SETTLEMENT AGREEMENT
This Settlement Agreement (the "Agreement") is made effective as of
February 14, 1997, by and among Xxxx Xxxxxxx ("Xxxxxxx"), Xxxxxxx Xxxxxx
("Xxxxxx"), and Xxxxxx Xxxxxxx ("Hannant") (collectively, the "Sellers") and
Xxxxxx X. Xxxxx ("Xxxxx"), (Carroll, Farley, Hannant, and Xxxxx shall
collectively be referred to as the Xxxxxxx Group), and NewCare Health
Corporation ("NewCare"), Spectrum Health Services, Inc. ("Spectrum") and
Xxxxxx X. Xxxx ("Xxxx").
BACKGROUND
1. The Xxxxxxx Group owns and holds certain Promissory Notes dated
September 1, 1994, executed and delivered by NewCare to them in connection
with NewCare's acquisition of all outstanding stock of Spectrum (the "NewCare
Notes") and merger of Spectrum into Acquisition Company, NewCare's wholly
owned subsidiary. The Sellers own and hold certain promissory notes dated
August 31, 1994, executed and delivered by Spectrum to evidence outstanding
obligations owed by Spectrum to Sellers as of that date (the "Spectrum
Notes"). (The NewCare Notes and the Spectrum will collectively be referred to
as the "Notes"). The Notes are secured by a pledge of all outstanding stock
of Spectrum (the "Stock"). In addition to the Notes, the Stock secures the
payment of all other obligations of NewCare to Sellers under the Supplement to
Agreement among NewCare Health Corporation, NewCare Acquisition Corporation,
and Spectrum Health Services, Inc. dated August 5, 1994, and the Plan and
Agreement of Merger dated August 5, 1994 (collectively, the "Agreements").
The pledge of the Stock is evidenced by a Security Agreement dated September
1, 1994 (the "Security Agreement"). The pledge of the Stock is properly
perfected by Sellers' possession of the single certificate evidencing all
outstanding stock of Spectrum.
2. NewCare is in default under the terms of the NewCare Notes by,
among other defaults, its failure to make the principal payments due under the
Notes on September 1, 1995. NewCare also is in default under the NewCare
Notes by its failure to make the monthly interest payments due under the
NewCare Notes for May, June, July, October, November, December, 1995, and
January, February, March and April, 1996. Spectrum is in default under the
terms of the Spectrum Notes by its failure to make the monthly payments due
under the Spectrum Notes.
3. NewCare and Spectrum are also in default in their obligations
under the Agreements by their failure to distribute to Sellers prior period
profits.
4. On June 25, 1996, the Xxxxxxx Group, NewCare, Spectrum and Xxxx
entered into a Forbearance Agreement whereby the Xxxxxxx Group agreed to
forbear from immediately taking action against NewCare and Spectrum to collect
the amounts outstanding under the Notes and the Supplemental Agreement and
agreed to forbear from exercising their rights against the Spectrum stock
pursuant to the Security Agreement.
5. On October 21, 1996, the Xxxxxxx Group filed a lawsuit against
NewCare and Xxxx. NewCare and Xxxx have answered the Complaint, filed
Affirmative Defenses, and asserted a Counterclaim. The pending lawsuit shall
be referred to as the "Litigation".
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises contained herein, Sellers, NewCare, Spectrum, and Xxxx agree as
follows:
TERMS
I. BACKGROUND
The parties agree that the background is true and correct and is
therefore incorporated into this Agreement by this reference.
II. CONSIDERATION
In consideration of the making of this Agreement, the promises and
releases set forth below, and other good and valuable consideration, the
receipt of which are hereby acknowledged, the Xxxxxxx Group, NewCare,
Spectrum, and Xxxx have entered into this Agreement intending to be legally
bound.
III. PAYMENT OF OBLIGATIONS
NewCare will pay the Xxxxxxx Group the amount of $6,000,000, plus
interest accruing as provided in paragraph IV below as follows:
a. $1,000,000 will be wired to Williams, Reed, Xxxxxxxxx,
Xxxxxxxx & Xxxxxxxx, P.A.'s trust account on Friday, February 21, 1997;
b. $1,000,000 will be wired to Williams, Reed, Xxxxxxxxx,
Schifino & Xxxxxxxx, P.A.'s trust account when NewCare receives proceeds from
the refinancing of the nursing home located in Xxxxxxxxxx, Georgia, or within
forty-five (45) days after February 14, 1997, whichever occurs first; and
c. $4,000,000 will be wired to Williams, Reed, Xxxxxxxxx,
Xxxxxxxx & Xxxxxxxx, P.A.'s trust account within one hundred twenty (120) days
after February 14, 1997.
