UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
Form 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 1997
OR
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transaction period from __________ to
__________
Commission file number: 1-14022
STERLING HOUSE CORPORATION
(Exact name of registrant as specified in its charter)
KANSAS 48-1097141
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) (Identification No.)
453 S. WEBB ROAD, SUITE 500
WICHITA, KANSAS 67207
(Address of principal executive offices)
(316) 684-8300
(Registrant's telephone number, including area code)
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___
As of May 1, 1997, there were 5,038,836 shares of the registrant's Common
Stock outstanding.
<PAGE>
STERLING HOUSE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements:
Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996 3-4
Consolidated Statements of Operations for the three
months ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows for the three months ended
ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signature Page 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
Sterling House Corporation
Consolidated Balance Sheets
Assets
(Unaudited)
<CAPTION>
March 31, 1997 December 31, 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,773,617 $13,658,827
Accounts receivable:
Construction due from REIT 203,002 3,847,647
Trade 432,966 417,820
Other 233,428 143,138
Prerental costs (net of amortization) 1,374,375 1,339,309
Other 865,038 560,151
---------- ----------
Total current assets 11,882,426 19,966,892
Property and equipment:
Land and improvements 4,574,023 1,384,013
Buildings 21,912,673 10,189,690
Vehicles and equipment 741,685 626,715
Furniture, fixtures and office equipment 2,579,446 1,311,823
Construction in progress 34,283,052 40,382,765
Leasehold rights and improvements 53,555 40,997
----------- -----------
64,144,434 53,936,003
Less accumulated depreciation (965,148) (829,966)
----------- -----------
Net property and equipment 63,179,286 53,106,037
Other assets:
Deferred financing costs 1,455,150 1,495,200
Other 3,752,756 3,250,289
----------- -----------
Total other assets 5,207,906 4,745,489
----------- -----------
Total assets $80,269,618 $77,818,418
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
Sterling House Corporation
Consolidated Balance Sheets
Liabilities and Stockholders' Equity
(Unaudited)
<CAPTION>
March 31, 1997 December 31, 1996
<S> <C> <C>
Current liabilities:
Accounts payable $10,037,167 $ 9,786,224
Accrued expenses:
Salaries and benefits 996,715 924,279
Interest 784,461 107,912
Other 2,852,509 1,171,161
Deferred income taxes 229,785 236,894
Unearned rent and refundable deposits 407,828 408,307
Current maturities of long-term debt
and bonds payable 211,406 215,623
----------- -----------
Total current liabilities 15,519,871 12,850,400
Long-term debt 39,587,477 39,589,497
Deferred income taxes 317,686 423,177
Deferred compensation 394,034 387,419
Other 178,735 57,977
Minority interest in subsidiaries 65,447 ---
Stockholders' equity:
Preferred stock; no par value
20,000,000 shares authorized,
none issued and outstanding --- ---
Common stock; no par value; 75,000,000 shares
authorized, 5,038,836 and 5,035,000 shares
issued and outstanding, respectively 28,216,042 28,216,042
Accumulated deficit (4,009,674) (3,706,094)
----------- -----------
Total stockholders' equity 24,206,368 24,509,948
----------- -----------
Total liabilities and stockholders' equity $80,269,618 $77,818,418
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
Sterling House Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
Three months ended
March 31,
1997 1996
-------------------------
<S> <C> <C>
Revenues:
Residence rental $7,592,509 $2,493,428
Initial franchise and royalty fees:
Affiliates 11,536 12,602
Other 33,456 30,183
Management and service fee 14,858 36,354
Construction service 38,997 8,322
---------- ----------
Total revenue 7,691,356 2,580,889
Operating expenses:
Residence operating expenses 4,859,780 1,584,142
General and administrative 938,440 671,876
Building rental 1,844,002 385,057
Depreciation and amortization 578,930 227,724
Construction costs 9,718 10,659
---------- ----------
Total operating expenses 8,230,870 2,879,458
Loss from operations (539,514) (298,569)
Other income (expenses):
Interest income 179,477 211,004
Interest expense (81,329) (226,787)
Minority interest in loss of subsidiaries 34,553 ---
Other (10,222) (12,218)
--------- ---------
Total other income (expense) 122,479 (28,001)
Loss before income taxes (417,035) (326,570)
Benefit for income taxes 112,600 82,306
--------- ---------
Net loss $(304,435) $(244,264)
========= =========
Net loss per common share $ (0.06) $ (0.05)
========= =========
Weighted average number of shares
outstanding during the period 5,038,836 5,035,000
========= =========
</TABLE>
See accompanying notes.
5
<PAGE>
<TABLE>
Sterling House Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three months ended
March 31,
1997 1996
<S> <C> <C>
Operating activities
Net loss $ (304,435) $ (244,264)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 578,930 227,724
Deferred income taxes (112,600) (82,306)
Amortized rent and interest expense (7,061) 18,582
Minority interest in loss of subsidiaries (34,553) ---
Net change in operating assets and liabilities:
Accounts receivable (105,436) 306,934
Prerental costs (404,662) (68,116)
Accrued expenses 567,262 74,138
Unearned rent and refundable deposits (479) (57,785)
Accounts payable (184,217) (496,371)
Deferred compensation 6,615 ---
Other 83,082 181,240
--------- ----------
Net cash provided by (used in) operating
activities 82,446 (140,224)
Investing activities:
Purchase of property and equipment (24,717,930) (4,801,508)
Proceeds from sale/leaseback transactions 16,788,248 9,380,391
Construction receivable due from REIT 3,733,724 ---
Other (643,059) (93,976)
----------- ----------
Net cash provided by (used in) investing
activities (4,839,017) 4,484,907
Financing activities
Proceeds from short-term borrowings --- 1,412,477
Principal payments on short-term borrowings --- (5,785,732)
Principal payments on bonds, long-term debt
and capital lease obligations (6,237) (1,911,279)
Proceeds from issuance of long-term debt --- 61,173
Net change in bond reserve funds in trust (122,402) (112,723)
Other --- (11,430)
-------- ----------
Net cash used in financing activities (128,639) (6,347,514)
---------- ----------
Net decrease in cash (4,885,210) (2,002,831)
Cash at beginning of period 13,658,827 17,396,355
----------- -----------
Cash at end of period $ 8,773,617 $15,393,524
=========== ===========
</TABLE>
See accompanying notes.
6
<PAGE>
STERLING HOUSE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) GENERAL
The accompanying unaudited interim financial statements of Sterling House
Corporation (the "Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). Certain
information and note disclosures normally included in annual financial
statements have been condensed or omitted pursuant to those rules and
regulations. In the opinion of management, all adjustments, consisting of
normal, recurring adjustments considered necessary for a fair presentation,
have been included. Although management believes that the disclosures made
are adequate to ensure that the information presented is not misleading, it is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996. The results
of the three months ended March 31, 1997 and 1996 are not necessarily
indicative of the results of operations for the entire year.
2) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Sterling House Corporation and its wholly owned subsidiaries, BCI
Construction, Inc., Assisted Living Properties, Inc. and Coventry
Corporation ("Coventry"). The Company's consolidated financial statements
include Austin Development, Limited, a majority-owned subsidiary of Coventry.
The minority interest in subsidiaries represents the minority member's
proportionate interest in Austin Development, Limited.
All significant intercompany balances and transactions have been eliminated.
3) NET LOSS PER COMMON SHARE AND RECENTLY ISSUED ACCOUNTING STANDARDS
Net loss per common share has been computed by dividing net loss by the
weighted average number of common shares outstanding during each period.
The weighted average number of common shares does not include any common
stock equivalents because, (1) stock options outstanding are not materially
dilutive and (2) common stock equivalents associated with the convertible
debenture bonds would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128"),
which specifies the computation, presentation, and disclosure requirements
for earnings per share with the objective to simplify the computation of
earnings per share. FAS 128 is effective for financial statements for
periods ending after December 15, 1997, and earlier application is not
permitted. After the effective date, all prior period earnings per share data
will be restated to conform with the provisions of FAS 128. The adoption of
FAS 128 is not expected to have a material impact on the Company's earnings
per share data.
7
<PAGE>
4) RECLASSIFICATIONS
Certain reclassifications have been made in the 1996 financial statements
to conform with the 1997 financial statement presentation.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
GENERAL. Through the first quarter of 1997, the Company continued to open
residences according to its development strategy. The Company completed 15
new residences during the first quarter of 1997, bringing the total
residences open and operating at March 31, 1997, to 81, of which 73 are
owned/leased by the Company and eight are franchised or managed. At March
31, 1997, seven of the Company's owned/leased residences had received their
Certificate of Occupancy but were not fully licensed until April 1997.
In February 1997, the Company formed a wholly owned subsidiary, Coventry
Corporation ("Coventry"), to enter into joint venture agreements with the
Company's development partners. Pursuant to the joint venture agreements,
Coventry holds majority interests in various limited liability companies
and limited partnerships formed to develop Sterling House residences (the
"J.V.'s"). The Company's development strategy includes forming strategic
alliances with regional real estate development partners which are anticipated
to enable the Company to develop and construct additional residences
while reducing the investment of, and associated risk to, the Company.
The Company's development partners generally provide construction
management experience, access to existing relationships with local contractors,
suppliers and municipal authorities, knowledge of local and state building
codes and zoning laws and assistance with site location for new residences
while investing capital and sharing in the development risk of new
properties. The Company, through Coventry, assists in financing residences,
contributes operational and industry expertise and has management
responsibility for the residences. The Company has both the option, at its
election and an obligation, at the election of its J.V. partners, to acquire
the equity interests of the other partners at predetermined prices and times.
At May 1, 1997, ten sites under construction were owned by six J.V.'s in
which Coventry holds the majority interest. The Company plans to
continue to utilize this development strategy in the future.
9
<PAGE>
GENERAL (continued)
The following table presents the number of owned/leased and managed/
franchised residences, and the number of residences under construction and
under development, by state, as of March 31, 1997 and 1996.
<TABLE>
<CAPTION>
Owned/ Managed/ Under Under
Leased Franchised Construction Development
Residences by State: 1997(1) 1996 1997 1996 1997 1996 1997 1996
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kansas 16 13 7 7 0 0 1 0
Oklahoma 22 9 0 0 1 8 1 3
Texas 24 0 0 0 1 9 0 13
Florida 9 0 0 0 9 4 6 5
Colorado 0 0 1 0 4 0 2 3
Ohio 2 0 0 0 10 0 3 6
Iowa 0 0 0 0 0 0 5 0
N. Carolina 0 0 0 0 0 0 3 0
S. Carolina 0 0 0 0 0 0 4 0
Other States 0 0 0 0 0 0 6 0
-- -- -- -- -- -- -- --
Total residences 73 22 8 7 25 21 31 30
== == = = == == == ==
Total units 2,643 667 309 268 1,063 790 1,299 1,110
===== === === === ===== === ===== =====
</TABLE>
(1) Seven residences have a Certificate of Occupancy but are not yet
fully licensed.
The following table sets forth the number of residences and units owned/
leased or managed/franchised and the stabilized occupancy and private pay
percentages as of March 31, 1997 and 1996, and December 31, 1996, and 1995
and 1994.
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Residences (end of period)
Owned/Leased 66 22 58 17 9
Managed/Franchised 8 7 8 10 6
Total 74 29 66 27 15
Units (end of period)
Owned/Leased 2,643 667 2,035 516 250
Managed/Franchised 309 268 309 358 207
----- --- ----- --- ---
Total 2,952 935 2,344 874 457
Stabilized Occupancy Percentage (1) 95% 95% 97% 96% 95%
Units Private Pay 99% 100% 99% 100% 100%
Average Monthly Rent/Unit $1,706 $1,646 $1,688 $1,618 $1,505
Average Monthly Rent/Unit Including
Community Fees $1,774 $1,673 $1,753 $1,705 ---
</TABLE>
(1) Stabilized occupancy percentage represents the occupancy at the periods
presented and only includes those residences that have been operating in
excess of nine months or that have reached an occupancy rate of 95% (Does not
include Managed/Franchised units).
10
<PAGE>
GENERAL (continued)
Except for the historical information contained herein, the matters
discussed in this Management's Discussion and Analysis of Financial
Condition and Results of Operations are forward looking statements that
involve risks and uncertainties that could cause actual results to differ
materially, including, without limitation, risks associated with the
Company's ability to develop, construct, acquire or franchise additional
assisted living residences in accordance with the Company's development
schedule including joint venture related development activities, management
of quarter to quarter results, and other risks detailed from time to time in
the Company's SEC reports. The risk factors and information set forth in
"Risk Factors" in the Company's 1996 Form 10-K, should be carefully
considered in the evaluation of the Company, its business and its investment
value. Updated information will be periodically provided by the Company as
required by the Securities Exchange Act of 1934.
RESULTS OF OPERATIONS
REVENUES. Total revenue for the three months ended March 31, 1997,
increased to $7,691,000 compared to $2,581,000 for the three months ended
March 31, 1996, an increase of $5,110,000 or 198%. This increase was
primarily attributable to an increase of $5,100,000 in residence rentals as a
result of the 1,976 new rental units at 51 residences that have been
developed or acquired by the Company since March 31, 1996. Average rate per
resident per month for the three months ended March 31, 1997, increased
to $1,706 compard to $1,646 for the same period in 1996. Payments from
Medicaid programs comprised approximately 1% of the Company's revenue for
the three months ended March 31, 1997. The Company anticipates that the
percentage of revenue derived from Medicaid programs will increase, although
revenues from private pay residents will continue to be the Company's
predominant source of revenue.
RESIDENCE OPERATING EXPENSES. Residence operating expenses increased to
$4,860,000 for the three months ended March 31, 1997, compared to $1,584,000
for the three months ended March 31, 1996, an increase of $3,276,000 or 207%.
The increase is attributable to the increase in residences as described
above. In addition, beginning in the three-month period ended September 30,
1996, the Company opened residences with an increased number of units,
resulting in higher operating expenses, primarily property expenses, primarily
proprty expenses, during the stabilization period of these residences.
