall obtain Business Interruption Insurance coverage should Tenant desire to provide coverage for such risk. ARTICLE VIII. ASSIGNMENT AND SUBLETTING Tenant shall no, either voluntarily or by operation of law, sell, hypothecate, assign or transfer this Lease, or sublet the premises or nay part thereof, or permit the Premises or any part thereof to be occupied by anyone other than Tenant or Tenant's employees, without the prior written consent of Landlord. Any sale, assignment, mortgage transfer or subletting of this Lease which is not in compliance with the provisions of this Article VIII shall be null and void and of no effect and shall constitute a default hereunder. The consent by Landlord to an assignment or subletting shall not be construed as relieving Tenant from obtaining the express written consent of Landlord to any further assignment or subletting. Landlord's consent to any assignment or subletting shall not release Tenant from its primary liability under the Lease. ARTICLE IX. DAMAGE OR DESTRUCTION If the Premises are damaged by fire or other casualty (collectively "Casualty"), the damage shall be repaired by and at the expense of Landlord, provided such repairs can, in Landlord's opinion, be made within sixty (60) days after the occurrence of such Casualty without the payment of overtime or other premiums. Until such repairs are completed, the Rent shall be abated in proportion to the part of the Premises which is unusable by tenant in the conduct of Tenant's practice of medicine. However, three shall be no abatement to Rent by reason of any portion of the Premises being unusable for a period equal to one day or less, or if the Casualty is due to the negligent acts or omissions of Tenant or Tenant's employees. If such repairs cannot, in Landlord's opinion, be made within sixty (60) days, Landlord may, at its option, make them within a reasonable time, not to exceed one hundred twenty (120) days and in such event this Lease shall continue in effect and the Rent shall be apportioned in the manner provided above. Landlord's election to make such repairs must be evidenced by written notice to Tenant within thirty (30) days after the occurrence of the damage. 5 If Landlord does not so elect to make such repairs which cannot be made within sixty (60) days, then either party may, by written notice to the other, cancel this Lease as of the date of the Casualty. A total destruction of the Building in which the Premises are located shall automatically terminate the lease. ARTICLE X. EMINENT DOMAIN If the whole of the Premises or so much thereof as to render the balance unusable by Tenant shall be taken under power of eminent domain, this Lease shall automatically terminate as of the date of such condemnation, together with any and all rights of Tenant existing or hereafter arising in or to the same or any part thereof; provided, however, that nothing contained herein shall be deemed to give Landlord any interest in or require Tenant to assign to Landlord any award made to Tenant for 1. the taking of personal property and fixtures belonging to Tenant; 2. the Interruption of or damage to Tenant's business or profession; 3. the cost of relocation expenses incurred by Tenant; and 4. Tenant's unamortized cost of leasehold improvements. In the event of a partial taking which does not result in a termination of the Lease, the Rent shall be apportioned according to the part of the Premises remaining usable by Tenant. Landlord may without any obligation or liability to Tenant stipulate with any condemning authority for a judgement of condemnation without the necessity of a formal suit or judgement of condemnation, and the date of taking under this clause shall then be deemed the date agreed to under the terms os said agreement or stipulation. ARTICLE XI. DEFAULTS The occurrence of any of the following shall constitute a material default and breach of the Lease: 1. The vacating or abandonment of the premisses by Tenant. 6 2. A failure by Tenant to pay the Rent or to make any other payment required to be made by Tenant hereunder, when due, or within ten (10) days thereafter. 3. A failure by Tenant to observe and perform any other provision of this Lease to be observed or performed by Tenant. 4. The making by Tenant of any general assignment for the benefit of creditors; the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or the filing of a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days; the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged within thirty (30) days. Tenant shall not be in default in the performance of any obligation provided for herein, except with reference to the payment of Rent, unless and until Tenant has failed to perform such obligation within thirty (30) days after written notice by Landlord to Tenant specifying wherein Tenant has failed to perform such obligation. Landlord shall not be deemed to be in default in the performance of any obligation required to be performed by it hereunder unless and until it has failed to perform such obligation within thirty (30) days after written notice by Tenant to Landlord specifying wherein Landlord has failed to perform such obligation. Provided however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be deemed to be in default if it shall commence such performance within such thirty (30) day period and thereafter diligently prosecute the same to completion. 7 ARTICLE XXI. REMEDIES In the event Tenant commits an act of default as set forth in Article XI, Landlord may exercise one or more of the following described remedies, inn addition to all other rights and remedies available at law or in equity, whether or not stated in this Lease. 1. Landlord may continue this Lease in full force and effect and shall have the right to collect Rent when due. During the period Tenant is in default, Landlord may re-enter the Premises with or without legal process nd relet them, or any part of them, to third parties for Tenant's account, and Tenant hereby expressly waives any and all claims for damages by reason of such re-entry, as well as any and all claims for damages by reason of any distress warrants or proceeding by way of sequestration which Lessor may employ to recover said rents. Tenants shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Premises, including, without limitation, broker's commissions, expenses of remodeling the Premises required by the reletting, and like costs. Reletting can be for a period of shorter or longer than the remaining Term of this lease, and in no event shall Landlord be under any obligation to relet the Premises. On the dates such rent is due, Tenant shall pay to Landlord a sum equal to the Rent due under this Lease, leaps the rent Landlord receives from any reletting. No act by Landlord allowed by this paragraph shall terminate the Lease unless Landlord notifies Tenant in writing that Landlord elects to terminate the Lease. 2. Landlord may terminate this Lease at any time. Upon termination, landlord shall have the right to collect an amount equal to: all expenses incurred by Landlord in recovering possession of the premises, including reasonable attorney;s fees; all reasonable costs and charges for the care of the Premises while vacant; all renovation costs incurred in connection with the preparation of the Premises for a new tenant; and an amount by which the entire Rent for the remainder of the Term exceeds the loss of Rent that Tenant proves could have been reasonably avoided. Should any of these remedies, or any portion thereof, not be permitted by the laws of the state in which the Building is situate, then such remedy or portion thereof shall be considered deleted and unenforceable, and the remaining remedies or portions thereof shall be and remain in full force and effect, and Landlord may avail itself of these as well as any other remedies or damages allowed by law. All rights, options and remedies of Landlord stated herein or elsewhere by law or in equity shall be deemed cumulative and not exclusive of one another. ARTICLE XIII. RULES AND REGULATIONS Tenant shall observe faithfully and comply and comply strictly with the Rules and Regulations set forth on the back side of the final page of this Lease and made a part hereof, and such other rules nd regulations as Landlord may from time to time reasonably adopt of the safety, care and cleanliness of the Building or the preservation of good order therein. Landlord shall not be liable to Tenant for violation of any such Roles and Regulations, or for the breach of any covenant or condition in any lease by any other tenant in the Building. By the signing of this lease, Tenant acknowledges that Tenant has read and has agreed to comply with such Rules and Regulations. ARTICLE XIV. RIGHT OF ACCESS Upon reasonable notice to Tenant, landlord and its agents shall have free access to the leased Premises during all reasonable hours for the purpose of examining the same to ascertain if they are in good repair, to make reasonable repairs as required hereunder provided, however, Landlord shall have no obligation as a result of such examination to make any repairs other than expressly set forth herein), and to exhibit the same to prospective purchasers or tenants. ARTICLE XV. END OF TERM At the termination of this Lease, Tenant shall surrender the Premises to Landlord 8 in as good condition and repair as at the Commencement Date, reasonable wear and tear excepted, and will leave the premises broom-clean. If not then in default, Tenant shall have the right prior to said termination to remove any equipment, furniture, trade fixtures or other personal property placed in the Premises by Tenant, provided that Tenant promptly repairs any damage to the Premises caused by such removal. In the event of holding over by Tenant after the expiration of this Lease, Tenant shall pay a sum equal to one and one-half times the sum of the monthly installment of Rent which is in effect at the expiration of the Lease. Any holding over with the written consent of Landlord shall thereafter constitute a tenancy at sufferance. ARTICLE XVI. TRANSFER OF LANDLORD'S INTEREST In the event of any transfer or transfers of Landlord's interest in the Premises or in the real property of which the Premises are a part, the transferor shall be automatically relieved of any and all obligations and liabilities on the part of Landlord accruing from and after the date of such transfer. ARTICLE XVII. ESTOPPEL CERTIFICATE, ATTORNMENT, AND NON-DISTURBANCE Within ten (10) days following receipt of Landlord's written request, Tenant shall deliver, executed in recordable form, a declaration to any person designated by Landlord: a) ratifying this Lease; b) stating the commencement and termination dates of the Lease; and c) certifying (i) that this Lease is in full force and effect and has not been assigned, modified, supplemented or amended (except by such writings as shall be stated); (ii) that all conditions under this lease to be performed by Landlord have been satisfied (stating exceptions, if any); (iii) that no defenses, credits or offsets against the enforcement of this Lease by Landlord exist (or stating those claimed); (iv) the sum of advance Rent, if any, paid by Tenant.; (v) the date to which Rent has been paid; (vi) the amount of security deposited with Landlord, and such other information as Landlord reasonably requires. Persons receiving such statements shall be entitled to rely upon them. Tenant shall, in the event of a sale or assignment of Landlord's Interest in the Premises or the Building or this Lease, or if the Premises or the Building comes into the hands of a mortgage, ground lessor or any other person whether because of a mortgage foreclosure, exercise of a power of sale under a mortgage, termination of the ground lease, or otherwise attorn to the purchaser or such mortgagee or other person and recognize the same as Landlord hereunder, provided such purchaser, mortgagee or other person shall warrant and defend Tenant in the quiet enjoyment and possessio of the Premises for the Duration of the Term, subject to the terms and conditions of this Lease. Tenant shall execute, at Landlord's request, any reasonable attornment agreement required by any mortgagee, ground lessor or other such person to be executed, and containing such provisions as such mortgagee, ground lessor or other person requires. Except as otherwise stated herein, this Lease shall be subordinate and inferior at all times to the lien of any mortgage and to the lien of any deed of trust or other method of financing or refinancing now or hereafter existing against all or a part of the real property upon which the Building is located, and to all renewals, modifications, replacements, consolidations and extensions thereof. Tenant shall execute and deliver all documents requested by any mortgage or security holder to effect such subordination. If Tenant fails to execute and delivery any such documents and take such other reasonable steps as are necessary to effect such subordination. Landlord is hereby authorized to execute such documents and take such other reasonable steps as are necessary to effect such subordination on behalf of Tenant as Tenant's duly authorized irrevocable agent and attorney-in-fact, it being agreed that such power is one coupled with an interest. Tenant's failure to execute and deliver such documents or instruments provided for in this Article XVII within fourteen (14) days after the receipt by Tenant of a written request shall constitute a default under this Lease. 9 ARTICLE XVIII. NOTICES Any notice required or permitted to be given hereunder shall be in writing and may be given by: 1) hand delivery and shall be deemed given on the date of delivery; 2) registered or certified mail and shall be deemed given the third day following the date of mailing; or 3) overnight delivery and shall be deemed given the following day. All notices to Tenant shall be addressed to Tenant at the Building of which the Premises are a part or to Landlord at the Building with a copy to: Director of Facilities Management P.O. Box 740033 Louisville, KY 40201-7433 ARTICLE XIX. TERMINATION AS A RESULT OF DEATH OR DISABILITY Provided that Tenant is a solo practitioner or a professional corporation with one shareholder, and provided that Tenant, at the time of such practitioner's or shareholder's death, is not in default under any term or condition of this Lease, the legal representative of his/her estate shall have the right to terminate the Lease. Notice of termination being given as a result of death shall be effective only if it is in writing. Tenant and his/her estate shall be liable for the Rent due under this Lease through the end of the calendar month in which such notice of termination is received by landlord and shall remain liable for the Rent until such date that all of Tenant's personal property, equipment and fixtures are removed from the Premises, as provided in Articles VI and XV of this lease. The right of termination shall exist if such practitioner or shareholder is medically determined to be permanently disabled. Tenant shall provide Landlord with written notice thirty (30) days prior to the date of termination, and Tenant shall be liable forth rent due under this lease throughout such thirty (30) day period, and shall remain liable until such date that all of Tenant's personal property, equipment and fixtures are removed from the Premises, as provided in Articles VI and XV of this Lease. In the event Tenant is a partnership or a corporation with multiple shareholders, Tenant shall be released from the Lease only if such death or disability effects a dissolution of the partnership or corporation as set forth in the applicable partnership or corporate documents. In the event the Lease has been executed by two or more persons, only the deceased or disabled person shall be released from the lease. (i) ATTORNEY - ATTORNEY'S FEES. In the event that suit is brought by either party against the other for a breach or default under the terms of this Lease, the prevailing party shall be entitled to reasonable attorney's fees, which sum shall be fixed by the court. (ii) TIME OF ESSENCE. Time is of the essence with respect to the performance of every provision of this Lease. (iii) HEADINGS . The article captions contained in this lease are for convenience only and shall not be considered in the construction or interpretation of any provision hereof. (iv) INCORPORATION OR PRIOR AGREEMENTS; AMENDMENTS. This lease contains all of the agreements of ;the parties hereto with respect to any manner covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. 