IV. INTEREST
Commencing on February 21, 1997, interest will accrue at 8.75% per annum
on the unpaid balance remaining due and owing and shall be paid
contemporaneously with the payment described in paragraph III(c) above.
V. MORTGAGE
Contemporaneously with the execution of this Agreement, NewCare will
grant the Xxxxxxx Group a security interest in the form of a third mortgage, a
copy of which is attached hereto as Exhibit "A", on the Oak Manor Facility
securing the entire amount of the obligation due the Xxxxxxx Group pursuant to
paragraph III herein. Williams, Reed, Xxxxxxxxx, Xxxxxxxx & Xxxxxxxx, P.A.
will hold the mortgage in escrow and the mortgage will only be recorded in the
event that NewCare fails to pay any of the obligations set forth in paragraph
III, above, or otherwise defaults under this Agreement. In the event NewCare
fails to pay any of the obligation set forth in paragraph III above, NewCare
shall pay all costs associated with the execution and recording of the
mortgage and other security documents, including, but not limited to,
documentary stamps taxes, intangible taxes and recording fees and such costs,
if not paid directly by NewCare, shall be advanced by the Xxxxxxx Group and
added to the amount of the obligations to be paid pursuant to paragraph III,
above. The mortgage will be returned to NewCare upon satisfaction of all of
NewCare's obligations set forth in paragraph III above. NewCare agrees that
it will not grant or permit any other liens or encumbrances on the facility
pledged or secured until the obligations set forth in paragraph III is
satisfied.
VI. NCS HEALTHCARE OF FLORIDA, INC. HOLD BACK
Contemporaneously with the execution of this Agreement, all monies held
by NCS Healthcare of Florida, Inc. ("NCS") as a hold back in connection with
the sale of Spectrum's assets to NCS will be assigned by NewCare to the
Xxxxxxx Group. The assignment shall be in the form attached hereto as Exhibit
"B". The amount held by NCS as a hold back is $500,000. NewCare makes no
representations or warranties as to the specific amount which will be
collected by the Xxxxxxx Group from the NCS hold back amount.
VII. SPECTRUM RECEIVABLES
Contemporaneously with the execution of this Agreement, NewCare shall
assign to the Xxxxxxx Group all of Spectrum's remaining accounts receivable.
The Assignment shall be in the form attached hereto as Exhibit "B". A
description of the receivables being assigned is attached hereto as Exhibit
"C". NewCare makes no representations or warranties as to the specific amount
which will be collected by the Xxxxxxx Group from such accounts receivable.
VIII. ASSIGNMENT OF STOCK
The Xxxxxxx Group shall transfer to NewCare, or its designees, 1.2
million shares of NewCare stock upon full payment of the obligations set forth
in paragraph III above.
IX. REPURCHASE OF NEWCARE STOCK
NewCare agrees to purchase 300,000 shares of NewCare stock from the
Xxxxxxx Group at an agreed upon purchase price of $3.50 per share. The
Xxxxxxx Group shall have the option to put the 300,000 shares, or any portion
of the 300,000 shares, to NewCare, on or after February 1, 1999. There shall
be no restriction on the Xxxxxxx Group's ability to otherwise sell the 300,000
shares of NewCare stock, or any portion thereof. However, the Xxxxxxx Group
will grant NewCare a right of first refusal to purchase the shares at the
market price for a period of thirty (30) days prior to any sale to a third
party. NewCare's obligation to repurchase the 300,000 shares will terminate
if the closing price of NewCare common stock equals or exceeds $4.00 for
thirty (30) consecutive trading days during the two year period. If the price
of the NewCare stock does not reach $4.00 for thirty (30) consecutive trading
days during the two year period, the Xxxxxxx Group will have the option of
either (i) putting the stock to NewCare at $3.50 per share during the thirty
(30) day period beginning the day after the last day of such two year period
or (ii) retaining the stock. In the event of a sale of NewCare, a merger, or
a sale or transfer of substantially all of NewCare's assets or stock, NewCare,
or the surviving or acquiring entity, will be immediately obligated to
purchase the 300,000 shares at $3.50 per share prior to the sale, merger or
transfer.
X. MUTUAL GENERAL RELEASES
The parties to the Agreement shall execute the General Releases attached
hereto as Composite Exhibit "D". However, nothing contained in this
Agreement, or the Exhibits attached hereto, shall relieve any party from their
obligations under this Agreement.
XI. HCRx AND XXXXXXXX LITIGATION
The Xxxxxxx Group shall pay HCRx and Xxxxxxxx those amounts identified
as due them in the schedule attached to the document titled First Amendment to
Forbearance Agreement. NewCare and/or Spectrum shall be obligated to pay any
additional monies allegedly due and owing to HCRx and Xxxxxxxx. The Xxxxxxx
Group will use its best efforts to obtain a Release for the benefit of NewCare
and Spectrum from HCRx and Xxxxxxxx.