At March 31, 1997, the Company had received certificates of occupancy on
73 residences with 66 fully operational compared to the 22 residences opened
at March 31, 1996, all of which were fully operational.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $938,000 for the three months ended March 31, 1997, from
$672,000 for the three months ended March 31, 1996, an increase of $266,000
or 40%. The increase is primarily attributable to the increase in payroll
and associated costs relating to additions in management and other personnel
to support the additional residences operated by the Company and its growing
development program, as well as travel costs associated with new residences
located in additional states.
11
<PAGE>
RESULTS OF OPERATIONS (continued)
BUILDING RENTALS. Building rental increased to $1,844,000 for the three
months ended March 31, 1997, up from $385,000 for the three months ended
March 31, 1996, an increase of $1,459,000 or 379%. The increase is
attributable to the Company having 49 residences under operating leases at
March 31, 1997, compared to 15 residences under operating leases at March 31,
1996, an increase of 34 residences.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$579,000 for the three months ended March 31, 1997, compared to $228,000 for
the three months ended March 31, 1996, an increase of $351,000 or 154%. This
increase is primarily attributable to the increase in prerental cost
amortization during the current period. Prerental cost amortization was
$400,000 for the three months ended March 31, 1997, compared to $79,000 for
the three months ended March 31, 1996, an increase of $321,000. Prerental
costs represent preopening marketing, employee recruitment and training, and
other start-up expenditures necessary to prepare the rsidences for rent.
These prerental costs are amortized over a 12 month period commencing the
month the residence opens. Prerental costs (net of amortization) were
approximately $1,374,000 at March 31, 1997, compared to approximately
$310,000 at March 31, 1996, an increase of approximately $1,064,000 or 343%.
The increase in prerental costs is primarily attributable to 39 residences
opened for twelve months or less at March 31, 1997, compared to eight such
residences at March 31, 1996. In the first three months of 1997, the
Company incurred prerental costs averaging slightly less than $1,000 per unit
or an average of approximately $37,500 per residence.
Excluding prerental lost amortization, depreciation and other amortization
expense was $179,000 for the three months ended March 31, 1997, compared to
$149,000 for the three months ended March 31, 1996, an increase of $30,000 or
20%. The increase is attributable to the additional property and equipment
acquired since March 31, 1996.
MINORITY INTEREST SHARE OF LOSS OF SUBSIDIARIES. Minority interest share of
loss of subsidiaries was $35,000 for the three months ended March 31, 1997,
compared to $0 for the three months ended March 31, 1996. The minority's
share of losses represents the losses allocated to the minority Joint Venture
partners of the J.V.'s formed in the first quarter of 1997.
INTEREST INCOME. Interest income decreased to $179,000 for the three months
ended March 31, 1997, down from $211,000 for the three months ended March 31,
1996, a decrease of $32,000 or 15%. The decrease was attributable to the
Company using more of its available funds in the development of additional
residences, leaving less cash available for investment purposes.
INTEREST EXPENSE. Interest expense for the three months ended March 31,
1997, was $81,000 (net of interest capitalization of $647,000) compared to
$227,000 (net of interest capitalization of $335,000) for the three months
ended March 31, 1996, a decrease of $146,000 or 64%. The decrease in
interest expense is primarily attributable to the increase in interest
capitalization resulting from an increase in the Company's level of
construction in progress during the same periods. Construction in progress
totaled $34,283,000 and $4,114,000 at March 31, 1997, and March 31, 1996,
respectively.
12
<PAGE>
RESULTS OF OPERATIONS (continued)
INCOME TAXES. The Company recorded an income tax benefit of $113,000 for the
three months ended March 31, 1997, compared to $82,000 for the three months
ended March 31, 1996, an increase of $31,000 or 38%. The increase is related
to the increase in the Company's net loss before income taxes for the first
quarter of 1997 compared to the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had negative working capital of $3,638,000.
This was primarily due to the timing of sale/leaseback transactions with
various REIT's. Between April 1, 1997 and May 1, 1997, the Company closed
sale/leaseback transactions on seven residences which resulted in cash proceeds
to the Company totaling $15,015,000. Net cash provided from operating
activities totaled $82,000, which was primarily due to the increase in the
number of stabilized residences at March 31, 1997. Net cash used in investing
activities was $4,839,000, resulting from the addition of $24,718,000 in
property and equipment and offsetting proceeds of $16,788,000 from sale/
leaseback transactions during the first quarter of 1997. Net cash used in
financing activities totaled $129,000, which represents the
increase in the principal and interest account on the Company's Assisted
Living Revenue Bonds outstanding.
The Company has entered into sale/leaseback agreements with certain REIT's
providing for up to $200,000,000 as a source of financing the development,
construction and, to a lesser extent, acquisitions of assisted living
residences. Under such agreements, the Company enters into a series of sale/
leaseback transactions, whereby the Company sells residences at negotiated
values and concurrently enters into a lease agreement for each residence.
The initial terms of the leases vary from 10 to 15 years and include aggregate
renewal options ranging from 15 to 40 years. The Company is responsible for all
operating costs, including repairs, property taxes, and insurance. Typically
the lease arrangements provide the Company with a right of first refusal
if the REIT were to seek to sell the property. The annual minimum lease
payments are based upon a percentage of the negotiated sales value of each
residence. These percentages are typically equal to the yield of the
most actively traded U.S. Treasury Note with a maturity comparable to the
initial term of the lease in effect at the time of the transaction plus rates
ranging from 3.25% to 3.75%. The minimum lease payments are adjusted annually
by a percentage multiplier that is contingent upon changes in the
Consumer Price Index. Through May 1, 1997, the Company had used approximately
$97,700,000 of the committed REIT financing. The Company accounts for these
leases as operating leases.
Capital expenditures for 1997 are estimated to total approximately $110,000,000
to $120,000,000, related primarily to the development of additional residences,
which will be financed principally with sale/leaseback transactions. The
Company intends to satisfy future capital requirements for its development
activities by various means, including financing obtained from
sale/leaseback transactions, construction and other debt financing and, to the
extent available, cash generated from operations. The Company does not
anticipate any significant capital expenditures within the foreseeable future
with respect to its existing residences. It is expected that cash generated
from operations will be sufficient to fund any capital expenditures the Company
may be required to make with respect to these existing residences.
13
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
See Index to Exhibits
B. Reports on Form 8-K
The Company filed no reports on Form 8-K during the three month period
ended March 31, 1997.
14
<PAGE>
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.
Dated May 15, 1997
STERLING HOUSE CORPORATION
(Registrant)
/s/Timothy J. Buchanan
Timothy J. Buchanan
Chief Executive Officer
/s/ Mark Ohlendorf
Mark Ohlendorf
Chief Financial Officer
15
<PAGE>
STERLING HOUSE CORPORATION
INDEX TO EXHIBITS
Exhibit
Number Description
- -----------------------------------------------------------------------------
10.1 Form of Lease Agreement by and between Sterling House Corporation and
Nationwide Health Properties, Inc. Filed as Exhibit 10.74 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1996 (the "1996 10-K).
10.2 Schedule of executed Lease Agreements by and between Sterling House
Corporation and Nationwide Health Properties, Inc.
10.3 Form of Lease Agreement by and between Sterling House Corporation and
Health Care REIT, Inc. Filed as Exhibit 10.30 to the 1996 10-K.
10.4 Schedule of executed Lease Agreements by and between Sterling House
Corporation and Health Care REIT, Inc.
10.5 Form of Lease Agreement by and between Assisted Living Properties,
Inc. and Meditrust. Filed as Exhibit 10.55 to the 1996 10-K.
10.6 Schedule of executed Lease Agreements by and between Assisted Living
Properties, Inc. and Meditrust.
10.7 Form of Lease Agreement by and between Sterling House Corporation
and LTC Properties, Inc. Filed as Exhibit 10.68 to the 1996 10-K.
10.8 Schedule of executed Lease Agreements by and between Sterling House
Corporation and LTC Properties, Inc.
10.9 Joint Venture Agreement by and between Coventry Corporation and
Elderly Living, Limited Partnership dated March 31, 1997.
10.10 Mortgage and Security Agreement by and between Waterford Development
Company, L.L.C. and LTC Properties, Inc.
10.11 Promissory Note by and between Waterford Development Company, L.L.C.
and LTC Properties, Inc.
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
16
Exhibit 10.2
Schedule of Executed Lease Agreements
By and Between Sterling House Corporation
Sterling House Corporation has entered into the following leases with Nationwide
Health Properties, Inc. which vary only in the following material respects
from Exhibit 10.1.
Location Date of Lease
- -------- -------------
10875 St. Augustine Rd. 04/01/97
Jacksonville, FL 32257
2232 Dora Ave. 04/29/97
Tavares, FL 32778
Exhibit 10.4
Schedule of Executed Lease Agreements
By and Between Sterling House Corporation
Sterling House Corporation has entered into the following leases with Health
Care REIT, Inc. which vary only in the following material respects from
Exhibit 10.3.
Location Date of Lease
- -------- -------------
725 Fox Run Road 04/17/97
Findlay, OH 45840
Exhibit 10.6
Schedule of Executed Lease Agreements
By and Between Assisted Living Properties, Inc.
Assisted Living Properties, Inc., a wholly owned subsidairy of Sterling House
Corporation, has entered into the following leases with Meditrust which vary
only in the following material respects from Exhibit 10.5.
Location Date of Lease
- -------- -------------
725 Leslie Drive 05/01/97
Kerrville, TX 78028
1029 Seminole Trail 05/01/97
Carrolton, TX 75007
Exhibit 10.8
Schedule of Executed Lease Agreements
By and Between Sterling House Corporation
Sterling House Corporation has entered into the following leases with LTC
Properties, Inc. which vary only in the following material respects from
Exhibit 10.7.
Location Date of Lease
- -------- -------------
14595 Nacogdoches Rd. 05/01/97
San Antonio, TX 78247
Exhibit 10.9
JOINT VENTURE AGREEMENT
This Agreement is made as of the day of
, 199 , by and among COVENTRY CORPORATION, a
Kansas corporation ("SGH-SUB") and a subsidiary of SGH, and
STERLING HOUSE CORPORATION, a Kansas corporation ("SGH")
and ELDERLY LIVING, LIMITED PARTNERSHIP, a Florida
limited partnership/corporation ("JOINT VENTURE PARTNER").
R E C I T A L S:
A. SGH-SUB and JOINT VENTURE PARTNER have
agreed to form a joint venture for the purpose of developing, constructing
and operating one (1) or more STERLING HOUSE residences; and
B. The parties are entering into this Agreement to set forth
their mutual understanding and agreements with respect to the terms and
conditions of such joint venture.
NOW, THEREFORE, in consideration of the mutual covenants
and promises set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
In addition to the other definitions contained herein, the following
definitions shall apply for purposes of this Agreement:
1.1 Affiliate. "Affiliate," when such term is used with respect
to another Person which is a legal entity, means (a) any Person who
(together with Family Members) directly or indirectly Controls, is
Controlled by or is under common Control with such other Person, (b)
any Person who is a director or officer of a privately-owned company,
member in or trustee of, or who serves in a similar capacity with respect
to, such other Person, or (c) any Person who directly or indirectly is the
beneficial owner of 20% or more of such other Person. When the term
"Affiliate" is used with respect to another Person who is an individual, it
means (i) any Family Member of such Person, or (ii) any corporation,
partnership, limited liability company, trust or other entity of which such
other Person serves as an officer, director, general partner, manager,
trustee or in a similar capacity.
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1.2 SGH Affiliate. "SGH Affiliate" means any Affiliate of SGH, including BCI.
1.3 SGH-SUB Ancillary Agreements. "SGH-SUB Ancillary
Agreements" means any Ancillary Agreement to which SGH-SUB is a
party.
1.4 Ancillary Agreements. "Ancillary Agreements" means all
of the agreements executed and delivered by SGH-SUB or SGH and/or
JOINT VENTURE PARTNER (or any JOINT VENTURE PARTNER
Affiliate), pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement.
1.5 Business. "Business" means the business of developing or
acquiring, and owning, operating and financing, the Facilities, and
activities related or incidental thereto.
1.6 Call Option Price. "Call Option Price" means the
purchase price payable upon SGH's exercise of the Call Option as set
forth on the attached Schedule 3.8(B).
1.7 Closing. "Closing" means the closing of the transactions
provided for in this Agreement, which shall take place on the Closing
Date at the offices of SGH in Wichita, Kansas or such other place as the
parties may agree upon.
1.8 Closing Date. "Closing Date" means the date on which a
Closing occurs.
1.9 Control. "Control" as applied to a Person means the direct
or indirect ownership of more than 50% of the voting common stock (in
the case of a corporation) or other voting interests (in the case of a legal
entity which is not a corporation);
1.10 Initial Closing Date. "Initial Closing Date" means the
date on which the first Closing takes place.
1.11 Licensing Date. "Licensing Date" means the date when a
license to operate a Facility as an adult congregate living and/or extended
congregate care facility or an equivalent license is issued for the Facility
by the applicable state agency.
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1.12 JOINT VENTURE PARTNER's Responsibilities
Schedule. "JOINT VENTURE PARTNER's Responsibilities Schedule"
means the schedule attached as Exhibit 3.4(B).
1.13 JOINT VENTURE PARTNER Affiliate. "JOINT
VENTURE PARTNER Affiliate" means any Affiliate of JOINT
VENTURE PARTNER.
1.14 JOINT VENTURE PARTNER Ancillary Agreement.
"JOINT VENTURE PARTNER Ancillary Agreements" means any
Ancillary Agreement to which JOINT VENTURE PARTNER or any
Affiliate of JOINT VENTURE PARTNER is a party.
1.15 Development Term. "Development Term" means the five
(5) year period commencing on the date of execution of this Agreement.
