<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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UNISON HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 8050 86-0684011
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
AND ITS GUARANTOR SUBSIDIARIES:
<TABLE>
<S> <C> <C>
ARIZONA SUNQUEST SPC, INC. 86-0686301
DELAWARE BRITWILL HEALTHCARE COMPANY 52-1788276
DELAWARE BRITWILL INVESTMENTS - I, INC. 52-1797108
DELAWARE BRITWILL INVESTMENTS - II, INC. 52-1797107
DELAWARE BRITWILL FUNDING CORPORATION 75-2569735
TEXAS EMORY CARE CENTER, INC. 75-2497463
TENNESSEE MEMPHIS CLINICAL LABORATORY, INC. 62-1308835
UTAH AMERICAN PROFESSIONAL HOLDING, INC. 87-0421087
TEXAS AMPRO MEDICAL SERVICES, INC. 75-2409091
MISSOURI GAMMA LABORATORIES, INC. 43-1247740
DELAWARE SIGNATURE HEALTH CARE CORPORATION 84-1093732
COLORADO BROOKSHIRE HOUSE, INC. 84-1123466
COLORADO CHRISTOPHER NURSING CENTER, INC. 84-1124242
COLORADO AMBERWOOD COURT, INC. 84-1123461
ARIZONA THE ARBORS HEALTH CARE CENTER, INC. 86-0668106
COLORADO LOS ARCOS, INC. 84-1123464
COLORADO PUEBLO NORTE, INC. 84-1109376
INDIANA CEDAR CARE, INC. 35-1833292
INDIANA SHERWOOD HEALTHCARE CORP. 35-1816034
ARIZONA BRITWILL INDIANA PARTNERSHIP 86-0846998
COLORADO RIO VERDE NURSING CENTER, INC. 84-1195626
COLORADO SIGNATURE MANAGEMENT GROUP, INC. 84-1188485
COLORADO CORNERSTONE CARE, INC. 84-1305948
COLORADO ARKANSAS, INC. 84-1305949
COLORADO DOUGLAS MANOR, INC. 84-1305945
COLORADO SAFFORD CARE, INC. 84-1305944
COLORADO REHABWEST, INC. 84-1250141
ARIZONA QUEST PHARMACIES, INC. 86-0801362
ARIZONA SUNBELT THERAPY MANAGEMENT SERVICES, INC. 86-0843762
ALABAMA DECATUR SPORTSFIT & WELLNESS CENTER, INC. 63-1090003
MISSISSIPPI THERAPY HEALTH SYSTEMS, INC. 64-0743156
ALABAMA HENDERSON & ASSOCIATES REHABILITATION, INC. 63-1090002
ALABAMA SUNBELT THERAPY MANAGEMENT SERVICES, INC. 63-0897514
(STATE OR OTHER JURISDICTION OF (EXACT NAME OF GUARANTOR (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) AS SPECIFIED IN ITS CHARTER) IDENTIFICATION NUMBER)
<CAPTION>
(STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF (EXACT NAME OF GUARANTOR
<CAPTION>
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION) AS SPECIFIED IN ITS CHARTER)
<CAPTION>
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
8800 NORTH GAINEY CENTER DRIVE, SUITE 245 JAMES A. RICE
SCOTTSDALE, ARIZONA 85258 UNISON HEALTHCARE CORPORATION
(602) 423-1954 8800 NORTH GAINEY CENTER DRIVE, SUITE 245
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, SCOTTSDALE, ARIZONA 85258
INCLUDING (602) 423-1954
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
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COPY TO:
P. ROBERT MOYA, ESQ.
QUARLES & BRADY
ONE EAST CAMELBACK ROAD
SUITE 400
PHOENIX, ARIZONA 85012-1649
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
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<TABLE>
<S> <C> <C> <C> <C>
CALCULATION OF REGISTRATION FEE
===============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
$100,000,000
12 1/4% Senior Notes, Due 2006......... principal amount $1,000 $100,000,000 $30,300(1)
- ---------------------------------------------------------------------------------------------------------------
Guarantees of each of the Guarantor
Subsidiaries......................... (2) (3) (3) None(3)
===============================================================================================================
</TABLE>
(1) Includes the base registration fee of $200 for each $1 million registered
plus the offsetting collection fee of $103 for each $1 million registered.
(2) The 12 1/4% Senior Notes Due 2006 will be guaranteed by each of the
Guarantor Subsidiaries.
(3) No additional consideration will be paid by the recipients of the 12 1/4%
Senior Notes Due 2006 for the Guarantees. Pursuant to Rule 457(n), no
separate fee is payable for the Guarantees.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED , 1997
PROSPECTUS
UNISON HEALTHCARE CORPORATION
[UNISON LOGO] OFFER TO EXCHANGE ITS 12 1/4% SENIOR NOTES DUE 2006,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR ANY AND ALL OF ITS OUTSTANDING
12 1/4% SENIOR NOTES DUE 2006
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED
The 12 1/4% Senior Notes due 2006 offered hereby (the "Exchange Notes") are
being offered by Unison HealthCare Corporation, a Delaware corporation ("Unison"
or the "Company"). Unison hereby offers to exchange (the "Exchange Offer") up to
$100.0 million in aggregate principal amount of Exchange Notes for $100.0
million in aggregate principal amount of Unison's outstanding 12 1/4% Senior
Notes due 2006 (the "Original Notes"). The Original Notes and the Exchange Notes
are sometimes referred to herein collectively as the "Senior Notes."
The Terms of the Exchange Notes are substantially identical in all respects
(including principal amount, interest rate and maturity) to the terms of the
Original Notes for which they may be exchanged pursuant to this Exchange Offer,
except that the Exchange Notes will be freely transferable by holders thereof
(other than as described herein) and issued free of any covenant restricting
transfer absent registration. The Exchange Notes will evidence the same debt as
the Original Notes and contain terms which are substantially identical to the
terms of the Original Notes for which they are to be exchanged. All of the
Senior Notes (i.e., whether Original Notes or Exchange Notes) will be treated as
a single class for all purposes under the Indenture. For a description of the
terms of the Senior Notes, see "Description of the Senior Notes." There will be
no cash proceeds to the Company from the Exchange Offer.
The Exchange Notes will bear interest from the most recent date to which
interest has been paid on the Original Notes. Interest has been paid through
April 30, 1997, and is next due on November 1, 1997 for interest through October
31, 1997. Holders whose Original Notes are accepted for exchange will not
receive any payment in respect of interest on such Original Notes otherwise
payable on any interest payment date the record date for which occurs on or
after consummation of the Exchange Offer. See "The Exchange Offer -- Terms of
the Exchange Offer."
The Senior Notes are redeemable at the option of the Company, in whole or in
part, on or after November 1, 2001, at the redemption prices set forth herein,
plus accrued and unpaid interest to the date of redemption. Prior to November 1,
1999, Unison may redeem up to 25% of the original principal amount of the Senior
Notes at 110% of the aggregate principal amount so redeemed, plus accrued and
unpaid interest to the redemption date, with the proceeds of one or more Public
Equity Offerings (as defined herein); provided, however, that at least $75.0
million principal amount of the Senior Notes remain outstanding and that such
redemption occurs within 60 days following the closing of any such Public Equity
Offering. See "Description of the Senior Notes -- Optional Redemption."
The Original Notes were sold on October 31, 1996, in a transaction not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance upon the exemption provided in Section 4(2) of the Securities Act
(the "Private Offering"). Accordingly, the Original Notes may not be offered,
resold or otherwise pledged, hypothecated or transferred in the United States
unless registered under the Securities Act or unless an applicable exemption
from the registration requirements of the Securities Act is available. The
Exchange Notes are being offered to satisfy the obligations of the Company under
a Registration Rights Agreement relating to the Original Notes. See "The
Exchange Offer -- Purposes and Effects of the Exchange Offer" and "The
Registration Rights Agreement." Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Original Notes may be offered for resale, resold or
otherwise transferred by the holders thereof (other than any holder which is an
affiliate of the Company within the meaning of Rule 405 under the Securities Act
and other than any broker-dealer that receives Exchange Notes for its own
account in exchange for Original Notes that were acquired as a result of
market-making activities or other trading activities) without compliance with
the registration and prospectus delivery requirements of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders are not engaged and do not intend to engage,
and have no arrangement or understanding with any person to engage, in the
distribution of such Exchange Notes. See "The Exchange Offer -- Purposes and
Effects of the Exchange Offer."
The Senior Notes are general unsecured senior obligations of Unison and rank
pari passu with all existing and future indebtedness of Unison and senior in
right of payment to all existing and future subordinated indebtedness of Unison.
Unison is a holding company and has no material assets or operations other than
its investment in its subsidiaries. The Senior Notes are fully and
unconditionally guaranteed on a senior unsecured and joint and several basis
(the "Guarantees") by all of Unison's present subsidiaries and will generally be
guaranteed by any future subsidiaries (collectively, the "Guarantors"). The
Guarantees rank senior to all subordinated indebtedness of the Guarantors and
rank pari passu in right of payment with all other indebtedness of the
Guarantors. The indenture governing the Senior Notes (the "Indenture") provides
that Unison may from time to time incur additional Indebtedness (as defined)
secured by Unison's assets, subject to certain limitations. As of December 31,
1996, on a pro forma basis, Unison had approximately $141.2 million of senior
indebtedness outstanding (including the Senior Notes) of which approximately
$23.2 million is secured indebtedness that effectively ranks senior to the
Senior Notes. See "Description of the Senior Notes."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DESCRIPTION OF CERTAIN RISKS
RELATING TO UNISON AND AN INVESTMENT IN ITS SECURITIES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
<PAGE> 3
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by so delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Original Notes where
such Original Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of up to 210 days after the date hereof (or longer under
certain circumstances), it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Senior Notes constitute securities for which there is no established
trading market. Any Original Notes not tendered and accepted in the Exchange
Offer will remain outstanding. The Company does not currently intend to list
either the Original Notes or the Exchange Notes on any securities exchange. To
the extent that any Original Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Original Notes could be adversely
affected. No assurances can be given as to the liquidity of the trading market
for either the Original Notes or the Exchange Notes.
The Exchange Offer is not conditioned on any minimum aggregate principal
amount of Original Notes being tendered for exchange. The Exchange Offer will
expire at 5:00 P.M., New York City time, on , 1997 unless extended
(the "Expiration Date"). The date of acceptance for exchange of the Original
Notes will be the first business day following the Expiration Date. Original
Notes tendered pursuant to the Exchange Offer may be withdrawn at anytime prior
to the Expiration Date; otherwise, such tenders are irrevocable. The Company
will pay all expenses incident to the Exchange Offer.
THE DISTRIBUTION OF THIS PROSPECTUS AND THE EXCHANGE OFFER DESCRIBED HEREIN
MAY BE RESTRICTED BY LAW IN CERTAIN JURISDICTIONS. PERSONS INTO WHOSE POSSESSION
THIS PROSPECTUS COMES MUST INFORM THEMSELVES ABOUT, AND OBSERVE, ANY SUCH
RESTRICTIONS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES TO ANY PERSON IN ANY JURISDICTION WHERE IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by reference
to, and should be read in conjunction with, the more detailed information
appearing elsewhere in this Prospectus and the documents referred to herein. As
used herein (i) the "Completed Acquisitions" means acquisitions completed from
January 1, 1995, through December 31, 1996 including (among others) the
Signature Acquisition and the Ampro Acquisition on October 31, 1996; and (ii)
the "Dispositions" means the disposition of four nursing facilities that were
subleased to an unrelated party on March 1, 1997 and the planned disposition of
four additional nursing centers, one of which is not currently in operation.
THE COMPANY
Unison is a leading provider of comprehensive long-term and specialty
healthcare services. As of March 31, 1997, after giving effect to the
Dispositions, Unison ranks as one of the 25 largest long-term care operators in
the United States, operating facilities in 12 states clustered in the Midwest,
Southwest and Southeast. These facilities include 47 long-term and specialty
care facilities with 4,671 licensed beds and eight independent or assisted
living facilities with 315 units. Unison seeks to operate its businesses as an
interrelated network of services to provide a full continuum of cost-effective
long-term and specialty healthcare. Unison's pro forma total revenues for the
twelve months ended December 31, 1996 were $182.1 million.
Unison's healthcare services include both traditional long-term care and
higher margin specialized healthcare services, such as rehabilitation, infusion
and respiratory therapy. Unison also has recently expanded its role as a medical
supplier, both to its facilities and to non-affiliated facilities, of
pharmaceutical services, rehabilitation services, medical supplies and
laboratory testing. Unison's range of services includes the following:
- Long-Term Care Services. Unison's facilities provide residents with
routine long-term care services, including room and board, daily dietary
services, social and recreational therapy, housekeeping, laundry and
nursing services.
- Ancillary Services. Unison provides ancillary services including
physical, speech, and occupational therapies, pharmaceuticals, parenteral
and enteral nutrition, infusion and respiratory therapies and laboratory
services. Unison has expanded its healthcare expertise in ancillary
services and now directly provides some of these services in
substantially all of its facilities.
- Subacute and Specialty Care Services. Unison provides care to patients
with specialized healthcare needs, including those suffering from
Alzheimer's disease, AIDS, wound injuries and other ailments. Specialty
units are located in designated sections within selected facilities and
are staffed by specially trained personnel. As of March 31, 1997, Unison
operated more than 480 beds in such units.
- Assisted and Independent Living Services. Unison's independent and
assisted living centers provide central dining, limited nursing services,
recreational areas, social programs, housekeeping, laundry and
maintenance services. Such facilities are designed to accommodate
individuals with more modest healthcare needs.
Unison's quality mix (defined as percentage of revenues derived from all
payors excluding Medicaid) has improved from approximately 41.5% in 1994 to
approximately 46.5% for the year ended December 31, 1996 and, after giving
effect to the Completed Acquisitions and the Dispositions, 48.3% for the year
ended December 31, 1996. Over the same period and on a same facility basis,
average occupancy improved from 72.2% to 78.6%. On an overall basis, average
occupancy was 77.0% for the year ended December 31, 1996 and, after giving
effect to the Completed Acquisitions and the Dispositions, average occupancy for
the same period was 78.9%.
Unison's focus on long-term and specialty healthcare responds to general
demographic trends and the healthcare cost containment initiatives of
third-party payors. As the number of people over the age of 65 grows faster than
the overall population and advances in medicine and technology increase life
expectancies, Unison expects that the need for long-term care facilities will
continue to increase. Unison's subacute care responds to cost containment
initiatives of third-party payors by providing a lower cost alternative for
patients who
1
<PAGE> 5
continue to require medical and nursing care, but whose condition permits
discharge from an acute care hospital. Long-term care facilities generally have
lower capital requirements and operating costs than acute care hospitals and are
able to offer complex long-term and specialty healthcare services to patients
generally at a lower cost than acute care hospitals.
BUSINESS STRATEGY
Unison's business strategy is to become a preferred provider of long-term
and specialty healthcare services in each of its markets by offering a full
range of high quality, cost competitive, long-term healthcare services. Unison
seeks to offer these services across the entire continuum of care, from
independent and assisted living to traditional long-term, specialty and subacute
care. The key elements of this business strategy are as follows:
- Provide a Continuum of Care. Unison operates both skilled nursing and
assisted living facilities and provides a wide variety of medical,
rehabilitative and pharmaceutical treatments. This strategy provides an
opportunity for entry at each point in the continuum of care. As
patients' needs change, they may be served by different elements of
Unison's care continuum. The primary benefit of offering a continuum of
care is that it offers patients an appropriate level of cost-effective
care which the Company believes is attractive to third-party payors.
- Improve Payor Quality Mix, Occupancy Levels and Operating
Margins. Unison is focused on improving its payor quality mix and
occupancy levels. The profitability of caring for private-pay and
Medicare patients is generally higher than that of Medicaid patients.
Unison has implemented marketing systems that are designed to improve
quality mix and occupancy and operating systems that are designed to
enable Unison to compete effectively for higher acuity patients.
- Increase Contribution from Ancillary Services. Unison believes that
opportunities exist to capture ancillary service revenue and operating
profits, both from its own facilities and from non-affiliated facilities.
Unison's ancillary service revenues have grown from $10,000 in 1993 to
$33.1 million in 1996. In 1993 only 0.5% of revenues were from ancillary
services, whereas on a pro forma basis for the year ended December 31,
1996, 29.1% of total revenues were from ancillary services. During 1996,
Unison acquired several rehabilitation therapy companies, which provide
physical, occupational, and speech therapy, two institutional pharmacy
businesses and a Medicare Part B billing and supply company that
specializes in wound management and enteral/parenteral feeding services.
Through completion of the Ampro Acquisition in a pooling transaction on
October 31, 1996, Unison also provides medical laboratory services.
- Concentrate Healthcare Facilities in Geographic "Clusters." Although
Unison's acquisition program has been substantially curtailed for the
indefinite future, Unison has in the past sought to acquire facilities
which fit within existing geographic regions or "clusters," and to enter
new markets through clustered acquisitions. Clustering is intended to
attempt to capture local economies of scale by providing ancillary
services, purchasing, marketing, information systems, risk management,
accounting, reimbursement and quality control to geographically
concentrated facilities.
- Provide High Quality Care on an Economic Basis. Unison seeks to position
each of its facilities as a high quality provider in its respective
market, but to do so on a cost-effective basis. Upon acquiring a
facility, Unison typically implements extensive management and
operational changes designed to improve quality of service and
appearance, enhance operating cash flow and reduce overhead. For example,
Unison continues to register strong levels of regulatory compliance, as
illustrated by the reduction in the number of deficiencies cited in
governmental reviews conducted from August 1995 through July 1996 of the
28 operating facilities Unison acquired in the BritWill Acquisition.
Under Unison management these 28 facilities averaged a 43% reduction in
the number of deficiencies cited after the first review, a 75% reduction
as of October 1, 1996 and a 93% reduction as of May 20, 1997 as compared
with the number of deficiencies cited prior to the BritWill Acquisition.
2
<PAGE> 6
RECENT ACQUISITIONS
Simultaneous with the completion of the Private Offering of the Original
Notes on October 31, 1996, Unison acquired Signature Health Care Corporation and
certain related companies (collectively, "Signature") (the "Signature
Acquisition"). As of March 31, 1997, Signature operated 11 long-term care
facilities with 1,043 licensed beds in Arizona and Colorado, provided
rehabilitation services through RehabWest, Inc. ("RehabWest") and operated two
assisted living facilities with 124 units. Signature's long-term care facilities
generally offer the same types of services as are provided by Unison's other
facilities.
On October 31, 1996, Unison also acquired American Professional Holding,
Inc. and Memphis Clinical Laboratory, Inc. (together, "Ampro") (the "Ampro
Acquisition"). As of March 31, 1997, Ampro provided medical laboratory services
(primarily the testing of body fluids and tissues for disease or chemical
concentrations) to 275 nursing homes and other long-term care facilities in
Texas, Missouri and Tennessee.
COMPANY INFORMATION
Unison completed its initial public offering on December 18, 1995. Its
common stock trades on the Nasdaq National Market System under the symbol UNHC.
As a result of substantial losses during 1996, Unison does not currently satisfy
the tangible net worth criteria for maintaining its listing.
Unison's principal executive office is located at 8800 North Gainey Center
Drive, Suite 245, Scottsdale, Arizona 85258, and its telephone number is (602)
423-1954.
3
<PAGE> 7
THE EXCHANGE OFFER
Purpose of Exchange........ The Original Notes were sold in the Private
Offering by Unison to certain accredited
institutions through CIBC Wood Gundy Securities
Corp., Cruttenden Roth Incorporated and Wheat,
First Securities, Inc., who acted as the initial
purchasers (the "Initial Purchasers"). In
connection therewith, Unison executed and
delivered, for the benefit of the holders of the
Original Notes, a Registration Rights Agreement
dated October 31, 1996 (the "Registration Rights
Agreement"), which is filed as an exhibit to the
Registration Statement of which this Prospectus is
a part, providing for, among other things, the
Exchange Offer. Because of the registration of the
Exchange Offer, Unison believes that the Exchange
Notes will be freely transferable by the holders
thereof without any further registration or any
prospectus delivery requirements under the
Securities Act, except that a "dealer" or any
"affiliates" of a "dealer" (as such terms are
defined under the Securities Act) who exchanges
Original Notes held for its own account (a
"Restricted Holder") will be required to deliver
copies of this Prospectus in connection with any
resale of the Exchange Notes issued in exchange for
such Original Notes. See "Risk
Factors -- Consequences of Failure to Exchange,"
"The Exchange Offer--Purposes and Effects of the
Exchange Offer," "The Registration Rights
Agreement" and "Plan of Distribution."
The Exchange Offer......... Unison is offering to exchange pursuant to the
Exchange Offer up to $100.0 million aggregate
principal amount of Unison's new 12 1/4% Senior
Notes due 2006 (the "Exchange Notes") for $100.0
million aggregate principal amount of Unison's
outstanding 12 1/4% Senior Notes due 2006 (the
"Original Notes"). The Original Notes and the
Exchange Notes are sometimes collectively referred
to herein as the "Senior Notes." The terms of the
Exchange Notes are substantially identical in all
respects (including principal amount, interest rate
and maturity) to the terms of the Original Notes
for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes will
be freely transferable by holders thereof (other
than as provided herein) and are not subject to any
covenant regarding registration under the
Securities Act. See "The Exchange Offer -- Terms of
the Exchange Offer" and "The Exchange
Offer -- Procedures for Tendering." The Exchange
Offer is not conditioned upon any minimum aggregate
principal amount of Original Notes being tendered
for exchange.
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time on , 1997, unless
extended (the "Expiration Date").
Conditions of the
Exchange Offer........... Unison's obligation to consummate the Exchange
Offer will be subject to certain conditions. Unison
will not be required to accept for exchange any
Original Notes tendered and may terminate or amend
the Exchange Offer as provided herein before the
acceptance of such Original Notes, if, among other
things, certain legal actions or proceedings are
instituted, there shall have occurred certain
changes or developments in the business or
financial affairs of the Company, there shall have
been proposed, adopted or enacted any law, statutes
or regulations materially affecting the Company or
the benefits of the Exchange Offer, the holders of
a majority in principal amount have not approved an
amendment to the Registration Rights Agreement to
cause the effectiveness of the
4
<PAGE> 8
registration statement of which this Prospectus is
a part to cure the Registration Default thereunder
(thereby halting the accrual of Additional
Interest), or there shall have occurred certain
economic or other events. See "The Exchange
Offer -- Conditions of the Exchange Offer." Unison
reserves the right to terminate or amend the
Exchange Offer at any time prior to the Expiration
Date upon the occurrence of any such conditions.
Procedures for Tendering
Original Notes........... Each holder of Original Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Original Notes and any other required
documentation to the exchange agent (the "Exchange
Agent") at the address set forth herein. Original
Notes may be physically delivered, but physical
delivery is not required if a confirmation of a
book-entry of such Original Notes to the Exchange
Agent's account at The Depository Trust Company
("DTC" or the "Depository") is delivered in a
timely fashion. By executing the Letter of
Transmittal, each holder will represent to the
Company, among other things, (i) that the Exchange
Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business
of the person receiving such Exchange Notes,
whether or not such person is the holder, (ii) that
neither the holder nor any such other person is
engaged in, or intends to engage in, or has an
arrangement or understanding with any person to
participate in, the distribution of such Exchange
Notes and (iii) that neither the holder nor any
such other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of Unison, or
if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements
of the Securities Act, to the extent applicable.
Each broker or dealer that receives Exchange Notes
for its own account in exchange for Original Notes,
where such Original Notes were acquired by such
broker or dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
See "The Exchange Offer -- Procedures for
Tendering" and "Plan of Distribution."
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Original Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender should contact such registered
holder promptly and instruct such registered holder
to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal
and delivering the Original Notes, either make
appropriate arrangements to register ownership of
the Original Notes in such owner's name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time. See "The Exchange
Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures............... Holders of Original Notes who wish to tender their
Original Notes and whose Original Notes are not
entirely available or who cannot deliver their
Original Notes must complete, sign and deliver the
Letter of
5
<PAGE> 9
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent prior
to the Expiration Date and must tender their
Original Notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m. New York City time, on the Expiration Date.
See "The Exchange Offer -- Withdrawal of Tenders."
Acceptance of Original
Notes and Delivery of
Exchange Notes........... Except as otherwise provided herein, and upon
satisfaction or waiver of certain conditions,
Unison will accept for exchange any and all
Original Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer -- Terms of the Exchange
Offer."
Exchange Agent............. First Bank National Association, St. Paul,
Minnesota is serving as Exchange Agent in
connection with the Exchange Offer. See "The
Exchange Offer -- Exchange Agent."
Effect on Holders of
the Original Notes....... Although a delay in the filing and in the effective
date of the Exchange Offer Registration Statement,
of which this Prospectus is a part, caused a
temporary increase in the interest accruing on the
Original Notes, upon the effective date of this
Exchange Offer Registration Statement and assuming
approval of the proposed amendment to the
Registration Rights Agreement, the stated rate of
12.25% per annum is again in effect in accordance
with their terms. As a result of the making of this
Exchange Offer, and upon acceptance for exchange of
all validly tendered Original Notes pursuant to the
terms of this Exchange Offer, Unison will have
fulfilled one of the covenants contained in the
Registration Rights Agreement and, accordingly,
there will be no new increase in the interest rate
on the Original Notes pursuant to the applicable
terms of the Registration Rights Agreement due to
the Exchange Offer. Holders of the Original Notes
who do not tender their Original Notes will be
entitled to all the rights and limitations
applicable thereto under the Indenture dated as of
October 31, 1996, among Unison, the Guarantors, and
First Bank National Association, St. Paul,
Minnesota, as trustee (the "Trustee") relating to
the Original Notes and the Exchange Notes (the
"Indenture"), except for any rights under the
Indenture or the Registration Rights Agreement
which by their terms terminate or cease to have
further effectiveness as a result of the making of,
and the acceptance for exchange of all validly
tendered Original Notes pursuant to, the Exchange
Offer. See "The Registration Rights Agreement." All
untendered Original Notes will continue to be
subject to the restrictions on transfer provided
for in the Original Notes and in the Indenture. To
the extent that Original Notes are tendered and
accepted in the Exchange Offer, the trading market
for untendered Original Notes could be adversely
affected.
Use of Proceeds............ There will be no cash proceeds to Unison from the
exchange pursuant to the Exchange Offer. See "Use
of Proceeds."
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<PAGE> 10
TERMS OF EXCHANGE NOTES
The Exchange Offer applies to the entire outstanding $100.0 million
principal amount of Original Notes. The terms of the Exchange Notes are
identical in all material respects to the Original Notes, except for certain
transfer restrictions and registration and other rights relating to the exchange
of the Original Notes for Exchange Notes. The Exchange Notes will evidence the
same debt as the Original Notes and will be treated together with the Original
Notes under the Indenture pursuant to which both the Original Notes were, and
the Exchange Notes will be, issued. See "Description of the Senior Notes."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that prospective
investors should consider in connection with the Exchange Offer and an
investment in the Senior Notes.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary historical and pro forma financial data of Unison has
been derived from financial information prepared by Unison and should be read in
conjunction with the audited consolidated financial statements and the notes
thereto appearing elsewhere in this Prospectus. The summary financial
information should also be read in conjunction with the information contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Selected Historical and Pro Forma Financial Data" included
elsewhere herein.
The following unaudited summary pro forma statement of operations data,
other financial data and selected operating and other data for the year ended
December 31, 1996 give effect to the Completed Acquisitions, the Dispositions
and the Private Offering of the Original Notes as if they had been completed at
the beginning of the period.
The unaudited pro forma data does not purport to present the results of
operations of Unison had the business combinations taken place on the dates
specified, nor is it necessarily indicative of the results of operations that
may be achieved in the future. The unaudited pro forma financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the separate historical financial
statements and notes thereto included elsewhere in this Prospectus.
7
<PAGE> 11
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA(1)
(dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
ACTUAL
------------------------------------------------ PRO FORMA
1992 1993 1994 1995(2) 1996 1996(3)
------ ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................... $4,523 $ 7,011 $18,406 $68,488 $ 148,674 $182,104
Expenses:
Wages and related.............................. 2,201 3,689 9,593 35,047 85,789 99,833
Other operating................................ 1,727 2,629 6,462 24,032 64,771 71,386
Rent........................................... 155 206 1,406 6,673 15,658 15,613
Interest....................................... 14 44 147 1,176 5,824 15,638
Depreciation and amortization.................. 88 157 286 1,311 4,561 7,500
Impairment losses.............................. -- -- -- -- 3,865 3,865
------- ------- ------ ------- --------- --------
Total expenses............................... 4,185 6,725 17,894 68,239 180,468 213,835
------- ------- ------ ------- --------- --------
Income (loss) before income
taxes...................................... 338 286 512 249 (31,794) (31,731)
Income taxes (benefit)........................... 100 177 172 132 (8,356) (12,692)
------- ------- ------ ------- --------- --------
Net income (loss)............................ $ 238 $ 109 $ 340 $ 117 $ (23,438) $(19,039)
======= ======= ====== ======= ========= ========
OTHER DATA:
Skilled nursing facilities:(4)
Number of facilities......................... 4 6 16 45 54 48
Number of licensed beds...................... 436 671 1,621 4,629 5,455 4,818
Patient days................................. -- 12,705 112,727 581,410 1,203,655 1,732,584
Assisted living facilities:(4)
Number of facilities......................... -- 1 4 6 8 8
Number of units.............................. -- 30 104 229 320 320
Sources of patient revenues (skilled nursing
facilities):
Medicare..................................... -- 3.4% 9.1% 26.9% 29.5% 30.2 %
Private pay.................................. -- 13.8 32.4 17.2 17.0 18.1
------- ------- ------ ---- --------- --------
Quality mix................................ -- 17.2 41.5 44.1 46.5 48.3
Medicaid..................................... -- 82.8 58.5 55.9 53.5 51.7
------- ------- ------ ---- --------- --------
Total................................... -- 100.0% 100.0% 100.0% 100.0% 100.0 %
======= ======= ====== ==== ========= ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
--------------------
ACTUAL
--------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................ $ 17,409
Working capital deficit.......................................................... (13,955)
Total assets..................................................................... 230,921
Total debt....................................................................... 157,138
Stockholders' equity............................................................. 11,689
</TABLE>
8
<PAGE> 12
NOTES TO SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(1) The years ended December 31, 1992, 1993, 1994 and 1995 have been restated to
reflect the pooling accounting treatment for the acquisition of Ampro.
(2) On August 10, 1995, Unison acquired BritWill HealthCare Company
("BritWill"). The actual results for the year ended December 31, 1995
include the results of operations for BritWill for the five months ended
December 31, 1995.
(3) Gives effect to (i) the Dispositions, (ii) the Completed Acquisitions and
(iii) the Private Offering and the application of the net proceeds
therefrom, effective, in each case, at the beginning of the period
presented. See "Use of Proceeds" and "Unaudited Pro Forma Condensed Combined
Financial Statements" and Notes thereto.
(4) Number of facilities, beds and units expressed are at end of period.
9
<PAGE> 13
RISK FACTORS
The following risk factors and the information provided elsewhere in this
Prospectus should be considered carefully in evaluating the Senior Notes.
Certain statements contained in this discussion of Risk Factors, as well as
elsewhere in this Prospectus, including without limitation statements containing
the words "believes," "anticipates," "intends," "expects" and words of similar
import, may constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). While the Company believes that the
assumptions underlying these statements are reasonable, such assumptions (and
thus the statements based upon them) could prove to be inaccurate. Important
factors which could cause results to vary include limitations on the Company's
access to debt or equity financing in light of recent losses and cash flow
shortfalls, adverse uninsured determinations in existing or future litigation or
regulatory proceedings, health care statutory or regulatory changes which
disfavor the types of care delivered by the Company and a reversal of the
current limitations in the supply of long-term care facilities. Important
factors which could cause results to vary also include the factors discussed in
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." Unison disclaims
any obligation to update any such factors or to announce revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
SIGNIFICANT LEVERAGE; LIMITED CAPITAL RESOURCES
After giving effect to the Dispositions and the application of the net
proceeds from the Private Offering of the Original Notes, on December 31, 1996,
Unison had approximately $157.1 million in total long-term indebtedness (93.1%
of total capitalization). Unison also has significant long-term lease
obligations (approximately $15.5 million for 1997 and $164.7 million in the
aggregate). Unison's pro forma rent expense (adjusted for effects of the
Completed Acquisitions and the Dispositions) for the year ended December 31,
1996 was approximately $15.6 million. Substantially all of Unison's cash flow
and availability under its lines of credit, together with additional funds from
sources yet to be developed, will be needed for the next year and beyond in
order to satisfy its working capital, debt service and lease obligations.
Substantially all of the assets of Unison and its subsidiaries are pledged to
secure indebtedness and lease obligations. See "Capitalization," "Selected
Historical and Pro Forma Combined Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Certain of Unison's leases and loan agreements contain covenants requiring
Unison to achieve and then maintain specified financial ratios. Although Unison
is current on its payment obligations on its outstanding loans and facilities
leases, it is not in compliance with certain covenants under mortgage loans with
one lender for six of its health care facilities and with the lease agreements
for 23 facilities leased from Omega Healthcare Investors, Inc. ("Omega"). Unison
has obtained a waiver from Omega for these financial covenant violations as of
December 31, 1996, and it is negotiating the terms of revised covenants for the
future. Management is attempting to renegotiate the leases; however, there can
be no assurance that such restructuring will be accomplished.
The Senior Notes and some of Unison's other indebtedness and lease
obligations include covenants that prohibit or limit, among other things, asset
sales, acquisitions, investments, incurrence of debt and liens, the making of
restricted payments, affiliate transactions, engaging in certain mergers and
consolidations and entering new lines of business. Unison's failure to comply
with any of these covenants or lease obligations could result in an event of
default, thereby permitting acceleration of the related indebtedness or
termination of the related lease, which could have a material adverse effect on
Unison's financial condition and results of operations.
The degree to which Unison is leveraged, as well as the level of its rent
expense and the terms of its leases, could have important consequences to
holders of the Senior Notes, including: (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired, (ii) a substantial
portion of the Company's cash flow from operations may be dedicated to the
payment of principal, interest and rent expense, thereby reducing the funds
available to the Company for its operations, (iii) all of the Company's other
indebtedness and contingent
10
<PAGE> 14
obligations is scheduled to become due and nearly all of its leased facilities
are subject to renewal or repricing prior to the time any principal payments are
required to be made on the Senior Notes, (iv) certain of the Company's
borrowings bear, and will continue to bear, variable rates of interest, which
expose the Company to increases in interest rates, and (v) certain of the
Company's indebtedness and leases contain financial and other restrictive
covenants as described above. There can be no assurance that the Company's
operating results will be sufficient for the payment of the Company's
indebtedness and other obligations.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND ACCUMULATED DEFICIT
Unison began operations in 1992 and, prior to the pooling effects of the
Ampro Acquisition on October 31, 1996, incurred net losses through the third
quarter of 1995. Unison reported a small net profit in the fourth quarter of
1995, but it reported substantial losses for 1996. Unison's future profitability
will depend on many factors, including its ability to reduce and control costs,
its ability to integrate recently acquired operations, occupancy levels,
government regulation and reimbursement policies, competition, Unison's ability
to attract and retain qualified personnel at competitive rates, the outcome of
pending litigation and general economic conditions. While the Company has
instituted revenue enhancement and cost containment programs and continues to
work at integrating recent acquisitions, there can be no assurance that Unison
will be profitable in the future. See "-- Recent Business Expansion,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Acquisitions" and "-- Government Regulation."
PENDING SECURITIES LITIGATION
Unison and certain of its current and former directors and officers (among
others) are named as defendants in several class action complaints seeking
unspecified damages following Unison's announcement in March 1997 that the
Company expected to restate its financial statements for the nine-month period
ended September 30, 1996. To date, six such claims have been filed in federal
district court in Phoenix, Arizona alleging violations of Sections 10 and 20 of
the Exchange Act and Rule 10b-5 promulgated thereunder. While the purported
class periods and the named defendants vary, the broadest class period to date
asserts that between March 29, 1996 and March 10, 1997 (the date before Unison's
March 11 announcement of the need for a restatement) the defendants knew, or
were reckless in not knowing, that Unison's results for the first three quarters
of 1996 were materially overstated, and/or misrepresented the capability of
Unison's internal accounting system to reliably record and reflect its financial
condition. Two of these actions (Amothy Corp. v. Unison HealthCare Corp. et al.)
also allege that the conduct allegedly giving rise to the alleged violations of
federal law also violated the defendants' state law fiduciary duties as
directors and officers. The individual defendants named in some or all of these
actions are Jerry M. Walker (the Company's former Chief Executive Officer),
Craig Clark (the Company's former Chief Financial Officer), Paul Contris (the
Company's former Vice President of Acquisitions), Phillip Rollins (the Company's
Chief Operating Officer) and Bruce Whitehead (Chairman of the Board). In
addition, the Company is informed that an action has been filed in the Superior
Court of the State of California (County of Orange) against the Company and the
aforesaid individuals, as well as John T. Lynch, Jr. (a member of the Board of
Directors), Trouver Capital Partners, L.P. (a private investment banking firm of
which Mr. Lynch is a general partner), Cruttenden Roth Inc. and Wheat First
Butcher Singer (the latter two entities are named individually and as
representatives of a purported defendant underwriter class). The Orange County
action is purportedly filed on behalf of all persons who acquired Unison stock
in the Company's December 1995 initial public offering ("IPO"); it essentially
alleges that in connection with the IPO, the defendants made positive statements
about the Company's prospects for which there was no basis, that accounts
receivable were overstated, and that the Company's statement of financial
position as of September 30, 1995 was not fairly presented. Unison's bylaws
require the Company to indemnify current and former officers and directors to
the extent permitted by Delaware law against such liabilities and related
expenses. The Company denies the material allegations in these complaints and
intends to defend the actions vigorously. Management believes that the costs of
the ultimate disposition of these matters, if any, will be substantially covered
by insurance. An adverse determination could have a material adverse effect upon
Unison.
11
<PAGE> 15
MARKET LISTING FOR EQUITY SECURITIES AND ACCESS TO CAPITAL MARKETS
Because of its substantial losses in 1996, Unison does not currently
satisfy the minimum tangible net worth criteria for maintaining the listing of
its common stock on The Nasdaq Stock Market's National Market System. If the
listing of its common stock is suspended and not renewed, Unison's ability to
raise capital in the public or private equity markets will be hampered.
Management is exploring options to forestall or ameliorate any such action.
HOLDING COMPANY STRUCTURE; ENFORCEABILITY OF GUARANTEES; SECURED INDEBTEDNESS
Unison is a holding company whose only material assets are its investments
in its subsidiaries. Unison conducts no business and is dependent on
distributions from its subsidiaries to service its debt obligations, including
the payment of interest and principal on the Senior Notes. Some lease
obligations of Unison's subsidiaries have provisions that may limit or restrict
distributions to Unison. There can be no assurance that such distributions will
be adequate to fund the interest and principal payments on the Senior Notes when
due. The guaranty provisions of the Indenture relating to the Senior Notes
provide that if Unison fails to satisfy any payment obligation under the Senior
Notes, the holders of the Senior Notes will have a direct claim against the
Guarantors. However, as of December 31, 1996, on a pro forma basis after giving
effect to the Private Offering of the Original Notes, the application of the net
proceeds therefrom and certain other transactions described herein, the
aggregate outstanding principal amount of senior indebtedness of Unison and its
subsidiaries was approximately $141.2 million (including the Senior Notes), of
which approximately $23.2 million was secured indebtedness that effectively
ranked senior to the Senior Notes. If a court were to invalidate any one or more
of the Guarantees under fraudulent conveyance laws or other legal or equitable
principles or if, by the terms of such Guarantees, the obligations thereunder
were limited as necessary to prevent such avoidance, the claims of other
creditors of the Guarantors, including claims of trade creditors, would, to such
extent, have priority as to the assets of the Guarantors over the claims of the
holders of the Senior Notes. In addition, the Indenture provides that upon the
sale or other disposition of a Guarantor, which transaction is otherwise in
compliance with the Indenture, such Guarantor shall be deemed released from its
Guarantee. See "Description of the Senior Notes -- Future Guarantees."
RECENT BUSINESS EXPANSION
A key element of Unison's business strategy during 1995 and 1996 was to
expand through the leasing of new or existing long-term and specialty healthcare
facilities and the acquisition or development of ancillary healthcare businesses
or services, including pharmacy, physical, speech and occupational therapy,
respiratory therapy and laboratory services. Acquisitions are inherently risky
due to the possibility of unknown and unforeseen contingencies affecting the new
businesses and due to costs of integrating acquired operations into the overall
enterprise. These risks have impacted and may continue to impact Unison's
financial performance. Although Unison has substantially curtailed its
acquisition strategy, its corporate overhead increased during the second half of
1996 in the expectation that the number and size of acquisitions might continue
to grow. This expansion will make it difficult to reduce costs in response to
liquidity challenges. See "Business -- Acquisitions."
HEALTHCARE REFORM
Political, economic and regulatory influences have produced and are likely
to continue to produce fundamental changes in the healthcare industry in the
United States. For example, proposed federal budgets have called for substantial
reductions in projected Medicare spending. In addition, the Clinton
administration and various members of Congress have advanced a number of
legislative proposals to reform the healthcare system. Among the proposals
considered by the Congress has been a "block grant" funding mechanism for the
disbursement of the federal share of Medicaid payments to the individual states,
which, if enacted, could cause a reduction in the availability of Medicaid funds
in future years. Certain other proposals are intended to reduce the rate of
increase in Medicare and Medicaid expenditures through cost savings and other
measures which are expected to be developed in the near future. Unison
anticipates that federal and state governments will continue to review and
assess alternative healthcare delivery systems and payment methods. Due to
12
<PAGE> 16
uncertainty regarding the ultimate features of reform initiatives and their
enactment and implementation, Unison cannot predict which, if any, reform
proposals will be adopted, when they may be adopted or what impact they may have
on Unison. There can be no assurance that such reforms, if enacted, or
administrative responses to budgetary constraints, will not have a material
adverse effect on Unison. See "Business -- Government Regulation."
REIMBURSEMENT BY THIRD-PARTY PAYORS
Governmental payors and their paying agencies and private third-party payor
sources have instituted cost containment measures of various kinds designed to
limit payments made for long-term care and ancillary services, and there can be
no assurance that future measures will not materially and adversely affect
reimbursements to Unison. Revenues received from the Medicare program for
services provided in Unison's facilities represented approximately 29.5% and
30.2%, respectively, of Unison's actual and pro forma revenues for the year
ended December 31, 1996. The Medicare program is subject to statutory and
regulatory changes, retroactive and prospective rate adjustments, complex
reimbursement audits, paying agency discretion and interpretations,
administrative rulings and funding restrictions, all of which could have the
effect of limiting or reducing reimbursement levels for Unison's services.
Unison cannot predict whether any changes to this program will be adopted or, if
adopted, the effect, if any, such changes will have on Unison. Any significant
decrease in Medicare reimbursement levels, or the imposition of significant
restrictions on participation in the Medicare program, could have a material
adverse effect on Unison. There can be no assurance that Unison's facilities
will continue to satisfy the requirements for participation in the Medicare
program.
Unison bills on a "salary equivalency" fee-based schedule for physical
therapy services and respiratory therapy services provided to Medicare patients
at its facilities, as is generally required by law. These rates are
significantly lower than those for speech and occupational therapy, which are
reimbursed under the "prudent buyer" rule. The federal Health Care Financing
Administration ("HCFA") recently proposed rules applying salary equivalency
guidelines for speech and occupational therapy services. The imposition of
salary equivalency guidelines on speech and occupational therapy services could
significantly impact Unison's margins. See "Business -- Government Regulation."
Unison's facilities that participate in applicable state Medicaid programs
are subject to risks of changes in Medicaid reimbursement and payment delays
resulting from budgetary shortfalls of state Medicaid programs. Unison operates
a total of 13 facilities in Texas and 12 facilities in Indiana including three
in Indiana held for disposition. The Texas and Indiana facilities accounted for
21.0% and 12.4%, respectively, of Unison's pro forma revenues for the year ended
December 31, 1996. Furthermore, some state Medicaid programs require
certification of all beds in the facility, which may limit the ability of a
facility in any such state to establish a distinct Medicare Part A unit for
subacute care. In an attempt to limit the Federal budget deficit, there have
been, and Unison expects that there will continue to be, a number of other
proposals to limit Medicare and Medicaid payments for services. Unison cannot
predict whether any of these proposals will be adopted or, if adopted, the
effect, if any, such proposals would have on Unison. There can be no assurance
that the rates paid to Unison by Medicare, Medicaid or other payors will be
adequate to reimburse Unison for the cost of providing services. In addition,
cost increases due to inflation without corresponding increases in reimbursement
would adversely affect Unison's business. See "Business -- Government
Regulation."
EXTENSIVE GOVERNMENT REGULATIONS
The operation of skilled nursing facilities is subject to federal, state
and local laws relating to, among other things, the number of beds, the
provision of ancillary services, the adequacy of medical care, distribution of
pharmaceuticals, equipment, personnel, operating policies, fire prevention and
compliance with building codes, as well as those relating to other businesses,
such as those mandating fair employment practices and prohibiting damage to the
environment. Skilled nursing facilities are also subject to periodic inspection
by governmental and other authorities to assure compliance with various
standards and to maintain continued licensing under state law and certification
under the Medicare and Medicaid programs. Although Unison generally has been
able to secure necessary approvals or licenses in the past, it closed one
facility during 1996 due to regulatory problems, and the failure to obtain or
renew any required regulatory approvals or licenses
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<PAGE> 17
could adversely affect Unison's ability to offer existing or additional
services, to receive Medicaid and Medicare payments, and to expand the scope of
its operations, any of which could materially adversely affect Unison's
business.
In May, 1996, HCFA announced the first year results of its "Operation
Restore Trust" initiative, designed to combat Medicare and Medicaid fraud, waste
and abuse by home health agencies, nursing homes and durable medical equipment
suppliers. Operation Restore Trust originally focused on five states and is now
extended to all states and is focused on problems with claims for services not
rendered or not provided as claimed and claims falsified to circumvent coverage
limitations on medical supplies. In addition, HCFA certification, survey and
enforcement regulations impose significant new burdens on long-term care
facilities. The regulations may require state survey agencies to take aggressive
enforcement actions, such as imposing fines, decertifying facilities, banning
admission or revoking necessary licenses and closing facilities. Additional
remedies are available. Published reports indicate that in the initial surveys
conducted, as many as 70% of the facilities surveyed were not in compliance with
the new rules. There can be no assurance that these rules, or future rules or
legislation, will not have a material adverse effect on Unison. See
"Business -- Government Regulation."
COMPETITION
The industries in which Unison operates are highly competitive. Unison
competes with general acute care hospitals, skilled nursing facilities,
rehabilitation hospitals, long-term care hospitals, assisted living facilities,
home care providers and other subacute and specialty care providers, both for
patients and for nurses and other key personnel. Many of these companies have
greater financial and other resources than Unison. A number of states in which
Unison operates do not have "certificate of need" or similar laws restricting
the construction of competing facilities. No assurance can be given that Unison
will have the resources to compete successfully with such companies. See
"Business -- Competition."
MANAGEMENT TRANSITION AND DEPENDENCE ON SKILLED PERSONNEL
Three of Unison's executive officers, including its Chief Executive
Officer, Chief Financial Officer and Executive Vice President of Acquisitions,
resigned during the first part of 1997. They have not been replaced on a
permanent basis. A number of other personnel have also been laid off, primarily
in an attempt to control overhead costs. In addition, several facility
administrators have recently resigned. A loss of key personnel could adversely
affect Unison's ability to rebuild its financial health. Unison's business
strategy also depends on its ability to attract and retain qualified clinical
management, marketing and other personnel. Unison competes with general acute
care hospitals, rehabilitation facilities, nursing homes, ambulatory care
facilities and other healthcare providers for the services of physicians,
registered nurses, therapists and other clinical personnel. Such clinical
personnel are in high demand and are often subject to competing offers. There
can be no assurance that Unison will be able to attract and retain the qualified
personnel necessary for its business and planned growth. See
"Business -- Operations" and "Management -- Employment Agreements."
CONCENTRATION OF OWNERSHIP
Messrs. Walker, Rollins, Contris, and Clark have pledged an aggregate of
522,593 shares of their Company stock (approximately 8.1% of Unison Common Stock
currently outstanding) to Mr. Bruce H. Whitehead, the chairman of Unison and
agent for the sellers, to secure the Company's obligations incurred in
connection with the BritWill Acquisition in 1995, a portion of which was repaid
in January 1997 using proceeds from the Private Offering of the Original Notes
and the remainder of which remains outstanding. In the event of a default, Mr.
Whitehead could foreclose on the pledged stock. Mr. Whitehead beneficially owns
approximately 7.4% of Unison's Common Stock currently outstanding. See
"Principal Stockholders."
In connection with the Signature Acquisition, 1,490,431 shares of Unison
Common Stock were issued to David A. Kremser, who also became a director of
Unison. This means that Mr. Kremser beneficially owns approximately 23.8% of the
Unison shares outstanding, making Mr. Kremser the largest shareholder and
potentially a controlling person of Unison. See "Principal Stockholders."
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<PAGE> 18
CHANGE OF CONTROL
Unison is required to make an offer to purchase all of the Senior Notes at
a price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, upon the occurrence of any "change of control" as defined in the
Indenture (the "Repurchase Covenant"). A change of control of Unison also
constitutes an event of default under Unison's obligations to HealthPartners
Funding, L.P. and Omega. Unison could in the future incur other indebtedness
subject to similar triggering events. See "Description of the Senior Notes --
Change of Control Offer."
Upon the occurrence of a change of control, Unison might be unable to
comply with the Repurchase Covenant if (i) a lender declares an event of default
with respect to such indebtedness as a result of such triggering event, or (ii)
the terms of any indebtedness (whether or not senior to the Senior Notes)
include a restriction on the repurchase by Unison of the Senior Notes, unless in
either case Unison obtains the consent of the holders of such indebtedness or
repays all of such indebtedness. There can be no assurance that Unison would
have sufficient funds available at the time of a change of control to take such
steps.
LACK OF PUBLIC MARKET; RESTRICTIONS ON RESALE OF THE ORIGINAL NOTES
There can be no assurance regarding the future development of a market for
the Original Notes and the Exchange Notes, or the ability of holders of the
Original Notes or Exchange Notes to sell their Original Notes or Exchange Notes
or the price at which such holders may be able to sell their Original Notes or
Exchange Notes. If such a market were to develop, the Original Notes and, if
issued, the Exchange Notes could trade at prices lower than the initial offering
price as a result of many factors, including prevailing interest rates, Unison's
operating results and the market for similar securities. The Initial Purchasers
have advised Unison that they currently intend to make a market in the Original
Notes and the Exchange Notes. The Initial Purchasers are not obligated to do so,
however, and any market-making with respect to the Original Notes or Exchange
Notes may be discontinued at any time without notice. Therefore, there can be no
assurance as to the liquidity of any trading market for the Original Notes and
the Exchange Notes, or that an active public market for the Original Notes or
Exchange Notes will develop. In addition, such market-making activity will be
subject to the limitations imposed by the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and may be limited during
this Exchange Offer. Unison does not intend to apply for listing or quotation of
the Original Notes or the Exchange Notes on any securities exchange or stock
market; however, it is expected that the Senior Notes will continue to be
eligible for trading in the PORTAL Market of the National Association of
Securities Dealers, Inc. The Original Notes have not been registered under the
Securities Act or any state securities laws and, unless so registered, may not
be offered or sold except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. See "Plan of Distribution."
PROCEDURES FOR TENDER OF ORIGINAL NOTES
Except as otherwise provided herein, the Exchange Notes will be issued in
exchange for Original Notes only after timely receipt by the Exchange Agent of
such Original Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. See "The Exchange
Offer -- Procedures for Tendering" and "-- Guaranteed Delivery Procedures."
Therefore, holders of Original Notes desiring to tender such Original Notes in
exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to tenders of Original
Notes for exchange. Any holder of Original Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or any other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
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CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES
The Original Notes have not been registered under the Securities Act and
are subject to substantial restrictions on transfer. Original Notes that are not
tendered in exchange for Exchange Notes or are tendered but not accepted will,
following consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof. The Company does not currently
anticipate that it will register the Original Notes under the Securities Act. To
the extent that Original Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Original Notes
could be adversely affected. See "The Exchange Offer -- Consequences of Failure
to Exchange."
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<PAGE> 20
THE EXCHANGE OFFER
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The Original Notes were sold by Unison on October 31, 1996 to the Initial
Purchasers, who resold the Original Notes to "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act) and other institutional
"accredited investors" (as defined in Rule 501(a) under the Securities Act) in
the Private Offering. In connection with the sale of the Original Notes, Unison
and the Initial Purchasers entered into a Registration Rights Agreement dated as
of October 31, 1996 (the "Registration Rights Agreement") pursuant to which
Unison agreed to use its best efforts to file with the Commission a registration
statement (the "Exchange Offer Registration Statement") with respect to an offer
to exchange the Original Notes for Exchange Notes as soon as practicable, and to
become effective under the Securities Act as soon as practicable, but in no
event later than 45 days and 135 days following the issuance of the Original
Notes, respectively. The Exchange Offer Registration Statement was actually
filed more than 45 days and became effective more than 135 days after issuance
of the Original Notes, so certain additional interest accrued on the Original
Notes for the period of the delay (the "Additional Interest"). As a condition to
its obligation to consummate the Exchange Offer, Unison has proposed an
amendment to the Registration Rights Agreement (the "Amendment") confirming that
the registration defaults will be deemed cured, and the resulting Additional
Interest will cease to accrue, as of the effective date of the Exchange Offer
Registration Statement. A copy of the Amendment is included in this Prospectus
as Appendix A. A copy of the Registration Rights Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. See
"The Registration Rights Agreement."
This Prospectus is a part of the Exchange Offer Registration Statement that
Unison has filed with the Commission as provided above. The Exchange Offer is
being made pursuant to the Registration Rights Agreement to satisfy Unison's
obligations thereunder. The term "holder," with respect to the Exchange Offer,
means any person in whose name Original Notes are registered on the books of the
Company or any other person who has obtained a properly completed bond power
from the registered holder, or any person whose Original Notes are held of
record by the Depository. Assuming the Amendment becomes effective, upon
completion of the Exchange Offer Unison generally will not be required to file
any registration statement to register any outstanding Original Notes. Holders
of Original Notes who do not tender their Original Notes or whose Original Notes
are tendered but not accepted generally will have to rely on exemptions to
registration requirements under the securities laws, including the Securities
Act, if they wish to sell their Original Notes.
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties unrelated to Unison, Unison believes
that the Exchange Notes issued pursuant to the Exchange Offer in exchange for
Original Notes may be offered for resale, resold and otherwise transferred by
any holder of such Exchange Notes (other than a person that is an "affiliate" of
Unison within the meaning of Rule 405 under the Securities Act and except as set
forth in the next paragraph) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder is not engaged and does not intend to engage, and has no arrangement
or understanding with any person to engage, in the distribution of such Exchange
Notes.
If any person were to be participating in the Exchange Offer for the
purpose of distributing securities in a manner not permitted by the Commission's
interpretation: (i) the position of the staff of the Commission enunciated in
interpretive letters would be inapplicable to such person and (ii) such person
would be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
The Exchange Offer is not being made to, nor will Unison accept surrenders
for exchange from, holders of Original Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in
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<PAGE> 21
compliance with the securities or Blue Sky laws of such jurisdiction. Prior to
the Exchange Offer, however, Unison will use its best efforts to register or
qualify the Exchange Notes for offer and sale under the securities or Blue Sky
laws of such jurisdictions as is necessary to permit consummation of the
Exchange Offer and do any and all other acts or things necessary or advisable to
enable the offer and sale in such jurisdictions of the Exchange Notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, Unison will accept any and all
Original Notes validly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date (as defined below). Unison will issue up to $100.0 million
aggregate principal amount of Exchange Notes in exchange for a like principal
amount of outstanding Original Notes which are validly tendered and accepted in
the Exchange Offer. Subject to the conditions of the Exchange Offer described
below, the Company will accept any and all Original Notes which are so tendered.
Holders may tender some or all of their Original Notes pursuant to the Exchange
Offer.
The Exchange Offer is not conditioned upon any number of Original Notes
being tendered.
The form and terms of the Exchange Notes will be the same in all material
respects as the form and terms of Original Notes, except that the initial
issuance and exchange of the Exchange Notes will be registered under the
Securities Act and hence the Exchange Notes will not bear legends restricting
the transfer thereof. The Exchange Notes will not represent additional
indebtedness of Unison and will be entitled to the benefits of the Indenture
together with (and as a part of a single class with) the Original Notes.
Interest on the Exchange Notes will accrue from the most recent date to
which interest has been paid on the Original Notes. Interest has been paid
through April 30, 1997, and is next due on November 1, 1997 for interest through
October 31, 1997. Accordingly, registered holders of Exchange Notes on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest (including Additional
Interest) accruing from the most recent date to which interest has been paid or,
if no further interest has been paid, from April 30, 1997. Original Notes
accepted for exchange will cease to accrue interest from and after the date of
the consummation of the Exchange Offer. Holders whose Original Notes are
accepted for exchange will not receive any payment in respect of interest on
such Original Notes otherwise payable on any interest payment date the record
date for which occurs on or after consummation of the Exchange Offer.