10 (v) WAIVER OF SUBROGATION. Landlord and Tenant hereby mutually waive any and all rights of recovery against one another based upon the negligence of either Landlord or Tenant or their agents or employees for real or personal property loss or damage occurring to the Premises or to the Building or any part thereof or any personal property located therein from perils which are able to be insured against standard fire and extended coverage, vandalism and malicious mischief and sprinkler leakage insurance contracts (commonly referred to as "All Risk"), whether or not such insurance is actually carried. (vii) QUIET ENJOYMENT Landlord shall warrant and defend Tenant in the quiet enjoyment and possession of the Premises throughout the Term, subject to the terms and conditions of the Lease. (viii) BINDING EFFECT. This lease shall be binding upon, and inure to the benefit of the parties hereto, their heirs, successors, assigns, executors and administrators. However, nothing in this Article shall be deemed to amend the provisions of Article VIII on Assignment and Subletting. (ix) GOVERNING LAW. This Leased shall be governed by the laws of the state where the Building is located. ARTICLE XXI. CONDITION PRECEDENT Notwithstanding anything contained herein to the contrary, this Lease shall not be effective or legally binding upon the parties hereto until it has been reviewed and approved in writing, in accordance with Landlord's approval guidelines, by Landlord's Regional Representative and Landlord's Facilities Management Representative or its Legal Counsel. 11 IN WITNESS WHEREOF, the parties have duly executed this Lease the day and year first above written. WITNESS: TENANT: MAUREEN ADDIS OPTIMUMCARE CORPORATION - ------------- ----------------------- BY: EDWARD A. JOHNSON ----------------- President WITNESS: LANDLORD: PENNE J. HILL COLUMBIA/HCA HEALTHCARE - ------------- CORPORATION BY: HOWARD K. PATTERSON (Landlord's Representative) APPROVED BY: ---------------------------------------- (Landlord's Regional Rep.) BY: -------------------------------------- (Landlord's Facilities Management Rep or Landlord's Legal Counsel) 12 MEDICAL OFFICE BUILDING LEASE - ADDENDUM 1 THIS ADDENDUM #1 is made this 14th day of September 1995 by and between Columbia/HCA Healthcare Corporation, a California Corporation as Landlord and OptimumCare Corporation, a Delaware Corporation as Tenant and amends that Medical Office Building Lease (the lease between Landlord and Tenant dated September 14, 1995. 1. Article X of the Lease entitled Damage or Destruction is hereby amended by adding the following paragraph and thereof: With respect to any damage which Landlord is obligated to repair or elects to repair. Tenant waives the provision Section 1932 (2) and 1933 (4) of the California Civil Code. 2. Articles XIII of the Lease entitled Remedies hereby deleted in its entirety and the following is substituted ARTICLE XIII Remedies Landlord shall have the following remedies if Tenant commits a default. These remedies are not exclusive; therefore cumulative in addition to any remedies now or later allowed by law. 1. Landlord can continue this lease in full force and effect,and the Lease will continue in effect as long as Landlord not terminate Tenant's right to possession, and Landlord shall have the right to collect rent and Additional Rent. During the period Tenant is in default, Landlord can enter the Premises and relet them, or any part of them, to third party for tenants account. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Premises, including, with limitation, broker's commissions, expenses of remodeling the Premises required by the reletting and costs. Reletting can be for a period shorter or longer than the remaining term of this Lease. Tenant shall pay to Landlord rent and Additional Rent under this Lease on the dates the rent is due, unless Landlord notifies Tenant that Landlord elects to terminate this Lease. After Tenant's default and for as long as Landlord does not terminate Tenant's right to possession of the Premises, if Tenant obtains Landlord's consent, Tenant shall have the right to assign or sublet its in this Lease, but Tenant shall not be released from liability. Landlord's consent to a proposed assignment or subletting not be unreasonably withheld. 2. Landlord can terminate Tenant's right to possession of the Premises at any time. No act by Landlord other than notice to Tenant shall terminate this Lease. Acts of maintenance , efforts to relet the Premises, or the appointment receiver on Landlord's initiative to protect Landlord's interest under this Lease shall not constitute a terminate of Tenant's right to possession. On termination, Landlord has the right to recover from Tenant: a. The worth, at the time of the award, of the unpaid rent and Additional Rent that had been earned at the time of termination of the Lease. b. The worth, at the time of the ward, of the amount by which the unpaid rent and Additional Rent that would have been earned after the date of termination of this Lease until the time of award exceeds the amount of the loss of rent Tenant proves could have been reasonably avoided; c. The worth, at the time of the award, of the amount by which the unpaid rent and Additional Rent for the balance of the term and after the time of the award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; d. Any other amount, and court costs, necessary to compensate Landlord for all detriment proximately caused by Tenant's default. "The worth, at the time of the award", as used in a) and b) of this paragraph, is to be computed by allowing interest at a rate of 10% per annum. "The worth, at the 13 time of the award", as referred to in c) of this paragraph, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus 3. Except as specifically amended herein, all terms and conditions of the Lease shall and do remain in full force effect. IN WITNESS WHEREOF, the parties shave duly executed this Amendment the day and year first above written. WITNESS: TENANT: MAUREEN ADDIS OPTIMUMCARE CORPORATION BY: EDWARD A. JOHNSON ---------------------- C.F.O. WITNESS: LANDLORD: PENNE A. HILL COLUMBIA/HCA HEALTHCARE - ------------- CORPORATION BY: HOWARD K. PATTERSON --------------------------- (Landlord's Representative) 14 MEDICAL OFFICE BUILDING LEASE - RULES AND REGULATIONS 1. CONDUCT Tenant shall not conduct its practice or business, or advertise such business, profession or activities of Tenant conducted in the Premises in a manner which violates local, state or federal laws or regulations. 2. HALLWAYS AND STAIRWAYS Tenant shall not obstruct or use for storage, or for any purpose other than ingress and egress, the sidewalks, entrance, passages, courts, corridors, vestibules, halls, elevators and stairways of the Building. 3. NUISANCES Tenant shall not make or permit any noise, odor or act that is objectionable to other occupants of the Building to emanate from the Premises, and shall not create or maintain a nuisance thereon. 4. MUSICAL INSTRUMENTS, ETC. Tenant shall not install or operate any phonograph, musical instrument, radio receiver or similar devise in the Building in such manner as to disturb or annoy any other tenants of the Building or the neighborhood. Tenant shall not install any antennae, aerial wires or other equipment outside the Building without the prior written approval of Landlord. 5. LOCKS No additional locks or bolts of any kind shall be placed upon any of the doors or windows by Tenant, nor shall any changes by made in existing locks or the mechanism thereof. Tenant must upon the termination of its tenancy restore to Landlord all keys to the Premises and toilet rooms either furnished to or otherwise procured by Tenant, and in the event of loss of any keys so furnished, Tenant shall pay to Lessor the cost thereof. 6. OBSTRUCTING LIGHT, DAMAGE The sash door, sashes window glass doors, lights and skylights that reflect or admit light into the halls or other places of the Building shall not be covered or obstructed. The toilets nd urinals shall not be used for any purpose other than those for which they were intended and constructed. 8. WIRING Electrical wiring of every kind shall be introduced and connected only as directed by Landlord, and no boring nor cutting of wires will be allowed except with the consent of Landlord. The location of the telephone, call boxes, etc. shall be subject to the approval of Landlord. 9. EQUIPMENT, MOVING, FURNITURE, ETC. Landlord shall approve the weight, size and position of all fixtures, equipment and other property brought into the Building, and the times of moving which must be done under the supervision of Landlord. Landlord will not be responsible for any loss of or damage to any such equipment or property from any cause, and all damage done in the Building by moving or maintaining any such property shall be repaired at the expense of Tenant. 10. REQUIREMENTS OF TENANT The requirements of Tenant will be attended to only upon application at the office of Landlord. Employees shall not perform any work nor do anything outside their regular duties unless under special instructions from Landlord. No employees shall admit any person, Tenant or otherwise, to any other office without instruction from the office of Landlord. 15 11. MEDICAL AND HAZARDOUS WASTES Tenant shall comply with all policies established from time to time by Landlord regarding the storage and disposal of hazardous substances, wastes and materials, and medical, special or infectious wastes. 12. ACCESS TO BUILDING Any person entering or leaving the Building may be questioned by Building security regarding his/her business in the Building and may be required to sign in and out. Anyone who fails to provide a satisfactory reason for being in the Building may be excluded. 13. VEHICLES, ANIMALS, REFUSE Tenant shall not allow anything to be placed on the outside window ledges of the Premises or to be thrown out of the windows of the Building. No bicycles or other vehicle, and no animal shall be brought into the offices, halls, corridors, elevators or any other parts of the Building by Tenant or the agents, employees, or invites of Tenant, and Tenant shall not place or permit to be placed any obstruction or refuse in any public part of the Building. 14. EQUIPMENT DEFECTS Tenant shall give landlord prompt notice of any accidents to or defects in the water pipes, gas pipes, electric lights and fixtures, heating apparatus, or any other service equipment. 15. PARKING Unless otherwise specified by Landlord, Tenant and its employees may park automobiles only in spaces designated by Landlord for such purpose and shall in no event park in spaces reserved for public parking. 16 16. CONSERVATION AND SECURITY Tenant will see that all windows and doors are securely locked, and that all faucets and electric light switches are turned off before leaving the Building. 17. SIGNAGE Tenant shall not place any sign upon the Premises or the Building without Landlord's prior written consent. 17 ADDENDUM NO. 2 TO MEDICAL OFFICE BUILDING LEASE THIS ADDENDUM NO. 2 to lease is executed concurrently with and is a part of that certain Medical Office Building Lease, dated September 14, 1995 which is attached hereto by and between COLUMBIA HEALTHCARE CORPORATION, a Delaware Corporation, ("Sublessor") and OPTIMUMCARE CORPORATION ("Sublessee") for those premises located at 14100 East Francisquito Avenue, Suite 12, Baldwin Park, CA 91706 (referred to herein as the "Sublease" more specifically identified as Exhibit "B". THIS ADDENDUM supersedes any and all conflicting provisions in the Sublease. Unless indicated otherwise, all terms herein are used as defined in the Sublease. 1. The Medical Office Building Lease attached hereto is in fact a Sublease Agreement wherein Sublessor, identified therein as "Lessor" is the Sublessor and Sublessee, identified therein as "Lessee" is the Sublease, under a lease between Landlord as the Lessees (originally Human, Inc. and subsequently merged with Columbia Healthcare, Inc.) and Francisquito Properties, a Partnership as the Lessor under that certain lease dated as of August 27, 1979 a true and complete copy of which is attached hereto as Exhibit "A" and more specifically identified as Exhibit "B" attached hereto (the Master Lease). Sublessee hereby subleases the Premises from Sublessor subject to all of the terms, covenants, conditions, rules and regulations of the Master Lease. Except as expressly modified herein, and under the remainder of the Sublease, such terms, covenants, conditions, rules and regulations are hereby expressly incorporated by reference into this Sublease and apply to the parties hereto as if Sublessor was the Lessor thereunder and Sublessee was the Lessee thereunder; provided, however, to the extent the Master Lease grants certain lease or purchase options or rights of first refusal to Sublessor, those options and rights are expressly retained solely by Sublessor and are not transferred to Sublessee hereby. (a) In the event the Sublessor's interest as Lessee under the Master Lease is terminated, for any reason, this Sublease shall terminate simultaneously therewith without any liability of Sublessor to Sublessee. (b) Except as expressly modified herein, Sublessee shall assume any and all obligations of and perform any terms, covenants and conditions applicable to Sublessor as Lessee under the Master Lease, to the extent said obligations, terms, covenants and conditions apply to the Premises, specifically including, but not limited to Paragraph 24 "Indemnification", and any rules and regulations attached to the Master Lease. Sublessee shall not commit or permit to permit to be committed on the Premises any act or omission which violates any term or condition of the Master Lease. 