However, either party may terminate this Agreement during the
Development Term immediately upon written notice if no contract has
been entered into for the acquisition of a Facility or site for a Facility (or
an option to acquire a Facility or a site for a Facility) during any
consecutive twelve (12) month period commencing after the date of this
Agreement. Providing such termination shall not affect the obligations of
JOINT VENTURE PARTNER and SGH-SUB to complete any Facilities
then under development.
1.16 Facility. "Facility" means the land and improvements
constituting an assisted living residence facility which is developed
pursuant to or as contemplated by this Agreement.
1.17 Family Member. "Family Member" means, with respect
to any individual, (a) the spouse of such individual, (b) any child of such
individual, or any parent, grandparent, brother or sister living in the same
house as such individual, or the spouse of any of the foregoing
individuals described in this clause (b), (c) a custodian, guardian or
personal representative of an individual described in clause (a) or (b); or
(d) a trust for the exclusive benefit of one or more of the individuals
described in clause (a) or (b).
1.18 Capital Investment Schedule. "Capital Investment
Schedule" means the schedule attached as Exhibit 3.2.
1.19 License Agreement. "License Agreement" means a
License Agreement is substantially the form of the License Agreement
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together with changes to properly reflect the identity and location of the
Facility being licensed, attached as Exhibit 3.6(A)
1.20 Management Agreement. "Management Agreement"
means a Management Agreement in substantially the form of the
Management Agreement, together with changes to properly reflect the
identity and location of the Facility being managed, substantially in the
form attached as Exhibit 3.5.
1.21 Limited Partnership Agreement. "Limited Partnership
Agreement" means a Limited Partnership Agreement in substantially the
form of the Limited Partnership Agreement, together with changes to
properly reflect the identity and location of the Facility being managed,
substantially in the form attached as Exhibit 3.1.
1.22 Percentage Interest. "Percentage Interest" means, as
applied to any Project Entity, the ownership interest of SGH-SUB or
JOINT VENTURE PARTNER in such Entity.
1.23 Person. "Person" means a natural person, corporation,
trust, partnership, limited liability company, governmental entity (or
agency, branch or department thereof) or any other legal entity.
1.24 Project Agreements. The agreements entered into by SGH-SUB, JOINT
VENTURE PARTNER and/or their Affiliates in
connection with the formation of a Project Entity, including without
limitation any Limited Partnership Agreement or other organizational
documents.
1.25 Project Entity. "Project Entity" means any limited
partnership, limited liability company or other entity which, directly or
indirectly, owns a Facility.
1.26 SGH-SUB Responsibilities Schedule. "SGH-SUB
Responsibilities Schedule" means the schedule attached as Exhibit
3.4(A).
1.27 Territory. "Territory" means the geographic area
described on the attached Exhibit 1.27.
1.28 Third Party Developer. "Third Party Developer" means
any Partner who is not SGH-SUB, SGH, an SGH Affiliate, JOINT
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VENTURE PARTNER, or a JOINT VENTURE Affiliate.
ARTICLE 2
PURPOSE OF JOINT VENTURE
The parties are entering into the joint venture contemplated by
this Agreement in order for SGH-SUB and JOINT VENTURE
PARTNER, through jointly owned limited partnerships, limited liability
companies or other entities agreed upon by the parties, to develop or
acquire, and own, operate and finance, the Facilities in targeted market
areas throughout the Territory. The number of Facilities that shall be
developed hereunder and the respective deadlines for commencing and
completing construction of the same are set forth on the attached Exhibit
2. Upon execution of this Agreement and in consideration of
development opportunities to be deferred or relinquished, JOINT
VENTURE PARTNER shall pay to SGH, in addition to any other sums
due hereunder, the sum of Not Applicable
Dollars ($ ).
ARTICLE 3
COVENANTS
3.1 Formation and Capitalization of Project Entities. At
each Closing, SGH-SUB and JOINT VENTURE PARTNER shall form
one of the Project Entities contemplated by this Agreement by entering
into a Limited Partnership Agreement. A Project Entity shall be formed
at least as soon as a site for a Facility has been identified by SGH.
Unless the parties agree otherwise, each Project Entity shall be a limited
partnership, and the parties shall enter into a Limited Partnership
Agreement with respect to each such site selected. To the extent that a
limited liability company is utilized, its organizational documents shall,
as practical, be drafted in a manner that is comparable to the terms and
conditions of the Limited Partnership Agreement. Capital contributions
shall be made by SGH-SUB and JOINT VENTURE PARTNER or a
JOINT VENTURE PARTNER Affiliate in such proportions, at such
times and in such amounts as the parties agree on, as more fully set forth
in the Capital Investment Schedule.
3.2 Capitalization of Project Entities. During the
Development Term, the parties shall make mandatory initial capital
contributions to each Project Entity as more fully set forth in the Limited
Partnership Agreement for such Project Entity. The mandatory initial
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capital contributions for all Project Entities shall each be subject to a
contribution schedule which shall not exceed in the aggregate the
amounts shown in the Capital Investment Schedule, unless the parties
otherwise agree. Neither SGH-SUB nor JOINT VENTURE PARTNER
shall have any obligation to make any expenditure, provide capital or loan
funds to any Project Entity except as may specifically be required by this
Agreement, any Ancillary Agreement (including any Limited Partnership
Agreement), by applicable law, or as otherwise agreed by SGH-SUB and
JOINT VENTURE PARTNER from time to time.
3.3 Project Financing. The parties will use their best efforts
to cause each Project Entity to obtain the necessary construction and
permanent financing for the Facility owned by it. The parties will use
their best efforts to cause each Project Entity to obtain permanent
financing (i.e., mortgage financing or sale leaseback) when a Facility
reaches a level of 90% of full occupancy. SGH-SUB along with SGH
and the Project Entity shall be the guarantors of such construction and
permanent financing if a guaranty is required, but JOINT VENTURE
PARTNER shall not be required to personally guaranty any financing for
any such Facility, nor shall JOINT VENTURE PARTNER, in the event
that SGH-SUB, SGH or such Entity are called upon to pay such
obligations pursuant to their guaranties, be required to compensate or
otherwise reimburse SGH-SUB, SGH or such Entity, as the case may be,
for any loss or costs incurred by any of them under any such guaranty. It
is understood that SGH-SUB and SGH each reserve the right to secure
the repayment of any funds loaned to a Project Entity by the use of a first
mortgage or similar security device.
3.4 Responsibilities of the Parties.
A) SGH-SUB shall be responsible for the duties and activities
set forth on the SGH-SUB Responsibilities Schedule.
B) JOINT VENTURE PARTNER shall be responsible for the
duties and activities set forth on the JOINT VENTURE PARTNER's
Responsibilities Schedule. To the extent that JOINT VENTURE
PARTNER is to be reimbursed or compensated for such services, the
terms and conditions of same shall be set forth on the JOINT VENTURE
PARTNER Responsibilities Schedule.
C) All charges associated with the foregoing services
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provided by SGH-SUB or JOINT VENTURE PARTNER or any
Affiliate including, without limitation, premarketing, pre-opening,
operating, pre-development, third party, overhead and aborted project
costs, shall be paid by the specific Project Entity benefiting from such
services or as agreed on by both parties in writing.
3.5 Construction. SGH-SUB reserves the right and option to
appoint BCI Construction, Inc. ("BCI"), an SGH Affiliate, to provide
development and construction supervision services to any Project Entity
which develops a Facility. A construction agreement shall be executed
by the applicable Project Entity and BCI or another construction
company selected by SGH-SUB, for such Facilities when the respective
Project Entity is formed. Such construction agreement shall provide that
such Project Entity will pay BCI a commercially reasonable construction
fee, if BCI is selected by SGH-SUB to be the Construction Manager,
and/or a development fee. The construction fee payable to BCI shall be
payable in accordance with the applicable construction agreement. SGH-SUB
reserves the right to appoint itself, SGH, any SGH Affiliate, any
JOINT VENTURE PARTNER affiliate, or a THIRD PARTY
DEVELOPER as the developer of record for any proposed Project
Facility.
3.6 Project Management. In addition to the provisions of
Section 3.4(A), SGH-SUB shall perform management services for each
Project Entity, as more fully set forth in the applicable Limited
Partnership Agreement. SGH-SUB shall enter into a Limited Partnership
Agreement for each Project Entity when it is formed. SGH-SUB shall be
entitled to charge a one-time compensation of up to $50,000 and as
manager of each Project Facility shall be entitled to receive a
management fee equal to seven percent (7%) of such entities gross
revenues in accordance with the terms of each Management Agreement;
such agreement shall be executed by SGH-SUB, or an Affiliate of SGH-SUB, and
the respective Project Entity upon the purchase of the real
estate to be developed for each Project Facility.
In addition, SGH-SUB shall be entitled to be reimbursed for all
costs and overhead expenses relating to the development, construction
and start-up activities of each Project Facility. SGH-SUB, or an Affiliate
of SGH-SUB, shall be entitled to charge a monthly fee of up to $500 per
month per Project Facility in return for providing accounting services to
each Project Facility. SGH and the respective Project Entity shall also
execute a License Agreement upon the purchase of the real estate to be
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developed for each Project Facility.
3.7 Restrictions on Transferability of Interests. From and
after the Closing Date, neither SGH-SUB, JOINT VENTURE PARTNER
or any JOINT VENTURE PARTNER Affiliate shall transfer its
ownership interest in any Project Entity except to the other party;
provided, however, that SGH-SUB may transfer a portion of its interest to
an Affiliate prior to the exercise of a put or call option pursuant to Section
3.8 so as to preserve the existence of the Project Entity following such
purchase. A transfer means any disposition of an interest or any interest
therein, including, without limitation, any sale, gift, assignment, pledge
or encumbrance, whether such disposition occurs voluntarily, by
operation of law or otherwise. The organizational documents of JOINT
VENTURE PARTNER shall provide at all times that the beneficial
ownership interests of each beneficial owner shall be subject to a right of
first refusal in favor of JOINT VENTURE PARTNER, and to the extent
not exercised then to the other owners of JOINT VENTURE PARTNER,
and then to the extent not exercised to SGH-SUB. Further, at the time of
each Closing, JOINT VENTURE PARTNER shall obtain from each such
owner, written assurance in a form acceptable to SGH-SUB, that such
owner is not subject to any litigation, arbitration, proceeding,
governmental investigation, citation or action of any kind pending, or to
the knowledge of such Person, proposed or threatened against them
which could have a material adverse effect on the transactions
contemplated hereby.
3.8 Options to Sell or Purchase Ownership Interests.
A) SGH hereby grants to JOINT VENTURE PARTNER the
right ("put option") to sell JOINT VENTURE PARTNER's ownership
interest in any one or more Project Entities to SGH at the respective fair
market value (determined as set forth below) of such Project Entity or
Entities. The put option for each Project Entity shall be exercisable
commencing on the ten (10) month anniversary of the Licensing Date of
the last Facility developed and owned by such Project Entity and any
time thereafter prior to the tenth (10th) anniversary of such Licensing
Date. Such option shall be exercised by written notice from JOINT
VENTURE PARTNER to SGH prior to such tenth (10th) anniversary.
The exercise by JOINT VENTURE PARTNER of its put option for one
Project Entity shall not preclude JOINT VENTURE PARTNER from
later exercising one or more put options for additional Project Entities.
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B) JOINT VENTURE PARTNER hereby grants to SGH the
right ("call option") to purchase JOINT VENTURE
PARTNER's ownership interest in each Project Entity at the Call Option
Price of such Project Entity or Entities. The call option for each Project
Entity shall be exercisable commencing on the six (6) month anniversary
of the Licensing Date of the first Facility developed and owned by such
Project Entity and any time thereafter prior to the tenth (10th) anniversary
of the Licensing Date of such Facility. Such option shall be exercised by
written notice from SGH to JOINT VENTURE PARTNER prior to such
tenth (10th) anniversary. The exercise by SGH of its call option for a
Project Entity shall not preclude SGH from later exercising one or more
call options for additional Project Entities.
C) The fair market value of JOINT VENTURE PARTNER's
ownership interest in each Project Entity shall be based upon the fair
market value of such Project Entity (including all of its assets and
liabilities), determined as of the end of the calendar month preceding the
date on which a put option is exercised. The fair market value of a
Project Entity shall be the fair market value of such Project Entity as
established by an appraiser agreed on by the parties. SGH and Joint
Venture Partner shall each give the other party notice of the name of an
acceptable appraiser 15 days after the giving of notice by JOINT
VENTURE PARTNER of its intent to exercise an option. The two
appraisers will then select a third appraiser within an additional 5 days.
Within 5 days after designation, each appraiser shall submit a resume to SGH
and Joint Venture Partner, setting forth such appraiser's
qualifications, including education and experience with similar
properties. A notice of objections to the qualifications of any appraiser
shall be given within 10 days after receipt of such resume. If either party
fails to timely object to the qualifications of an appraiser, then the
appraiser shall be conclusively deemed satisfactory. If a party gives a
timely notice of objection to the qualifications of an appraiser, then the
disqualified appraiser shall be replaced by an appraiser selected by the
qualified appraisers or, if all appraisers are disqualified, then by an
appraiser selected by a commercial arbitrator acceptable to SGH and Joint
Venture. The "fair market value" shall be determined by the appraisers
within 60 days thereafter as follows. Each of the appraisers shall be
instructed to prepare an appraisal of the Project Facility in accordance
with the following instructions:
The Project Facility is to be valued upon
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the three conventional approaches to estimate value known as the
Income, Sales Comparison and Cost Approaches. Once the approaches
are completed, the appraiser correlates the individual approaches into a
final value conclusion.
The Three approaches to estimate value are summarized as
follows:
Income Approach: This valuation approach recognizes
that the value of the operating tangible and intangible asset can be
represented by the expected economic viability of the business giving
returns on and of the assets and shall use a management fee of 7%.
Sales Comparison Approach: This valuation approach is
based upon the principal of substitution. When a facility is replaceable in
the market, the market approach assumes that value tends to be set at the
price of acquiring an equally desirable substitute facility. Since health
care market conditions change and frequently are subject to regulatory
and financing environments, adjustments need to be considered. These
adjustments also consider the operating differences, such as services and
demographics.