Holders of Original Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. Unison intends to
conduct the Exchange Offer in accordance with the provisions of the Registration
Rights Agreement. Original Notes which are not tendered for exchange or are
tendered but not accepted in the Exchange Offer will remain outstanding and be
entitled to the benefits of the Indenture, but generally will not be entitled to
any registration rights under the Registration Rights Agreement. See "The
Registration Rights Agreement."
Unison shall be deemed to have accepted validly tendered Original Notes
when, as and if Unison has given oral or written notice thereof to the Exchange
Agent for the Exchange Offer. The Exchange Agent will act as agent for the
tendering holders for the purposes of receiving the Exchange Notes from Unison.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Original Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Original Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letters of Transmittal, transfer taxes with respect to the exchange of
Original Notes pursuant to the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "-- Fees and Expenses."
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<PAGE> 22
CONDITIONS OF THE EXCHANGE OFFER
In addition, and notwithstanding any other term of the Exchange Offer,
Unison will not be required to accept for exchange any Original Notes tendered
for Exchange Notes and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Original Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency or regulatory authority with
respect to the Exchange Offer which, in the judgment of the Company, could
reasonably by expected to materially impair the ability of Unison to
proceed with the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to Unison; or
(b) there shall have been proposed, adopted or enacted any law,
statute, rule or regulation which, in the judgment of Unison, could
reasonably be expected to materially impair the ability of Unison to
proceed with the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to Unison; or
(c) the Initial Purchasers and holders of a majority in principal
amount of outstanding Original Notes do not consent in writing to the
Amendment to the Registration Rights Agreement proposed by Unison
confirming that the Registration Defaults thereunder are cured or waived,
and accordingly Additional Interest has ceased to accrue, as of the
effective date of the Exchange Offer Registration Statement.
The foregoing conditions are for the sole benefit of Unison and may be
asserted by Unison regardless of the circumstances giving rise to such
conditions or may be waived by Unison in whole or in part at any time and from
time to time in its sole discretion. If Unison waives or amends the foregoing
conditions, Unison will, if required by applicable law, extend the Exchange
Offer for a minimum of five business days from the date that Unison first gives
notice, by public announcement or otherwise, of such waiver or amendment, if the
Exchange Offer would otherwise expire within such five business-day period. Any
determination by Unison concerning the events described above will be final and
binding upon all parties.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 P.M., New York City Time, on
, 1997, subject to extension by the Company by notice to the
Exchange Agent as herein provided. Unison reserves the right to so extend the
Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the time and date on which the Exchange Offer as so extended shall
expire. The Company will notify the Exchange Agent of any extension by oral or
written notice and will make a public announcement thereof, each prior to 9:00
A.M., New York City time, on the next business day after the previously
scheduled Expiration Date.
Unison reserves the right (i) to delay accepting for exchange any Original
Notes for any Exchange Notes or to extend or terminate the Exchange Offer and
not accept for exchange any Original Notes for any Exchange Notes if any of the
events set forth under the caption "Conditions of the Exchange Offer" shall have
occurred and shall not have been waived by Unison by giving oral or written
notice of such delay or termination to the Exchange Agent, or (ii) to amend the
terms of the Exchange Offer in any manner. Any such delay in acceptance for
exchange, extension or amendment will be followed as promptly as practicable by
public announcement thereof. If the Exchange Offer is amended in a manner
determined by Unison to constitute a material change, Unison will promptly
disclose such amendment in a manner reasonably calculated to inform the holders
of Exchange Notes of such amendment and the Company will extend the Exchange
Offer for a period of five to 10 business days, depending upon the significance
of the amendment and the manner of disclosure to the holders of the Exchange
Notes, if the Exchange Offer would otherwise expire during such five to 10
business-day period. The rights reserved by the Company in this paragraph are in
addition to the Company's rights set forth under the caption "Conditions of the
Exchange Offer."
PROCEDURES FOR TENDERING
Only a holder of Original Notes may tender such Original Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have
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<PAGE> 23
the signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile, together
with the Original Notes (unless such tender is being effected pursuant to the
procedure for book-entry transfer described below) and any other required
documents, to the Exchange Agent prior to 5:00 P.M., New York City time, on the
Expiration Date.
Any financial institution that is a participant in the Depositary's
Book-Entry Transfer Facility system may make book-entry delivery of the Original
Notes by causing the Depositary to transfer such Original Notes into the
Exchange Agent's account in accordance with the Depositary's procedure for such
transfer. Although delivery of Original Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Depositary, the Letter of
Transmittal (or facsimile thereof), with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and received
or confirmed by the Exchange Agent at its addresses set forth in "Exchange
Agent" below prior to 5:00 P.M., New York City time, on the Expiration Date.
DELIVERY OF DOCUMENTS TO THE DEPOSITARY IN ACCORDANCE WITH ITS PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of Original Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
The method of delivery of Original Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the holders. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent before the Expiration Date. No
Letter of Transmittal or Original Notes should be sent to the Company. Holders
may request their respective brokers, dealers, commercial banks, trust companies
or nominees to effect the tenders for such holders.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Original Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal,
or (ii) for the account of an Eligible Institution. In the event that signatures
on a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member of a signature
guarantee program within the meaning of Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution").
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
Unison, evidence satisfactory to Unison of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance and withdrawal of tendered Original Notes will be
determined by Unison in its sole discretion, which determination will be final
and binding. Unison reserves the absolute right to reject any and all Original
Notes not properly tendered or any Original Notes Unison's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. Unison also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Original Notes. Unison's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Original Notes must be
cured within such times as the Company shall determine. Although Unison intends
to request the Exchange Agent to notify holders of defects or irregularities
with respect to tenders of Original Notes, neither Unison, the Exchange Agent
nor any other person shall incur any liability for failure to give such
notification. Tenders of Original Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Original
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
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<PAGE> 24
In addition, Unison reserves the right in its sole discretion (subject to
limitations contained in the Indenture) (i) to purchase or make offers for any
Original Notes that remain outstanding subsequent to the Expiration Date and
(ii) to the extent permitted by applicable law, purchase Original Notes or
Exchange Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the terms
of the Exchange Offer.
By tendering, each holder will represent to Unison, among other things, (i)
that the Exchange Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder, (ii) that neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and (iii) that
neither the holder nor any such other person is an "affiliate," as defined in
Rule 405 under the Securities Act, of Unison or, if such person is an affiliate
of Unison, that such person will comply with the registration and prospectus
delivery requirements of the Securities Act, to the extent applicable. If the
holder is a broker-dealer that will receive Exchange Notes for its own account
in exchange for Original Notes that were acquired as a result of market-making
activities or other trading activities, such holder by tendering will
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available, or (ii) who cannot deliver their Original
Notes and other required documents to the Exchange Agent prior to the Expiration
Date, or cannot complete the procedure for book-entry transfer prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly competed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Original Notes (if available) and the principal amount of Original
Notes tendered together with a duly executed Letter of Transmittal (or a
facsimile thereof), stating that the tender is being made thereby and
guaranteeing that, within three business days after the Expiration Date,
the certificate(s) representing the Original Notes to be tendered in proper
form for transfer (or a confirmation of a book-entry transfer into the
Exchange Agent's account at the Depositary of Original Notes delivered
electronically) with any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) Such certificate(s) representing all tendered Original Notes in
proper form for transfer (or confirmation of a book-entry transfer into the
Exchange Agent's account at the Depositary of Original Notes delivered
electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three business days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to 5:00 P.M., New York City Time, on the Expiration
Date, unless previously accepted for exchange.
To withdraw a tender of Original Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 P.M., New York City time, on
the Expiration Date, and prior to acceptance for exchange thereof by the
Company. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Original Notes to be withdrawn (the "Depositor"), (ii)
identify the Original Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Original Notes), (iii) be signed by the
Depositor in the
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<PAGE> 25
same manner as the original signature on the Letter of Transmittal by which such
Original Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Original Notes register the transfer of such Original Notes into the name
of the person withdrawing the tender, and (iv) specify the name in which any
such Original Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by Unison, whose
determination shall be final and binding on all parties. Any Original Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Original Notes so withdrawn are validly re-tendered. Any Original Notes
which have been tendered but which are not accepted for exchange or which are
withdrawn will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Original Notes may be re-tendered by
following one of the procedures described above under "Procedures for Tendering"
at any time prior to the Expiration Date.
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by Unison. The principal solicitation for tenders pursuant to the Exchange
Offer is being made by mail; however, additional solicitation may be made by
telegraph, telephone or in person by officers and regular employees of Unison
and its affiliates.
Unison has not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the Exchange Offer. Unison, however, will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith. Unison may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus,
Letters of Transmittal and related documents to the beneficial owners of the
Original Notes and in handling or forwarding tenders for exchange. Unison will
pay the other expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Trustee, accounting and legal fees and
printing costs.
Unison will pay all transfer taxes, if any, applicable to the exchange of
Original Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Original Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Original Notes tendered,
or if tendered Original Notes are registered in the name of any person other
than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Original Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, Unison believes that the Exchange
Notes issued pursuant to the Exchange Offer in exchange for Original Notes may
be offered for resale, resold and otherwise transferred by any holder of such
Exchange Notes (other than broker-dealers, as set forth below, and other than
any such holder which is "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder does not intend to participate and has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. Any holder who tenders in the Exchange Offer with the intention
to participate, or for the purpose of participating, in a distribution of the
Exchange Notes may not rely on the position of the staff of the Commission
enunciated in Exxon Capital Holdings Corporation (available May 13, 1988) and
Morgan Stanley & Co., Incorporated
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<PAGE> 26
(available June 5, 1991), or similar no-action letters, but rather must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. In addition, any such resale
transaction should be covered by an effective registration statement containing
the selling security holders information required by Item 507 of Regulation S-K
of the Securities Act. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Original Notes, where such Original Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution."
By tendering in the Exchange Offer, each holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is a holder,
(ii) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and (iii) the Holder and such other person acknowledge that if
they participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (a) they must, in the absence of an exemption therefrom, comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements in such instance could result in such holder incurring liability
under the Securities Act for which such holder is not indemnified by the
Company. Further, by tendering in the Exchange Offer, each holder that may be
deemed an "affiliate" (as defined under Rule 405 of the Securities Act) of
Unison will represent to the Company that such holder understands and
acknowledges that the Exchange Notes may not be offered for resale, resold or
otherwise transferred by that holder without registration under the Securities
Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of making of this Exchange Offer, Unison will have fulfilled
one of its obligations under the Registration Rights Agreement and holders of
Original Notes who do not tender their Original Notes generally will not have
any further registration rights under the Registration Rights Agreement or
otherwise. See "The Registration Rights Agreement." Accordingly, any holder of
Original Notes that does not exchange that holder's Original Notes for Exchange
Notes will continue to hold the untendered Original Notes and will be entitled
to all the rights and limitations applicable thereto under the Indenture, except
to the extent of such rights or limitations that, by their terms, terminate or
cease to have further effectiveness as a result of the Exchange Offer.
The Original Notes that are not exchanged for Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Original
Notes may be resold only (i) to the Company (upon redemption thereof or
otherwise), (ii) pursuant to an effective registration statement under the
Securities Act, (iii) so long as the Original Notes are eligible for resale
pursuant to Rule 144A, to a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act in a transaction meeting the requirements of
144A, (iv) outside the United States to a foreign person pursuant to the
exemption from the registration requirements of the Securities Act provided by
Regulation S thereunder, (v) to an institutional accredited investor that, prior
to such transfer, furnishes to the Trustee a signed letter containing certain
representations and agreements relating to the restrictions on transfer of the
Original Notes evidenced thereby (the form of which letter can be obtained from
the Trustee) or (vi) pursuant to another available exemption from the
registration requirements of the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
Accordingly, if any Original Notes are tendered and accepted in the
Exchange Offer, the trading market for the untendered Original Notes could be
adversely affected. See "Risk Factors -- Consequences of Failure to Exchange
Original Notes."
23
<PAGE> 27
TERMINATION OF CERTAIN RIGHTS
Holders of the Senior Notes will not be entitled to certain rights under
the Registration Rights Agreement following the consummation of the Exchange
Offer. The rights that generally will terminate are the right (i) to have the
Company file with the Commission and use its best efforts to have declared
effective a shelf registration statement to cover resales of the Original Notes
by the holders thereof and (ii) to receive additional interest if the
registration statement of which this Prospectus is a part or the shelf
registration statement are not filed with, or declared effective by, the
Commission within certain specified time periods or the Exchange Offer is not
consummated within a specified time period. See "The Registration Rights
Agreement."
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Original Notes are urged to
consult their financial and tax advisors in making their own decision on what
action to take.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of Unison or its subsidiaries since the respective dates as of which
information is given herein. The Exchange Offer is not being made to (nor will
tender be accepted from or on behalf of) holders of Original Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction. However, the
Company intends to take such action as it may deem necessary to make the
Exchange Offer in any such jurisdiction and extend the Exchange Offer to holders
of Original Notes in such jurisdiction.
The Company may in the future seek to acquire untendered Original Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plans to acquire any Original
Notes that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any untendered Original Notes except to the
extent that it may be required to do so under the Registration Rights Agreement.
See "The Registration Rights Agreement."
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Original Notes, as reflected in Unison's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by Unison upon the consummation of the Exchange Offer. The expenses
of the Exchange Offer will be amortized by Unison over the term of the Exchange
Notes under generally accepted accounting principles.
EXCHANGE AGENT
First Bank National Association, St. Paul, Minnesota has been appointed as
Exchange Agent for the Exchange Offer. All correspondence in connection with the
Exchange Offer and the Letter of Transmittal should be addressed to the Exchange
Agent, as follows:
By Hand/Overnight Courier/Mail:
First Bank National Association
Attn: David Haussen, Specialized Finance Group
180 East 5th Street
St. Paul, Minnesota 55101
Facsimile Transmission:
(612) 244-1537
(For Eligible Institutions Only)
Confirm by Telephone:
(612) 244-8162
Requests for additional copies of this Prospectus or the Letter of
Transmittal should be directed to the Exchange Agent.
24
<PAGE> 28
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "Service") will not take a contrary view,
and no ruling from the Service has been or will be sought. Legislative, judicial
or administrative changes or interpretations may be forthcoming that could alter
nor modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders of either Original Notes or Exchange Notes. Certain
holders of the Original Notes (including insurance companies, tax exempt
organizations, financial institutions, broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) may be subject
to special rules not discussed below. EACH HOLDER OF AN ORIGINAL NOTE SHOULD
CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF
EXCHANGING SUCH HOLDER'S ORIGINAL NOTES FOR EXCHANGE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
The issuance of the Exchange Notes to holders of the Original Notes
pursuant to the terms set forth in this Prospectus should not constitute a
recognition event for federal income tax purposes. Consequently, no gain or loss
should be recognized by holders of the Original Notes upon receipt of the
Exchange Notes. For purposes of determining gain or loss upon the subsequent
sale or exchange of the Exchange Notes, a holder's basis in the Exchange Notes
should be the same as such holder's basis in the Original Notes exchanged
therefor. Holders should be considered to have held the Exchange Notes from the
time of their original acquisition of the Original Notes.
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of Unison's obligations
under the Purchase Agreement and the Registration Rights Agreement. The Company
will not receive any cash proceeds from the issuance of the Exchange Notes
offered hereby. In consideration for issuing the Exchange Notes contemplated in
this Prospectus, the Company will receive the Original Notes in like principal
amount, the form and terms of which are the same as the form and terms of the
Exchange Notes (which replace the Original Notes, except as otherwise described
herein). The Original Notes surrendered in exchange for the Exchange Notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase or decrease in the indebtedness
of Unison.
The net proceeds to the Company from the sale of the Original Notes were
used to effect a series of transactions referred to below (collectively, the
"Transactions"). The remainder was used for general corporate purposes,
including acquisitions.
The Transactions include:
(i) the Signature Acquisition, for which the cash paid at closing
totaled approximately $43,067,000, including approximately $5,350,000 to
acquire the stock of RehabWest and a pre-sale distribution by RehabWest of
approximately $667,000 to the former owner (see
"Business -- Acquisitions");
(ii) the Ampro Acquisition, for which cash paid from proceeds of the
Original Notes was approximately $487,000 (see "Business -- Acquisitions");
(iii) the reduction of Unison's outstanding revolving credit facility,
which bore interest at the rate of prime plus 2.0%, by approximately
$8,900,000, and payment of $200,000 of related fees;
(iv) the repayment of certain bank financing in the principal amount
of $7,500,000, bearing interest at the rate of 9.75% per annum and maturing
in February 1997 (the "Bank Financing");
(v) the repayment in January 1997 of $9,750,000 of the obligations due
to the former BritWill shareholders in connection with the BritWill
Acquisition, comprised of the $8,000,000 outstanding principal amount of a
subordinated note (the "Subordinated Note"), which at the time of repayment
25
<PAGE> 29
bore interest at 8.0% per annum and which would have matured in 2000, and
$1,750,000 of a lump sum contingent obligation (the "Additional Payment
Obligation") (see "Business -- Acquisitions");
(vi) the repayment of leasehold mortgage financing from Omega (the
"Omega Leasehold Mortgage Financing") in the principal amount of
$4,000,000, which bore interest at rates of 10.25% to 10.75% per annum;
(vii) the prepayment in January 1997 of Unison's $2,000,000 of
outstanding convertible promissory notes and debentures (the "Sunbelt
Notes") issued in connection with Unison's 1996 acquisition of Sunbelt
Therapy Management Services, Inc. ("Sunbelt"), which bore interest at the
rate of 10.0% per annum and matured in annual installments through February
1, 1999; and
(viii) the repayment of certain other indebtedness, totaling
approximately $2,883,000, bearing interest at rates ranging from the prime
rate to 10.0% and having maturities from May 1997 to June 1998.
The source and uses of funds are set forth below (in thousands).
<TABLE>
<S> <C>
Source of funds:
Private Offering of Original Notes...................................... $100,000
========
Uses of funds(1):
Signature Acquisition payment........................................... $ 43,067
Ampro Acquisition payment............................................... 487
Reduction of revolving credit facility and payment of related fees(2)... 9,100
Repayment of Bank Financing(3).......................................... 7,634
Repayment of Subordinated Note and payment of Additional Payment
Obligation........................................................... 9,750
Repayment of Omega Leasehold Mortgage Financing(4)...................... 4,034
Repayment of the Sunbelt Notes(5)....................................... 2,048
Repayment of certain other indebtedness(6).............................. 2,883
General corporate purposes(7)........................................... 15,547
Fees and expenses from Private Offering(8).............................. 5,450
--------
Total uses of funds............................................. $100,000
========
</TABLE>
- ---------------
(1) The funds were used over a period of time beginning on October 31, 1996
through approximately March 15, 1997.
(2) Includes $200,000 of fees. The revolving credit facility was paid down to a
zero balance with proceeds of the Offering, and has since been drawn upon.
As of March 24, 1997 the outstanding balance was approximately $2,651,000.
The balance is subject to change on a daily basis.
(3) Includes interest and fees in the amount of $134,000.
(4) Includes interest in the amount of $34,000.
(5) Includes interest in the amount of $48,000. The holders of the Sunbelt Notes
elected to receive a portion of the total payment due them in the form of
Unison common stock valued at $800,000.
(6) Includes bank debt of Ampro and Sunbelt in the aggregate amount of $896,000;
debt owed to various parties in connection with prior acquisitions by Ampro
or Unison in the aggregate amount of $1,095,000; and $892,000 of other
indebtedness.
(7) Includes disbursements for reduction of accounts payable; working capital
related to the conversion of therapy services to Sunbelt from other
providers; costs related to certain capital expenditures; costs related to
the relocation of the corporate office; costs related to the upgrade of the
general ledger, accounts payable, payroll, and labor time-keeping systems;
costs related to acquisitions in the approximate amount of $1,067,000; and
other costs.
(8) Includes costs related to the Offering as well as certain costs related to
the Ampro and Signature acquisitions, including a fee to Trouver Capital
Partners, L.P. ("Trouver") in the amount of $83,940.
26
<PAGE> 30
CAPITALIZATION
The following table sets forth the cash and cash equivalents and
capitalization of Unison as of December 31, 1996 and as adjusted to assume the
application of the remaining proceeds from the sale of the Original Notes. This
table should be read in conjunction with the information contained in Use of
Proceeds, the Consolidated Financial Statements of the Company and the Unaudited
Pro Forma Condensed Combined Financial Statements, including the related notes
thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.......................................... $ 17,409 $ 4,865
======= ========
Long-term debt, including current portions:
Senior Notes..................................................... $100,000 $100,000
Signature mortgage............................................... 18,640 18,640
Subordinated Note................................................ 8,000 --
Additional Payment Obligation.................................... 11,500 9,750
Sunbelt Notes.................................................... 2,800 --
Other indebtedness............................................... 16,378 15,404
------- --------
Total debt............................................... 157,138 143,794
Stockholders' equity............................................... 11,689 12,489
------- --------
Total capitalization..................................... $168,827 $156,283
======= ========
</TABLE>
27
<PAGE> 31
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements
are presented after the Signature Acquisition has been accounted for as a
purchase and the Ampro Acquisition has been accounted for as a pooling of
interests. Accordingly, the Unaudited Pro Forma Condensed Combined Financial
Statements include the combined operations of Unison and Ampro for all periods
presented. The Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 1996 has been prepared as if the Completed
Acquisitions (if consummated later) and the Dispositions had been consummated as
of the beginning of the period presented. The Unaudited Pro Forma Condensed
Combined Balance Sheet has been prepared as if the application of the proceeds
of the Original Notes had been completed as of December 31, 1996.
The pro forma information is based on the historical statements of
operations of the acquired businesses giving effect to the placement of the
Original Notes and the other assumptions and adjustments described in the
accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
The Unaudited Pro Forma Condensed Combined Financial Statements do not
purport to present the results of operations of Unison had the business
combinations taken place on the dates specified, nor are they necessarily
indicative of the results of operations that may be achieved in the future. The
Unaudited Pro Forma Condensed Combined Financial Statements should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the separate historical financial statements and
notes thereto included elsewhere in this Prospectus.
28
<PAGE> 32
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AT DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE PRIVATE PRO FORMA
UNISON OFFERING(A) AS ADJUSTED
-------- --------------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 17,409 $ (12,544) $ 4,865
Accounts and notes receivable, net........................................... 28,608 -- 28,608
Other current assets......................................................... 5,885 -- 5,885
-------- ------- --------
Total current assets....................................................... 51,902 (12,544) 39,358
Lease operating rights and other assets, net................................... 119,758 -- 119,758
Goodwill, net.................................................................. 28,431 -- 28,431
Property and equipment, net.................................................... 30,830 -- 30,830
-------- ------- --------
Total assets............................................................... $230,921 $ (12,544) $ 218,377
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................................ $ 33,915 $ (11,644) $ 22,271
Other current liabilities.................................................... 31,942 -- 31,942
-------- ------- --------
Total current liabilities.................................................. 65,857 (11,644) 54,213
Long-term debt................................................................. 123,223 (1,700) 121,523
Deferred taxes................................................................. 24,791 -- 24,791
Other long-term liabilities.................................................... 5,361 -- 5,361
-------- ------- --------
Total liabilities.......................................................... 219,232 (13,344) 205,888
-------- ------- --------
Stockholders' equity:
Common stock................................................................. 5 -- 5
Additional paid-in capital................................................... 34,723 800 35,523
Accumulated deficit.......................................................... (23,039) -- (23,039)
-------- ------- --------
Total stockholders' equity................................................. 11,689 800 12,489
-------- ------- --------
Total liabilities and stockholders' equity................................. $230,921 $ (12,544) $ 218,377
======== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
29
<PAGE> 33
UNISON HEALTHCARE CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
OTHER PRO FORMA PRIVATE PRO FORMA
UNISON SIGNATURE(b) ACQUISITIONS(c) ADJUSTMENTS PRO FORMA OFFERING AS ADJUSTED
-------- ------------ --------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues.............. $148,674 $ 41,964 $ 6,283 $ (14,539)(d)
(278)(e) $182,104 $ -- $ 182,104
Expenses:
Wages and related......... 85,789 18,235 3,668 (7,859)(d) 99,833 -- 99,833
Other operating........... 64,771 10,376 2,500 (5,983)(d)
(278)(e) 71,386 -- 71,386
Rent...................... 15,658 1,748 22 (2,467)(d)
652(e) 15,613 -- 15,613
Interest.................. 5,824 6,256 283 (170)(d)
(283)(e)
23(f) 11,933 3,705(j) 15,638
Depreciation and
amortization............ 4,561 2,849 128 (380)(d)
(128)(e)
23(g) 7,053 447(k) 7,500
Impairment losses......... 3,865 -- -- -- 3,865 -- 3,865
------- ------- ------ ------- -------- -------- -------
Total expenses..... 180,468 39,464 6,601 (16,850) 209,683 4,152 213,835
------- ------- ------ ------- -------- -------- -------
Income (loss) before income
taxes..................... (31,794) 2,500 (318) 2,033 (27,579) (4,152) (31,731)
Income tax expense
(benefit)................. (8,356) (323) -- (2,352)(h) (11,031) (1,661)(h) (12,692)
------- ------- ------ ------- -------- -------- -------
Net income (loss)........... $(23,438) $ 2,823 $ (318) $ 4,385 $(16,548) $(2,491) $ (19,039)
======= ======= ====== ======= ======== ======== =======
Shares used in per share
calculation............... 4,676 -- -- 1,253(i) 5,929 -- 5,929
Net loss per share.......... $ (5.01) $ (2.79) $ (3.21)
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
30
<PAGE> 34
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(a) To record the application in 1997 of the remaining proceeds of the
Original Notes, as follows (in thousands).
<TABLE>
<S> <C>
Repayment of BritWill Note................................................... $ 8,000
Payment of a portion of the BritWill Additional Payment Obligation........... 1,750
Repayment of the Sunbelt Notes............................................... 2,000
Repayment of certain other indebtedness...................................... 794
-------
Cash used to refinance debt.................................................. 12,544
Balance of Sunbelt Notes converted to shares of Unison Common Stock.......... 800
-------
$13,344
=======
</TABLE>
(b) Represents the combined operating results for Signature for the ten
months ended October 31, 1996 after application of the purchase method of
accounting. The table below illustrates the historical operating results of the
Signature Affiliates and RehabWest and the purchase accounting adjustments
associated with the Signature Acquisition.
<TABLE>
<CAPTION>
TEN MONTHS ENDED OCTOBER 31, 1996
----------------------------------------------------------
PURCHASE
ACCOUNTING
SIGNATURE AND PRO FORMA
AFFILIATES REHABWEST ADJUSTMENTS SIGNATURE
---------- --------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total revenues............................. $ 37,953 $ 4,011 $ -- $41,964
Expenses:
Wages and related........................ 15,753 2,482 -- 18,235
Other operating.......................... 16,360 630 (6,614)(1) 10,376
Rent..................................... 1,739 9 -- 1,748
Interest................................. 1,780 3 4,473(2) 6,256
Depreciation and amortization............ 1,380 2 1,467(3) 2,849
------- ------ ------- -------
Total expenses.................... 37,012 3,126 (674) 39,464
------- ------ ------- -------
Income before taxes........................ 941 885 674 2,500
Income tax expense (benefit)............... (593) -- 270 (323)
------- ------ ------- -------
Net income................................. $ 1,534 $ 885 $ 404 $ 2,823
======= ====== ======= =======
</TABLE>
- ---------------
(1) To eliminate management fees paid to a related party ($7,077,000) net of
estimated incremental overhead costs ($463,000).
(2) To record interest on debt incurred in connection with the Signature
Acquisition, as follows (dollars in thousands).
<TABLE>
<CAPTION>
DEBT INTEREST INTEREST
INCURRED RATE EXPENSE
-------- -------- -------
<S> <C> <C> <C>
Signature Affiliates.......................................... $ 37,054 12.25% $3,783
RehabWest..................................................... 6,013 12.25 614
Seller notes in escrow........................................ 1,146 8.00 76
------- ------
$ 44,213 $4,473
======= ======
</TABLE>
(3) Under the purchase method of accounting, assets acquired and liabilities
assumed were recorded at the estimated fair value as determined by an
independent appraisal. The resultant excess of the purchase price over
fair value of net assets acquired is being amortized over a period of 40
years for the Signature Affiliates and 20 years for RehabWest, the
noncompete costs and assembled workforce are amortized over five years
and lease operating rights are amortized over the lease term, including
renewal options, not to exceed 30 years. The adjustment to property and
equipment is depreciated over 20 years. Such depreciation and
amortization amounts to approximately $1,942,000 for the 10 months ended
October 31, 1996. In addition, amortization expense was reduced by
$475,000 for the 10-month period as a result of eliminating prior
goodwill amortization in Signature's historical statement of operations.
31
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(c) Other Acquisitions: The following table summarizes the unaudited
operating results for the following acquisitions entered into from January 1,
1996 through the later of the date of lease inception or the period of the
statement of operations.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
ACQUISITION ---------------------
ACQUISITION DATE REVENUES EXPENSES
------------------------------------------------------------- ----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sunbelt Therapy.............................................. Feb. 1996 $ 544 $ 568
Franciscan Enumclaw.......................................... Aug. 1996 2,487 2,755
Franciscan Walla Walla....................................... Aug. 1996 1,116 1,182
Other acquisitions........................................... July 1996 2,136 2,096
------ ------
$6,283 $6,601
====== ======
</TABLE>
(d) In September 1996, Unison announced a plan to dispose of seven nursing
facilities, two of which were not in operation. To record the disposition of
these facilities and one additional facility disposed of in March 1997 as if the
dispositions had occurred at the beginning of the period presented.
(e) Operating lease pro forma adjustments represent adjustments to the
pre-lease operating results of the facilities identified in note (c). The
historical results have been adjusted to include the lease expense incurred by
Unison, elimination of management fee income to Unison and elimination of the
lessor's depreciation, interest expense and management fees.
(f) To record interest on debt incurred to acquire Sunbelt.
(g) To record amortization of goodwill related to the acquisition of
Sunbelt.
(h) To record the tax provision related to the pro forma adjustments and
adjustments related to the sale of the Original Notes at an assumed rate of 40%.
(i) Unison issued 1,509,434 shares of its common stock in connection with
the Signature Acquisition. To adjust shares used in the earnings per share
calculation as if the Signature Acquisition had occurred at the beginning of the
period presented.
(j) To record interest expense on the $100,000,000 principal amount of
Senior Notes for the ten months ended October 31, 1996, net of repayments and
reductions, as follows (dollars in thousands).
<TABLE>
<CAPTION>
INTEREST INTEREST
AMOUNT RATE EXPENSE
-------- -------- --------
<S> <C> <C> <C>
Senior Notes........................................................... $100,000 12.25% $ 10,208
Less amounts allocated to:
Signature............................................................ (37,054) 12.25 (3,782)
RehabWest............................................................ (6,013) 12.25 (614)
Repayments............................................................. (25,283) 10.00 (2,107)
-------- --------
$ 31,650 $ 3,705
========= ========
</TABLE>
(k) To record amortization expense related to debt issue costs amounting to
$5,366,000 incurred in connection with the Private Offering of the Original
Notes.
32
<PAGE> 36
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA(1)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
ACTUAL
--------------------------------------------------------- PRO FORMA
1992 1993 1994 1995(2) 1996 1996(3)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................ $ 4,523 $ 7,011 $ 18,406 $ 68,488 $ 148,674 $182,104
Expenses:
Wages and related....................... 2,201 3,689 9,593 35,047 85,789 99,833
Other operating......................... 1,727 2,629 6,462 24,032 64,771 71,386
Rent.................................... 155 206 1,406 6,673 15,658 15,613
Interest................................ 14 44 147 1,176 5,824 15,638
Depreciation and amortization........... 88 157 286 1,311 4,561 7,500
Impairment losses....................... -- -- -- -- 3,865 3,865
--------- --------- --------- --------- --------- ---------
Total expenses........................ 4,185 6,725 17,894 68,239 180,468 213,835
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes..... 338 286 512 249 (31,794) (31,731)
Income taxes (benefit).................... 100 177 172 132 (8,356) (12,692)
--------- --------- --------- --------- --------- ---------
Net income (loss)..................... $ 238 $ 109 $ 340 $ 117 $ (23,438) $(19,039)
========= ========= ========= ========= ========= =========
Net income (loss) per share............... $ 0.13 $ 0.06 $ 0.19 $ 0.05 $ (5.01) $ (3.21)
Shares used in per share calculation...... 1,806,164 1,806,164 1,806,164 2,280,213 4,676,037 5,929,037
OTHER DATA:
Skilled nursing facilities:(4)
Number of facilities.................. 4 6 16 45 54 48
Number of licensed beds............... 436 671 1,621 4,629 5,455 4,818
Patient days.......................... -- 12,705 112,727 581,410 1,203,655 1,732,584
Assisted living facilities:(4)
Number of facilities.................. -- 1 4 5 8 8
Number of units....................... -- 30 104 229 320 320
Sources of patient revenues:
Medicare.............................. -- 3.4% 9.1% 26.9% 29.5% 30.2 %
Private pay........................... -- 13.8 32.4 17.2 17.0 18.1
--------- --------- --------- --------- --------- ---------
Quality mix......................... -- 17.2 41.5 44.1 46.5 48.3
Medicaid.............................. -- 82.8 58.5 55.9 53.5 51.7
--------- --------- --------- --------- --------- ---------
Total............................ -- 100.0% 100.0% 100.0% 100% 100%
========= ========= ========= ========= ========= =========
Ratio of earnings to fixed
charges(5).......................... 6.15x 3.54x 1.83x 1.07x -- --
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------- PRO FORMA
1992 1993 1994 1995 1996 1996(6)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 169 $ 199 $ 306 $ 6,169 $ 17,409 $ 4,865
Working capital (deficit)............... 272 298 1,691 (927) (13,955) (14,855)
Total assets............................ 879 1,862 7,468 81,301 230,921 218,377
Total debt.............................. 163 259 2,623 26,737 157,138 143,794
Stockholders' equity.................... (157) (47) 736 20,903 11,689 12,489
</TABLE>
NOTES TO SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(1) The years ended December 31, 1992, 1993, 1994 and 1995 have been restated to
reflect the pooling accounting treatment for the acquisition of Ampro.
(2) On August 10, 1995, Unison acquired BritWill. The actual results for the
year ended December 31, 1995 include the results of operations for BritWill
for the five months ended December 31, 1995.
(3) Gives effect to (i) the Dispositions, (ii) the Completed Acquisitions and
(iii) the Private Offering of the Senior Notes and the application of the
net proceeds therefrom, effective, in each case, at the beginning of the
period presented.
(4) Number of facilities, beds and units expressed are at end of period.
(5) Earnings are defined as income (loss) before income taxes and fixed charges.
Fixed charges are defined as interest expense and a portion of rent expense
representing the interest factor, which Unison estimates to be one-third of
base rents. Earnings were inadequate to cover fixed charges by approximately
$31,794,000 in 1996 and $31,731,000 in 1996 on a pro forma basis.
(6) Gives effect to the application of the remaining proceeds of the Senior
Notes effective as of December 31, 1996.
33
<PAGE> 37
BRITWILL SEPARATE DATA
HISTORICAL
The selected historical financial data set forth below are derived from
BritWill's audited financial statements. The audited financial statements of
BritWill for the one month ended July 31, 1995, the six months ended June 30,
1995 and the year ended December 31, 1994, together with the Notes thereto, are
included elsewhere herein. The selected financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" applicable to BritWill's separate
historical results and other financial information included herein.
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED YEARS ENDED
JULY 31, DECEMBER 31,
------------------- -------------------------------
1995 1994 1994 1993 1992
------- ------- ------- ------- -------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
Net patient.................... $38,378 $29,098 $53,801 $32,107 $27,107
Other.......................... 476 759 624 625 70
------- ------- ------- ------- -------
Total revenues......... 38,854 29,857 54,425 32,732 27,177
Expenses:
Operating...................... 28,333 22,666 40,037 23,483 15,162
General and administrative..... 3,870 3,350 6,252 3,670 6,714
Rent........................... 5,223 4,719 8,264 5,097 3,750
Interest....................... 906 571 872 385 2,850
Depreciation and
amortization................ 591 487 987 704 791
------- ------- ------- ------- -------
Total expenses......... 38,923 31,793 56,412 33,339 29,267
------- ------- ------- ------- -------
Income (loss) from operations.... (69) (1,936) (1,987) (607) (2,090)
Other Income:
Interest income............. 113 50 55 65 220
------- ------- ------- ------- -------
Income (loss) before income
taxes.......................... 44 (1,886) (1,932) (542) (1,870)
Income taxes..................... 31 26 53 52 --
------- ------- ------- ------- -------
Net income (loss)................ $ 13 $(1,912) $(1,985) $ (594) $(1,870)
======= ======= ======= ======= =======
</TABLE>
34
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act which are based on
assumptions set forth in this discussion that could prove to be inaccurate.
Important factors that could cause actual events to vary from the discussions
herein include the factors discussed in "Risk Factors", "Business",
"-- Overview" and "-- Risks and Uncertainties".
The following material should be read in conjunction with Unison's
Consolidated Financial Statements and related notes thereto for the years ended
December 31, 1994, 1995 and 1996. All references in this discussion and analysis
to years are to fiscal years ended December 31 of such year.
SIGNIFICANT EVENTS
- - On October 31, 1996, Unison completed the private placement of its
$100,000,000 12 1/4% Senior Notes Due 2006 (the "Senior Notes").
- - On October 31, 1996, Unison completed the Signature Acquisition and the Ampro
Acquisition. See "-- Acquisitions and Dispositions".
- - On September 30, 1996, Unison announced a plan to dispose of seven
(subsequently amended to include eight) underperforming nursing facilities and
recorded a $3,865,000 nonrecurring charge in the 1996 third quarter. See
"-- Acquisitions and Dispositions".
- - For the year ended December 31, 1996, Unison recorded a net loss of
$23,438,000 compared to net income of $117,000 and $340,000 in 1995 and 1994,
respectively. See "-- Results of Operations".
OVERVIEW
From a financial performance standpoint, 1996 was a very disappointing year
for Unison. In 1996, the Company pursued an aggressive expansion program and the
financial reporting and management information systems were not adequate for the
larger and more complex needs of the Company. On March 11, 1997, the Company
announced that it would restate its financial results for the nine months ended
September 30, 1996 and estimated that the restatement would be in the range of
$5,000,000 to $6,000,000. Unison also stated that its investigation was
continuing. On May 12, 1997, after consultation with the Company's auditors,
Unison announced that the restatement would be significantly higher than the
previous estimate. As a result of the auditor's examination in conjunction with
the Company's prior investigation, the restated pretax loss for the nine months
ended September 30, 1996 is $14,997,000.
Despite these difficulties, Unison believes that its core businesses remain
fundamentally sound. Its nursing home occupancy levels and quality mix have
shown improvement. Unison's quality of care as measured by levels of compliance
in state health care surveys is high. Unison's ancillary services subsidiaries
(providing therapy, pharmacy and laboratory services both to Unison facilities
and those of independent nursing home companies) are generally profitable. As of
May 21, 1997, Unison is current in all of its loan and leasehold payment
obligations, having recently made the first required interest payment on its
Senior Notes. During March 1997, Unison's outside directors took initial steps
to replace the Company's chief executive and several of its principal financial
officers. Unison also substantially curtailed its acquisition program, reduced
its corporate cost structure, and is implementing revenue enhancement programs
and expense controls in its nursing homes and ancillary services companies. See
"-- Liquidity and Capital Resources." The Company also is pursuing new sources
of debt or equity financing to help it rebuild value for its shareholders and
note holders. The Company believes that the revenue enhancement and cost
containment initiatives and access to cash flows from draws on its line of
credit or, if necessary, proceeds from sales of unencumbered assets and
additional borrowings, will provide Unison with the liquidity necessary to meet
its obligations during 1997.
RISKS AND UNCERTAINTIES
Risks and uncertainties that may impact future operating results and cash
flows include those described below.
35
<PAGE> 39
High Leverage and Limited Capital Resources. At December 31, 1996, Unison
had approximately $157,138,000 in total long-term indebtedness, which was
approximately 93.1% of its total capitalization. It also has significant
long-term operating lease obligations (approximately $15,492,000 for 1997 and
$164,743,000 in the aggregate). Substantially all of Unison's cash flow and
availability under its current lines of credit, together with additional funds
from sources yet to be developed, will be needed for the next year and beyond in
order to satisfy its working capital, debt service and lease obligations. The
Company believes that the revenue enhancement and cost containment initiatives
and access to cash flows from draws on its line of credit or, if necessary,
proceeds from sales of unencumbered assets and additional borrowings will
provide Unison with the liquidity necessary to meet its obligations during 1997.
The Senior Notes and Unison's other indebtedness and lease obligations include
certain covenants that prohibit or limit asset sales, acquisitions, incurrence
of additional debt and liens, the making of restricted payments, affiliate
transactions, engaging in certain mergers and consolidations and entering new
lines of business. Unison's ability over the near term to respond to unexpected
obligations or revenue shortfalls or to other risks and uncertainties is
limited.
Pending Securities Litigation. Unison and certain of its current and
former directors and officers (among others) are named as defendants in several
class action complaints seeking unspecified damages following Unison's
announcement in March 1997 that the Company expected to restate its financial
statements for the nine-month period ended September 30, 1996. To date, six such
claims have been filed in federal district court in Phoenix, Arizona alleging
violations of Sections 10 and 20 of the Exchange Act and Rule 10b-5 promulgated
thereunder. While the purported class periods and the named defendants vary, the
broadest class period to date asserts that between March 29, 1996 and March 10,
1997 (the date before Unison's March 11 announcement of the need for a
restatement) the defendants knew, or were reckless in not knowing, that Unison's
results for the first three quarters of 1996 were materially overstated, and/or
misrepresented the capability of Unison's internal accounting system to reliably
record and reflect its financial condition. Two of these actions (Amothy Corp.
v. Unison HealthCare Corp. et al. and Falkenstein v. Unison HealthCare Corp. et
al.) also allege that the conduct allegedly giving rise to the alleged
violations of federal law also violated the defendants' state law fiduciary
duties as directors and officers. The individual defendants named in some or all
of these actions are Jerry M. Walker (the Company's former Chief Executive
Officer), Craig Clark (the Company's former Chief Financial Officer), Paul
Contris (the Company's former Vice President of Acquisitions), Phillip Rollins
(the Company's Chief Operating Officer) and Bruce Whitehead (Chairman of the
Board). In addition, the Company is informed that an action has been filed in
the Superior Court of the State of California (County of Orange) against the
Company and the aforesaid individuals, as well as John T. Lynch, Jr. (a member
of the Board of Directors), Trouver Capital Partners, L.P. (a private investment
banking firm of which Mr. Lynch is a general partner), Cruttenden Roth Inc. and
Wheat First Butcher Singer (the latter two entities are named individually and
as representatives of a purported defendant underwriter class). The Orange
County action is purportedly filed on behalf of all persons who acquired Unison
stock in the Company's December 1995 initial public offering ("IPO"); it
essentially alleges that in connection with the IPO, the defendants made
positive statements about the Company's prospects for which there was no basis,
that accounts receivable were overstated, and that the Company's statement of
financial position as of September 30, 1995 was not fairly presented. Unison's
bylaws require the Company to indemnify current and former officers and
directors to the extent permitted by Delaware law against such liabilities and
related expenses. The Company denies the material allegations in these
complaints and intends to defend the actions vigorously. Management believes
that the costs of the ultimate disposition of these matters, if any, will be
substantially covered by insurance. An adverse determination could have a
material adverse effect upon Unison.
Market Listing for Equity Securities and Access to Capital
Markets. Because of its substantial losses in 1996, Unison does not currently
satisfy the minimum tangible net worth criteria for maintaining the listing of
its common stock on The Nasdaq Stock Market's National Market System. If the
listing of its common stock is suspended and not renewed, Unison's ability to
raise capital in the public or private equity markets will be hampered.
Management is exploring options to forestall or ameliorate any such action.
History of Losses and Accumulated Deficit. Unison began operations in 1992
and, prior to the pooling effects of the Ampro Acquisition on October 31, 1996,
it incurred net losses through the third quarter of 1995.
36
<PAGE> 40
Unison reported a small net profit in the fourth quarter of 1995, but it
reported substantial losses for 1996. Unison's future profitability will depend
upon many factors, including its ability to reduce and control costs, its
ability to integrate recently acquired operations, occupancy levels, government
regulation and reimbursement policies, competition, Unison's ability to attract
and retain qualified personnel at competitive rates, the outcome of pending
litigation and general economic conditions. While the Company has instituted
revenue enhancement and cost containment programs and continues to work at
integrating recent acquisitions, there can be no assurance that Unison will be
profitable in the future.
Risks from Recent Business Expansion. A key element of Unison's business
strategy during 1995 and 1996 was to expand through the leasing of new or
existing long-term and specialty healthcare facilities and the acquisition or
development of ancillary healthcare businesses or services. The acquisitions of
BritWill, Signature, Sunbelt, RehabWest, and Ampro and the formation of Quest
occurred pursuant to this strategy. Acquisitions are inherently risky due to the
possibility of unknown and unforeseen contingencies affecting the new businesses
and due to costs of integrating acquired operations into the overall enterprise.
These risks have impacted and may continue to impact Unison's financial
performance. Although Unison has substantially curtailed its acquisition
strategy, its corporate overhead increased during the second half of 1996 in the
expectation that the number and size of acquisitions might continue to grow.
This expansion will make it difficult to reduce costs in response to liquidity
challenges.
Management Transition and Dependence on Skilled Personnel. Three of
Unison's executive officers, including its CEO, CFO and VP of Acquisitions,
resigned during the first part of 1997. They have not been replaced on a
permanent basis. A number of other personnel have also been laid off, primarily
in an attempt to control overhead costs. The loss of key personnel could
adversely affect Unison's ability to rebuild its financial health.
Rate Increases on Senior Notes. Pursuant to the Senior Note Registration
Rights Agreement, the interest rate payable on Unison's outstanding Senior Notes
has temporarily increased from 12.25% to 13.00%, and it is subject to further
increases at 90 day intervals (to a maximum rate of 14.25%) until a registration
statement for the Senior Notes (or for Exchange Notes on the same terms) is
filed and becomes effective with the Securities and Exchange Commission (the
"Commission"). Unison has delayed filing the required registration statement
while it completed work on its financial statements for 1996, but expects to
make the filing in 1997. In light of Unison's 1996 results, the Commission may
choose to review that filing. Accordingly, further delays in completing the
required registration, with corresponding additional interest expense on the
Senior Notes, are possible.
Loan and Lease Covenant Violations. Although Unison is current on its
payment obligations on its outstanding loans and facilities leases, it is not in
compliance with certain covenants under mortgage loans with one lender for six
of its health care facilities and with the lease agreements for 23 facilities
leased from Omega. Unison has obtained a waiver from Omega for these financial
covenant violations as of December 31, 1996, and it is negotiating the terms of
revised covenants for the future. Management is attempting to renegotiate the
leases; however, there can be no assurance that such restructuring will be
accomplished. An acceleration of Unison's obligations under any of its financial
instruments or a default under any of its facilities leases could have a
material adverse impact on Unison.
ACQUISITIONS AND DISPOSITIONS
On October 31, 1996, Unison acquired by merger Signature for a combination
of Unison common shares, approximately $37,054,000 in cash and promissory notes
totaling approximately $1,146,000. In accordance with an adjustment provision of
the Signature merger agreements relating to stockholders' equity, in March 1997
the former shareholders of Signature received additional consideration of
$2,511,000, paid in convertible promissory notes ($1,827,000) and 238,052 shares
of Unison common stock ($684,000 valued as of March 27, 1997). Signature
operated 11 long-term care facilities and two assisted living facilities in
Arizona and metropolitan Denver, Colorado. Unison also acquired RehabWest (a
related rehabilitation company) for approximately $5,350,000 in cash. The
Signature Mergers and the acquisition of RehabWest are referred to collectively
as the "Signature Acquisition."
37
<PAGE> 41
On October 31, 1996, Unison also acquired Ampro in a pooling of interests
transaction. The consideration paid for Ampro included: (a) cash of
approximately $237,000; (b) 540,000 shares of Unison Common Stock and (c) a
promissory note in the amount of $250,000 which has since been prepaid. Ampro
operates medical laboratories in Texas, Missouri and Tennessee which, at March
31, 1997, provided testing services for 275 nursing homes and other healthcare
facilities. Summarized results of operations of Ampro are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues............................. $6,000,000 $7,203,000 $6,547,000
Net income (loss).................... 420,000 143,000 (565,000)
</TABLE>
Other acquisitions that have closed within the past three years include
BritWill (1995), Sunbelt (1996) and several smaller facilities or enterprises.
See "Business -- Acquisitions."
On September 30, 1996, Unison announced a disposition plan designed to
improve its long-term financial strength and operating performance (the
"Dispositions"). The plan includes the disposition of eight nursing facilities
(the "Disposition Facilities"), two of which are closed, which do not meet
Unison's operational or financial criteria. Unison also recorded a nonrecurring
charge of $3,865,000 in the quarter ended September 30, 1996 to record
impairment of long-lived assets and to establish reserves for costs to dispose
of the Disposition Facilities. Four of these facilities were subleased to an
unrelated party effective March 1, 1997 and the other four are held for
disposition. Results of operations of the Disposition Facilities were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revenues................................................. $16,269 $14,539
Net loss before taxes and impairment losses.............. 90 2,320
</TABLE>
RESULTS OF OPERATIONS
UNISON HISTORICAL
The following table summarizes selected operating statistics. Pro forma
data give effect to the Dispositions as if all of the Disposition Facilities had
been disposed of on December 31, 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------ PRO FORMA
1994 1995 1996 1996
---- ----- ----- ---------
<S> <C> <C> <C> <C>
Leased/Owned Facilities:
Number of facilities.......................... 11 42 59 53
Number of licensed beds:
Long-term care............................. 631 3,872 5,145 4,508
Assisted and independent living............ 104 112 320 320
Managed Facilities:
Number of facilities.......................... 9 8 3 3
Number of licensed beds....................... 990 874 310 310
Institutional Pharmacies:
Number of outlets............................. -- 1 2 2
Nonaffiliated facilities served............... -- 17 42 42
Therapy Services:
Nonaffiliated entities served................. -- -- 55 55
Laboratory Services:
Nonaffiliated entities served................. 225 260 295 295
</TABLE>
38
<PAGE> 42
The following table identifies Unison's sources of revenues. Pro forma data
give effect to (i) the Dispositions and (ii) acquisitions completed after
January 1, 1996 as if such transactions had occurred on January 1, 1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------- PRO FORMA
1994 1995 1996 1996
----- ----- ----- ---------
<S> <C> <C> <C> <C>
Percentage of total revenues:
Long-term care................................. 67.4% 87.6% 81.0% 84.1%
Therapy contracts.............................. -- -- 8.9 7.5
Pharmacies..................................... -- 1.0 4.6 3.8
Medicare Part B billing and supply............. -- 0.9 1.1 1.0
Laboratory services............................ 32.6 10.5 4.4 3.6
----- ----- ----- -----
Total....................................... 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
Unison's revenues fluctuate from facility to facility based on various
factors, including total capacity, occupancy rates, reimbursement systems and
rates among the payor categories, payor mix and the scope and utilization of
Unison's ancillary services. Medicare patients generate the highest revenue per
patient day, although profitability is not always increased due to the
additional costs associated with the higher level of care required by such
patients. In general, private pay sources are more profitable to Unison than
governmental reimbursement sources. Unison generally derives a higher profit
margin from ancillary services than from basic nursing services.
Data for nursing center operations with respect to sources of net patient
revenues by payor type are set forth below (long-term care only). Pro forma data
give effect to (i) the Dispositions and (ii) acquisitions completed after
January 1, 1996, as if such transactions had occurred on January 1, 1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------- PRO FORMA
1994 1995 1996 1996
----- ----- ----- ---------
<S> <C> <C> <C> <C>
Medicare........................................... 9.1% 26.9% 29.5% 30.2%
Private and other.................................. 32.4 17.2 17.0 18.1
----- ----- ----- -----
Quality Mix...................................... 41.5 44.1 46.5 48.3
Medicaid........................................... 58.5 55.9 53.5 51.7
----- ----- ----- -----
Total............................................ 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Unison recorded a net loss of $23,438,000 in 1996 and net income of
$117,000 in 1995. Loss before taxes amounted to $31,794,000 in 1996 compared to
pretax income in 1995 of $249,000. The pretax loss in 1996 is primarily
attributable to: (i) write-offs and provisions for doubtful accounts related to
management fees and patient and other receivables in the aggregate amount of
$4,524,000; (ii) a provision for impairment of long-lived assets and the
Dispositions amounting to $3,865,000, (iii) gross receipt taxes, interest, and
penalties of approximately $3,565,000, (iv) accrued accounting, legal and other
professional fees relating to 1996 matters of $1,300,000, (v) loan transaction
costs and fees for debt which has been paid off and acquisition costs of
$1,762,000, (vi) increased corporate salary costs from $2,838,000 in 1995 to
$5,340,000 in 1996, (vii) a litigation settlement amounting to $725,000 and
(viii) losses from nursing home operations.
Revenues. Revenues were $148,674,000 in 1996 compared to $68,488,000 in
1995. The $80,186,000 increase is due primarily to revenues from patient
services which increased from $64,947,000 in 1995 to $146,379,000 in 1996.
Patient days increased from 613,000 in 1995 to 1,235,000 in 1996. The increase
in patient days and net patient service revenues is primarily attributable to
(i) the increase in the number of facilities operated, including a full year of
operations of the 28 facilities acquired in the BritWill Acquisition on August
10, 1995 and 13 facilities with the Signature Acquisition on October 31, 1996;
(ii) the acquisitions of institutional pharmacies and therapy companies, and
progress in providing ancillary products and services to patients of Unison
facilities and unrelated facilities; and (iii) the increase in Unison's quality
mix to 46.5% in
39
<PAGE> 43
1996 compared to 44.1% in the prior year period. Other operating revenues
decreased to $2,295,000 in 1996 from $3,541,000 in 1995 due primarily to the
decrease in managed facilities from eight at December 31, 1995 to three at
December 31, 1996.
Wages and Related. Wages and related expense increased 144.8% from
$35,047,000 in 1995 to $85,789,000 in 1996 and as a percentage of revenues from
51.2% in 1995 to 57.7% in 1996. The dollar increase is due primarily to the
increase in the number of leased facilities operated and an increase in
corporate overhead due to Unison's acquisition program during 1996 and
accounting and information system conversions. The percentage increase is due
primarily to the acquisition of therapy companies which have an inherently
higher percentage of salaries to revenues than long-term care providers and an
increase in corporate and regional overhead.
Other Operating. Other operating expenses increased 169.5% from
$24,032,000 in 1995 to $64,771,000 in 1996, due primarily to an increase in the
number of leased facilities operated as well as (i) a $1,892,000 increase in the
provision for doubtful accounts related to management fees and other accounts
receivable; (ii) costs associated with acquisition efforts and litigation; and
(iii) increases in corporate overhead. Other operating expenses as a percentage
of revenues amounted to 43.6% in 1996 compared to 35.1% in 1995.
Rent Expense. Rent expense increased 134.6% from $6,673,000 in 1995 to
$15,658,000 in 1996. The increase is due primarily to the increase in the number
of leased facilities operated. Rent expense as a percentage of revenues
increased to 10.5% in 1996 from 9.7% in 1995.
Interest Expense. Interest expense amounted to $5,824,000 in 1996 compared
to $1,176,000 in 1995. The increase is primarily the result of debt incurred and
assumed in connection with acquisitions, including the $100,000,000 of Senior
Notes issued on October 31, 1996, as well as increases in borrowings for working
capital. See "-- Liquidity and Capital Resources." Interest expense as a
percentage of revenues increased to 3.9% in 1996 from 1.7% in 1995.
Depreciation and Amortization. Depreciation and amortization expense
increased from $1,311,000 in 1995 to $4,561,000 in 1996. The increase is due
primarily to the increase in goodwill and lease operating rights associated with
acquisitions and an increase in fixed assets resulting from capital expenditures
and ownership interests in six facilities acquired in the Signature Acquisition.
Depreciation and amortization expense as a percentage of revenues was 3.1% in
1996 and 1.9% in 1995.
Income Tax Expense (Benefit). Unison recorded an income tax credit for
1996 amounting to $8,356,000, or 26.3% of pretax loss of $31,794,000. The
effective tax rate is lower than the statutory federal income tax rate due
primarily to (i) amortization of intangible assets and other expenses which are
not deductible for tax; (ii) taxable income of certain subsidiaries which are
not consolidated for tax; and (iii) the valuation allowance established against
deferred tax assets. Unison recorded a tax provision in 1995 of $132,000, or
53.0% of pretax income. The effective tax rate for 1995 is higher than the
statutory federal tax rate due primarily to amortization of intangible assets
and other nondeductible expenses.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues. Revenues increased from $18,406,000 in 1994 to $68,488,000 in
1995. The increase is primarily attributable to revenues from patient services
which increased from $17,070,000 in 1994 to $64,947,000 in 1995. Patient days
increased from 140,000 in 1994 to 613,000 in 1995. Of this growth in patient
revenues and census, approximately 90% is attributable to acquisitions, with the
remainder attributable primarily to the increase in quality mix and an increase
in average census of facilities owned throughout the period. Unison operated 11
leased nursing and assisted living facilities at December 31, 1994 compared to
42 leased nursing and assisted living facilities at December 31, 1995. The
revenues related to the 28 facilities acquired from BritWill are included in
Unison's results of operations for periods subsequent to July 31, 1995.
