9.5% Unsecured Conv. Grid Debenture Issued To RH

Exhibit 10.137


THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF BALANCED CARE CORPORATION (THE "CORPORATION") THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 OR RULE 144A, IF APPLICABLE, SUBJECT TO COMPLIANCE WITH ANY STATE SECURITIES LAWS, (C) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, OR (D) IN A TRANSACTION THAT DOES NOT OTHERWISE REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS, PROVIDED AN OPINION OF COUNSEL OF RECOGNIZED STANDING REASONABLY SATISFACTORY TO THE CORPORATION HAS BEEN PROVIDED TO THAT EFFECT. A NEW CERTIFICATE BEARING NO LEGEND MAY BE OBTAINED FROM THE REGISTRAR AND TRANSFER AGENT FOR THESE SECURITIES UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM REASONABLY SATISFACTORY TO THE CORPORATION TO THE EFFECT THAT SUCH SALE IS BEING MADE IN ACCORDANCE WITH RULE 144 OR 144A UNDER THE U.S. SECURITIES ACT OR RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT OR IN A TRANSACTION THAT DOES NOT OTHERWISE REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS.


BALANCED CARE CORPORATION
9.5% Unsecured Convertible Grid Debenture


Issued to: RH INVESTMENTS LIMITED


Issued by: BALANCED CARE CORPORATION
1215 Manor Drive
Mechanicsburg, PA 17055
U.S.A.


$4,666,667 Maturity Date: July 1, 2005 (Initial Principal Amount) 2
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ARTICLE I
PROMISE TO PAY


1.1 Promise to Pay


BALANCED CARE CORPORATION (the "Corporation"), a corporation incorporated under the Laws of the State of Delaware and having its chief executive office at 1215 Manor Drive, Mechanicsburg, PA 17055, U.S.A., for value received, hereby promises to pay to or to the order of RH Investments Limited, a Cayman Island corporation, its successors and assigns (the "Holder"), at Unsworth & Associates, Herengracht 483, 1017 BT, Amsterdam, Netherlands, Attention: J. B. Unsworth, or at such other place as the Holder may direct at any time and from time to time, the initial principal amount of $4,666,667 together with interest, accrued and payable quarterly in accordance with Section 3.1 hereof, on each Interest Payment Date, on the principal amount outstanding from time to time and on all other amounts now or hereafter payable hereunder (including accrued and unpaid interest), in the case of principal, from the date hereof, and in the case of costs, charges and expenses, from the date on which they were incurred, and in the case of all other amounts, from the date on which such other amounts are payable, in each case until July 1, 2005, calculated quarterly on each Interest Payment Date until all Obligations hereunder have been paid and satisfied in full and thereafter, calculated monthly on the last day of each and every month, in all cases at the rate of 9.5% per annum, as well after as before demand, default and judgment, together with interest on overdue interest at the same rate. Provided that the Corporation has not advised the Holder that it wishes to pay interest in cash as specified in Section 3.1(b), on each Interest Payment Date (as hereinafter defined) the amount of interest payable shall be added to and form part of the principal amount outstanding hereunder, all as recorded on the grid attached as Schedule "A" hereto (the principal amount owing from time to time, any interest payable thereon and all other amounts now or hereafter payable hereunder, and at any time outstanding hereunder, shall be referred to herein as the "Obligations"). Unless the Debenture is earlier converted in its entirety in accordance with the terms hereof, the Obligations shall be due and payable on July 1, 2005 (the "Maturity Date") or such earlier date as the Obligations may become due and payable in accordance with the terms and provisions hereof. This Debenture shall rank pari passu with another convertible debenture to be issued by the Corporation on or about July 31, 2000 in the same principal amount and substantially the same form as this Debenture. 3
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1.2 Transferability