Cost Approach: This valuation approach estimates the
value of the tangible assets only. Value is represented by the market
value of the land plus the depreciated reproduction cost of all
improvements and equipment.
In general, the Income and Sales Comparison Approaches
are to be considered the best representation of value, because they cover
both tangibles and intangible assets, consider the operating characteristics
of the business and have the most significant influence on attracting
potential investors.
The appraised values submitted by the three appraisers
shall be ranked from highest value to middle value to lowest value, the
appraised value (highest or lowest) which is furthest from the middle
appraised value shall be discarded, and the remaining two appraised
values shall be averaged to arrive at fair market value.
In determining the fair market value of a Project Entity,
the assumption shall be made that the Management Agreement will
continue indefinitely and that the percentage management fee would
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continue to be charged to the applicable Project Entity. Each appraiser
selected hereunder shall be a reputable appraisal firm which has
substantial experience in appraising commercial real estate, which shall
mean that at a minimum the appraiser must be state certified, a member in
good standing with the American Institute of Real Estate Appraisers and
a member in good standing with the Appraisal Institute. All appraisers
shall have complete access to the relevant books and records of the
Project Entity they are appraising during the conduct of their appraisals.
If the fair market value of a Project Entity is finally determined in
accordance with this Section 3.8(C), and a put or call option is exercised
within four (4) months from the date of such final determination, then
such fair market value shall be used in connection with the purchase and
sale occurring as a result of such exercise.
D) SGH shall, at each closing of a purchase or sale pursuant
to this Section 3.8, pay the purchase price in cash or immediately
available funds.
E) The closing of a purchase and sale pursuant to this Section
3.8 shall take place within ninety (90) days following the exercise of a put
or call option hereunder, provided that such ninety (90) day period shall
be extended as reasonably necessary to permit completion of any
appraisal required by this Section 3.8. At such closing, (i) JOINT
VENTURE PARTNER shall deliver to SGH the interest in the Project
Entity being purchased, free and clear of all security interests, liens and
restrictions (other than restrictions imposed by this Agreement and the
Ancillary Agreements), together with such other documents as SGH may
reasonably request, and (ii) SGH shall deliver to JOINT VENTURE
PARTNER the purchase price together with such other documents as
JOINT VENTURE PARTNER may reasonably request. In the event that
at the time of the exercise of an option, JOINT VENTURE PARTNER
has guaranteed any financing of a Project Entity, SGH-SUB and SGH
will use their best efforts to obtain a release of JOINT VENTURE
PARTNER of such guaranty. If SGH-SUB and SGH are unable to obtain
such a release, and following the Closing there occurs a default in the
payment or performance of such financing, SGH-SUB and SGH will
jointly and severally indemnify JOINT VENTURE PARTNER for any
damages, costs and expenses (including reasonable attorneys' fees) which
JOINT VENTURE PARTNER incurs pursuant to its guaranty as
provided in Section 9.2(C).
F) Notwithstanding any provision contained in this Section
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3.8 to the contrary:
i) if a put or call option is exercised, such purchase
may be made by an Affiliate of SGH so as to preserve the legal existence
of the Project Entity, but no such assignment shall relieve SGH from any
obligations to JOINT VENTURE PARTNER;
ii) any real estate transfer fee which arises in
connection with any purchase and sale hereunder shall be borne equally
by the parties; and
iii) JOINT VENTURE PARTNER shall not be entitled
to exercise its put option for a Project Entity if the Project Entity is in
default in the financing for any Facility owned by such Project Entity.
G) In the event that an Affiliate of JOINT VENTURE
PARTNER is designated by JOINT VENTURE PARTNER to own an
interest in a Project Entity, then as a condition thereto the Project Entity
shall execute in form and substance reasonably satisfactory to SGH-SUB
an agreement in which the JOINT VENTURE PARTNER Affiliate
agrees to be bound by the provisions of this Agreement applicable to such
JOINT VENTURE PARTNER Affiliate, including without limitation the
provisions of this Section 3.8.
3.9 Non-Competition.
A) During the Development Term, without the prior written
consent of SGH or SGH-SUB, neither JOINT VENTURE PARTNER
nor any JOIN VENTURE PARTNER Affiliate shall directly or indirectly
own, operate, develop, construct, manage or participate in the ownership,
development, construction, operation or management of an assisted
living, dementia or other specialty care facility for the elderly located in
the Territory. In addition, as long as (i) SGH-SUB, SGH. or their
Affiliate and (ii) JOINT VENTURE PARTNER or any JOINT
VENTURE PARTNER Affiliate jointly own equity interests in any
Project Entity, and for a period of one (1) year thereafter, neither JOINT
VENTURE PARTNER or JOINT VENTURE PARTNER Affiliate will,
without the prior written consent of SGH or SGH-SUB, directly or
indirectly own, operate, develop, construct, manage or participate in the
ownership, development, construction, operation or management of an
assisted living, dementia or other specialty care facility for the elderly
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located within twenty-five (25) miles from any Facility owned by such
Project Entity.
B) The restrictions on JOINT VENTURE PARTNER set
forth in Section 3.9 (A) shall also apply to the shareholders of JOINT
VENTURE PARTNER and their Family Members, and any entities
directly or indirectly Controlled by any one or more of them.
C) The restrictions set forth in Section 3.9 (A) are subject to
the following exceptions:
i) such restrictions shall not be considered violated
by reason of JOINT VENTURE PARTNER or its members or
shareholders, their Family Members, or entities directly or indirectly
Controlled by any of them, developing, owning and/or constructing
skilled nursing home facilities located in the Territory which require a
certificate of need or the equivalent; and
ii) such restrictions shall not be considered violated
by reason of JOINT VENTURE PARTNER or any JOINT VENTURE
PARTNER Affiliate owning less than a five percent (5%) interest in a
legal entity that owns, develops, constructs, operates or manages any
assisted care or dementia or other special care facilities and whose shares
of stock are traded on a nationally recognized stock exchange or traded in
the over-the-counter market.
D) Each party hereby agrees that the restrictions set forth in
this Section 3.9 are founded on valuable consideration and are reasonable
in duration and geographic area in view of the circumstances under which
this Agreement is executed and that such restrictions are necessary to
protect the legitimate interests of the parties. In the event that any
provision of this Section 3.9 is determined to be invalid by any arbitrator
or court of competent jurisdiction, the provisions of this Section 3.9 shall
be deemed to have been amended and the parties agree to execute any
documents and take whatever action is necessary to evidence such
amendment, so as to eliminate or modify any such invalid provision and
to carry out the intent of this Section 3.9 to render the terms of this
Section 3.9 enforceable in all respects as so modified.
E) Each party acknowledges and agrees that irreparable injury
may result to the other party and/or a Project Entity if the other party
breaches any covenant contained in this Section 3.9 and that the remedy
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at law for the breach of any such covenant will be inadequate. Therefore,
if any party shall engage in any act in violation of any of the provisions of
this Section 3.9, the other party and the affected Project Entity (or either
of them) shall be entitled, in addition to such other remedies and damages
as may be available to either or both of them at law or under this
Agreement, to injunctive relief to enforce the provisions of this Section 3.9.
3.10 Confidentiality. The parties will at all times hold and
cause their consultants and advisors to hold in confidence the information
contained in this Agreement. In addition, each party (the "receiving
party") will at all times hold and cause its advisors and representatives to
hold in strict confidence all documents, materials and other information
concerning the other parties (the "disclosing party"), which have been or
will be furnished by the disclosing party to the receiving parties or their
employees, advisors and representatives in connection with the
transactions contemplated by this Agreement and which are designated as
confidential. All such information shall be disclosed by a receiving party
only to its employees, advisors and representatives engaged in the
evaluation of such information. If the transactions contemplated by this
Agreement are not consummated, regardless of the reason therefor, such
confidence will be maintained by the receiving party, except to the extent
such information (a) was previously known to the receiving party prior to
disclosure by the disclosing party, (b) is in the public domain through no
fault of the receiving party, (c) is lawfully acquired by the receiving party
from a third party under no obligation of confidence to the disclosing
party, or (d) is required by any law or by any governmental or judicial
body to be disclosed. Such documents and information will not be used
to the detriment of the disclosing party or otherwise in any manner and all
documents, materials and other written information provided by the
disclosing party to the receiving party, including all copies and extracts
thereof, will be returned to the disclosing party immediately upon its
written request. Provided, neither SGH or SGH-SUB nor JOINT
VENTURE PARTNER shall have any liability hereunder for a breach of
this Section 3.10 by their respective employees, advisors, or
representatives unless such breach results from their (i.e., SGH's, SGH-SUB's
or JOINT VENTURE PARTNER's) negligence, bad faith or intentional bad act.
3.11 Further Assurances. Following each Closing, each party
shall execute such further documents and perform such further acts as
may be reasonably necessary to consummate the transactions
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contemplated by this Agreement and the Ancillary Agreements in
accordance with the terms hereof and thereof and to more effectively
carry out the transactions contemplated hereby and thereby.
3.12 Liens and Encumbrances. Each of SGH-SUB and
JOINT VENTURE PARTNER, and any JOINT VENTURE PARTNER
Affiliate acquiring an interest in a Project Entity, agrees to keep its
ownership interest in each such entity free and clear from any and all
security interests, liens and restrictions in favor of third parties.
3.13 Public Statement. JOINT VENTURE PARTNER shall
consult with SGH prior to issuing any press release or making any other
public statement (including, direct communications with third parties or
family members) with respect to the transactions contemplated hereby,
and will not issue any such release or make any such statement without
the approval of SGH (which may be denied in the sole discretion of SGH),
except as required pursuant to any state or federal securities law or
by the rules and regulations of any relevant securities exchange or
quotation system upon which a party's securities are then traded. JOINT
VENTURE PARTNER acknowledges that its breach of the provisions of
this Section 3.13, may result in the assessment of fines, penalties and/or
civil liabilities by the Securities and Exchange Commission, state
securities commissions, and others.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES AND ADDITIONAL
COVENANTS OF SGH-SUB AND SGH
SGH-SUB and SGH, jointly and severally, hereby represents and
warrants to JOINT VENTURE PARTNER, as of the date of this
Agreement and each further covenants that SGH and SGH-SUB shall
hereafter represent and warrant to JOINT VENTURE PARTNER as of
each Closing Date that:
4.1 Organization. SGH-SUB is a corporation validly existing
and in good standing under the laws of the State of Kansas and has full
corporate power and corporate authority to conduct its business as
presently conducted and to become an owner of the Project Entities.
SGH-SUB is duly qualified to transact business as a foreign corporation
in the State of domicile of each Project Entity.
4.2 Authorization; Enforceability. The execution, delivery
<PAGE>
and performance by SGH-SUB and SGH of this Agreement and the SGH-SUB Ancillary
Agreements are within the corporate power of SGH-SUB and SGH, respectively,
and have been duly authorized by all necessary corporate action by SGH-SUB
and SGH. This Agreement, and the SGH-SUB Ancillary Agreements when executed
and delivered by SGH-SUB, will be the valid and binding obligations of SGH-SUB,
enforceable against SGH-SUB in accordance with their respective terms.
4.3 No Violation or Conflict. The execution, delivery and
performance by SGH and SGH-SUB of this Agreement and by SGH-SUB of the SGH-SUB
Ancillary Agreements will not conflict with or violate any law, judgment,
order, or decree, the Articles of Incorporation or Bylaws of SGH-SUB or SGH,
or any contract or agreement to which either is a party or by which it is
respectively bound.
4.4 Brokers. Neither SGH-SUB or SGH nor any Affiliate of
SGH has incurred any brokers', finders' or any similar fee in connection
with the transactions contemplated by this Agreement or the SGH-SUB
Ancillary Agreements other than usual and customary fees and
commissions paid to third party brokers in connection with the
acquisition of real estate.
4.5 Litigation. There is no litigation, arbitration, proceeding,
governmental investigation, citation or action of any kind pending or, to
the knowledge of SGH-SUB or SGH, proposed or threatened, against
either SGH or SGH-SUB which could have a material adverse effect on
the transactions contemplated hereby. There is no action, suit or
proceeding against SGH or SGH-SUB by any person or entity which
questions the validity, legality or propriety of the transactions
contemplated by this Agreement or the SGH-SUB Ancillary Agreements.
4.6 Governmental Approvals. No permission, approval,
determination, consent or waiver by, or any declaration, filing or
registration with, any governmental or regulatory authority is required on
the part of SGH-SUB or SGH in connection with its execution and
delivery of this Agreement and the SGH-SUB Ancillary Agreements and
the consummation by it of the transactions contemplated hereby and
thereby.
4.7 Required Consents. There are no approvals or consents
which SGH-SUB or SGH are required to obtain from any third parties to
enter into this Agreement or the SGH-SUB Ancillary Agreements which
<PAGE>
have not been obtained.
4.8 Representations and Warranties True and Correct at
Closing. Except as specifically disclosed by SGH-SUB and/or SGH to
JOINT VENTURE PARTNER in writing prior to or at the Initial Closing
Date with respect to matters arising after the date of this Agreement, the
representations and warranties of SGH-SUB and SGH set forth in this
Article 4 shall be true and correct as of each Closing.
<PAGE>
ARTICLE 5
REPRESENTATIONS AND WARRANTIES AND ADDITIONAL
COVENANTS OF JOINT VENTURE PARTNER
JOINT VENTURE PARTNER hereby represents and warrants to
SGH-SUB and SGH, respectively, as of the date of this Agreement and
further covenants that JOINT VENTURE PARTNER shall hereinafter
represent and warrant to SGH-SUB and SGH as of each Closing Date
that:
5.1 Organization. JOINT VENTURE PARTNER is a limited partnership, validly
existing and in good standing under the laws
of the State of Florida and has full power and authority to conduct its
business as presently conducted and to become an owner of the Project
Entities. Exhibit 5.1 contains a correct list of the current owners of
JOINT VENTURE PARTNER and also includes which Affiliates of
JOINT VENTURE PARTNER, if any, which are currently expected to be
a party to any Ancillary Agreement.