Management fees and other revenue increased from $1,336,000 in 1994 to
$3,541,000 in 1995 as a result of an increase in the number of managed
facilities from nine facilities in 1994 to 12 facilities during 1995 (with eight
facilities under such management agreements at December 31, 1995).
40
<PAGE> 44
Wages and Related. Wages and related expense increased from $9,593,000 in
1994 to $35,047,000 in 1995. The increase in wages and related expense is
primarily attributable to the increase in the number of leased facilities
operated. Wages and related expense as a percent of revenues decreased from
52.1% in 1994 to 51.2% in 1995 as a result of the higher proportion of revenues
from certain ancillary businesses whose operations are less labor-intensive than
those of the nursing facilities.
Other Operating. Other operating expenses increased from $6,462,000 in
1994 to $24,032,000 in 1995. The increase is attributable primarily to an
increase in the number of facilities operated. Other operating expenses as a
percent of revenues remained constant at 35.1% in 1994 and 1995.
Rent Expense. Rent expense increased from $1,406,000 in 1994 to $6,673,000
in 1995. The increase is primarily a result of the acquisition of 4 leased
facilities during the first seven months of 1995 and an additional 28 facilities
from the BritWill Acquisition for the last five months of the year. Rent expense
as a percent of patient revenues increased from 7.6% in 1994 to 9.7% in 1995.
Interest Expense. Interest expense increased from $147,000 in 1994 to
$1,176,000 in 1995. The increase is primarily attributable to the agreement
entered into in April 1995 to sell the Company's accounts receivable and
additional indebtedness assumed in connection with the BritWill Acquisition.
Interest expense as a percent of revenues increased from 0.8% in 1994 to 1.7% in
1995.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased from $286,000 in 1994 to $1,311,000 in 1995. The increase is
due primarily to the amortization of goodwill and lease operating rights
attributable to the increase in leased facilities, related equipment purchases
and leasehold improvements. Depreciation and amortization expense as a percent
of revenues increased from 1.6% in 1994 to 1.9% in 1995.
BRITWILL HISTORICAL
Overview
BritWill's long-term care facilities derived 28.6% of resident care revenue
from Medicare and ancillary services for the seven months ended July 31, 1995
compared to 18.8% in the comparable 1994 period. For the year ended December 31,
1994, 17.6% of resident care revenue was derived from Medicare and ancillary
services compared with 5.0% for the year ended December 31, 1993.
Seven Months Ended July 31, 1995 Compared to Seven Months Ended July 31, 1994
Revenues. Revenues increased from $29.9 million in 1994 to $38.9 million
in 1995, an increase of 30.1%. These increases are primarily attributable to the
expansion of Medicare services; there were 15 facilities in the Medicare program
in the first seven months of 1994 compared to 24 in 1995. Medicare and ancillary
revenue were 7.0% and 7.0%, respectively, of patient revenues in 1994 compared
to 23.0% and 6.0%, respectively, of patient revenues for 1995. Management fee
revenues decreased by $120,000 or 75% due to the conversion of 2 facilities from
management contracts to leases in November of 1994. However, this decrease was
offset by an additional $3.2 million in patient revenues.
Wages and Related Expense. Wages and related expense increased from $17.0
million in 1994 to $23.3 million in 1995, an increase of 37.1%. Salary and wages
increased 18.4%. New leases contributed to $1.7 million of the wage increase.
The remaining increase is attributable to increased staffing necessary to
support the Company's increased Medicare services.
Lease Expense. Lease expense increased from $4.7 million in 1994 to $5.2
million in 1995, an increase of 10.6% due to the addition of the 3 facilities in
the fourth quarter of 1994.
General and Administrative. General and administrative expenses increased
from $3.4 million in 1994 to $3.9 million in 1995, an increase of 14.7%. This
increase is primarily attributable to new leases. As a percentage of revenues,
general and administrative expenses declined from 11.2% of revenue in 1994 to
10.0% of revenue in 1995.
41
<PAGE> 45
Depreciation and Amortization. Depreciation and amortization increased
from $487,000 in 1994 to $591,000 in 1995, an increase of 21.4%. This increase
is attributable to additional equipment and leasehold improvements at BritWill's
facilities.
Interest Expense. Interest expense increased from $571,000 in 1994 to
$906,000 in 1995, an increase of 58.7%. This increase was primarily due to
additional borrowings under the revolving credit facility.
Income (Loss) before Income Taxes and Net Income. Income before income
taxes increased from a loss of $1.9 million for the seven months ended July 31,
1994 to income of $43,880 for the seven months ended July 31, 1995. This was
primarily attributable to an increase in acuity of patients and an increase in
Medicare patients in 1995; thus, ancillary utilization increased resulting in
substantially improved performance. There was no tax benefit provided for the
1994 loss since a valuation reserve was established for such income tax
benefits. Net income increased from a net loss of $1.9 million for the seven
months ended July 31, 1994 to net income of $13,380 for the seven months ended
July 31, 1995.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues. Revenues increased from $32.7 million in 1993 to $54.4 million
in 1994, an increase of 66.4%, primarily attributable to the acquisition of nine
facility leases in Texas, primarily in the fourth quarter of 1993. In addition,
in the latter half of 1994, there was a significant increase in Medicare patient
days as there were more Medicare certified facilities. Management fee revenues
decreased 28.1% due to the conversion of two facilities from management
contracts to leases in June 1994 and two additional facilities in November. The
increase in patient census was diluted by a modification in Rule 14 under the
Indiana Medicaid reimbursement program. The effect of this ruling decreased
revenues by $1.2 million.
Operating Expenses. Operating expenses increased from $23.5 million in
1993 to $40.0 million in 1994, an increase of 70.2%. Facility salaries and wages
increased 68.2%, attributable to new leases in Texas. Ancillary expenses
increased $1.7 million due to the increase in the number of facilities
participating in the Medicare program.
Lease Expense. Lease expense increased from $5.1 million in 1993 to $8.3
million in 1994, an increase of 62.7%, due to the new leases.
General and Administrative. General and administrative expenses increased
from $3.7 million in 1993 to $6.3 million in 1994, an increase of 70.3%. This
increase is primarily attributable to new leases and additional resources
dedicated to expanded Medicare operations in 1994.
Depreciation and Amortization. Depreciation and amortization increased
from $704,000 in 1993 to $987,000 in 1994, an increase of 40.2%. This is
primarily attributable to the amortization of leasehold rights recorded as part
of the acquisition of five of the Texas facilities in December of 1994.
Interest Expense. Interest expense increased from $385,000 in 1993 to
$872,000 in 1994, an increase of 126.5%, primarily due to the payment of
interest on subordinated long-term debt.
Income/Loss before Income Taxes and Net Loss. Loss before income taxes
increased from $542,155 for the year ended December 31, 1993 to $1.9 million for
the year ended December 31, 1994. This was primarily attributable to an increase
in supplies expense, principally ancillary costs, in 1994 which were not
billable to Medicaid. There was no tax benefit provided for the losses since a
valuation reserve was established for such income tax benefit. Net loss
increased from $593,905 in 1993 to $2.0 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, Unison had $17,409,000 in cash and cash equivalents
compared to $6,169,000 at December 31, 1995. The Company had a working capital
deficit of $13,955,000 at December 31, 1996 compared to a working capital
deficit at December 31, 1995 amounting to $927,000. The working capital deficit
shown at December 31, 1996 is primarily the result of current maturities of
notes and debt amounting to $33,915,000. Of this amount, approximately
$12,545,000 was repaid in January 1997 with proceeds from the Senior Notes and
$19,622,000 is classified as a current liability because Unison is not in
compliance with certain financial covenants; however, although the financial
covenants have not yet been cured, management has no reason to believe that this
debt will be accelerated and paid off in 1997.
42
<PAGE> 46
Cash used in operations in the year ended December 31, 1996 amounted to
$23,658,000 compared to $932,000 in 1995 and $43,000 in 1994. The increase is
due primarily to losses from operations for the various reasons described above
in the comparison of 1996 to 1995 and a net increase in accounts receivable of
$5,310,000, partially offset by an increase in accounts payable and accrued
expenses of $2,454,000 and a decrease in prepaid expenses of $825,000.
Net cash used in investing activities amounted to $48,723,000 in 1996
compared to $3,679,000 in 1995 and $1,630,000 in 1994. In 1996, capital
expenditures amounted to $3,587,000 compared to $1,333,000 in 1995 and $995,000
in 1994. Capital expenditures of approximately $2,144,000 are budgeted for 1997
for routine replacements and refurbishment of facilities, which is anticipated
to be funded from operating cash flows and borrowings under lines of credit.
Expenditures for acquisitions, net of cash acquired, amounted to $41,225,000 in
1996, $40,066,000 of which relates to the Signature Acquisition, compared to
$677,000 in 1995 for the BritWill Acquisition and $300,000 in 1994. Increases in
intangible and other assets amounted to $2,707,000 in 1996, $1,397,000 in 1995
and $155,000 in 1994.
Net cash provided by financing activities amounted to $83,621,000 in 1996
compared to $10,474,000 in 1995 and $1,795,000 in 1994. At December 31, 1996,
Unison had $157,138,000 in total debt (93.1% of total capitalization) compared
to $26,737,000 (56.1% of total capitalization) at December 31, 1995.
On October 31, 1996, Unison completed the private placement of $100,000,000
of the Senior Notes. The net proceeds to Unison amounting to $94,550,000 were
used to complete the Signature Acquisition and the Ampro Acquisition and prepay
certain debt and contingent obligations as described below. Excess proceeds of
approximately $15,500,000 were used for acquisitions and working capital. The
stated interest rate of 12 1/4% per annum is subject to temporary increase if
the Senior Notes (or Exchange Notes with the same terms) are not registered with
the Commission within specified time periods. As of December 31, 1996, the
interest rate on the Senior Notes was 12.75% and as of May 16, 1997 the interest
rate is 13.00%. The interest rate is subject to further increases of 0.25% on
June 13, 1997 and every 90 days thereafter (up to a maximum rate of 14 1/4%)
until such registration becomes effective.
In January 1997, Unison repaid with proceeds from the Senior Notes the
$8,000,000 Subordinated Note payable to the former BritWill shareholders and
$1,750,000 of the contingent obligation due to the former BritWill shareholders.
Thereafter, Unison's remaining obligation associated with the BritWill
Acquisition is the $9,750,000 Additional Payment Obligation. The Additional
Payment Obligation is payable in monthly installments of $99,000 to $166,000,
which includes interest at 12.0% to 14.0%, with a balloon payment of $8,146,000
due August 9, 2000. Because these payments are contingent upon revenue targets
that, in light of recent acquisitions, are likely to be achieved, the Additional
Payment Obligation is recorded as long-term debt and an increase in lease
operating rights in the consolidated balance sheet at December 31, 1996.
Although this does not change the amount of cash due to the former BritWill
shareholders, Unison will record an increase in amortization and interest
expense in 1997 in the aggregate amount of approximately $1,600,000. In the
event of a sale by Unison prior to August 9, 2000 of debt or equity securities
exceeding $10,000,000, the remaining balance of the Additional Payment
Obligation will be due in full.
In connection with the Signature Acquisition, Unison assumed a 10.5%
mortgage loan (the "Mortgage Note") collateralized by property and equipment of
six of the Signature facilities. The Mortgage Note requires Unison to maintain a
consolidated net worth of at least $39,000,000 and a minimum current ratio
(current assets to current liabilities) consolidated for the six properties of
at least 1.45 to 1 during 1996 and a debt service coverage ratio (as defined)
for the four preceding quarters consolidated for the six properties of at least
1.5 to 1. While the minimum current ratio and debt service ratios consolidated
for the six properties were in compliance with the debt covenants, Unison's
consolidated net worth was $11,689,000 as of December 31, 1996 and accordingly,
the Company was not in compliance with the net worth covenant. Unison did not
receive a waiver of this covenant violation and accordingly, classified the
entire obligation of $18,640,000 as current. In addition, the Company has not
met the financial reporting requirements of the Mortgage Note.
Effective February 1, 1996, in connection with the acquisition of Sunbelt
Therapy, Unison issued the Sunbelt Notes in the aggregate amount of $2,800,000
with interest payable quarterly at 10.0%. The Sunbelt Notes were convertible
into shares of Unison Common Stock. In January 1997, Unison repaid $2,000,000 of
43
<PAGE> 47
the Sunbelt Notes with proceeds from the Senior Notes, and the remaining
$800,000 principal amount was converted into 105,196 shares of Unison Common
Stock. In November 1996, but effective February 1, 1996, Unison repurchased the
10% minority interest in Sunbelt Therapy. Consideration for the purchase was
comprised of promissory notes and guaranteed payments totalling $1,876,000, with
interest payable quarterly at 9.0% per annum, and 27,942 shares of Unison Common
Stock. Additional contingent payments of up to $1,418,000 will be due if
specified income targets are achieved by Sunbelt Therapy.
Unison also entered into a number of capital leases in 1996. At December
31, 1996, capital lease obligations for purchases of computer systems and other
fixed assets totalled $2,969,000, payable monthly over three to five years with
interest at 11.5% to 12.9%. The leases of two nursing facilities entered into in
August 1996 were recorded as capital leases; at December 31, 1996 the aggregate
lease obligation amounted to $4,122,000, payable monthly over the lease terms at
effective interest rates of 10.5% to 15.0%.
Unison's minimum annual contractual commitments for leaseholds and
principal and interest on debt are expected to be as follows:
<TABLE>
<CAPTION>
LONG-TERM OPERATING TOTAL
DEBT LEASES OBLIGATIONS
------------ ----------- ------------
<S> <C> <C> <C>
Year ending December 31,
1997............................................ $ 33,289,000 $15,492,000 $ 48,781,000
1998............................................ 20,878,000 15,591,000 36,469,000
1999............................................ 19,268,000 15,362,000 34,630,000
2000............................................ 25,793,000 14,727,000 40,520,000
2001............................................ 16,499,000 13,975,000 30,474,000
Thereafter...................................... 177,071,000 89,596,000 266,667,000
</TABLE>
Unison finances its working capital needs out of its operating cash flows
and under a $10,000,000 revolving credit facility. Borrowings under this credit
facility bear interest at the prime rate plus 2.0% (10.25% at December 31, 1996)
and are secured by certain of Unison's eligible accounts receivable. On October
31, 1996, Unison repaid the outstanding balance of $8,900,000 (plus $200,000 of
fees) with proceeds from the Senior Notes. There were no outstanding borrowings
under this credit facility at December 31, 1996. In March 1997, Unison paid a
management fee (in lieu of a termination fee) of $500,000. The lender agreed
that the existing facility would remain in place at Unison's option until May
26, 1998. Unison is currently working with several lenders in an effort to
replace the existing credit facility and increase the availability of working
capital.
On April 21, 1997, the Company obtained a $2,950,000 loan for general
working capital purposes from affiliates of two of its directors, Messrs.
Kremser and Whitehead. The loan bears interest at prime plus 2% and is due on
the earlier of 30 days notice or August 1, 1997. The loan (and other Company
indebtedness to Messrs. Kremser and Whitehead and their affiliates) is secured
by a pledge of certain other accounts receivable and the stock of certain Unison
subsidiaries.
The terms of certain of Unison's indebtedness and lease obligations require
the Company to meet certain financial and reporting covenants including current
ratio and cash flow ratio and maintenance of specified levels of net worth. At
December 31, 1996, Unison was not in compliance with many of these covenants. At
December 31, 1996, Unison was obligated to Omega as a tenant under three master
lease agreements covering 14 facilities having an aggregate minimum rent of
approximately $34,900,000 (subject to increase) during the remainder of their
initial terms. The master leases require the Company to maintain specified cash
flow to rent ratios, cash flow to debt service ratios, minimum cash, current
ratios and tangible net worth ratios (each as defined). Unison also leases six
facilities located in Texas from BritWill Texas (the "BritWill Texas Leases")
for an initial term that expires in December 2005. The Britwell Texas Leases
contain cross default provisions with the Omega leases by which if Unison is in
default with any Omega indebtedness or lease obligation, the Company is also in
default under the Britwell Texas Leases. Unison was not in compliance with these
covenants at December 31, 1996. Omega has waived all existing covenant
violations through April 11, 1997. The Company may not be in compliance with
these covenants after this date and, accordingly, is negotiating
44
<PAGE> 48
with Omega to restructure the aforementioned covenants. Management is attempting
to renegotiate the leases; however there can be no assurance that such
restructuring will be accomplished.
Unison's primary response to these developments has been to reduce costs
wherever possible without adversely impacting the quality of care and ancillary
services it provides. The number of corporate office personnel has been reduced
by approximately 35%, from 142 on December 31, 1996 to 92 on May 15, 1997. Cost
cutting and revenue enhancement initiatives are also underway at the nursing
homes and ancillary services companies.
The Company believes that its revenues from operations and its existing
$10,000,000 line of credit facility may be sufficient to meet its near-term cash
flow and capital requirements. However, these funds might not be adequate in the
event of a material reduction in revenues or increase in expenses or if other
risks identified above were to occur. The Company is attempting to develop
lending relationships that will use the Company's available accounts receivable
and other available assets to reduce overall borrowing costs and, if necessary,
supply additional working capital. The Company also intends to explore
opportunities for a secured or unsecured term loan or for equity financings,
should that prove necessary or desirable. There can be no assurances that such
financings will be available or, if available, that necessary funds will be
available on terms favorable to Unison and its shareholders.
Inflation. The Company does not believe that inflation has adversely
affected the Company's business during the past three years, even though
Medicare and Medicaid reimbursement rates in some areas have not kept pace with
inflation. To the extent inflation occurs in the future, the Company may not be
able to pass on the increased costs associated with providing health care
services to patients if reimbursement from third party payors does not keep up
with such increases.
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<PAGE> 49
BUSINESS
INTRODUCTION
Unison is a leading provider of comprehensive long-term and specialty
healthcare services. As of March 31, 1997, after giving effect to the
Dispositions, Unison ranks as one of the 25 largest long-term care operators in
the United States, operating facilities in 12 states clustered in the Midwest,
Southwest and Southeast. These facilities include 47 long-term and specialty
care facilities with 4,671 licensed beds and eight independent or assisted
living facilities with 315 units. Unison seeks to operate its businesses as an
interrelated network of services to provide a full continuum of cost-effective
long-term and specialty healthcare.
Unison's healthcare services include both traditional long-term care
services and higher margin specialized healthcare, such as rehabilitation,
infusion and respiratory therapy. Unison also has recently expanded its role as
a medical supplier, both to its facilities and to non-affiliated facilities, of
pharmaceutical services, rehabilitation and therapy services, medical supplies
and laboratory testing.
INDUSTRY OVERVIEW
Unison believes there will continue to be significant business
opportunities to provide healthcare services to long-term care residents in
non-hospital settings, including both long-term care facilities and assisted or
independent living facilities. Certain factors that contribute to this growth
potential are described below.
Industry Consolidation. The long-term care industry is highly fragmented.
There are approximately 16,000 long-term care facilities in the United States
which contain a total of approximately 1.6 million licensed beds. The 35 largest
long-term care providers operate approximately 4,000 facilities comprising
approximately 450,000 licensed beds, or 28% of the industry total. Recently, the
long-term care industry has been subject to competitive pressures and
uncertainty with regard to future changes in governmental regulations, which
have resulted in a trend toward consolidation, especially of smaller, local
operators into larger, more established regional or national providers. The
increasing complexity of medical services provided, growing regulatory and
compliance requirements and increasingly complicated and potentially volatile
reimbursement systems have resulted in the consolidation of operators who lack
sophisticated management information systems, operating efficiencies and
financial resources to compete effectively. Unison believes that this trend
toward consolidation will continue. See "-- Business Strategy."
Aging Population. The overwhelming majority of the patients in long-term
care facilities and residents in assisted or independent living facilities are
over the age of 65. According to the United States Bureau of the Census, the
number of people over the age of 65 in the United States has grown from
approximately 25.6 million in 1980, or 11.3% of the population, to approximately
31.1 million in 1990, or 12.5% of the population, and is projected to increase
to approximately 62.2 million, or 18% of the population, by 2025. The United
States Bureau of the Census also reported that approximately 6% of the United
States population between the ages of 75 and 84 and 22% of those over 84 used
some form of healthcare services in a long-term care facility. As the United
States population ages, the demand for the types of service Unison provides is
expected to increase. According to published reports, one in three Americans
currently 65 years old can be expected to enter a nursing home, for an average
of two to three years.
Cost Containment Pressures. Governmental and private pay sources have
adopted cost containment measures which encourage reduced lengths of stay in
acute care hospitals. Many of the patients being discharged, in particular
elderly patients, require additional skilled nursing care and specialty
healthcare services, such as those provided by Unison. Any subsequently adopted
healthcare reform proposals are expected to continue to emphasize the cost
containment efforts included in healthcare reform legislation. See
"-- Government Regulation."
Advances in Medical Technology. Sophisticated new forms of medical
equipment and treatment have lengthened life expectancies, increasing the number
of individuals requiring specialized care and supervision. In the past, the
level of care required by many of these individuals was not generally available
outside acute care hospitals. However, long-term care providers such as Unison
have become a more attractive alternative to
46
<PAGE> 50
acute care hospitals in certain instances due to technological advances that
have enabled long-term care providers to offer services less expensively than
are provided by acute care hospitals.
Limitations in the Supply of Long-Term Care Facilities. In many areas the
number of available long-term care beds has not grown as quickly as the demand
for them in recent years. Many states (but not all of the states in which Unison
operates) have enacted certificate of need or similar legislation which
generally limit the construction of long-term care facilities and the addition
of beds or services in existing facilities. Furthermore, high construction
costs, limitations on government reimbursement for the full costs of
construction, and start-up expenses also act to constrain growth in the numbers
of facilities. As a result, the Company believes that the supply of long-term
care facilities may not grow as quickly as the demand for such facilities. See
"-- Government Regulation -- Certificates of Need."
BUSINESS STRATEGY
Unison's business strategy is to become a preferred provider of long-term
and specialty healthcare services in its markets by offering a full range of
high quality, cost competitive, long-term healthcare services. Unison seeks to
offer these services across the entire continuum of care from independent and
assisted living, to traditional long-term, specialty and subacute care.
Provide a Continuum of Care. Unison operates both skilled nursing and
assisted living facilities and provides a wide variety of medical,
rehabilitative and pharmaceutical treatments. This strategy provides an
opportunity for entry at each point in the continuum of care. As patients' needs
change, they may be served by different elements of the care continuum. The
primary benefit of offering a continuum of care is that it offers patients an
appropriate level of cost-effective care which the Company believes is
attractive to third party payors.
Unison believes that independent and assisted living arrangements have
become an increasingly important component of the continuum of care required by
older Americans. Cost containment pressures from government and private payors
alike encourage discharge from long-term and specialty care facilities before
residents may be fully able to care entirely for themselves. The change from the
traditional family structure which was able to care for the sick and elderly to
dual income families has increased the need for facilities that can assist such
persons. Unison believes that offering services at this important level of the
continuum of care enables it to maintain contacts with potential consumers of
its long-term and specialty healthcare services and thus to improve its
occupancy levels and profitability.
Improve Payor Quality, Occupancy Levels and Operating Margins. Unison is
focused on improving its payor quality mix and occupancy levels. The
profitability of caring for private-pay and Medicare patients is generally
higher than that of Medicaid patients. Unison's marketing efforts are focused on
the hospital and medical community in each market to promote higher occupancy
levels and improved payor mix at its long-term care facilities and assisted or
independent living centers.
Unison seeks to improve its profitability by attempting to obtain an
increasing proportion of its revenue from specialized healthcare services which
typically generate higher profit margins than basic long-term nursing care.
Specialty healthcare services are developed in cooperation with and in
accordance with the needs of the local medical community. Specialty programs are
developed by marketing professionals and facility administrators working
directly with local hospital discharge planners and physicians. Management
believes that this approach generally has been well received by local medical
communities, as demonstrated by the recent increases in Unison's quality mix.
Increase Contribution from Ancillary Services. Unison believes that
opportunities exist to capture ancillary service revenues and operating profits,
both from its own facilities and from non-affiliated facilities. Unison provides
ancillary services to facility residents in response to physician orders. The
major ancillary services include physical, speech, and occupational therapies;
pharmaceuticals; parenteral and enteral nutrition; infusion and respiratory
therapies; and laboratory services. Historically, Unison has provided most of
these services through contracts with third party providers, but it is
increasingly offering such services through its ancillary services companies. In
addition to providing services to its own long-term and specialty healthcare
47
<PAGE> 51
facilities, each of these ancillary providers offers services to other,
unrelated long-term care providers, adding to Unison's revenue base. See
"-- Acquisitions."
Concentrate Healthcare Facilities in Geographic "Clusters." Although
Unison's acquisition program has been substantially curtailed for the indefinite
future, Unison has in the past sought to acquire facilities which fit within
existing geographic regions or "clusters," and to enter new markets through
clustered acquisitions. Clustering is intended to attempt to capture local
economies of scale by providing ancillary services, purchasing, marketing,
information systems, risk management, accounting, reimbursement and quality
control to geographically concentrated facilities. The cluster strategy is based
on the belief that clustering facilities will enable Unison to leverage
management across a larger base of client revenue and efficiently monitor
individual facilities, ensuring high quality patient care. Clustering facilities
should also enable Unison to leverage the addition of ancillary services over a
larger patient base. The Signature Acquisition, which included the acquisition
of five long-term care facilities in the Denver, Colorado area, is an example of
this strategy.
Provide High Quality Care on an Economic Basis. Unison seeks to position
each of its facilities as a high quality provider in its respective market, but
to do so on a cost-effective basis. Unison believes it provides quality patient
care and is generally successful in maintaining regulatory compliance. This is
illustrated by the reduction in the number of deficiencies cited in governmental
reviews from August 1995 through July 1996 of the 28 operating facilities Unison
acquired in the BritWill Acquisition. Under Unison management, these facilities
averaged a 43% reduction in the number of deficiencies cited after the first
review, a 75% reduction as of October 1, 1996, and a 93% reduction as of May 20,
1997 as compared with the number of deficiencies cited prior to the acquisition.
At the time of the Signature Acquisition all of Unison's facilities had
implemented Unison's quality improvement program.
Contain Costs. Unison believes that the increasing penetration of managed
care will intensify the focus on containing costs. Unison establishes detailed
operating budgets at its facilities and the administrator is responsible for
adherence to these budgets. Monitoring the performance of these budgets at the
facility level is necessary to enable Unison to control operating costs.
PATIENT SERVICES
Unison's objective is to provide long-term care services across the
continuum of care from independent living services to subacute care services,
all of which are provided primarily to the elderly. Independent living
facilities that offer assistance with activities of daily living are appropriate
for those among the elderly requiring limited healthcare services. Assisted
living facilities are appropriate for residents in need of greater assistance,
but who do not need the services of a skilled nursing facility. The services of
an assisted living facility are appropriate where nutritional, housekeeping, and
only limited medical services are needed. For the elderly and other patients in
need of specialized support, rehabilitation, nutrition, respiratory therapies
and other treatments, skilled nursing care is often required. The innovation of
specialized subacute services within skilled nursing facilities also responds to
the needs of patients requiring intense and specialized treatment and
rehabilitation therapy services immediately after hospitalization.
Assisted and Independent Living Services. Services and facilities at
assisted and independent living centers include central dining facilities,
limited nursing services, recreational areas, social programs, housekeeping,
laundry and maintenance service, emergency call systems, special features for
handicapped persons and transportation to shopping and special events. These
facilities provide fewer nursing and medical services than are provided at
Unison's long-term care facilities. Unison believes that the availability of
healthcare services and assistance with the activities of daily living are
significant reasons that residents move to an assisted or independent living
center.
Skilled Nursing Care Services. Unison's skilled nursing facilities provide
basic healthcare services, including room and board, dietary services,
recreational therapy, social services, housekeeping, laundry and nursing
services. In addition, the long-term care facilities dispense medications and
otherwise follow care plans prescribed by the patient's physician. Unison's
long-term care facilities are licensed by state licensing agencies
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<PAGE> 52
and are extensively regulated at the federal, state, and local level. Unison
also provides for the delivery of specialty medical services at its facilities.
Subacute and Other Specialty Care Services. Unison's facilities currently
offer a wide variety of subacute and specialty healthcare services, which may
include (i) intensive rehabilitation services; (ii) wound management; (iii)
enteral and parenteral feeding programs; (iv) intravenous drug administration,
including chemotherapy; (v) respiratory therapy; (vi) orthopaedic rehabilitation
and (vii) other specialized subacute services. Subacute and other specialty care
is a major component of Unison's strategy. Unison provides care to certain types
of patients with specialized needs through designated units such as those for
the treatment of Alzheimer's disease, AIDS and other conditions. These units are
located in specially designed sections within selected facilities and are
staffed by specially trained personnel. As of March 31, 1997 Unison operated 246
licensed beds in Alzheimer's units, 36 beds in AIDS units and more than 200 beds
in other specialty units, including wound management, hospice care,
rehabilitation services and respiratory therapy. In addition to providing care
tailored to the unique needs of patients within these units, these services
include education and support to the patients' families. These units generally
receive higher levels of reimbursement. The daily cost to patients for Unison's
specialty services are generally significantly less than the cost charged for
similar services by acute care hospitals.
Ancillary Services. Unison provides ancillary services to the residents of
skilled nursing facilities in response to physician orders. The major ancillary
services include physical, speech and occupational therapies, pharmaceuticals,
parenteral and enteral nutrition, infusion and respiratory therapies and
laboratory services.
PAYOR MIX
Medicare, Medicaid, and other payor sources each pay at different rates,
which are customarily expressed as rates per patient day. Changes in the mix of
a facility's patient population among Medicaid, Medicare, and private pay can
significantly affect the profitability of the facility's operations because of
the widely varying rates of payment between these various payors. As the
following table indicates, Unison has achieved growth in its quality mix of
payor sources throughout the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------- PRO FORMA
SOURCE OF REVENUES 1993 1994 1995 1996 1996(1)
- ------------------------------------------------ ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C>
Medicare........................................ 3.4% 9.1% 26.9% 29.5% 30.2%
Private and other............................... 13.8 32.4 17.2 17.0 18.1
----- ----- ----- ----- -----
Quality mix................................ 17.2 41.5 44.1 46.5 48.3
Medicaid........................................ 82.8 58.5 55.9 53.5 51.7
----- ----- ----- ----- -----
Total.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Adjusts for the Completed Acquisitions and the Dispositions as though such
transactions occurred as of the first day of the period presented.
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<PAGE> 53
PROPERTIES
The following table summarizes certain information regarding the long-term
care facilities and assisted and independent living centers operated by Unison
as of June 30, 1997. Except as indicated, all of the facilities are leased.
The following table lists, by state, the nursing facilities operated by the
Company as of June 30, 1997.
<TABLE>
<CAPTION>
LICENSED MANAGED FOR
NUMBER BEDS OWNED LEASED THIRD PARTIES(1)
------ -------- ----- ------ ----------------
<S> <C> <C> <C> <C> <C>
Alabama...................................... 2 189 -- 2 --
Arizona...................................... 7 685 3 4 --
Colorado..................................... 5 473 3 2 --
Idaho........................................ 2 183 -- 2 --
Indiana(2)................................... 12 1,074 -- 12 --
Kansas....................................... 2 106 -- 2 --
Michigan..................................... 2 307 -- 1 1
Nevada....................................... 1 99 -- 1 --
Pennsylvania................................. 1 74 -- 1 --
Tennessee.................................... 1 89 -- -- 1
Texas........................................ 13 1,474 -- 13 --
Washington................................... 2 187 -- 2 --
----- --- ----- ---
--
Number of nursing facilities................. 6 42 2
50
=== ===== ===
==
Number of licensed beds...................... 4,940 480 4,300 160
===== === ===== ===
</TABLE>
- ---------------
(1) Excludes two facilities with an aggregate of 222 licensed beds for which
Unison provides reduced-scope management services and receives management
fees averaging 3.0% of revenues.
(2) Includes three facilities with an aggregate of 269 licensed beds which are
held for disposition.
The following table lists, by state, the independent living and assisted
living facilities operated by the Company as of June 30, 1997. All of the
facilities are leased.
<TABLE>
<CAPTION>
NUMBER UNITS
------ -----
<S> <C> <C>
Alabama..................................................... 3 80
Arizona..................................................... 2 124
Idaho....................................................... 1 60
Indiana..................................................... 1 19
Pennsylvania................................................ 1 32
---
-
315
8
===
=
</TABLE>
Unison leases approximately 23,000 square feet of office space in
Scottsdale, Arizona and Denver, Colorado. The Scottsdale office houses the
executive offices of Unison, and the lease for that space expires in the year
2004. Unison maintains regional offices in Lakewood, Colorado and Indianapolis,
Indiana. These regional offices are either in small office suites or in homes of
the regional executives. Quest Pharmacies, Inc. ("Quest") leases approximately
3,600 square feet of commercial office space in Longview, Texas for its pharmacy
operations and approximately 2,000 feet of office space in Bloomington, Indiana
for its Indiana pharmacy. Sunbelt, through the four therapy companies, leases an
aggregate of approximately 38,000 square feet of space for outpatient clinics
and fitness centers in Mississippi and Alabama. Ampro leases an aggregate of
approximately 7,700 square feet for office and laboratory space in Texas and
Tennessee and owns one building with approximately 4,000 square feet of space,
in Missouri. Lease terms on most of the office, pharmacy, laboratory and therapy
space range from one to five years. Management believes that Unison's
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<PAGE> 54
leased properties are adequate for its present needs and that suitable
additional or replacement space will be available as required.
Unison leases 50 long-term and specialty healthcare facilities and assisted
or independent living centers. Unison's leases typically are triple net
obligations, have initial terms of 5-10 years with renewal options for up to 15
to 20 years and are generally classified as operating leases within the meaning
of Statement of Financial Accounting Standards No. 13. Unison's leases typically
provide for automatic rent increases or repricing. Unison typically grants its
lessor a security interest in Unison's personal property at the leased facility.
Unison's leases are typically entered into by its subsidiaries and guaranteed by
Unison. Some of the leases require Unison to maintain a minimum net worth,
expend specified sums per bed for capital expenditures, maintain certain current
ratios and coverage ratios and prohibit Unison from operating any additional
facilities within a certain radius of the leased facility. In addition, Unison
is generally required to maintain comprehensive insurance covering the
facilities it leases as well as personal and real property damage insurance and
professional malpractice insurance. Failure to pay rent within a specified time
period constitutes a default under each lease agreement, which default, if
uncured, permits the facility's lessor to terminate the lease. In all cases,
Unison's interest in the premises is subordinated to that of the lessor's
mortgage lenders.
Unison's most significant lessors are Omega from which Unison leases 14
facilities, American Health Properties from which Unison leases six facilities
and BritWill Investments-Texas, Ltd. ("BritWill Texas") from which Unison leases
six facilities. The leases typically include cross default provisions. Covenants
in the Omega leases require maintenance of specified operating ratios, levels of
working capital and net worth. As of December 31, 1996, Unison was not in
compliance with these covenants. Omega has agreed to waive these requirements as
of December 31, 1996. Unison is in the process of renegotiating the Omega leases
to provide for a single lease of all Omega properties and to restructure the
associated covenants.
ACQUISITIONS
On October 31, 1996, Unison acquired Signature. As of March 31, 1997,
Signature operated 11 long-term care facilities with 1,043 licensed beds in
Arizona and Colorado. Signature provides rehabilitation services through its
related company, RehabWest. Signature also operates two assisted living
facilities with 124 units. Signature's long-term care facilities generally offer
the same types of services as are provided by Unison's other facilities.
At closing, the shareholders of Signature and RehabWest received (a) cash
equal to approximately $42.4 million (minus the amount paid by Unison to redeem
outstanding options for shares of Signature Health Care), (b) 1,509,434 shares
of Unison Common Stock, and (c) promissory notes of Unison in the aggregate
principal amount of $1.1 million bearing interest at the rate of 8% per annum
and maturing one to two years after the closing, which have been deposited into
escrow to secure Signature's representations and warranties. In accordance with
the adjustment provisions of the Signature merger agreements relating to their
stockholders' equity at closing, in March 1997 the former shareholders of
Signature received an additional $2.5 million in convertible promissory notes
and shares of Unison common stock.
On October 31, 1996, Unison also acquired Ampro in a pooling of interests
transaction. The consideration paid for Ampro included: (a) cash of
approximately $237,000, (b) 540,000 shares of Unison Common Stock, and (c) a
promissory note in the amount of $250,000, bearing interest at the rate of 10%
per annum and due in installments through April 15, 1998, which has since been
prepaid. The cash and promissory note eliminated the interest of a single
shareholder and represented less than 10% of the transaction value. Ampro
operates a medical laboratory business with laboratories in Texas, Missouri and
Tennessee which, at March 31, 1997, provided testing services for approximately
275 nursing homes and other healthcare facilities.
Unison's most significant acquisition prior to 1996 was the purchase of
BritWill on August 10, 1995. The consideration for the purchase included a
debenture that was fully converted into 561,815 shares of Unison Common Stock
and a combination of promissory notes and lump sum contingent payment
obligations totaling $25.0 million, as well as certain monthly contingent
payment obligations. Unison's only remaining obligation
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<PAGE> 55
related to the BritWill Acquisition is the $9.8 million Additional Payment
Obligation. The Additional Payment Obligation is payable in monthly installments
of $98,854 to $166,376 which includes interest at 12.0% to 14.0% with a balloon
payment of $8.1 million due August 9, 2000. Because these payments are
contingent upon revenue targets that, in light of recent acquisitions are likely
to be achieved, the Additional Payment Obligation is recorded as long-term debt
and an increase in lease operating rights in the consolidated balance sheet. In
the event of a sale by Unison prior to August 9, 2000 of debt or equity
securities exceeding $10.0 million, the unamortized balance of the Additional
Payment Obligation will be due in full. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Management -- Compensation Committee Interlocks and
Insider Participation in Compensation Decisions."
The Company has also acquired and developed several other ancillary
businesses in recent years. In May 1995, Unison established Quest to develop an
institutional pharmacy business. Quest has acquired the pharmacy operations of
Med-Shop Pharmacy in Gilmer, Texas, Indiana Prescription Lab, an institutional
pharmacy in Bloomington, Indiana, and Pharmcare, an institutional pharmacy in
Longview, Texas. As of March 31, 1997, Quest provided institutional pharmacy
services to 84 long-term care facilities, including 31 Unison facilities and 53
facilities operated by others. Since March 1995 the Company has also operated a
Medicare Part B billing and supply company that specializes in wound management
and enteral and parenteral feeding services. On February 1, 1996, Unison
acquired Sunbelt to provide therapy services. As of March 31, 1997, Sunbelt
(including RehabWest) provided therapy services to 94 facilities, including 35
Unison facilities and 59 facilities operated by others.
The following table shows the growth in the number of long-term care
facilities and independent and assisted living facilities leased or managed by
Unison (excluding two closed facilities) as of the dates indicated together with
the related number of licensed beds or living units, and the numbers as adjusted
to exclude the facilities held for disposition by Unison.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------------
1994 1995 1996 1996 AS ADJUSTED
------------------- ------------------- ------------------- -------------------
STATE FACILITIES BEDS FACILITIES BEDS FACILITIES BEDS FACILITIES BEDS
- -------------------------------------- ---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term care facilities:
Florida............................. 2 210 1 150 1 150 1 150
Indiana............................. 1 162 12 1,081 12 1,073 9 804
Michigan............................ 1 71 2 307 2 307 2 307
Nevada.............................. 1 99 1 99 1 99 1 99
Pennsylvania........................ 1 74 1 74 1 74 1 74
Tennessee........................... 1 89 2 176 1 89 1 89
Alabama............................. 3 337 2 189 2 189 2 189
Arizona............................. 1 115 1 115 7 685 7 685
Idaho............................... 2 183 2 183 2 183 2 183
Kansas.............................. 1 59 3 208 2 106 2 106
Washington.......................... 2 222 2 222 2 187 2 187
Texas............................... -- -- 16 1,825 16 1,837 13 1,469
Colorado............................ -- -- -- -- 5 476 5 476
-- -- -- --
----- ----- ----- -----
16 1,621 45 4,629 54 5,455 48 4,818
-- -- -- --
----- ----- ----- -----
Assisted and independent living
facilities:
Pennsylvania........................ 1 30 1 30 1 32 1 32
Alabama............................. 3 74 3 82 3 82 3 82
Tennessee........................... -- -- 1 117 -- -- -- --
Idaho............................... -- -- -- -- 1 60 1 60
Indiana............................. -- -- -- -- 1 22 1 22
Arizona............................. -- -- -- -- 2 124 2 124
-- -- -- --
----- ----- ----- -----
4 104 5 229 8 320 8 320
-- -- -- --
----- ----- ----- -----
Total............................. 20 1,725 50 4,858 62 5,775 56 5,138
== ===== == ===== == ===== == =====
</TABLE>
OPERATIONS
Unison is responsible for the day-to-day operation of both operated (owned
or leased) and managed facilities. These responsibilities include recruiting,
hiring and training all nursing and other personnel, and
52
<PAGE> 56
directing the full scope of patient care activities that are necessary to
operate the facilities. In general, these activities include direct patient
care, nursing services, food service, social services and resident activity
programs, housekeeping and maintenance, business office services including
billing and accounts receivable management, accounts payable, accounting and
finance, quality assurance, and regulatory compliance at each facility.
Organization. Unison believes that long-term and specialty care facilities
should be managed on a decentralized basis. This approach is intended to place
direct decision making as close to the bedside as possible so that facilities
will be able to respond to the specific needs of each medical community. In
order to accomplish this, Unison has created five regions, each of which is
supervised by a regional director. The regional director is supported by a
clinical operations specialist, a financial consultant, a regional director of
marketing, and assistant regional managers and clerical personnel, all of whom
are employed by Unison. Daily operations of each leased and managed facility are
supervised by an on-site licensed administrator. The administrator of each
facility is supported by other professional personnel, including a medical
director, who assists in the medical management of the facility, a director of
marketing who directs the sales and marketing efforts of the facility and a
director of nursing who supervises a staff of registered nurses, licensed
practical nurses and nurses aides. Other personnel include dietary staff,
activities and social service staff, housekeeping, laundry and maintenance staff
and a business office staff.
Quality Management. Unison maintains a quality improvement program that is
focused on important aspects of care and critical key indicators that measure
the quality of care provided to its patients. The program is an internal
facility process focused on involvement by direct care givers. Reporting is
monitored by Unison's eight registered nurses under the direction of the Senior
Vice President of Clinical Operations. Monthly reports are used to monitor
adherence to the standards of care established by Unison's quality improvement
program. On-site visits are conducted by specially trained healthcare
professionals. The quality improvement program is designed to provide patients
with better care, and thus a higher quality of life.
In addition to its quality improvement program, Unison strives to provide
each of its facilities with resources to deliver the high quality of care Unison
expects. Policy and procedure manuals are maintained by Unison and provided to
each facility. The manuals are updated to include changes in regulatory
requirements and improvements in clinical practices.
The facility administrator at each facility is primarily responsible for
adherence to Unison's standards of practice. Each facility administrator's
incentive compensation is based, in part, on the achievement of specified
quality objectives. Clinical Operations Specialists provide individualized
on-site training to direct care givers. Clinical Operations Specialists also
conduct mock state and federal surveys in advance of scheduled annual surveys.
In recent years Unison entered into certain leases of facilities that have
had regulatory compliance or quality difficulties. Unison has generally achieved
improvements of such facilities. In August 1995, Unison acquired 28 operating
facilities in the BritWill Acquisition. Regulatory records contained 244 total
deficiencies cited at these facilities prior to acquisition. On the first
governmental review conducted after acquisition this number was reduced to 138
deficiencies, a 43% reduction in regulatory noncompliance. As of October 1, 1996
the number of deficiencies at these facilities was 61, reflecting a cumulative
reduction of 75%. As of May 20, 1997, the equivalent number of deficiencies is
17.
Marketing. Unison's marketing efforts are designed to promote higher
occupancy levels and improved payor quality mix. Quality mix has improved from
approximately 41.5% in 1994 to approximately 46.5% in 1996 and, after giving
effect to the Completed Acquisitions and the Dispositions, 48.3% in 1996. Over
the same period and on a same facility basis, average occupancy improved from
72.2% to 78.6%. On an overall basis, average occupancy was 77.0% for 1996, and
after giving effect to the Dispositions, average occupancy for 1996 was 78.9%.
Unison believes that the long-term healthcare and assisted and independent
living industries are driven by local market forces and that patients and
referral sources are generally located in the immediate geographic area of the
facility. Unison's marketing strategy emphasizes the role and performance of the
administrator and director of admissions in marketing and promoting the services
offered by Unison facilities to each local community.
53
<PAGE> 57
Unison's marketing program is focused on market analysis, competitive
services, sales training, and accountability and tracking systems. Quantitative
and systematic reporting and analysis is monitored by the regional directors of
marketing, under the supervision of the Vice President of Marketing. Market
specific information, along with weekly and monthly reporting, is used to
monitor adherence to the standards established by Unison.
The hub of this strategy is the local facility administrator and director
of admissions and marketing. These individuals, under the direction of the
corporate and regional marketing staff, are responsible for establishing and
building relationships with various referral sources including general and
specialty physicians, hospital administration and discharge planners, insurance
case managers and other local community organizations. Unison seeks to use their
input in conjunction with demographic and medical data analysis to identify
specific market needs, and to introduce new services where appropriate. The
facilities also are involved in community affairs in order to maintain a public
awareness of their services.
DESCRIPTION OF MANAGEMENT SERVICES AND AGREEMENTS
As of May 1, 1997, Unison manages two long-term care facilities pursuant to
agreements under which Unison's responsibilities include recruiting, hiring and
training all nursing and other personnel on behalf of the owner and providing
quality assurance, resident care, dietary care, marketing, accounting, and data
processing services. Services performed at the headquarters level include group
contract purchasing, employee training and development, quality assurance
oversight, human resource management, assistance with third-party reimbursement,
financial and accounting functions, cash management, system design and
development and marketing support.
Unison receives a management fee for the management of long-term care
facilities based on a percentage of net revenues of each facility. Other than
certain corporate and regional overhead costs, the costs for services provided
at a facility are the facility owner's obligation. The facility owner also is
obligated to pay for all required capital expenditures. Unison is not required
to advance funds to the owners of the facilities it manages.
COMPETITION
Unison's facilities compete with general acute care hospitals, skilled
nursing facilities, rehabilitation hospitals, long-term care hospitals, assisted
living facilities, home care providers and other subacute and specialty care
providers. Many of these companies have greater financial and other resources
than Unison. No assurance can be given that Unison will have the resources to
compete successfully with such companies. In addition, cost containment efforts,
which encourage more efficient utilization of general acute care hospital
services, have resulted in decreased hospital occupancy in recent years. As a
result, a significant number of general acute care hospitals have converted
portions of their facilities to other purposes, including various types of
long-term and subacute care. Unison believes that the primary factors in
competing for subacute patients and programs are the scope and quality of
services offered, the location and attractiveness of the facility and the price
of such services.
Unison's pharmacy, rehabilitation therapy, laboratory and product supply
businesses compete with national, regional and local pharmacies, therapy
providers, medical reference laboratories and product supply companies, some of
which have significantly greater financial and other resources than Unison. No
assurance can be given that Unison will have the resources to compete
successfully with such companies. Unison believes that the primary factors in
competing for product supply business are the price and quality of the products
offered, that the primary factor in competing for pharmacy and laboratory
businesses is prompt service and the primary factors in competing for
rehabilitation therapy business are quality of service and availability of
competent therapists.
INSURANCE
Unison carries general liability, comprehensive property damage,
malpractice, workers' compensation, directors and officers and other insurance
coverages that management considers adequate for the protection of
54
<PAGE> 58
its assets and operations. The Company is partially self insured with respect to
certain healthcare benefits and workers' compensation benefits. There can be no
assurance, however, that the coverage limits of such policies will be adequate
or that insurance will continue to be available to Unison on commercially
reasonable terms in the future. A successful claim against Unison in excess of
its insurance coverage could have a material adverse effect on Unison and its
financial condition and results of operations. Claims against Unison, regardless
of their merit or outcome, may also have an adverse effect on Unison's
reputation and business.
GOVERNMENT REGULATION
Introduction. The federal government and all states in which Unison
operates regulate various aspects of Unison's business. All of Unison's skilled
nursing facilities are certified or approved as providers under one or more of
the Medicaid or Medicare programs. To participate in the Medicare or Medicaid
program, each facility must comply with federal participation requirements and
meet additional state licensure requirements. All of these programs are
currently the subject of numerous legislative and regulatory proposals at both
federal and state levels, some of which could adversely affect Unison. Further,
some state Medicaid programs require certification of all beds in a facility,
which may limit the ability of a facility in such states to establish distinct
Part A Medicare units for subacute care. Unison does not currently operate in
any of these states. Long-term care facilities include both skilled nursing
facilities for Medicare and nursing facilities for Medicaid. The Federal Social
Security Act (the "Act") authorizes the Secretary of the Department of Health
and Human Services to execute agreements with state survey agencies to determine
whether skilled nursing facilities meet the federal participation requirements
for Medicare. State survey agencies perform the same survey tasks for nursing
facilities participating or seeking to participate in the Medicaid program. The
results of Medicare and Medicaid surveys are used by the Healthcare Financing
Administration ("HCFA") and Medicaid state agencies as the basis for decisions
to execute, deny or terminate provider agreements with facilities.
Enforcement Proceedings and Sanctions; Certification Requirements. Under
the Omnibus Reconciliation Act of 1987 ("OBRA"), HCFA has promulgated survey,
certification and enforcement rules governing skilled nursing facilities and
nursing facilities participating in the Medicare and Medicaid programs. Among
other things, the HCFA rules governing survey and certification of long-term
care facilities define a number of terms used in the survey and certification
process. The rules require states to enact state plans (required by federal law)
to incorporate the provisions of the rules, including the full range of remedies
for nursing facilities subject to the jurisdiction of the state Medicaid agency.
Additional remedies are available.
Unannounced standard surveys must be conducted at least every 15 months
with a state-wide average of 12 months. In addition to the standard survey,
survey agencies have the authority to conduct surveys as frequently as necessary
to determine whether facilities comply with requirements of participation, to
determine whether facilities have achieved correction and to monitor care if
there is a change of ownership or management of a facility. Furthermore, the
state survey agency must review all complaint allegations and conduct a standard
or an abbreviated standard survey to investigate complaints of violations of
regulatory requirements by long-term care facilities if a review of the
complaint shows that a deficiency in one or more of the federal requirements may
have occurred and only a survey will determine whether a deficiency or
deficiencies exist. If a facility has been found to furnish substandard quality
of care, or to have deficiencies requiring "significant improvement," it is
subject to an extended survey. The extended survey is intended to identify
policies and procedures which may have caused a facility to furnish substandard
quality of care.
HCFA's rules allow either HCFA or state agencies to impose one or more
remedies provided under the rules for any particular deficiency. Facilities must
provide a plan of correction for all deficiencies regardless of whether a remedy
is imposed. At a minimum, the following remedies are available: termination of
provider agreement; temporary management; denial of payment for new admissions;
civil money penalties; closure of the facility in emergencies or transfer of
residents or both; and state monitoring. States may also adopt optional
remedies. The rules divide remedies into three categories. Category 1 remedies
include directed plans of correction, state monitoring and directed in-service
training. Category 2 remedies include denial of payment for new admissions;
denial of payment for all individuals (imposed only by HCFA); and civil money
penalties of $50 to $3,000 per day. Category 3 remedies include temporary
management, immediate termination or civil
55
<PAGE> 59
money penalties of $3,050 to $10,000 per day. The rules define situations in
which one or more of the penalties must be imposed.
The HCFA certification, survey and enforcement regulations impose
significant new burdens on long-term care facilities. The regulations may
require state survey agencies to take aggressive enforcement actions. The
breadth of the rules create uncertainty over how the rules will be implemented
and the standards of compliance.
Unison believes that its facilities substantially comply with the various
state licensure and Federal certification requirements applicable to them.
However, in the ordinary course of its business, Unison sometimes receives
notices of alleged deficiencies for failure to comply with regulatory
requirements. Unison reviews such notices and attempts to take corrective
action. Unison's facilities sometimes receive notices from state agencies which
result in fines and/or the agencies taking steps to decertify the facilities
from participation in Medicare and Medicaid programs. In one instance, Unison
paid or agreed to pay monetary penalties totaling $134,225 (following reductions
due to waiver of appeal rights) for violations of Medicare regulations and
approximately $16,000 for violations of state regulations, and voluntarily
terminated the participation of that facility in the Medicare program and
transferred residents to other facilities. This instance involved Unison's
Hillside Care Center located in Bonner Springs, Kansas. Hillside is currently
closed and is one of the Disposition Facilities.
Certificates of Need. Many states (although not every state in which
Unison operates) have adopted certificate of need or similar health planning
laws which generally require prior state agency approval of certain
acquisitions, new bed additions or services or capital expenditures. To the
extent that such approvals are required for Unison to expand its operations or
enter new geographic markets, Unison could be adversely affected by its
inability to obtain the necessary approvals and could incur delays and expenses
associated with obtaining such approvals.
Patient Referral Regulations. Unison is also subject to federal and state
laws that prohibit direct and indirect payments between healthcare providers
that are intended to induce or encourage the referral of patients to a
particular provider of items or services. Violation of these laws may result in
criminal fines, imprisonment and exclusion from the Medicare and Medicaid
programs. Federal regulations establish certain safe harbors from liability
under this statute. While failure to satisfy all of the criteria for a safe
harbor does not necessarily mean that an arrangement is unlawful, arrangements
that are of the same generic kind as those for which a safe harbor is available
may be subject to scrutiny if they fail to qualify for the appropriate safe
harbor. In addition, under separate statutes, submission of claims for payment
that are deemed to be false or fraudulent, or for items or services that are
"not provided as claimed," may lead to civil monetary penalties, criminal fines
and imprisonment, and/or exclusion from participation in Medicare, Medicaid and
other federally funded state healthcare programs.
Under Medicare conditions of participation and some state licensure laws,
Unison, because of its method of service delivery, is required to contract with
healthcare providers, practitioners and suppliers, including hospitals,
facilities, physicians, pharmacies and medical equipment companies. Some of
these individuals or entities may refer, or be in a position to refer, patients
to Unison, and Unison may refer, or be in a position to refer, patients to
certain of these individuals or entities. The Health Insurance Portability and
Accountability Act ("HR 3103"), which was signed by President Clinton on August
21, 1996, has for the first time established a procedure requiring the Secretary
of the Department of Health and Human Services to issue advisory opinions
concerning some activity punishable under federal healthcare fraud statutes. See
"-- HR 3103". The section concerning advisory opinions did not take effect until
six months after the date of enactment of HR 3103, and will sunset four years
after the date of enactment. Although Unison believes its practices are not in
violation of these laws, there can be no assurance that such laws will
ultimately be interpreted in a manner consistent with Unison's practices.
Additional legislation that became effective in stages on January 1, 1992
and January 1, 1995 prohibits physician referrals for certain "designated health
services" rendered to Medicare and Medicaid patients by a provider in which the
referring physician has an ownership interest or other financial relationship.
Various exceptions are available for financial arrangements that would otherwise
prohibit physician self-referrals.
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<PAGE> 60
Many states have also enacted physician self-referral laws that apply whether or
not Medicare or Medicaid payments are involved. Similar penalties, including
fines and loss of licensure or eligibility to participate in government
reimbursement programs, apply to violations of these state self-referral laws.
These self-referral laws could require Unison to modify its contractual
arrangements in order to satisfy an available exception, or limit the ability of
physicians with whom Unison has compensation arrangements to refer patients to
Unison.
The nursing home industry has been a target of focus by government
regulators seeking to discover and prosecute claims of healthcare fraud and from
time to time Unison has received inquiries related to such claims. Medicare
intermediaries and carriers have been given new instructions from HCFA
concerning investigating and referring for prosecution suspected instances of
Medicare and Medicaid fraud and abuse. In May 1996, the federal government
announced the first year results of its "Operation Restore Trust" initiative.
This initiative is a combined federal and state effort designed to combat
healthcare fraud, waste and abuse and specifically targets the Medicare and
Medicaid programs in connection with services of home health agencies, nursing
homes and durable medical equipment suppliers. These entities are targeted
because they account for the fastest growing cost areas in the Medicare and
Medicaid programs. Operation Restore Trust originally focused on five states:
California, Florida, Illinois, New York and Texas. It is now extended to all
states and is concerned with detection of suspected nursing facility fraud and
abuse. This effort is focused on problems with claims for services not rendered
or not provided as claimed and claims falsified to circumvent coverage
limitations on medical supplies. The Company expects efforts of this sort to
continue.
Payment For Services. Unison derives a significant portion of its net
revenues, directly or indirectly, from the Medicare and Medicaid programs. These
programs are subject to statutory and regulatory changes, retroactive and
prospective rate adjustments, administrative rulings and funding restrictions,
all of which could limit or reduce reimbursement for Unison's services. Any
significant decrease in Medicare or Medicaid reimbursement amounts could have a
material adverse effect on Unison. Unison also obtains payment from private
insurers, including managed care organizations and private pay patients.
