Item 1.01 Entry into a Material Definitive Agreement.
On June 18, 2014, with an effective date of April 30, 2014, our subsidiaries,
SDC Holdings LLC and ApothecaryRx LLC (collectively the "Borrowers"), Foundation
Healthcare, Inc. (f/k/a/ Graymark Healthcare, Inc., the "Company", "Foundation"
or "we") and Mr. Stanton Nelson (the "Guarantor" and our Chief Executive
Officer) entered into a Second Amendment to Second Amended and Restated Loan
Agreement (the "Loan Agreement") and the Borrowers issued a Third Amended and
Restated Promissory Note (the "Note") in favor of Arvest Bank in the amount of
$9,704,460. We, Borrowers and Guarantor previously entered into the Second
Amended and Restated Loan Agreement effective July 22, 2013, as amended by the
First Amendment to Second Amended and Restated Loan Agreement dated December 31,
2013 (the "Prior Agreement"). Under the Prior Agreement, we and Borrowers were
indebted to Arvest Bank under the Amended and Restated Promissory Note, in the
original principal amount of $10,691,262 dated July 22, 2013 (the "Prior
Notes"). We, Arvest Bank, the Borrowers and the Guarantor have agreed to
restructure the loan evidenced by the Prior Notes and the Prior Agreement.
Upon execution of the Note, we paid Arvest Bank$210,162 in consideration of the
following: (a) $49,062 in interest on the Note, (b) $150,000 to be applied to
the principal balance of the Note, and (c) fees and expense reimbursements
payable to Arvest Bank of $11,100.
The Note is collateralized by substantially all of the assets of the Borrowers
and the personal guaranty of the Guarantor which is limited to $2,919,000. The
note bears interest at the greater of the prime rate or 6.0% and provided the
Borrowers are not in default, the Borrowers are required to make monthly
payments of interest only. The entire unpaid principle balance and all accrued
and unpaid interest thereon will be due and payable on June 30, 2014.
Additionally, the Note is subject to certain financial covenants including a
debt service coverage ratio ("DSR") covenant of not less than 1.25 to 1. Arvest
Bank has waived the DSR and other financial covenant requirements through
June 30, 2014, which is the maturity date of the Note.
On July 22, 2013, we purchased a $6,000,000 participation in the Prior Note from
Arvest Bank in exchange for 13,333,333 shares of the Company's common stock. The
Company purchased the participation in the last $6,000,000 of the principal
amount due under the Arvest credit facility. The Company's participation in the
note is eliminated against the Note.
A copy of the Loan Agreement and Note are filed herewith as Exhibit 10.1 and
Exhibit 10.2, respectively, and are incorporated herein by reference. The
foregoing summary of the Loan Agreement and Note are qualified in its entirety
by reference to the exhibits filed herewith.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
2014 Bonus Incentive Plan
On June 14, 2014, our Compensation Committee adopted, pursuant to our 2008
Long-Term Incentive Plan, the 2014 Bonus Incentive Plan For Executive Officers
(the "2014 Bonus Plan"). The 2014 Bonus Plan sets performance-oriented incentive
awards to motivate our executive officers. Under the 2014 Bonus Plan, our
executive officers are eligible to receive a bonus based on the achievement of
certain financial and other objectives during fiscal year 2014. Such bonuses may
be paid in cash, shares of our common stock or a combination of both, as
determined by the Compensation Committee. The executive officers eligible for
participation in the 2014 Bonus Plan are (1) Chairman of the Board, (2) Advisor
to the Chairman, and (3) Chief Executive Officer (the "Participants"). The
Compensation Committee may add additional executive officers as Participants.
The Compensation Committee set the following objectives under the 2014 Bonus
Plan: (1) achieve 2014 EBITDA equal to or greater than the EBITDA Target,
(2) satisfactory refinancing of the Company's debt into a long-term facility,
(3) creation and adherence to a 3-5 year strategic and operating plan,
(4) staffing stability, including the hiring of a permanent CFO, and (5) average
overall patient satisfaction for 2014 equals or exceeds 95% for the Company's
hospitals, ASCs and other healthcare facilities, as consistently determined and
as presented in periodic clinical updates to the Board (the "Objectives"). The
weighing for each Objective is 12.5% except for Objective No. 1 which has a 50%
weighting. In addition, for Objective No. 1 only, (A) if actual EBITDA is equal
to or greater than the EBITDA Target, 100% of such Objective is earned, (B) if
actual EBITDA is equal to or greater than 90% of the EBITDA Target, 50% of such
Objective is earned, and (C) if actual EBITDA less than 90% of the EBITDA
Target, such Objective is not earned. For each Participant, the Compensation
Committee established a performance target as a percentage of such Participant's
Item 9.01. Financial Statements and Exhibits.
10.1 Second Amendment to Second Amended and Restated Loan Agreement, dated
April 30, 2013, among SDC Holdings, LLC, ApothecaryRx, LLC, Graymark
Healthcare, Inc., Stanton M. Nelson, and Arvest Bank.
10.2 Third Amended and Restated Promissory Note, dated April 30, 2013,
among SDC Holdings, LLC and ApothecaryRx, LLC in favor of Arvest Bank.
10.3 Foundation Healthcare, Inc. 2014 Bonus Incentive Plan for Executive