2. Notwithstanding the provisions of Article No. V of the Lease, Tenant has physically inspected the Premise and knows the condition thereof and will accept the condition as is and agrees that Landlord shall not be called upon to make any improvements, alterations or additions thereto regarding the present condition or future condition of the Premises. SUBLESSOR SUBLESSEE BY: HOWARD K. PATTERSON BY: EDWARD A. JOHNSON DATED: 9/29/95 DATED: 9/19/95 18 EXHIBIT "H" OFFICE BUILDING LEASE THIS LEASE made and execute this 27th day of August, 1979, between FRANCISQUITO PROPERTIES, a Partnership, (hereinafter designated the Lessor), and HUMANA INC., a Corporation, (hereinafter designated the Lessee). For and in consideration of the covenants hereinafter mentioned, the Lessor leases to the Lessee and the Lessee hereby leases from the Lessor the Premises containing an area of approximately 15,923 square feet, delineated in the attached Schedule A, located in the Building commonly known as 14100 E. Francisquito Avenue, the City of Baldwin Park, State of California, to be used by Lessee for any lawful purpose, for a term of eighteen (18) years, commencing on the date Tenant's first rental payment is due, as provided in Paragraph 1 below. 1. RENT. Lessee agrees to pay Lessor, as base rent for the leased Premises eighty-five cents ($0.85) per square foot per month. This rental amount shall be paid, on the first day of each calendar month, without deduction, offset, prior notice, or demand, in lawful money of the United States, commencing on the first day of the month following the month in which Lessor notifies Lessee that Lessor's work of improvement i s substantially completed and that Lessee may have physical possession of the Premises. The exact area leased and the dollar amount of Base Rent payable monthly shall be determined at the time the working plans prepared by Lessor's architect, for Lessor's improvement of the Building and Premises, are received nd approved by Lessee as provided by paragraph 3. The area leased shall be determined by measuring from the centers of outer walls to the centers of inner walls. 2. TERMINATION. This Lease shall terminate on the date, without the necessity of notice from either party to the other party. If the Lessee shall hold over such holding shall be construed to be a tenancy only from month-to-month, but otherwise in accordance with the terms and conditions of this Lease. Lessee shall continue to pay the monthly rental paid during the last month of the term of this lease for such further time as Lessee may hold over. Nothing in this Section shall be construed as a consent by the Lessor to the Occupancy or possession of the Premises by the Lessee after the expiration of the term of this Lease. 3. COMPLETION OF PREMISES 3.1 As soon as this Lease is executed by all parties, Lessor shall order the preparation of Plans and Specifications for conversion of the existing Building into a medical office building. All Plans and Specifications shall be submitted to Lessee for Lessee's approval, and shall meet the "Standards for Improvement" set forth in Schedule B to this Lease, and such other standards as Lessee shall reasonably require. 3.2 As soon as Lessee has approved the Plans and Specifications, Lessor shall commence and with reasonable diligence prosecute to completion all construction of improvements, additions, and alterations required of Lessor. Construction required at the inception of this Lease shall begin with three (3) months after Lessee has approved the Plans and Specifications and shall be completed and ready for use within ten (10) months after its commencement, provided that the time for completion shall be extended for as long as lessor shall be prevented from completing the construction by delays beyond Lessor's control. All work shall be performed in a good and workmanlike manner, shall 19 SCHEDULE A DELINEATION OF THE PREMISES SHALL BE ATTACHED TO THE LEASE AT THE TIME THE "PLANS AND SPECIFICATIONS" FOR CONVERSION OF THE EXISTING BUILDING INTO A MEDICAL OFFICE BUILDING ARE PREPARED AND APPROVED PURSUANT TO SECTION THREE, "COMPLETION OF PREMISES", OF THE LEASE. 20 SCHEDULE B STANDARDS FOR IMPROVEMENT Lessor shall perform all tenant improvements following the same standards Lessee follows when constructing its own medical office buildings. These standards include, but ar not necessarily limited to: 1. Vinyl wall covering on one wall in each waiting room and each waiting room and each consultation room, of a quality equal to or greater than "Type 3", with a weight of fourteen to twenty-six ounces per square yard. 2. Two coats of paint on all other walls. 3. Exposed grid acoustical ceilings in all areas. 4. Carpet in all waiting rooms of a material quality equal to or greater than "Antron 3", with a weight of twenty-two to thirty-two ounces per square yard. 5. Vinyl asbestos tile on the floors in all areas not carpeted. 6. A minimum of eight lineal feet of base counters and wall cabinets in each suite laboratory. 7. A minimum of one 2'x4', four tube fluorescent lighting fixture in each exam room, and two such fixtures in each consultation room. 8. A minimum of one sink in each examination room and one stainless steel sink in each laboratory. 9. Electrical convenience outlets as per code, with a minimum of one outlet on each wall. 10. Each suite shall have its own thermostat for air conditioning and heating control. 11. Party walls are to have a sound rating of at least 50 stc. The exterior of the building shall have a pleasing and dignified architecture acceptable to Lessee. The existing roof shall be rebuilt in accordance with standards and specifications acceptable to Lessee. Mechanical equipment, heating, and air conditioning shall be replaced and provide a level of service acceptable to Lessee. 21 substantially comply with the plans and specifications submitted to Lessee, and shall comply with all applicable governmental permits, laws, ordinances, and regulations. 3.3 As soon as Lessor completes the Premises, Lessor shall notify Lessee that Lessor's work of improvement is substantially completed, and that Lessee may have physical possession of the Premises. Unless waived by Lessee, Lessor's notice shall be accompanied by a certification by the duly licensed architect in charge of the work that the improvements have been substantially completed in accordance with the Plans and Specifications and all Authorized Changes. 3.4 For the purposes of this Section 3, "Plans and Specification and all Authorized Changes" shall mean only drawings, specifications, and other contract documents which pertain to the work and have been approved in writing by Lessee, plus change orders which have been approved in writing by Lessor and Lessee. 4. ALTERATIONS OF PREMISES BY LESSEE 4.1 After Lessee has taken possession of the Premises, Lessee shall have the right to and shall be solely responsible for making all of the nonstructural interior improvements and alterations commonly recognized and tenant improvements beyond those provided by Lessor as described in Schedule B required by Lessee or its subtenants. 4.2 Lessee shall hold the Lessor harmless and free from any lien or claim, and all other liability, claims and demands arising out of any work done or material supplied to the demised Premises at the instance of the Lessee, and from all actions, suits and costs of suit by any person to enforce any lien or claim of lien, liability, claims or demands, together with the costs of suit and attorney's fees incurred by Lessor in connection therewith. All such alterations, repairs, additions or improvement except trade fixtures, counters, appliances, shelving and moveable partitions placed therein by the Lessee for the requirement of business, shall, unless otherwise provided by written agreement, become the property of the Lessor and shall remain upon and be surrendered with the Premises upon the expiration of this Lease or any sooner determination thereof. 4.3 At the expiration of the term of this Lease, all trade fixtures, counters, appliance, shelving and moveable partitions installed by Lessee may be removed as Lessee's personal property, at Lessee's sole expense; provided, however, Lessee will pay for any damages caused to the demised Premises by the removal of said items, so that, after the removal of said items, the demised Premises will be in the same condition as at the time prior to the said installations, if any, reasonable wear and tear excepted. 22 5. TAXES AND ASSESSMENTS 5.1 Lessee shall be responsible for and shall pay to Lessor its pro rata share of all real property taxes, assessments (whether special or general), fees, city business license, or surcharges including without limitation any tax or levy for parking privileges or in anyway relating to environmental protection, or any other tax, levy, assessment or other charge of any nature whatsoever imposed by any governmental authority having jurisdiction over the leased Premises and levied upon or payable in connection with the leased Premise, the operation thereof, or business conducted therein, including any tax, fee or assessment levied or assessed in lieu of such real property taxes (all of which are herein referred to as "taxes and assessments"). IN the event said taxes and/or assessments are not paid, Lessor may, in addition to all other remedies permitted in this Lease, add an additional charge to the penalty and interest that would have been due if Lessee had failed to make timely payments directly to the tax collectors in orders to reimburse Lessor for its administrative costs incurred as a result of Lessee's failure to pay. Lessor shall give Lessee notice, within five (5) days after Lessor receives its notice, of all taxes and assessments, the amounts due, and the date payment is due. If Lessor fails to give Lessees notice within five (5) days after receiving its notice, Lessor may not charge Lessees any penalty or interest. 5.2 Lessee shall pay, before delinquency, all property taxes and assessments on the furniture, fixtures, equipment, merchandise and other property of Lessees at any time situated or installed in the leased Premises, and, in addition, on improvements in the leased Premises made or installed by Lessee subsequent to the commencement date. If at any time during the term of this Lease any of the foregoing are assessed as a part of the real property of which the leased premises are a part, Lessee shall pay to Lessor upon demand the amount of such additional taxes as may be levied against said real property by reason thereof. For the purpose of determining said amount, figures supplied by the County Assessor as to the amount so assessed shall be conclusive. 6. UTILITIES. Lessee agrees to pay before delinquency its pro rata share of all charges for gas, heat, sewer, power, electricity, telephone, storm drain, water service and water meter charges and all other utility charges including any hookup or connection fees or charges which may accrue with respect to the leased Premises during the term of this Lease whether the same be charged or assessed at flat rates, measured by separate meters or prorated by the utility company or Lessor. Lessor shall in no event be liable to Lessee for any interruption in the service of any such utilities to the leased Premises, howsoever such interruption may be caused; and this Lease shall and effect despite any such interruptions. 7. REPAIRS AND MAINTENANCE 7.1 Lessee agrees that its acceptance of the Premises, as evidenced by Lessee's entry into possession of them, shall constitute unqualified proof that the Premises are, as of the commencement date of the term, in a tenantable and good condition. 7.2 Lessor shall maintain the Building's roof, walls, gutters, downspouts, and parking lots and shall bill Lessee for its pro rate share of Lessor's actual cost for the work performed. Lessor shall perform all cleaning and gardening required to keep the exterior and parking areas of the Building in a neat, presentable condition, and shall bill Lessees for its pro rata share of Lessor's actual cost for the worked performed. Lessor shall perform all janitorial work required by the Building, and shall bill Lessee for its pro rata share of Lessor's actual cost of the work performed. 7.3 Lessor shall perform all maintenance and repair work required in the demised Premises, including, but not limited to, maintenance and repair of the plumbing, electrical, heating, ventilation, and air conditioning systems, and the fixtures, pipes, conduits, sewers, floors, flooring, interior walls, lighting, plate glass and interior ceilings, and shall bill Lessee for its pro rata share of Lessor's cost of the work performed. All such work required in the portions of the Building not leased by Lessee shall be performed by Lessor at Lessor's sole cost and expense. All 23 such work required outside of the Building, or which applies to the Building as a whole, shall be performed by Lesser, who shall bill Lessee for its pro rata share of Lessor's actual cost for the work performed. 24 8. NOTICES. Any notice which either party is required to or desires to give to the other shall be in writing, and except for a notice regarding Lessee's nonpayment shall be deemed given at the time it is placed int he United States Mail, postage prepaid, certified or registered mail, return receipt requested, addressed to the party to whom it is to be given as follows; LESSEE: Executive Director Baldwin Park Community Hospital 14148 Francisquito Avenue Baldwin Park, CA 91706 COPY TO: Director of Real Estate Human, Inc. P.O. Box 1438 Louisville, KY 40201 COPY TO: Human, Inc. 2049 Century Park East, Ste. 2290 Los Angeles, CA 90067 LESSOR: Francisquito Properties 14100 Francisquito Avenue Baldwin Park, CA 91706 All notices regarding nonpayment of rent required by Article 24 of this Lease shall be delivered to Lessee in the same manner and at the same address as all other notices, except that they shall not be deemed given until actually received by Lessee. 9. INSURANCE 9.1 At all times during the term of this lease, Lessor shall maintain in full force and effect the insurance policies listed in this Section, and shall submit to Lessee certificates of insurance as evidence such insurance has been obtained. Lessee shall reimburse Lessor for its pro rata share of Lessor's actual cost of such insurance. 9.2 General public liability insurance against claims for bodily injury, death or property damage occurring in or upon the common area with limits of coverage to be mutually agreed upon between the parties, but not less than FIVE HUNDRED THOUSAND ($500,000) DOLLARS for death or injury to one person, ONE MILLION ($1,000,000) DOLLARS for death or injury to more than one person in a common accident or occurrence, and FIFTY THOUSAND ($50,000) DOLLARS for damage or injury to property. 9.3 Fire, extended coverage, vandalism, malicious mischief, loss of rental income, and sprinkler leakage insurance, in such form and with such covered perils as the parties shall jointly determine to be appropriate and necessary. All fire insurance shall be for the full replacement value of the Premises. All loss of rental income insurance shall be in an amount necessary to enable Lessor to service its outstanding secured debts. 