Unison's facilities also have contracts with private payors, including health
maintenance organizations and other managed care organizations, to provide
certain healthcare services to cover patients for a set per diem payment for
each patient. There can be no assurance that the rates paid to Unison by these
payors will remain at current levels or be adequate to reimburse Unison for the
cost of providing services to covered beneficiaries. In addition, cost increases
due to inflation without corresponding increases in reimbursement could
adversely affect Unison's business.
The Medicare Program. The Medicare Program is a federally funded and
administered health insurance program for individuals age 65 and over or who are
disabled as defined by the Social Security Administration. Medicare covers and
pays for rehabilitation therapy services furnished in facilities in various
ways. Medicare reimburses the skilled nursing facility based on a reasonable
cost standard. For rehabilitation services provided directly, specific
guidelines exist for evaluating the reasonable cost of physical therapy,
occupational therapy and speech language pathology services. Medicare applies
salary equivalency guidelines in determining the reasonable cost of physical
therapy and respiratory services, which is the cost that would be incurred if
the therapist were employed by a nursing facility, plus an amount designed to
compensate the provider for certain general and administrative overhead costs.
Medicare pays for occupational therapy and speech language pathology services on
a reasonable cost basis, subject to the so-called "prudent buyer" rule for
evaluating the reasonableness of the costs. Unison's gross margins for services
reimbursed under the salary equivalency guidelines are significantly less than
services reimbursed under the "prudent buyer" rule.
HCFA recently proposed rules applying salary equivalency guidelines to
certain speech and occupational therapy services, while updating physical and
respiratory therapy guidelines. The proposed rates for occupational therapy and
speech language pathology services are lower than the Medicare reimbursement
rates currently received by Unison for these services. The proposed rates are
open for comment and have been subject to criticism by the industry. Unison
cannot predict when or if changes will be made to current Medicare reimbursement
methodologies. The imposition of salary equivalency guidelines on speech
language pathology and occupational therapy services could significantly impact
Unison's margins.
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<PAGE> 61
The Medicare program covers patients requiring daily skilled nursing and
other rehabilitation care following a minimum three-day stay in a general acute
care hospital, but does not cover patients requiring only intermediate or
custodial levels of care. With certain exceptions, payment for skilled nursing
facility services is made prospectively with each facility receiving an interim
payment during the year for its expected reimbursable costs. The interim payment
is later adjusted to reflect actual allowable direct and indirect costs of
services based on the submission of an annual cost report at year end. Each
facility is also subject to limits on reimbursement for routine costs.
Exceptions to these limits are available for, among other things, the provision
of atypical services. Due in part to the provision of subacute services,
Unison's costs for care delivered to Medicare patients in certain of its
long-term and specialty healthcare facilities have exceeded the routine cost
limits. Unison's failure to recover excess costs or to obtain such exceptions
could adversely affect Unison's results of operations.
The Medicaid Program. All of Unison's nursing facilities are certified to
participate in applicable state Medicaid programs. Medicaid is a joint
federal-state medical assistance program for individuals who meet certain income
and resource standards. Facilities participating in the Medicaid program are
required to meet state licensing requirements to be certified in accordance with
state and federal regulations and to enter into contracts with the state agency
to provide services at rates established by the state. Current federal law
requires Medicaid programs to pay rates that are reasonable and adequate to meet
the costs which must be incurred by a nursing facility in order to provide care
and services in compliance with applicable standards. There can be no assurance
that this provision will survive the current legislative efforts to revise
Medicaid. Beyond this general mandate, however, states have considerable
flexibility in establishing their Medicaid reimbursement systems, and as a
result, the payment methodologies and rates vary significantly from state to
state. All of the states in which Unison operates Medicaid-certified facilities
use a cost-based reimbursement system under which reimbursement rates are
determined by the state from cost reports filed annually by each facility, on a
prospective or retrospective basis. Recently, several states, including Texas
and Pennsylvania, have adopted case-mix prospective payment systems, pursuant to
which payment levels increase based on a patient's acuity level and need for
services. Reimbursable costs normally include the costs of providing healthcare
services to patients, administrative and general costs, and the costs of
property and equipment. Not all costs incurred are reimbursed, however, because
of cost ceilings applicable to both operating and fixed costs. Some state
Medicaid programs include an incentive allowance for providers whose costs are
less than the ceilings and who meet other requirements. In addition, certain
Medicaid payments are subject to relatively long collection cycles and payment
delays due to budget shortfalls in state Medicaid programs.
Medicaid reimbursement regulations for Indiana nursing facilities have been
revised three times since August 1, 1994. The first set of revised regulations
(known as "Rule 14") replaced the Rule 4.1 prospective payment system which had
existed since 1983. Under Rule 4.1, actual rate increases after the base period
were generally limited to approximately 3.0% annually and facility operators
were permitted to bill separately for certain ancillary therapy services and
non-routine medical supplies.
With the adoption of Rule 14, the Indiana reimbursement system changed from
a true prospective payment system to a modified cost-based system. Base rates
are now determined by actual costs in the base period subject to various line
item limits. Rates for subsequent years are set at the lower of costs from the
prior year or rates from the prior year inflated by the HCFA Skilled Nursing
Facility Market Basket Index, subject to maximum allowable limits and various
line item limits. This system has, over the last decade, resulted in an increase
in annual reimbursement rates of approximately 6%. Rule 14 also precludes
facility operators from billing separately for certain ancillary therapy
services and non-routine medical supplies. The overall impact of Rule 14 reduced
total Medicaid nursing facility payments by $10 million statewide out of total
prior year expenses of $720 million. The elimination of separate billing for
supplies and therapies had a significant effect on certain facility operators
who had relied heavily on this mechanism to underwrite operating losses from per
diem rates. Rule 14.1, Rule 14.2 and legislation effective July 1, 1995 have
made minor amendments which have generally increased certain line item limits.
HR 3103. On August 21, 1996, President Clinton signed HR 3103, which
contains a variety of significant healthcare fraud and abuse provisions,
including: creation of a coordinated federal healthcare fraud and abuse program;
establishment of a Medicare integrity program; expansion of current healthcare
fraud and
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<PAGE> 62
abuse sanctions; creation of a healthcare fraud criminal sanction; creation of a
criminal penalty for fraudulent disposition of assets in order to obtain
Medicaid benefits; and expansion of the authority to impose, and increasing the
amount of, civil monetary penalties.
Pharmacy. Pharmacists and those providing pharmacy services in the United
States are regulated by state statutes and the rules and regulations of state
boards of pharmacy. Currently, Unison operates pharmacies only in Texas and
Indiana. As required by Texas and Indiana law, Unison and its pharmacists are
licensed as a retail pharmacy and as pharmacists, respectively. In addition,
both state and federal regulators prohibit the dispensing of certain drugs or
medicines other than pursuant to a prescription written by a licensed
practitioner. In order to implement these restrictions, regulations impose
strict recordkeeping requirements with respect to the handling and dispensing of
controlled substances, small quantities of which are maintained in Unison's
pharmacy for use in filling prescriptions. These requirements also impose
significant recordkeeping obligations upon Unison and its pharmacists. Unison is
subject to regular audits by governmental authorities to monitor compliance with
recordkeeping and other requirements imposed by law and regulation. Penalties
for failure to comply with applicable regulations can range from imposition of
fines to the suspension or revocation of the license of the pharmacy, one or
more pharmacists, or both. As of March 31, 1997 Unison provided pharmacy
services to 14 Company-affiliated, and 42 non-affiliated skilled nursing
facilities in East Texas, and nine Unison-affiliated and eleven non-affiliated
skilled nursing facilities in Indiana (including the Disposition Facilities),
and eight other Unison-affiliated skilled nursing facilities in Arizona,
Colorado, Washington and Idaho.
Health Care Reform. The Clinton administration and various members of
Congress have made a number of legislative proposals to reform the healthcare
system. Congress is also considering proposals to significantly reduce Medicare
and Medicaid spending, either as a part of efforts to reduce the budget or as a
separate initiative. In addition, some of the states in which Unison operates
are considering or implementing various healthcare reform proposals. These
proposals could limit the types of services or number of providers available to
Medicaid beneficiaries. Unison anticipates that Congress and state legislatures
will continue to review and assess healthcare reform and budget reduction. Talks
in Congress have reached a stalemate with regard to the type and extent of
legislative reform of Medicare and Medicaid programs. Due to uncertainties
regarding the ultimate features of reform or budget initiatives and their
enactment and implementation, Unison cannot predict which, if any, reform
proposals will be adopted, when they may be adopted or what impact they may have
on Unison. No assurance can be given that such measures will not have a material
adverse effect on Unison.
EMPLOYEES
As of May 1, 1997, the Company employed approximately 4,600 full time
equivalent employees. Unison has collective bargaining agreements covering
approximately 500 of its full time equivalent employees. Unison believes that
its overall relations with its employees are good.
LEGAL PROCEEDINGS
Unison is, and may in the future be, party to litigation arising in the
ordinary course of its business. It is also routinely subject to surveys and
investigations by regulators and payors. There can be no assurance that Unison's
insurance coverage will be adequate to cover all liabilities occurring by reason
of such claims or investigations or that any such matters that are not covered
by insurance will not have an adverse effect on Unison's business.
Unison and certain of its current and former directors and officers are
named as defendants in several class action complaints seeking unspecified
damages following Unison's announcement in March 1997 that the Company expected
to restate its financial statements for the nine-month period ended September
30, 1996. To date, six such claims have been filed in federal district court in
Phoenix, Arizona alleging violations of Sections 10 and 20 of the Exchange Act
and Rule 10b-5 promulgated thereunder. While the purported class periods and the
named defendants vary, the broadest class period to date asserts that between
March 29, 1996 and March 10, 1997 (the date before Unison's March 11
announcement of the need for a restatement) the
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<PAGE> 63
defendants knew, or were reckless in not knowing, that Unison's results for the
first three quarters of 1996 were materially overstated, and/or misrepresented
the capability of Unison's internal accounting system to reliably record and
reflect its financial condition. Two of these actions (Amothy Corp. v. Unison
HealthCare Corp. et al. and Falkenstein v. Unison HealthCare Corp. et al.) also
allege that the conduct allegedly giving rise to the alleged violations of
federal law also violated the defendants' state law fiduciary duties as
directors and officers. The individual defendants named in some or all of these
actions are Jerry M. Walker (the Company's former Chief Executive Officer),
Craig Clark (the Company's former Chief Financial Officer), Paul Contris (the
Company's former Vice President of Acquisitions), Phillip Rollins (the Company's
Chief Operating Officer) and Bruce Whitehead (Chairman of the Board). In
addition, the Company is informed that an action has been filed in the Superior
Court of the State of California (County of Orange) against the Company and the
aforesaid individuals, as well as John T. Lynch, Jr. (a member of the Board of
Directors), Trouver Capital Partners, L.P. ("Trouver") (a private investment
banking firm of which Mr. Lynch is a general partner), Cruttenden Roth Inc. and
Wheat First Butcher Singer (the latter two entities are named individually and
as representatives of a purported defendant underwriter class). The Orange
County action is purportedly filed on behalf of all persons who acquired Unison
stock in the Company's December 1995 initial public offering ("IPO"); it
essentially alleges that in connection with the IPO, the defendants made
positive statements about the Company's prospects for which there was no basis,
that accounts receivable were overstated, and that the Company's statement of
financial position as of September 30, 1995 was not fairly presented. Unison's
bylaws require the Company to indemnify current and former officers and
directors to the extent permitted by Delaware law against such liabilities and
related expenses. The Company denies the material allegations in these
complaints and intends to defend the actions vigorously. Management believes
that the costs of the ultimate disposition of these matters, if any, will be
substantially covered by insurance. An adverse determination could have a
material adverse effect upon Unison.
Unison has received a complaint filed on October 22, 1996 in the Texas
state district court by RehabWorks, Inc. ("RehabWorks"), a therapy services
provider, based on allegations that Unison breached a non-solicitation covenant
in a contract with RehabWorks and tortiously interfered with RehabWorks'
employment relationship with several of its former employees. RehabWorks also
claims that Unison is past due with respect to payment of fees owed the therapy
services provider in the amount of approximately $875,000 plus interest. The
complaint seeks injunctive relief plus a judgment for the unpaid fees, alleged
compensatory damages of not less than $2,375,000 and exemplary damages of not
less than $2,250,000, plus interest and attorneys' fees. Unison intends to
defend this lawsuit vigorously.
Certain of Unison's subsidiaries are defendants in a suit instituted on
June 19, 1996 in the Texas state district court of Shelby County, Texas, which
has been transferred to Dallas County (Texas Star Therapy, Inc. vs. Emory Care
Center, et al, Case No. 96-07767-B) and in a related arbitration proceeding.
Texas Star is seeking $516,577 for unpaid therapy services provided by Texas
Star during 1995 plus interest, penalties, attorney fees and costs. On May 30,
1997, the Company entered into a settlement agreement in the amount of $875,000,
payable in installments through November 15, 1997.
A Unison subsidiary is also a defendant in Carillon/Alpha Limited vs.
BritWill Healthcare Corporation, Case No. 96-5742, filed on November 8, 1996 in
the Texas state district court for Dallas County, seeking $218,000 plus interest
and attorney's fees for three months rent and related costs for the period after
the subsidiary vacated the premises and before a new tenant occupied them.
Unison has asserted various defenses and intends to defend this lawsuit
vigorously.
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<PAGE> 64
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
As described more fully under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" herein, the Company discovered
early in 1997 that its operating results for the nine months ended September 30,
1996 were worse than reported. Unison's independent directors took steps to
redirect the financial and executive leadership and direction of the Company. In
connection with these changes Messrs. Walker, Clark and Contris ultimately
resigned as executive officers, directors and employees of the Company. David A.
Kremser, a Unison director who served as president and CEO of Signature until it
was acquired by Unison in October 1996, has served as Interim Chief Executive
Officer and Chief Financial Officer since April 1997.
The following table sets forth certain information with respect to the
current directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---------------------------- ---- --------------------------------------------------
<S> <C> <C>
Phillip R. Rollins.......... 39 Executive Vice President-Operations, Chief
Operating Officer, Director
James A. Rice............... 50 Executive Vice President, General Counsel and
Secretary
L. Robert Oberfield......... 59 President, Quest Pharmacies, Inc.
Paul G. Henderson........... 41 President, Sunbelt Therapy Management Services,
Inc.
Terry Troxell............... 46 Senior Vice President - Clinical Operations
William G. Allen, Jr........ 46 Senior Vice President - Operations
Bruce H. Whitehead(1)....... 44 Chairman of the Board, Director
John T. Casey(2)(3)......... 51 Director
Tyrrell L. Garth(2)......... 48 Director
David A. Kremser(1)(4)...... 49 Director
John T. Lynch, Jr.(1)(3).... 48 Director
Mark W. White(2)(3)......... 57 Director
</TABLE>
- ---------------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
(4) Mr. Kremser became a director of Unison upon the closing of the Signature
Acquisition. Since April 1997, Mr. Kremser has served as Chairman of the
Executive Committee of the Board of Directors.
Phillip R. Rollins, 39, has served as the Executive Vice President and
Chief Operating Officer of Unison since it commenced operations in July 1992,
when he co-founded Unison. From June 1989 until joining Unison, he was the
Director of Operations of Samaritan Senior Services, Inc. ("Samaritan"), a
regional operator of subacute and long-term care facilities based in Phoenix,
Arizona. Prior to joining Samaritan, Mr. Rollins was the Director of Medicare
and Ancillary Services for Life Care Centers of America, a private operator of
long-term care facilities headquartered in Cleveland, Tennessee. Mr. Rollins is
a member of the American College of Health Care Administrators.
James A. Rice has served as Executive Vice President, General Counsel and
Secretary of Unison since June 5, 1997. From 1995 to June 1997, when he joined
Unison, he was Special Counsel to Kaiser Foundation Health Plan, Inc., an
operator of prepaid health plans. From 1983 to 1995, Mr. Rice was an attorney in
private practice. From 1979 to 1983, Mr. Rice was Vice President, Associate
General Counsel and Assistant Secretary of American Medical International, Inc.,
a publicly traded hospital management company. Mr. Rice is a Certified
Administrator of Residential Care Facilities for the Elderly in California.
L. Robert Oberfield, 59, has been President of Quest Pharmacies, Inc., a
subsidiary of Unison, since it was organized in March 1995. From December 1992
to March 1995, he was employed by Sunscript Pharmacy
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<PAGE> 65
Corp., a subsidiary of Sun Healthcare Company, most recently as President. From
September 1990 to December 1992 he was employed by RDS Acquisition Corp.
("RDS"). RDS commenced bankruptcy proceedings in December 1991. At the time the
proceedings commenced, Mr. Oberfield was the Senior Vice President of RDS, and
he served as its President thereafter until December 1992.
Paul G. Henderson has served as President of Sunbelt Therapy Management
Services, Inc. since the acquisition of Sunbelt by Unison in March 1996. For the
past six years, Mr. Henderson has been active in the founding and management of
physical therapy service providers (such as Sunbelt) and in providing patient
care.
Terry Troxell, 46, served as Director of Professional Services of Unison
since it commenced operations in July 1992. In November 1994, she became Vice
President of Clinical Operations of Unison and in September 1996 she became
Senior Vice President of Clinical Operations. From July 1991 until July 1992,
Ms. Troxell served as Director of Professional Services of Samaritan. She was
employed by the Arizona Department of Health from 1985 until 1991, where she
served as Program Manager of Health Care Facility Licensure and Enforcement,
overseeing the licensing, certification and enforcement of all licensed
healthcare facilities in Arizona. Ms. Troxell is a licensed Registered Nurse and
a Certified Gerontologist Clinical Specialist. She sits on the American Health
Care Association's national facility standards committee and Long-Term Care
Nurse Council. She is a member of the American Gerontological Nurses Association
and the Association for Professionals in Infection Control and Epidemiology.
William G. Allen, Jr., 46, has been Senior Vice President - Operations
since October 1996. Prior thereto he was a Regional Vice President for Unison
(since November 1994), and before that he was Executive Director of Plantation
Manor Incorporated, a private operator of skilled nursing and assisted living
facilities.
Bruce H. Whitehead, 44, has served as the Chairman of the Board of Unison
since August 1995. He is also President and Chief Executive Officer of the
general partner of Whitehead Family Investments, Ltd. Prior to joining Unison,
Mr. Whitehead was Chairman of BritWill from its inception in 1992. From 1984
through 1992, Mr. Whitehead was President of The BritWill Company, which also
invested in and managed long-term care facilities.
John T. Casey, 51, has served as a Director of Unison since August 1995.
Mr. Casey was the Chief Executive Officer of InteCare LLC, a hospital management
firm in Irving, Texas, until June 1, 1997. From October 1991 through August
1995, Mr. Casey was the Chief Operating Officer of American Medical
International, a publicly traded hospital management company. Prior to October
1991, Mr. Casey was President of Samaritan Health Services, a hospital and
long-term care provider.
Tyrrell L. Garth, 48, has served as a Director of Unison since August 1995.
Mr. Garth became President of Cheyenne Capital in Beaumont, Texas, a personal
investment firm, in 1996. Prior thereto he was a partner in the law firm of
Moore, Landry, Garth, Jones, Barmeister and Hulett, LLP, which served as general
counsel to BritWill prior to its acquisition by Unison in August 1995.
David A. Kremser, 49, founded Signature in July 1987 and served as its
Chairman, President, Chief Executive Officer and a Director until it was
acquired by Unison in October 1996. From January 1985 through 1987, Mr. Kremser
was a Director and Executive Vice President of Columbia Corporation, a long-term
care company, and the President of Columbia West Corporation, a subsidiary of
Columbia Corporation. Prior to joining Columbia Corporation, he was affiliated
with ARA Services, Inc. ("ARA"), most recently with responsibility for ARA's
operations in California, Colorado, Wyoming and Texas.
John T. Lynch, Jr., 48, has been a director of Unison since June 1992. Mr.
Lynch was also a director of BritWill between 1992 and its acquisition by Unison
in August 1995. In January 1990, he co-founded Trouver, a private investment
banking firm and serves as one of its general partners. Mr. Lynch was Managing
Director and a member of the Health Care Finance Group of Furman Selz
Incorporated, and was Managing Director and head of Health Care Finance Groups
at Thomson McKinnon Securities, Inc. and Dean Witter Reynolds, Inc. for the
period 1980 through 1990.
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Mark W. White, 57, has served as a Director of Unison since August 1995.
Mr. White has been an attorney in private practice since 1987. From 1983 to
1987, Mr. White served as Governor of the State of Texas.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than 10% of the Company's
Common Stock are required to report their initial ownership of the Company's
Common Stock and any subsequent changes in that ownership to the Commission.
Specific due dates for these reports have been established, and the Company is
required to disclose any failure to file by these dates. The Company believes
that all of these filing requirements were satisfied during the year ended
December 31, 1996, except that: (i) on June 24, 1997, Messrs. Walker, Clark and
Oberfield and Ms. Troxell reported on a Form 5 for the year ended December 31,
1996, a repricing of options on January 16, 1996; (ii) on June 24, 1997, Mr.
Rollins amended a Form 5 to report the same repricing of options; and (iii)Mr.
Contris has not yet reported on a Form 5 for the year ended December 31, 1996, a
repricing of options on January 16, 1996.
EXECUTIVE COMPENSATION
The following table sets forth, with respect to the years ended December
31, 1996 and 1995, compensation awarded to, earned by or paid to (i) Unison's
Chief Executive Officer throughout 1996 and (ii) the four other executive
officers who were serving as executive officers at December 31, 1996 and whose
total salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
------------------- UNDERLYING
SALARY BONUS OPTIONS/SARS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#)(2) COMPENSATION
- ---------------------------------------- ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jerry M. Walker,........................ 1996 $275,000 $41,250 33,924
President, Chief Executive Officer(3) 1995 200,000 $37,500 33,924
1994 161,952
Phillip R. Rollins,..................... 1996 $220,000 $33,000 73,924
Executive Vice President - 1995 200,000 30,000 33,924
Operations, Chief Operating Officer 1994 138,515
Craig R. Clark,......................... 1996 $220,000 $33,000 133,924
Executive Vice President, 1995 184,373 30,000 33,924 $175,000(5)
Chief Financial Officer, Chief 1994 14,231 20,000 88,250(6)
Accounting Officer(4)
Paul J. Contris,........................ 1996 $220,000 $33,000 65,443
Executive Vice President - 1995 200,000 30,000 33,924
Acquisitions and Development(7) 1994 138,515
L. Robert Oberfield,.................... 1996 $136,800 16,185
President, Quest Pharmacies, Inc. 1995 64,000 6,185
</TABLE>
- ---------------
(1) Certain columns have been omitted where there has been no compensation paid
or awarded to or earned by any of the named executives required to be
reported in such columns.
(2) The amounts shown for 1996 include both new option grants and outstanding
options from prior years that were granted during 1995 and "repriced" during
1996.
(3) Effective April 25, 1997, Mr. Walker resigned as President and Chief
Executive Officer and as a Director.
(4) Effective April 25, 1997, Mr. Clark resigned as Executive Vice President,
Chief Financial Officer and Chief Accounting Officer and as a Director.
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<PAGE> 67
(5) Represents a payment equal to one year's base salary in connection with the
termination of Mr. Clark's employment agreement with BritWill.
(6) Includes consulting fees of $87,750 paid by BritWill before Mr. Clark became
an employee of BritWill and $500 of fees as a director of BritWill. See
"-- Employment Contracts, Termination of Employment, and Change-in-Control
Arrangements."
(7) Mr. Contris served as Unison's Executive Vice President - Finance and Chief
Accounting Officer from August 15, 1995 until June 1996. Effective April 25,
1997, Mr. Contris resigned as Executive Vice President -- Acquisitions and
Development and as a Director.
OPTION GRANTS IN LAST FISCAL YEAR (1)
The following table sets forth information about stock option grants during
the last fiscal year to the executive officers named in the Summary Compensation
Table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
- --------------------------------------------------------------------------------- AT ASSUMED ANNUAL
PERCENT OF RATES
NUMBER OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION
OPTIONS EMPLOYEES OR BASE TERM(4)
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#)(1) YEAR(2) ($/SH)(3) DATE 5% 10%
- ----------------------------- ---------- ---------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jerry M. Walker.............. 0 0.00% -- --
Phillip R. Rollins........... 40,000 9.70% $9.50 9/6/2006 $238,980 $ 605,622
Craig R. Clark............... 100,000 24.25% $9.00-$9.50 9/6/2006 578,583 1,466,243
Paul J. Contris.............. 40,000 9.70% $9.50 9/6/2006 238,980 605,622
L. Robert Oberfield.......... 10,000 2.42% $9.50 9/6/2006 59,745 151,406
</TABLE>
- ---------------
(1) Consists entirely of stock options. In connection with their resignations,
Messrs. Contris and Clark relinquished their options.
(2) Based on total grants during the fiscal year of 412,412.
(3) The options were granted in September 1996 with an exercise price of $13.75
per share and were repriced in December 1996 to $9.50 per share.
(4) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% or 10% compounded
annually from the date the respective options were granted to their
expiration date and are not presented to forecast possible future
appreciation, if any, in the price of the Common Stock. The potential
realizable value of the foregoing options is calculated by assuming that the
market price of the underlying security appreciates at the indicated rate
for the entire term of the option and that the option is exercised at the
repriced exercise price and sold on the last day of its term at the
appreciated price.
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<PAGE> 68
LAST FISCAL YEAR-END OPTION VALUE TABLE(1)
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table concerning the number and value
of options outstanding at the end of the last fiscal year. There were no option
exercises during the last fiscal year.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END (#) FISCAL YEAR-END ($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE(1)
- -------------------------------------------------------- ------------------- -------------------
<S> <C> <C>
Jerry M. Walker......................................... 16,962/ 16,962 $69,968/$ 69,968
Phillip R. Rollins...................................... 16,962/ 56,962 69,968/ 214,968
Craig R. Clark.......................................... 16,962/116,962 69,968/ 462,468
Paul J. Contris......................................... 8,481/ 56,962 34,984/ 179,984
L. Robert Oberfield..................................... 2,474/ 13,711 10,205/ 46,455
</TABLE>
- ---------------
(1) Value as of December 31, 1996 is based upon the closing bid price on that
date of $13.125 as reported on the Nasdaq National Market, minus the
exercise price after repricing, multiplied by the number of shares
underlying the option. In connection with their resignations, Messrs.
Walker, Contris and Clark no longer hold their options.
COMPENSATION OF DIRECTORS
The nonemployee directors of Unison receive an annual retainer of $10,000,
plus $1,000 for each Board and Committee meeting attended, and reimbursement of
expenses. In addition they are entitled to participate in the Option Plan.
Directors who are also employees of Unison receive no additional compensation
for serving on the Board of Directors. Mr. Kremser receives compensation
pursuant to a services agreement described elsewhere herein. As compensation for
services on the Executive Committee, Mr. Lynch will receive an additional
$15,000 per month.
THE 1995 STOCK OPTION PLAN
Unison's 1995 Stock Option Plan (the "Option Plan") was adopted by the
Board of Directors effective July 10, 1995 and approved by the stockholders on
August 8, 1995. The Board of Directors approved on September 6, 1996, and
Unison's stockholders approved at the Unison Special Meeting on October 28,
1996, an amendment to the Option Plan (the "Option Plan Amendment") which
increased the number of shares of Unison Common Stock authorized for issuance
under the Option Plan from 511,046 to 800,000.
The Option Plan is divided into two separate components: (i) a
Discretionary Option Grant Program under which eligible individuals may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
Common Stock at an exercise price determined by the Plan Administrator and (ii)
the Automatic Option Grant Program under which option grants will automatically
be made at periodic intervals to eligible non-employee Board members to purchase
shares of Unison Common Stock at an exercise price equal to 100% of their fair
market value on the grant date.
The Discretionary Option Grant Program is administered by the Compensation
Committee. The Compensation Committee as Plan Administrator has complete
discretion to determine which eligible individuals are to receive option grants,
the time or times when such option grants are to be made, the number of shares
subject to each such grant, the status of any granted option as either an
incentive stock option or a non-qualified stock option under the Federal tax
laws, the vesting schedule to be in effect for the option grant and the maximum
term for which any granted option is to remain outstanding.
Upon an acquisition of Unison by merger, consolidation or reorganization,
each outstanding option may be substituted with shares of the acquiring company
or such option may be canceled in consideration for a
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<PAGE> 69
cash payment to the optionee of an amount per option share equal to the excess
of the highest fair market value of Unison Common Stock during the 60-day period
preceding the acquisition over the option exercise price. A similar cash payment
will be made to each optionee upon the dissolution or liquidation of Unison.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program in return for
the grant of new options for the same or different number of option shares with
an exercise price per share based upon the fair market value of Unison Common
Stock on the new grant date.
Under the Automatic Option Grant Program, each individual serving as a
non-employee member of the Board of Directors of Unison on the date of adoption
of the Option Plan by the Board of Directors received an option grant on such
date for 9,246 shares of Unison Common Stock, except that the Chairman of the
Board of Directors received an option for 10,496 shares. The Option Plan
Amendment increased these amounts. Nonemployee Directors are now entitled to
receive annual option grants in respect of 15,000 shares (17,500 shares in the
case of the Chairman of the Board) for 1996 and at each subsequent annual
meeting of stockholders.
Each automatic grant becomes exercisable 50% one year after the grant and
100% two years after the grant and has a term of 10 years, subject to earlier
termination following the optionee's removal from the Board of Directors for
cause.
The Board of Directors may amend or modify the Option Plan at any time. The
Option Plan will terminate on July 9, 2005, unless sooner terminated by the
Board of Directors.
Effective August 10, 1995, the Board of Directors granted options to
purchase 261,520 shares of Unison Common Stock in the aggregate under the 1995
Plan to certain employees of Unison, including each of the executive officers in
the following amounts: Messrs. Walker, Rollins, Clark and Contris, 33,924 shares
each, which vest over a two-year period from the grant date; and to Mr.
Oberfield and Ms. Troxell, 6,185 shares each, which vest over a four-year period
from the grant date. All of the options have an exercise price (after repricing
in January 1996) of $9.00 per share, the fair market value of the Common Stock
on the grant date, as determined by the Board of Directors.
In September 1996 the Compensation Committee of the Board of Directors
confirmed a special, one-time grant (originally promised in July 1996 subject to
Compensation Committee Approval) of options for 60,000 shares to Mr. Clark
having an exercise price of $9.50 per share, in conjunction with his assumption
of additional responsibilities as Unison's Chief Accounting Officer. On the same
date, the Compensation Committee recommended, and the full Board approved, the
issuance of options for an additional 324,350 shares to Unison employees at an
exercise price of $13.75 per share (subsequently repriced at $9.50 per share),
including options for 40,000 shares each to Messrs. Rollins, Contris and Clark,
options for 10,000 shares to each of Mr. Oberfield and Mr. Henderson, options
for 6,500 shares to Mr. Allen and options for 7,500 shares to Ms. Troxell. Mr.
Allen received an additional option grant in October 1996 for 10,000 shares at
an exercise price of $10.50 per share. The following table sets forth stock
options granted in 1996.
1996 OPTION GRANTS
UNISON STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF
NAME AND POSITION OPTION SHARES
---------------------------------------------------------------------- -------------
<S> <C>
Jerry M. Walker, President, CEO....................................... 0
Phillip R. Rollins, Executive Vice President.......................... 40,000
Craig R. Clark, Executive Vice President.............................. 100,000
Paul J. Contris, Executive Vice President............................. 40,000
L. Robert Oberfield, President,
Quest Pharmacies, Inc............................................... 10,000
Executive Group (8 persons)........................................... 224,000
Non-Executive Director Group.......................................... 92,500
Non-Executive Officer Employee Group.................................. 188,412
</TABLE>
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<PAGE> 70
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS
In connection with their resignations, in each case effective April 25,
1997, Messrs. Walker, Clark and Contris will receive severance payments in the
amounts of $45,832, $18,333 and $15,335, respectively, in full satisfaction of
the Company's monetary obligations to them under their (now terminated)
employment agreements.
Prior to its initial public offering in 1995 Unison entered into an
employment agreement with Mr. Rollins. The employment agreement will expire in
August 1998, subject to automatic renewal for successive one-year periods unless
either Unison or Mr. Rollins gives notice of non-renewal 30 days prior to
expiration. As of December 31, 1996, the employment agreement provides for an
annual base salary of $220,000 and the right to earn quarterly and annual
incentive compensation totalling at least 60% of base salary, based on Unison's
attainment of its quarterly and annual budget as reflected in its quarterly and
annual filings with the Commission. The employment agreement provides that in
the event of termination by Unison other than for cause, Unison will pay Mr.
Rollins one year's base salary or his base salary for the remaining term of the
agreement, whichever is longer, and Mr. Rollins' pro-rated performance bonus. If
the employment agreement is not renewed at the end of the initial or subsequent
term, Mr. Rollins will be entitled to receive one year's base salary plus his
pro-rated performance bonus. The employment agreement contains a one-year
nonsolicitation of employees and customers provision. The contract also permits
termination upon Unison's failure to meet certain financial covenants under
pledge agreements that secure Unison's obligations incurred in the BritWill
Acquisition. See "Compensation Committee Interlocks and Insider Participation in
Compensation Decisions." The contract also provides that Mr. Rollins could be
terminated for cause defined in part as a material neglect of duties. In the
event of a for cause termination, Mr. Rollins is entitled to the equivalent of
one month's salary.
Unison entered into an employment agreement with Mr. Oberfield for a
one-year term beginning in May 1995, subject to automatic renewal for successive
one-year terms unless either Unison or Mr. Oberfield has given notice of
non-renewal 30 days prior to expiration. The employment agreement provides for
an initial annual base salary of $96,000. The annual base salary increased to
$136,800 as of January 1996 because Quest became profitable during 1995. Mr.
Oberfield is also entitled to participate in Unison's incentive compensation
program for key employees, up to a maximum award of 15% of his base salary. If
the employment agreement is not renewed by Unison other than for cause, Unison
must pay Mr. Oberfield one year's base salary and his pro-rated incentive
compensation. The employment agreement contains a one-year nonsolicitation of
employees and customers provision. During 1995, Mr. Oberfield was granted an
option to purchase 6,185 shares of Unison Common Stock under the Option Plan,
and in September 1996 he was granted an option to purchase an additional 10,000
shares at $13.75 per share which were subsequently repriced at $9.50 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Prior to August 1995, decisions concerning compensation of executive
officers were made by the Executive Committee of the Board of Directors, then
consisting of Messrs. Walker, Rollins and Contris. In August 1995, the Board of
Directors created a Compensation Committee consisting of Messrs. Garth, White
and Casey. See "-- Directors and Executive Officers."
At the time that Unison acquired BritWill in August 1995, Mr. Garth was
outside counsel, a former director and a shareholder of BritWill, and Mr. White
was a director and shareholder of BritWill. Mr. Garth and Mr. White have (or
had) direct or indirect material interests in the following recent or
anticipated transactions with BritWill or Unison.
- As former shareholders of BritWill, Mr. Garth and Mr. White have
participated and will participate pro rata in all acquisition payments
made and acquisition obligations incurred by Unison in connection with
the BritWill Acquisition (the "BritWill Acquisition Obligations"). The
BritWill Acquisition Obligations are secured by stock pledge agreements
from Messrs. Walker, Rollins, Clark and Contris. See "Risk
Factors -- Concentration of Ownership." The BritWill Acquisition
Obligations paid through December 31, 1996 include $5.6 million of
principal, $853,000 of interest, $2.3 million of payment on monthly
contingent obligations and 561,815 shares of Unison Common Stock
delivered to the former
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<PAGE> 71
BritWill shareholders. The proceeds from the sale of the Original Notes
were used (in part) to prepay in January 1997 the remaining $8.0 million
outstanding under the Subordinated Note and $1.75 million of contingent
payment obligations (see "Use of Proceeds"), after which the remaining
BritWill Acquisition Obligations are solely Additional Payment
Obligations totaling approximately $9.8 million ($14.1 million including
an interest component), primarily due on the earlier of Unison's next
public or private sale of debt or equity securities exceeding $10 million
or August 9, 2000.
- Mr. Garth had a $400,000 interest in a $2.5 million promissory note
payable by BritWill and bearing interest at the rate of 12% per annum
(the "Participation Note"). The Participation Note was refinanced by
BritWill when it was acquired by Unison, and the $3.4 million refinancing
note (the "Renewal Note") was ultimately repaid from the proceeds of
Unison's IPO in December 1995.
- Mr. Garth's company, Cheyenne Capital, received consulting fees of
$24,000 per year from Unison from August 1995 through December 31, 1996,
when the consulting agreement was terminated.
CERTAIN TRANSACTIONS
When Unison acquired BritWill in August 1995, Mr. Whitehead indirectly
owned approximately 81.5% of BritWill's outstanding stock and served as its
Chairman and as a director. As a result of this interest in the BritWill
Acquisition Obligations, Mr. Whitehead currently is beneficially Unison's second
largest shareholder and one of its largest creditors. Mr. Clark was a BritWill
shareholder and served as BritWill's Executive Vice President and Chief
Financial Officer at the time Unison acquired BritWill. Messrs. Garth, Lynch and
White were also BritWill shareholders and directors. For information concerning
recent and anticipated transactions with BritWill or Unison in which Messrs.
Garth or White had or have a material direct or indirect interest, see
"Management -- Compensation Committee Interlocks and Insider Participation in
Compensation Decisions." Messrs. Clark, Lynch and Whitehead also have pro rata
interests in the BritWill Acquisition Obligations described therein.
Mr. Whitehead has (or had) a direct or indirect material interest in the
following additional recent or anticipated transactions with BritWill or Unison.
- Prior to Unison's acquisition of BritWill, Mr. Whitehead sold certain
healthcare facilities or related interests to BritWill and acquired
certain other direct and indirect financial interests and obligations
related to BritWill's healthcare facilities, some of which have continued
thereafter. Through BritWill Texas, Mr. Whitehead is the indirect owner
and lessor of six of the long-term healthcare facilities that Unison
leases in Texas (including three facilities that were subleased to an
unrelated party effective March 1, 1997) with 767 licensed beds and an
annual base rental of $1.1 million, which is approximately the amount of
the annual payment obligations on the related $10.2 million acquisition
mortgage loan secured by those facilities from Omega, an unrelated party,
plus payments due on certain seller subordinated notes incurred when
BritWill Texas acquired the facilities. The parties are currently in the
process of restructuring the ownership structure for three of the six
facilities to eliminate BritWill Texas from the chain of title. The
parties anticipate that BritWill Texas will convey fee title to the three
facilities to Omega and that Omega will then lease the facilities to
BritWill Investments - II, Inc., a subsidiary of Unison, on substantially
the same economic terms that existed under the BritWill Texas mortgage.
Mr. Whitehead, who had guaranteed the BritWill Texas loan, will remain
liable under his guaranty for all obligations owing under the new lease.
Mr. Whitehead is also the guarantor of BritWill's (now Unison's)
obligations under the leases of all fourteen other healthcare facilities
that are leased from Omega.
- Mr. Whitehead directly or indirectly owned all of the interests in the
Participation Note and the Renewal Note (as described above) that were
not owned by Mr. Garth.
- From time to time both before and after Unison's acquisition of BritWill,
Mr. Whitehead has made loans and other financial accommodations to
BritWill (now Unison). In addition to the Renewal Note and a portion of
the BritWill Acquisition Obligations, $750,000 of loans from Mr.
Whitehead or his affiliates was repaid from the proceeds of the IPO. A
Unison subsidiary is obligated to repay to an affiliate of Mr. Whitehead
five unsecured promissory notes in the amounts at December 31, 1996 of
$1.2 million, $392,000, $319,000, $194,000, and $401,000 with interest at
rates currently ranging from
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<PAGE> 72
9.0% to 10.75% per annum and with scheduled maturities in November 2001
and October 2004. Aggregate monthly payments on these five notes total
approximately $39,000. In addition, approximately $1.1 million of the
proceeds from the $7.5 million Bank Financing was used to repay a loan
from Mr. Whitehead that bore interest at the rate of 12% per annum. The
Bank Financing was repaid from the proceeds of the sale of the Original
Notes. See "Use of Proceeds."
- On April 21, 1997, the Company obtained a $2,950,000 loan for general
working capital purposes from Elk Meadows Investments, L.L.C., and
BritWill Investments Company, Ltd., as joint lenders. Elk Meadows
Investments, L.L.C., is controlled by Mr. Kremser and BritWill
Investments Company, Ltd. is controlled by Mr. Whitehead. The loan
matures on the earlier of August 1, 1997, or 30 days after written demand
from the lenders, subject to earlier maturity in the event of
acceleration upon a default. Interest accrues on the loan at the Prime
Rate plus 2%, subject to an increase in the rate upon a default. Interim
payments on the loan are not required prior to maturity. The Company paid
a loan fee of $29,500 at the closing, and also agreed to pay all of the
lenders' out of pocket fees and costs, including attorneys fees and
costs, in an amount not yet determined or demanded by the lenders.
Repayment of the loan is secured by (i) a pledge from the Company of
approximately $5 million of accounts receivable generated by certain of
the Company's affiliates and assigned to the Company, and (ii) a pledge
from the Company of its stock in those affiliates of the Company that
either assigned their accounts receivable to the Company so they could be
pledged by the Company as security for the subject loan or control the
entities that assigned such accounts receivable. The collateral securing
the loan also secures repayment of other obligations owing from the
Company and its affiliates to Messrs. Whitehead and Kremser, and to
individuals and entities related to them.
In addition to his interests as a former director and shareholder of
BritWill, Mr. Lynch is a General Partner of Trouver. Trouver (a) earned
financial advisory fees of $675,000 in connection with Unison's acquisition of
BritWill, (b) assisted Unison in securing lease or management agreements in
respect of four long-term care facilities for which it is entitled to receive
fees of up to approximately $400,000 over the next seven years based on Unison's
management fees or earnings from those facilities over that period, and
(c)earned financial advisory fees of approximately $84,000 from Unison in
connection with the Ampro Acquisition. Trouver is not entitled to any
compensation in connection with the Signature Acquisition or the offering of the
Original Notes or the Exchange Notes.
The Board of Directors has entered into a Services Agreement with Mr.
Kremser commencing March 31, 1997. As compensation for his services to the
Company in all capacities, Mr. Kremser is entitled to cash compensation of
$7,500 per week plus expenses as well as options for 50,000 shares of Unison
common stock at an exercise price of $2.875 per share, fully vested. The options
will terminate on March 31, 2002. Mr. Kremser and the Company are also parties
to an indemnification agreement and a tolling agreement in respect of claims he
may have against the Company.
Mr. Oberfield, one of Unison's executive officers, serves as the president
and is the minority shareholder of its Quest subsidiary. He receives
compensation based in part upon the earnings of the subsidiary, and Unison is
required to repurchase his stock in the subsidiary at a formula price under
certain circumstances.
Effective February 1, 1996, Unison purchased 90% of the outstanding common
stock of Sunbelt from Mr. Henderson and Paige Plash. In consideration for the
stock of Sunbelt, Unison paid $800,000 in cash, issued term notes for $1.0
million in the aggregate and issued subordinated convertible debentures totaling
$1.8 million in the aggregate (collectively, the "Sunbelt Notes"). Approximately
56.2% of the purchase price was payable to Mr. Henderson. Interest on the
Sunbelt Notes was 10.0% payable quarterly. The Sunbelt Notes were converted in
January 1997 into 105,196 shares of Unison Common Stock with the aggregate
balance of $2.0 million paid in cash. In November 1996, Unison purchased the
remaining 10% of Sunbelt stock effective as of February 1, 1996. The aggregate
purchase price, payable 50% to each of Mr. Henderson and Mr. Plash, amounted to
$1.4 million plus a guaranteed payment of $709,000. Additional contingent
payments of up to $1.4 million will be due if specified income targets are
achieved. Consideration for the purchase (excluding the guaranteed payments) was
comprised of promissory notes in the aggregate amount of $1.2 million and 27,942
shares of Unison Common Stock.
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<PAGE> 73
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Unison Common Stock at July 3, 1997 (December 31, 1996 in the case
of U.S. Bancorp) with respect to (i) each person known to Unison to own
beneficially more than five percent of the outstanding shares of Unison Common
Stock, (ii) each director of Unison, (iii) each of the executive officers listed
in the Summary Compensation Table set forth herein and (iv) all directors and
executive officers of Unison as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
---------------------------
IDENTITY OF STOCKHOLDER OR GROUP NUMBER PERCENT
- ------------------------------------------------------------------- --------- -------
<S> <C> <C>
David A. Kremser(2)................................................ 1,540,431 23.80%
Bruce H. Whitehead(3).............................................. 477,335 7.41
U.S. Bancorp
111 SW Fifth Avenue
Portland, Oregon 97204........................................... 369,100 5.75
Jerry M. Walker(4)................................................. 287,946 4.48
Phillip R. Rollins(5).............................................. 364,098 5.62
Paul J. Contris(6)................................................. 193,294 3.01
John T. Lynch, Jr.(7).............................................. 164,331 2.55
Craig R. Clark(8).................................................. 38,022 *
Mark W. White(9)................................................... 19,788 *
Tyrrell L. Garth(10)............................................... 16,746 *
John T. Casey(11).................................................. 18,746 *
L. Robert Oberfield(12)............................................ 8,961 *
All executive officers and directors as a group (14 persons)(13)... 3,219,667 48.54
</TABLE>
- ---------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. In accordance with Commission rules, shares which may be
acquired upon exercise of stock options which are currently exercisable or
which become exercisable within 60 days of the date of the table are deemed
beneficially owned by the optionee. Except as indicated by footnote, and
subject to community property laws where applicable, the persons or
entities named in the table above have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them.
(2) Includes 1,490,431 shares of Unison Common Stock issued to Mr. Kremser in
the Signature Acquisition, including additional shares issued to him as
part of the Equity Adjustment Amount, and 50,000 shares issuable pursuant
to vested options. Does not include 15,000 shares of Unison Common Stock
issuable upon exercise of options which will vest in December 1997 and
thereafter.
(3) Includes 458,089 shares of Unison Common Stock issued to Whitehead Family
Investments, Ltd. ("WFI") upon conversion of the Convertible Debenture
issued to the former shareholders of BritWill as partial payment of the
purchase price for the BritWill Acquisition. Mr. Whitehead has sole voting
and investment power with respect to the shares held by WFI. Does not
include 8,750 shares of Unison Common Stock issuable upon exercise of
outstanding options which will vest in September 1998. Includes 19,246
shares of Unison Common Stock issuable upon exercise of immediately
exercisable options.
(4) Currently 265,518 of these shares are pledged to secure payment of the
deferred purchase price for the BritWill Acquisition.
(5) Currently 132,759 of these shares are pledged to secure payment of the
deferred purchase price for the BritWill Acquisition. Does not include
20,000 shares of Unison Common Stock issuable upon exercise of options
which will vest in September 1998. Includes 53,924 shares of Unison Common
Stock issuable upon exercise of immediately exercisable options.
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<PAGE> 74
(6) Currently 86,294 of these shares are pledged to secure payment of the
deferred purchase price for the BritWill Acquisition.
(7) Includes 10,140 shares of Unison Common Stock as to which he currently
shares investment power with Bruce H. Whitehead. Excludes 7,500 shares of
Unison Common Stock issuable upon exercise of options which will vest in
September 1998. Includes 16,746 shares of Unison Common Stock issuable upon
exercise of immediately exercisable options.
(8) Includes 38,022 shares of Unison Common Stock as to which Mr. Clark
currently shares investment power with Bruce H. Whitehead, which shares are
pledged to secure payment of the deferred purchase price for the BritWill
Acquisition.
(9) Does not include 7,500 shares of Common Stock issuable upon exercise of
options which will vest in September 1998. Includes 16,746 shares of Unison
Common Stock issuable upon exercise of immediately exercisable options.
(10) Does not include 7,500 shares of Unison Common Stock issuable upon exercise
of options which will vest in September 1998. Includes 16,746 shares of
Unison Common Stock issuable upon exercise of immediately exercisable
options.
(11) Includes 16,746 shares of Unison Common Stock issuable upon the exercise of
immediately exercisable options, but does not include another 7,500 shares
issuable upon exercise of options that will vest in September 1998.
(12) Does not include 8,474 shares of Unison Common Stock issuable upon exercise
of options which will vest in August 1998 and thereafter. Includes 7,711
shares of Unison Common Stock issuable upon exercise of immediately
exercisable options.
(13) Includes a total of 210,887 shares of Unison Common Stock issuable upon
exercise of immediately exercisable options (including those described in
the preceding footnotes).
DESCRIPTION OF THE SENIOR NOTES
The Original Notes were issued, and the Exchange Notes will be issued,
under an Indenture dated as of October 31, 1996 (the "Indenture") among Unison,
the Guarantors and First Bank National Association, St. Paul, Minnesota, as
trustee (the "Trustee"). The terms of the Exchange Notes and of the Original
Notes (which are sometimes referred to collectively as the "Senior Notes") will
be substantially identical to each other, except for transferability. Under the
terms of the Indenture, the covenants and events of default will apply equally
to the Original Notes and the Exchange Notes, and the Original Notes and
Exchange Notes will be treated as one class for all actions to be taken by the
holders thereof and for determining their respective rights under the Indenture.
The terms of the Senior Notes (including both the Original Notes and the
Exchange Notes) include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), as in effect from time to time. The Senior Notes are
subject to all such terms, and holders of the Senior Notes are referred to the
Indenture and the Trust Indenture Act for a statement of them. The following is
a summary of certain terms and provisions of the Indenture and the Senior Notes.
This summary does not purport to be a complete description of the Indenture or
the Senior Notes and is subject to the detailed provisions of, and qualified in
its entirety by reference to, the Senior Notes and the Indenture (including the
definitions contained therein). A copy of the Indenture has been filed as an
exhibit to the registration statement of which this Prospectus is a part, and
also may be obtained from Unison by any holder or prospective investor upon
request. Definitions relating to certain capitalized terms are set forth under
"Certain Definitions" and throughout this description. Capitalized terms that
are used but not otherwise defined herein have the meanings assigned to them in
the Indenture and such definitions are incorporated herein by reference.
GENERAL
The Senior Notes are limited in aggregate principal amount to $100.0
million. The Senior Notes are senior unsecured obligations of Unison ranking
senior in right of payment to all existing and future
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<PAGE> 75
Subordinated Indebtedness of Unison and pari passu in right of payment with all
other existing and future senior indebtedness of Unison. The Senior Notes are
effectively subordinated to all secured Indebtedness of Unison to the extent of
the value of the assets securing such Indebtedness.
Unison is a holding company and has no material assets or operations other
than its investment in its subsidiaries. The Senior Notes are fully and
unconditionally guaranteed on a senior unsecured and joint and several basis
(the "Guarantees") by all of Unison's present subsidiaries and will be similarly
guaranteed by its future subsidiaries (collectively, the "Guarantors"). The term
Subsidiaries does not include Unrestricted Subsidiaries; however, as of the date
hereof there are no Unrestricted Subsidiaries. The Guarantees rank senior to all
Subordinated Indebtedness of the Guarantors and rank pari passu in right of
payment to all other indebtedness of the Guarantors. As of September 30, 1996,
on a pro forma basis after giving effect to the issuance and sale of the
Original Notes and the use of the net proceeds therefrom and certain other
transactions described in this Prospectus, the aggregate outstanding principal
amount of senior indebtedness of Unison and its subsidiaries would have been
approximately $121.0 million (including the Senior Notes), of which
approximately $20.3 million would have been secured indebtedness that would have
effectively ranked senior to the Senior Notes.
The Senior Notes have been and will be issued only in fully registered
form, without coupons, in denominations of $1,000 and any integral multiple of
$1,000. No service charge will be made for any registration of transfer or
exchange of Senior Notes, but Unison may require payment of a sum sufficient to
cover any transfer tax or other similar governmental charge payable in
connection therewith.
Principal, premium, if any, and interest on the Senior Notes is payable at
the office or agency of Unison maintained for such purpose within the City and
State of New York or, at the option of Unison, payment of interest may be made
by check mailed to the holders of the Senior Notes at their respective addresses
set forth in the register of holders of Senior Notes; provided that all payments
with respect to Senior Notes, the holders of which have given wire transfer
instructions to the paying agent on or prior to the relevant record date will be
required to be made by wire transfer of immediately available funds to the
accounts specified by such holders. Until otherwise designated by Unison,
Unison's office or agency in New York will be the office of the Trustee
maintained for such purpose.
MATURITY, INTEREST AND PRINCIPAL
The Senior Notes will mature on November 1, 2006. The Original Notes bear
interest at a rate of 12 1/4% per annum from the date of original issuance until
maturity, except that they bore additional interest ("Additional Interest") at
the rate of 50 basis points per annum from December 15, 1996 until ,
1997. The Exchange Notes will bear interest at the same rate from the issue date
of the Original Notes for which they are exchanged or from the last date as to
which interest has been paid on such Original Notes. Interest is payable
semi-annually in arrears on May 1 and November 1, commencing May 1, 1997, to
holders of record of the Senior Notes at the close of business on the
immediately preceding April 15 and October 15, respectively (whether or not a
business day). Interest is computed on the basis of a 360-day year consisting of
twelve 30-day months. The interest rate on the Senior Notes is subject to
increase, and such Additional Interest (as defined herein) will be payable on
the payment dates set forth above, in certain circumstances, including if the
Original Notes or the Exchange Notes are not registered with the Commission and
if the Registration Statement covering the Exchange Notes is not declared
effective within certain prescribed time periods. See "The Registration Rights
Agreement."
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<PAGE> 76
OPTIONAL REDEMPTION
The Senior Notes will be redeemable at the option of Unison, in whole or in
part, at any time on or after November 1, 2001 at the following redemption
prices (expressed as a percentage of principal amount), together, in each case,
with accrued and unpaid interest to the redemption date, if redeemed during the
twelve-month period beginning on November 1 of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---------------------------------------------------------- ----------
<S> <C>
2001...................................................... 106.125%
2002...................................................... 104.594%
2003...................................................... 103.063%
2004...................................................... 101.531%
2005 and thereafter....................................... 100.000%
</TABLE>
Notwithstanding the foregoing, Unison may redeem in the aggregate up to 25%
of the original principal amount of Senior Notes at any time and from time to
time prior to November 1, 1999 at a redemption price equal to 110% of the
aggregate principal amount so redeemed, plus accrued and unpaid interest to the
redemption date, out of the Net Proceeds of one or more Public Equity Offerings,
provided, however, that at least $75 million of the principal amount of Senior
Notes originally issued remains outstanding immediately after the occurrence of
any such redemption and that any such redemption occurs within 60 days following
the closing of any such Public Equity Offering.
In the event of redemption of fewer than all of the Senior Notes, the
Trustee shall select pro rata, by lot or in such other manner as it shall deem
fair and equitable, the Senior Notes to be redeemed. The Senior Notes will be
redeemable in whole or in part upon not less than 30 nor more than 60 days'
prior written notice, mailed by first class mail to a holder's last address as
it shall appear on the register maintained by the Registrar of the Senior Notes.
If any Senior Note is to be redeemed in part only, the notice of redemption that
relates to such Senior Note shall state the portion of the principal amount
thereof to be redeemed. A new Senior Note, in a principal amount equal to the
unredeemed portion thereof, will be issued in the name of the holder thereof
upon cancellation of the original Senior Note. After any redemption date, unless
Unison shall default in the payment of the redemption price, interest will cease
to accrue on the Senior Notes or portions thereof called for redemption.
MANDATORY REDEMPTION
Except as set forth under "-- Change of Control Offer" and "-- Certain
Covenants -- Limitation on Certain Asset Sales," Unison is not obligated to make
any mandatory redemption of or sinking fund payments with respect to the Senior
Notes.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Additional Indebtedness
Unison and the Guarantors will not, and will not permit any of their
Subsidiaries to, directly or indirectly, incur (as defined) any Indebtedness
(including Acquired Indebtedness) other than Permitted Indebtedness, provided,
however, that Unison may incur Indebtedness (including Acquired Indebtedness) if
(a) after giving effect on a pro forma basis to the incurrence of such
Indebtedness and to the extent set forth in the definition of Consolidated Fixed
Charge Coverage Ratio the receipt and application of the proceeds thereof,
Unison's Consolidated Fixed Charge Coverage Ratio would be greater than (i) 2.0
to 1 if such Indebtedness is to be incurred on or before December 31, 1997 and
(ii) 2.25 to 1 if such Indebtedness is to be incurred after December 31, 1997;
and (b) no Default or Event of Default shall have occurred and be continuing at
the time or as a consequence of the incurrence of such Indebtedness.
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The Indenture provides that Unison and the Guarantors will not, directly or
indirectly, incur any Indebtedness that is subordinated to any other
Indebtedness of Unison or any Guarantor unless such Indebtedness is also
expressly subordinated to the Senior Notes, provided, however, that no
Indebtedness of Unison or any Guarantor shall be deemed to be subordinated to
any other Indebtedness of Unison or any Guarantor solely because such other
Indebtedness is secured.
Limitation on Indebtedness of Subsidiaries
Unison and the Guarantors will not permit any of their Subsidiaries to
incur any Indebtedness except (i) Indebtedness to and held by Unison or a
Wholly-Owned Subsidiary of Unison or a Guarantor, provided, however, that any
subsequent issuance or transfer of any Equity Interest that results in such
Subsidiary ceasing to be a Wholly-Owned Subsidiary of Unison or a Guarantor or
any transfer of such Indebtedness to any Person other than Unison or a Guarantor
shall be deemed to be the incurrence of such Indebtedness by Unison, (ii)
Permitted Secured Indebtedness, (iii) Acquired Indebtedness, provided, however,
that such Acquired Indebtedness was not incurred in connection with, or in
anticipation of, such Person becoming a Subsidiary, and (iv) Indebtedness
incurred by a Guarantor which Unison would be permitted to incur in compliance
with the restrictions under "-- Limitation on Additional Indebtedness."