This Debenture and all obligations associated herewith shall not be transferable by the Corporation without the express written consent of the Holder, such consent not to be unreasonably withheld. Unless prohibited by applicable securities Laws, the Holder may, without the consent of the Corporation, grant participations in all or any part of this Debenture to one or more Persons (each a "Participant") or, subject to the immediately following sentence, assign all or any part of its interest in this Debenture to one or more Persons (each an "Assignee"). The Holder may deliver to any prospective Participant or Assignee a copy of any material in its possession relating to the Corporation, in order to permit such prospective Participant or Assignee to assess its investment; provided that each such delivery is made on the understanding that the information contained therein is confidential in nature. The Holder shall act on behalf of all its Participants in all dealings with the Corporation in respect of this Debenture and the Corporation may rely on its dealings with the Holder in this regard. This Debenture, and the rights associated herewith, may be freely transferred by the Holder only upon surrender of the Debenture to the Maker for reissuance along with appropriate transfer instructions. The Maker shall not be required to recognize a new holder of this Debenture as the new registered holder of this Debenture nor to make any payment of principal or interest to such a new holder except upon receipt of the Debenture together with such transfer instructions. Any new holder of this Debenture shall receive a new debenture issued in replacement of this Debenture registered to and in the name of the new holder, and otherwise containing identical terms and conditions to those of this Debenture.


ARTICLE II
INTERPRETATION


2.1 Definitions


In this Debenture:


(a) "Amended Registration Rights Agreement" has the meaning
attributed to such term in Section 7.6;


(b) "Arm's Length" means the disinterested state existing between
two or more unrelated parties, each acting in good faith in
his or her own self-interest; 4
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(c) "Assignee" has the meaning attributed to such term in Section
1.2;


(d) "Audited Financial Statements" means the audited financial
statements of the Corporation as at and for the fiscal year
ended June 30, 1999 and the report of the auditors of the
Corporation thereon filed with the Securities and Exchange
Commission on the Form 10-K/A (Amendment No. 1) of the
Corporation dated September 28, 1999, together with all
Exhibits thereto;


(e) "Board of Directors" means the Corporation's board of
directors;


(f) "Business Day" means any day, other than (i) a Saturday,
Sunday or statutory holiday in the State of New York or (ii)
any of the first, second, seventh or eighth day of Passover,
the first or second day of Shavuoth, the first or second day
of Rosh Hashanah, Yom Kippur, the first or second day of
Sukkoth, Shemini Azereth or Simchas Torah, and the day prior
to any of the foregoing days;


(g) "Closing Date" means July 31, 2000;


(h) "Common Shares" means common shares of the Corporation from
time to time authorized, issued and outstanding, and includes
any securities of the Corporation issued on a merger,
amalgamation or other reorganization of or including the
Corporation which are issued in exchange for or in replacement
of the common shares of the Corporation;


(i) "Conversion Notice" has the meaning attributed to such term in
Section 4.2;


(j) "Conversion Rate" means the dollar amount for which each
Common Share may be issued upon the exercise of the Conversion
Right in accordance with the provisions of Article IV;


(k) "Conversion Right" means the right attached to this Debenture
which permits the Holder to convert this Debenture into Common
Shares in accordance with the provisions of Article IV;


(l) "Corporation" means Balanced Care Corporation and its
successors; 5
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(m) "Current Market Price Per Share" means the price per Common
Share at any date which shall be the average closing price per
share at which the Common Shares are traded for 20 consecutive
trading days ending 5 trading days preceding such date on the
American Stock Exchange or, if the Common Shares are not
listed on such exchange, on such stock exchange on which the
Common Shares are listed as may be selected for such purpose
by the Board of Directors or, if the Common Shares are not
listed on any stock exchange, then on the over-the-counter
market. The average closing price per share shall be
determined by dividing the sum of the daily closing prices of
the Common Shares sold on the said exchange or market, as the
case may be, during the said 20 consecutive trading days by
20. If the Common Shares are not being traded on an exchange
or market at the time of such calculation, then the Current
Market Price Per Share shall be a price determined in good
faith by the Board of Directors based on the written advice of
an investment banking firm selected by the Corporation and
acceptable to the Holder acting reasonably;