5.2 Authorization; Enforceability. The execution, delivery
and performance by JOINT VENTURE PARTNER of this Agreement
and the JOINT VENTURE PARTNER Ancillary Agreements are within
the power of JOINT VENTURE PARTNER (and will be within the
power of the JOINT VENTURE PARTNER Affiliate which is a party
thereto) and have been duly authorized by all necessary action by JOINT
VENTURE PARTNER (and will be duly authorized by any JOINT
VENTURE PARTNER Affiliate prior to the execution thereof). This
Agreement, and the JOINT VENTURE PARTNER Ancillary
Agreements when executed and delivered by JOINT VENTURE
PARTNER and its Affiliates, as applicable, will be the valid and binding
obligations of JOINT VENTURE PARTNER and/or its Affiliates,
enforceable against them in accordance with their respective terms.
5.3 No Violation or Conflict. The execution, delivery and
performance by JOINT VENTURE PARTNER of this Agreement and
the JOINT VENTURE PARTNER Ancillary Agreements will not
conflict with or violate any judgment, order or decree, the Certificate of
Limited Partnership or Limited Partnership Agreement of JOINT
VENTURE PARTNER, or any contract or agreement to which JOINT
VENTURE PARTNER is a party or by which JOINT VENTURE
PARTNER is bound.
<PAGE>
5.4 No Broker. Neither JOINT VENTURE PARTNER nor
any Affiliate of JOINT VENTURE PARTNER has incurred any brokers',
finders' or any similar fee in connection with the transactions
contemplated by this Agreement or the JOINT VENTURE PARTNER
Ancillary Agreements other than usual and customary fees and
commissions paid to third party brokers in connection with the
acquisition of real estate.
5.5 No Litigation. There is no litigation, arbitration,
proceeding, governmental investigation, citation or action of any kind
pending or, to the knowledge of JOINT VENTURE PARTNER,
proposed or threatened, against JOINT VENTURE PARTNER which
could have a material adverse effect on the transactions contemplated
hereby. There is no action, suit or proceeding by any person or
governmental agency against JOINT VENTURE PARTNER or any
JOINT VENTURE PARTNER Affiliate which questions the legality,
validity or propriety of the transactions contemplated by this Agreement
or the JOINT VENTURE PARTNER Ancillary Agreements.
5.6 Governmental Approvals. No permission, approval,
determination, consent or waiver by, or any declaration, filing or
registration with, any governmental or regulatory authority is required on
the part of JOINT VENTURE PARTNER in connection with its
execution and delivery of this Agreement and the JOINT VENTURE
PARTNER Ancillary Agreements and the consummation by it of the
transactions contemplated hereby and thereby.
5.7 Required Consents. There are no approvals or consents
which JOINT VENTURE PARTNER is required to obtain from third
parties to enter into this Agreement or the JOINT VENTURE PARTNER
Ancillary Agreements which have not been obtained.
5.8 Representations and Warranties True and Correct at
Closing. Except as specifically disclosed by JOINT VENTURE
PARTNER to SGH-SUB and SGH in writing prior to or at the Initial
Closing Date with respect to matters arising after the date of this
Agreement, the representations and warranties of JOINT VENTURE
PARTNER set forth in this Article 5 shall be true and correct as of each
Closing.
<PAGE>
<PAGE>
ARTICLE 6
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF JOINT VENTURE PARTNER
Each and every obligation of JOINT VENTURE PARTNER to be
performed on any Closing Date shall be subject to the satisfaction prior to
or at each Closing of the following conditions:
6.1 Compliance with Agreement. SGH-SUB and SGH shall
each have respectively performed and complied with all of its obligations
under this Agreement which are to be performed or complied with by it
prior to or at such Closing.
6.2 Proceedings and Instruments Satisfactory. All
proceedings, corporate or otherwise, to be taken by SGH-SUB or SGH in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to JOINT VENTURE PARTNER, and SGH-SUB and SGH
shall have made available to JOINT VENTURE PARTNER for
examination the originals or true and correct copies of all documents
which JOINT VENTURE PARTNER may reasonably request and SGH-SUB and SGH can
reasonably obtain in connection with the transactions
contemplated by this Agreement.
6.3 No Litigation. No investigation, suit, action or other
proceeding shall be threatened or pending before any court or
governmental agency that seeks restraint, prohibition, damages or other
relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
6.4 Representations and Warranties. The representations
and warranties made by SGH-SUB and SGH in this Agreement shall be
true and correct as of each Closing Date with the same force and effect as
though such representations and warranties had been made on each
Closing Date.
6.5 Deliveries at Closing. SGH-SUB and SGH, as the case
may be, shall have delivered or caused to be delivered to JOINT
VENTURE PARTNER the documents provided for in this Agreement,
together with such certificates and documents of officers of SGH-SUB
and/or SGH and of public officials as shall be reasonably requested by
JOINT VENTURE PARTNER's counsel to establish the existence and
<PAGE>
status of SGH-SUB and SGH and the due authorization by SGH-SUB
and SGH of this Agreement, the Ancillary Agreements to which either is
a party and the consummation by SGH-SUB and/or SGH of the
transactions contemplated hereby and thereby.
ARTICLE 7
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF SGH-SUB AND SGH
Each and every respective obligation of SGH-SUB and SGH to
be performed on the Closing Date shall be subject to the satisfaction prior
to or at each Closing of the following conditions:
7.1 Compliance with Agreement. JOINT VENTURE
PARTNER and/or its Affiliates shall have performed and complied with
all of its obligations under this Agreement which are to be performed or
complied with by it prior to or at such Closing.
7.2 Proceedings and Instruments Satisfactory. All
proceedings to be taken by JOINT VENTURE PARTNER and/or its
Affiliates in connection with the transactions contemplated by this
Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to SGH-SUB, and JOINT VENTURE
PARTNER and/or its Affiliates shall have made available to SGH-SUB
and SGH for examination the originals or true and correct copies of all
documents which SGH-SUB may reasonably request and JOINT
VENTURE PARTNER can reasonably obtain in connection with the
transactions contemplated by this Agreement.
7.3 No Litigation. No investigation, suit, action or other
proceeding shall be threatened or pending before any court or
governmental agency that seeks restraint, prohibition, damages or other
relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
7.4 Representations and Warranties. The representations
and warranties made by JOINT VENTURE PARTNER in this
Agreement shall be true and correct as of each Closing Date with the
same force and effect as though such representations and warranties had
been made on each Closing Date.
7.5 Deliveries at Closing. JOINT VENTURE PARTNER
<PAGE>
and/or JOINT VENTURE PARTNER's Affiliates shall have delivered or
caused to be delivered to SGH-SUB or SGH, as the case may be, the
documents provided for in this Agreement, together with such certificates
and documents of officers of JOINT VENTURE PARTNER and/or
JOINT VENTURE PARTNER's Affiliates and of public officials as shall
be reasonably requested by either SGH's or SGH-SUB's counsel to
establish the existence and status of JOINT VENTURE PARTNER
and/or JOINT VENTURE PARTNER's Affiliates and the due
authorization by JOINT VENTURE PARTNER and/or JOINT
VENTURE PARTNER's Affiliates of this Agreement, the Ancillary
Agreement to which it is a party and the consummation by JOINT
VENTURE PARTNER and/or JOINT VENTURE PARTNER's Affiliates
of the transactions contemplated hereby or thereby.
ARTICLE 8
CLOSING; DELIVERIES AT CLOSING
8.1 Closing. Each Closing shall occur on such date as the
parties hereto may mutually agree upon in writing, but the first of the
same shall occur no later than the Initial Closing Date, at such place as
the parties hereto may mutually upon.
8.2 Actions at Closing. At the Closing, SGH-SUB, SGH
and/or JOINT VENTURE PARTNER or its Affiliates, as applicable,
shall take or cause to be taken the following actions:
A) Limited Partnership Agreement. SGH-SUB and JOINT
VENTURE PARTNER shall enter into the Limited Partnership
Agreement pursuant to which SGH-SUB and JOINT VENTURE
PARTNER or JOINT VENTURE PARTNER's Affiliate shall form a
Project Entity. In addition, at the Closing SGH-SUB and JOINT
VENTURE PARTNER or its Affiliate shall remit the capital
contributions to such Project Entity referred to in the Capital Investment
Schedule.
B) Other Actions and Deliveries. Each party shall have
deliver or cause to be delivered to the other party such other certificates
and documents as may be reasonably requested by such other party's
counsel to establish the existence and status of the first party, the due
authorization by the first party of this Agreement and the Ancillary
Agreements to which the first party is a party and the consummation by
the first party of the transactions contemplated hereby and thereby.
<PAGE>
ARTICLE 9
INDEMNIFICATION
9.1 JOINT VENTURE PARTNER's Indemnity. JOINT
VENTURE PARTNER hereby agrees to indemnify SGH, SGH-SUB
and/or the SGH-Affiliates for and hold them harmless from and against
any and all losses, damages, costs, expenses, liabilities, obligations and
claims of any kind (including, without limitation, reasonable attorneys'
fees and other reasonable legal costs and expenses) which they may at
any time suffer or incur, or become subject to, as a result of or in
connection with:
A) any breach or inaccuracy of any of the representations and
warranties made by JOINT VENTURE PARTNER or any JOINT
VENTURE PARTNER Affiliate in this Agreement or in any Ancillary
Agreement;
B) any failure by JOINT VENTURE PARTNER or any
JOINT VENTURE PARTNER Affiliate to carry out, perform, satisfy or
discharge any of its covenants, agreements, undertakings, liabilities or
obligations under this Agreement or under any Ancillary Agreement;
C) any payments by SGH-SUB or SGH with respect to any
obligations of a Project Entity which is jointly owned by SGH-SUB and
JOINT VENTURE PARTNER or an Affiliate of JOINT VENTURE
PARTNER, which at the time of payment have been jointly guaranteed
by SGH-SUB and/or SGH and JOINT VENTURE PARTNER and/or
JOINT VENTURE PARTNER's Affiliates, to the extent such payments
by either or both of them exceed SGH-SUB's proportionate share of such
obligations, based on its Percentage Interest in such Project Entity; or
D) any suit, action or other proceeding brought by any Person
against SGH-SUB, SGH, any SGH Affiliate or the Company arising out
of, or in any way related to, any of the matters referred to in Section 9. 1
(A), 9. 1 (B) or 9. 1 (C) hereof.
9.2 SGH-SUB's and SGH's Indemnity. SGH-SUB and
SGH hereby agree to jointly and severally indemnify JOINT VENTURE
PARTNER, and/or JOINT VENTURE PARTNER's Affiliates for and
hold them harmless from and against any and all losses, damages, costs,
expenses, liabilities, obligations and claims of any kind (including
<PAGE>
without limitation, reasonable attorneys' fees and other reasonable legal
costs and expenses) which they may at any time suffer or incur, or
become subject to, as a result of or in connection with:
A) any breach or inaccuracy of any of the representations and
warranties made by SGH-SUB or SGH in this Agreement or in any
Ancillary Agreement;
B) any failure by SGH-SUB or SGH to carry out, perform,
satisfy or discharge any of their covenants, agreements, undertakings,
liabilities or obligations under this Agreement or under any Ancillary
Agreement;
C) any payments by JOINT VENTURE PARTNER or any of
its Affiliates with respect to any obligations of Project Entity which have
been jointly guaranteed by JOINT VENTURE PARTNER or any of its
Affiliates and SGH-SUB, to the extent such payments exceed JOINT
VENTURE PARTNER's or such Affiliate's proportionate share of such
obligations, based on its Percentage Interest in such Project Entity (or
after JOINT VENTURE PARTNER or its Affiliate has sold its interest in
such Project Entity to SGH-SUB or SGH pursuant to Section 3.9, to the
extent of all such payments by JOINT VENTURE PARTNER or such
Affiliate); or
D) any suit, action or other proceeding brought by any Person
against JOINT VENTURE PARTNER, any JOINT VENTURE
PARTNER Affiliate or the Company arising out of, or in any way related
to, any of the matters referred to in Section 9.2(A), 9.2(B) or 9.2(C)
hereof.
9.3 Provisions Regarding Indemnities.
A) The indemnification obligations of JOINT VENTURE
PARTNER, JOINT VENTURE PARTNER's Affiliates, SGH-SUB and
SGH under Sections 9.1 and 9.2, respectively, shall survive for the
applicable statute of limitations. Delivery of any written demand for
indemnification by an indemnified party shall toll the survival period for
the subject of the particular demand and, once notice is given, the
indemnified party may pursue the particular claim to its conclusion to the
extent permitted by applicable law.
B) The indemnified party shall promptly notify the
<PAGE>
indemnifying party in writing and in reasonable detail of any claim,
demand, action or proceeding for which indemnification will be sought
under Section 9.1 or Section 9.2 of this Agreement, and if such claim,
demand, action or proceeding is a third party claim, demand, action or
proceeding, the indemnifying party will have the right at its expense to
assume the defense thereof using counsel reasonably acceptable to the
indemnified party. The indemnified party shall have the right to
participate, at its own expense, with respect to any such third party claim,
demand, action or proceeding. In connection with any such third party
claim, demand, action or proceeding, the parties shall cooperate with each
other and provide each other with access to relevant books and records in
their possession. No such third party claim, demand, action or
proceeding shall be settled without the prior written consent of the
indemnified party, such consent not to be unreasonably withheld or
delayed.