Limitation on Restricted Payments
Unison and the Guarantors will not, and will not permit any of their
Subsidiaries to, directly or indirectly, make any Restricted Payment unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
(b) immediately after giving pro forma effect to such Restricted
Payment, Unison could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the covenant set forth under "Limitation on
Additional Indebtedness"; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
through and including the date of such Restricted Payment (the "Base
Period") does not exceed the sum of (1) 50% of Unison's Consolidated Net
Income (or in the event such Consolidated Net Income shall be a deficit,
minus 100% of such deficit) during the Base Period, (2) 100% of the
aggregate Net Proceeds, including the fair market value of securities or
other property received by Unison from the issue or sale, during the Base
Period, of Equity Interests (other than Disqualified Equity Interests or
Equity Interests of Unison issued to any Subsidiary of Unison) of Unison or
any Indebtedness or other securities of Unison convertible into or
exercisable or exchangeable for Equity Interests (other than Disqualified
Equity Interests) of Unison which have been so converted or exercised or
exchanged, as the case may be, and (3) $1.0 million. For purposes of
determining under this clause (c) the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount thereof and
property other than cash shall be valued at its fair market value.
The provisions of this covenant shall not prohibit (i) the agreement or
commitment to make any payment or distribution permitted under the Indenture or
the payment or distribution so agreed or committed to be made as long as such
payment or distribution is made on the date of such agreement or commitment or
within 60 days thereof, provided, however, that on the date of such agreement or
commitment such payment would comply with the foregoing provisions, it being
understood that the agreement or commitment to make such payment or distribution
shall constitute Permitted Indebtedness, (ii) the retirement of any Equity
Interests of Unison or Subordinated Indebtedness of Unison by conversion into,
or by or in exchange for, Equity Interests (other than Disqualified Equity
Interests), or out of, the Net Proceeds of the substantially concurrent sale
(other than to a Subsidiary of Unison) of other Equity Interests of Unison
(other than Disqualified Equity Interests); provided, that the Net Proceeds of
such Equity Interests so used shall not be included under clause (2) of
paragraph (c) above, (iii) the redemption or retirement of Subordinated
Indebtedness of Unison that is subordinated to the Senior Notes in exchange for,
by conversion into, or out of the Net Proceeds of, a substantially concurrent
sale or incurrence of Indebtedness (other than any Indebtedness owed to a
Subsidiary) of Unison that is contractually subordinated in right of payment to
the Senior Notes to at least the
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same extent as the Subordinated Indebtedness being redeemed or retired, (iv) the
retirement of any Disqualified Equity Interests by conversion into, or by
exchange for, shares of Disqualified Equity Interests, or out of the Net
Proceeds of the substantially concurrent sale (other than to a Subsidiary of
Unison) of other Disqualified Equity Interests and (v) the purchase of minority
interests from shareholders of Quest and the subsidiaries of Sunbelt and the
purchase of the warrant to purchase shares of Unison Common Stock from
HealthPartners Funding, L.P. pursuant to agreements outstanding on the Issue
Date or on terms no less favorable to the holders of the Senior Notes, provided,
however, that in the case of the immediately preceding clauses (ii), (iii) and
(v), no Default or Event of Default shall have occurred and be continuing at the
time of such Restricted Payment or would occur as a result thereof.
The Indenture provides that in determining the aggregate amount of
Restricted Payments made subsequent to the Issue Date for purposes of
subparagraph (c) above, amounts expended pursuant to clauses (i), (ii) and (v)
of the immediately preceding paragraph shall be included, but without
duplication, in such calculation.
The Indenture provides that for purposes of calculating the Net Proceeds
received by Unison from the issuance or sale of its Equity Interests either upon
the conversion of, or exchange for, Indebtedness of Unison or any Subsidiary,
such amount will be deemed to be an amount equal to the difference of (a) the
sum of (i) the principal amount or accreted value (whichever is less) of such
Indebtedness on the date of such conversion or exchange and (ii) the additional
cash consideration, if any, received by Unison upon such conversion or exchange,
less any payment on account of fractional shares, minus (b) all expenses
incurred in connection with such issuance or sale. In addition, for purposes of
calculating the Net Proceeds received by Unison from the issuance or sale of its
Equity Interests upon the exercise of any options or warrants of Unison, such
amount will be deemed to be an amount equal to the difference of (a) the
additional cash consideration, if any, received by Unison upon such exercise,
minus (b) all expenses incurred in connection with such issuance or sale.
Not later than the date of making any Restricted Payment, Unison shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this covenant were computed, which calculations may be based upon
Unison's latest available financial statements, and, where required, that no
Default or Event of Default exists and is continuing and no Default or Event of
Default will occur immediately after giving effect to such Restricted Payment.
Limitation on Subsidiaries and Unrestricted Subsidiaries
The Indenture provides that Unison may by written notice to the Trustee
designate any Subsidiary (including a newly acquired or a newly formed
Subsidiary) to be an Unrestricted Subsidiary, provided, however, that (i) no
Default or Event of Default shall have occurred and be continuing or would arise
therefrom, (ii) such designation is at that time permitted under the covenant
described under "Limitation on Restricted Payments" and (iii) immediately after
giving effect to such designation, Unison could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "Limitation on Additional Indebtedness." For purposes of the
covenant described under "Limitation on Restricted Payments" above, (i) an
"Investment" shall be deemed to have been made at the time any Subsidiary is
designated as an Unrestricted Subsidiary in an amount (proportionate to Unison's
percentage Equity Interest in such Subsidiary) equal to the net worth of such
Subsidiary at the time that such Subsidiary is designated as an Unrestricted
Subsidiary; (ii) at any date the aggregate of all Restricted Payments made as
Investments since the Issue Date shall exclude and be reduced by an amount
(proportionate to Unison's percentage Equity Interest in such Subsidiary) equal
to the net worth of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Subsidiary, not to exceed, in the case
of any such redesignation of an Unrestricted Subsidiary as a Subsidiary, the
amount of Investments previously made by Unison and its Subsidiaries in such
Unrestricted Subsidiary (in each case (i) and (ii) "net worth" to be calculated
based upon the fair market value of the assets of such Subsidiary as of any such
date of designation); and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.
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The Indenture provides that notwithstanding the foregoing, the Board of
Directors of Unison may not designate any Subsidiary of Unison to be an
Unrestricted Subsidiary if, after such designation, (a) Unison or any Subsidiary
of Unison provides credit support for, or a guarantee of, any Indebtedness or
other obligation (contingent or otherwise) of such Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness or obligation)
or is otherwise subject to recourse or obligated thereunder or therefor, (b) a
default with respect to any Indebtedness of such Subsidiary (including any right
which the holders thereof may have to take enforcement action against such
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness of Unison or any Subsidiary of Unison to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity, (c) such Subsidiary owns any
Equity Interests in, or owns or holds any Lien on any property of, any
Subsidiary which is not a Subsidiary of the Subsidiary to be so designated, (d)
such Subsidiary has any contract, arrangement, agreement or understanding with
Unison, or any Subsidiary of Unison, whether written or oral, other than a
transaction having terms no less favorable to Unison or such Subsidiary of
Unison than those which might be obtained at the time from persons who are not
Affiliates of Unison, or (e) Unison or any Subsidiary of Unison has any
obligation to subscribe for any Equity Interest in such Subsidiary or to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve specified levels of operating results.
Limitations on Investments
Unison will not, and will not permit any of its Subsidiaries to, make any
Investment except (i) Permitted Investments or (ii) an Investment that is made
in compliance with the covenant described under "Limitation on Restricted
Payments."
Limitations on Liens
Unison will not, and will not permit any of its Subsidiaries to, create,
incur or otherwise cause or suffer to exist or become effective any Liens of any
kind (other than Permitted Liens) upon any property or asset of Unison or any
Subsidiary or any shares of stock or debt of any Subsidiary which owns property
or assets, now owned or hereafter acquired, or any income or profits therefrom,
unless (i) if such Lien secured Indebtedness which is pari passu with the Senior
Notes, then the Senior Notes are secured on an equal and ratable basis with the
obligations so secured until such time as such obligation is no longer secured
by a Lien or (ii) if such Lien secures Subordinated Indebtedness, any such Lien
shall be subordinated to a Lien on such property or asset or shares of stock or
debt granted to the holders of the Senior Notes to the same extent as such
Subordinated Indebtedness is subordinated to the Senior Notes.
Limitation on Transactions with Affiliates
Unison will not, and will not permit any of its Subsidiaries to, directly
or indirectly, enter into or suffer to exist any transaction or series of
related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate of Unison
(including any Affiliate in which Unison or any Subsidiary thereof owns a
minority interest) or holder of 10% or more of Unison's Equity Interests (each
such transaction, an "Affiliate Transaction") or extend, renew, waive or
otherwise modify the terms of any Affiliate Transaction entered into prior to
the Issue Date unless (i) such Affiliate Transaction is solely between or among
Unison and its Wholly-Owned Subsidiaries; (ii) such Affiliate Transaction is
solely between or among Wholly-Owned Subsidiaries of Unison; (iii) such
Affiliate Transaction is for reasonable fees and compensation paid to, and
indemnity provided on behalf of, officers, directors, employees or consultants
of Unison or any Subsidiary thereof as reasonably determined in good faith by
the Board of Directors (when required as described below) or senior management
of Unison or of such Subsidiary having no interest in such Affiliate
Transaction; or (iv) the terms of such Affiliate Transaction are fair and
reasonable to Unison or such Subsidiary, as the case may be, and the terms of
such Affiliate Transaction are at least as favorable as the terms which could be
obtained by Unison or such Subsidiary, as the case may be, in a comparable
transaction made on an arm's-length basis between unaffiliated parties. In any
Affiliate Transaction involving an amount or having a value in excess of $1.0
million in any one year which is not permitted under clause (i) or (ii) above,
Unison or such Subsidiary, as the case may be, must obtain a resolution of its
Board of Directors certifying that such Affiliate Transaction complies with
clause (iii) or (iv) above, as the case may be. In transactions with a value in
excess of $3.0 million which are not permitted under clause (i) or
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(ii) above, Unison or such Subsidiary, as the case may be, must obtain a written
opinion as to the fairness of such a transaction, from a financial point of
view, from an Independent Financial Advisor.
The foregoing provisions will not apply to (i) the payment of reasonable
annual compensation to directors or executive officers of Unison, (ii) dividends
on Equity Interests made in compliance with the covenant described under
"Limitation on Restricted Payments," (iii) purchase in the ordinary course of
business of, supplies, services and the like from Unison or any Subsidiary; and
(iv) the continued performance of transactions with Affiliates disclosed in this
Prospectus.
Limitation on Certain Asset Sales
Unison will not, and will not permit any of its Subsidiaries to, consummate
an Asset Sale unless (i) Unison or such Subsidiary, as the case may be, receives
consideration at the time of such sale or other disposition at least equal to
the fair market value thereof (as reasonably determined for Asset Sales other
than eminent domain, condemnation or similar governmental proceedings in good
faith by its Board of Directors); and (ii) not less than 75% of the
consideration received (which shall not include any assumed liabilities or
obligations) by Unison or the Subsidiary, as the case may be, from such Asset
Sale is in the form of cash or cash equivalents (those equivalents allowed under
"Temporary Cash Investments") provided, that any Asset Sale or related series of
Asset Sales involving securities, property or assets with an aggregate fair
market value of less than $3 million per Asset Sale or series of related Asset
Sales, but in any case not to exceed $10 million in the aggregate for all
transactions in any consecutive 12-month period, shall be exempt from the
provisions of this clause (ii) (but any consideration received from any such
Asset Sales shall be deemed to be Asset Sale Proceeds for purposes of this
paragraph when reduced to cash or cash equivalents), and (iii) the Asset Sale
Proceeds received by Unison or such Subsidiary are applied, to the extent Unison
elects, (A) to repay and permanently reduce outstanding Permitted Secured
Indebtedness and to permanently reduce the commitments in respect thereof,
provided, however, that such repayment and commitment reduction occurs within
180 days following the receipt of such Asset Sale Proceeds or (B) to an
investment in assets (including Equity Interests or other securities purchased
in connection with the acquisition of Equity Interests or property of another
person) used or useful in businesses similar or ancillary to the business of
Unison or such Subsidiary as conducted at the time of such Asset Sale, provided,
however, that such investment occurs or Unison or such Subsidiary enters into
contractual commitments to make such investment, subject only to customary
conditions (other than the obtaining of financing), on or prior to the 180th day
following receipt of such Asset Sale Proceeds (the "Reinvestment Date") (and
notifies the Trustee of the same in writing) and Asset Sale Proceeds
contractually committed are so applied within 270 days following the receipt of
such Asset Sale Proceeds. Any Asset Sale Proceeds that are not applied as
permitted by clause (iii) of the preceding sentence shall constitute "Excess
Proceeds." If at any time the aggregate amount of Excess Proceeds exceeds $5
million, Unison shall offer (an "Excess Proceeds Offer") to purchase from all
holders of Senior Notes, pursuant to procedures set forth in the Indenture, the
maximum principal amount of Senior Notes that may be purchased with such Excess
Proceeds at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued interest, if any, to the date of the purchase. To the
extent that the aggregate amount of Senior Notes tendered pursuant to such
Excess Proceeds Offer is less than the amount of Excess Proceeds, Unison may use
such portion of the Excess Proceeds that is not used to purchase Senior Notes so
tendered for general corporate purposes not inconsistent with the Senior Notes
or the Indenture. If the aggregate principal amount of Senior Notes tendered
pursuant to such Excess Proceeds Offer is more than the amount of the Excess
Proceeds, the Senior Notes tendered will be repurchased on a pro rata basis or
by such other method as the Trustee shall deem fair and appropriate. Upon the
completion of any Excess Proceeds Offer and the closing of any repurchase of
Senior Notes tendered pursuant to such Excess Proceeds Offer, the amount of
Excess Proceeds shall be deemed to be zero.
If Unison is required to make an Excess Proceeds Offer, Unison shall mail,
within 30 days following the Reinvestment Date, a notice to the holders of the
Senior Notes stating, among other things: (1) that such holders have the right
to require Unison to apply the Excess Proceeds to repurchase such Senior Notes
at a purchase price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase; (2) the purchase
date, which shall be no earlier than 30 days and not later than 60 days from the
date such notice is mailed; (3) the instructions, determined by Unison, that
each holder of
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Senior Notes must follow in order to have such Senior Notes repurchased; and (4)
the calculations used in determining the amount of Excess Proceeds to be applied
to the repurchase of such Senior Notes.
In the event of the transfer of substantially all (but not all) of the
assets of Unison or any Subsidiary of Unison or substantially all (but not all)
of the assets of any division or line of business of Unison or any Subsidiary of
Unison as an entirety to a Person in a transaction or series of related
transactions permitted under "-- Mergers, Consolidations and Sales of Assets,"
the successor corporation shall be deemed to have sold the assets of Unison, the
Subsidiary or the division or line of business, as the case may be, not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such assets of Unison, the Subsidiary or
the division or line of business, as the case may be, deemed to be sold shall be
deemed to be Asset Sale Proceeds for purposes of this covenant.
Any Excess Proceeds Offer will be made in substantially the same manner as
a Change of Control Offer. Unison will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations to
the extent such laws and regulations are applicable to an Excess Proceeds Offer.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries
Unison will not, and will not permit any of its Subsidiaries to, directly
or indirectly, create or otherwise cause or suffer to exist or become effective
any consensual encumbrance or restriction of any kind on the ability of any of
its Subsidiaries to (a) pay dividends or make any other distributions in cash or
otherwise to Unison or any Subsidiary on its Equity Interests, (b) pay any
Indebtedness owed to Unison or any Subsidiary, (c) make loans or advances to
Unison or any Subsidiary thereof, (d) transfer any of its properties or assets
to Unison or any Subsidiary thereof (other than customary restrictions on
transfer of property subject to a Permitted Lien under the term of the
agreements creating such Permitted Lien (other than a Lien on cash not
constituting proceeds of non-cash property subject to a Permitted Lien) which
would not materially adversely affect Unison's ability to satisfy its
obligations under the Senior Notes) or (e) guarantee any Indebtedness of Unison
or any Subsidiary of Unison, except, in each case, for such encumbrances or
restrictions existing under or contemplated by or by reason of (i) the Senior
Notes or the Indenture, (ii) any restrictions existing under or contemplated by
agreements evidencing any Permitted Secured Indebtedness, (iii) any restrictions
which are in existence on the Issue Date or which exist with respect to a Person
that becomes a Subsidiary on or after the Issue Date, which are in existence at
the time such Person becomes a Subsidiary of Unison (but not created in
connection with or contemplation of such Person becoming a Subsidiary of Unison
and which encumbrance or restriction is not applicable to any Person or the
property or assets of any Person other than such Person or the property or
assets of such Person so acquired) and any agreement that refinances or replaces
the same, provided, however, that the terms and conditions of any such
restrictions are not materially less favorable in the aggregate to the holders
of the Senior Notes than those under or pursuant to the agreement being replaced
or the agreement evidencing the Indebtedness refinanced or replaced and (iv)
customary non-assignment provisions in any contract or licensing agreement
entered into by Unison or any Subsidiary of Unison in the ordinary course of
business or in any lease governing any leasehold interest of Unison or a
Subsidiary.
Restriction on Sale and Issuance of Subsidiary Equity Interests
The Indenture provides that Unison and its Subsidiaries will not issue or
sell, and will not permit any of their Subsidiaries to issue or sell, any Equity
Interests of any Subsidiary to any person other than Unison or a Wholly-Owned
Subsidiary of Unison, except for Common Equity Interests with no preferences or
special rights or privileges and with no redemption or prepayment provisions.
Limitation on Sale and Lease-Back Transactions
Unison will not, and will not permit any of its Subsidiaries to, enter into
any Sale and Lease-Back Transaction unless (i) the consideration received in
such Sale and Lease-Back Transaction is at least equal to the fair market value
of the property sold and (ii) immediately prior to and after giving effect to
the Attributable Indebtedness in respect of such Sale and Lease-Back
Transaction, Unison could incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the covenant described under
"Limitation on Additional Indebtedness."
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Payments for Consent
Neither Unison nor any of its Subsidiaries shall, directly or indirectly,
pay or cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any holder of any Senior Notes for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of the Indenture
or the Senior Notes unless such consideration is offered to be paid or agreed to
be paid to all holders of the Senior Notes which so consent, waive or agree to
amend within any time period set forth in the solicitation documents relating to
such consent, waiver or agreement.
Line of Business
Unison will not, and will not permit any of its Subsidiaries to, engage in
any business other than the provision of healthcare and health fitness services,
including without limitation, the ownership, operation or management of
healthcare facilities, the provision of services or supplies to the healthcare
business, providing care and/or housing for the elderly (including independent
living, assisted living or home healthcare), managed care or any other business
determined by Unison's Board of Directors, in good faith, to be reasonably
related to the foregoing.
Limitation on Status as Investment Company
The Indenture prohibits Unison and its Subsidiaries from being required to
register as an "investment company" (as that term is defined in the Investment
Company Act of 1940, as amended), or from otherwise becoming subject to
regulation as an investment company.
CHANGE OF CONTROL OFFER
Within 30 days of the occurrence of a Change of Control, Unison shall
notify the Trustee in writing of such occurrence and shall make an offer to
purchase (the "Change of Control Offer") the outstanding Senior Notes at a
purchase price equal to 101% of the principal amount thereof plus any accrued
and unpaid interest thereon to the Change of Control Payment Date (as
hereinafter defined) (such applicable purchase price being hereinafter referred
to as the "Change of Control Purchase Price") in accordance with the procedures
set forth in this covenant.
Within 30 days of the occurrence of a Change of Control, Unison also shall
(i) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (ii) send by first-class mail, postage prepaid, to the Trustee and to each
holder of the Senior Notes, at the address appearing in the register maintained
by the Registrar of the Senior Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Senior Notes tendered will be accepted for payment,
and otherwise subject to the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 20 business days from the date such
notice is mailed (the "Change of Control Payment Date");
(3) that any Senior Note not tendered will continue to accrue
interest;
(4) that, unless Unison defaults in the payment of the Change of
Control Purchase Price, any Senior Notes accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest after the Change
of Control Payment Date;
(5) that holders accepting the offer to have their Senior Notes
purchased pursuant to a Change of Control Offer will be required to
surrender the Senior Notes to the Paying Agent at the address specified in
the notice prior to the close of business on the Business Day preceding the
Change of Control Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount
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of the Senior Notes delivered for purchase, and a statement that such
holder is withdrawing its election to have such Senior Notes purchased;
(7) that holders whose Senior Notes are being purchased only in part
will be issued new Senior Notes equal in principal amount to the
unpurchased portion of the Senior Notes surrendered, provided that each
Senior Note purchased and each such new Senior Note issued shall be in an
original principal amount in denominations of $1,000 and integral multiples
thereof;
(8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, Unison shall, to the extent lawful,
(i) accept for payment all Senior Notes or portions thereof or beneficial
interests under a Global Note tendered pursuant to the Change of Control Offer,
(ii) deposit with the Paying Agent money sufficient to pay the purchase price of
all Senior Notes or portions thereof or beneficial interests, so tendered and
(iii) deliver or cause to be delivered to the Trustee Senior Notes so accepted
together with an Officers' Certificate stating the Senior Notes or portions
thereof tendered to Unison. The Paying Agent shall promptly (1) mail to each
holder of Senior Notes so accepted and (2) cause to be credited to the
respective accounts of the Holders under a Global Note of beneficial interests
so accepted payment in an amount equal to the Change of Control Purchase Price
for such Senior Notes, and Unison shall execute and issue, and the Trustee shall
promptly authenticate and mail to such holder, a new Senior Note equal in
principal amount to any unpurchased portion of the Senior Notes surrendered and
shall issue a new Global Note equal in principal amount to any unpurchased
portion of beneficial interest so surrendered; provided, however, that each such
new Senior Note shall be issued in an original principal amount in denominations
of $1,000 and integral multiples thereof.
The Indenture requires that if any Permitted Secured Indebtedness is
outstanding, at the time of the occurrence of a Change of Control, prior to the
mailing of the notice to holders described in the preceding paragraphs, but in
any event within 30 days following any Change of Control, Unison covenants to
(i) repay in full all obligations and terminate all commitments under such
Permitted Secured Indebtedness or offer to repay in full all obligations and
terminate all commitments under such Permitted Secured Indebtedness of each
lender who has accepted such offer or (ii) obtain the requisite consent under
such Permitted Secured Indebtedness to permit the repurchase of the Senior Notes
as described above. Unison must first comply with the covenant described in the
preceding sentence before it shall be required to purchase Senior Notes in the
event of a Change of Control, provided, however, that Unison's failure to comply
with the covenant described in the preceding sentence constitutes an Event of
Default described in clause (iii) under "Events of Default" below. As a result
of the foregoing a holder of the Senior Notes may not be able to compel Unison
to purchase the Senior Notes unless Unison is able at the time to refinance any
of the Permitted Secured Indebtedness or obtain requisite consents thereunder.
Failure by Unison to make a Change of Control Offer when required by the
Indenture constitutes an Event of Default under the Indenture. The Indenture
provides that, (A) if Unison or any Subsidiary thereof has issued any
outstanding (i) Subordinated Indebtedness or (ii) Preferred Equity Interests,
and Unison or such Subsidiary is required to make a Change of Control Offer or
to make a distribution with respect to such Subordinated Indebtedness or
Preferred Equity Interests in the event of a change of control, Unison and such
Subsidiary shall not consummate any such offer or distribution with respect to
such Subordinated Indebtedness or Preferred Equity Interests until such time as
Unison shall have paid the Change of Control Purchase Price in full to the
holders of Senior Notes that have accepted Unison's Change of Control Offer and
shall otherwise have consummated the Change of Control Offer made to holders of
the Senior Notes and (B) Unison will not issue Subordinated Indebtedness or
Preferred Equity Interests with change of control provisions requiring the
payment of such Subordinated Indebtedness or Preferred Equity Interests prior to
the payment of the Senior Notes in the event of a Change in Control under the
Indenture.
In the event that a Change of Control occurs and the holders of Senior
Notes exercise their right to require Unison to purchase Senior Notes, if such
purchase constitutes a "tender offer" for purposes of Rule 14e-1 under the
Exchange Act at that time, Unison will comply with the requirements of Rule
14e-1 as
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then in effect with respect to such repurchase. Unison's ability to purchase the
Senior Notes will be limited by Unison's then available financial resources and,
if such financial resources are insufficient, its ability to arrange financing
to effect such purchases. There can be no assurance that Unison will have
sufficient funds to repurchase the Senior Notes upon a Change of Control or that
Unison will be able to arrange financing for such purpose.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Unison will not and will not permit any of its Subsidiaries to consolidate
with, merge with or into, or sell, assign, lease, convey, transfer or otherwise
dispose of (a "transfer") all or substantially all of its assets (as an entirety
or substantially as an entirety in one transaction or a series of related
transactions), to any Person unless: (i) Unison or such Subsidiary, as the case
may be, shall be the continuing Person, or the Person (if other than Unison or
such Subsidiary) formed by such consolidation or into which Unison or such
Subsidiary, as the case may be, is merged or to which the properties and assets
of Unison or such Subsidiary, as the case may be, are transferred shall be a
corporation organized and existing under the laws of the United States or any
State thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all of the obligations of Unison or such
Subsidiary, as the case may be, under the Senior Notes and the Indenture, and
the obligations under the Indenture shall remain in full force and effect; (ii)
immediately before and immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction on a pro forma basis Unison
or such Person could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the covenant set forth under "Limitation on
Additional Indebtedness"; and (iv) immediately thereafter, Unison, such
Subsidiary or the other surviving entity, as the case may be, shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
Unison or such Subsidiary, as the case may be, immediately prior to such
transaction.
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, Unison shall deliver, or cause to be delivered,
to the Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision of the Indenture and that all conditions
precedent provided for in the Indenture relating to such transaction or
transactions have been complied with.
FUTURE GUARANTEES
The Original Notes are, and the Exchange Notes will be fully and
unconditionally guaranteed on a senior unsecured and joint and several basis by
the Guarantors. The Guarantees will rank senior to all Subordinated Indebtedness
of the Guarantors and will rank pari passu in right of payment to all other
indebtedness of the Guarantors.
The obligations of each Guarantor will be limited to the maximum amounts as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any guarantees of Indebtedness) and
after giving effect to any collections from or payments made by or on behalf of
any other Guarantor in respect of the obligations of such other Guarantor under
its Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Guarantor under the Guarantee not constituting
a fraudulent conveyance or fraudulent transfer under federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee will be
entitled to a contribution from each other Guarantor in a pro rata amount based
on the Adjusted Net Assets of each Subsidiary Guarantor.
A Guarantor will be released from all of its obligations under its
Guarantee if all or substantially all of its assets are sold or all of its
Equity Interests is sold, in each case in a transaction in compliance with the
covenant described under "Certain Covenants -- Limitation on Certain Asset
Sales," or the Guarantor merges with or into or consolidates with, or transfers
all or substantially all of its assets to, the Company or another Guarantor in a
transaction in compliance with "Merger, Consolidation or Sale of Assets," and
such Guarantor has delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent herein provided
for relating to such transaction have been complied with.
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EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default in payment of any principal of, or premium, if any, on the
Senior Notes when such principal becomes due and payable;
(ii) default for 30 days in the payment of any interest on the Senior
Notes after such interest becomes due and payable:
(iii) the failure of Unison to comply with any of the terms or
provisions of "Change of Control Offer" or "Certain Covenants -- Limitation
on Certain Asset Sales" or "Merger, Consolidation or Sale of Assets";
(iv) default by Unison in the observance or performance of any other
provision in the Senior Notes or the Indenture for 30 days after written
notice from the Trustee or the holders of not less than 25% in aggregate
principal amount of the Senior Notes then outstanding;
(v) failure to pay when due principal, interest or premium in an
aggregate amount of $3 million or more with respect to any Indebtedness of
Unison or any Subsidiary thereof, or the acceleration prior to its express
maturity of any such Indebtedness aggregating $3 million or more:
(vi) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $3 million (which are not paid or
covered by third party insurance by financially sound insurers that have
not disclaimed or threatened to disclaim coverage) shall be rendered
against Unison or any Subsidiary thereof, and shall not be discharged for
any period of 60 consecutive days during which a stay of enforcement shall
not be in effect,
(vii) certain events involving bankruptcy, insolvency or
reorganization of Unison or any Subsidiary of Unison.
The Indenture provides that the Trustee may withhold notice to the holders
of the Senior Notes of any default (except in payment of principal or premium,
if any, or interest on the Senior Notes or that resulted from the failure of
Unison to comply with the provisions of "Change of Control Offer" or "Certain
Covenants -- Limitation on Certain Asset Sales") if the Trustee considers it to
be in the best interest of the holders of the Senior Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, then the Trustee or the
holders of not less than 25% in aggregate principal amount of the Senior Notes
then outstanding may declare to be immediately due and payable the entire
principal amount of all the Senior Notes then outstanding plus accrued interest
to the date of acceleration, provided, however, that after such acceleration but
before a judgment or decree based on such acceleration is obtained by the
Trustee, the holders of a majority in aggregate principal amount of outstanding
Senior Notes may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than nonpayment of accelerated
principal, premium or interest, have been cured or waived as provided in the
Indenture. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization shall occur, the principal, premium and
interest amount with respect to all of the Senior Notes shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or the holders of the Senior Notes.
The holders of a majority in principal amount of the Senior Notes then
outstanding shall have the right to waive any existing default or compliance
with any provision of the Indenture or the Senior Notes and to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, subject to certain limitations specified in the Indenture.
No holder of any Senior Note will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
such holder shall have previously given to the Trustee written notice (if a
continuing Event of Default) and unless also the holders of at least 25% in
aggregate principal amount of the outstanding Senior Notes shall have made
written request and offered reasonable indemnity to the Trustee to institute
such proceeding as a trustee, and unless the Trustee shall not have received
from the holders of a majority in aggregate principal amount of the outstanding
Senior Notes a direction inconsistent with such
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request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted on such Senior Note
on or after the respective due dates expressed in such Senior Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that Unison may elect either (a) to defease and be
discharged (and discharge the obligations of the Guarantors under the
Guarantees) from any and all obligations with respect to the Senior Notes
(except for the obligations to register the transfer or exchange of such Senior
Notes, to replace temporary or mutilated, destroyed, lost or stolen Senior
Notes, to maintain an office or agency in respect of the Senior Notes and to
hold monies for payment in trust) ("defeasance") or (b) to be released from its
and its Subsidiaries' obligations with respect to the Senior Notes under certain
covenants contained in the Indenture and described above under "Covenants"
("covenant defeasance"), upon the deposit with the Trustee (or other qualifying
trustee), in trust for such purpose, of money and/or U.S. Government Obligations
which through the payment of principal and interest in accordance with their
terms will provide money, in an amount sufficient to pay the principal of,
premium, if any, and interest on the Senior Notes, on the scheduled due dates
therefor or on a selected date of redemption in accordance with the terms of the
Indenture. Such a trust may only be established if, among other things, Unison
shall have delivered to the Trustee an Opinion of Counsel (as specified in the
Indenture) (i) to the effect that neither the trust nor the Trustee will be
required to register as an investment company under the Investment Company Act
of 1940, as amended, and (ii) describing either a private ruling concerning the
Senior Notes, a published ruling of the Internal Revenue Service or a change in
applicable federal income tax law, to the effect that holders of the Senior
Notes or persons in their positions will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount and in
the same manner and at the same times, as would have been the case if such
deposit, defeasance and discharge had not occurred.
MODIFICATION OF INDENTURE
From time to time, Unison and/or one or more Guarantors and the Trustee
may, without the consent of holders of the Senior Notes, modify, amend, waive or
supplement the provisions of the Indenture or the Senior Notes for certain
specified purposes, including providing for uncertificated Senior Notes in
addition to certificated Senior Notes, and curing any ambiguity, defect or
inconsistency, or making any other change that, in each case, does not
materially and adversely affect the rights of any holder. The Indenture contains
provisions permitting Unison and/or one or more Guarantors and the Trustee, with
the consent of holders of at least a majority in principal amount of the
outstanding Senior Notes, to modify, amend, waive or supplement the Indenture,
the Senior Notes or Guarantees, except that no such modification shall, without
the consent of each holder affected thereby, (i) reduce the amount of Senior
Notes whose holders must consent to an amendment, supplement, or waiver to the
Indenture or the Senior Notes, (ii) reduce the rate of or change the time for
payment of interest on any Senior Note, (iii) reduce the principal of or premium
on or change the stated maturity of any Senior Note, (iv) make any Senior Note
payable in money other than that stated in the Senior Note or change the place
of payment from New York, New York, (v) change the amount or time of any payment
required by the Senior Notes or reduce the premium payable upon any redemption
of Senior Notes or change the time before which no such redemption may be made,
(vi) waive a default on the payment of the principal of, interest on, or
redemption payment with respect to any Senior Note, (vii) subordinate in right
of payment, or otherwise subordinate, the Senior Notes or the Guarantees to any
other Indebtedness or obligation of Unison or the Guarantors, (viii) amend,
alter, change or modify the obligation of Unison to make and consummate a Change
of Control Offer in the event of a Change of Control or make and consummate an
Excess Proceeds Offer or waive any Default in the performance of any such offers
or modify any of the provisions or definitions with respect to any such offers
or (ix) take any other action otherwise prohibited by the Indenture to be taken
without the consent of each holder affected thereby.
REPORTS TO HOLDERS
So long as any of the Senior Notes are outstanding, whether or not Unison
is required to be subject to Section 13(a) or 15(d) of the Exchange Act, Unison
will furnish the information required thereby to the Commission, the holders of
the Senior Notes and to the Trustee. The Indenture provides that even if Unison
is
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entitled under the Exchange Act not to furnish such information to the
Commission or to the holders of the Senior Notes, it will nonetheless continue
to furnish such information to the Commission, the holders of the Senior Notes
and the Trustee.
COMPLIANCE CERTIFICATE
Unison will deliver to the Trustee on or before 120 days after the end of
Unison' fiscal year and on or before 50 days after the end of each of the first,
second and third fiscal quarters in each year an Officers' Certificate stating
whether or not the signers know of any Default or Event of Default that has
occurred. If they do, the certificate will describe the Default or Event of
Default and its status.
THE TRUSTEE
The Trustee under the Indenture initially is the Registrar and Paying Agent
with regard to the Senior Notes. The Indenture provides that, except during the
continuance of an Event of Default, the Trustee will perform only such duties as
are specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
TRANSFER AND EXCHANGE
Holders of the Senior Notes may transfer or exchange Senior Notes (other
than in accordance with the exchange of Original Notes for Exchange Notes
pursuant to this Prospectus) in accordance with the Indenture. The Registrar
under such Indenture may require a holder, among other things, to furnish
appropriate endorsements and transfer documents, and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar is not required to
transfer or exchange any Senior Note selected for redemption. Also, the
Registrar is not required to transfer or exchange any Senior Note for a period
of 15 days before selection of the Senior Notes to be redeemed.
The Original Notes were issued in a transaction exempt from registration
under the Act and are therefore subject to certain restrictions on transfer as
required by law. The Exchange Notes will be issued pursuant to the Registration
Statement of which this Prospectus is a part and so will not be subject to such
restrictions on transfer except as described in "Plan of Distribution."
The registered holder of a Senior Note may be treated as the owner of it
for all purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for the
full definition of all such terms as well as any other capitalized terms used
herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Subsidiary or assumed in connection with an Asset
Acquisition from such Person.
"Acquisition Indebtedness" means Indebtedness incurred by Unison or by a
Subsidiary after the Issue Date the proceeds of which are used for an Asset
Acquisition not prohibited by the covenant under "Line of Business."
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of
the amount by which (x) the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities
(including, without limitation, any guarantees of Indebtedness)), but excluding
liabilities under the Guarantee, of such Guarantor at such date and (y) the
present fair salable value of the assets of such Guarantor at such date exceeds
the total amount of its debts (after giving effect to all other fixed and
contingent liabilities (including, without limitation, any guarantees of
Indebtedness) and after giving effect to any collection from any Subsidiary of
such Guarantor in respect of the obligations of such Subsidiary under the
Guarantee), excluding Indebtedness in respect of the Guarantee, as they become
absolute and matured.
"Affiliate" of any specified Person means any other Person which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified Person. For
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the purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by," and "under common control
with"), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise.
"Asset Acquisition" means (a) an Investment by Unison or any Subsidiary of
Unison in any other Person pursuant to which such Person shall become a
Subsidiary of Unison, or shall be merged with or into Unison or any Subsidiary
of Unison, (b) the acquisition by Unison or any Subsidiary of Unison of the
assets of any Person (other than a Subsidiary of Unison) which constitute all or
substantially all of the assets of such Person or (c) the acquisition by Unison
or any Subsidiary of Unison of any division or line of business of any Person
(other than a Subsidiary of Unison).
"Asset Sale" means the direct or indirect sale, transfer, issuance,
conveyance, lease (other than operating leases entered into in the ordinary
course of business pursuant to ordinary business terms, it being understood that
the lease of a healthcare facility shall not be considered to be in the ordinary
course but that leases of portions of a healthcare facility to service providers
shall be considered to be in the ordinary course), assignment or other
disposition (including, without limitation, by eminent domain, condemnation or
similar governmental proceeding) and any merger or consolidation of any
Subsidiary of Unison with or into another Person (other than Unison or any
Wholly-Owned Subsidiary of Unison whereby such Subsidiary shall cease to be a
Wholly-Owned Subsidiary) in any single transaction or series of related
transactions (separate eminent domain, condemnation or similar governmental
proceedings to each be considered a single transaction but not to be considered
together as a series of related transactions) involving property or assets with
a fair market value in excess of $250,000 of (a) any Equity Interest in any
Subsidiary, (b) real property owned by Unison or any Subsidiary thereof, or a
division, line of business or healthcare facility or comparable business segment
of Unison or any Subsidiary thereof or (c) other property, assets or rights
(including, without limitation leasehold rights) of Unison, any Subsidiary
thereof or any division, line of business or healthcare facility of Unison or
any Subsidiary thereof, provided, however, that Asset Sales shall not include
(i) sales, leases, conveyances, transfers or other dispositions to Unison or to
a Subsidiary thereof or to any other Person if after giving effect to such sale,
lease, conveyance, transfer or other disposition such other Person becomes a
Wholly-Owned Subsidiary of Unison, (ii) transactions complying with "Merger,
Consolidation or Sale of Assets" above (except as otherwise provided in the
penultimate paragraph set forth under "Certain Covenants -- Limitation on
Certain Asset Sales" above), and (iii) sales, transfers, issuances, conveyances,
leases, assignments or other dispositions to Unison or any Wholly-Owned
Subsidiary of Unison.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by Unison or any Subsidiary thereof from such Asset Sale (including
cash received as consideration for the assumption of liabilities incurred in
connection with or in anticipation of such Asset Sale), after (a) provision for
all income or other taxes measured by or resulting from such Asset Sale, (b)
payment of all brokerage commissions, underwriting and other fees and expenses
related to such Asset Sale, (c) provision for minority interest holders in any
Subsidiary as a result of such Asset Sale, (d) payments made to retire
Indebtedness secured by the assets subject to such Asset Sale and (e) deduction
of appropriate amounts to be provided by Unison or a Subsidiary thereof as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets sold or disposed of in such Asset Sale and retained by Unison or a
Subsidiary thereof after such Asset Sale including, without limitation, pension
and other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
the assets sold or disposed of in such Asset Sale and (ii) promissory notes and
other noncash consideration received by Unison or any Subsidiary thereof from
such Asset Sale or other disposition upon the liquidation or conversion of such
notes or noncash consideration into cash.
"Attributable Indebtedness" when used with respect to any Sale-Lease-Back
Transaction or an operating lease with respect to a long-term care facility
means, as at the time of determination, the present value (discounted at a rate
equivalent to the interest rate implicit in the lease, compounded on a
semi-annual basis) of the total obligations of the lessee for rental payments
(after excluding all amounts required to be paid on account of maintenance and
repairs, insurance, taxes, utilities and other similar expenses payable by the
lessee pursuant to the terms of the lease) during the remaining term of the
lease included in any such Sale-Lease-
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Back Transaction or such operating lease or until the earliest date on which the
lessee may terminate such lease without penalty or upon payment of a penalty (in
which case the rental payments shall include such penalty); provided, that the
Attributable Indebtedness with respect to a Sale-Lease-Back Transaction shall be
no less than the fair market value (as determined reasonably and in good faith
by the Board of Directors of the Person incurring the Attributable Indebtedness)
of the property subject to such Sale-Lease-Back Transaction.
"Board of Directors" means, as to any Person, the board of directors or any
duly authorized committee thereof of such Person or, if such Person is a
partnership (or other non-corporate Person), of the managing general partner or
partners (or Persons serving an analogous function) of such Person.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Change of Control" means (i) any sale, merger or consolidation with or
into any Person or any transfer or other conveyance, whether direct or indirect,
of all or substantially all of the assets of Unison, on a consolidated basis, in
one transaction or a series of related transactions, if, immediately after
giving effect to such transaction, any "person" or "group" other than an
Excluded Person is or becomes the "beneficial owner" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable), directly or indirectly, of more than 50% of the total voting power
in the aggregate normally entitled to vote in the election of the Board of
Directors, of the transferee or surviving entity, (ii) any "person" or "group"
other than an Excluded Person is or becomes the "beneficial owner" (as such
terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act,
whether or not applicable), directly or indirectly, of more than 50% of the
total voting power in the aggregate of all classes of Equity Interests of Unison
then outstanding normally entitled to vote in elections of the Board of
Directors or (iii) during any period of 12 consecutive months after the Issue
Date, individuals who at the beginning of any such 12-month period constituted
the Board of Directors of Unison (together with any new directors whose election
by such Board or whose nomination for election by the shareholders of Unison was
approved by a vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office.
"Common Equity Interest" of any Person means all Equity Interests of such
Person that are generally entitled to (i) vote in the election of directors of
such Person or (ii) if such Person is not a corporation, vote or otherwise
participate in the selection of the governing body, partners, managers or others
that will control the management and policies of such Person.
"Consolidated Cash Flow Available for Fixed Charges" means, with respect to
any Person for any period, on a consolidated basis in accordance with GAAP, the
sum of, without duplication, the amounts for such period, taken as a single
accounting period, of (A) (a) Consolidated Net Income, (b) Consolidated Non-cash
Charges, (c) Consolidated Interest Expense, (d) Consolidated Income Tax Expense,
and (e) one-third of Consolidated Rental Payments less (B) any non-cash items
increasing Consolidated Net Income for such period.
"Consolidated Fixed Charge Coverage Ratio" means with respect to any
Person, the ratio of the aggregate amount of Consolidated Cash Flow Available
for Fixed Charges of such Person for the four full fiscal quarters immediately
preceding the date of the transaction (the "Transaction Date") giving rise to
the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four
full fiscal quarter period being referred to herein as the "Four Quarter
Period") to the aggregate amount of Consolidated Fixed Charges of such Person
for the Four Quarter Period. In addition to and without limitation of the
foregoing, for purposes of this definition, "Consolidated Cash Flow Available
for Fixed Charges" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma basis for the period of such calculation to,
without duplication, (a) the incurrence of any Indebtedness of such Person or
any of its Subsidiaries (and the application of the net proceeds thereof) during
the period commencing on the first day of the Four Quarter Period to and
including the Transaction Date (the "Reference Period"), including, without
limitation, the incurrence of the Indebtedness giving rise to the need to make
such calculation (and the application of the net
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proceeds thereof), as if such incurrence (and application) occurred on the first
day of the Four Quarter Period (it being understood that with respect to
Indebtedness incurred under a revolving facility used primarily to finance
working capital, the average daily principal amount outstanding during the
Reference Period shall be deemed to be the amount incurred during the Reference
Period), and (b) any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Subsidiaries (including any
Person who becomes a Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness) occurring during
the Four Quarter Period, as if such Asset Sale or Asset Acquisition occurred on
the first day of the Four Quarter Period. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (i)
interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date; and (ii) if interest on
indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period. In calculating the Consolidated Fiscal Charge Coverage
Ratio and giving pro forma effect to the incurrence of Indebtedness during a
Reference Period, pro forma effect shall be given to use of proceeds thereof to
permanently repay or retire Indebtedness. If such Person or any of its
Subsidiaries directly or indirectly guarantees Indebtedness of a third Person,
for purposes of determining the "Consolidated Fixed Charge Coverage Ratio,"
effect shall be given to the incurrence of such guaranteed Indebtedness as if
such Person or such Subsidiary had directly incurred or otherwise assumed such
guaranteed Indebtedness.
"Consolidated Fixed Charges" means, with respect to any person for any
period, the sum of, without duplication, the amounts for such period of (i)
Consolidated Interest Expense, (ii) the product of (a) the aggregate amount of
dividends and other distributions paid or accrued during such period in respect
of Disqualified Equity Interests of such Person and its Subsidiaries on a
consolidated basis and (b) a fraction, the numerator which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory income tax rate of such Person, expressed as a decimal and (iii)
one-third of Consolidated Rental Payments.
"Consolidated Income Tax Expense" means, with respect to any Person for any
period, the provision for federal, state, local and foreign income taxes of such
Person and its Subsidiaries for each period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person, on a
consolidated basis in accordance with GAAP, for any period, the sum of, without
duplication, (a) the aggregate amount of interest which, in conformity with
GAAP, would be set forth opposite the caption "interest expense" or any like
caption on an income statement for such Person and its Subsidiaries on a
consolidated basis, (b) imputed interest included in Capitalized Lease
Obligations, (c) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (d) the net
costs associated with Interest Rate Agreements, (e) amortization of other
financing fees and expenses, (f) the interest portion of any deferred payment
obligation, (g) amortization of discount or premium, if any, (h) all other
non-cash interest expense (other than interest amortized to cost of sales), (i)
the interest component of Capitalized Lease Obligations paid, accrued and/or
scheduled to be paid or accrued by such Person and its Subsidiaries during such
period as determined on a consolidated basis in accordance with GAAP and (j) all
interest incurred or paid under any guarantee of Indebtedness (including a
guarantee of principal, interest or any combination thereof) of any Person.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP, plus
the amount of any dividends or distributions received by such Person from
Unrestricted Subsidiaries; provided, however, that (a) the Net Income of any
Person (the "other Person") in which the Person in question or any of its
Subsidiaries has less than a 100% interest (which interest does not cause the
net income of such other Person to be consolidated into the net income of the
Person in question in
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accordance with GAAP) shall be included only to the extent of the amount of
dividends or distributions paid to the Person in question or the Subsidiary, (b)
the Net Income of any Subsidiary of the Person in question that is subject to
any restriction or limitation (whether by terms of its charter, agreement or
applicable law) on the payment of dividends or the making of other distributions
shall be excluded to the extent such restriction or limitation would prevent
such Subsidiary from being able to pay dividends or make other distributions out
of its Net Income, (c)(i) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition and
(ii) any net gain (but not loss) resulting from an Asset Sale by the Person in
question or any of its Subsidiaries other than in the ordinary course of
business shall be excluded, (d) extraordinary gains and losses (including any
related tax effects) shall be excluded and (e) the cumulative effect of changes
in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person at any date, the
consolidated stockholders' equity of such Person less the amount of such
stockholders' equity attributable to Disqualified Equity Interests of such
Person and its Subsidiaries, as determined in accordance with GAAP.
"Consolidated Non-cash Charges" means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Subsidiaries reducing Consolidated Net Income of such Person
and its Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which required an accrual of or a reserve for
cash charges for any future period).
"Consolidated Rental Payments" of any Person means, for any period, the
aggregate rental obligations of such Person and its consolidated Subsidiaries
(not including taxes, utilities, insurance, maintenance and repairs and other
similar expenses that the lessee is obligated to pay under the terms of the
relevant leases), determined on a consolidated basis in accordance with GAAP,
payable in respect of such period (net of income from subleases thereof, not
including taxes, utilities, insurance, maintenance and repairs and other similar
expenses that the sublessee is obligated to pay under the terms of such
sublease), whether or not such obligations are reflected as liabilities or
commitments on a consolidated balance sheet of such Person and its Subsidiaries
or in the notes thereto, excluding, however, in any event, (i) that portion of
Consolidated Interest Expense of such person representing payments by such
Person or any of its consolidated Subsidiaries in respect of Capitalized Lease
Obligations (net of payments to such Person or any of its consolidated
Subsidiaries under subleases qualifying as capitalized lease subleases to the
extent that such payments would be deducted in determining Consolidated Interest
Expense) and (ii) the aggregate amount of amortization of obligations of such
Person and its consolidated Subsidiaries in respect of such Capitalized Lease
Obligations for such period (net of payments to such Person or any of its
consolidated Subsidiaries and subleases qualifying as capitalized lease
subleases to the extent that such payments could be deducted in determining such
amortization amount).
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Equity Interests" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the maturity date of the Senior Notes, for
cash or securities constituting Indebtedness. Without limitation of the
foregoing, Disqualified Equity Interests shall be deemed to include (i) any
Preferred Equity Interests of a Subsidiary of Unison and (ii) any Preferred
Equity Interests of Unison, with respect to either of which, under the terms of
such Preferred Equity Interests, by agreement or otherwise, such Subsidiary or
Unison is obligated to pay current dividends or distributions in cash during the
period prior to the maturity date of the Senior Notes, provided, however, that
Preferred Equity Interests of Unison or any Subsidiary thereof that are issued
with the benefit of provisions requiring a change of control offer to be made
for such Preferred Equity Interest in the event of a change of control of Unison
or such Subsidiary, which provisions have substantially the same effect as the
provisions of the Indenture described under "Change of Control," shall not be
deemed to be Disqualified Equity Interests solely by virtue of such provisions.
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"Equity Interests" means, with respect to any Person, any and all shares or
other equivalents (however designated) of capital stock, partnership interests
or any other participation, right or other interests in the nature of an equity
interest in such Person or any option, warrant or other security convertible
into or exchangeable for any of the foregoing; provided that the Contingent
Obligations to the former BritWill shareholders shall not be deemed to be an
Equity Interest.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Person" means all or any of Bruce H. Whitehead, Jerry M. Walker,
Phillip R. Rollins, Craig R. Clark or Paul J. Contris and their Related Parties.
"fair market value" or "fair value" means, with respect to any assets or
property, the price which could be negotiated in an arm's-length free market
transaction, for cash, between a willing seller and a fully informed, willing
and able buyer, neither of whom is under undue pressure or compulsion to
complete the transaction, all as reasonably determined by a majority of the
Board of Directors acting in good faith, such determination to be evidenced by a
board resolution delivered to the Trustee. No such determination need be
supported by an appraisal or expert opinion.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become, directly or indirectly, liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such person (and "incurrence," "incurred, "incurable," and "incurring" shall
have meanings correlative to the foregoing); provided, however, that a change in
GAAP that results in an obligation of such Person that exists at such time
becoming Indebtedness shall not be deemed an incurrence of such Indebtedness.
Any Indebtedness or Equity Interests of a Person existing at the time such
person becomes a Subsidiary (whether by merger, consolidation, acquisition or
otherwise) shall be deemed to be incurred by such person at the time it becomes
a Subsidiary. Indebtedness consisting of reimbursement obligations in respect of
a letter of credit will be deemed to be incurred when the letter of credit is
issued or renewed.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other liabilities arising in the ordinary course
of business) and shall also include, to the extent not otherwise included (i)
any Capitalized Lease Obligations, (ii) obligations secured by a lien to which
the property or assets owned or held by such Person is subject, whether or not
the obligation or obligations secured thereby shall have been assumed, (iii) all
Indebtedness of others of the type described in the other clauses of this
definition (including all dividends of other Persons) the payment of which is
guaranteed, directly or indirectly, by such Person or that is otherwise its
legal liability or which such Person has agreed to purchase or repurchase or in
respect of which such Person has agreed contingently to supply or advance funds
(whether or not such items would appear upon the balance sheet of the
guarantor), (iv) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction, (v)
Disqualified Equity Interests, (vi) obligations of any such Person under any
Interest Rate Agreement applicable to any of the foregoing and (vii)
Attributable Indebtedness. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the obligation,
provided, however, that (i) the amount outstanding at any time of any
Indebtedness issued with original issue discount, including the Senior Notes, is
the principal amount of such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at such time as determined
in conformity with GAAP, and (ii) Indebtedness shall not include any liability
for federal, state, local or other taxes. Notwithstanding any other provision of
the foregoing definition, any trade payable arising from the purchase of goods
or materials or for services obtained in the ordinary course of
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business shall not be deemed to be "Indebtedness" of Unison or any Subsidiaries
for purposes of this definition. Furthermore, guarantees of (or obligations with
respect to letters of credit supporting) Indebtedness otherwise included in the
determination of such amount shall not also be included.
"Independent Financial Advisor" means an accounting, appraisal, investment
banking or consulting firm of nationally recognized standing that is, in the
reasonable and good faith judgment of the Board of Directors of Unison,
qualified to perform the task for which such firm has been engaged and is
disinterested and independent with respect to Unison and its Affiliates.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"Investments" means, directly or indirectly, any advance, account
receivable (other than an account receivable arising in the ordinary course of
business, including accounts receivable arising in the ordinary course of
business and acquired as a part of the assets acquired by Unison in connection
with an acquisition of assets which is otherwise permitted by the terms of the
Indenture), loan or capital contribution to (by means of transfers of property
to others, payments for property or services for the account or use of others or
otherwise), the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or stock or other
evidence of beneficial ownership of, any Person, the guarantee or assumption of
the Indebtedness of any other Person (except for an assumption of Indebtedness
for which the assuming Person receives consideration with a fair market value at
least equal to the principal amount of the Indebtedness assumed), the
designation of a Subsidiary as an Unrestricted Subsidiary or the making of any
investment in any Person and all other items that would be classified as
investments on a balance sheet of such Person prepared in accordance with GAAP.
Investments shall exclude extensions of trade credit on commercially reasonable
terms in accordance with normal trade practices.
"Issue Date" means the closing date for the sale and original issuance of
the Original Notes, which was October 31, 1996.
"Lien" means with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Investments" means the excess of (i) the aggregate of all Investments
made by Unison or a Subsidiary thereof on or after the Issue Date (in the case
of an Investment made other than in cash, the amount shall be the fair market
value of such Investment as determined in good faith by the Board of Directors
of Unison) over (ii) the sum of (A) the aggregate amount returned in cash on
such Investments whether through interest payments, principal payments,
dividends or other distributions and (B) the net cash proceeds received by
Unison or such Subsidiary from the disposition of all or any portion of such
Investments (other than to a Subsidiary of Unison), provided, however, that with
respect to all Investments made in Unrestricted Subsidiaries the sum of clauses
(A) and (B) above with respect to such Investments shall not exceed the
aggregate amount of all Investments made in all Unrestricted Subsidiaries.
"Net Proceeds" means (a) in the case of any sale of Equity Interests by
Unison, the aggregate net proceeds received by Unison, after payment of
expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the fair market value
thereof, as determined in good faith by the Board of Directors of Unison, at the
time of receipt) and (b) in the case of any exchange, exercise, conversion or
surrender of outstanding securities of any kind for or into Equity Interests of
Unison which are not Disqualified Equity Interests, the net book value of such
outstanding
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securities on the date of such exchange, exercise, conversion or surrender (plus
any additional amount required to be paid by the holder to Unison upon such
exchange, exercise, conversion or surrender, less any and all payments made to
the holders, e.g., on account of fractional shares and less all expenses
incurred by Unison in connection therewith).
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person (or, in the case of
a Person that is a partnership (or other non-corporate Person), of a general
partner (or analogous individuals) of such Person in such capacity) that shall
comply with applicable provisions of the Indenture.
"Permitted Indebtedness" means:
(i) Indebtedness (plus interest, premium, fees and other obligations
associated therewith) of Unison or any Subsidiary thereof arising under or
in connection with Permitted Secured Indebtedness;
(ii) Indebtedness under the Senior Notes;
(iii) Interest Rate Agreements;
(iv) Additional Indebtedness of Unison, including Indebtedness
incurred in connection with or arising out of Capitalized Lease
Obligations, in an aggregate principal amount outstanding not to exceed the
greater of (x) $10.0 million and (y) 10% of the Company's Consolidated Net
Worth;
(v) Indebtedness of a Subsidiary issued to and held by Unison or a
Subsidiary or Indebtedness of Unison to a Subsidiary in respect of
intercompany advances or transactions;
(vi) Indebtedness outstanding on the Issue Date after giving effect to
the application of the proceeds of the sale of the Original Notes; and
(vii) Refinancing Indebtedness.