9.4 Comprehensive General Liability Insurance insuring all Premises Operations, Independent Contractors, Products and Completed Operations and Contractual Liability arising from the operation, possession, maintenance or use of the leased Premises or ways immediately adjacent thereto with Limits of Liability to be agreed upon between the parties but not less than FIVE HUNDRED THOUSAND ($500,000) DOLLARS each person and ONE MILLION ($1,000,000) DOLLARS Each Occurrence for Bodily Injury and Personal Injury and FIFTY THOUSAND ($50,000) DOLLARS Each Occurrence for Property Damage. 9.5 The proceeds of all insurance described in this Section 9 shall belong to and be the sole property of Lessor, and Lessee hereby assigns to Lessor or its nominee all of Lessee's right, title and interest therein. Lessor shall hold all proceeds paid 25 to it in trust, and shall use them solely for the repair or replacement of the damaged portions of the Premises, to the extent Lessor is required to repair such damage. 9.6 In the event Lessor fails, at any time during the term of this Lease, to obtain the insurance required by this Lease, or to provide satisfactory evidence that it has obtained such insurance, Lessee shall have the right, at its option, to procure such insurance and to bill Lessor for its pro rata share of Lessee's actual cost of such insurance. Lessor also agrees that all insurance policies obtained by it shall contain an endorsement, if permitted by the carrier, showing Lessee as an additional insured under the policy, and an endorsement that the insurance cannot be cancelled without giving Lessee fifteen (15) days' notice. 9.7 Lessor and Lessee agree that all insurance policies shall contain a clause permitting the insured to waive the insurance carrier's right of subrogation against the other arising out of the occurrence of any casualty insured against. Lessee and Lessor hereby waive any such right of subrogation against the other party hereto, subject to approval of the Insurance Carrier. 9.8 Lessee shall also obtain, at its sole cost and expense and for its sole benefit, Fire, Extended Coverage, Vandalism, and Malicious Mischief insurance in an amount equal to the full Actual Cash Value of all furniture, fixtures, stock and equipment installed by Lessee in the Premises. 10. NET LEASE. This is a net Lease. Lessee shall pay its pro rata share of all costs of operations and maintenance, including but not limited to: Real and personal property taxes and assessments; water and sewer charges, insurance premiums; utilities; janitorial services; air conditioning and heating; supplies; maintenance costs and upkeep of all parking and common areas. Lessee shall have the right to audit Lessor's costs of operations and maintenance, as described in this paragraph and in paragraphs five (5), six (6), seven (7) and nine (9). 11. RIGHTS OF LESSOR. Lessor reserves the following rights: (A) To change the name of the Building, after obtaining Lessee's approval, which shall not be unreasonably withheld; (B) To have pass keys to the Premises; (C) To enter the Premises at any time for inspections, repairs, alterations, or additions to the Premises or the Building, to exhibit the Premises to others, to affix and display "For Rent" signs, and for any other purpose related to the safety, protection, preservation, or improvement of the Building or Premises; (d) To enter upon the Premises for the purpose of positing and maintaining such notices as may be necessary to protect Lessor against any mechanic's, materialmen's or other liens, or to post any notices that may be proper and necessary. 12. DESTRUCTION - FIRE OR OTHER CAUSE. If the Building shall be totally destroyed, this Lease shall immediately terminate. If the Building or demised Premises are damaged by fire, earthquake, or any other cause, without fault or neglect of Lessee so that the leased Premises become untenantable, then if such leased Premises cannot be made tenantable within one hundred and twenty (120) working days from the date of such damage, this Lease may be terminated by either party. In any case where the leased Premises are rendered untenantable by fire, earthquake or other cause, without the fault or neglect of Lessee, then the Lessee shall not be bound to pay rent for that period during which said Premises remain untenantable. If the Premises are rendered partially untenantable, the monthly payments shall be adjusted in the proportion that the untenantable portion of the demised Premises bears to the whole thereof. As to any partial destruction of the premises, Lessee hereby waives its rights against Lessor under Section 1932, Subdivision 2, and Section 1933, Subdivision 4, of the California Civil Code. 13. EMINENT DOMAIN. Should Lessor at any tine during the term of the lease be deprived of all or any part of the Building in which the demised Premises are situated, or any part if the land on which it is situated, by condemnation or eminent domain proceedings, the parties mutually agree that this Lease shall terminate on the date when Lessor is actually deprived of possession of said land or building, or some part 26 thereof, and thereupon the parties hereto shall be released from all further obligations hereunder, and Lessor shall thereupon repay to Lessee any rental paid by Lessee and unearned at the date of such termination. Lessee shall not be entitled to any compensation, allowance, claim or offset of any kind against the Lessor, as damages, or otherwise, by reason of such condemnation or eminent domain proceedings or by reason of being deprived of the demised Premises or the termination of this Lease and said Lessee does hereby waive, renounce and quitclaim to Lessor any right in and to any award, judgement, payment or compensation which shall or may be made or given because of the taking of said Premises, or any portion thereof, by virtue of any such condemnation or eminent domain proceedings, whether received in any such action or in settlement or compromise thereof by said Lessor, except to the extent such sums are directly attributable to improvements or alterations made to the Premises by Lessee in accordance with this Lease, are directly allocated to Lessee to reimburse Lessee for the value of the leasehold taken by the condemnation action, or which are allocated to Lessee as reasonable relocations costs and moving expenses. 14. SUCCESSORS. The words "Lessor" and "Lessee" as used herein, include, apply to and bind and benefit the heirs, executors, administrators, assigns and successors of the Lessor and Lessee, subject to the aforementioned restrictions on assignment of this Lease on the part of the Lessee. 15. CO-LESSEES. All persons comprising Lessees are to be held and hereby agree to jointly and severally be responsible for the payment of rent and the faithful fulfillment of all the covenants, terms and conditions of this Lease. 16. LIABILITY OF LESSOR. Lessor shall not be liable to Lessee or to any other person or persons whomsoever, for any damages to the leased Premises or for or on account of any loss, damage, theft, or injury to any person or property in or about said Premises or the approaches or entrances thereto or on the streets, sidewalks, or corridors thereto, caused or occasioned by said Premises being out of repair, by defects in said building or said Premises or equipment contained therein, or by the failure of Lessee to keep the demised Premises in good order and repair or by fire, gas, water, electricity or by the breaking, overflowing or leaking of roofs, pipes, or walls of said building, or for any other damage or injury caused by any acts or events whatsoever beyond the control of Lessor. 17. ASSIGNMENT. Lessee may freely assign this Lease or any interest therein whether voluntarily, by operation of law, or otherwise, provided, as a condition of any such assignment, Lessee shall not be relieved from liability for payment of all forms of rental and other charges herein provided or from the obligation to keep and be bound by the terms, conditions, and covenants of this Lease. However, if Lessee obtains the written approval of Lessor's lender to the assignment, then Lessee shall be relieved of its obligations under this Lease. In connection with any such assignment, Lessee or the assignee of Lessee shall pay to Lessor a fee of TWO HUNDRED FIFTY ($250) DOLLARS to defray Lessor's costs in effecting such transfer. The acceptance of rent from any other person shall not be deemed to be a waiver of any of the provisions of this Lease, or a consent of the assignment of the leased Premises. Consent to any assignment shall not be deemed a consent to any future assignment. 18. GENDER. In this Lease, whenever the context so requires, the masculine gender herein used shall include the feminine or neuter and the singular number shall include the plural. 19. SUBORDINATION. Lessee expressly agrees that at the sole option of the Lessor, the Lease may be subject and subordinate or paramount to all mortgages, Deeds of Trust or any other encumbrances now placed or which may be placed in the future upon the said real property, of which the demised Premises are a part, by the owners thereof, and Lessee further agrees that whenever requested to do so by Lessor, Lessee will execute, sign, acknowledge and deliver any documents required to effectuate such subordination or superiority. Should Lessee fail to execute, acknowledge and deliver such instruments within fifteen (15) days after written notice to do so, Lessee hereby appoints the lessor and Lessor's successors and assigns Lessee's attorney in fact 27 irrevocably to execute, acknowledge and deliver any such instrument or instruments for and on behalf of Lessee. 20. DELAY IN OCCUPANCY. Lessee agrees that in the event Lessor is unable to deliver to Lessee possession of the Premises at the commencement of the term, Lessor shall not be liable for any damage caused thereby, nor shall this Lease be void or voidable if possession is given to Lessee within ninety (90) days after the date set for completion of the Premises as provided by Section 3 of this Lease. In no event shall Lessee be liable for rent until such time as Lessor offers to deliver possession of the premises to Lessee. However, the term hereof shall be extended by such delay. If Lessee, with Lessor's consent takes possession of all or part of the Premises prior to the commencement of this Lease, then as to the part of the Premises occupied, Lessee shall be subject to all the covenants and conditions hereof, and shall pay rent for the part of the Premises occupied at the rental rate set forth in Paragraph 1 of this Lease. 28 21. CONDITIONS AND COVENANTS. It is further expressly understood and agreed that each and all of the provisions of this Lease are conditions precedent to be faithfully and fully performed and observed by said Lessee to entitle Lessee to continue in possession of said Premises hereunder; that said conditions are also covenants on the part of Lessee; that time of performance of each is of the essence of this Agreement. 22. ATTORNEY'S FEES. If any action is commenced for the breach of any covenants or conditions of the Lease or for any rent or for possession of said Premises, the prevailing party in said action shall recover a reasonable attorney's fee in such action or actions, which fee shall be fixed by the court as a part of the cost thereof. If Lessor becomes a party to any action, as a result of the failure of Lessee to act, in order to protect its rights, if Lessor is the prevailing party, Lessee will pay Lessor a reasonable attorney's fee in such action or actions. 23. WAIVER. No modification, alteration or waiver of any term, covenant or condition of this Lease shall be valid unless in writing subscribed by the Lessor or by an officer of Lessor, authorized in writing. No waiver of a breach of any covenant or condition shall be construed to be a waiver of any succeeding breach. No act, delay or omission done, suffered or permitted by the Lessor shall be deemed to exhaust or impair any right, remedy or power of the Lessor hereunder. It is further understood and agreed that this agreement contains the entire contract between the parties hereto and that no representative or officer of the Lessor has any power to change, modify or make any other terms or representations whatsoever than those herein set forth. 24. INDEMNIFICATION. Each party agrees to indemnify and hold the other harmless from any and all liability, cost, expense, or cause of action, plus any and all attorney's fees, the other may suffer or incur as a result of a party's violation of any of the terms of this Lease or any use, misuse, or neglect of the Premises and appurtenances. Lessee also agrees that it shall not use the Premises in any manner which will increase the present interest rate of premium for insurance on the Building, or cause the cancellation of any insurance policy relating to the Building. 25. DEFAULT. 25.1 In the event of default at any time by Lessee in the payment of the rent herein provided for, or any part thereof, or in the performance of any other terms, covenants or conditions to be kept or performed by Lessee, or if Lessee shall abandon or vacate the Premises without the consent of Lessor, then after fourteen (14) days' written notice of any default in payment of rent and after thirty (30) days' written notice of any default other than payment of rent (if such default is not cured within such period), the Lessor, at its option, shall have the right to deem this Lease to be in default and Lessor shall have the right, at its option, to enter upon the Premises or any part thereof, either with or without process of law, and to expel, remove or put out Lessee or any other person or persons who may be thereon, together with all personal property found therein; and Lessor may either terminate this Lease or it may from time to time without terminating this Lease, re-let said Premises or any part thereof for such term or terms (which may be for a term extending beyond the term of this Lease) and at such rental or rentals and upon such other terms and conditions as Lessor in its sole discretion may deem advisable, with the right to repair, renovate, remodel, redecorate, alter, and change said Premises; and at the option of Lessor, rents received by Lessor from such re-letting shall be applied first to the payment of any indebtedness other than rent due hereunder from Lessee to Lessor; second, to the payment of any costs and expenses of such re-letting, including but not limited to attorney's fees, advertising fees and brokerage fees and to the payment of any repairs, renovations, remodeling, redecoration, alterations and changes in the Premises; third, to the payment of rent due and payable hereunder; and if after so applying said rentals there is any deficiency int he rent to be paid by Lessee under this Lease, Lessee shall pay any such deficiency to Lessor and such deficiency shall be calculated and collected by Lessor monthly. In no event shall Lessee be entitled to any excess rental over an above said obligation of Lessee. No such reentry or taking possession of said Premises shall be construed as an election on Lessor's part to terminate this Lease unless a written notice of such intention is given to Lessee. Notwithstanding any such re- letting without termination, Lessor may at any time thereafter elect to terminate this 29 Lease unless a written notice of such intention is given to Lessee. Notwithstanding any such re-letting without termination, Lessor may at any tine thereafter to terminate this Lease for such previous breach and default. Should Lessor at any time terminate this Lease by reason of any default, in addition to any other remedy it may have, it may recover from Lessee the worth at the time of such termination of the excess of the amount of rent and charges equivalent to rent reserved in this Lease for the balance of the term hereof over the then reasonable rental value of the demised Premises for the same period. All of the remedies herein provided shall be cumulative to all other rights or remedies herein given to Lessor or given to Lessor by law. A waiver by Lessor of any default by Lessee in the performance of any of the covenants, terms or conditions hereof shall not be considered or treated as a waiver of any subsequent or other default as to the same or any other matter. 