ARTICLE 10
TERMINATION
10.1 Termination. The parties acknowledge that time is of the
essence hereof. In addition to the termination rights set forth in Section
1.15, this Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time hereafter as follows:
A) by mutual written agreement of SGH-SUB and JOINT
VENTURE PARTNER;
B) by JOINT VENTURE PARTNER if any of the conditions
set forth in Article 6 of this Agreement have not been timely fulfilled by
SGH-SUB;
C) by SGH-SUB if any of the conditions set forth in Article 7
of this Agreement have not been timely fulfilled by JOINT VENTURE
PARTNER; or
D) by SGH-SUB, at any time upon sixty (60) days' prior
written notice to JOINT VENTURE PARTNER if SGH determines in
good faith that (i) the intended accounting treatments cannot be
reasonably realized, (ii) the use of joint venture arrangements are not then
being positively received in the capital markets relevant to SGH, (iii) the
<PAGE>
use of joint ventures is objected to or is deemed to be impractical by
SGH's financing sources, or (iv) continuation of this Agreement is
otherwise impractical.
In the event of termination by JOINT VENTURE PARTNER or
SGH-SUB pursuant to Section 10.1(B) or 10.1(C), respectively, as a
result of a breach by the other party of any of its representations,
warranties, agreements or obligations contained herein, the terminating
party shall be entitled to any remedies available to it at law or in equity.
ARTICLE 11
MISCELLANEOUS
11.1 Entire Agreement; Amendment. This Agreement and
the other agreements and documents executed in connection herewith,
constitute the entire agreement between the parties pertaining to the
subject matter of this Agreement, and supersedes all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or
representative of any party hereto. No amendment, supplement,
modification or waiver of this Agreement shall be binding unless
executed in writing by the party to be bound thereby.
11.2 Fees and Expenses. Whether or not the transactions
contemplated by this Agreement are consummated, and except as
expressly provided herein or in any Ancillary Agreement, each of the
parties hereto shall pay the fees and expenses of its respective counsel,
accountants, brokers, consultants, investment bankers and other experts
incident to the negotiation and preparation of this Agreement and the
consummation of the transactions contemplated by this Agreement.
11.3 Applicable Law. All questions concerning the
construction, validity, and interpretation of this Agreement and the
performance of the obligations imposed by this Agreement shall be
governed by the internal law, not the law of conflicts, of the State of
Florida.
11.4 Binding Effect; Assignment. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties hereto without the prior written consent
<PAGE>
of the other party, whether by operation of law or otherwise.
11.5 Notices. Each notice, request, demand or other
communication ("Notice") by either party to the other party pursuant to
this Agreement shall be in writing and shall be personally delivered or
sent by U.S. certified mail, return receipt requested, postage prepaid, or
by nationally recognized overnight commercial courier, charges prepaid,
or by facsimile transmission (but each such Notice sent by facsimile
transmission shall be confirmed by sending an original thereof to the
other party by U.S. mail or commercial courier as provided herein no
later than the following business day), addressed to the address of the
receiving party set forth below or to such other address as such party shall
have communicated to the other party in accordance with this Section.
Any Notice hereunder shall be deemed to have been given and received
on the date when personally delivered, on the date of sending when sent
by facsimile, on the third business day following the date of sending
when sent by mail or on the first business day following the date of
sending when sent by commercial courier.
If to JOINT VENTURE PARTNER: With copies to:
Mr. Stephen D. Russell Mr. Taso Milonas
Suite 200E Brown, Clark & Walters, P.A.
4 Sawgrass Village Drive 1819 Main Street, Suite 1100
Ponte Verde Beach, Florida 32082 Post Office Drawer 49887
Sarasota, Florida 35230-6887
Mr. Lee H. Chaplin
121 Warbler Lane South
Sarasota, Florida 34236
If to SGH-SUB: Coventry Corporation
c/o STERLING HOUSE CORPORATION
Suite 500
453 South Webb Road
Wichita, KS 67207
ATTN: Mr. Timothy Buchanan
Fax: (316) 681-1517
<PAGE>
If to SGH: STERLING HOUSE CORPORATION
Suite 500
453 South Webb Road
Wichita, KS 67207
ATTN: Mr. Timothy Buchanan
Fax: (316) 681-1517
11.6 Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute but one and the same Agreement.
11.7 Headings. The Article and Section headings shall be
deemed an original, but such counterparts shall together constitute but
one and the same Agreement.
11.8 Construction. Common nouns shall be deemed to refer to
the masculine, feminine, neuter, singular and plural, as the identity of the
person may in the context require. References to Sections herein include
all subsections which are subsidiary to the Section referred to. No
provision of this Agreement shall be construed in favor of or against any
party hereto by reason of the extent to which any such party or its counsel
participated in the drafting thereof.
11.9 Severability. If any provision, clause or part of this
Agreement, or the application thereof under certain circumstances, is held
invalid, the remainder of this Agreement, or the application of such
provision, clause or part under other circumstances, shall not be affected
thereby unless such invalidity materially impairs the ability of the parties
to consummate the transactions contemplated by this Agreement.
11.10 Knowledge. Any representation, warranty, covenant or
statement which is made to the knowledge of any party to this Agreement
shall require that such party make reasonable investigation and inquiry
with respect thereto to ascertain the correctness and validity thereof.
11.11 Survival. All representations and warranties of the parties
contained in this Agreement or made pursuant to this Agreement shall
survive the Closing Date and the consummation of the transactions
contemplated by this Agreement for the applicable statute of limitations.
All obligations under this Agreement which expressly or implicitly by
their nature survive the expiration or termination of this Agreement shall
<PAGE>
continue in full force and effect subsequent to and notwithstanding the
expiration or termination of this Agreement and until they are satisfied in
full or by their nature expire.
11.12 Waiver of Compliance. Any failure of SGH-SUB, SGH,
or JOINT VENTURE PARTNER or JOINT VENTURE PARTNER's
Affiliate, to comply with any obligation, covenant, agreement or
condition contained herein may be expressly waived in writing by
JOINT VENTURE PARTNER or JOINT VENTURE PARTNER's
Affiliate, or SGH-SUB or SGH, respectively, but such waiver or failure
to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
11.13 Third Parties. Except as specifically set forth or referred
to herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or give to any Person other than the parties
hereto and their successors or assigns, any rights or remedies under or by
reason of this Agreement.
11.14 Additional Remedies. In addition to, and not in lieu of
any legal remedies to which SGH-SUB might otherwise be entitled, in
the event that JOINT VENTURE PARTNER or any affiliate of JOINT
VENTURE PARTNER fails to make any capital contribution required
under the terms of the Capital Investment Schedule, SGH-SUB shall be
entitled following thirty (30) days written notice to such defaulting entity,
absent receipt of full payment during such thirty (30) day period, to
cancel the partnership interest in any Project Entity of such defaulting
entity. By execution of this Agreement, JOINT VENTURE PARTNER
does hereby appoint SGH-SUB as it's attorney-in-fact to cause any
membership certificate that may have been issued to such defaulting party
to be canceled. Thereupon, such defaulting party shall no longer be
deemed to be a partner of, or to otherwise hold any beneficial interest in
such Project Entity (or its assets) and shall forfeit all claims to any
distributions to which such defaulting party may have otherwise been
entitled and to all capital contributions that may have been previously
remitted.
11.15 Costs of Litigation. In the event of any litigation arising
among the parties concerning this Agreement, the non-prevailing party
shall pay the reasonable attorney's fees and costs incurred by the
prevailing party (or parties) incurred as an incident to such litigation.
<PAGE>
[The Remainder of this Page Intentionally Left Blank]<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed as of the day and year first above written.
STERLING HOUSE CORPORATION
By
Timothy J. Buchanan, Chief Executive Officer
"SGH"
COVENTRY CORPORATION
By
Steven L. Vick, President
"SGH-SUB"
ELDERLY LIVING, LIMITED PARTNERSHIP
By: C.R. Development, Inc. General Partner
By
Stephen D. Russell, President
"JOINT VENTURE PARTNER"
<PAGE>
EXHIBIT 3.1
LIMITED PARTNERSHIP AGREEMENT
<PAGE>
EXHIBIT 3.2
CAPITAL INVESTMENT SCHEDULE
A) As to each Project Facility:
1) $20,000 upon closing of the purchase of the real estate*;
2) up to an aggregate of $100,000 upon the issuance of the
Facility's Certificate of Occupancy upon the request of SGH-SUB*;
3) up to an aggregate of $150,000 within 90 days following
the issuance of Facility's Certificate of Occupancy upon the request of
SGH-SUB*; and
4) up to an aggregate of $200,000 within 180 days following
the issuance of the Facility's Certificate of Occupancy upon the Request
of SGH-SUB*.
* All payments shall be remitted within ten (10) business days of
receipt of notice from SGH-SUB.
<PAGE>
EXHIBIT 3.6
MANAGEMENT AGREEMENT
<PAGE>
EXHIBIT 3.6(A)
LICENSE AGREEMENT
<PAGE>
EXHIBIT 3.4(A)
SGH-SUB RESPONSIBILITIES SCHEDULE
i) market research for purposes of obtaining debt and/or equity
capital for any Project Entity;
ii) preliminary site approval, and addressing and attempting to
resolve acquisition issues and zoning and use issues presented by Joint
Venture Partner;
iii) obtaining construction financing;
iv) approving of all necessary consultants for building design and
construction; and
v) sales, pre-marketing and ongoing marketing services for each
Project Entity or Facility;
vi) obtaining state (and, if applicable, federal) licensing for Project
Entities or Facilities, and thereafter maintaining state (and, if applicable,
federal) regulatory compliance for Project Entities or Facilities.<PAGE>
<PAGE>
EXHIBIT 3.4(B)
JOINT VENTURE PARTNER'S RESPONSIBILITIES SCHEDULE
<PAGE>
EXHIBIT 1.27
NON-EXCLUSIVE TERRITORY
The States of:
Florida
Ohio
Oklahoma
Texas,
or such other locations, in such other states, as the parties may agree.
<PAGE>
EXHIBIT 2
FACILITIES DEVELOPMENT
The Project Entities and Facility locations shall be as follows:
Bridgeport Development, Limited, Troy, Ohio
an Ohio limited liability company Newark, Ohio
Newport Development, L.L.C., Georgetown, Texas
a Texas limited liability company
Waterford Development Company, L.L.C., Durant, Oklahoma
an Oklahoma limited liability company
Claremont Development, Limited Partnership, Ocala, Florida
a Florida limited partnership Port Orange, Florida
It is acknowledged that all of the Facilities are presently under
construction and are expected to be completed during 1997.
<PAGE>
SCHEDULE 3.8(B)
CALL OPTION PRICE
For months one (1) through twelve (12) after Facility Licensing Date, an
amount equal to the lesser of:
A) 1.22 x Initial Capital Contribution of such member*; or
B) the amount necessary to provide such member with an
annualized Internal Rate of Return of 40% on their Initial Capital
Contribution*.
And for each cumulative full twelve (12) month period thereafter, an
amount equal to the lesser of:
A) 1.4 x Initial Capital Contribution of such member,
provided however that call option transactions that result in partial year
amounts will be prorated monthly*;
B) the amount necessary to provide such member with an
annualized Internal Rate of Return of 40% on their Initial Capital
Contribuion*.
Examples:
Assumptions: 1) Assumes six months to build facility;
2) $20,000 contributed during first month of
construction, $80,000 during sixth month of construction (i.e., the month
Facility opens), and $50,000 during third month following opening of the
Facility;
3) Assumes all funds are contributed by the member
on first day of the month.
$150,000 Months 1-12
A) $20,000 month 1 x 1.22 = $ 24,400
$80,000 month 6 x 1.22 = $ 97,600
$50,000 month 9 x 1.22 = $ 61,000
Call Option Price at End
of Month 12 $183,000
<PAGE>
B) $20,000 month 1 x 40% = $ 8,000 = $ 28,000
$80,000 month 6 x 40% (for 6 Months) = $16,000 = $ 96,000
$50,000 month 9 x 40% (for 3 Months) = $ 5,000 = $ 55,000
Call Option Price at End
of Month 12 $179,000
$150,000 outstanding months 13-24 (Full Year)
1.4 x $150,000 = $210,000
Plus the lesser return due for 1 year
$210,000
($179,000 - $150,000) + $ 29,000
Total Call Option Price at end of year 2 $239,000
$150,000 outstanding months 25-36 (Full Year)
1.4 x $150,000 = $210,000
+ year 1 return $ 29,000
+ year 2 return $ 60,000 (i.e., $150,000 x .4)
Total Call Option Price at
End of Year 3 $299,000
If call option exercise at end of 18 months after Facility Licensing Date:
Call option price = to year 1 $179,000
Call option price + 1/2 of year
2 return $ 30,000
Call option price at end
of 18 months $209,000
* In all cases call option price shall be reduced by the amount of
preferred return already paid to member. The term "Initial Capital
Contribution" shall have the same definition as set forth in the applicable
Operating Agreement or Limited Partnership Agreement, as the case
may be, of the entity whose ownership interests are being purchased.
<PAGE>
EXHIBIT 5.1
OWNERSHIP
Name Nature and Percentage of Ownership
Exhibit 10.10
MORTGAGE AND SECURITY AGREEMENT
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE.
A POWER OF SALE MAY ALLOW THE MORTGAGEE TO TAKE
THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING
TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY
THE MORTGAGOR UNDER THIS MORTGAGE.
THIS MORTGAGE AND SECURITY AGREEMENT made this
day of April, 1997, by and between WATERFORD DEVELOPMENT
COMPANY, L.L.C., an Oklahoma limited liability company, hereinafter
referred to as "Mortgagor", and LTC PROPERTIES, INC., a Maryland
corporation, hereinafter referred to as "Mortgagee".
WITNESSETH:
That Mortgagor, in consideration of the premises and to secure the
payment of the sum of One Million Eight Hundred Sixty-Eight Thousand
Five Hundred Dollars ($1,868,500.00) does by these presents, grant,
bargain, sell, assign, encumber, mortgage and convey unto Mortgagee,
with power of sale, and grants a security interest in, all interest of
Mortgagor in and to the property described on Exhibit "A" attached hereto
situated in Bryan County, State of Oklahoma, together with the
improvements thereon and all appurtenances thereunto belonging
(hereinafter referred to as the "Subject Premises").