"Permitted Investments" means, for any Person, Investments made on or after
the date of the Indenture consisting of:
(i) Temporary Cash Investments;
(ii) (A) Investments in the Company or a Subsidiary of the Company,
(B) Investments in any Person, if (1) as a result of such Investment (y)
such Person becomes a Wholly-Owned Subsidiary of Unison or (z) such Person
is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, Unison
or a Wholly-Owned Subsidiary thereof and (2) after giving effect to such
Investment Unison is in compliance with the covenant described under "Line
of Business" above and (C) Net Investments in any Person, provided,
however, that the aggregate amount of all such Net Investments made
pursuant to this clause (C) shall not exceed $1 million at any one time
outstanding;
(iii) Investments represented by accounts receivable created or
acquired in the ordinary course of business;
(iv) Advances to employees in the ordinary course of business not to
exceed an aggregate of $250,000 outstanding at any one time;
(v) Investments under or pursuant to Interest Rate Agreements;
(vi) An investment that is made by Unison or a Subsidiary thereof in
the form of any Equity Interests, Indebtedness or securities that are
issued by any Person solely as partial consideration for the consummation
of an Asset Sale that is otherwise permitted under the covenant described
under "Limitation of Certain Asset Sales;"
(vii) Investments in the Senior Notes; and
(viii) Investments existing on the Issue Date (or incurred in
conjunction with the Signature Acquisition and the Ampro Acquisition).
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"Permitted Liens" means, without duplication, (i) Liens existing on the
date of the Indenture, (ii) Liens in favor of Unison or any Subsidiary thereof,
(iii) Liens on property of a Person existing at the time such Person becomes a
Subsidiary of, or is acquired by, merged into or consolidated with Unison or any
Subsidiary thereof, provided, however, that such Liens (a) were not created in
connection with or in anticipation of such acquisition, merger or consolidation
or such Person becoming a Subsidiary and (b) are not applicable to any other
property of Unison or any of the other Subsidiaries of Unison, (iv) Liens for
taxes, assessments or governmental charges or claims that are not yet delinquent
or that are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted, provided, however, that any reserve or
other appropriate provision as shall be required in conformity with GAAP shall
have been made therefor, (v) landlords', carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in the ordinary course of
business and with respect to amounts which are not yet delinquent or are being
contested in good faith by appropriate proceedings, (vi) pledges or deposits
made in the ordinary course of business in connection with (a) leases,
performance bonds and similar obligations, (b) workers' compensation,
unemployment insurance and other social security legislation, or (c) securing
the performance of surety bonds and appeal bonds required (1) in the ordinary
course of business or in connection with the enforcement of rights or claims of
Unison or a Subsidiary thereof or (2) in connection with judgments that do not
give rise to an Event of Default and which do not exceed $3 million in the
aggregate, (vii) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar encumbrances which, in the aggregate,
do not materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of Unison or any
Subsidiary in connection therewith, (viii) Liens to secure Purchase Money
Indebtedness that is otherwise permitted under the Indenture, provided, however,
that (a) any such Lien is created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund, the cost
(including sales and excise taxes, installation and delivery charges and other
direct costs of, and other direct expenses paid or charged in connection with,
such purchase or construction) of such Property, (b) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such costs, and (c)
such Lien does not extend to or cover any Property other than such item of
Property and any improvements on such item, (ix) Liens securing Permitted
Secured Indebtedness, (x) Liens securing Capitalized Lease Obligations permitted
to be incurred under clause (iv) of the definition of "Permitted Indebtedness,"
provided, however, that such Lien does not extend to any property other than
that subject to the underlying lease, (xi) Liens pursuant to leases and
subleases of real property which do not interfere with the ordinary conduct of
the business of Unison or any of its Subsidiaries and which are made on
customary and usual terms applicable to similar properties and in the case of
any lease of a healthcare facility do not extend to any property of the Company
or a Subsidiary other than the personal property located at such facility, (xii)
Liens securing reimbursement obligations under commercial letters of credit, but
only in or upon the goods the purchase of which were financed by such letters of
credit, (xiii) Liens securing Acquisition Indebtedness, provided that such Liens
do not extend to or cover any property other than the property directly or
indirectly acquired with the proceeds of such Acquisition Indebtedness and any
improvements thereto (unless such Liens are otherwise Permitted Liens), and
(xiv) Liens securing Refinancing Indebtedness, provided, however, that such
Liens extend only to the assets securing the Indebtedness being extended,
refinancing, renewed or replaced, and such Indebtedness was previously secured
by such assets and provided, further, the terms of such Liens are no less
favorable to the holders of the Senior Notes than the Liens being extended,
refinanced, renewed or replaced.
"Permitted Secured Indebtedness" means any Indebtedness (plus interest,
premium, fees and other obligations associated therewith), and any refinancing,
refunding, replacement, renewal or extension of, under agreements evidencing any
Indebtedness which is secured by assets of Unison or its Subsidiaries, provided,
however, that the aggregate amount of all such Indebtedness outstanding (or
committed to be advanced under the agreements to which such Indebtedness
relates) at any time other than Indebtedness outstanding on the Issue Date,
after giving effect to the sale of the Original Notes and the application of the
proceeds therefrom, shall not exceed the greater of (i) $30 million or (ii) the
sum of 60% of the Company's inventory and 90% of the Company's accounts
receivable as set forth in the Company's consolidated financial statements most
recently delivered pursuant to the Indenture.
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"Person" means any individual, corporation, partnership, limited liability
company or partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government (including any agency or political
subdivision thereof).
"Preferred Equity Interest" means any Equity Interest of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of any other Equity Interest issued by such Person.
"Property" or "property" of any Person means all types of real, personal,
tangible, intangible or mixed property owned by such Person whether or not
included in the most recent consolidated balance sheet of such Person and its
Subsidiaries under GAAP.
"Public Equity Offering" means, with respect to any Person, a public
offering by such Person of some or all of its Common Equity Interests other than
Disqualified Equity Interests (however designated and whether voting or
non-voting) and any and all rights, warrants or options to acquire such Equity
Interests.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
The acquisition of a healthcare facility shall not be considered to be in the
ordinary course.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
renews, replaces or extends any Indebtedness of Unison or its Subsidiaries
outstanding on the Issue Date or other Indebtedness permitted to be incurred by
Unison or its Subsidiaries pursuant to the terms of the Indenture, whether
involving the same or any other lender or creditor or group of lenders or
creditors, but only to the extent that (i) the Refinancing Indebtedness is
subordinated to the Senior Notes to at least the same extent as the Indebtedness
being refunded, refinanced or extended, if at all, (ii) the Refinancing
Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness
being refunded, refinanced or extended, or (b) after the maturity date of the
Senior Notes, (iii) except where such Refinancing Indebtedness is Attributable
Indebtedness, such Refinancing Indebtedness has a weighted average life to
maturity at the time such Refinancing Indebtedness is incurred that is equal to
or greater than the weighted average life to maturity of the Indebtedness being
refunded, refinanced or extended, (iv) except where such Refinancing
Indebtedness is Attributable Indebtedness, such Refinancing Indebtedness is in
an aggregate principal amount that is less than or equal to the aggregate
principal or accreted amount (in the case of any Indebtedness issued with
original issue discount, as such) then outstanding under the Indebtedness being
refunded, refinanced or extended and (v) such Refinancing Indebtedness is
incurred by the same Person that initially incurred the Indebtedness being
refunded, refinanced or extended, except that Unison may incur Refinancing
Indebtedness to refund, refinance or extend Indebtedness of any Wholly-Owned
Subsidiary of Unison.
"Related Party" with respect to an Excluded Person means (i) any
Wholly-Owned Subsidiary, or spouse or immediate family member of such Excluded
Person or (ii) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding a
controlling interest of which consist of such Excluded Person and/or such other
Persons referred to in the immediately preceding clause (i).
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Equity Interests
of Unison or any Subsidiary thereof (including, without limitation, any payment
in connection with any merger or consolidation including Unison) or any payment
made to the direct or indirect holders (in their capacities as such) of Equity
Interests of Unison or any Subsidiary thereof (other than (a) dividends or
distributions payable solely in Equity Interests (other than Disqualified Equity
Interests) or in options, warrants or other rights to purchase Equity Interests
(other than Disqualified Equity Interests) or (b) in the case of Subsidiaries of
Unison, dividends or distributions payable to Unison or to a Wholly-Owned
Subsidiary of Unison), (ii) the purchase, redemption or other acquisition or
retirement for value of any Equity Interests of Unison or any Subsidiary thereof
(other than Equity Interests owned by Unison or a Wholly-Owned Subsidiary,
excluding Disqualified Equity Interests), (iii) the making of any principal
payment on, or the purchase, defeasance, repurchase, redemption or other
acquisition or
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retirement for value, prior to any scheduled maturity, scheduled repayment or
scheduled sinking fund payment, of any Subordinated Indebtedness, (iv) the
making of any Investment or guarantee of any Investment in any Person other than
a Permitted Investment or (v) forgiveness of any Indebtedness of an Affiliate of
Unison to Unison or a Subsidiary of Unison. For purposes of determining the
amount expended for Restricted Payments, cash distributed or invested shall be
valued at the face amount thereof and property other than cash shall be valued
at its fair market value.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by Unison or any Subsidiary of Unison of any real or
tangible personal property, which property (i) has been or is to be sold,
conveyed or transferred by Unison or such Subsidiary to such Person in
contemplation of such leasing and (ii) would constitute an Asset Sale if such
property had been sold in an outright sale thereof.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which more
than 50% of the total voting power of the Equity Interests entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, officers or trustees thereof is held by such first-named Person or
any of its Subsidiaries; or (ii) in the case of a partnership, joint venture,
association or other business entity, with respect to which such first-named
Person or any of its Subsidiaries has the power to direct or cause the direction
of the management and policies of such entity by contract or otherwise or if in
accordance with generally accepted accounting principles such entity is
consolidated with the first-named Person for financial statement purposes.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be deemed a
Subsidiary of Unison other than for purposes of the definition of Unrestricted
Subsidiary, unless Unison shall have designated such Unrestricted Subsidiary as
a "Subsidiary" by written notice to the Trustee. An Unrestricted Subsidiary may
be designated as a Subsidiary at any time by Unison by written notice to the
Trustee, provided, however, that (i) no Default or Event of Default shall have
occurred and be continuing or would arise therefrom and (ii) if such
Unrestricted Subsidiary is an obligor of any Indebtedness, any such designation
shall be deemed to be an incurrence as of the date of such designation by Unison
of such Indebtedness and immediately after giving effect to such designation,
Unison could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the covenant described under "Limitation on Additional
Indebtedness".
"Subordinated Indebtedness" means Indebtedness of any Person which is
expressly subordinated in right of payment to any other Indebtedness of such
Person.
"Temporary Cash Investments" means (i) Investments in marketable, direct
obligations issued or fully guaranteed by the United States of America, or of
any governmental agency or political subdivision thereof, backed by the full
faith and credit of the United States and maturing within one year of the date
of purchase; (ii) Investments in time deposits, certificates of deposit, bankers
acceptances or commercial paper issued by a bank (or any parent company of such
bank) organized under the laws of the United States of America or any state
thereof or the District of Columbia, in each case having capital, surplus and
undivided profits totaling more than $500 million and rated at least A by
Standard & Poor's Corporation ("S&P") and A-2 by Moody's Investors Service, Inc.
("Moody's"), maturing within one year of purchase; (iii) commercial paper that
is rated at least A-1 by S&P or P-1 by Moody's, issued by a company that is
incorporated under the laws of the United States or of any State and directly
issues its own commercial paper, and has a remaining term to maturity of not
more than one year; (iv) a repurchase agreement with (A) any commercial bank
that is organized under the laws of any State or any national banking
association and that has total assets of at least $500 million, or (B) any
investment bank that is organized under the laws of any State and that has total
assets of at least $500 million, which agreement is secured by any one or more
of the securities and obligations described in clauses (i), (ii) or (iii) of
this definition of Temporary Cash Investments, which shall have a market value
(exclusive of accrued interest and valued at least monthly) at least equal to
the principal amount of such investment; or (v) Investments in money market
funds that invest substantially all of such funds' assets in the Investments
described in the preceding clauses (i), (ii), (iii) and (iv).
"Unrestricted Subsidiary" means, (i) any Subsidiary of an Unrestricted
Subsidiary and (ii) any Subsidiary of Unison which shall have been designated as
an Unrestricted Subsidiary in accordance with the
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Indenture. An Unrestricted Subsidiary may be designated as a Subsidiary at a
later date in the manner provided in the definition of "Subsidiary" above.
"Wholly-Owned Subsidiary" means any Subsidiary, all of the outstanding
Equity Interests (other than directors' qualifying shares) of which are owned,
directly or indirectly, by Unison.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes to be offered
as set forth herein will each be issued in the form of one "Global Note." The
Global Note will be deposited on the date of the closing of the Exchange Offer
of Exchange Notes for Original Notes pursuant to this Prospectus (the "Closing
Date") with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of a nominee of the DTC. The Global Note (and any Global
Note issued in exchange therefor) will be subject to certain restrictions on
transfer set forth therein and will bear the legend regarding such restrictions
set forth under the heading "Notice to Investors" herein.
Senior Notes (i) originally purchased by or transferred to Accredited
Investors who are not qualified institutional buyers, or (ii) held by qualified
institutional buyers which elect to take physical delivery of their certificates
instead of holding their interest through the Global Note (and which are thus
ineligible to trade through DTC) (collectively referred to herein as the
"Non-Global Purchasers") will be issued, in registered form, without interest
coupons ("Certificated Securities"). Upon the transfer to a qualified
institutional buyer of such Certificated Securities initially issued to a
Non-Global Purchaser, such Certificated Securities will, unless the transferee
requests otherwise or the Global Note has previously been exchanged in whole for
such Certificated Securities, be exchanged for an interest in the Global Note.
The Global Note. Unison expects that pursuant to procedures established by
the DTC (i) upon deposit of the Global Note, the DTC will credit the accounts of
persons who have accounts with DTC ("participants") or persons who hold
interests through participants designated by such person with portions of the
Global Note and (ii) ownership of the Senior Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC or its nominee (with respect to interests of participants) and the
records of participants (with respect to interests of persons other than
participants). Qualified institutional buyers may hold their interests in the
Global Note directly through DTC if they are participants in such system, or
indirectly through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Senior Notes, DTC or such nominee will be considered the sole owner or holder of
the Senior Notes represented by the Global Note for all purposes under the
Indenture. No beneficial owner of an interest in the Global Note will be able to
transfer such interest except in accordance with DTC's applicable procedures, in
addition to those provided for under the Indenture.
Payments of the principal of, premium (if any) and interest on the Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of Unison, the Trustee or any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Unison expects that DTC or its nominee, upon receipt of any payment of the
principal of, premium (if any) and interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note, as
shown on the records of DTC or its nominee. Unison also expects that payments by
participants to owners of beneficial interests in such Global Note held through
such participants will be governed by standing instructions and customary
practice, as is now the case with securities held for the accounts of customers
registered in the names of nominees for such customers. Such payments will be
the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Security for any reason,
including to sell Senior Notes to persons in states which require physical
delivery of such securities
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or to pledge such securities, such holder must transfer its interest in the
Global Note in accordance with the normal procedures of DTC and including the
procedures set forth in the Indenture.
DTC has advised Unison that it will take any action permitted to be taken
by a holder of Senior Notes (including the presentation of Senior Notes for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interest in the Global Note is credited and only in
respect of such portion of the aggregate principal amount of Senior Notes as to
which such participant or participants have given such direction. However, if
there is an Event of Default under the Indenture, DTC will exchange the Global
Note for Certificated Securities, which it will distribute to its participants.
DTC has advised Unison as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended. DTC was created
to hold securities for its participants and facilitate the clearance and
settlement of securities transactions between participants through electronic
book-entry changes in accounts of its participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither Unison nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depository for the Global Note and a successor depository is not
appointed by Unison within 90 days, Unison will issue Certificated Securities in
exchange for the Global Note.
THE REGISTRATION RIGHTS AGREEMENT
On October 31, 1996, Unison entered into the Registration Rights Agreement
pursuant to which it agreed, for the benefit of the holders of the Original
Notes, that it would, at its sole expense, (i) use its best efforts to file as
soon as practicable, but in no event, later than within 45 days after the Issue
Date, file a registration statement (the "Exchange Offer Registration
Statement") with the Commission with respect to a registered offer to exchange
the Original Notes for notes (the "Exchange Notes") which will have terms
substantially identical in all material respects to the Original Notes (except
that the Exchange Notes will not contain terms with respect to transfer
restrictions), (ii) within 135 days after the Issue Date, use its best efforts
to cause the Exchange Offer Registration Statement to be declared effective
under the Securities Act and (iii) use its best efforts to consummate the
Exchange Offer within 31 days after the effective date of the Exchange Offer
Registration Statement (or, if not a business day, on the next business day
thereafter). Unison did not satisfy these requirements within the times alloted
and so has been required to pay Additional Interest as described below.
Nevertheless, Unison has proposed an amendment to the Registration Rights
Agreement (the "Amendment") that is intended to confirm that the Exchange Offer
being made pursuant to this Prospectus will satisfy this obligation. The
Amendment is attached as Appendix A to this Prospectus. Unison's obligation to
consummate the Exchange Offer is subject to certain conditions, including
approval or consent to the Amendment by the Initial Purchasers and by the
holders of a majority of the outstanding principal amount of the Original Notes.
Unison will keep this Exchange Offer open for not less than 30 days (or longer
if required by applicable law) after the date notice of the Exchange Offer is
mailed to the holders of the Original Notes. For each Original Note surrendered
to Unison pursuant to this Exchange Offer, the holder of such Original Note will
receive an Exchange Note having a principal amount at maturity equal to that of
the surrendered Original Note. Interest on the Exchange Notes will accrue from
the later of (i) the last interest payment date on which interest was paid on
the Original Notes surrendered in exchange therefor or (ii) if the
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Original Notes are surrendered for exchange on a date in a period which includes
the record date for an interest payment date to occur on or after the date of
such exchange and as to which interest will be paid, the date of such interest
payment date. Under existing Commission interpretations, the Exchange Notes will
in general be freely transferable after the Exchange Offer without further
registration under the Securities Act, provided, however, that in the case of
broker-dealers, a prospectus meeting the requirements of the Securities Act must
be delivered as required. Unison has agreed for a period of up to 180 days after
consummation of this Exchange Offer (or longer if required by the Registration
Right Agreement) to make available a prospectus meeting the requirements of the
Securities Act to any broker-dealer for use in connection with any resale of any
such Exchange Notes acquired as described below. A broker-dealer which delivers
such a prospectus to purchasers in connection with such resales will be subject
to certain of the civil liability provisions under the Securities Act and will
be bound by the provisions of the Registration Rights Agreement (including
certain indemnification rights and obligations).
Each holder of Original Notes that wishes to exchange such Original Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations including representations that (i) any Exchange Notes to be
received by it will be acquired in the ordinary course of its business, (ii) it
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and (iii) it is not an "affiliate," as
defined in Rule 405 of the Securities Act, of Unison, or if it is an affiliate,
it will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If the holder is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Original Notes that were acquired as a
result of market-making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes.
In the event that (i) applicable interpretations of the staff of the
Commission do not permit Unison to effect this Exchange Offer, or if for any
other reason the Amendment is not approved, or (ii) in the case of any holder of
the Original Notes that participates in this Exchange Offer, such holder does
not receive Exchange Notes on the date of exchange that may be sold without
restriction under state and federal securities laws (other than due solely to
the status of such holder as an affiliate of Unison within the meaning of the
Securities Act) or (iii) under certain other circumstances described in the
Registration Rights Agreement, Unison will, at its own expense, (a) as promptly
as practicable, file a shelf registration statement covering resales of the
affected Senior Notes (the "Shelf Registration Statement"), (b) use its
respective best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act within 60 days of filing the same and (c) use
its best efforts to keep effective the Shelf Registration Statement until the
earlier of the disposition of the Senior Notes covered by the Shelf Registration
Statement or three years after its effective date. Unison will provide to each
holder of the affected Senior Notes copies of the prospectus which is a part of
the Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement for the affected Senior Notes has become effective and
take certain other actions as are required to permit unrestricted resales of the
affected Senior Notes. A holder of the Senior Notes that sells such Senior Notes
pursuant to the Shelf Registration Statement generally would be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification rights and
obligations).
If Unison fails to comply with the above provisions, then, as liquidated
damages, additional interest shall become payable in respect of the affected
Senior Notes as follows:
If (i) notwithstanding that Unison has consummated or will
consummate this Exchange Offer, Unison is required to file a
Shelf Registration Statement and such Shelf Registration
Statement is not filed on or prior to the date required by the
Registration Rights Agreement;
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(ii) notwithstanding that Unison has consummated or will
consummate this Exchange Offer, Unison is required to file a
Shelf Registration Statement and such Shelf Registration
Statement is not declared effective by the Commission on or
prior to the 60th day following the date such Shelf Registration
Statement was filed; or
(iii) either (A) Unison has not exchanged the Exchange Notes for
all Original Notes validly tendered in accordance with the terms
of the Exchange Offer on or prior to 31 days after the effective
date of the Exchange Offer Registration Statement (or, if not a
business day, on the next business day thereafter) or (B) the
Exchange Offer Registration Statement ceases to be effective at
any time prior to the time that the Exchange Offer is
consummated or (C) if applicable, the Shelf Registration
Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior
to the earlier of the disposition of the Senior Notes covered by
the Shelf Registration Statement or the third anniversary of its
effective date;
(each such event referred to in clauses (i) through (iii) above is a
"Registration Default"), the sole remedy available to holders of the affected
Senior Notes as to which there is a Registration Default will be the immediate
assessment of additional interest ("Additional Interest") as follows: the per
annum interest rate on the affected Senior Notes will increase by 50 basis
points; and the per annum interest rate will increase by an additional 25 basis
points for each subsequent 90-day period during which the Registration Default
remains uncured, up to a maximum additional interest rate of 200 basis points
per annum in excess of the interest rate on the cover of this Prospectus. All
Additional Interest will be payable to holders of the affected Senior Notes in
cash on the same original interest payment dates as the Senior Notes, commencing
with the first such date occurring after any such Additional Interest commences
to accrue, until such Registration Default is cured. After the date on which
such Registration Default is cured, the interest rate on the affected Senior
Notes will revert to the interest rate originally borne by the Senior Notes (as
shown on the cover of this Prospectus).
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part, and also will be available upon
request to Unison.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Original Notes where such Original Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of up to 180 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale.
Unison will not receive any proceeds from any sales of the Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells the Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of the Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by
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delivering a prospectus a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of up to 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. Unison has agreed to pay certain expenses incident
to the Exchange Offer, other than commissions or concession of any brokers or
dealers, and will indemnify the holders of the Exchange Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Company of the happening of any event which
makes any statement in this Prospectus untrue in any material respect or which
requires the making of any changes in this Prospectus in order to make the
statements herein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of this
Prospectus until the Company has amended or supplemented this Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to such broker-dealer. If the Company shall give any
such notice to suspend the use of the Prospectus, it shall extend the period
referred to above by the number of days during the period from and including the
date of the giving of such notice to and including the date when broker-dealers
shall have received copies of the supplemented or amended Prospectus necessary
to permit resales of the Exchange Notes.
LEGAL MATTERS
Certain legal matters will be passed upon for Unison by Quarles & Brady.
EXPERTS
The consolidated financial statements of Unison HealthCare Corporation at
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996 appearing in this Prospectus and Registration Statement and
the related financial statement schedule appearing elsewhere herein have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein which, as to the years 1995 and 1994,
are based in part on the reports of Ronald H. Ridgers, P.C., independent
auditor. The financial statements referred to above are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
The consolidated statements of operations and cash flows of BritWill
HealthCare Company for the one month ended July 31, 1995 appearing in this
Prospectus and Registration Statement, and the related financial statement
schedule appearing elsewhere herein have been audited by Ernst & Young, LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of BritWill HealthCare Company as of
June 30, 1995 and for the year ended December 31, 1994 and the six months ended
June 30, 1995 included in this Prospectus have been so included in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Signature Health Care Corporation
as of December 31, 1995 and 1994 and for each of the years then ended, and the
combined financial statements of Arkansas, Inc., Cornerstone Care, Inc., Douglas
Manor, Inc., and Safford Care, Inc. as of December 31, 1995 and for the period
from inception at May 9, 1995 through December 31, 1995 appearing herein have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The financial statements of RehabWest, Inc. for the years ended December
31, 1995 and 1994 included in this Prospectus and Registration Statement have
been audited by Anderson and Whitney, P.C., indepen-
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dent public accountants, as indicated in their reports with respect thereto, and
are included herein in reliance upon the authority of said firm as experts in
giving said reports.
The combined financial statements of Henderson and Associates
Rehabilitation and Sunbelt Therapy Management Services, Inc. for the years ended
December 31, 1995 and 1994 and for each of the two years in the period ended
December 31, 1995 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The combined financial statements of Franciscan Health Care Centers at
Enumclaw and Walla Walla at June 30, 1996 and 1995 and for each of the three
years in the period ended June 30, 1996 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
AVAILABLE INFORMATION
Unison is subject to the informational requirements of the Exchange Act and
in accordance therewith files reports, proxy and information statements and
other information with the Securities Exchange Commission (the "Commission").
Unison Common Stock is listed on the Nasdaq National Market under the symbol
UNHC. Reports, proxy statements and other information filed by Unison can be
inspected at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 10006 and can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the Commission: Midwest Regional Office, Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661; and Northeast
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Additionally, the Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission, and the address of the
Commission's site is: http//www.sec.gov.
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APPENDIX A
"Notwithstanding anything to the contrary in the Registration Rights
Agreement, the Registration Default caused by the Company's failure to file the
Exchange Registration Statement by the Filing Date or to cause it to become
effective by the Effectiveness Date, or by its failure to file and cause a Shelf
Registration Statement to become effective, is hereby cured and terminated, and
the Additional Interest related to such Registration Default shall cease to
accrue, effective upon the effective date of the Exchange Registration
Statement."
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
1. FINANCIAL STATEMENTS
UNISON HEALTHCARE CORPORATION
Report of Independent Auditors................................................................ F-3
Consolidated Balance Sheets as of December 31, 1996 and 1995.................................. F-4
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994.... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31,
1996, 1995 and 1994......................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994.... F-7
Notes to Consolidated Financial Statements.................................................... F-8
BRITWILL HEALTHCARE COMPANY
Report of Independent Auditors................................................................ F-28
Report of Independent Accountants............................................................. F-29
Consolidated Balance Sheet June 30, 1995...................................................... F-30
Consolidated Statements of Operations for the year ended December 31, 1994, six months ended
June 30, 1995 and one month ended July 31, 1995............................................. F-31
Consolidated Statements of Shareholders' Equity for the year ended December 31, 1994 and the
six months ended June 30, 1995.............................................................. F-32
Consolidated Statements of Cash Flows for the year ended December 31, 1994, six months ended
June 30, 1995 and one month ended July 31, 1995............................................. F-33
Notes to Consolidated Financial Statements.................................................... F-34
SIGNATURE HEALTH CARE CORPORATION
Report of Independent Public Accountants...................................................... F-44
Consolidated Balance Sheets as of December 31, 1995 and 1994.................................. F-45
Consolidated Statements of Operations for the years ended December 31, 1995 and 1994.......... F-46
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995 and
1994........................................................................................ F-47
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1994.......... F-48
Notes to Consolidated Financial Statements.................................................... F-49
ARKANSAS, INC., CORNERSTONE CARE, INC., DOUGLAS MANOR, INC., AND SAFFORD CARE, INC.
Report of Independent Public Accountants...................................................... F-54
Combined Balance Sheet as of December 31, 1995................................................ F-55
Combined Statement of Operations for the year ended December 31, 1995......................... F-56
Combined Statement of Stockholders' Equity for the year ended December 31, 1995............... F-57
Combined Statement of Cash Flows for the year ended December 31, 1995......................... F-58
Notes to Combined Financial Statements........................................................ F-59
REHABWEST, INC.
Report of Independent Public Accountants...................................................... F-62
Balance Sheets as of December 31, 1995 and 1994............................................... F-63
Statements of Operations for the years ended December 31, 1995 and 1994....................... F-64
Statements of Stockholders' Equity for the years ended December 31, 1995 and 1994............. F-65
Statements of Cash Flows for the years ended December 31, 1995 and 1994....................... F-66
Notes to Financial Statements................................................................. F-67
</TABLE>
F-1
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
HENDERSON AND ASSOCIATES REHABILITATION AND SUNBELT THERAPY MANAGEMENT SERVICES, INC.
Report of Independent Auditors................................................................ F-70
Combined Statements of Operations and Stockholders' Equity for the years ended December 31,
1995 and 1994............................................................................... F-71
Combined Statements of Cash Flows for the years ended December 31, 1995 and 1994.............. F-72
Notes to Financial Statements................................................................. F-73
FRANCISCAN HEALTH CARE CENTER AT ENUMCLAW AND WALLA WALLA
Report of Independent Auditors................................................................ F-76
Combined Statements of Operations for the years ended June 30, 1994, 1995 and 1996............ F-77
Combined Statements of Cash Flows for the years ended June 30, 1994, 1995 and 1996............ F-78
Notes to Combined Financial Statements........................................................ F-79
</TABLE>
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Unison HealthCare Corporation:
We have audited the accompanying consolidated balance sheets of Unison
HealthCare Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the consolidated
financial statements of American Professional Holding, Inc. (Ampro) and Memphis
Clinical Laboratory, Inc. (Memphis), which statements reflect total assets
constituting 5% at December 31, 1995 of the related consolidated totals, and
which reflect net income constituting approximately 123% and 121% of the
consolidated totals for each of the two years in the period ended December 31,
1995, respectively. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to data
included for Ampro and Memphis, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and, for 1995 and 1994, the report of
other auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Unison
HealthCare Corporation and subsidiaries as of December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Phoenix, Arizona
May 16, 1997
F-3
<PAGE> 108
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 17,409,000 $ 6,169,000
Accounts receivable (Notes 2, 5, 10 and 13).................... 28,608,000 18,324,000
Prepaid expenses and other current assets (Note 6)............. 5,885,000 2,319,000
------------ -----------
Total current assets........................................ 51,902,000 26,812,000
Property and equipment, net
(Notes 7 and 13)............................................... 30,830,000 3,688,000
Lease operating rights and other intangible assets, net (Note
8)............................................................. 113,781,000 39,160,000
Goodwill, net (Note 2)........................................... 28,431,000 8,452,000
Security deposits and other assets (Note 9)...................... 5,977,000 3,189,000
------------ -----------
$230,921,000 $81,301,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (Note 10)....................................... $ -- $ 789,000
Accounts payable (Note 11)..................................... 10,505,000 9,968,000
Accrued expenses (Note 12)..................................... 21,437,000 9,238,000
Current portion of notes payable and long-term debt, including
amounts due to related parties (Notes 13 and 17)............ 33,915,000 6,865,000
Deferred taxes (Note 18)....................................... -- 879,000
------------ -----------
Total current liabilities................................... 65,857,000 27,739,000
Notes payable and long-term debt, including amounts due to
related parties, less current portion (Notes 13 and 17)........ 123,223,000 19,083,000
Deferred taxes (Note 18)......................................... 24,791,000 8,173,000
Leasehold liability, net (Note 16)............................... 4,434,000 4,622,000
Other liabilities................................................ 927,000 781,000
------------ -----------
Total liabilities........................................... 219,232,000 60,398,000
Stockholders' equity (Note 14):
Preferred stock, $.001 par value; authorized 1,000,000 shares;
no shares issued or outstanding............................. --
Common stock, $.001 par value; authorized 25,000,000 shares in
1996 and 10,000,000 shares in 1995; issued and outstanding
6,078,000 shares in 1996 and 4,214,000 shares in 1995....... 5,000 3,000
Additional paid-in capital..................................... 34,723,000 20,501,000
Retained earnings (accumulated deficit)........................ (23,039,000) 399,000
------------ -----------
Net stockholders' equity.................................... 11,689,000 20,903,000
------------ -----------
$230,921,000 $81,301,000
============ ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 109
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Operating revenues:
Net patient service revenues..................... $146,379,000 $64,947,000 $17,070,000
Other operating revenues......................... 2,295,000 3,541,000 1,336,000
------------ ---------- -----------
Total operating revenues................. 148,674,000 68,488,000 18,406,000
Expenses:
Wages and related................................ 85,789,000 35,047,000 9,593,000
Other operating.................................. 64,771,000 24,032,000 6,462,000
Rent............................................. 15,658,000 6,673,000 1,406,000
Interest......................................... 5,824,000 1,176,000 147,000
Depreciation and amortization.................... 4,561,000 1,311,000 286,000
Impairment losses (Note 23)...................... 3,865,000 -- --
------------ ---------- -----------
Total expenses........................... 180,468,000 68,239,000 17,894,000
------------ ---------- -----------
Income (loss) before income taxes.................. (31,794,000) 249,000 512,000
Income tax expense (benefit)....................... (8,356,000) 132,000 172,000
------------ ---------- -----------
Net income (loss).................................. $(23,438,000) $ 117,000 $ 340,000
============ ========== ===========
Net income (loss) per share:....................... $ (5.01) $ 0.05 $ 0.19
Common shares used in per share calculation:....... 4,676,037 2,280,213 1,806,164
</TABLE>
See accompanying notes.
F-5
<PAGE> 110
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------ ADDITIONAL EARNINGS
NUMBER OF PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
--------- ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993
As previously reported............. 1,250,000 $ -- $ -- $ (103,000) $ (103,000)
Pooling adjustments................ 540,000 1,000 410,000 45,000 456,000
--------- ------ ----------- ------------ -----------
Balance as restated................ 1,790,000 1,000 410,000 (58,000) 353,000
Stock warrants issued................ -- -- 43,000 -- 43,000
Net income........................... -- -- -- 340,000 340,000
--------- ------ ----------- ------------ -----------
Balance at December 31, 1994......... 1,790,000 1,000 453,000 282,000 736,000
Sale of common stock in public
offering, net of stock issuance
costs.............................. 2,000,000 2,000 14,612,000 -- 14,614,000
Conversion of debenture.............. 424,000 -- 5,286,000 -- 5,286,000
Stock warrants issued................ -- -- 150,000 -- 150,000
Net income........................... -- -- -- 117,000 117,000
--------- ------ ----------- ------------ -----------
Balance at December 31, 1995......... 4,214,000 3,000 20,501,000 399,000 20,903,000
Costs of initial public offering..... -- -- (93,000) -- (93,000)
Stock warrants exercised............. 178,000 -- -- -- --
Conversion of debenture.............. 138,000 -- 1,714,000 -- 1,714,000
Common stock issued for
acquisitions....................... 1,537,000 2,000 12,701,000 -- 12,703,000
Stock options exercised.............. 11,000 -- 102,000 -- 102,000
Tax benefit associated with exercise
of stock options................... -- -- 11,000 -- 11,000
Repurchase of stock warrants......... -- -- (213,000) -- (213,000)
Net loss............................. -- -- -- (23,438,000) (23,438,000)
--------- ------ ----------- ------------ -----------
Balance at December 31, 1996......... 6,078,000 $5,000 $34,723,000 $(23,039,000) $ 11,689,000
========= ====== =========== ============ ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 111
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................................... $(23,438,000) $ 117,000 $ 340,000
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Impairment losses............................................. 3,865,000 -- --
Depreciation and amortization................................. 4,561,000 1,311,000 286,000
Provision for doubtful accounts............................... 2,742,000 29,000 128,000
Change in deferred taxes...................................... (9,238,000) (21,000) 8,000
Minority interest expense..................................... 138,000 21,000 --
Leasehold liability amortization.............................. (188,000) (78,000) --
Other charges and credits, net................................ (69,000) -- --
Changes in operating assets and liabilities, net of
acquisitions:
Increase in net accounts receivable --..................... (5,310,000) (8,694,000) (2,749,000)
(Increase) decrease in prepaids and other.................. 825,000 (607,000) (575,000)
Increase in accounts payable and accrued expenses.......... 2,454,000 6,990,000 2,519,000
------------ ----------- -----------
Net cash used in operating activities........................... (23,658,000) (932,000) (43,000)
------------ ----------- -----------
INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements................ (3,587,000) (1,333,000) (995,000)
Increase in intangibles and other assets........................ (2,707,000) (1,397,000) (155,000)
Increase in lease deposits...................................... (1,204,000) (272,000) (180,000)
Acquisitions, net of cash acquired.............................. (41,225,000) (677,000) (300,000)
------------ ----------- -----------
Net cash used in investing activities........................... (48,723,000) (3,679,000) (1,630,000)
------------ ----------- -----------
FINANCING ACTIVITIES:
Net increase (decrease) in revolving line of credit............. (789,000) (2,916,000) 950,000
Proceeds from sale of accounts receivable....................... -- 2,515,000 197,000
Proceeds from long-term borrowings.............................. 113,567,000 2,448,000 1,130,000
Payments on long-term borrowings................................ (24,808,000) (6,187,000) (482,000)
Repayment of other long-term liabilities........................ (2,779,000) -- --
Proceeds from public stock offering............................. -- 14,614,000 --
Bank overdrafts................................................. 3,043,000 -- --
Repurchase of stock warrants.................................... (213,000) -- --
Exercise of stock options....................................... 102,000 -- --
Increase in deferred financing costs............................ (4,502,000) -- --
------------ ----------- -----------
Net cash provided by financing activities....................... 83,621,000 10,474,000 1,795,000
------------ ----------- -----------
Net increase in cash.......................................... 11,240,000 5,863,000 122,000
Cash and cash equivalents at beginning of period................ 6,169,000 306,000 184,000
------------ ----------- -----------
Cash and cash equivalents at end of period...................... $ 17,409,000 $ 6,169,000 $ 306,000
============ =========== ===========
Supplemental disclosure:
Income taxes paid............................................. $ 124,000 $ 92,000 $ 172,000
Interest expense paid......................................... 3,014,000 1,127,000 130,000
Supplemental disclosure of noncash investing and financing
activities
Acquisitions:
Fair value of assets acquired................................. 122,420,000 58,744,000 --
Liabilities incurred and assumed.............................. 68,492,000 59,421,000 --
Common stock issued........................................... 12,703,000 -- --
------------ -----------
41,225,000 677,000 --
Conversion of debentures into shares of common stock............ 1,714,000 5,286,000 --
Acquisition of leasehold rights ($237,000) and equipment and
leasehold improvements ($126,000) through issuance of note
payable....................................................... -- -- 363,000
Common stock warrants issued (Note 16).......................... -- 150,000 --
Property and equipment purchased under capital leases........... 7,205,000 -- --
</TABLE>
See accompanying notes
F-7
<PAGE> 112
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. DESCRIPTION OF BUSINESS
Unison HealthCare Corporation ("Unison") is a provider of long-term and
specialty healthcare services. At December 31, 1996, Unison operated and managed
62 facilities, including long-term care and specialty care and
independent/assisted living facilities. Unison's operations are located in 13
states, principally in the midwest and southwest regions of the United States.
Unison changed its name from SunQuest HealthCare Corporation in November
1995. In August 1995, Unison acquired all of the common stock of BritWill
HealthCare Company ("BritWill"). In March 1996, Unison acquired 90% of the
Common Stock of four rehabilitation therapy centers (collectively "Sunbelt
Therapy") and in November 1996 retroactively acquired the remaining 10%. In
October 1996, Unison acquired all of the common stock of Signature Health Care
Corporation and four affiliated companies ("Signature"). In October 1996, Unison
completed a merger with two clinical laboratory companies, American Professional
Holding, Inc. ("Ampro") and Memphis Clinical Laboratory, Inc. ("Memphis"). (Note
4). Unison also operates a pharmacy operation and a Medicare Part B billing and
supply company.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Unison, its subsidiaries, and all of its leased facilities. Significant
intercompany transactions and balances have been eliminated in consolidation.
Revenues and expenses related to the operations acquired from BritWill,
Sunbelt Therapy, Signature and other acquisitions are included in Unison's
results of operations for periods subsequent to the date of acquisition. The
mergers with Ampro and Memphis have been accounted for as poolings of interests.
Accordingly the consolidated financial statements of Unison have been restated
to include the accounts of Ampro and Memphis for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Net Operating Revenues
Unison's revenues are derived primarily from providing long-term healthcare
services. Contractual adjustments resulting from agreements with various
organizations to provide services for amounts which differ from billed charges,
including services under Medicare and Medicaid, are recorded as deductions from
gross patient service revenue. The estimated third party payor settlements under
Medicare and Medicaid programs are recorded in the period the related services
are rendered and are subject to audit and final settlement by the fiscal
intermediary. Differences between the net amounts accrued and subsequent
settlement, if any, are recorded in operations at the time the final settlement
is determined. As of December 31, 1996 and 1995, Unison has approximately
$2,260,000 and $1,800,000, respectively, of Medicare routine cost limit
exceptions which are subject to audit and final approval by the fiscal
intermediary. Based on consultation with outside reimbursement specialists, it
is management's opinion that the ultimate resolution of third party payor
settlements will not have a material adverse impact on the consolidated
financial position or results of operations of Unison.
F-8
<PAGE> 113
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Unison receives management fees for the management of long-term care
facilities on behalf of the owners. Other operating revenues include management
fees amounting to $1.2 million in 1996, $1.7 million in 1995, and $1.1 million
in 1994.
Provision for doubtful accounts is made when the related revenue is
recorded and is included in other operating expense. The provisions totaled
$2,742,000 in 1996, $29,000 in 1995 and $128,000 in 1994. Accounts, when
determined to be uncollectible, are charged against the allowance for doubtful
accounts. The allowance for doubtful accounts is determined by management using
estimates of potential losses based on an analysis of current and past due
accounts, collection experience in relation to amounts billed, prior settlements
experience and other relevant information. The allowance for doubtful accounts
totaled $3,776,000 and $783,000 at December 31, 1996 and 1995, respectively.
Cash and cash equivalents
Cash and cash equivalents include amounts held in demand deposits at
financial institutions and all highly liquid investments that have an original
maturity of three months or less.
Inventories
Inventories are comprised primarily of nursing facility supplies and
pharmaceutical products and are stated at the lower of cost (first-in,
first-out) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
for financial statement purposes are computed using the straight-line method
over the lesser of the respective lease term or the estimated useful life of the
respective asset.
Intangible Assets
Certain costs incurred in the acquisition of facilities such as assembled
workforce and covenants not to compete are amortized on a straight line basis
over five years. Lease operating rights (net of leasehold liabilities) recorded
in connection with lease arrangements or through acquisition have been
capitalized and are being amortized on a straight line basis over the respective
initial lease term, including probable renewal periods, not to exceed thirty
years.
Management believes that goodwill related to nursing home acquisitions has
an unlimited useful life and, therefore, assigned a forty-year amortization
period to goodwill resulting from such acquisitions. In determining its
unlimited useful life, management considered factors such as: policies of
similar public healthcare and long-term care companies, nature of the long-term
care industry which is positively impacted by the increasing age of the American
population as well as the continual transfer of patients from a high cost acute
care setting to a lower cost long-term care setting, profitability of companies
in the long-term care industry, and the fact that nursing care services provided
in nursing home facilities will be continuously needed in the future and are not
subject to obsolescence.
F-9
<PAGE> 114
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Goodwill resulting from various acquisitions is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
LIFE 1996 1995
---- ----------- ----------
<S> <C> <C> <C>
BritWill.................................................... 40 $ 7,000,000 $7,000,000
Pharmacy.................................................... 20 1,197,000 545,000
Gamma Labs.................................................. 15 1,087,000 1,087,000
Sunbelt..................................................... 20 5,425,000 --
Signature................................................... 40 9,300,000 --
RehabWest................................................... 20 5,029,000 --
----------- ----------
29,038,000 8,632,000
Accumulated amortization.................................... (607,000) (180,000)
----------- ----------
$28,431,000 $8,452,000
=========== ==========
</TABLE>
Unison periodically assesses the recoverability of intangible assets by
comparing the carrying amount of the intangible assets to the future benefits or
undiscounted cash flows derived from that asset. Impairments are recognized in
operating results if it is probable that the carrying value of the asset will
not be recovered from future cash flows derived from that asset (Note 23).
Income Taxes
Unison accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires the use of an asset and liability approach for measuring deferred
taxes based on temporary differences between financial statement and tax bases
of assets and liabilities existing at each balance sheet date using enacted tax
rates for years in which the related taxes are expected to be paid or recovered.
Net Income (Loss) Per Share
Net income (loss) per share is calculated by dividing net income (loss) by
the weighted average number of common and dilutive equivalent shares
outstanding.
Reclassifications
Certain reclassifications have been made to the 1994 and 1995 financial
statements to conform with the 1996 presentation.
3. LIQUIDITY
Unison incurred a loss from operations during 1996, and at December 31,
1996, has a working capital deficiency of $13,955,000 and is in default on
$18,640,000 of debt (Note 13). The 1996 loss resulted primarily from
non-recurring expenses including impairment losses on long-lived assets, costs
of failed acquisitions and related financing efforts, write-offs of non patient
receivables, penalties and fines, and similar items. The debt in default is
collateralized by nursing facilities with market values significantly in excess
of the debt. Management believes that the debt can be refinanced if payment on
the debt is accelerated, but has no reason to believe that the debt payments
will be accelerated.
In February 1997, members of Unison's Board of Directors formed an
Executive Committee which replaced members of senior management and which now
has responsibility for overseeing Unison's operations until new management is
secured. The Executive Committee subsequently initiated various revenue enhance-
F-10
<PAGE> 115
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
3. LIQUIDITY -- (CONTINUED)
ment and cost containment initiatives. Additionally, Unison has other assets,
such as its pharmacy and therapy companies, which could be sold to generate
additional cash flow if needed, and has access to a $10,000,000 line of credit.
The Company is attempting to develop lending relationships that will use the
Company's available accounts receivable and other available assets to reduce
overall borrowing costs and, if necessary, supply additional working capital.
The Company also intends to explore opportunities for a secured or unsecured
term loan or for equity financings, should that prove necessary or desirable.
There can be no assurance that such financings will be available or, if
available, that necessary funds will be available on terms favorable to Unison
and its shareholders.
The Executive Committee believes that the revenue enhancement and cost
containment initiatives and access to cash flows from draws on its line of
credit or, if necessary, proceeds from sales of unencumbered assets and
additional borrowings, will provide Unison with the liquidity necessary to meet
its obligations during 1997.
4. SIGNIFICANT BUSINESS TRANSACTIONS, ACQUISITIONS AND DISPOSITIONS
In August 1995, Unison acquired all of the common stock of BritWill,
another long-term care company operating approximately 28 facilities located in
Texas and Indiana. The terms of the BritWill acquisition were modified in April
1996, effective August 10, 1995, such that Unison acquired all of the
outstanding stock of BritWill for a total fixed purchase amount of $20,600,000
plus, to the extent applicable, monthly contingent payments if Unison's monthly
consolidated net patient revenues exceeded specified monthly amounts ranging
from $8,000,000 to $11,989,000 for the period from September 9, 1995 through
July 31, 2000. An additional lump sum contingent payment was payable on the
earlier of (i) August 9, 2000 if Unison had consolidated net patient revenues of
not less than $150,000,000 for the twelve-month period ended June 30, 2000 or
(ii) the sale by Unison of debt or equity securities exceeding $10,000,000. The
purchase price was comprised of a $5,602,000 term note (the "Term Note"), an
$8,000,000 subordinated promissory note (the "Subordinated Note"), and a
$7,000,000 noninterest bearing convertible subordinated debenture (the
"Convertible Debenture") (Note 13). During August 1996, as a result of the
proposed acquisition of the common stock of Signature, the contingent payments
became assured and Unison accrued the present value of the remaining contingent
payments related to the BritWill acquisition in an amount totaling $11,500,000
(the "Additional Payment Obligation") (Note 13). In connection with the BritWill
acquisition, Unison paid a financial advisory fee to Trouver Capital Partners,
L.P. ("Trouver") amounting to $675,000. One of Unison's directors is a partner
in Trouver. The acquisition was accounted for as a purchase. The contingent
portions of the purchase price were initially added to lease operating rights
when paid, and then in August 1996 when accrued. At December 31, 1996 and 1995,
contingent payments and accruals amounting to $19,523,000 and $567,000,
respectively, had been added to lease operating rights.
Effective February 1, 1996, Unison acquired 90% of the common stock of
Sunbelt Therapy, paying $800,000 in cash, and issuing term notes aggregating
$1,000,000 (the "Notes") and subordinated convertible debentures aggregating
$1,800,000 (the "Debentures"). The transaction was accounted for as a purchase.
In November 1996, Unison purchased the remaining 10% of Sunbelt Therapy
effective February 1, 1996. The aggregate purchase price amounted to $1,418,000
plus a guaranteed payment amounting to $709,000. Additional contingent payments
of up to $1,418,000 will be due if specified income targets are achieved.
Consideration for the purchase was comprised of promissory notes in the
aggregate amount of $1,876,000 and 27,942 shares of Unison common stock (Note
13).
On October 31, 1996, Unison, through a newly formed wholly owned
subsidiary, completed a merger with Ampro. The outstanding shares of Ampro
common stock were converted into the right to receive 521,000
F-11
<PAGE> 116
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
4. SIGNIFICANT BUSINESS TRANSACTIONS, ACQUISITIONS AND
DISPOSITIONS -- (CONTINUED)
shares of Unison common stock. Unison simultaneously completed a merger with
Memphis. Three shareholders who owned approximately 35% of the outstanding
shares of Memphis received pro rata portions of 19,000 shares of Unison common
stock and the holder of the remaining shares of Memphis received cash in the
amount of $237,000 and a promissory note in the amount of $250,000. The
transaction has been recorded as a pooling of interests.
Summarized results of operations of the separate companies for the period
from January 1, 1996 through October 31, 1996 are as follows (unaudited):
<TABLE>
<CAPTION>
UNISON AMPRO MEMPHIS
------------ ---------- --------
<S> <C> <C> <C>
Total revenues................................ $109,862,000 $5,137,000 $686,000
Net income (loss)............................. (12,728,000) 163,000 50,000
</TABLE>
Following is a reconciliation of restated revenues and net income (loss) to
amounts previously reported for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Total operating revenues:
As previously reported.................................. $61,285,000 $12,406,000
Merged companies (Ampro and Memphis).................... 7,203,000 6,000,000
----------- -----------
As restated............................................. $68,488,000 $18,406,000
=========== ===========
Net income (loss):
As previously reported.................................. $ (26,000) $ (80,000)
Merged companies (Ampro and Memphis).................... 143,000 420,000
----------- -----------
As restated............................................. $ 117,000 $ 340,000
=========== ===========
</TABLE>
On October 31, 1996, Unison acquired Signature, comprised of Signature
Health Care Corporation ("Signature Health Care") and four affiliated companies,
Douglas Manor, Inc. ("Douglas"), Safford Care, Inc. ("Safford"), Arkansas, Inc.
("Arkansas"), and Cornerstone, Inc. ("Cornerstone"). Signature operates 13
long-term care facilities in Colorado and Arizona. Outstanding shares of
Signature were converted into the right to receive cash and promissory notes
totaling approximately $38,200,000 and 1,509,434 shares of Unison's common
stock. In accordance with an adjustment provision of the Signature merger
agreements relating to the stockholders' equity, in March 1997 the former
shareholders of Signature received additional consideration of $2,511,000, paid
in convertible promissory notes ($1,827,000) and 238,052 shares of Unison common
stock ($684,000). In connection with the Signature acquisition, Unison also
acquired all of the outstanding stock of RehabWest, Inc. ("RehabWest"), a
related rehabilitation services company, for a cash purchase price of
$5,350,000. These acquisitions were accounted for as purchases.
On September 30, 1996, Unison announced a disposition plan designed to
improve its long-term financial strength and operating performance. The original
plan included the disposition of seven nursing facilities and was subsequently
modified to include an aggregate of eight facilities (the "Disposition
Facilities"). On March 1, 1997, Unison subleased four of the Disposition
Facilities to an unrelated party. The provision for disposal of these facilities
is included in impairment losses (Note 23). Of the remaining four Disposition
Facilities, one is closed and three remain in operation with an aggregate of 522
licensed beds.
Summarized below are the unaudited pro forma consolidated results of
operations of Unison for the periods indicated, assuming the acquisitions, lease
agreements and dispositions described above and the private placement of the
Senior Notes described in Note 13 were consummated as of January 1, 1995. The
F-12
<PAGE> 117
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
4. SIGNIFICANT BUSINESS TRANSACTIONS, ACQUISITIONS AND
DISPOSITIONS -- (CONTINUED)
unaudited pro forma consolidated results of operations have been prepared for
comparative purposes only and are not necessarily indicative of what would have
occurred had these transactions occurred at January 1, 1995 or of results which
may occur in the future.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenues............................................ $182,382,000 $148,182,000
Net loss............................................ 19,039,000 5,652,000
Net loss per share.................................. $3.21 $1.66
</TABLE>
5. ACCOUNTS RECEIVABLE
In April 1995, Unison entered into a sales agreement with HealthPartners
Funding, L.P. ("Health Partners") to routinely sell eligible accounts
receivable, consisting primarily of Medicare and Medicaid receivables, up to
$3,000,000 for a discount fee of up to 1.583% of outstanding eligible
receivables purchased under the agreement. As of December 31, 1995, Unison had
sold approximately $2,515,000 of eligible accounts receivable to HealthPartners.
The proceeds from the sale were in the form of cash of $1,982,000 and
collateralization of accounts receivable of $533,000 (included in other current
assets) (Note 6). Under the terms of the sales agreement, Unison was required to
repurchase from HealthPartners all Medicare and Medicaid receivables which were
uncollected after 60 days, management receivables which were uncollected after
90 days and cost report settlement receivables which were uncollected after 120
days. As additional consideration, Unison granted to HealthPartners warrants to
purchase common stock equal to at least $150,000 (Note 14). In March 1996, the
sales agreement was terminated.
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets as of December 31 are summarized
as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Prepaid expenses............................................ $1,615,000 $1,146,000
Deferred taxes (Note 18).................................... 3,332,000 --
Inventories................................................. 938,000 640,000
HealthPartners receivable (Note 5).......................... -- 533,000
---------- ----------
$5,885,000 $2,319,000
========== ==========
</TABLE>
7. PROPERTY AND EQUIPMENT
Property and equipment as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land and building......................................... $21,757,000 $ 205,000
Equipment................................................. 11,806,000 3,408,000
Leasehold improvements.................................... 2,386,000 1,148,000
----------- ----------
35,949,000 4,761,000
Less accumulated depreciation............................. (5,119,000) (1,073,000)
----------- ----------
$30,830,000 $ 3,688,000
=========== ==========
</TABLE>
F-13
<PAGE> 118
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
7. PROPERTY AND EQUIPMENT -- (CONTINUED)
Property and equipment includes assets acquired under capitalized leases of
approximately $7,205,000, net of $159,000 accumulated depreciation.
8. LEASE OPERATING RIGHTS AND OTHER INTANGIBLE ASSETS
Lease operating rights and other intangible assets as of December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Lease operating rights................................... $108,050,000 $36,999,000
Capitalized assembled workforce.......................... 1,845,000 1,250,000
Debt and bond issue costs................................ 5,200,000 194,000
Covenant not to compete.................................. 850,000 100,000
Other.................................................... 1,076,000 1,270,000
------------ -----------
117,021,000 39,813,000
Less amortization........................................ (3,240,000) (653,000)
------------ -----------
$113,781,000 $39,160,000
============ ===========
</TABLE>
Of the increase in lease operating rights during 1996, $55,234,000 was a
result of the acquisition of Signature and $18,500,000 represents the Additional
Payment Obligation of $11,500,000 and $7,000,000 of related deferred tax
liabilities relating to the BritWill acquisition (Note 4).
The significant increase in debt and bond issue costs is due to issue costs
capitalized in connection with the Senior Notes described in Note 13.
9. SECURITY DEPOSITS AND OTHER ASSETS
Security deposits and other assets as of December 31 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Security deposits........................................... $ 5,077,000 $2,735,000
Other....................................................... 900,000 454,000
---------- ----------
$ 5,977,000 $3,189,000
========== ==========
</TABLE>
In connection with certain lease agreements with Omega Healthcare
Investors, Inc. ("Omega"), Unison is required to maintain security deposits with
Omega. Omega invests these funds in a money market fund on behalf of Unison at
an approximate rate of 5% at December 31, 1996.
10. LINE OF CREDIT
In March 1996, Unison's revolving lines of credit were replaced by a
$10,000,000 credit facility. Borrowings under this credit facility bear interest
at the prime rate plus 2.0%, mature in 1998 and are collateralized by Unison's
eligible accounts receivable. A commitment fee of .5% is payable on the unused
portion. The agreement requires Unison to comply with certain financial and
operational covenants including limitations on additional borrowings and sale of
assets and alteration of Unison's existing capital structure. There were no
amounts outstanding under the line of credit at December 31, 1996.
F-14
<PAGE> 119
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
11. ACCOUNTS PAYABLE
Accounts payable as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Trade payables............................................. $ 7,462,000 $9,968,000
Checks drawn in excess of bank balance..................... 3,043,000 --
----------- ----------
$10,505,000 $9,968,000
=========== ==========
</TABLE>
12. ACCRUED EXPENSES
Accrued expenses as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Accrued compensation and benefits.......................... $ 8,487,000 $4,814,000
Purchase accounting liabilities............................ 2,688,000 879,000
Due to State Medicaid...................................... -- 470,000
Accrued interest........................................... 2,879,000 8,000
Accrued professional fees.................................. 1,090,000 --
Income and gross receipt taxes payable..................... 3,106,000 --
Other...................................................... 3,187,000 3,067,000
----------- ----------
Accrued expenses........................................... $21,437,000 $9,238,000
=========== ==========
</TABLE>
The purchase accounting liabilities at December 31, 1996 represent
additional consideration payable to the former shareholders of Signature
amounting to $2,511,000 (Note 4) and an accrual of $177,000 for severance, exit
and lease terminations. As of December 31, 1995, the accrual represents
estimated severance, exit and lease termination costs incurred in connection
with the BritWill acquisition (Note 4).