25.2 If Lessor utilizes the services of an attorney at law for the purpose of collecting any rent due and unpaid by Lessee after fourteen (14) days' written notice to Lessee of such nonpayment of rent, Lessee agrees to pay to Lessor a reasonable attorney's fee for such legal services regardless of the fact that no legal action may be commenced or filed by Lessor. Any unpaid installment of rent shall bear interest at the maximum legal rate of interest from the due date of such installment until the payment thereof. Any brokerage fee payable by Lessee to Lessor, whether Lessor has retained the services of a broker or has otherwise determine should be payable to Lessor, shall not exceed the prevailing average rates for Brokers of similar properties. 26. BANKRUPTCY. It is further agreed that if at any time during the term of this Lease any judicial action or proceeding in any Court against Lessee or any of Lessee's heirs or assigns, a receiver or other officer or agent be appointed to take charge of said Premises or the business conducted therein, and shall be in possession thereof, or if this Lease or the interest or estate created thereby vests in any other person or persons by operation of law or otherwise, except by consent, as aforesaid, of Lessor, or in the event of any action taken by or against Lessee under the Federal Bankruptcy Laws or other applicable statutes of the United States, or any State, or if Lessee shall make an assignment for the benefit of creditors, or if an attachment or execution is levied upon the Lessee's property or interest under this Lease which is not satisfied or released within thirty (30) days thereafter, the occurrence of any such event shall be deemed to be a breach of this Lease by Lessee, and Lessor shall have all the rights herein provided in the event of any such breach, including the right at Lessor's option to terminate this Lease immediately and enter said Premises and remove all persons and property therefrom. 27. COMPLIANCE. Lessee and Lessor agree to comply with all laws and ordinances and all regulations and requirements of Municipal, State and Federal governments, boards and authorities relative to the Lessee's occupancy of the said demised premises or to the business to be conducted therein. Lessee will keep the said Premises in a clean and orderly condition according to all laws and ordinances and the direction of all public offices, and as far as reasonably possible will keep all immoral and disreputable persons out of the demised Premises to the end that the reputation of the demised Premises and the Building as a first class office building may be preserved. 28. PARAGRAPH HEADINGS. Paragraph headings do not constitute part of the text of this Lease, but are inserted in this Lease for Paragraph identification only. 29. LESSEE'S STATEMENT. Lessee agrees during the term of this Lease and any extension or renewal of the term hereof, within ten (10) days after request therefore by Lessor, from time to time, to execute, acknowledge and deliver a certificate or certificates in recordable form to Lessor or to any mortgage, trust deed beneficiary or proposed mortgage, trust deed beneficiary or purchaser, certifying that Lessee has accepted its Premises, the commencement date of the Lease term, that it is in occupancy under this Lease, that the Lease is in full fore and effect and that there are no defenses or offsets thereto and no rental offsets or claims by Lessee. If this Lease is assigned by Lessor to any mortgage or trust deed beneficiary or purchaser, within ten (10) days of written request by Lessor, Lessee shall acknowledge in writing receipt 30 of such assignment to the assignee upon receipt of a copy of notice thereof. 30. ATTORNMENT. In the event of an exercise of power of sale or the foreclosure under any deed of trust or mortgage placed by Lessor against all or any portion of the demised Premises, or upon the building of which the demised Premises are a part, or in which the demised Premises are located, Lessee shall upon demand attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Lessor under this Lease. 31. SUBLEASE. Lessee shall have the right to sublease all or part of the premises at its sole discretion. 32. CONDITION PRECEDENT. Notwithstanding anything to the contrary contained in this Lease, this Lease shall not be effective or legally binding upon the parties hereto until it has been reviewed and approved in writing by Lessee's Regional Vice president, or designee, and Lessee's legal counsel. Once signed and approved, it shall be legally binding upon al parties. IN WITNESS WHEREOF, the parties have duly executed this Lease the day and year first above written. WITNESS: FRANCISQUITO PROPERTIES BY: CON-AMER REALTY (PARTNER) NABEL, PRESIDENT WITNESS: HUMANA, INC., A CORPORATION BY: BILL WARD -------------------------------- APPROVED BY: HAROLD L. RIMER -------------------------------- Regional Vice President JACK E. SOROKIN -------------------------------- Hospital Legal Counsel EX-10.73 9 AGREEMENT-SAN FERNANDO COMMUNITY HOSPITAL 1 EXHIBIT 10.73 INPATIENT PSYCHIATRIC MANAGEMENT AGREEMENT THIS AGREEMENT entered into as of the 6th day of October, 1995 by and between San Fernando Community Hospital, Inc. dba Mission Community Hospital, a California non-profit corporation, herein referred to as "Facility", and OptimumCare Corporation, a Delaware corporation, herein referred to as "Management Company". RECITALS WHEREAS, Facility owns and operates a hospital known as Mission Community Hospital located at 700 Chatsworth Drive, San Fernando, California; and WHEREAS, Management Company is engaged in the business of providing management services in the operation of psychiatric programs; and WHEREAS, the parties desire to cooperate in providing a program in which physicians provide a consistent level of high quality treatment of psychiatric patients in Facility, so that these patients may return to a more satisfactory level of functioning in the community; and WHEREAS, the parties desire to establish an adult inpatient short-term crisis intervention psychiatric program at Facility ("Program"). AGREEMENT NOW, THEREFORE, in consideration of the mutual promises contained herein, it is mutually agreed as follows: 1. Appointment. Facility does hereby designate and appoint Management Company to manage and operate an adult inpatient short-term crisis intervention psychiatric treatment program at its San Fernando facility subject to Section 23 hereof; and Management Company does hereby accept such appointment and agree to provide services in accordance with the terms of this Agreement. For the purposes of this Agreement, an adult short-term crisis intervention program shall be defined as a unit which receives patients eighteen years of age or older whose length of stay is less than or equal to eight (8) days. 2. Term; Termination Without Cause. (a) This Agreement is for a term of three (3) years commencing October 23, 1995 or such later date as Facility has complied with the Section 5(b) hereof in terms of execution of such documents as are required to enable Management Company to perfect its security interest of a first priority in the Program Receivables and the Program Payments Account and (ii) establishing a Program Payments Account ("Effective Date"). Facility shall have the option of renewing this Agreement on 2 the same terms and conditions for additional one (1) year periods upon giving written notice to Management Company not less than ninety (90) days prior to the expiration of the existing term of this Agreement. (b) Notwithstanding any other term of this Agreement, this Agreement may be terminated by either party without cause effective at any time from and after the second anniversary of the term of this Agreement upon ninety (90 days prior written notice to the other party. (c) Notwithstanding any other term of this Agreement, this Agreement may be terminated by Facility without cause effective at any time prior to the second anniversary of the term of this Agreement upon ninety (90) days prior written notice to Management Company; provided however, in the event Facility terminates this Agreement effective prior to the second anniversary of the term of this Agreement, and as a condition to the termination of this Agreement, Facility will pay to the Management Company as liquidated damages and as the Management company's exclusive remedy for the early termination of this Agreement by Facility, an amount equal to (i) Twenty Thousand dollars ($20,000) multiplied by (ii) the number of months remaining between the termination date and the second anniversary of the term of this Agreement. The parties agree that in litigation or arbitration resulting form the early termination of this Agreement by Facility, the amount of loss which would be incurred by Management Company would incur in the event of the early termination of this Agreement by Facility and have established the foregoing estimate of liquidated damages. (d) Facility shall have the option to terminate this Agreement on sixty (60) days prior written notice to Management Company in the event either (i) the ratio of patients in the Unit who are covered by Medi-Cal as compared to the patients in the Unit who are covered by Medicare is less than three (3) Medi-Cal to one (1) Medicare; or (ii) less than ninety percent (90%) of the patients in the Unit are covered by Medicare or Medi- Cal. Notwithstanding the foregoing, neither Management company nor Facility shall discriminate against any patient, including but not limited to any Medicare or Medi-Cal beneficiary, in any manner. 3. Responsibilities of Facility. Facility shall, to the extent permitted by law, provide or perform the following services with respect to the Program: (a) Provide for the Program a duly licensed psychiatric unit of fifty-six (56) beds in a contiguous wing ("Unit") which shall be available to the Program for its patients. The Facility shall provide the Program with such office space as Facility and Management Company agree are necessary for the Program. Such meeting space for counseling, administration and group activities also shall be made available to the Program as Facility and Management Company agree are necessary. Management Company acknowledges the space currently being provided for office, counseling, administration and group activities, or comparable space is acceptable to Management Company. Facility shall furnish the Program with 3 inpatient support services, including but not limited to, housekeeping, dietary, linen, laundry, pharmacy, radiology, clinical laboratory and Facility's array of diagnostic facilities, and shall furnish Facility personnel to facilitate the foregoing services to the extent such facilities, services and personnel exist from time-to-time and are available to patients of Facility outside of the Unit. (b) It is agreed that medical treatment shall be provided only by physicians duly licensed to practice medicine in the State of California and who are members of Facility's medical staff. (c) Prepare all billings and perform all collections for Program services; provided, however, Facility shall not bill for professional services provided by psychiatrists or psychologists. Facility shall be solely responsible for preparing and submitting its annual cost report. Charges to the patients and/or responsible third-party payers for Program services shall be determined by Facility. (d) Provide to all Management Company and Facility personnel working in the Program all necessary pre- employment and periodic health screening examinations to the extent such examinations are with the scope of those required for other Facility personnel. Management Company shall pay for the examinations at the rate set forth in Exhibit A, attached hereto and incorporated with this reference. Management Company also shall assure that its personnel participate in Facility's orientation for new employees of Facility. The provision of such examinations and the participation in such orientation shall not be deemed to affect the status of any employee as being an employee of Facility rather than Management Company. (e) Maintain professional and public liability insurance coverage for all beds of the Program under the same terms and conditions and for the same coverage limits as for other beds in Facility. Said insurance shall cover claims for negligence of Facility or its employees. Written certificate of such coverage shall be provided to Management Company together with a provision that such coverage may not be cancelled without at least thirty (30) days notice to Management Company. Facility shall inform Management Company of any material changes in the status of its coverage. Facility will have the right to provide the foregoing coverage through the self-insurance programs of its parent, sister, or related entities. (f) Facility shall be free to make any changes it desires to the Facility or the Unit, or to relocate the Program so long as such changes do not materially and adversely interfere with the ability of Management company or facility to carry out their duties hereunder. 