XII. RELEASE OF CLAIMS AND WAIVER OF DEFENSE
NewCare and Xxxx hereby irrevocably waive any and all defenses which
they may have to the enforcement of the this Agreement and all defenses,
demands, claims or counterclaims have been or could have been raised in the
Litigation. NewCare also waives any other claims which it may have against
the Xxxxxxx Group or Xxxxx Xxxxx.
XIII. EVENT OF DEFAULT
In the event that NewCare fails to make any of the payments set forth in
paragraph III above, on the date due, NewCare hereby consents to, and the
Court shall immediately enter, ex-parte, a Final Judgment in the amounts
remaining unpaid under paragraphs 3 and 4 above and providing for the
foreclosure of the lien evidenced by the mortgage referenced in paragraph V
above. Similarly, if NewCare fails to comply with the obligations set forth
in paragraph IX herein, and fails to repurchase 300,000 shares of NewCare
stock from the Xxxxxxx Group at $3.50 per share upon request by the Xxxxxxx
Group, NewCare will stipulate to the entry of an ex-parte judgment in the
amount of $1,050,000. Upon payment of the $1,050,000 the Xxxxxxx Group will
deliver the 300,000 shares to NewCare.
XIII. STAY OF LITIGATION
The Litigation presently pending shall be stayed pending NewCare's
compliance with the obligations set forth in paragraph III above. Upon
satisfaction of the obligations set forth in paragraph III above, the Xxxxxxx
Group, NewCare and Xxxx shall dismiss the pending litigation with prejudice.
The dismissal with prejudice shall not preclude the parties from enforcing any
of their rights herein.
XIV. COST OF LITIGATION
Each party hereto shall bear their own attorneys fees and costs incurred
in connection with the Litigation.
XV. SALE OR TRANSFER OF A MAJORITY OF SPECTRUM OR NEWCARE ASSETS OR STOCK
NewCare shall keep its business and properties substantially intact and
in its current form, including its present operations, physical facilities,
working conditions and relationships with affiliates, suppliers and customers
until NewCare has complied with the obligations set forth in paragraph III
above. In the event that a majority of NewCare's assets or stock are sold or
transferred, or in the event NewCare merges, all amounts owed to the Xxxxxxx
Group pursuant to paragraphs III and IX herein will immediately become due and
payable.
XVI. STATUS REPORTS
Within sixty (60) days after approval of this Agreement by NewCare's
Board of Directors, NewCare will provide the Xxxxxxx Group with the status of
NewCare's efforts to obtain financing in connection with its obligation to pay
the Xxxxxxx Group the remaining balance of $4,000,000.
XVII. EXECUTION
This Agreement may be executed in counter parts and shall be binding
only on those parties who have executed the Agreement. Any party failing to
execute this Agreement shall not be entitled to claim any benefits or exercise
any rights hereunder. The failure of any party to execute this Agreement
shall have no effect on the enforceability of this Agreement as to the
executing parties.
XVIII. XXXX XXXXXXX'X RESIGNATION
Xxxx Xxxxxxx shall resign as a NewCare Board member upon the execution
of this Agreement and approval of this Agreement by the NewCare Board.
IXX. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
hereto as to the subject matter hereof and there are not other prior or
contemporaneous agreements, understandings, promises, representations, or
warranties between or among the parties with regard thereto. This Agreement
shall not be modified unless such modification is in writing and is executed
by all parties to be bound by such modification.
XXI. GOVERNING LAW
The parties agree that this Agreement will be governed by and construed
in accordance with Florida law.
XXII. BOARD APPROVAL
This Agreement shall be null and void unless approved by NewCare's Board
of Directors by on or before February 14, 1997.
/s/ Xxxx Xxxxxxx
Xxxx Xxxxxxx
/s/ Xxxxxxx Xxxxxx
Xxxxxxx Xxxxxx
/s/ Xxxxxx Xxxxxxx
Xxxxxx Xxxxxxx
/s/ Xxxxxx X. Xxxxx
Xxxxxx X. Xxxxx
____________________________________________
Xxxxx Xxxxx
NewCare Health Corporation, a Nevada
corporation
By: /s/ Xxxxx Xxxxx
Name (Print): Xxxxx Xxxxx
Title (Print):______________________________
Spectrum Health Services, Inc., a Florida
corporation
By: /s/ Xxxxx Xxxxx
Name (Print): Xxxxx Xxxxx
Title (Print):______________________________
____________________________________________
Xxxxxx X. Xxxx, Xx.