TO HAVE AND TO HOLD the same together with all of the
rights, tenements and appurtenances thereunto belonging or in any wise
appertaining.
This instrument is intended as a mortgage to secure the payment of
a certain Promissory Note (the "Note") bearing even date herewith,
executed by Mortgagor to Mortgagee in the principal amount of
$1,868,500.00, together with interest thereon and all extensions or
renewals of all or any part of the indebtedness, obligations, loans,
advances, whether as future advances or otherwise, and liabilities
described herein (collectively the "Indebtedness"). This Mortgage is
intended and given to secure all of the Indebtedness.
Mortgagor hereby covenants and agrees as follows:
1. Mortgagor is the owner in fee simple of the Subject
Premises and the Subject Premises are free and clear of all liens, claims
and encumbrances, except easements of record, that said Mortgagor has
<PAGE>
good right and authority to sell, convey and mortgage the same and will
warrant and defend the same against the claims of all persons
whomsoever.
2. Mortgagor will pay the above recited Indebtedness and
interest thereon when and as the same shall become due and Mortgagor
shall do and perform all other acts and agreements herein contained as
well as those contained in the Note.
3. Mortgagor will keep the improvements on the Subject
Premises in as good repair as they now are, ordinary wear and tear
excepted, and the same shall not be destroyed or removed without the
consent of Mortgagee and Mortgagor will not
commit or allow any waste on the Subject Premises nor do any other act
whereby the property hereby conveyed and mortgaged shall become less
valuable; that the Subject Premises shall not be used for any illegal or
disreputable business or purpose or used for a purpose which will injure or
render the Subject Premises unfit or less desirable for their present use and
purposes; and in case any damage should result from any cause, proper or
suitable repairs will be immediately made so that the improvements on the
Subject Premises will be maintained in at least as good condition as the
same are at the present time, ordinary wear and tear excepted, provided,
however, in the event of substantial damage to the improvements on the
Subject Premises which shall require a substantial rebuilding thereof,
Mortgagor shall not be required to rebuild. If Mortgagor elects not to so
rebuild, Mortgagee shall be entitled to receive the proceeds from the
insurance on the Subject Premises up to an amount equal to the balance
due pursuant to the Note secured hereby, including accrued interest then
payable.
4. Mortgagor shall keep the Subject Premises free from all
judgments, mechanic's liens and other statutory liens of whatsoever nature.
5. Mortgagor shall pay any and all ad valorem taxes and
assessments upon the Subject Premises when and as the same come due
and upon request shall promptly furnish copies of receipts for such
payments to Mortgagee.
6. Mortgagor agrees to maintain insurance against fire and
other hazards in a sum and with a company satisfactory to and for the
benefit of Mortgagee, as its interest may appear, upon the buildings,
improvements and fixtures upon the Subject Premises, provided that
Mortgagor shall not be required to maintain such insurance in an amount
more than the balance due pursuant to the Note secured hereby.
<PAGE>
7. In the event of a failure of Mortgagor to keep the Subject
Premises free from judgments, mechanic's liens or other statutory liens, or
in the event of a failure of Mortgagor to pay ad valorem taxes and
assessments as and when due, or to maintain insurance upon the
improvements, Mortgagee shall have the right, but not the obligation, to
pay said liens, claims, taxes or assessments, or insurance together with
penalties and interest thereon and such sums shall be charged hereunder as
principal money bearing interest at the rate provided in the Note and such
sums together with interest shall be secured by this Mortgage provided
upon any such payment by Mortgagee, Mortgagee shall not be held to
have waived any right accruing to Mortgagee because of non-payment by
Mortgagor thereof.
8. If Mortgagor shall pay or cause to be paid to Mortgagee the
Indebtedness evidenced by the aforesaid Note in accordance with the
terms and conditions thereof, together with all interest thereon and shall
keep and perform each and all of the covenants and conditions herein, then
these presents and the estate hereby created shall remain wholly
discharged and void and this Mortgage shall be released at the cost of
Mortgagee, otherwise, they shall remain in full force and effect.
9. It is further expressly agreed that the following will
constitute an event of default under this Mortgage:
(a) Any default in the payment at the time and place and in the
manner provided for payment of the debt evidenced by said Note or
interest thereon or any other sums secured hereby;
(b) The creation of any mechanic's liens or other liens upon the
Subject Premises or any part thereof which might be prior to the lien of
this Mortgage;
(c) The institution of bankruptcy proceedings by or against
Mortgagor;
(d) There shall exist upon the Subject Premises or any part
thereof any lien or encumbrance created by Mortgagor which is prior to
this Mortgage or which affects adversely the priority or lien of this
Mortgage; or
(e) If Lessee ceases to maintain in effect any license, permit,
certificate or approval necessary or otherwise required to operate the
Subject Premises as a residential care home or other similar long term care
facility or if any such cessation is threatened in writing by any
<PAGE>
governmental authority having jurisdiction over the issuance or revocation
of any license, permit, certificate or approval necessary or required to
operate the Subject Premises, and if the event or condition causing such
threatened cessation has not been cured by Lessee within any applicable
cure period.
10. Upon the occurrence of an event of default, Mortgagee
may, without notice, demand or presentment which are hereby waived by
Mortgagor, declare the entire unpaid balance immediately due and payable
and Mortgagee may proceed to enforce any and all rights and remedies
Mortgagee may have under Oklahoma law, including, but not limited to
the right to foreclose this Mortgage by judicial process. In the event of
judicial foreclosure, the court shall direct the sale of the Subject Premises
to be with or without appraisement, as Mortgagee may elect at the time
judgment is rendered.
As an alternative to judicial foreclosure, Mortgagee shall be
entitled to exercise the provisions providing for a foreclosure by power of
sale pursuant to the Oklahoma Power of Sale Mortgage Foreclosure Act,
46 O.S. Sec.40, et seq. (the "Act"); PROVIDED, HOWEVER, that in
connection with such election, Mortgagee shall first give Mortgagor a
written notice of Mortgagee's intention to foreclose by power of sale in the
manner provided by the Act.
11. Mortgagor may not sell or convey all or any part of the
Subject Premises or an interest therein without the prior written consent of
Mortgagee. ff an or any part of the Subject Premises or any interest therein
is sold or transferred without Mortgagee's prior written consent,
Mortgagee may, at its option, require immediate payment in full of all
sums secured by this Mortgage.
12. Any portion of the Subject Premises which by law is or
may be real property shall be deemed to be a part of the real property for
the purposes of this Mortgage. The remainder of the Subject Premises
shall be subject to the Uniform Commercial Code, and this Mortgage shall
constitute a Security Agreement with respect thereto. Mortgagor hereby
grants to Mortgagee a security interest in that portion of the Subject
Premises not deemed a part of the real property for the purpose of securing
performance of all of Mortgagor's obligations herein. With respect to such
security interest (a) Mortgagee may exercise all rights granted or to be
granted a secured party under the Uniform Commercial Code as enacted in
the State of Oklahoma; and (b) upon the occurrence of an event of default
as defined hereunder, Mortgagee shall have a right of possession superior
to any right of possession of Mortgagor or any person claiming through or
<PAGE>
on behalf of Mortgagor. Any notice required by the Uniform Commercial
Code shall be sufficient if given in the manner provided in paragraph 13 to
the parties named therein.
13. Any notice given pursuant hereto shall be in writing and
shall be sent by registered or certified mail, return receipt requested,
postage prepaid, by overnight courier guaranteeing overnight delivery, or
by personal service including facsimile transmission, to the respective
addresses as follows or to such other address as the respective party may
designate by written notice, duly mailed to the other:
To Mortgagee: LTC PROPERTIES, INC.
311 West Monroe Street
P.O. Box 74742
Chicago, Illinois 60694-5020
With a copy to: STERN, NEUBAUER, GREENWALD & PAULY
Attn: Dennis L. Greenwald, Esq.
1299 Ocean Avenue, Tenth Floor
Santa Monica, California 90401-1007
To Mortgagor: WATERFORD DEVELOPMENT COMPANY, L.L.C.
c/o Sterling House Corporation
453 S. Webb Road, Suite 500
Wichita, Kansas 67207
<PAGE>
With a copy to: CROCKETT & GILHOUSEN
Attn: David G. Crockett, Esq.
1005 N. Market
Wichita, Kansas 67214
Notice shall be deemed given three (3) business days after deposit in the
mail, on the date shown on courier's delivery receipt if sent by overnight
courier and on receipt if sent by personal service.
IN WITNESS WHEREOF, the Mortgagor has executed this
Mortgage as of the day and year first above written.
WATERFORD DEVELOPMENT COMPANY,
L.L.C., an Oklahoma limited liability company
By: /s/Steven Vick
Its: President of Its Managing Member
ACKNOWLEDGEMENT
STATE OF KANSAS
ss:
COUNTY OF SEDGWICK
This instrument was acknowledged before me this 18th day of
April, 1997, by Steven Vick, as Manager of Waterford Development
Company, L.L.C., an Oklahoma limited liablity company.
Notary Public
My Commission Expires:
(SEAL)
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
DURANT, OKLAHOMA
The North 335 feet of the W/2 SE/4 SW/4 NE/4 of Section 30, Township
6 South, Range 9 East of the Indian Base and Meridian, in Bryan County,
Oklahoma according to the Government Survey thereof.
Exhibit 10.11
PROMISSORY NOTE SECURED BY
MORTGAGE
$1,868,500.00
April 21, 1997
FOR VALUE RECEIVED, in installments as
herein stated WATERFORD DEVELOPMENT COMPANY,
L.L.C., an Oklahoma limited liability company
("Maker"), hereby promises to pay to the order of
LTC PROPERTIES, INC., a Maryland corporation
("Lender") at 311 West Monroe Street, P.O. Box
74742, Chicago, Illinois 60694-5020 or such other
place as Lender may from time to time designate,
the principal sum of ONE MILLION EIGHT HUNDRED
SIXTY-EIGHT THOUSAND FIVE HUNDRED DOLLARS
($1,868,500.00), with Regular Interest from the
date hereof on unpaid principal at the rate of
Percent (_%) per annum ("Regular Interest"), all
subject to the terms and conditions set forth
below. Principal, Regular Interest and other
sums due hereunder shall be payable in lawful
money of the United States.
1. Regular Interest. Except as otherwise
expressly provided herein, "Regular Interest"
shall accrue on the unpaid principal due
hereunder from the date of this Note (that is,
the "Funding Date") through the Maturity Date
(defined below) or the earlier payment of this
Note in accordance with the terms hereof, whether
upon acceleration or other-wise, at the per annum
rate of Percent (_%) (the "Regular Interest
Rate").
2. Payments of Regular Interest. Regular
Interest only shall be payable in arrears in
monthly installments on the first (IST) day of
each and every month (the "Regular Interest
Payment Date") commencing on the first (IST) day
of the first full calendar month following the
date hereof and continuing thereafter on the
<PAGE>
first (1st) day of each succeeding calendar month
until the Maturity Date; provided, however, that
if the first (1st) day of any calendar month is
not a Business Day (defined in Section 5, below),
then the Regular Interest Payment Date shall be
the first (1st) Business Day which precedes the
first (IST) day of the calendar month. Regular
Interest only shall be due and payable on each
Regular Interest Payment Date; provided, however,
that if the loan evidenced by this Note ("Loan")
is funded on any day which is not the first (1st)
day of a calendar month, then Maker shall pay,
concurrently with the Funding, Date, a pro-rated
amount (of Regular Interest only) based on the
number of days from and including the Funding
Date to the first Regular Interest Payment Date
occurring after the Funding Date. (Such prorated
amount may be deducted by Lender from the Loan
proceeds.) Therefore, if funding of the Loan
occurs other than on the first (IST) day of a
calendar month, the first (1st) payment of
Regular Interest shall be made on the second
(2nd) Regular Interest Payment Date occurring
after the Funding Date. The monthly installments
of Regular Interest to be paid by Maker shall be
calculated on the basis of a three hundred sixty
(360) day year. All principal and accrued but
unpaid Regular Interest (if any) shall be due on
February 20, 1998 (the "Maturity Date").
<PAGE>
3. Promissory Note Secured by Mortgage. This
Promissory Note is secured by a Mortgage and
Security Agreement ("Mortgage") each made of even
date herewith by Maker, as Grantor, for the
benefit of Lender, as Beneficiary, encumbering a
parcel of real property improved with an assisted
living facility, located-in the City of Durant,
County of Bryan, State of Oklahoma, as more
specifically described in the Mortgage (the
"Property"). This Note is further secured by a
UCC-1 Financing Statement (the "UCC-1"), of even
(or approximately even) date herewith. This
Note, the Mortgage, the UCC-1 and any and all
other documents or instruments evidencing or
securing this Note, are sometimes hereinafter
collectively referred to as the "Loan Documents."
4. Effect of Note.
(a) It is the intention of Lender and Maker that
this Note shall remain in full force and effect
and shall continue to be secured by the Loan
Documents until all obligations of Maker to
Lender under this Note have been fully satisfied.
(b) MAKER ACKNOWLEDGES AND AGREES THAT THE
PROVISIONS OF THIS NOTE SHALL NOT CREATE A
PARTNERSHIP, JOINT VENTURE OR ANY OTHER
RELATIONSHIP BETWEEN THE PARTIES EXCEPT THE
RELATIONSHIP OF MAKER AND LENDER. ACCORDINGLY,
NOTHING CONTAINED IN THIS NOTE OR IN THE OTHER
LOAN DOCUMENTS SHALL OBLIGATE OR BE DEEMED TO
OBLIGATE LENDER TO PAY ANY COSTS, FEES OR
EXPENSES OF THE PROPERTY, OR TO REIMBURSE MAKER
FOR ANY SUCH COSTS OR OTHERWISE. IN ADDITION,
NOTHING IN THIS NOTE OR IN ANY OF THE OTHER LOAN
DOCUMENTS SHALL BE DEEMED TO IMPLY THAT LENDER IS
AN OWNER OR OPERATOR OF ANY OF THE PROPERTY, THE
FACILITY LOCATED THEREON OR ANY OTHER BUSINESS
LOCATED THEREON OR IN CONNECTION THEREWITH AND
LENDER SHALL NOT BE DEEMED TO CONTROL OR REVIEW
MAKER'S OWNERSHIP OR OPERATION OF THE PROPERTY,
THE FACILITY LOCATED THEREON OR ANY OTHER
BUSINESS LOCATED THEREON OR IN CONNECTION
THEREWITH.