4. Responsibilities of Management Company. Management Company shall, to the extent permitted by law, provide or perform the following services with respect to the Program: (a) Develop, supervise, manage and operate an adult short- term crisis intervention 4 inpatient psychiatric treatment program. It is understood and agreed that Management Company does not provide patient psychiatric care (including diagnosis, development of individual treatment plans, determining changes in the care plan and discharge planning), which care is provided by the licensed physicians who are members in good standing of Facility's medical staff with psychiatric privileges. (b) Provide, at Management Company's expense, a Management Company employee to serve as Program Director who shall be assigned full-time exclusively to the Program to manage the Program, subject to clinical directions given by the attending physicians and the Program Medical Director. The Program Director shall have day- to-day management authority over the Program to implement policies and procedures which have been approved by the Facility. The Facility shall have the right to approve the individual selected to be Program Director prior to his commencement of Directorship duties at Facility. The Facility shall have the right to approve the individual selected to be Program Director prior to his commencement of Directorship duties at Facility, to require his replacement on thirty (30) days prior written notice if at any time Facility deems him unacceptable to continue as said Director, and to approve any subsequent Program Director which approval shall not be unreasonably withheld. Notwithstanding the foregoing, Facility shall have the right to require the Program Director's immediate removal if the Program Director poses a threat to patient care or the Facility's operations. (c) Provide, at Management company's expense, social workers, psychologists (consulting), occupational/activities therapists, nursing staff and intake admissions coordinators as required in the staffing pattern attached hereto as Exhibit B. All personnel employed or contracted for by Management company to render services in the Program shall be approved by Facility prior to the date said individuals commence providing services to the Program, and a job description and a resume of their qualifications and work experience shall be provide dot Facility's Chief Executive Officer or her designee. Persons employed or contracted for by Management Company shall in no event be considered as the employees, agents, or servants of Facility, and Management Company shall have the full responsibility for wages, vacation pay, sick leave, retirement benefits, social security, worker's compensation, disability insurance,e unemployment insurance, severance pay, and employee benefits of any kind for all personnel which it may employ or contract for hereunder. Any Management company employee or contractor who Facility determines in its sole discretion is incompatible with the goals of Facility and/or its staff will be removed by Management company upon thirty (30) days written notice. A Management Company employee or contractor shall be immediately removed if Facility in its sole discretion determines that individual's presence is a threat to patient care or the Facility's operations. Professionals provided by Management Company pursuant to this Paragraph shall apply for and maintain appropriate allied health professional privileges on Facility's medical staff if so required by the medical staff bylaws of Facility. 5 (d) Obtain liability insurance coverage, which includes professional and general liability insurance coverage, for the negligent acts or omissions of Management Company and its employees, agents and the contractors it retains to provide services to the Program, in an amount of Five Million Dollars ($5,000,000) single limit coverage with California licensed insurer(s) reasonably acceptable to Facility. Written certificate of such coverage shall be provided to Facility together with an endorsement from the insurer providing that such coverage may not be cancelled or coverage decreased without at least thirty (30) days prior written notice to Facility. Such policy shall be occurrence coverage and shall name Facility as an additional insured. (e) Develop clinical treatment programs that are reflective of current recognized standards for adult short-term crisis intervention programs. (f) Submit monthly status reports for the Program to Facility's Administration that will review progress made during the previous month and outline planned activities for the coming month. (g) Initiate a comprehensive public information, education, marketing and referral development effort, which shall be reviewed periodically in coordination with other Facility public relations plans. Costs of printing, air time and other out-of-pocket expenses will be borne by Management Company. Facility shall have the right to approve or disapprove all marketing programs, which approval shall not be unreasonably delayed or withheld. Management Company shall not be permitted to use Facility's name, logo, or likeness without Facility's prior written approval of such usage. (h) Develop operations policies and procedures for the program. Any and all Program policies, procedures, programs and activities are subject to the review and approval by Facility's Administration and its medical staff. (i) Assist Facility in working with governmental agencies, third-party payers and others to enable Facility to secure necessary licenses, permits, approvals and reimbursements for the Program. (j) Apply for and obtain initial TAR's and such other authorizations for admission and services on behalf of Facility as are required by the government or any other third-party payor prior to the patient's admission. Utilize its best efforts to assure that additional TAR's and approvals for continued hospitalization and/or services are timely obtained to assure prompt payment. Facility shall assist Management company with respect to the foregoing. All admissions shall be in compliance with Facility's admission criteria and shall be subject to Facility's ultimate authority and control. (k) Select a Program Medical Director who shall be an employee or independent contractor of Management Company and compensated by Management Company. 6 The Program Medical Director shall be at the Facility and within the Program's Unit for a minimum of sixteen (16) hours per week to direct the clinical management of the Program and shall be available at all other times to respond to problems within the Program which require his/her direction. The Program Medical Director shall be a physician duly licensed by the State of California and a member of Facility's medical staff with appropriate medical staff privileges. Facility shall have the right to approve the individual selected to be Program Medical Director prior to his/her commencement of Directorship duties at Facility, which approval shall not be unreasonably withheld, to require his/her removal on thirty (30) days prior written notice, and to approve nay replacement Program Medical Director which approval shall not be unreasonably withheld. Notwithstanding the foregoing, Facility shall have the right to require the Program Medical Director's immediate removal if the Program Medical Director poses a threat to patient care or the Facility's operations. (l) Obtain and maintain workers compensation insurance for its employees as required by California law. Facility will be added as an additional insured on such policy. 5. Compensation to Management Company. (a) Management Fee. Facility shall pay Management company a management fee of One Hundred Eighty-Five Dollars ($185) per patient day for each Program patient day during the first three (3) months of the term of this Agreement for which Facility is substantially reimbursed by Medicare, or Medi-Cal or other payer. Facility shall pay Management Company a management fee of one Hundred Ninety-Six Dollars an Fifty Cents ($196.50) per patient day for each Program patient day during the next twenty-one (21) months of the term of this Agreement for which Facility is substantially reimbursed by Medicare, Medi-Cal, or other payer. The management fee shall become One Hundred Ninety Five Dollars ($195) per patient day for each Program patient day during the balance of the term of this Agreement for which Facility is substantially reimbursed by Medicare, Medi-Cal or other payer. Payment shall be made within seven (7) business days of the date on which Facility receives reimbursement. (b) Security Interest. Facility hereby irrevocably grants to Management Company a first priority lien and security interest in (i) all accounts receivable resulting from services rendered by the Program other than Disproportionate Share monies received from either the Medicare or Medi-Cal Programs ("Program Receivables") and (ii) the Program Payments Account (as hereinafter defined), together with any and all present and future additions, replacements and substitutions of or to the Program Receivables and the Program Payments Account, together with all advance payments and any and all rights thereunder and proceeds therefrom (together, the "Collateral"), to secure the payment of all sums due by Facility to Management Company under this Agreement. Facility shall separately bill Medicare, Medi-Cal, third party payors and patients for all patient services rendered to patients by the Program. Facility shall establish a separate bank 7 account into which payments of the Program Receivables shall be deposited (the "Program Payments Account"), Facility shall not deposit any other funds in the Program Payments Account. It is the intention of the parties that all payments received by Facility into the Program Payments Account and the failure of Facility to deposit these accounts upon Facility's receipt of these amounts shall be a material breach of this Agreement. In the event of any default, Management Company may exercise any and all of the rights and remedies of a secured party under the California Uniform Commercial Code or under any other applicable law or in equity. For purposes of the security interest grated hereby, the following shall be deemed an event of default: (i) Facility shall default in the payment of any sums due to Management Company under this Agreement and said default shall continue for a period of five (5) business days following notice to Facility; or (ii) Facility shall breach Section 5(d) of this Agreement. Facility agrees to execute a Form UCC-1 Financing Statement and any additional agreements, financing statements or other documents reasonably required by Management company to perfect the security interest granted hereby or to otherwise effectuate the purpose hereof. Upon termination of this Agreement and payment in full of all sums due to Management company hereunder, Management company shall promptly execute and deliver such documents as may reasonably be requested by Facility to terminate the security interest. Prior to the effectiveness of this Agreement, Facility shall have established the Program Payments Account and shall have made such filings with the California Secretary of State as are necessary to provide Management with a security interest of first priority in the Program Receivables and the Program Payments Account. (c) Each party represents and warrants on behalf of itself that the aggregate benefit exchanged pursuant to this Agreement has been determined in advance through a process of arms-length negotiations that were intended to compensate Management Company at fair market value for the services it provides. (d) The parties agree, if necessary and appropriate, to alter their billing arrangements in order to avoid reimbursement disallowances for Hospital pursuant to the Tax Equity and Fiscal Responsibility Act of 1982 or 42 C.F.R., Part 405, as it may be revised from time-to-time. (e) Acknowledging that a substantial portion of the Program's services will be reimbursed under the Medicare and Medi-Cal programs, the parties agree (i) to take all actions required by such programs and to generate and maintain all necessary records as may be required by such programs and (ii) to renegotiate the 8 terms of this Agreement in good faith in the event of changes in the Medicare and Medi-Cal programs, the parties agree (i) to take all actions required by such programs and to generate and maintain all necessary records as may be required by such programs and (ii) to renegotiate the terms of this Agreement in good faith in the event of changes in the Medicare or Medi-Cal laws, regulations and/or payment programs which substantially and adversely affect either party, including but not limited to changes in Facility's reimbursement for Program Services and/or disproportionate share payments. In the event the parties are unable to renegotiate this Agreement to eliminate said adverse effect and preserve the parties' intended benefits hereunder, either party shall have the right to terminate this Agreement upon the effective date of such change(s). (f) On a monthly basis, Facility shall provide Management Company a summary, in such form and with such content as is reasonably acceptable to Facility and Management Company, of the total billings for Program services for the prior month. Said summary shall be for the sole purpose and shall contain only such information as is required to enable Management company to enforce its security interest in the event enforcement thereof becomes necessary. (g) Neither Management company, the Program Medical Director nor any other physicians or psychologists associates, employed by or under contract with Management Company, shall bill or cause to be billed, the Medicare Program, any Medicare beneficiary, a Medicare (Part B) carrier or any other third party payor or patient for any portion of the administrative, supervisory or other provider services in violation of 42 CFR, Section 405.550. Management Company shall indemnify and hold harmless Facility from any breach of this subparagraph 5(v). 6. Covenant Not to Compete. During the term of this Agreement, except for the programs specifically described on Exhibit C attached hereto and incorporated with this reference, neither Management Company nor any of its shareholders, officers or directors, or any entity controlled by or under control with or subject to common management with one of the foregoing, shall directly or indirectly perform or arrange to perform in any capacity the type of service called for hereunder by Management Company for any person, entity or sole proprietorship which has an adult inpatient psychiatric program. This covenant not to compete shall be effective within a ten (10 ) mile radius of Facility. Facility shall have the right to enforce the foregoing through legal or equitable action, including but not limited to, injunctive relief, such injunctive relief or equitable relief to be available without the necessity of posting a bond, cash or otherwise. In addition to the foregoing, Facility shall have the right at its option to immediately terminate this Agreement and to seek damages for such breach or to continue this Agreement and to recover damages for the breach. 