(n) "Debenture", "Debentures", "hereto", "herein", "hereof",
"hereby", "hereunder", and any similar expressions refer to
this debenture and the schedules attached hereto and not to
any particular article, Section or other portion hereof, and
include any and every instrument supplemental hereto or
amending any part hereof;


(o) "Early Termination Date" the meaning attributed to such term
in Section 5.1;


(p) "Event of Default" has the meaning attributed to such term in
Section 9.1;


(q) "Grid Schedule" means the grid schedule annexed hereto as
Schedule "A";


(r) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvement
Act of 1976, as amended, and the rules and regulations
thereunder;


(s) "Holder" has the meaning attributed to such term in Section
1.1;


(t) "IPC" means IPC Advisors S.a.r.l; 6
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(u) "Interest Payment Date" means September 30, December 31, March
31 and June 30 each year until this Debenture is converted or
the Maturity Date, provided that if any Interest Payment Date
does not fall on a Business Day, then such Interest Payment
Date shall be the next Business Day following such date, the
first Interest Payment Date being October 2, 2000;


(v) "Issue Date" has the meaning attributed to such term in
Section 4.2;


(w) "Laws" means all legally binding federal, provincial, state,
municipal and local constitutions, treaties, laws, statutes,
codes, ordinances, decrees, rules, regulations, by-laws,
judicial or administrative judgments, orders, decisions,
rulings or awards, policies, guidelines, including general
principles of civil and common law;


(x) "Material Adverse Effect" means any change or effect out of
the ordinary course of business, operations or results of the
Corporation that, individually or when taken together with all
similar or related changes or effects is or could reasonably
be expected to be materially adverse to the Corporation, its
business, operations, properties or condition or its
Subsidiaries, taken as a whole, or the Corporation's ability
to perform its obligations hereunder, provided that, for
purposes of this definition, a change or effect out of the
ordinary course of business, operations or results of the
Corporation that individually or when taken together with all
similar or related changes or effects, results or could
reasonably be expected to result in a loss of assets, increase
in liabilities or decrease in cash flow (or any combination of
the foregoing) of any of the Corporation and its Subsidiaries
exceeding $750,000, in the aggregate, shall be deemed to be
materially adverse to the Corporation;


(y) "Maturity Date" means July 1, 2005;


(z) "NHP" means Nationwide Health Properties Inc, a Maryland
corporation, together with its affiliates;


(aa) "NHP Leases" means the master leases each dated among, inter
alia, the Corporation and NHP; 7
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(bb) "Obligations" has the meaning ascribed thereto in Section 1.1;


(cc) "Officers' Certificate" means a certificate signed by the
President or the Chief Financial Officer of the Corporation;


(dd) "Participant" has the meaning attributed to such term in
Section 1.2;


(ee) "Person" means any individual, partnership, limited
partnership, joint venture, syndicate, sole proprietorship,
company or corporation with or without share capital,
unincorporated association, trust, trustee, executor,
administrator or other legal personal representative,
regulatory body or agency, government or governmental agency,
authority or entity however designated or constituted;


(ff) "Registration Rights Agreement" has the meaning attributed to
such term in Section 7.6;


(gg) "Subscription Agreement" has the meaning attributed to such
term in Section 6.1; and


(hh) "Subsidiaries" means the subsidiaries of the Corporation on
the date hereof or that may be acquired by or organized by the
Corporation after the date hereof and "Subsidiary" means any
one of them.


2.2 Headings


The inclusion of headings in this Debenture is for convenience of reference only and shall not affect the construction or interpretation hereof.


2.3 References to Sections


Whenever in this Debenture a particular article, section or other portion thereof is referred to, such reference pertains to the particular article, section or portion thereof contained herein, unless otherwise indicated.