F-15
<PAGE> 120
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
13. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ -----------
<S> <C> <C>
Senior Notes...................................................... $100,000,000 $ --
Mortgage Note..................................................... 18,640,000 --
Notes in escrow................................................... 1,146,000 --
Additional Payment Obligation (Note 4)............................ 11,500,000 --
Subordinated Note (Note 4)........................................ 8,000,000 8,000,000
Term Note (Note 4)................................................ -- 5,602,000
Convertible Debenture (Note 4).................................... -- 1,714,000
Subordinated notes payable to related party....................... 2,547,000 4,199,000
Other notes payable to related parties............................ 4,676,000 --
Payable to State of Indiana Medicaid.............................. -- 3,741,000
Capital lease obligations (Note 16)............................... 7,759,000 --
Note payable in annual installments of $200,000 plus interest
at the prime rate, due January 1998............................. 400,000 --
Note payable in annual installments of $133,000 plus interest
at the published federal rate, due February 1998................ 267,000 400,000
10.0% subordinated note, payable monthly to 1998.................. 219,000 234,000
Noninterest bearing note payable to lessor due 1999,
net of unamortized discount..................................... 383,000 393,000
Notes payable to banks, interest at 8.0% to 10.5%, due 1997 to
2000, collateralized by certain assets of subsidiaries.......... 345,000 727,000
Unsecured notes payable to banks, variable interest rates, due
1997 to 1998.................................................... 433,000 --
Note payable to an individual, payable monthly with interest at
10.0%,
due 1998, collateralized by receivables of subsidiary........... 211,000 342,000
11.5% notes payable to lessor due 1997............................ 283,000 --
Other............................................................. 329,000 596,000
------------ -----------
157,138,000 25,948,000
Less current portion.............................................. (33,915,000) (6,865,000)
------------ -----------
$123,223,000 $19,083,000
============ ===========
</TABLE>
On October 31, 1996, Unison completed the private placement of $100,000,000
of 12 1/4% Senior Notes due 2006 (the "Senior Notes"). The net proceeds to
Unison in the amount of $94,550,000 were used to: (i) complete the acquisitions
of Signature and RehabWest (Note 4); (ii) repay certain debt and contingent
obligations and; for general corporate purposes. In January 1997, a portion of
the proceeds from the Senior Notes were used to (i) repay the Subordinated Note
and (ii) prepay $1,750,000 of the Additional Payment Obligation. Interest on the
Senior Notes is payable semiannually. The stated interest rate of 12 1/4% per
annum is subject to temporary increase if the Senior Notes (or Exchange Notes
with the same terms) are not registered with the Securities and Exchange
Commission within specified time periods. As of December 31, 1996, the interest
rate on the Senior Notes was 12.75% and as of May 16, 1997 the interest rate is
13.00%. The interest rate is subject to further increases of 0.25% on June 13,
1997 and every 90 days thereafter (up to a maximum rate of 14 1/4%) until such
registration becomes effective. The Senior Notes are guaranteed by all of
Unison's present and future subsidiaries. The Senior Note indenture contains
certain covenants, including limitations on additional indebtedness,
investments, transactions with affiliates, asset sales, payment of dividends and
certain other transactions. Because all of Unison's direct and indirect
subsidiaries have fully
F-16
<PAGE> 121
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
13. NOTES PAYABLE AND LONG-TERM DEBT -- (CONTINUED)
guaranteed Unison's obligations under the Senior Notes, separately audited
financial statements for the individual subsidiary guarantors would not be
meaningful to investors and so are not included herein.
In connection with the Signature acquisition, Unison assumed a 10.5%
mortgage loan (the "Mortgage Note") collateralized by property and equipment of
six of the Signature facilities. Principal and interest of $180,000 is payable
monthly with a balloon payment due in April 2004. The Mortgage Note requires
Unison to maintain consolidated net worth of at least $39,000,000, a minimum
current ratio (current assets to current liabilities) consolidated for the six
properties of at least 1.45 to 1 during 1996 and a debt service coverage ratio
(as defined) for the four preceding quarters consolidated for the six properties
of at least 1.5 to 1. While the minimum current ratio and debt service ratios
consolidated for the six properties were in compliance with the debt covenants,
the consolidated Unison net worth at December 31, 1996 was $11,689,000 and
accordingly, the Company was not in compliance with the net worth covenant.
Unison did not receive a waiver of this covenant violation and accordingly,
classified the entire obligation of $18,640,000 as current. In addition, the
Company has not met the financial reporting requirements of the Mortgage Note.
Also in connection with the Signature acquisition (Note 4) Unison placed
promissory notes in the aggregate amount of $1,146,000 in escrow. Of this
amount, and subject to any outstanding claims, $500,000 and $646,000 will be
released from escrow and paid to the former owners of Signature on October 31,
1997 and 1998, respectively.
In connection with the BritWill acquisition (Note 4), Unison incurred the
following indebtedness to the former shareholders of BritWill: (i) the Term Note
in the amount of $5,602,000; (ii) the Subordinated Note in the amount of
$8,000,000, (iii) the $7,000,000 noninterest-bearing Convertible Debenture
convertible into 561,815 shares of common stock and, (iv) the Additional Payment
Obligation of $11,500,000 which became assured during August 1996 (Note 4). The
Additional Payment Obligation represents the present value of the remaining
monthly payments, ranging from $99,000 to $166,000 at interest rates ranging
from 12% to 14% through the term of the loan with a balloon payment of $8.1
million due August 9, 2000. The Term Note, as amended, was repaid in January
1996. The Subordinated Note is payable in monthly installments of interest only
at 8% and was repaid in January 1997 with proceeds from the Senior Notes. The
holder of the Convertible Debenture converted a portion of the Convertible
Debenture in December 1995 into 424,251 shares of Unison common stock and
converted the remainder on March 28, 1996 into 137,564 shares of Unison common
stock.
The terms of the Subordinated Note require Unison to meet certain financial
covenants, including current and cash flow ratios.
Subordinated notes payable to a related party are payable to BritWill
Investments Texas, Ltd. ("BritWill Texas"), an affiliate of BritWill. The notes
are payable monthly with interest at 9% to 10% with the balance due in October
2004. As of December 31, 1995, the aggregate balance included a $1,400,000
advance from BritWill Texas for a lease security deposit. In 1996, this
liability was forgiven and the balance was recorded as a reduction of lease
operating rights in the consolidated balance sheet.
Other notes payable to related parties represent obligations to the former
owners of Sunbelt Therapy. In connection with the purchase of Sunbelt Therapy
(Note 4), Unison issued Notes and Debentures in the aggregate amount of
$2,800,000 with interest payable quarterly at 10.0% and convertible into Unison
common stock at a conversion price equal to 100% and 85% of the average closing
price of Unison's common stock for the 20 day trading period preceding the date
of conversion. In January 1997, the Notes and Debentures were converted into
105,196 shares of Unison common stock with the balance of $2,000,000 paid in
cash. Effective February 1, 1996, Unison purchased the remaining 10% minority
ownership in Sunbelt Therapy (Note 4).
F-17
<PAGE> 122
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
13. NOTES PAYABLE AND LONG-TERM DEBT -- (CONTINUED)
The purchase price included notes payable in the aggregate amount of $1,876,000.
Interest on the notes is payable quarterly beginning January 1997 at a rate of
9.0% per year, with scheduled principal reductions due annually through January
1999.
In March 1995, BritWill received an erroneous Medicaid reimbursement
payment of approximately $4,300,000 related to one of its Indiana facilities.
Negotiations with the State of Indiana's agent regarding such overpayment
resulted in BritWill retaining the funds subject to BritWill's payment of
interest thereon to the State of Indiana at the higher of the prime rate plus
3.25% or 12%. In April 1996, Unison agreed to repayment of the remaining
$3,741,000 balance by: (i) a $1,100,000 payment to the State of Indiana in April
1996; and (ii) withholding of Medicaid reimbursement payments due five of
Unison's facilities in Indiana to offset the amount due to the State until the
balance was paid in full in September 1996. Interest was payable at 14%.
Future maturities of notes payable and long-term debt at December 31, 1996
are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1997............................................. $ 33,915,000
1998............................................. 4,761,000
1999............................................. 2,951,000
2000............................................. 9,768,000
2001............................................. 1,607,000
Thereafter............................................ 104,136,000
------------
$157,138,000
============
</TABLE>
As of December 31, 1996, Unison was not in compliance with certain debt
covenants for the Mortgage Note, Subordinated Note, and certain capitalized
equipment leases. Because holders of these debt instruments have the right to
accelerate payment of the debt, these notes and leases have been classified as
current liabilities in the accompanying consolidated balance sheet.
14. STOCKHOLDER'S EQUITY
In December 1995 and January 1996, Unison completed an initial public
offering ("the IPO") resulting in the issuance of 2,000,000 shares of common
stock at $9.00 per share. Proceeds from the IPO amounted to $14,614,000, net of
expenses, of which $9,727,000 was used to repay debt (Notes 13 and 17). In
connection with the IPO, Unison issued warrants to the representatives of the
underwriters to purchase up to 120,000 shares of common stock, at an exercise
price of $11.70 per share, in exchange for certain advisory services to be
provided to Unison during the twelve-month period following the IPO. The
warrants are exercisable for a five-year period beginning in December 1996.
On August 10, 1995, Unison entered into a stock purchase warrant agreement
with HealthPartners. The agreement entitled HealthPartners to purchase shares of
Unison's common stock with an aggregate market value of $150,000, or
approximately 16,667 shares based on the IPO price of $9.00 per share. The
$150,000 has been capitalized as a deferred financing cost and is being
amortized over two years. In December 1996, HealthPartners exercised its option
which required Unison to repurchase the warrants for $213,000 in cash, which has
been recorded as a reduction of additional paid-in capital.
Effective December 31, 1994, Unison completed a stock purchase warrant
agreement to satisfy amounts due to an individual who actively negotiated
several of Unison's management and operating lease agreements.
F-18
<PAGE> 123
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
14. STOCKHOLDER'S EQUITY -- (CONTINUED)
The warrants were exercised in 1996, whereby 178,000 shares of Unison common
stock were purchased for $200. Since the warrants were granted at less than fair
market value, leasehold rights totaling $43,000 have been capitalized and are
being amortized over the respective initial lease term.
In August and October 1996, warrants to purchase an aggregate of 300,464
shares of common stock were issued to a commercial bank in connection with a
short-term loan agreement. The exercise prices of the warrants are $12.80 and
$13.00 and the warrants expire on October 31, 2001.
Unison's common stock has been traded on the Nasdaq Stock Market's National
Market System since December 19, 1995. As of December 31, 1996, Unison does not
currently satisfy the minimum tangible net worth criteria for maintaining the
listing of its common stock on the Nasdaq Stock Market.
15. STOCK OPTIONS
In July 1995, the Board of Directors approved the 1995 Stock Option Plan
(the "1995 Plan"). The 1995 Plan offers two types of options: (i) a
discretionary option grant program (the "Discretionary Program") under which
eligible individuals may, at the discretion of the Board of Directors, be
granted options to purchase shares of common stock at an exercise price
determined by the Board of Directors, and (ii) the automatic option grant
program (the "Automatic Program") under which grants of options will
automatically be made at periodic intervals to eligible non-employee Board
members to purchase shares of common stock at an exercise price equal to 100% of
their fair market value on the grant date. Each grant under the Automatic
Program vests over two years and is exercisable for ten years. Options granted
in 1995 under the Discretionary Program vest over periods of two to four years.
In January 1996, the 1995 Plan was amended by the Board of Directors to change
the exercise price of all outstanding options from $10.00 to $9.00 per share,
which was the IPO price (Note 14). The 1995 Plan was further amended in October
1996 to increase the number of shares of common stock authorized for issuance
under the 1995 Plan from 511,046 to 800,000.
Unison has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of Unison's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if Unison had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996
and 1995, respectively: risk-free interest rates of 5.0% and 5.0%; dividend
yields of 0% and 0%; volatility factors of the expected market price of the
Company's common stock of .64 and .64; and a weighted-average expected life of
the option of 8 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because Unison's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-19
<PAGE> 124
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
15. STOCK OPTIONS -- (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Unison's pro
forma information follows:
<TABLE>
<CAPTION>
1996 1995
------------ --------
<S> <C> <C>
Pro forma net loss......................................... $ 24,157,000 $ 72,000
Pro forma net loss per share............................... $ 5.16 $ 0.03
</TABLE>
Information regarding the 1995 Plan is as follows:
<TABLE>
<CAPTION>
DISCRETIONARY PROGRAM AUTOMATIC PROGRAM
----------------------------- -----------------------------
NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
OF OPTIONS EXERCISE PRICE OF OPTIONS EXERCISE PRICE
---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
Shares under option:
Outstanding at December 31, 1994...... -- --
Granted............................. 261,520 $ 9.00 47,480 $ 9.00
Canceled............................ (8,684) 9.00 -- 9.00
------- -------
Outstanding at December 31, 1995...... 252,836 9.00 47,480 9.00
Granted............................. 412,412 9.47 92,500 9.50
Canceled............................ (40,664) 9.24 --
Exercised........................... (11,307) 9.00 --
------- -------
Outstanding at December 31, 1996...... 613,277 9.30 139,980 9.33
======= =======
Exercisable at December 31,
1995................................ -- --
1996................................ 127,998 9.00 23,740 9.00
Weighted-average fair value of options
granted:
1995................................ $ 6.18
1996................................ $ 6.39
</TABLE>
Exercise prices for options outstanding at December 31, 1996 ranged from
$9.00 to $10.50. The weighted-average remaining contractual life of those
options is 9.5 years.
At December 31, 1996, 35,436 shares of common stock were available under
the 1995 Plan for future awards.
16. LEASES
As of December 31, 1996, Unison operated 51 facilities under noncancelable
operating leases with lease terms ranging from five to twenty years plus renewal
options. The lease agreements provide for contingent rental provisions based on
increases in the consumer price index, Medicaid reimbursement rates, and number
of licensed beds. Certain of the leases have purchase options determined by a
specified formula. Unison is responsible for all taxes, maintenance and other
executory costs.
Unison leases 14 facilities from Omega, of which nine facilities are in
Indiana and five are in Texas. Each of the Omega leases expires in 2005 and
allows Unison up to three five-year renewal options. The Omega leases require
Unison to pay stated rent, with annual increases based upon the greater of 5% of
incremental revenues or the Consumer Price Index, but limited to a maximum
annual increase of 5%. The Omega leases
F-20
<PAGE> 125
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
16. LEASES -- (CONTINUED)
grant Unison the right, but not the obligation, to purchase the Omega facilities
upon the expiration of the initial lease term.
Unison leases six facilities located in Texas from BritWill Texas (the
"BritWill Texas Leases") for an initial term that expires in December 2005. The
lease agreement requires Unison to pay monthly amounts equal to (i) the amount
of monthly payments made by BritWill Texas to Omega pursuant to a loan agreement
which provided the financing for BritWill's purchase of the six facilities; (ii)
all payments due from lessees related to the facilities that are subleased; and
(iii) payment of certain third-party seller subordinated notes incurred in
connection with the acquisition of the six facilities.
At December 31, 1996, Unison was obligated to Omega as a tenant under three
master lease agreements covering 14 facilities having an aggregate minimum rent
of approximately $34.9 million (subject to increase) during the remainder of
their initial terms. The master leases require the Company to maintain specified
cash flow to rent ratio, cash flow to debt service ratios, minimum cash, current
ratio and tangible net worth ratio (each as defined). The BritWill Texas Leases
contain cross default provisions with the Omega leases by which if Unison is in
default with any Omega indebtedness or lease obligation, the Company is also in
default under the BritWill Texas Leases. Unison was not in compliance with these
covenants at December 31, 1996. Omega has waived all existing covenant
violations through April 11, 1997. The Company may not be in compliance with
these covenants subsequent to April 11, 1997 and, accordingly, is negotiating
with Omega to restructure the aforementioned covenants. Management is attempting
to renegotiate the leases; however, there can be no assurance that such
restructuring will be completed or that Omega will not exercise their remedies
of default under the master lease agreements.
The Company leases six facilities formerly affiliated with Signature for an
initial term which expires in 2005 and which allows Unison the option to renew
for three additional 10-year terms and the option to purchase the facilities
through the end of the initial term or any renewal periods. The leases provide
for certain restrictions on the maintenance and operation of the facilities and
an annual 2.5% increase in rent.
In connection with the BritWill acquisition (Note 4), Unison recorded a
leasehold liability in the amount of $4,700,000. This adjustment was based on an
independent appraisal which valued the present value of the BritWill lease
obligations based on market lease rates. The leasehold liability is being
amortized over the aggregate lease term of approximately 25 years.
F-21
<PAGE> 126
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
16. LEASES -- (CONTINUED)
Future minimum lease payments at December 31, 1996, by year and in the
aggregate, under noncancelable lease arrangements with initial or remaining
terms of one year or more consist of the following:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, CAPITAL OPERATING
-------------------------------------------------- ----------- ------------
<S> <C> <C>
1997.............................................. $ 1,661,000 $ 15,492,000
1998.............................................. 1,714,000 15,591,000
1999.............................................. 1,700,000 15,362,000
2000.............................................. 1,352,000 14,727,000
2001.............................................. 1,294,000 13,975,000
Thereafter........................................ 5,894,000 89,596,000
---------- ------------
Total minimum lease payments...................... 13,615,000 $164,743,000
============
Less amount representing interest................. (5,856,000)
----------
Present value of net minimum lease payments....... 7,759,000
Less current portion.............................. (793,000)
----------
Long-term obligations............................. $ 6,966,000
==========
</TABLE>
Unison's lease payments are senior to all unsecured debt.
17. RELATED PARTY TRANSACTIONS
The Term Note, Subordinated Note and Convertible Debenture issued as
consideration for the BritWill acquisition were issued to the former
shareholders of BritWill (Note 13). The primary BritWill shareholder receiving
payments was Whitehead Family Investments, Ltd. ("WFI"), which owned 81.5% of
the stock of BritWill prior to the BritWill acquisition. Bruce H. Whitehead,
Chairman of the Board of Unison, is the president of the general partner of WFI
and, together with a family trust, owns 100% of WFI.
In connection with the BritWill acquisition, a note payable to WFI in the
amount of $3,375,000 was repaid with the proceeds from the IPO. Subsequent to
the BritWill acquisition, Unison also incurred notes payable to WFI in the
aggregate amount of $750,000 bearing interest at the rate of 12%. These notes
were repaid with the proceeds from the IPO.
Unison's lease payments to Omega, the owner of 14 facilities that the
Company leases in Indiana and Texas, are personally guaranteed to $13,500,000 by
the Chairman of the Board of Unison as well as collateralized by substantially
all the personal property of Unison. Unison also leases six facilities in Texas
from BritWill Texas. Lease expense on these facilities for the five months ended
December 31, 1995 and the year ended December 31, 1996 amounted to $505,000 and
$2,661,000, respectively (Note 16).
With the BritWill acquisition, Unison also assumed unsecured notes payable
to BritWill Texas with an aggregate balance at December 31, 1996 of $2,547,000
(Note 13). Interest expense on these notes amounted to $83,993 and $264,000 for
the five months ended December 31, 1995 and the year ended December 31, 1996,
respectively.
On April 21, 1997, the Company obtained a $2,950,000 loan for general
working capital purposes from Elk Meadows Investments, L.L.C. and BritWill
Investments Company, Ltd., as joint lenders. Elk Meadows Investments, L.L.C. is
controlled by David Kremser and BritWill Investments Company, Ltd. is controlled
by Bruce Whitehead. The loan matures on the earlier of August 1, 1997, or 30
days after written demand from the lenders, subject to earlier maturity in the
event of acceleration upon a default. Interest accrues on the loan
F-22
<PAGE> 127
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
17. RELATED PARTY TRANSACTIONS -- (CONTINUED)
at the Prime Rate plus 2%, subject to an increase in the rate upon a default.
Interim payments on the loan are not required prior to maturity. The Company
paid a loan fee of $29,500 at the closing, and also agreed to pay all of the
lenders' out of pocket fees and costs, including attorneys fees and costs, in an
amount not yet determined or demanded by the lenders. Repayment of the loan is
secured by (i) a pledge from the Company of approximately $5.0 million of
accounts receivable generated by certain of the Company's affiliates and
assigned to the Company and (ii) a pledge from the Company of its stock in those
affiliates of the Company that either assigned their accounts receivable to the
Company so they could be pledged by the Company as security for the subject loan
or control the entities that assigned such accounts receivable. The collateral
securing the loan also secures repayment of other obligations owing from the
Company and its affiliates to Messrs. Whitehead and Kremser, and to individuals
and entities related to them.
18. INCOME TAXES
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Current:
Federal........................................ $ 698,000 $153,000 $128,000
State.......................................... 61,000 -- 1,000
Deferred:
Federal........................................ (7,777,000) (28,000) 43,000
State.......................................... (1,338,000) 7,000 --
----------- -------- --------
$(8,356,000) $132,000 $172,000
=========== ======== ========
</TABLE>
The difference between Unison's effective income tax rates and statutory
rates are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
------------ -------- --------
<S> <C> <C> <C>
Statutory federal income tax expense (benefit).......... $(10,810,000) $ 85,000 $174,000
Increases (decreases) resulting from:
Change in effective tax rate.......................... (495,000) -- --
Amortization of intangibles and nondeductible
expenses........................................... 1,060,000 91,000 --
State tax expense (benefit), net of federal benefit... (876,000) 5,000 1,000
Valuation allowance................................... 1,528,000 (56,000) 25,000
Current federal income taxes of subsidiaries not
consolidated for tax purposes...................... 698,000 -- --
Other................................................. 539,000 7,000 (28,000)
------------ -------- --------
Income tax expense (benefit)............................ $ (8,356,000) $132,000 $172,000
============ ======== ========
</TABLE>
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Temporary differences are
primarily attributable to reporting for income tax purposes certain items of
income and expense using a cash basis of accounting and recognition of
depreciation using the accelerated cost recovery system.
F-23
<PAGE> 128
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
18. INCOME TAXES -- (CONTINUED)
Significant components of deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1996 1995
------------------------- -------------------------
CURRENT LONG-TERM CURRENT LONG-TERM
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Deferred liabilities:
Intangibles............................... $ -- $(31,165,000) $ -- $(9,937,000)
Accelerated depreciation.................. -- 171,000 -- (30,000)
Cash to accrual adjustment................ (208,000) -- (1,085,000) --
---------- ------------ -------- -----------
Total liabilities........................... (208,000) (30,994,000) (1,085,000) (9,967,000)
Deferred assets:
Allowance for doubtful accounts........... 1,388,000 -- 206,000 --
Reserve for loss on disposition of
assets................................. 1,460,000 -- -- --
Vacation accruals......................... 692,000 -- -- --
Net operating loss
carryforward........................... -- 7,604,000 -- 1,794,000
Valuation allowance....................... -- (1,528,000) -- --
Other, net................................ -- 127,000 -- --
---------- ------------ -------- -----------
Total assets................................ 3,540,000 6,203,000 206,000 1,794,000
---------- ------------ -------- -----------
Total net asset (liability)................. $3,332,000 $(24,791,000) $ (879,000) $(8,173,000)
========== ============ ======== ===========
</TABLE>
The increase in deferred taxes and the elimination of the valuation reserve
was due to the application of the provisions of SFAS 109 with respect to the
treatment of basis differences between assets acquired and liabilities assumed
in the BritWill acquisition. At December 31, 1996, Unison has consolidated net
operating loss carryforwards which approximate $20,316,000 and begin to expire
in 2009 for federal income tax purposes and 1999 for state income tax purposes.
Certain of the net operating loss carryforwards could be subject to annual
limitations. Approximately $2,950,000 of certain subsidiaries' net operating
losses must be offset by taxable income of the same company.
19. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of Unison's financial instruments as
of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
------------ ------------
<S> <C> <C>
Notes payable and long-term debt, excluding capital
lease obligations..................................... $149,379,000 $153,664,000
</TABLE>
The carrying amounts reported in the consolidated balance sheet for cash,
accounts receivable, lease deposits, accounts payable and borrowings under
revolving lines of credit approximate their fair value. The fair value of
Unison's long-term borrowings is estimated by discounting future cash flows at
current rates offered to Unison for debt of comparable types and maturities.
Because no market exists for these financial instruments, considerable judgment
is necessary in interpreting the data to develop estimates of fair value. The
use of different market assumptions may have a material effect on the estimated
fair value amounts.
F-24
<PAGE> 129
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
20. INSURANCE
Health care companies are subject to medical malpractice, personal injury
and other liability claims that are customary risks inherent in the operation of
health facilities and are generally covered by insurance. Unison maintains
property, liability and professional malpractice insurance policies through
commercial carriers on a claims made basis in amounts and with such coverages
and deductibles that are deemed appropriate by management, based upon historical
claims, industry standards and the nature and risks of its business. There can
be no assurance that a future claim will not exceed available insurance
coverages or that such coverages will continue to be available for the same
scope of coverages at reasonable premium rates. Any substantial increase in the
cost of such insurance or the unavailability of any such coverages could have an
adverse effect on Unison's business. However, based upon the evaluation of
Unison's historical asserted and unasserted claim experience, management
believes that the ultimate liability, if any, resulting from the settlement of
any future claim will not have a material impact on Unison's financial position,
operations or liquidity.
Unison maintains workers compensation coverage on its facilities with the
exception of certain facilities located in Texas. Management believes that the
reserve for incurred but not reported claims is adequate based on historical
results.
21. COMMITMENTS
Unison has entered into an agreement with Trouver to provide financial
advisory services in connection with Unison's financing and business acquisition
plans. Trouver is compensated by Unison based on a percentage, ranging from 1.5%
to 10.0%, dependent upon the type of transaction consummated (Note 4).
22. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
Unison acquires or leases and operates long-term health care facilities,
and uses such facilities to develop networks offering a range of other
healthcare services. Unison and others in the healthcare industry are subject to
certain inherent risks, including the following:
- Substantial dependence on revenues derived from reimbursement under the
Medicare and Medicaid programs;
- Government regulation, budgetary constraints, and proposed legislative
and regulatory changes; and
- Lawsuits alleging malpractice and related claims.
Approximately 83% in 1996, 83% in 1995, and 70% in 1994 of Unison's
long-term care net patient service revenues were derived from reimbursement
under Medicare and Medicaid programs, and approximately 84% and 82% of Unison's
patient accounts receivable at December 31, 1996 and 1995, respectively, are due
from such programs.
Changes in Medicare and Medicaid reimbursement funding mechanisms, related
government budgetary constraints and differences between final settlements and
estimated settlements receivable under the Medicare and Medicaid programs, which
are subject to audit and retroactive adjustment, could have a significant
adverse effect on Unison. Unison's operations are also subject to a variety of
other Federal, state and local regulatory requirements. Failure to maintain
required regulatory approvals and licenses and/or changes in such regulatory
requirements could have a significant adverse effect on Unison.
Unison is from time to time subject to malpractice and related claims and
lawsuits, which arise in the normal course of business and which could have a
significant effect on Unison. Management believes that
F-25
<PAGE> 130
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
22. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES -- (CONTINUED)
adequate provision for these items has been made in the accompanying
consolidated financial statements and that their ultimate resolution will not
have a material effect on the consolidated financial statements.
Since its inception, Unison has grown through acquisitions. The
recoverability of acquisition costs, including excess costs over fair value of
net assets acquired, is dependent initially upon the consummation of the
acquisitions and subsequently upon Unison's ability to successfully integrate
and manage acquired operations. Also, Unison's development of healthcare
networks is dependent upon successfully effecting economies of scale, the
recruitment of skilled personnel and the expansion of services and related
revenues.
23. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121 -- ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
(SFAS NO. 121)
During 1996, Unison incurred an operating loss raising the possibility of
continuing losses associated with its income producing assets. Consequently,
Unison evaluated its long-lived assets for impairment in accordance with SFAS
No. 121. Unison estimated the undiscounted net cash flows from all business
units and determined that the carrying value of certain of Unison's long-lived
assets exceeded such undiscounted cash flows. Accordingly, Unison compared the
fair value of the assets based on the present value of the estimated future cash
flows for the facilities (which were estimated based on the remaining weighted
average useful lives of the assets, earnings history, and a discount rate
commensurate with the risks involved and market conditions and assumptions
reflecting internal operating plans and strategies) with the carrying value.
Unison determined that the fair value of certain facilities was less than
their carrying value and estimated the costs to sublease and exit from the
Disposition Facilities (Note 4) and, accordingly, recorded a loss on impairment
of $3,865,000 in the 1996 consolidated statements of operations.
24. SUBSEQUENT EVENTS
Effective January 1, 1997, Unison, through its Sunbelt Therapy subsidiary,
purchased the assets of a rehabilitation therapy services company located in
Mississippi. Consideration for the purchase was comprised of cash amounting to
$600,000 and a $300,000 promissory note. Interest on the note bears interest at
10.0%, payable quarterly, and the principal balance is due January 2, 2002.
Unison and certain of its current and former directors and officers are
named as defendants in several class action complaints seeking unspecified
damages following Unison's announcement in March 1997 that the Company expected
to restate its financial statements for the nine-month period ended September
30, 1996. To date, six such claims have been filed in federal district court in
Phoenix, Arizona alleging violations of Sections 10 and 20 of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. While the purported
class periods and the named defendants vary, the broadest class period to date
asserts that between May 14, 1996 (the date of Unison's announcement of first
quarter results) and March 10, 1997 (the date before Unison's March 11
announcement of the restatement) the defendants knew, or were reckless in not
knowing, that Unison's results for the first three quarters of 1996 were
materially overstated. In addition, the Company is informed that an action has
been filed in the Superior Court of the State of California (County of Orange)
against the Company, certain current and former officers and directors and
certain underwriting firms. The Orange County action is purportedly filed on
behalf of all persons who acquired Unison stock in the Company's December 1995
initial public offering ("IPO"); it essentially alleges that in connection with
the IPO, the defendants made positive statements about the Company's prospects
for which there was no basis, that accounts receivable were overstated, and that
the Company's statement of financial position as of September 30, 1995 was not
fairly presented. Unison's bylaws require the Company to indemnify
F-26
<PAGE> 131
UNISON HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
24. SUBSEQUENT EVENTS -- (CONTINUED)
current and former officers and directors to the extent permitted by Delaware
law against such liabilities and related expenses. The Company denies the
material allegations in these complaints and intends to defend the actions
vigorously. Management believes that the costs of the ultimate disposition of
these matters, if any, will be substantially covered by insurance. An adverse
determination could have a material adverse effect upon Unison.
F-27
<PAGE> 132
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
BritWill HealthCare Company
We have audited the accompanying consolidated statement of operations and
cash flows of BritWill HealthCare Company for the month ended July 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of BritWill
HealthCare Company for the one month ended July 31, 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Phoenix, Arizona
April 10, 1996
F-28
<PAGE> 133
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of BritWill HealthCare Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of BritWill
HealthCare Company and its subsidiaries at June 30, 1995, and the results of
their operations and their cash flows for the six month period ended June 30,
1995 and for the year ended December 31, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
November 8, 1995
F-29
<PAGE> 134
BRITWILL HEALTHCARE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
1995
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 858,606
Accounts receivable, less allowance for doubtful accounts of $997,246.................. 7,599,464
Due from third party payors, net....................................................... 2,290,066
Inventories............................................................................ 442,033
Due from affiliates.................................................................... 512,594
Prepaid expenses....................................................................... 486,874
Other receivables...................................................................... 31,151
Security deposits...................................................................... 637,517
Restricted cash........................................................................ 45,000
-----------
Total current assets................................................................ 12,903,305
Furniture, fixtures and equipment, net................................................... 2,210,682
Other assets, net........................................................................ 6,827,126
Deferred charges, net.................................................................... 537,321
Security deposits........................................................................ 2,237,944
-----------
Total assets........................................................................ $24,716,378
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................................... $ 5,133,964
Accrued expenses....................................................................... 7,002,347
Notes payable due affiliates........................................................... 528,230
Income taxes payable................................................................... 92,126
-----------
Total current liabilities........................................................... 12,756,667
Revolving line of credit................................................................. 1,672,577
Subordinated long-term debt due affiliates............................................... 8,488,465
Other long-term debt..................................................................... 48,183
-----------
Total liabilities................................................................... 22,965,892
-----------
Commitments and contingencies
Shareholders' equity:
Common stock, $1.00 par value; authorized 1,000,000 shares; 424,050 issued and
outstanding......................................................................... 424,050
Additional paid-in capital............................................................. 4,714,469
Treasury stock, 54,650 shares, at par.................................................. (54,650)
Accumulated deficit.................................................................... (3,333,383)
-----------
Total shareholders' equity.......................................................... 1,750,486
-----------
Total liabilities and shareholders' equity.......................................... $24,716,378
===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-30
<PAGE> 135
BRITWILL HEALTHCARE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ONE MONTH
DECEMBER ENDED JUNE ENDED
31, 30, JULY 31,
1994 1995 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Patient care services, net........................... $53,800,520 $32,723,297 $ 5,655,071
Management fee from related parties.................. 251,186 40,430 --
Other income......................................... 373,239 228,426 207,270
----------- ----------- -----------
Total revenues.................................... 54,424,945 32,992,153 5,862,341
----------- ----------- -----------
Expenses:
Salaries and contract labor.......................... 32,634,732 19,812,601 3,467,433
Rent................................................. 8,263,642 4,448,134 775,136
Supplies............................................. 6,686,572 4,134,207 716,037
General and administrative........................... 6,252,183 3,255,917 614,191
Depreciation and
amortization...................................... 986,812 500,682 90,803
Bad debt............................................. 644,471 21,442 48,631
Other................................................ 71,529 10,731 121,900
----------- ----------- -----------
Total expenses.................................... 55,539,941 32,183,714 5,834,131
----------- ----------- -----------
Income (loss) from
operations........................................ (1,114,996) 808,439 28,210
Interest income (expense):
Interest income................................... 54,545 109,309 3,878
Interest expense.................................. (131,764) (226,587) (105,127)
Related party interest
expense......................................... (739,823) (485,265) (88,977)
----------- ----------- -----------
Income (loss) before income taxes.................... (1,932,038) 205,896 (162,016)
Provision for income taxes........................... 52,896 26,000 4,500
----------- ----------- -----------
Net income (loss).................................... $(1,984,934) $ 179,896 $ (166,516)
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-31
<PAGE> 136
BRITWILL HEALTHCARE COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1994 AND SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------ PAID-IN ----------------- ACCUMULATED
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT TOTAL
------- -------- ---------- ------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993....... 389,750 $389,750 $5,176,836 -- -- $(1,464,058) $ 4,102,528
Common stock issued............ 31,300 31,300 (23,475) -- -- -- 7,825
Employee receivable due to
common stock issued.......... -- -- (7,825) -- -- -- (7,825)
Rescission of shares due to
employee terminations........ -- -- 42,600 42,600 $(42,600) -- --
Excess consideration over
historical cost of assets
acquired in a purchase
combination
(Note 1)..................... -- -- (482,596) -- -- -- (482,596)
Net loss....................... (1,984,934) (1,984,934)
------- -------- ---------- ------ ------ ---------- ----------
Balance, December 31, 1994....... 421,050.. 421,050 4,705,540 42,600 (42,600) (3,448,992) 1,634,998
Common stock issued............ 3,000 3,000 (2,250) -- -- -- 750
Employee receivable due to
common stock issued.......... -- -- (750) -- -- -- (750)
Purchase of shares due to
employee terminations........ -- -- 11,929 12,050 (12,050) (64,287) (64,408)
Net income..................... -- -- -- -- -- 179,896 179,896
------- -------- ---------- ------ ------ ---------- ----------
Balance, June 30, 1995........... 424,050 $424,050 $4,714,469 54,650 $(54,650) $(3,333,383) $ 1,750,486
======= ======== ========== ====== ====== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-32
<PAGE> 137
BRITWILL HEALTHCARE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED ONE MONTH
DECEMBER 31, JUNE 30, ENDED
1994 1995 JULY 31, 1995
------------ ----------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................................. $ (1,984,934) $ 179,896 $ (166,516)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization............................... 1,083,779 574,065 90,803
Increase in accounts receivable............................. (2,461,879) (743,748) (100,036)
(Increase) decrease in amounts due from third party
payors..................................................... (1,011,345) (1,140,747) 895,801
Decrease (increase) in inventories.......................... (114,066) (8,550) --
Increase in due from affiliates............................. (361,752) (143,360) --
Increase in prepaid expenses................................ (67,110) (86,567) (19,097)
(Increase) decrease in other receivables.................... 15,017 (12,320) (1,047)
(Increase) decrease in other assets and deferred
charges................................................... (69,733) (173,037) 67,370
Payment for restricted cash................................. (45,000) -- --
(Increase) decrease in security deposits.................... (141,344) 883 (13,119)
(Decrease) increase in accounts payable..................... 3,681,783 (1,115,972) (1,604,192)
Increase in accrued expenses................................ 1,156,766 3,506,897 90,725
Increase (decrease) in income taxes payable................. 1,146 39,230 (19,749)
----------- ----------- -----------
Net cash (used in) provided by operating activities......... (318,672) 876,670 (779,057)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of furniture and equipment............................ (551,714) (485,009) (136,997)
Purchase of facilities from related party, net of liabilities
of $340,000................................................. (482,596) -- --
Construction in progress....................................... (170,904) (436,169) --
----------- ----------- -----------
Net cash used in investing activities....................... (1,205,214) (921,178) (136,997)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable........................ 2,283,823 -- --
Proceeds from revolving line of credit......................... -- 1,672,577 1,082,377
Payments on notes payable and long-term debt................... (364,922) (1,754,875) (117,894)
Receipt of restricted cash..................................... -- 600,000 --
Payment for debt issuance costs................................ (190,000) (111,059) --
Repurchase of shares........................................... -- (64,408) --
----------- ----------- -----------
Net cash provided by financing activities................... 1,728,901 342,235 964,483
----------- ----------- -----------
Net increase in cash and cash equivalents........................ 205,015 297,727 48,429
Cash and cash equivalents at beginning of period................. 355,864 560,879 858,606
----------- ----------- -----------
Cash and cash equivalents at end of period....................... $ 560,879 $ 858,606 $ 907,035
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.................................................... $ 684,615 $ 296,562 $ 82,069
Income taxes................................................ 51,502
Supplemental schedule of noncash investing and financing
activities:
Security deposit with Omega through issuance of note........... 1,400,000
Acquisition of other intangibles through issuance of note...... 249,000
</TABLE>
See accompanying notes to the consolidated financial statements.
F-33
<PAGE> 138
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
BritWill HealthCare Company (the "Company") was organized as a Delaware
corporation on August 5, 1992. The Company leases and manages long-term care
facilities located throughout Texas and Indiana. The Company commenced
operations on December 24, 1992. At that time, BritWill Investments -- Indiana
L.P. (BI-Indy), an affiliate of the Company, managed thirteen long-term care
facilities owned by Cloverleaf Enterprises, Inc. Such facilities were leased and
operated by Sherwood Healthcare Corp. (Sherwood) and Cedar Care, Inc. (Cedar
Care). Under the terms of a management agreement, BI-Indy exercised its options
to acquire nine of these facilities and acquire the leasehold rights to the
remaining four facilities from Cloverleaf Enterprises, Inc. Concurrently, the
nine facilities were sold by BI-Indy to Omega Healthcare Investors, Inc. (Omega)
and leased back under a "Master Lease" agreement by BritWill Investments -- I
(BI-1), a subsidiary of the Company. The leasehold rights to the four facilities
were contributed to BI-1 by BI-Indy. Further, BI-Indy assigned the two
management agreements for these thirteen facilities to BI-1.
In December 1993, BritWill Investments Texas, Ltd. (BI-TX), an affiliate of
the Company, entered into purchase agreements for six long-term care facilities
and entered into lease agreements for three facilities with third-party lessors.
The total consideration paid by BI-TX was approximately $18,440,000. BI-TX
financed these transactions through two participating mortgages with Omega
totaling $14,760,000 and the sale of five facilities to Omega for $13,810,000.
BritWill Investments -- II (BI-2), a subsidiary of the Company, then entered
into a noncancelable operating lease ("Texas Master Lease") with Omega for the
five facilities sold by BI-TX and also entered into two noncancelable operating
lease and sublease agreements for six facilities either owned or leased by
BI-TX.
During 1993, BI-TX conveyed supply inventories and certain liabilities and
other accrued expenses from the facilities to BI-2. No consideration was paid by
BI-2 to BI-TX for the inventory and BI-TX did not give BI-2 any consideration
for the transfer of the liabilities and accrued expenses. The amount by which
the predecessor cost of the inventory exceeded the assumed liabilities, $77,009,
was recognized as additional paid-in capital.
Effective November 1, 1994, BI-2 purchased the net assets of two nursing
homes operated by Avalon Care, Inc. ("Avalon"), an affiliated company. The
nursing homes acquired were: Elkhart Manor ("Elkhart") and Oakwood Health Care
Center ("Oakwood") facilities. Avalon assigned the responsibilities and rewards
of the Elkhart and Oakwood operating leases to BI-2. As consideration for the
purchase of the leases, BI-2 forgave intercompany debt from Avalon. The amount
by which the consideration paid exceeded the predecessor cost of the acquired
assets less the assumed liabilities and forgiveness of debt, $482,496, was
recognized as a reduction of additional paid-in capital.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, consisting of BI-1 and BI-2. The financial statements
include the accounts of Cedar Care and Sherwood since December 24, 1992.
Although the Company has no ownership interest in Cedar Care or Sherwood, these
companies are consolidated because the Company has unilateral and perpetual
control over the assets and operations of these companies due to the management
agreements. Under these management agreements, managerial control and operating
proceeds have been transferred directly to BI-1. Fees under the management
agreements are based upon the revenues of Cedar Care and Sherwood from the
facilities, such that all net income of Cedar Care and Sherwood is paid to BI-1.
All significant intercompany accounts and transactions have been eliminated.
F-34
<PAGE> 139
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Cash and cash equivalents
Cash and cash equivalents include amounts held in demand deposits at
financial institutions and all highly liquid investments that have an original
maturity of three months or less.
Restricted cash
As of June 30, 1995, restricted cash consists of the $45,000 certificate of
deposit assigned to a third party as security for payment of insurance claims.
Revenue and accounts receivable
Revenues are derived from patient care services and management fees of
nursing homes not owned or leased by the Company. Credit risk exists to the
extent that the most significant source of revenue is reimbursement for patient
care from state sponsored Medicaid programs in Texas and Indiana and from
Medicare. However, management does not believe that there are any significant
credit risks associated with these governmental agencies. Payments from such
programs are based on cost as defined under the programs, and associated
revenues are presented net of provisions to reduce customary charges to amounts
receivable from such programs. Revenues from private sources are recognized
based upon established charges. Reserves are provided for receivables estimated
to be uncollectible and are adjusted periodically based on the Company's
evaluation of industry conditions, historical collection experience and other
relevant factors.
The following table summarizes the approximate percent of net patient
revenues and accounts receivable from such payors:
<TABLE>
<CAPTION>
NET REVENUE
---------------------------------------------- ACCOUNTS
SIX MONTHS ONE MONTH RECEIVABLE
---------- ---------- ----------
DECEMBER 31, JUNE 30, JULY 31, JUNE 30,
1994 1995 1995 1995
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Medicaid............................ 60.5% 53.7% 53.9% 62.8%
Medicare............................ 17.6 28.6 28.6 25.4
Private............................. 20.1 16.0 15.9 7.9
Other............................... 1.8 1.7 1.6 3.9
---- ---- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
</TABLE>
Inventories
Inventories consist of medical and other supplies necessary for delivering
resident care at the facilities. Inventories are recorded at the lower of cost
(determined by the first-in, first-out method) or market.
Furniture, fixtures and equipment
Furniture, fixtures and equipment are carried at cost. Depreciation is
recognized using the straight-line method over the estimated useful lives of the
assets, which range from five to ten years. Leasehold improvements are amortized
over the lesser of the estimated useful life or lease term. Maintenance cost and
repairs are expensed as incurred; betterments and leasehold improvements are
capitalized.
F-35
<PAGE> 140
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred charges
Deferred charges consist of costs incurred to acquire leases to the
long-term care facilities, which are amortized on the straight-line method over
the term of the lease. Amortization expense was $77,186, $38,366 and $6,436 for
the year ended December 31, 1994, the six months ended June 30, 1995 and the one
month ended July 31, 1995, respectively.
Income taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS 109). The
cumulative effect of the adoption of SFAS 109 was immaterial to the Company's
financial position. Under SFAS 109, the liability method is used to account for
income taxes. Under this method, the deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
financial reporting of existing assets and liabilities and their respective tax
basis. The Company's principal differences relate to the availability of tax net
operating loss carry forwards, certain reserves, accrued vacation, and
depreciation.
Interim financial data
The following table sets forth summarized results of operations for
BritWill for the periods indicated:
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
JULY 31,
---------------------------
1995 1994
----------- -----------
(UNAUDITED)
<S> <C> <C>
Total revenues.................................... $38,854,000 $29,857,000
Income (loss) from operations..................... 836,000 (1,365,000)
Income (loss) before income taxes................. 44,000 (1,886,000)
Net income (loss)................................. 13,000 (1,912,000)
</TABLE>
3. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consists of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31, JUNE 30,
1994 1995
--------------- ----------
<S> <C> <C>
Furniture and fixtures....................... $ 1,202,684 $1,476,780
Leasehold improvements....................... 349,943 504,952
Construction in progress..................... 213,596 649,765
Land......................................... -- 55,904
---------- ----------
1,766,223 2,687,401
Less accumulated depreciation................ (367,007) (476,719)
---------- ----------
$ 1,399,216 $2,210,682
========== ==========
</TABLE>
Depreciation expense was $162,143, $109,712 and $23,468 for the year ended
December 31, 1994, the six months ended June 30, 1995 and the one month ended
July 31, 1995, respectively.
F-36
<PAGE> 141
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1995
-----------
<S> <C>
Leasehold rights -- BI-Indy................................... $ 4,103,338
Leasehold rights -- BI-TX..................................... 3,331,547
Deferred financing costs...................................... 1,131,224
-----------
8,566,109
Less accumulated amortization................................. (1,738,983)
-----------
$ 6,827,126
===========
</TABLE>
The leasehold rights -- BI-Indy were recorded at the cost of the
predecessor and are being amortized to rent expense over ten years, the term of
the lease.
The leasehold rights -- BI-TX were recorded at the amount of the obligation
entered into to obtain the right to operate nursing homes acquired by BI-TX in
June and December 1993 and are being amortized to rent expense over ten years,
the term of the lease. See Note 10.
Other deferred financing costs include additional acquisition costs and
debt closing costs which are being amortized to interest expense over periods of
three to ten years. The total amount charged to interest expense was $73,838,
$83,483 and $13,446 for the year ended December 31, 1994, the six months ended
June 30, 1995 and the one month ended July 31, 1995, respectively.
Total amortization expense relating to these assets was $747,483, $352,604
and $60,934 for the year ended December 31, 1994, the six months ended June 30,
1995 and the one month ended July 31, 1995, respectively.
5. SECURITY DEPOSIT
Security deposits consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1995
----------
<S> <C>
Lease deposit -- BI-Indy....................................... $1,335,000
Liquidity deposit -- BI-TX..................................... 1,400,000
Other deposits................................................. 140,461
----------
2,875,461
Less current portion........................................... (637,517)
----------
$2,237,944
==========
</TABLE>
In connection with the Indiana transaction discussed in Note 1, the Company
is required to maintain a security deposit equal to seven months minimum lease
obligation. These funds are held in escrow and restricted until certain
financial covenants have been met, including but not limited to net worth and
net operating cash flow requirements. These funds are currently invested by the
lessor in a mutual fund on behalf of the Company and bear interest at 5.5% on
June 30, 1995. Accrued interest receivable on these funds is $72,389 at June 30,
1995. This deposit has been classified as noncurrent.
In connection with the Texas transaction discussed in Note 1, BI-TX
advanced BI-2 $1,400,000. This advance, as described in Note 7, matures in
December 2003 and is classified as a long-term liability. These funds were used
as a liquidity deposit with OMEGA (the "lessor") and are currently invested by
the lessor on
F-37
<PAGE> 142
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
behalf of the Company and bear interest at 5.25% to 6.0%. The underlying note
between BI-2 and BI-TX has interest payable at the same term as the interest
earned on the security deposit. A portion of this deposit, $500,000, has been
classified as current as the terms of the Texas master lease allow for the use
of a letter of credit in place of a security deposit. The Company has a $500,000
letter of credit available through a third party.
Other deposits, primarily lease and utility, have been classified as
current at June 30, 1995. Due to the subsequent event described in Note 12, the
Dallas, Texas operations of the Company will be relocated to Phoenix, Arizona by
March 1996.
6. ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
1995
----------
<S> <C>
Amounts due Medicaid -- Indiana.................................. $3,741,188
Accrued salaries and benefits.................................... 1,205,922
Payroll withholding taxes........................................ 481,522
Ancillary expense................................................ 620,142
Property taxes................................................... 396,700
Rent............................................................. 245,547
Financing costs..................................................
Other............................................................ 311,326
----------
$7,002,347
==========
</TABLE>
In March 1995, the Company received an erroneous Medicaid reimbursement
payment of approximately $4,300,000 related to one of its Indiana facilities.
Negotiations with the state of Indiana's agent regarding such overpayment
resulted in the Company retaining the money paid subject to the Company's
payment of interest thereon to the state of Indiana. Future amounts due the
Company by the state will be offset against the interest-bearing obligation
until March 25, 1996 at which time the Company must reimburse the state for the
unused portion. The unreimbursed Medicaid payment accrues interest at prime plus
3.25% or 12% per annum, whichever is higher. The Company recorded $72,000 of
interest expense during the six-month period ended June 30, 1995 and $74,440 of
interest expense during the one-month period ended July 31, 1995.
F-38
<PAGE> 143
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. NOTES PAYABLE AND LONG-TERM DEBT
Subordinated notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1995
-----------
<S> <C>
Subordinated notes payable to an affiliate, secured by a $1,400,000 liquidity
deposit bearing interest at 5.2% to 12.0%, due January 1995 through December
2003 payable quarterly...................................................... $ 8,776,782
Note payable to bank, bearing interest at prime plus 2.0% payable monthly, due
October 1998................................................................ 48,183
Subordinated notes payable to third party, bearing interest at 10.0% payable
monthly, due August 1998.................................................... 239,913
Revolving line of credit advances bearing interest at the commercial paper 30
day weighted average rate plus 4.25% payable monthly........................ 1,672,577
-----------
10,737,455
Less current portion.......................................................... (528,230)
-----------
$10,209,225
===========
</TABLE>
The maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1995....................................... $ 1,280,741
1996....................................... 831,918
1997....................................... 254,049
1998....................................... 2,496,647
1999....................................... 286,349
Thereafter................................. 5,670,051
-----------
$10,819,755
===========
</TABLE>
The stated interest rate for the line of credit and note payable to bank
bear interest at 2.0% over prime (9.0% at June 30, 1995).
On January 31, 1995, the Company completed a three-year revolving credit
line for $6,000,000. The credit line is collateralized by existing and future
accounts receivable of the Company. The credit line requires the Company to
maintain quarterly financial covenants including fixed charge ratio
requirements, cash velocity test requirements, accounts receivable
day-sales-outstanding requirements and positive earnings test requirements. As
of June 30, 1995, the Company was in compliance with all such quarterly
covenants.
F-39
<PAGE> 144
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The components of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ONE MONTH
---------- ---------
DECEMBER 31, JUNE 30, JULY 31,
1994 1995 1995
------------ ---------- ---------
<S> <C> <C> <C>
Current:
Federal.....................................
State and local............................. $ 52,896 $ 26,000 $ 4,500
------- ------- -------
52,896 26,000 4,500
Deferred:
Federal.....................................
------- ------- -------
$ 52,896 $ 26,000 $ 4,500
======= ======= =======
</TABLE>
A reconciliation of the provision for income taxes to the amount computed
by applying the statutory income tax rate to income before income taxes is as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ONE MONTH
---------- ---------
DECEMBER 31, JUNE 30, JULY 31,
1994 1995 1995
------------ ---------- ---------
<S> <C> <C> <C>
Income taxes computed at statutory U.S.
federal income tax rates.................... $ (533,067) $ 70,005 $(55,080)
Limitation on (utilization of) NOL............ 473,479 (101,239) 50,080
State and local income taxes.................. 52,896 26,000 4,500
Permanent differences......................... 59,588 31,234 5,000
--------- --------- ---------
$ 52,896 $ 26,000 $ 4,500
========= ========= =========
</TABLE>
At June 30, 1995 and July 31, 1995, the Company has federal tax net
operating loss carry forwards of approximately $2,100,000 and $2,100,000,
respectively, which expire at various dates through 2008. Under section 382 of
the Internal Revenue Code of 1986, as amended, the utilization of net operating
loss carry forwards may be delayed or permanently lost if there has been a
cumulative change in ownership during the past three years of more than 50%.
Such a change occurred in August 1995 as described in Note 12. Therefore, the
annual limitation on the Company's net operating loss carry forward is
approximately $1,500,000.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-40
<PAGE> 145
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the Company's net deferred tax assets and liabilities
were as follows:
<TABLE>
<CAPTION>
JUNE 30,
1995
-----------
<S> <C>
Deferred tax assets:
Vacation accrual............................................................ $ (107,086)
Net operating loss carry forward............................................ (1,034,568)
Capital leases.............................................................. (880,088)
Leasehold rights............................................................ (55,191)
Allowance for bad debts..................................................... (292,621)
-----------
Gross deferred tax assets................................................ (2,369,554)
Valuation allowance........................................................... 2,369,554
-----------
Net deferred tax assets....................................................... --
Deferred tax liabilities...................................................... --
-----------
Net deferred tax liabilities.................................................. $ --
===========
</TABLE>
9. LEASES
The Company has noncancelable operating leases on substantially all of its
buildings and equipment which expire at various dates through the year 2003.
BI-1 and BI-2 lease sixteen facilities from Omega under the "Master Lease" and
"Texas Master Lease" Agreements.
The approximate future minimum rental commitments at December 31, 1994
under the operating leases are as follows:
<TABLE>
<S> <C>
1995.................................................... $ 8,098,047
1996.................................................... 7,804,644
1997.................................................... 7,886,491
1998.................................................... 7,901,301
1999.................................................... 7,910,753
Thereafter.............................................. 35,869,739
-----------
$ 75,470,975
===========
</TABLE>
Rent expense under operating leases was $8,263,642, $4,448,134 and $750,636
during the year ended December 31, 1994, the six months ended June 30, 1995 and
the one month ended July 31, 1995, respectively.
The lease terms are generally from eight to ten years with two or three
five-year renewal options. Minimum rentals increase annually based upon the
greater of 5.0% of incremental revenues or the Consumer Price Index, but limited
to a maximum annual increase of 3.5%. Upon exercise of a renewal option, the
rental payments continue in the same fashion as the original lease. The Company
and certain affiliated entities have options to purchase certain properties at
various times at prices determined by a specified formula. The Company and its
subsidiaries have guaranteed performance on the mortgages and lease payments to
Omega as discussed in Note 1 totaling $35,500,000 at December 31, 1994.
The lease payments are personally guaranteed to $13,500,000 by the chairman
of the board whose family trust is a majority shareholder of the Company, as
well as secured by substantially all the personal property and equity of the
Company. Lease rental payments are senior to all unsecured debt. The Company is
responsible for all taxes, maintenance and other executory costs.
F-41
<PAGE> 146
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Covenants to the Master Lease and Texas Master Lease include, but are not
limited to, current ratio requirements, cash flow to rent and debt service
requirements, minimum net worth requirements, and minimum cash requirements. In
March 1994, Omega consolidated and amended certain financial covenants related
to the Indiana and Texas Master Leases and the participating mortgages. Certain
payments to affiliates are subordinate to the lease payments made to Omega. As
of June 30, 1995, the Company was in compliance with these covenants.
10. RELATED PARTY TRANSACTIONS
BritWill HealthCare Company is a member of a group of affiliated companies
and has extensive transactions and relationships with members of the group.
Management of the Company believes that the terms of these transactions are not
materially different than those which would result from transactions among
wholly unrelated parties.
In December 1992, the Company entered into a transaction with BI-Indy in
which the Company exchanged 75% of its common stock for leasehold rights with a
value of $4,100,000. BI-Indy contributed furniture and equipment and $623,466 of
other costs incurred and capitalized as part of the transaction.
In December 1992, certain affiliates of a director of the Company loaned
the Company $400,000; and Whitehead Family Investments (WFI), a related party,
loaned the Company $2,075,000 which, combined with the director loan, is
recorded as subordinated long-term debt. The loans are subordinate to the lease
obligations on the Company's Indiana facilities. Interest expense on the loans
totaled $297,000 for 1994 and $148,500 and $28,875 for the six months ended June
30, 1995 and one month ended July 31, 1995, respectively. In addition, the
lenders are entitled to a minimum quarterly bonus. The expense for this bonus
agreement totaled $40,000 for 1994 and $20,000 for the six months ended June 30,
1995 and $3,333 for the one month ended July 31, 1995.