7. Confidential Information (a) For purposes of this Agreement, the term "Confidential Information" shall include 9 the following: (i) All documents and other materials, including but not limited to manuals, programs, handbooks, production books, and audio or visual recordings which describe the Program's methods, techniques or procedures (excluding written materials distributed to Program patients or as promotion for the Program and excluding materials which have become publicly known or known otherwise than as a consequence of a breach of this Agreement); (ii) All methods, techniques and procedures utilized in providing psychiatric treatment services to patients in the Program at the Facility that is not commonly or generally known within the industry; (iii) All trademarks, trade names and service marks of Management Company; and (iv) This agreement and the terms thereof. (b) Facility recognizes the proprietary nature of the foregoing Confidential Information provided to Facility by Management Company. Such materials remain the property of Management Company. Facility agrees and acknowledges that Confidential Information will be disclosed to it in confidence and with the understanding that it constitutes valuable business information developed by Management Company at great expenditure of time, effort and money. Facility agrees that it shall use reasonable efforts to the end that Facility's employees and agents do not, without the express prior written consent of Management Company, use said Confidential Information for any purpose other than the performance of this Agreement. (c) Facility further agrees to use reasonable efforts to the end that its employees and agents keep as confidential all Confidential information and not disclose or reveal such information to any third party without the express prior written consent of Management Company unless disclosure thereof is required by law or authorized by Management Company or to implement the terms of this Agreement. Upon termination of this Agreement by either party for any reason whatsoever, Facility shall forthwith return to Management Company all material constituting or containing Confidential Information, and Facility and its affiliates will not thereafter for any purpose, use, appropriate, or reproduce such information or disclose such information to any third party. (d) The reciprocal of all provisions of this Paragraph 7 shall bear upon and bind Management Company with respect to Confidential Information of Facility. In addition to the items referenced as Confidential Information as defined in this Section 7, Facility's Confidential Information shall be defined to include Facility's 10 financial, marketing, quality assurance and patient satisfaction monitoring system. 8. Compliance with Facility Regulations. Management Company shall conduct its activities and operations in compliance with all rules and regulations of Facility and its medical staff and in compliance with all applicable federal, state and local laws and regulations, and with the standards and requirements established by the Joint Commission on Accreditation of Healthcare Organizations and other relevant professional organizations pertinent to the operation of the program. Management company's employees, contractors and representatives shall be required to comply with and observe all of the foregoing. 9. Limitations on the Transfer of Personnel. The parties hereto agree that for so long as this Agreement remains in effect and for a period of one (1) year thereafter, neither party nor any of its subsidiaries, affiliates or agents will, without the prior written approval of the other party, hire any employee or former employee of the other party who has worked at Facility during the preceding twelve (12) months. 10. Relationship. Management Company and Facility are not and shall not be considered as joint venturers or partners, and nothing herein shall be construed to authorize either party to act as agent for the other. There shall be no liability on the part of Management company to any person for any debts, liabilities or obligations incurred by or on behalf of Facility and the business conducted by Facility, and there shall be no liability on the part of Facility to any person for any debt, liabilities or obligations incurred by or on behalf of Management company and the business conducted by Management Company. The parties understand that control and direction over all functions of the Facility shall be in Facility, and that control and direction over the clinical and medical policies of Facility shall be in Facility's Board of directors and the medical staff of Facility. Management Company shall identify Facility as the owner of the Facility. All parties agree to disclose in their respective dealings that they are separate entities. 11. Force Majeure. Either party shall be excused for failures and delays in performance of its respective obligations under this Agreement due to any cause beyond the control and without the fault of such party, including without limitation, any act of God, war, riot or insurrection, law or regulation, strike, flood, fire, explosion or inability due to any of the aforementioned causes to obtain necessary labor, materials or facilities. This provision shall not, however, release such party from using its best efforts to avoid or remove such cause and such party shall continue performance hereunder with the utmost dispatch whenever such causes are removed. Upon claiming any such excuse or delay for non-performance, such party shall give prompt written notice thereof to the other party, provided that failure to give such notice shall not in any way limit the operation of this provision. 12. Termination for Cause. In addition to and without in any way limiting or impairing its other rights and remedies at law or in equity, either party shall have the right to declare this Agreement terminated upon the happening of any of the following: (a) Violation by the other party of any provision of this Agreement, provided such 11 violation continues for a period of thirty (30) days after receipt of written notice by the other party specifying such violation with particularity. The delay or failure of a party to transmit written notice shall not constitute a waiver by said party of any default hereunder or of any other or further default under this Agreement by the other party. (b) Notwithstanding any other term of this Agreement, in the event a party ever fails to meet a condition of this Agreement which breach poses ;a threat to patient care, the operation, licensure or reimbursement of the Facility or the Program, the party not in breach may require the other immediately to take such remedial steps as are necessary to alleviate said threat to patient care or operations. If said threat is not immediately remedied, the other party shall have the right to immediately terminate this Agreement or take such remedial steps as such other party deems necessary to cure the threat. (c) In the event a party fails to maintain its insurance coverage required under this Agreement, the other party shall have the right to terminate this Agreement upon said lapse or termination of coverage. (d) Loss of Facility's license, permit and/or other required authorizations to operate the Program and/or its participation in the Medicare or Medi-Cal programs. (e) In the event of a breach of Section 25, Facility shall have the right to immediately terminate this Agreement. (f) Exhibit D which is attached hereto and incorporate with this reference are the proformas for the Program ("Proformas"). Facility shall have the right to terminate this Agreement on ten (10) days prior written notice if during any three (3) out of six (6) consecutive months during the term of this Agreement (i) the average monthly census for said month as set forth in the Proformas; (ii) the number of denied days during the month is more than one hundred ten percent (110%) of the projected denied days as set forth in the Proformas; and/or (iii) the monthly average length of stay for Program inpatients exceeds nine (9) days. Facility shall notify Management Company within fifteen (15) days following a month wherein one (1) or more of the circumstances described herein as (i), (ii) or (iii) has occurred if during any two (2) out of six (6) consecutive months one (1) or more of the circumstances described herein as (i), (ii) or (iii) hereof has occurred. (g) Facility experiences a substantial increase in the number and/or severity of claims alleging liability, loss and/or damages, including but not limited to, personal injury, malpractice and/or workers compensation claims. (h) Substantial uninsured damage to the Facility's premises which service the Program or the fixtures, equipment and/or improvements therein. 12 (i) Management company becomes the subject to an investigation, action, threatened action or lawsuit which alleges conduct in violation of any Federal or State law or regulation pertaining to the delivery of or reimbursement for healthcare services. 13. Indemnification. Management Company shall indemnify and hold Facility harmless from and against any claims, liabilities, damages, costs and expenses, including reasonable attorney's fees incurred by Facility in defending, compromising or satisfying actions brought against Facility arising out of or in any manner related to, directly or indirectly, the negligence or willful misconduct of Management Company, its employees, contractors or agents in connection with this Agreement. Facility shall indemnify and hold Management Company harmless from and against any claims, liabilities, damages, costs and expenses, including reasonable attorney's fees, incurred by Management Company in defending compromising or satisfying actions brought against Management Company arising out of or inn any manner related to, directly or indirectly, the negligence or willful misconduct of Facility, its employees or agents in connection with this Agreement. 14. Notices. Any notice by any party to the other shall be in writing and shall be deemed to have been duly given if delivered personally, by receipted delivery or by certified mail addressed, with respect to Management Company, to President, 30011 Ivy Glenn Drive, Suite 219, Laguna Niguel, CA 92677, with respect to Facility, to Chief Executive Officer, 14850 Roscoe Boulevard, Panorama City, CA 91402, or to such other address notice of which the parties have advised each other in writing. 15. Governing Law. This Agreement shall be deemed to have been made and entered into and shall be interpreted in accordance with the laws of the State of California. 16. Waiver. A waiver by either party of a breach or failure to perform shall not constitute a waiver of any subsequent breach or failure. 17. Severability. If any part of this Agreement should be held to be void or unenforceable, such part shall be treated as severable, leaving valid the remainder of this Agreement so long as the remainder of the Agreement maintains each party's reasonably anticipated benefits of the bargain. 18. Arbitration. Any dispute or controversy arising under, out of, in connection with, or in relation to this Agreement, and any amendment hereof, or the breach hereof, shall be determined and settled by arbitration in accordance with the rules and procedures of the NHLA ADR Alternative Dispute Resolution Service. Any award rendered therein shall be final and binding upon each and all of the parties, and judgement may be entered thereon in any court having jurisdiction thereof. 19. Access to Records. In accordance with 42 U.S.C. 139x(v) (1) (1) and 42 C.F.r. Part 420, Subpart D, Section 420.300 et seq., Management Company shall, until the expiration of four (4) years after the furnishing of Medicare reimbursable services pursuant to this Agreement, upon proper written request, allow the Comptroller General of the United 13 States, the Secretary of Health and Human Services, and their duly authorized representatives access to this Agreement and Management Company books, documents and records necessary to certify the nature and extent of costs of Medicare reimbursable services provided under this Agreement. In accordance with the above-referenced statute and regulations, if services provided by Management Company under this Agreement are carried out by means of a subcontract with any organization related to Management Company, and such related organization provides services the cost or value of which is Ten Thousand Dollars ($10,000) or more over a twelve (12) month period, then the subcontract between Management Company and the related organization shall contain a clause comparable to the clause specified in the preceding Paragraph. 20. Counterparts. This Agreement may be executed in one or more counterparts, all of which together shall constitute only one Agreement. 21. Entire Agreement. This Agreement contains the entire Agreement of the parties with respect to the subject matter hereof and may not be cancelled or modified except in writing signed by both parties. All continuing covenants, duties and obligations herein contained shall survive the expiration or termination of this Agreement. All prior agreements are superseded by this Agreement and are of no force or effect. The terms of this Agreement, and only this Agreement, shall establish all of the rights and obligations of the parties during the term of this Agreement, unless amended by the parties pursuant to a writing executed on a date subsequent to the date of execution of this Agreement by both parties hereto. 22. Binding Effect. Management Company shall not assign this Agreement without the prior written consent of Facility, except to any subsidiary or affiliate of Management Company and except, in the event of an acquisition or merger of Management Company or acquisition of substantially all of Management Company's assets, to the acquiring or surviving company; provided, however, the acquiring or surviving company shall be in compliance with all of the terms and conditions of this Agreement, including but not limited to, paragraph 25 hereof. This Agreement is binding upon the parties hereto and upon all successors and assigns in interest. 23. Board Authority. Notwithstanding any term or provision of this Agreement, the Program and all activities, protocols, policies and procedures within the Facility are subject to the ultimate authority of Facility. 24. Sale or Lease of the Facility. If the Facility is sold or leased, regardless of the identity of the purchaser/lessees, the Facility will have the right to assign the Agreement, delegate all rights and duties thereunder to the purchaser/lessee, and Facility shall have no further responsibilities or liabilities pursuant to the Agreement. 25. Representation and Warranty. Management Company represents and warrants as follows: 14 (a) that if any physician or physicians has a financial relationship with or in Management Company, such relationship at all times shall be in compliance with the exceptions to OBRA 1993, Social Security Act (42 U.S.C. Section 1395nn) as amended by Section 13562, and California Business and Professions Code Sections 650.01 et seq., and all amendments and regulations thereunder (individually and collectively, "Anti- Referral Legislation") such that Facility shall not be prohibited from presenting any claims for services pursuant to said Anti-Referral Legislation; (b) that Management Company, its agents, employees and representatives shall not offer any remuneration to any person or entity to direct, refer or induce referrals or services to Facility; (c) that the compensation in management Company's personal services agreement with the Program Medical Director shall not be determined in a manner that takes into account the volume or value of any referrals or business generated to or within Facility. In the event of Management Company's breach of any or all of the foregoing representations, Facility may terminate this Agreement under terms of Paragraph 12 an Management Company shall indemnify and hold Facility harmless pursuant to Section 13 hereof to the fullest extent permitted under law. 26. Attorney's Fees. In any arbitration or other action or proceeding arising out of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees and costs. 