2.4 Currency


Except where otherwise expressly provided, all amounts in this Debenture are stated and shall be paid in U.S. currency. 8
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2.5 Gender and Number


In this Debenture, unless the context otherwise requires, words importing the singular include the plural and vice versa and words importing gender include all genders.


2.6 Invalidity of Provisions


Each of the provisions contained in this Debenture is distinct and severable and a declaration of invalidity or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof.


2.7 Amendment or Waiver


No amendment or waiver of this Debenture shall be binding unless executed in writing by the party to be bound thereby. No waiver of any provision of this Debenture shall constitute a waiver of any other provision nor shall any waiver of any provision of this Debenture constitute a continuing waiver unless otherwise expressly provided.


2.8 Governing Law


This Debenture shall be governed by and construed in accordance with the Laws of the Commonwealth of Pennsylvania, excluding its conflicts of law principles.


ARTICLE III
INTEREST


3.1 Payment of Interest


(a) Payment in Kind: Provided that the Corporation has not advised
the Holder in writing that it wishes to pay interest in cash
on any Interest Payment Date, at least 10 Business Days prior
to such Interest Payment Date, the Corporation shall forward
to the Holder a copy of the Grid Schedule updated to reflect
the interest payment due on such date and the increased
"Outstanding Principal Amount" under this Debenture, as
increased by the amount of such interest payment that will not
be paid in cash by the Corporation on such Interest Payment
Date.


(b) Cash Payment: In the event that the Corporation has advised
the Holder in writing that it wishes to pay interest in cash
on any Interest Payment Date, at 9
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least 10 Business Days prior to such Interest Payment Date,
the Corporation shall forward to the Holder a copy of the Grid
Schedule updated to reflect the interest payment due on such
date. On such Interest Payment Date, the Corporation shall
deliver to the Holder an amount in cash by wire transfer of
immediately available funds equal to the interest payment due
on such date.


ARTICLE IV
CONVERSION


4.1 Conversion Right


Upon and subject to the terms and conditions hereinafter set forth, the Holder shall have the right (the "Conversion Right"), at any time up to and including the earlier of the Early Termination Date or the Maturity Date, to notify the Corporation that it wishes to exchange or convert all or any part of this Debenture, including all or any part of the Obligations hereunder, into fully paid non-assessable Common Shares at the Conversion Rate in effect on the Issue Date.


The Conversion Rate shall be $2.00 per Common Share to be issued upon conversion of this Debenture. The Conversion Rate is subject to adjustment as provided in Section 4.4.


The Conversion Right shall extend only to the maximum number of whole Common Shares into which the Obligations or any part thereof may be converted in accordance with this Section 4.1. Fractional interests in Common Shares shall be adjusted for in the manner provided in Section 4.5.


4.2 Conversion Procedure


The Conversion Right may be exercised by the Holder by completing and executing the notice of conversion (the "Conversion Notice") attached hereto as Schedule "B". The Conversion Notice shall provide that the Conversion Right is being exercised, shall include the portion of the Obligations in respect of which the Conversion Right is being exercised, and shall set out the date (the "Issue Date") on which Common Shares are to be issued upon the exercise of the Conversion Right (such date to be no later than 10 Business Days after the date on which the Conversion Notice is issued), and the name of the party (which must be the Holder or a Participant, if applicable) who shall be the registered holder of the Common Shares. On the Issue Date the required number of Common Shares shall be issued 10
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as fully paid and non-assessable shares of the Corporation and a certificate for such shares shall be issued to the Person named in the Conversion Notice. If less than all the Obligations are the subject of the Conversion Right, then on the Issue Date the Corporation shall deliver to the Holder a replacement Debenture for the amount of the Obligations which remain outstanding following the exercise of the Conversion Right and the issuance of Common Shares in connection therewith. If the Conversion Right is being exercised in respect of all Obligations, this Debenture shall be surrendered to the Corporation for cancellation.


4.3 Accrued and Unpaid Interest


If t ...