5. Default and Acceleration.
(a) Each of the following shall constitute an
"Event of Default" under this Note:
<PAGE>
(i) Maker fails to make any payment
when due under this Note, and said failure
continues for a period of five (5) "Business Days
" (which shall mean any day in which dealings in
U.S. dollar deposits between banks may be carried
on in New York and on which Lender is open for
business at its principal place of business);
(ii) Maker commits an Event of Default
other than as described in subsection 5(a)(i)
hereof under any of the Mortgage or is otherwise
in default under any one or more of the other
Loan Documents, and said Event of Default is not
cured within thirty (30) calendar days after
Lender has given notice thereof to Maker, or, if
the Event of Default is of a type which is not
capable of being cured within the thirty (30)
calendar day period, if Maker has not commenced
with due diligence and dispatch the cure of said
Event of Default within said @ (30) calendar day
period after Lender's notice to Maker, and
thereafter promptly prosecuted the same to
completion within ten (10) calendar days after
said initial @ (30) day period; or
(iii) Maker commits a breach or default
which remains uncured after the expiration of any
applicable grace period under any other document
or instrument subsequently entered into between
Maker and Lender, and said breach or default is
not cured within any applicable grace period.
(b) Upon the occurrence of an Event of Default
hereunder, Lender shall have the right, without
demand or notice, to declare the unpaid principal
of this Note, all accrued but unpaid Regular
Interest and all Default Interest, and any and
all other amounts owing to Lender by Maker under
this Note and under the other Loan Documents
immediately due and payable, and said principal,
Regular Interest, Default Interest and other
amounts, together with Lender's costs and
reasonable attorneys' fees incurred in collecting
and/or enforcing payment hereof, shall then
become immediately due and payable to Lender.
6. Default Interest. Upon the occurrence of an
Event of Default hereunder, under any of the
Mortgage or any one or more of the other Loan
Documents, but only for so long thereafter as
Maker remains in default, the Regular Interest
Rate hereof shall immediately and without notice
<PAGE>
to Maker (which notice is hereby waived to the
extent permitted by law) increase to the lesser
of (i)an amount equal to two percent (2%) over
the then applicable rate of Regular Interest, or
(ii) the Highest Lawful Rate (defined in
Paragraph 10, below) (the "Default Interest
Rate"). Maker acknowledges and agrees that it
would be extremely difficult or impracticable
to fix the actual damages resulting from Maker's
failure to pay amounts when due and therefore
shall pay such default interest not as a penalty,
but for the purpose of defraying the expenses
incident to handling amounts past due. The
default interest shall be payable by Maker
without prejudice to the rights of Lender to
collect any other amounts to be paid under
this Note or the Mortgage.
7. Prepayment. The Loan may be prepaid (in
whole or in part) without any premium or penalty
at any time and from time to time.
8. Waivers. Maker hereby waives diligence,
presentment, protest and demand, notice of
protest, dishonor and nonpayment of this Note,
notice of intent to accelerate and notice of
acceleration and expressly agrees that, without
in any way affecting the liability of Maker
hereunder, Lender may extend the Maturity Date or
the time for payment of any installment due
hereunder, accept additional security, release
any party liable hereunder and release any
security now or hereafter securing this Note. By
accepting payment of any sum hereunder after its
due date, Lender shall not waive its rights
either to require prompt payment when due of all
other sums hereunder or to declare an Event of
Default hereunder for failure to make prompt
payment of such other sums. No delay or omission
on the part of Lender in exercising any right
under this Note or under any of the Mortgage or
any of the other Loan Documents shall operate as
a waiver of such right.
9. Costs of Collection. Maker agrees to pay
all charges (including, without limitation, all
late charges and reasonable attorneys' fees,
consultants fees, experts fees and the like) of
Lender in connection with the collection and/or
enforcement of this Note or any other Loan
Document, and in protecting or preserving the
security for this Note, whether or not suit is
<PAGE>
brought against Maker; provided, however, that if
a formal, non-appealable determination is made
against the Lender on all counts in connection
with the collection and/or enforcement of this
Note, any of the Mortgage and/or any other Loan
Document, Lender shall be responsible for the
payment of its own attorneys' fees and other
costs and expenses in connection therewith.
10. Compliance With Usury Laws. It is the
intention of the parties hereto to conform
strictly to applicable usury laws regarding the
use, forbearance or detention of the indebtedness
evidenced by this Note, the Mortgage and the
other Loan Documents, whether such laws are now
or hereafter in effect, including the laws of the
United States of America or any other
jurisdiction whose laws are applicable, and
including any subsequent revisions to or judicial
interpretations of those laws, in each case to
the extent they are- applicable to this Note, the
Mortgage and the other Loan Documents (the
"Applicable Usury Laws"). Accordingly, the
following shall apply:
(a) if any acceleration of the
maturity of this Note or any payment by Maker or
any other person or entity results in Maker or
such other person or entity being deemed to have
paid any interest in excess of the Maximum
Amount, as hereinafter defined, or if any
transaction contemplated hereby would otherwise
be usurious under any Applicable Usury Laws,
then, in that event, notwithstanding anything to
the contrary in this Note or any other Loan
Document or any other agreement or instrument, it
is agreed as follows: (i) the provisions of this
Paragraph 10 shall govern and control; (ii) the
aggregate of all interest under Applicable Usury
Laws that is contracted for, charged or received
under this Note, or under any of the other
aforesaid agreements or instruments or otherwise
shall under no circumstances exceed the Maximum
Amount, and any excess shall, if permitted by
Oklahoma law, be retained by Lender as additional
cash collateral for the Loan, to be held without
interest or trust or, if not permitted to be so
held by Lender, shall either be refunded to Maker
or applied in reduction of principal, if
permitted by Oklahoma law, in the sole discretion
of Lender; (iii) neither Maker nor any other
person or entity shall be obligated to pay the
<PAGE>
amount of such interest to the extent that it is
in excess of the Maximum Amount; and (iv) the
effective rate of interest on the Loan shall be
ipso facto reduced to the Highest Lawful Rate
(defined below), and the provisions of this Note,
the Mortgage and the other Loan Documents
immediately shall be deemed reformed, without the
necessity of the execution of any new document or
instrument, so as to comply with all Applicable
Usury Laws. All sums paid, or agreed to be paid,
to Lender for the use, forbearance or detention
of the indebtedness of Maker to Lender evidenced
by this Note, the Mortgage and the other Loan
Documents shall, to the fullest extent permitted
by the Applicable Usury Laws, be amortized, pro
rated, allocated and spread throughout the full
term of the indebtedness evidenced by this Note,
the Mortgage and the other Loan Documents so that
the actual rate of interest does not exceed the
Highest Lawful Rate in effect at any particular
time during the full term thereof. As used
herein, the term "Maximum Amount" means the
maximum non-usurious amount of interest which may
be lawfully contracted for, charged or received
by Lender in connection with the indebtedness
evidenced by this Note, the Mortgage and other
Loan Documents under all Applicable Usury Laws.
(b) If at any time interest on the
Loan, together with any other fees and additional
amounts payable hereunder or under any other
agreements or instruments that are deemed to
constitute interest under Applicable Usury Laws
(the "Additional Interest"), exceeds the Highest
Lawful Rate, then the amount of interest to
accrue pursuant to this Note, the Mortgage and
the other Loan Documents shall be limited,
notwithstanding anything to the contrary in this
Note, the Mortgage or any other Loan Document or
any other agreement or instrument, to the amount
of interest that would accrue at the Highest
Lawful Rate; provided, however, that to the
fullest extent permitted by Applicable Usury
Laws, any subsequent reductions in the interest
rate shall not reduce the interest to accrue
pursuant to this Note, the Mortgage and the other
Loan Documents below the Highest Lawful Rate
until the aggregate amount of interest actually
accrued pursuant to this Note, the Mortgage and
the other Loan Documents, together with all
Additional Interest, equals the amount of
interest which would have accrued if the Highest
<PAGE>
Lawful Rate had at all times been in effect and
such Additional Interest, if any, had been paid
in full.
For purposes of this Note, the term "Highest
Lawful Rate" means the maximum rate of interest
and other charges (if any such maximum exists)
for the forbearance of the payment of monies, if
any, that may be charged under all Applicable
Usury Laws on the principal balance of the Loan
from time to time outstanding.
11. Full Recourse Nature of Loan. This Loan
evidenced by this Note and the other Loan
Documents is fully recourse and Lender shall not
be required to look solely to the collateral
granted or pledged by Maker to Lender when
seeking to enforce Lender's rights and remedies.
12. Miscellaneous.
(a) Assignment. Lender may, at its sole
option, assign this Note and/or designate any
other person or entity as the holder hereof, and
any such assignee or designee shall succeed to
all rights and obligations of Lender hereunder.
(b) No Modifications or Amendments; No
Waiver. Except as specified herein, this Note
may not be amended, modified or changed, nor
shall any waiver of the provisions hereof be
effective, except only by an instrument in
writing signed by the party against whom
enforcement of any waiver, amendment, change,
modification or discharge is sought.
Additionally, a waiver of any provision in one
event shall not be construed as a waiver of any
other provision at any time, as a continuing
waiver, or as a waiver of such provision on a
subsequent event. Neither (i) the failure of
Lender to exercise its right to accelerate this
Note when such right shall become available, nor
(ii) any delay or omission on the part of Lender
in exercising any other right hereunder or under
any of the other Loan Documents shall operate as
a waiver of such option and right or of any other
right hereunder or under any of the Mortgage or
under the other Loan Documents, or any of them,
if any Event of Default has not been cured prior
to the time of exercise of any such right by
Lender, nor shall Lender be prohibited from
exercising its right to accelerate the maturity
<PAGE>
of this Note at any time during the continuance
of an Event of Default.
(c) Separability. Any provision of this
Note which shall be held by a court to be
invalid, void or illegal shall in no way affect,
impair or invalidate any other provision or term
hereof, and such other provisions or terms shall
remain in fall force and effect.
(d) Successors and Assigns. Whenever used
herein, the terms "Lender" and "Maker" shall be
deemed to include their respective heirs,
personal representatives, successors and assigns.
(e) Choice of Law. This Note shall be
subject to, governed by, construed, and enforced
pursuant to the internal laws of the State of
Oklahoma applicable to instruments, persons and
transactions having contacts and relationships
solely within the State of Oklahoma without
resort to choice of law principles.
(f) Remedies. The rights, powers and
remedies of Lender permitted by law or contract
or as set forth herein or in the Mortgage shall
be cumulative and concurrent, and may be
pursued singly, successively or together against
Maker or any one or more of the Property, in such
order as Lender may determine, in the sole
discretion of Lender, and such rights, powers and
remedies shall not be exhausted by any exercise
thereof but may be exercised as often as occasion
therefor shall occur. Additionally, the failure
to exercise any such rights, powers and remedies
or the acceptance by Lender of any payment
hereunder which is less than payment in full
shall not constitute a waiver of the right to
exercise any of Lender's rights, powers or
remedies at that time or any subsequent time.
(g) Notice. All notices to Maker shall be
in writing at the address set forth below by: (i)
personal service (including service by overnight
courier service), or (ii) registered or
certified, first class mail, return receipt
requested. All notices by personal service shall
be deemed given upon receipt. All notices given
by overnight courier service shall be deemed
given on the date shown on the courier's delivery
receipt. All notices by registered or certified,
first class mail, return receipt requested, shall
<PAGE>
be deemed given three (3) days after deposit in
the U. S. Mail.
(h) Attorneys' Fees. Notwithstanding
anything to the contrary herein contained, should
any party hereto retain counsel for the purpose
of enforcing or preventing the breach of any
provision hereof, including but not limited to
instituting or defending any action or proceeding
to enforce any provision hereof, Maker agrees to
pay all charges (including without limitation,
all late charges and reasonable attorneys' fees,
consultants' fees, experts' fees and the like) of
Lender in connection with the collection and/or
enforcement of this Note, whether or not suit is
brought against Maker; provided, however, that if
a final, non-appealable determination is made
against Lender on all counts in connection with
the collection and/or enforcement of this Note,
Lender shall be responsible for the payment of
its own attorneys' fees and other costs and
expenses in connection therewith.
Maker' Address: "MAKER"
c/o Sterling House Corporation
WATERFORD DEVELOPMENT COMPANY, L.L.C.,
453 S. Webb Road
an Oklahoma limited liability company
Suite 500
Wichita, Kansas 67207
By:
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains information extracted from the consolidated balance sheet
and the consolidated statement of operations filed as part of the quarterly
report on Form 10-Q and is qualified in its entirety by reference to such
quarterly report on Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,773,617
<SECURITIES> 0
<RECEIVABLES> 869,396
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,882,426
<PP&E> 64,144,434
<DEPRECIATION> (965,148)
<TOTAL-ASSETS> 80,269,618
<CURRENT-LIABILITIES> 15,519,871
<BONDS> 39,587,477
0
0
<COMMON> 28,216,042
<OTHER-SE> (4,009,674)
<TOTAL-LIABILITY-AND-EQUITY> 80,269,618
<SALES> 0
<TOTAL-REVENUES> 7,691,356
<CGS> 0
<TOTAL-COSTS> 8,230,870
<OTHER-EXPENSES> 203,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (81,329)
<INCOME-PRETAX> (417,035)
<INCOME-TAX> 112,600
<INCOME-CONTINUING> (304,435)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (304,435)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