27. Consents and Approvals. Whenever the consent to or approval of any act is required to be given or withheld under the terms of this Agreement, the party required to give or withhold such consent or approval shall not unreasonably withhold same, and a decision with regard thereto shall be made and communicated to the other party at the earliest practicable time, and in any event within a reasonable time. 28. Facility's Licensure and Status. It is understood and agreed that Facility is a licensed general acute care facility which is owned by a non-profit corporation which has tax-exempt financing and participates in the Medicare and Medi-Cal programs. Hospital is bound by the federal and state laws, regulations and interpretations thereof pertaining to the foregoing. The parties agree that this Agreement shall be interpreted and construed to be in compliance with all of the foregoing as they may be adopted or interpreted from time-to-time as they may effect Facility, its licensure, nonprofit status, tax-exempt financing and participation in and reimbursement by the Medicare and Medi-Cal programs. In the event this Agreement or one or more of the terms or provisions is interpreted by facility's counsel to pose a risk of violation of any of the foregoing laws, regulations or interpretations thereof, Facility's bond covenants, the conditions or restrictions pertinent to providers who participate in the Medicare and Medi-Cal programs, or to adversely affect Facility's reimbursement thereunder, the parties agree (i) to continue to perform their respective obligations hereunder except for the offending provisions, and (ii) to negotiate diligently and in good faith to reach an agreement in good faith without 15 the offending provisions. IN the event the parties are unable to perform without performing the offending provisions, or are unable to reach an agreement without the offending provisions, then this Agreement shall terminate immediately upon notice served by either party in accordance with Paragraph 14 hereof. 29. No Third Party Benefit. This Agreement is not intended by the parties to create, and it should not be construed to create, any rights for any persons or entities not a party to this Agreement. 30. No Authority. Not withstanding any term or condition of this Agreement, neither Management Company, the Program Director or the Program Medical Director, or any of their agents, employees or representative shall incur or have authority to incur any financial obligation on behalf of Facility without the prior written approval of Facility. 16 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first hereinabove written: OPTIMUMCARE CORPORATION Dated: By: EDWARD A. JOHNSON ------------------- President SAN FERNANDO COMMUNITY HOSPITAL dba MISSION COMMUNITY HOSPITAL Dated: By: CATHY FICKES ------------------- Acting Chief Executive Officer 17 EXHIBIT A SECTION 3(d) Pre-employment and Health Screening Examination Charges Fifty Dollars ($50) for each Pre-Employment Screening and for each periodic health screening. 18 EXHIBIT B SECTION 4(c) Staffing Pattern 19 EXHIBIT C SECTION 6 Exceptions to Covenant Not to Compete 1. Management Agreement for inpatient psychiatric program at Pacifica Hospital of the Valley. 2. Management Agreement for outpatient partial psychiatric program at Sherman Oaks Hospital. 3. Management Agreement for outpatient psychiatric program in Glendale for Pacifica Hospital of the Valley. 20 EXHIBIT D SECTION 12(f) Program Proformas PROJECTED AVERAGE MONTHLY CENSUS December, 1995 20 January, 1996 24 February, 1996 28 March, 1996 32 April, 1996 34 May, 1996 38 All months thereafter 40 or more
PROJECTED PERCENT OF DENIED DAYS 12.73 Percent EX-10.74 10 LEASE AGREEMENT-SOLOMON, SALTSMAN & JAMESON 1 EXHIBIT 10.74 MONTH-TO-MONTH RENTAL AGREEMENT MARINA DEL REY/CALIFORNIA, OCTOBER 10, 1995 SOLOMON, SALTSMAN & JAMESON, landlord and OPTIMUMCARE CORPORATION, Tenant, agree as follows: 1. PROPERTY: Landlord rents to tenant and Tenant rents from Landlord the real property and improvements described as: 428 CULVER BLVD. PLAYA DEL REY, CA 90293 ("Premises). The following personal property is included: N/A 2. RENT: TERM: Tenant agrees to pay rent monthly at the rate of $1900.00 in advance on the 1st day of each calendar month. The term begins on November 1, 1995 ("Commencement Date"), as a B. Lease ending October 31, 1996 with a total rent of $1900.00 monthly installments 3. LATE CHARGE: Tenant acknowledges that late payment of rent may cause Landlord to incur costs and expenses, the exact amount of which are extremely difficult and impractical to determine. These costs may include, but ar not limited to, processing and accounting expenses, late charges that may be imposed on Landlord by terms of any loan secured by the Premises, costs for additional attempts to collect rent, and preparation of notices. Therefore, if any installment of rent due from Tenant is not received by Landlord within 7 calendar days after date due, Tenant shall pay to Landlord an additional sum of $95 as a late charge which shall be deemed additional rent. Landlord and Tenant agree that this late charge represents a fair and reasonable estimate of the costs that Landlord may incur by reason of Tenant's late payments. 4. PAYMENT: The rent shall be paid to: SOLOMON, SALTSMAN AND JAMESON, 426 Culver Blvd., Playa Del Rey, CA 90293, or at any other location specified by Landlord. 5. SECURITY DEPOSIT: $1900.00 shall be given by Tenant as a security deposit. Landlord may use all or any portion of the security deposit reasonably necessary to (a) cure Tenant' default in payment of rent, late charges or other sums due; (b) repair damages caused by Tenant, or by a guest or licensee of Tenant; (c) clean the Premises, if necessary, upon termination of tenancy; and (d) replace or return personal property or appurtenances, excluding ordinary wear and tear. If used during the tenancy, Tenant agrees to reinstate the total security deposit within five days after written notice delivered to Tenant in person or by mail. No later than three weeks after Tenant vacates the Premises, Landlord shall furnish to Tenant an itemized written statement of the basis for and the amount of, any security received and the disposition of the security, and shall return any remaining portion of the security to Tenant. 2 6. UTILITIES: Tenant agrees to pay for all utilities and services based upon occupancy of the Premises, and the following charges: N/A 7. CONDITION: Tenant has examined the Premises, all furniture, furnishings and appliances, if any, and fixtures, including smoke detector(s). Tenant acknowledges that those items are clean and in operative condition, with the following exceptions: N/A 8. OCCUPANTS: The Premises are for the sole use as a personal residence by the following named persons only: OPTIMUMCARE AND EDWARD JOHNSON 9. PETS: No animal or pet shall be kept on or about the Premises without Landlord's prior written consent, except: N/A 10. LIQUID-FILLED FURNITURE: Tenant shall not use or have liquid-filled furniture on the Premises unless Tenant first gives proof of compliance to Landlord's reasonable satisfaction, including increased security deposit, under Civil Code Section 1940.5. 11. RULES/REGULATIONS: Tenant agrees to comply with all covenants, conditions and restrictions, bylaws, rules, regulations and decisions of owners association or Landlord, which are at any time posted on the Premises or delivered to Tenant. Landlord and Tenant acknowledge receipt of copy of this page, which constitutes Page 1 of 2 Pages Landlord's Initials ( ) Tenant's Initials (EAJ) 12. MAINTENANCE/DAMAGE/INSURANCE: Tenant shall properly use, operate, and safeguard the premises, all furniture, furnishings, and appliance, and all electrical gas, and plumbing fixtures, and shall keep them as clean and sanitary as their condition permits. Tenant shall immediately notify Landlord of any damage, and shall pay for all repairs or replacements caused by Tenant or the guests or invites of Tenant, excluding ordinary wear and tear. Tenant's personal property is not insured by Landlord. 13. ALTERATIONS: Tenant shall not paint, wallpaper, add or change locks, or make any other alterations to the Premises without Landlord's prior written consent. Tenant acknowledges receipt of: 2 keys to premises 2 keys to common areas 14. ENTRY: Tenant shall make the Premises available to Landlord, authorized agent, or representative, for the purpose of entering to make necessary or agreed repairs, decorations, alterations, or improvements, or to supply necessary or agreed services, or 3 to show the Premises to prospective or actual purchasers, tenants, mortgages, lenders, appraisers, or contractors. Landlord and Tenant agree that four hours notice (oral or written) shall be reasonable and sufficient notice. In an emergency, Landlord, authorized agent, or representative may enter the Premises, at any time, without prior notice. 15. ASSIGNMENT/SUBLETTING: Tenant shall not let or sublet all or any part of the Premises or assign this Agreement or any interest in it. Any assignment, letting or subletting that violates this paragraph shall be void. 16. POSSESSION: If Tenant abandons or vacates the Premises, Landlord may terminate this Agreement and regain lawful possession. If Landlord is unable to deliver possession of the Premises on the Commencement Date, the Commencement Date shall be extended to the date on which possession is made available to tenant. 17. HOLDING OVER: Any holding over after the term of this Agreement expires, with Landlord's consent, shall create a month-to-month tenancy, which may be terminated by either party, by giving written notice to the other, at least 30 days prior to the intended termination date. Rent shall be at a rate equal to the rent for the immediately preceding month payable in advance. All other terms and conditions of this Agreement shall remain in full force and effect. 18. ATTORNEY'S FEES: In any action or proceeding arising out of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees and costs. 19. WAIVER: The waiver of any breach shall not be construed as a continuing waiver of the same or any subsequent breach. 20. NOTICE: Notices to Landlord or Manager may be served at 426 CULVER BLVD., PLAYA DEL REY. Notices to Tenant may be served at 428 CULVER BLVD., PLAYA DEL REY. 4 21. TENANCY STATEMENT: Tenant shall execute and deliver a tenancy statement (estoppel certificate) submitted by Landlord, within 24 hours after receipt, acknowledging that this Agreement is unmodified and in full force, or in full force as modified, and stating the modifications. 22. JOINT AND INDIVIDUAL OBLIGATIONS: If there is more than one Tenant, each one shall be individually and completely responsible for the performance of all obligations of Tenant under this Agreement, jointly with every other Tenant, and individually. 23. SUPPLEMENTs/OTHER TERMS AND CONDITIONS: PARKING CONSISTS OF GARAGE AND 2 OUTSIDE SPACES CLOSEST TO GARAGE 24. TENANT REPRESENTATIONS; CREDIT: Tenant warrants that all statements in Tenant's rental application are accurate. Tenant authorizes Landlord and Broker(s) to obtain Tenant's credit report at the time of the application and periodically during the tenancy in connection with approval, modification or enforcement of this Agreement. Landlord may cancel this Agreement (a) before occupancy begins, upon disapproval of the credit report(s) or (b) at any time, discovery that information in Tenant's application is false. 25. ENTIRE CONTRACT: Time is of the essence. All prior agreements between Landlord and Tenant are incorporated in this Agreement which constitutes the entire contract. It is intended as a final expression of the parties' agreement with respect to the general subject matter covered, and may not be contradicted by evidence of any prior agreement or contemporaneous oral agreement. The parties further intend that this Agreement constitutes the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial or other proceeding, if any, involving this Agreement. 26. AGENCY CONFIRMATION: The following agency relationship(s) are hereby confirmed for this transaction: Listing Agent: THE PRUDENTIAL JON DOUGLAS COMPANY is the agent of both the Tenant and landlord. 27. ACKNOWLEDGEMENT: The undersigned have read the foregoing prior to execution and acknowledge receipt of a copy. Landlord: Date: 10/11/95 ----------------------------- Tenant: EDWARD JOHNSON Date: 10/11/95 -------------- EX-10.75 11 UNANIMOUS WRITTEN CONSENT OF BOARD OF DIRECTORS 1 EXHIBIT 10.75 UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF OPTIMUMCARE CORPORATION A Delaware Corporation - -------------------------------------------------------------------------------- The undersigned, being all of the directors of OptimumCare Corporation, a Delaware corporation (the "Corporation"), hereby adopt the following resolutions by their written consent thereto, effective as of December 29, 1995, hereby waiving all notice of and the holding of any meeting of the board of directors to act upon such resolutions. WHEREAS, the Company has previously converted $97,000 of temporary advances of Mr. Johnson to loans. WHEREAS, temporary advances of approximately $58,000 exist for 1995. NOW, THEREFORE, BE IT RESOLVED, that the Company hereby convert a total of $155,000 of temporary advances into a one year loan with interest deferred for one year to be computed at the applicable federal statutory rate. RESOLVED FURTHER, that the officers of the Company be and are hereby authorized, empowered and directed to do or cause to be done any and all such further acts and things and to execute any and all such further documents as they may deem necessary or advisable in order to carry into effect the purposes and intent of the foregoing resolutions. RESOLVED, FURTHER, that this transaction be neither void nor voidable, the interests of Mr. Johnson being known to this Board of Directors and the transactions being fair and reasonable to the Corporation. IN WITNESS WHEREOF, the undersigned have executed this Unanimous Written Consent effective as of December 29, 1995. EDWARD A. JOHNSON - ------------------------------- MICHAEL S. CALLISON - ------------------------------- GARY L. DREHER - ------------------------------- JOHN E. JENETT - ------------------------------- 2 [GRAPH] EX-23 12 CONSENT OF INDEPENDENT AUDITORS 1 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statement Form S-8 No. 33-78340 dated April 29, 1994 pertaining to the OptimumCare Corporation 1994 Stock Option Plan of our report dated March 18, 1996, with respect to the financial statements and schedule of OptimumCare Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 1995 /s/ Ernst & Young LLP ------------------------------ Ernst & Young LLP Orange County, California March 28, 1996 EX-27 13 FINANCIAL DATA SCHEDULE
5 0000820474 OPTIMUMCARE CORPORATION 1 U.S. DOLLARS YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 170,932 0 1,536,693 0 0 1,739,112 59,999 34,382 2,059,537 381,531 166,000 0 0 4,924 1,507,082 2,059,537 6,027,122 6,035,863 0 5,986,741 0 36,030 10,222 2,870 800 2,070 0 0 0 2,070 0.00 0.00
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