On December 23, 1993, an officer of the Company, loaned the Company
$70,000, at 12.0% annual interest, for working capital. The loan renewed a
$60,000 loan issued on October 23, 1993. At December 31, 1994, the outstanding
principal balance amounted to $49,000. Such principal balance was repaid in
1995. Interest expense on these loans amounted to approximately $5,880 in 1994.
In December 1993, the Company entered into a transaction with BI-TX in
which BI-TX contributed $2,800,000 of leasehold rights and $510,000 of working
capital to the Company in exchange for a note payable of $3,310,000. The
outstanding principal balance totaled $2,901,782 at June 30, 1995. Interest
expense on this loan amounted to approximately $226,476, $121,365 and $31,943
for the year ended December 31, 1994, for the six months ended June 30, 1995 and
for the one month ended July 31, 1995, respectively.
In December 1994, certain affiliates of a director of the Company loaned
the Company $1,500,000 at 12.0% annual interest. A portion of the loan,
$500,000, represents a renewal of a $250,000 loan issued on December 1, 1994.
Interest expense on these loans amounted to approximately $1,500 for the year
ended December 31, 1994, $85,562 for the six months ended June 30, 1995 and
$15,068 for the one month ended July 31, 1995.
On June 1, 1994, the Company renewed a $600,000 note payable (in addition
to the above mentioned note) to WFI for working capital at an annual interest
rate of 12.0%. The note was renewed from a loan of the same amount issued on
June 1, 1993. Interest expense on these loans amounted to $72,000, $36,000 and
$6,000 for the year ended December 31, 1994, the six months ended June 30, 1995
and the one month ended July 31, 1995, respectively.
The Company manages nursing homes owned by an affiliate. Management fee
revenues charged the affiliate totaled $251,186, $40,430 and $0 during the year
ended December 31, 1994, the six months ended June 30, 1995 and the one month
ended July 31, 1995, respectively.
F-42
<PAGE> 147
BRITWILL HEALTHCARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
Estimated third party settlements
Final determination of amounts earned under cost-reimbursed programs is
subject to review by appropriate governmental authorities or their agents. In
the opinion of management, adequate provision has been made for any adjustments
that could result from such reviews. In addition, the state of Indiana has
reviewed the Indiana Medicaid reimbursement structure. The ultimate impact to
healthcare providers in that state has been estimated and management believes
there will not be a material adverse effect on the financial position or results
of operations of the Company.
Medical malpractice and self-insured risks
The Company has obtained medical malpractice coverage with liability limits
of $5,000,000 per claim and in the aggregate. The Company has also obtained
workers' compensation coverage in Indiana but is uninsured with respect to
certain facilities located in Texas. The Company believes that the provision of
$20,550 recorded at June 30, 1995 for asserted and/or unasserted claims is
adequate based on historical results.
12. SUBSEQUENT EVENT
On August 10, 1995, Sunquest HealthCare Corporation, another long-term care
company operating approximately 21 facilities in eleven states, acquired the
Company's outstanding stock for a fixed payment of $26,000,000, plus contingent
amounts of up to approximately $9.8 million if the company achieves specified
revenue targets. The purchase price was comprised of two promissory notes
amounting to $19,000,000, in total, and a $7,000,000 noninterest bearing
convertible subordinated debenture.
In November 1995, a retroactive restatement and correction of the purchase
agreement reduced the fixed purchase price by $6,000,000. The purchase agreement
includes a related contingent purchase price obligation of up to $9,800,000
depending upon future revenues.
F-43
<PAGE> 148
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Signature Health Care Corporation:
We have audited the accompanying consolidated balance sheets of SIGNATURE
HEALTH CARE CORPORATION (a Delaware corporation) and subsidiaries as of December
31, 1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Signature Health Care
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
April 15, 1996
F-44
<PAGE> 149
SIGNATURE HEALTH CARE CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash and cash equivalents......................................... $ 274,992 $ 919,121
Patient accounts receivable, net of allowance for doubtful
accounts of $195,900 and $155,200 at December 31, 1995 and
1994............................................................ 3,663,958 1,641,216
Prepaid income taxes.............................................. -- 407,448
Inventory......................................................... 5,000 5,000
Other current assets.............................................. 160,073 164,704
Deferred tax asset................................................ 101,300 102,400
----------- -----------
Total current assets......................................... 4,205,323 3,239,889
Property and equipment, at cost................................... 18,264,010 18,020,293
Less-Accumulated depreciation................................... (1,490,542) (594,150)
----------- -----------
Net property and equipment................................... 16,773,468 17,426,143
Goodwill, net of accumulated amortization of $639,142 and $68,900
at December 31, 1995 and 1994................................... 2,005,744 2,576,027
Loan fees, net of accumulated amortization of $49,000 and $20,000
at December 31, 1995 and 1994................................... 275,330 304,288
Debt service reserve.............................................. 1,161,808 1,110,647
Receivables due from affiliates, net.............................. 495,031 --
Deposits and other................................................ 59,925 63,425
----------- -----------
Total other assets........................................... 3,997,838 4,054,387
----------- -----------
Total assets............................................ $24,976,629 $24,720,419
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt.............................. $ 198,994 $ 141,417
Accounts payable.................................................. 1,078,237 189,660
Accrued payroll, taxes and benefits............................... 354,714 676,374
Income taxes payable.............................................. 211,847 --
Accrued property taxes............................................ 87,683 92,336
Other accrued expenses............................................ 104,468 31,077
Unearned revenue.................................................. 96,402 121,016
----------- -----------
Total current liabilities.................................... 2,132,345 1,251,880
Deferred income taxes............................................. 2,939,553 3,219,753
Long-term debt, net of current maturities......................... 18,605,174 18,842,292
Payables due to affiliates, net................................... -- --
----------- -----------
Total liabilities....................................... 23,677,072 23,313,925
Common stock, $.01 par value; 1,200,000 shares authorized; 250,000
shares issued and outstanding................................... 2,500 2,500
Additional paid-in capital........................................ 1,610,600 1,610,600
Accumulated deficit from operations............................... (313,543) (206,606)
----------- -----------
Total stockholders' equity................................... 1,299,557 1,406,494
----------- -----------
Total liabilities and stockholders' equity.............. $24,976,629 $24,720,419
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-45
<PAGE> 150
SIGNATURE HEALTH CARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Sub-acute and rehabilitation.................................... $ 8,314,758 $ 4,151,426
Alzheimers care................................................. 1,493,735 1,129,135
Skilled nursing care............................................ 14,481,606 14,428,066
Miscellaneous services.......................................... 119,527 200,301
----------- -----------
Net patient revenue............................................. 24,409,626 19,908,928
Management fees................................................. -- 32,772
----------- -----------
Total revenue.............................................. 24,409,626 19,941,700
----------- -----------
Nursing services (including $2,365,582 and $583,911 at December
31, 1995 and 1994 to an affiliate)............................ 11,467,625 9,683,175
Dietary services................................................ 1,514,387 1,500,641
General services................................................ 2,890,000 3,053,090
Provision for bad debts......................................... 181,339 213,482
Management fees to an
affiliate..................................................... 4,725,703 2,301,848
Rent............................................................ 375,101 397,297
Interest, net of income of $96,959 and $90,041 at December 31,
1995
and 1994...................................................... 1,933,452 1,657,162
Depreciation and amortization................................... 1,495,634 1,078,710
----------- -----------
Total expenses............................................. 24,583,241 19,885,405
----------- -----------
(Loss) income before income taxes.......................... (173,615) 56,295
(Benefit) provision for income taxes....................... (66,678) 28,654
----------- -----------
Net (loss) income..................................... $ (106,937) $ 27,641
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-46
<PAGE> 151
SIGNATURE HEALTH CARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK
CONVERTIBLE -----------------------------
PREFERRED STOCK ADDITIONAL ACCUMULATED TOTAL
---------------------- PAID-IN EARNINGS/ STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
-------- ----------- ------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.... 700,000 $ 2,540,092 250,000 $2,500 $ 191,100 $ 1,391,792 $ 4,125,484
Net income.................... -- -- -- -- -- 27,641 27,641
Purchase of Preferred stock
and elimination of residual
interest in retained
earnings.................... (700,000) (2,540,092) -- -- 1,419,500 (1,626,039) (2,746,631)
-------- ----------- ------- ------ ---------- ----------- -----------
Balances at December 31, 1994... -- $ -- 250,000 $2,500 $1,610,600 $ (206,606) $ 1,406,494
Net loss...................... -- -- -- -- -- (106,937) (106,937)
-------- ----------- ------- ------ ---------- ----------- -----------
Balances at December 31, 1995... -- $ -- 250,000 $2,500 $1,610,600 $ (313,543) $ 1,299,557
======== =========== ======= ====== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-47
<PAGE> 152
SIGNATURE HEALTH CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income........................................................... $ (106,937) $ 27,641
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization............................................. 1,495,634 1,078,710
Provision for bad debts................................................... 181,339 213,482
Change in deferred taxes.................................................. (279,100) 73,591
Changes in non-cash working capital:
Patient accounts receivable............................................ (2,204,081) (421,724)
Prepaid income taxes................................................... 407,448 (407,448)
Inventory and other current assets..................................... 4,631 (54,280)
Accounts payable....................................................... 888,577 (149,569)
Accrued payroll, taxes and benefits.................................... (321,660) 118,214
Income taxes payable................................................... 211,847 (223,500)
Accrued property taxes and other accrued expenses...................... 68,738 (47,779)
Unearned revenue....................................................... (24,614) 33,213
----------- ------------
Net cash provided by operating activities.............................. 321,822 240,551
----------- ------------
Cash flows from investing activities:
Recognition of buyout net asset value....................................... -- (4,459,908)
Purchase of property and equipment.......................................... (243,718) (512,922)
Purchase of investments..................................................... (51,161) (17,739)
Purchase of goodwill........................................................ -- (2,644,885)
Increase in deferred taxes related to buyout................................ -- 2,778,543
Change in deposits and other assets......................................... 3,500 96,377
----------- ------------
Net cash used in investing activities.................................. (291,379) (4,760,534)
----------- ------------
Cash flows from financing activities:
Repayment of long-term debt................................................. (179,541) (11,462,055)
Receivables due from affiliates, net........................................ (495,031) --
Issuance of long-term debt.................................................. -- 19,100,000
Payment of loan fees........................................................ -- (324,297)
Purchase of preferred stock................................................. -- (2,746,631)
----------- ------------
Net cash (used in) provided by financing activities.................... (674,572) 4,567,017
----------- ------------
Net (decrease) increase in cash........................................ (644,129) 47,034
Cash and cash equivalents,
at beginning of year................................................. 919,121 872,087
----------- ------------
Cash and cash equivalents,
at end of year....................................................... $ 274,992 $ 919,121
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-48
<PAGE> 153
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) BUSINESS AND ORGANIZATION
Signature Health Care Corporation and its wholly owned subsidiaries (the
"Corporation") own, operate and manage skilled nursing centers providing
restorative, rehabilitative, and sub-acute services. As of December 31, 1995,
the Corporation owns six nursing homes and leases one for a total of seven
nursing homes with 602 total beds. The Corporation does business in Colorado and
Arizona. The Corporation's nursing homes are subject to licensing and regulation
of their services by various federal and state government agencies. The
Corporation incorporated in Delaware on October 12, 1987.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The accompanying consolidated financial statements include
the accounts of the Corporation and its wholly owned subsidiaries with all
significant intercompany accounts and transactions eliminated.
Cash and Cash Equivalents. Cash and cash equivalents include all
investments with an original maturity of three months or less.
Property and Equipment. Property and equipment are recorded at cost, with
depreciation computed on the straight-line method over the estimated useful
lives of depreciable assets which range from two to 40 years.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). SFAS
121 requires that the Corporation perform a review of long-lived assets and
goodwill related to those assets to assess whether an impairment of value
exists. If such an impairment does exist, the related assets must be written
down to fair value.
The Corporation is required to adopt SFAS 121 in fiscal 1996. Management
has not yet determined what the ultimate impact of adopting this new Statement
will be on the Corporation's financial position or results of operations.
Loan Fees. Loan fees amortize over the term of the related debt using the
effective interest method.
Net Patient Service Revenue and Accounts Receivable. Patient revenue is
reported at established rates or estimated net realizable amounts from
third-party payors or others for services rendered. Credit risk exists to the
extent that the Corporation's most significant source of revenue is
reimbursement for patient care from state-sponsored Medicaid programs and from
Medicare. However, management does not believe that there are significant credit
risks associated with these governmental agencies. Contractual adjustments
resulting from agreements with various organizations to provide services for
amounts which differ from billed charges, including services under Medicare and
Medicaid, are recorded as deductions from gross patient revenue. The estimated
third party payor settlements under Medicare and Medicaid programs are recorded
in the period the related services are rendered and are subject to audit and
final settlement by the fiscal intermediary. Differences between the net amounts
accrued and subsequent settlement, if any, are recorded in operations at the
time the final settlement is determined.
Until the year of settlement, accounts receivable are reduced for the
differences between recognized revenue and interim payments received from
third-party payors. The Corporation classifies these differences in
contra-accounts in accounts receivable as payable to Medicare and Medicaid
third-party payors until the year of settlement. These settlement amounts total
$1,084,000 and $586,000 as of December 31, 1995 and 1994, respectively.
F-49
<PAGE> 154
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company derived patient revenues from various sources in 1995 and 1994,
respectively, as follows:
(a) federal Medicare program (retrospectively reimbursing actual
allowable costs), 33% and 20%;
(b) negotiated contracts with various government agencies and private
insurance companies, 31% and 36%;
(c) private pay sources, 19% and 25%; and
(d) state Medicaid programs (prospectively reimbursing historical
allowable costs plus an inflation factor and profit factor), 17% and 19%.
Management Fees. During 1994 the Corporation provided accounting services
to a contracted therapy business. In return for its management services, the
Corporation received management fees in an amount equal to 3% of net revenue
plus its costs for providing accounting services.
Goodwill. Goodwill is being amortized over a five-year period.
Income Taxes. The Corporation accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109. "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires the use of an asset and liability
approach for measuring deferred taxes based on temporary differences between
financial statement and tax bases of assets and liabilities existing at each
balance date using enacted tax rates for years in which the related taxes are
expected to be paid or recovered.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(3) LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
10 year mortgage at 10.5% payable
monthly................................. $18,804,168 $18,983,709
Less current maturities................... (198,994) (141,417)
----------- -----------
$18,605,174 $18,842,292
========== ==========
</TABLE>
The property and equipment of the Corporation secure the current mortgage.
The mortgage contains a personal guarantee from a stockholder of the
Corporation. The mortgage contains various covenants including debt service
coverage, minimum current ratio, and restrictions on the payment of dividends.
The Corporation complied with the covenants throughout 1995 and 1994. Cash paid
for interest totaled $2,030,110 and $1,658,341 in 1995 and 1994, respectively.
Long-term debt maturing in the next five years follows:
<TABLE>
<S> <C>
1996.................................................... $ 198,994
1997.................................................... 220,924
1998.................................................... 245,271
1999.................................................... 272,301
2000.................................................... 302,309
Thereafter.............................................. 17,564,369
-----------
Total long-term debt.......................... $18,804,168
===========
</TABLE>
F-50
<PAGE> 155
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash, accounts
receivable, deposits/accounts payable and long-term borrowings approximate their
fair value. The fair value of the Corporation's long-term borrowings is
estimated by discounting future cash flows at current rates offered to the
Corporation for debt of comparable types and maturities. Because no market
exists for these financial instruments, considerable judgment is necessary in
interpreting the data to develop estimates of fair value. The use of different
market assumptions may have a material effect on the estimated fair value
amounts.
(5) EQUITY
The common stock carry certain rights, the more significant of which
follow.
Voting. Each share of common stock carry the right to one vote.
Options. The Corporation reserves 250,000 shares of authorized but
unissued common stock for issuance to employees upon exercise of stock purchase
options. As of December 31, 1995, granted options cover the purchase, of 113,800
shares of common stock, of which 90,000 shares have vested and 23,800 shares
vest upon completion of certain conditions, none of which had occurred as of
December 31, 1995. Activity related to granted options for the two years ended
December 31, 1995 follows:
<TABLE>
<CAPTION>
PRICE PER
SHARES SHARE
------- ---------------
<S> <C> <C>
Granted options at December 31, 1993............................... 107,000 --
Options granted.................................................. 6,800 $12.00
Cancelled options................................................ (3,000) --
-------
Granted options at December 31, 1994............................... 110,800 --
Options granted.................................................. 6,850 $25.00
Cancelled options................................................ (3,850) --
-------
Granted options at December 31, 1995............................... 113,800 --
=======
</TABLE>
(6) RELATED PARTY TRANSACTIONS
During 1993 the Corporation advanced $100,000 to an affiliated entity which
will provide physical, occupational, and speech therapy services to the
Corporation and others. This advance was outstanding during 1993 and 1994.
During 1995 the Corporation incurred and paid for management and
rehabilitation services from an entity having common owners.
(7) COMMITMENTS AND CONTINGENCIES
The Corporation leases a nursing home, on a ten year base term expiring in
2000, under which the Corporation possesses (1) the right to renew for one
additional 5 year term and (2) the option to purchase the nursing home through
the end of the base term. The lease provides for certain restrictions on the
maintenance and operation of the nursing home and an annual 2% escalation in the
base rent.
The Corporation also leases office space for its corporate office, on a
year to year basis, under which the Corporation possesses the right to renew for
additional one year terms.
F-51
<PAGE> 156
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Both leases are treated as operating leases, future lease payments follow:
<TABLE>
<S> <C>
1996..................................................... $ 381,152
1997..................................................... 374,370
1998..................................................... 380,736
1999..................................................... 387,648
2000..................................................... 361,152
----------
Total base term rent........................... $1,885,058
==========
</TABLE>
The Corporation has been named as a defendant in certain litigation.
Corporation management believes amounts which may become payable, if any,
pursuant to such litigation, will be covered by the Corporation's insurance
policies.
(8) INCOME TAXES
The Corporation accounts for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of events which have been included in
the financial statement or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Deferred taxes liability as of December 31, 1995 and 1994 are comprised of
the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Tax credit........................................ $ -- 13,000
Accrued liabilities and allowances................ 101,300 89,400
----------- -----------
Total current deferred tax asset............. 101,300 102,400
----------- -----------
Depreciation and amortization..................... (601,100) (441,200)
Basis step-up (see Note 9)........................ (2,338,500) (2,778,500)
----------- -----------
Total noncurrent deferred tax liability...... (2,939,600) (3,219,700)
----------- -----------
Total net deferred taxes................ $(2,838,300) $(3,117,300)
=========== ===========
</TABLE>
The Corporation did not record any valuation allowances against the
deferred tax asset at December 31, 1995 and 1994, as the Corporation's
management believes that it is more likely than not that the asset will be
realized. Cash paid for income taxes totaled $0 and $462,000 in 1995 and 1994
respectively.
The components of the income tax provision (benefit) consist of the
following:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Federal............................................... $ 195,484 $ 44,533
State................................................. 43,275 9,859
--------- --------
Current income tax provision........................ 238,759 54,392
--------- --------
Federal............................................... (250,077) (21,072)
State................................................. (55,360) (4,666)
--------- --------
Deferred income tax provision (benefit)............. (305,437) (25,738)
--------- --------
Total income tax provision (benefit)............. $ (66,678) $ 28,654
========= ========
</TABLE>
F-52
<PAGE> 157
SIGNATURE HEALTH CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the Corporation's effective income tax rates and the
statutory rates are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1995 1994
--------- --------
<S> <C> <C>
Statutory federal income tax expense (benefit)........ $ (59,025) $ 19,140
Increases (decreases) resulting from:
State tax expense (benefit) net of federal
benefit.......................................... (8,681) 2,815
Nondeductible expenses.............................. 5,659 6,115
Other............................................... (4,631) 584
--------- --------
Income tax expense (benefit).......................... $ (66,678) $ 28,654
========= ========
</TABLE>
(9) BUY OUT OF PREFERRED STOCKHOLDERS
On March 30, 1994, the Corporation completed new long-term financing. The
proceeds were used to retire all existing debt, create a minimum debt service
reserve, and redeem all outstanding convertible preferred stock, which had
rights which made it essentially equivalent to common stock and comprised
approximately 67% of the Corporation's equity ownership.
Because a substantive change in control occurred, a proportional share of
the Corporation's net assets were revalued based on the monetary consideration
paid to the preferred shareholders and the assets applicable to common
stockholders' residual interest were carried forward at historical cost, net of
related valuation and allowance accounts.
The transaction resulted in an increase in property and equipment of
approximately $4.4 million, goodwill of $2.6 million, deferred tax liability of
$2.8 million as no step-up in basis was allowed for tax purposes, and the
elimination of retained earnings and an increase in paid-in capital.
The depreciation and amortization related to the increase in property and
equipment and goodwill referred to above totalled $233,350 in 1994 and
$1,210,111 in 1995.
(10) SUBSEQUENT EVENT
On August 2, 1996, the Corporation entered into an agreement and plan of
merger with Unison HealthCare Corporation ("Unison"). Through the merger the
Corporation will become a wholly owned subsidiary of Unison. Outstanding shares
of the Corporation will be converted into the right to receive, subject to
certain adjustments, cash equal to $10,200,000 and shares of Unison's common
stock equal to approximately $20,000,000. The merger is subject to regulatory
and shareholder approval.
F-53
<PAGE> 158
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Arkansas, Inc., Cornerstone Care, Inc., Douglas Manor, Inc., and Safford Care,
Inc.:
We have audited the accompanying combined balance sheet of ARKANSAS, INC.,
CORNERSTONE CARE, INC., DOUGLAS MANOR, INC., and SAFFORD CARE, INC. (Colorado
corporations) as of December 31, 1995, and the related combined statements of
operations, stockholders' equity and cash flows for the period from inception,
May 9, 1995 through December 31, 1995. These financial statements are the
responsibility of each Corporation's management. Our responsibility is to
express an opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Arkansas, Inc.,
Cornerstone Care, Inc., Douglas Manor, Inc., and Safford Care, Inc. as of
December 31, 1995, and the combined results of their operations and their cash
flows for the period from inception through December 31, 1995 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
April 15, 1996
F-54
<PAGE> 159
ARKANSAS, INC., CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND SAFFORD CARE, INC.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER
31, 1995
----------
<S> <C>
ASSETS
Cash and cash equivalents........................................................ $ 313,198
Patient accounts receivable, net of allowance for doubtful accounts of $23,000... 2,382,353
Inventory........................................................................ --
Other current assets............................................................. 3,483
----------
Total current assets........................................................ 2,699,034
Equipment........................................................................ 800,995
Leasehold improvements........................................................... 167,695
----------
Property and equipment, at cost................................................ 968,690
Less -- Accumulated depreciation............................................... (54,314)
----------
Net property and equipment.................................................. 914,376
Deposits and other............................................................... 70,605
Prepaid rent..................................................................... 209,587
----------
Total other assets.......................................................... 280,192
----------
Total assets........................................................... $3,893,602
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of capitalized lease............................................. $ 48,003
Accounts payable................................................................. 430,382
Accrued payroll, taxes and benefits.............................................. 312,124
Property taxes payable........................................................... 48,015
Other accrued expenses........................................................... 4,905
Unearned revenue................................................................. 30,550
----------
Total current liabilities................................................... 873,979
Deferred rent............................................................... 91,428
Capitalized lease, net of current portion................................... 668,940
Amounts due affiliates...................................................... 1,579,209
----------
Total liabilities........................................................... 3,213,556
Common stock, $.01 par value; 400,000 shares authorized; 4,000 shares issued and
outstanding.................................................................... 4,000
Additional paid-in capital....................................................... 377,000
Distributions to stockholders.................................................... (406,000)
Accumulated earnings from operations............................................. 705,046
----------
Total stockholders' equity.................................................. 680,046
----------
Total liabilities and stockholders' equity............................. $3,893,602
=========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-55
<PAGE> 160
ARKANSAS, INC., CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND SAFFORD CARE, INC.
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Sub-acute and rehabilitation.................................................. $1,965,605
Alzheimers care............................................................... 1,063,937
Skilled nursing care.......................................................... 5,449,292
Miscellaneous services........................................................ 161,906
-----------
Total revenue............................................................ 8,640,740
-----------
Nursing services ($467,124 paid to an affiliate).............................. 4,286,037
Dietary services.............................................................. 634,946
General services.............................................................. 1,213,308
Provision for bad debts....................................................... 55,624
Management fees paid to an affiliate.......................................... 797,900
Rent.......................................................................... 860,211
Interest, net of income of $2,600............................................. 33,354
Depreciation and amortization................................................. 54,314
-----------
Total expenses........................................................... 7,935,694
-----------
Net income.......................................................... $ 705,046
===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-56
<PAGE> 161
ARKANSAS, INC., CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND SAFFORD CARE, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
ADDITIONAL DISTRIBUTIONS ACCUMULATED TOTAL
PAID-IN TO EARNINGS/ STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS (DEFICIT) EQUITY
------ ------ ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Arkansas, Inc. ................... 1,000 $1,000 $ -- $ -- $ -- $ 1,000
Cornerstone Care, Inc. ........... 1,000 1,000 -- -- -- 1,000
Douglas Manor, Inc. .............. 1,000 1,000 -- -- -- 1,000
Safford Care, Inc. ............... 1,000 1,000 -- -- -- 1,000
------- -------
---- -
----------
Purchase of common stock..... 4,000 4,000 -- -- -- 4,000
Douglas Manor, Inc. .............. -- -- 259,000 -- -- 259,000
Safford Care, Inc. ............... -- -- 118,000 -- -- 118,000
------- -------
---- -
----------
Additional capital
contributions.............. -- -- 377,000 -- -- 377,000
Arkansas, Inc. ................... -- -- -- -- 442,759 442,759
Cornerstone Care, Inc. ........... -- -- -- -- 170,237 170,237
Douglas Manor, Inc. .............. -- -- -- -- (58,419) (58,419)
Safford Care, Inc. ............... -- -- -- -- 150,469 150,469
------- -------
---- -
----------
Net Income................... -- -- -- -- 705,046 705,046
Arkansas, Inc. ................... -- -- -- (318,000) -- (318,000)
Cornerstone Care, Inc. ........... -- -- -- (88,000) -- (88,000)
------- -------
---- -
----------
Distributions to
stockholders............... -- -- -- (406,000) -- (406,000)
------- -------
---- -
----------
Balances at December 31, 1995..... 4,000 $4,000 $377,000 $ (406,000) $ 705,046 $ 680,046
=========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-57
<PAGE> 162
ARKANSAS, INC., CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND SAFFORD CARE, INC.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Cash flows from operating activities:
Net income.............................................................. $ 705,046
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization......................................... 54,314
Provision for bad debts............................................... 55,624
Deferred rent expense................................................. 91,428
Changes in non-cash working capital:
Patient accounts receivable........................................ (2,437,977)
Inventory and other current assets................................. (213,070)
Accounts payable................................................... 430,382
Accrued payroll, taxes and benefits................................ 312,124
Property taxes payable and other accrued expenses.................. 52,920
Unearned revenue................................................... 30,550
-----------
Net cash used in operating activities............................ (918,659)
-----------
Cash flows from investing activities:
Purchase of property and equipment...................................... (229,455)
Change in deposits and other assets..................................... (70,605)
-----------
Net cash used in investing activities................................. (300,060)
-----------
Cash flows from financing activities:
Sale of common stock.................................................... 4,000
Amortization of lease obligation........................................ (22,292)
Amounts due to affiliates, net.......................................... 1,579,209
Additional paid in capital.............................................. 377,000
Distributions to stockholders........................................... (406,000)
-----------
Net cash provided by financing activities........................ 1,531,917
-----------
Net increase in cash and cash equivalents..................... 313,198
Cash and cash equivalents, at beginning of year............... $ --
===========
Cash and cash equivalents at end of year...................... $ 313,198
===========
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of capitalized equipment lease............................ $ 739,235
===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-58
<PAGE> 163
ARKANSAS, INC.,
CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND
SAFFORD CARE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) BUSINESS AND ORGANIZATION
Arkansas, Inc., Cornerstone Care, Inc., Douglas Manor, Inc., and Safford
Care, Inc. (the "Sub-S Corporations"), operate skilled nursing centers providing
restorative, rehabilitative, and sub-acute services and assisted living centers
providing supervisory nursing services. As of December 31, 1995, the Sub-S
Corporations lease four nursing homes and two assisted living centers with 579
total beds. The Sub-S Corporations do business in Colorado and Arizona. The
Sub-S Corporations' nursing homes and assisted living centers are subject to
licensing and regulation of their services by various federal and/or state
government agencies. The Sub-S Corporations incorporated in Colorado on May 9,
1995.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Combination. The accompanying combined financial statements include the
accounts of the Sub-S Corporations, which all have common ownership, with all
significant intercompany accounts and transactions eliminated.
Cash and Cash Equivalents. Cash and cash equivalents include all
investments with an original maturity of three months or less.
Property and Equipment. Property and equipment are recorded at cost, with
depreciation computed on the straight-line method over the estimated useful
lives of depreciable assets which range from three to ten years.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). SFAS
121 requires that the Sub-S Corporations perform a review of long-lived assets
to assess whether an impairment of value exists. If such an impairment does
exist, the related assets must be written down to fair value.
The Sub-S Corporations are required to adopt SFAS 121 in fiscal 1996.
Management has not yet determined what the ultimate impact of adopting this new
Statement will be on the Sub-S Corporations' financial position or results of
operations.
Net Patient Service Revenue and Accounts Receivable. Patient revenue is
reported at established rates or estimated net realizable amounts from
third-party payors or others for services rendered. Credit risk exists to the
extent that the Sub-S Corporations' most significant source of revenue is
reimbursement for patient care from state-sponsored Medicaid programs and from
Medicare. However, management does not believe that there are significant credit
risks associated with these governmental agencies. Contractual adjustments
resulting from agreements with various organizations to provide services for
amounts which differ from billed charges, including services under Medicare and
Medicaid, are recorded as deductions from gross patient revenue. The estimated
third party payor settlements under Medicare and Medicaid programs are recorded
in the period the related services are rendered and are subject to audit and
final settlement by the fiscal intermediary. Differences between the net amounts
accrued and subsequent settlement, if any, are recorded in operations at the
time the final settlement is determined.
Until the year of settlement, accounts receivable are reduced for the
differences between recognized revenue and interim payments received from
third-party payors. The Sub-S Corporations classify these
F-59
<PAGE> 164
ARKANSAS, INC.,
CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND
SAFFORD CARE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
differences in contra-accounts in accounts receivable as payable to Medicare and
Medicaid third-party payors until the year of settlement. These settlement
amounts total $114,550 as of December 31, 1995.
The Sub-S Corporations derived patient revenues from various sources in
1995, as follows:
(a) state Medicaid programs (prospectively reimbursing historical
allowable costs plus an inflation factor and profit factor), 42%;
(b) federal Medicare program (retrospectively reimbursing actual
allowable costs), 22%;
(c) negotiated contracts with various government agencies and private
insurance companies, 21%; and
(d) private pay sources, 15%.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash, accounts
receivable, deposits/accounts payable and long-term borrowings approximate their
fair value. The fair value of the Sub-S Corporation's long-term borrowings is
estimated by discounting future cash flows at current rates offered to the Sub-S
Corporations for debt of comparable types and maturities. Because no market
exists for these financial instruments, considerable judgment is necessary in
interpreting the data to develop estimates of fair value. The use of different
market assumptions may have a material effect on the estimated fair value
amounts.
(4) COMMITMENTS AND CONTINGENCIES
The Sub-S Corporations lease nursing homes and assisted living centers, on
a ten year base term expiring in 2005, under which the Sub-S Corporations
possess (1) the right to renew for three additional 10 year terms and (2) the
option to purchase the nursing homes and assisted living centers through the end
of the base term and any renewals. The leases provide for certain restrictions
on the maintenance and operation of the nursing homes and assisted living
centers and an annual 2.5% escalation in the base rent. Future lease payments
follow:
<TABLE>
<S> <C>
1996.................................................... $ 1,642,264
1997.................................................... 1,683,320
1998.................................................... 1,725,403
1999.................................................... 1,768,538
2000.................................................... 1,812,752
Thereafter.............................................. 8,729,428
-----------
Total base term rent.......................... $17,361,705
===========
</TABLE>
For financial reporting purposes leases are treated as operating leases
and, for financial reporting purposes, the applicable future lease payments are
being recognized on a straight-line allocation basis. The property and equipment
of the Sub-S Corporations secure the leases. The leases contain various
covenants
F-60
<PAGE> 165
ARKANSAS, INC.,
CORNERSTONE CARE, INC.,
DOUGLAS MANOR, INC., AND
SAFFORD CARE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
including completion of capital additions. The Sub-S Corporations complied with
the covenants throughout 1995.
(5) RELATED PARTY TRANSACTIONS
The Sub-S Corporations incurred and paid for management and rehabilitation
services from an entity having common ownership.
(6) INCOME TAXES
The Sub-S Corporations elected and have been granted S corporation status
under the regulations of the Internal Revenue Service. Under these regulations,
The Sub-S Corporations' taxable income is divided among, and passed through to,
its stockholders. Therefore, the Sub-S Corporations do not account for income
taxes and deferred tax assets or liabilities.
(7) SUBSEQUENT EVENT
On August 2, 1996 the Sub-S Corporations entered into agreements and plans
of merger with Unison HealthCare Corporation ("Unison"). Through the mergers the
Sub-S Corporations will become wholly owned subsidiaries of Unison. Outstanding
shares of the Sub-S Corporations will be converted into the right to receive,
subject to certain adjustments, cash equal to approximately $28,000,000. The
merger agreements are subject to regulatory and shareholder approval.
F-61
<PAGE> 166
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of RehabWest, Inc.:
We have audited the accompanying balance sheets of RehabWest, Inc. (a S
corporation), as of December 31, 1995 and 1994, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RehabWest, Inc., as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
ANDERSON & WHITNEY, P.C.
Greeley, Colorado
September 27, 1996
F-62
<PAGE> 167
REHABWEST, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Cash................................................................... $153,867 $ 22,397
Related party accounts receivable.................................... 309,896 111,793
Accounts receivable.................................................. 2,273 209,942
Bad debt allowance................................................... (36,868) (46,797)
-------- --------
Accounts receivable, net............................................... 275,301 274,938
Prepaid expenses....................................................... 4,387 5,194
-------- --------
Total current assets.............................................. 433,555 302,529
Equipment.............................................................. 11,315 2,748
Accumulated depreciation............................................... (6,288) (458)
-------- --------
Equipment, net......................................................... 5,027 2,290
Other assets........................................................... 595 0
-------- --------
TOTAL ASSETS................................................. $439,177 $304,819
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable....................................................... $ 4,542 $ 7,513
Accrued wages.......................................................... 120,914 114,319
Accrued payroll related................................................ 92,994 28,974
Income taxes payable................................................... 0 7,433
Amounts owed to related party.......................................... 122,923 165,350
-------- --------
TOTAL LIABILITIES............................................ 341,373 323,589
Common stock, no par, 1,000,000 shares authorized, 340,000 shares
issued and outstanding............................................... 340 340
Accumulated earnings/(deficit)......................................... 97,464 (19,110)
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................... 97,804 (18,770)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $439,177 $304,819
======== ========
</TABLE>
See Accompanying Notes to Financial Statements
F-63
<PAGE> 168
REHABWEST, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Physical therapy.................................................... $1,309,515 $ 432,240
Speech therapy...................................................... 728,919 274,664
Occupational therapy................................................ 1,342,792 384,514
---------- ----------
TOTAL REVENUE............................................. 3,381,226 1,091,418
---------- ----------
Direct labor and related............................................ 1,999,919 630,537
Contracted labor.................................................... 248,257 106,902
Supplies and other.................................................. 54,738 15,001
---------- ----------
COST OF SERVICES RENDERED........................................... 2,302,914 752,440
---------- ----------
GROSS PROFIT........................................................ 1,078,312 338,978
---------- ----------
Labor and related................................................... 522,704 219,827
Supplies and other.................................................. 113,707 35,810
Related party accounting fee........................................ 301,038 32,772
Bad debts........................................................... 0 48,614
---------- ----------
Total administrative expenses..................................... 937,449 337,023
Interest expense.................................................... 8,862 7,363
Interest income..................................................... (890) (975)
---------- ----------
Interest, net....................................................... 7,972 6,388
Office rent......................................................... 10,487 6,446
Depreciation and amortization....................................... 5,830 798
---------- ----------
Total general expenses, net....................................... 24,289 13,632
---------- ----------
TOTAL INDIRECT EXPENSES................................... 961,738 350,655
---------- ----------
EARNINGS/(LOSS) BEFORE INCOME TAX................................... 116,574 (11,677)
INCOME TAXES........................................................ 0 7,433
---------- ----------
NET INCOME/(LOSS)......................................... $ 116,574 $ (19,110)
========== ==========
</TABLE>
See Accompanying Notes to Financial Statements
F-64
<PAGE> 169
REHABWEST, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
EARNINGS/ STOCKHOLDERS'
SHARES AMOUNT (DEFICIT) EQUITY
------- ------ ----------- ------------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1993................... 340,000 $340 $ 0 $ 340
Net loss...................................... 0 0 (19,110) (19,110)
------- ---- -------- --------
BALANCES AT DECEMBER 31, 1994................... 340,000 340 (19,110) (18,770)
Net income.................................... 0 0 116,574 116,574
------- ---- -------- --------
BALANCES AT DECEMBER 31, 1995................... 340,000 $340 $ 97,464 $ 97,804
======= ==== ======== ========
</TABLE>
See Accompanying Notes to Financial Statements
F-65
<PAGE> 170
REHABWEST, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss).................................................. $ 116,574 $ (19,110)
Adjustments to reconcile net income/(loss) to net cash provided
by/(used in) operating activities:
Depreciation and amortization................................... 5,830 798
Provision for bad debts......................................... (9,929) 46,797
Changes in non-cash working capital:
Accounts receivable............................................. 9,566 (321,735)
Prepaid expenses................................................ 807 (5,194)
Accounts payable................................................ (2,971) 7,513
Accrued wages................................................... 64,020 28,974
Accrued payroll related......................................... 6,595 114,319
Income taxes payable............................................ (7,433) 7,433
Related party payable........................................... 57,573 65,350
--------- ---------
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES.................. 240,632 (74,855)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment.............................................. (8,567) (2,748)
Change in other assets............................................. (595) 0
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES................................ (9,162) (2,748)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party notes payable.......................... 60,000 100,000
Principal payments on related party notes payable.................. (160,000) 0
--------- ---------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES.................. (100,000) 100,000
--------- ---------
NET INCREASE/(DECREASE) IN CASH...................................... 131,470 22,397
CASH, AT BEGINNING OF YEAR........................................... 22,397 0
--------- ---------
CASH, AT END OF YEAR................................................. $ 153,867 $ 22,397
========= =========
</TABLE>
See Accompanying Notes to Financial Statements
F-66
<PAGE> 171
REHABWEST, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) BUSINESS AND ORGANIZATION
RehabWest, Inc., (the "Corporation") provides and manages Physical, Speech,
and Occupational Therapy ("Therapy") programs in health care centers,
predominantly, skilled nursing centers. As of December 31, 1995, the Corporation
provided services to nine skilled nursing homes in Colorado (5) and Arizona (4),
previously on December 31, 1994, the Corporation provided services to ten
skilled nursing homes, one psychiatric medical center, one developmentally
disabled medical center, and one home health agency in Colorado (11) and Arizona
(2). RehabWest earns a significant portion of its revenue from health care
centers owned by entities having common owners (see Note 5 below). The
Corporation's employees are subject to licensing and regulation by various state
government agencies and the provision of Therapies in health care centers is
regulated by various federal and state government agencies. The Corporation
incorporated in Colorado on November 22, 1993, and began business operations in
January of 1994.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash. Cash and cash equivalents include all investments with an original
maturity of three months or less.
Equipment. Equipment is recorded at cost, with depreciation computed on
the straight-line method over the estimated useful lives of the depreciable
assets.
Net Therapy Revenue and Accounts Receivable. Revenue is reported at
established rates or estimated net realizable amounts from private payors.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash, accounts
receivable, accounts payable, and borrowings approximate their fair value.
Because no market exists for these financial instruments, considerable judgment
is necessary in interpreting the data to develop estimates of fair value. The
use of different market assumptions may have a material effect on the estimated
fair value amounts.
(4) EQUITY
The common stock carries certain rights, the more significant of which is
that each share carries the right to one vote. The Corporation reserves 70,000
shares of authorized but unissued common stock for issuance to employees upon
exercise of stock purchase options. No options were granted during 1994. As of
December 31, 1995, granted options covering the purchase of 20,000 shares of
common stock at $16.04 per share, which vest upon completion of certain
conditions, none of which had occurred as of December 31, 1995.
(5) RELATED PARTY TRANSACTIONS
During 1995 and 1994, the Corporation earned 83% and 53%, respectively, of
its revenue from health care centers owned by entities having common owners with
RehabWest. The Corporation bills and accrues revenue the same at both related
party and non-related party health care centers.
During 1995 and 1994, the Corporation incurred and paid for accounting
services to an entity having common owners with RehabWest.
F-67
<PAGE> 172
REHABWEST, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1994 the Corporation received an advance of $100,000 and during 1995
an advance of $60,000 at 8% from entities having common owners with RehabWest.
These advances were paid back during 1995. Cash paid for interest totaled $8,884
and $7,341 in 1995 and 1994 respectively.
(6) COMMITMENTS AND CONTINGENCIES
The Corporation leases office space for its corporate office, on a year to
year basis. The lease is treated as an operating lease. The future base lease
payments of exercised terms as of December 31, 1994 and 1995, was immaterial.
(7) INCOME TAXES
During 1994 the Corporation was classified as a "C" corporation by the
Internal Revenue Service (IRS) and accounted for income taxes under the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"), which requires recognition of deferred tax
assets and liabilities for the expected future income tax consequences of events
which have been included in the financial statement or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
The net deferred tax asset as of December 31, 1994, was comprised of the
following.
<TABLE>
<CAPTION>
1994
-------
<S> <C>
Allowances for bad debts................................................... $ 9,360
-------
Total current deferred tax asset........................................... 9,360
-------
Deferred tax asset valuation allowance..................................... (9,360)
-------
Total net deferred taxes................................................... $ 0
=======
</TABLE>
The components of the income tax provision consist of the following.
<TABLE>
<CAPTION>
1994
-------
<S> <C>
Federal.................................................................... $ 5,576
State...................................................................... 1,857
-------
Current income tax provision............................................... 7,433
-------
Federal.................................................................... 0
State...................................................................... 0
-------
Deferred income tax provision.............................................. 0
-------
Total income tax provision................................................. $ 7,433
=======
</TABLE>
On January 1, 1995, the stockholders of the Corporation filed an election
with, which was granted by, the IRS for classification as a "S" corporation.
Under these regulations, the Corporation's taxable income is divided among, and
passed through to, its stockholders. Therefore, the Corporation does not account
for income taxes and deferred tax assets or liabilities after December 31, 1994.
Cash paid for income taxes totaled $7,433 and $0 in 1995 and 1994, respectively.
(8) RETIREMENT PLAN
The Corporation has a 401(k) savings plan that covers substantially all
employees who have attained age 21 and completed six months of service. Employer
contributions are at the discretion of the Board of
F-68
<PAGE> 173
REHABWEST, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Directors. Employees become fully-vested after seven years of service for
employer contributions. There were no employer contributions for 1995 or 1994.
(9) CONCENTRATION OF CREDIT RISK
At December 31, 1994, the Corporation had accounts receivable of $200,553
from four customers. Each of these customer's balances at year end exceeded 10%
of the Corporation's total accounts receivable. The Corporation's policy is to
not obtain collateral on accounts receivable.
At December 31, 1995, the Corporation had various cash accounts totaling
$153,867 in one commercial bank located in Greeley, Colorado. The cash balances
are secured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000.
(10) SUBSEQUENT EVENTS
On March 1, 1996, all the outstanding shares of the Corporation were sold,
by the then current stockholders, to the President of the Corporation. The new
shareholder of the Corporation is unrelated to the previous owners of the
Corporation's shares.
In September of 1996, the Corporation reached an agreement in principal to
merge with Unison HealthCare Corporation ("Unison"). Through the merger the
Corporation will become a wholly owned subsidiary of Unison. Outstanding shares
of the Corporation will be sold for cash. The merger is subject to negotiation
of a definitive agreement, regulatory approval, and shareholder approval.
F-69
<PAGE> 174
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Henderson & Associates Rehabilitation and
Sunbelt Therapy Management Services, Inc.
We have audited the accompanying combined statements of operations and
stockholders' equity and cash flows of Henderson & Associates Rehabilitation and
Sunbelt Therapy Management Services, Inc. for the years ended December 31, 1995
and 1994. These financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined results of operations and cash
flows of Henderson & Associates Rehabilitation and Sunbelt Therapy Management
Services, Inc. for the years ended December 31, 1995 and 1994 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
May 16, 1996
Phoenix, Arizona
F-70
<PAGE> 175
HENDERSON & ASSOCIATES REHABILITATION
AND
SUNBELT THERAPY MANAGEMENT SERVICES, INC.
COMBINED STATEMENTS OF OPERATIONS AND
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Net Patient Service Revenue....................................... $4,803,845 $3,965,529
Operating Expenses:
Salaries and related expenses................................... 3,710,351 2,840,249
Contract labor.................................................. 382,612 345,843
Insurance....................................................... 202,814 230,980
Office supplies and expenses.................................... 127,262 88,902
Rent............................................................ 59,497 57,130
Travel.......................................................... 156,166 100,015
Other........................................................... 92,892 82,754
Depreciation.................................................... 34,741 17,387
Interest........................................................ 12,335 6,651
---------- ----------
Total operating expenses................................ 4,778,670 3,769,911
---------- ----------
Income from operations............................................ 25,175 195,618
Nonoperating losses............................................... (39,744) (46,626)
---------- ----------
Net (loss) income................................................. (14,569) 148,992
Distributions to stockholders..................................... (150,319) (83,541)
Retained earnings at beginning of period.......................... 234,578 169,127
---------- ----------
Retained earnings at end of period................................ $ 69,690 $ 234,578
========== ==========
</TABLE>
See accompanying notes.
F-71
<PAGE> 176
HENDERSON & ASSOCIATES REHABILITATION
AND
SUNBELT THERAPY MANAGEMENT SERVICES, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income................................................ $ (14,569) $ 148,992
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Depreciation.................................................. 34,741 17,387
Loss on partnership investment................................ 16,278 22,457
Loss on disposal of assets.................................... 23,466 24,167
Changes in operating assets and liabilities:
Accounts receivable, net...................................... (128,913) 9,967
Accounts payable.............................................. 9,593 14,730
Other accrued expenses and liabilities........................ 177,420 66,649
Customer deposits............................................. (731) 28,067
--------- ---------
Net cash provided by operating activities................ 117,285 332,416
INVESTING ACTIVITIES
Purchases of property and equipment.............................. (7,280) (144,915)
Changes in other assets.......................................... (21,910) (28,969)
--------- ---------
Net cash used in investing activities.................... (29,190) (173,884)
FINANCING ACTIVITIES
Proceeds from long-term debt..................................... 201,460 99,497
Payments of long-term debt and capital lease obligation.......... (131,315) (92,327)
Distributions to stockholders.................................... (150,319) (83,541)
--------- ---------
Net cash used in financing activities.................... (80,174) (76,371)
--------- ---------
Increase in cash................................................. 7,921 82,161
CASH at beginning of period...................................... 61,858 (20,303)
--------- ---------
CASH at end of period............................................ $ 69,779 $ 61,858
========= =========
</TABLE>
See accompanying notes.
F-72
<PAGE> 177
HENDERSON & ASSOCIATES REHABILITATION
AND
SUNBELT THERAPY MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Henderson & Associates Rehabilitation (HAR) and Sunbelt Therapy Management
Services, Inc. (Sunbelt) provide a variety of therapy services to patients, and
contract their services to hospitals, home health agencies and other
third-parties.
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Henderson &
Associates Rehabilitation and Sunbelt Therapy Management Services, Inc. All
significant intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
DEPRECIATION
Depreciation of property and equipment is calculated using the
straight-line method over the estimated useful lives of the assets. Routine
maintenance and repairs are charged to expenses as incurred.
INCOME TAXES
HAR and Sunbelt are S corporations, and taxable income or loss flows
through to the individual stockholders for income tax purposes. Accordingly, no
provision for income taxes or income tax liabilities has been included in the
accompanying combined financial statements.
NET PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated realizable amounts
from patients, third-party payors and others for services rendered. HAR and
Sunbelt have negotiated agreements with several organizations to provide therapy
services based on fee schedules.
F-73
<PAGE> 178
HENDERSON & ASSOCIATES REHABILITATION
AND
SUNBELT THERAPY MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
2. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION
Long-term debt and capital lease obligation consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Lines of credit.................................................... $ 65,050 $ 18,000
Note payable to a bank, due in monthly installments of $1,421,
interest at 1% above prime through November 1996................. -- 30,003
Note payable to a bank in monthly installments of $1,282, interest
at 1% above prime through October 1997........................... -- 31,510
Note payable to a credit union in monthly installments of $680,
interest at 7.11% through December 1997.......................... -- 22,000
Note payable to a bank, due in monthly installments of $2,245,
interest at 8.25% through November 1998.......................... 69,638 --
Note payable to a bank, due in monthly installments of $3,100,
interest at .5% above the average yield of U.S. Treasury Bills
through May 1996, at which time a final installment in the amount
of the unpaid balance is due..................................... 46,785 --
Capital lease obligation in monthly installments of $818........... 5,725 15,540
--------- ---------
187,198 117,053
Less current portion............................................... (139,580) (65,996)
--------- ---------
$ 47,618 $ 51,057
========= =========
</TABLE>
HAR has negotiated a $35,000 line of credit with a bank at an interest rate
of 1% over the prime rate.
Sunbelt has negotiated a $50,050 line of credit with a bank at an interest
rate of .5% over the bank's Base Lending Rate (8.5% at December 31, 1995).
Both lines of credit are secured by personal guarantees of the
stockholders.
Sunbelt has a capital lease for physical therapy equipment with a bargain
purchase option upon completion of the lease. At December 31, 1995, the leased
equipment, which is included in property and equipment in the accompanying
combined balance sheet, is carried at a cost of $21,310 less accumulated
depreciation of $6,038.
The lease expires in June 1996.
The following is a schedule of principal maturities of long-term debt and
capital lease obligation at December 31, 1995:
<TABLE>
<S> <C>
1996............................................................ $139,580
1997............................................................ 23,907
1998............................................................ 23,711
--------
$187,198
========
</TABLE>
3. RELATED PARTIES
HAR and Sunbelt share employees and expenses with several organizations of
which the stockholders are owners. However, HAR and Sunbelt have not billed
these organizations for shared activities and have not
F-74
<PAGE> 179
HENDERSON & ASSOCIATES REHABILITATION
AND
SUNBELT THERAPY MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
identified the related costs, and the accompanying combined financial statements
do not include revenue from these shared activities.
4. EMPLOYEE BENEFIT PLAN
Sunbelt has a qualified defined contribution plan covering all eligible
employees. Contributions are determined based upon a percentage of each eligible
employee's compensation, as defined by management. Contributions to the plan
were approximately $3,809 in 1995 and $3,458 in 1994.
HAR has a profit sharing plan covering all eligible employees.
Contributions are at the discretion of management. No contributions were made to
the plan in 1995 or 1994.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by HAR and Sunbelt in
estimating the fair value of their financial instruments:
Cash, Accounts Payable and Accrued Liabilities: The carrying amounts
reported in the combined balance sheets approximate their fair values.
Long-Term Debt: The fair values of fixed rate issues are estimated using
discounted cash flow analyses based on the current incremental borrowing rates
for similar types of borrowing arrangements. The carrying amounts of all fixed
and variable rate issues approximate their fair values.
6. SUBSEQUENT EVENT
Unison HealthCare Corporation purchased 90% of the common stock of HAR and
Sunbelt effective February 1, 1996.
F-75
<PAGE> 180
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Unison HealthCare Corporation
We have audited the accompanying combined statements of operations, and
cash flows of the Franciscan Health Care Centers at Enumclaw and Walla Walla
(the Companies) for each of the three years in the period ended June 30, 1996.
These financial statements are the responsibility of the Companies' management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, combined results of their operations and their cash
flows of the Companies for each of the three years in the period ended June 30,
1996 in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Phoenix, Arizona
October 4, 1996
F-76
<PAGE> 181
FRANCISCAN HEALTH CARE CENTERS AT
ENUMCLAW AND WALLA WALLA
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Changes in unrestricted net assets:
Revenues:
Net patient.......................................... $5,367,940 $5,571,282 $4,991,628
Other................................................ 3,221 1,026 584
---------- ---------- ----------
Total.................................................. 5,371,161 5,572,308 4,992,212
Expenses:
Wages and related.................................... 4,158,494 4,576,574 4,107,961
Other................................................ 1,412,513 1,424,319 1,554,089
Depreciation......................................... 276,853 240,153 268,934
---------- ---------- ----------
Total.................................................. 5,847,860 6,241,046 5,930,984
---------- ---------- ----------
Net loss............................................... $ (476,699) $ (668,738) $ (938,772)
========== ========== ==========
</TABLE>
See accompanying notes.
F-77
<PAGE> 182
FRANCISCAN HEALTH CARE CENTERS AT
ENUMCLAW AND WALLA WALLA
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
-------------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................ $(476,699) $(668,738) $(938,772)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation.......................................... 276,853 240,153 268,934
Provision for doubtful accounts....................... 5,619 20,523 104,502
Changes in operating assets and liabilities:
Accounts receivable................................ 262,725 (404,232) (386,721)
Prepaids and other................................. (4,980) 53,380 (43,474)
Accounts payable and accrued expenses.............. 5,884 (2,967) 524,251
--------- --------- ---------
Net cash provided by (used in) operating activities..... 69,402 (761,881) (471,280)
INVESTING ACTIVITIES
Purchases of property and equipment..................... (158,892) (63,288) (326,685)
--------- --------- ---------
Net cash used in investing activities................... (158,892) (63,288) (326,685)
FINANCING ACTIVITIES
Net transfers from affiliates........................... 89,993 825,440 799,850
--------- --------- ---------
Net cash provided by financing activities............... 89,993 825,440 799,850
--------- --------- ---------
Net increase in cash.................................... 503 271 1,885
Cash at beginning of period............................. 699 1,202 1,473
--------- --------- ---------
Cash at end of period................................... $ 1,202 $ 1,473 $ 3,358
========= ========= =========
</TABLE>
See accompanying notes
F-78
<PAGE> 183
FRANCISCAN HEALTH CARE CENTERS AT
ENUMCLAW AND WALLA WALLA
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
DESCRIPTION OF BUSINESS
Franciscan Health Care Center at Enumclaw (Enumclaw) is a 148 bed skilled
nursing facility located in Enumclaw, Washington. Franciscan Health Care Center
at Walla Walla (Walla Walla) is a 74 bed skilled nursing facility located in
Walla Walla, Washington. Unison HealthCare Corporation (Unison) began operating
Enumclaw and Walla Walla through the terms of an operating lease agreement
effective August 1996. Prior to August 1996, both Enumclaw and Walla Walla were
operating divisions of Franciscan ElderCare Corporation (FEC), a Delaware
not-for-profit corporation.
SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination
The accompanying combined financial statements include the accounts of
Enumclaw and Walla Walla, (collectively referred to as the Companies).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
Net Patient Revenues
The Companies' revenues are derived primarily from providing long-term
health care services. Approximately 83, 77 and 78 percent of the Companies' net
patient revenues for the years ended June 30, 1996, 1995 and 1994, respectively,
were derived from Medicare and Medicaid assistance programs and approximately 71
and 87 percent of the Companies' net patient accounts receivable at June 30,
1996 and 1995, respectively, are due from such programs. These revenues are
reported at their estimated net realizable amounts and are subject to audit and
retroactive adjustments. Contractual adjustments resulting from agreements with
various organizations to provide services for amounts which differ from billed
charges, including services under Medicare and Medicaid, are recorded as
deductions from gross patient revenue. The collectibility of receivables from
Medicare and Medicaid are dependent upon the performance of these programs.
A provision for doubtful accounts is made when the related revenue is
recorded. Accounts, when determined to be uncollectible, are charged against the
allowance for doubtful accounts. Provisions for estimated third-party payor
settlements are provided in the period the related services are rendered and are
adjusted in the period of settlement.
The estimated third party payor settlements under the Medicare and Medicaid
programs are recorded in the period the related services are rendered and are
subject to audit and final settlement by the fiscal intermediary. Differences
between the net amounts accrued and subsequent settlement, if any, are recorded
in operations at the time the final settlement is determined.
Depreciation
Depreciation is computed using the straight-line method over the respective
estimated useful lives of the respective assets. The Companies' property and
equipment serves as collateral with FEC's pooled financing bonds.
F-79
<PAGE> 184
FRANCISCAN HEALTH CARE CENTERS AT
ENUMCLAW AND WALLA WALLA
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
RELATED PARTY TRANSACTIONS
The Companies represent two of several facilities operated as divisions of
FEC. FEC makes advances to its divisions for operating purposes and the
divisions forward cash receipts to FEC as part of FEC's centralized cash
management system. Consequently, the Companies' combined financial statements do
not include certain accounts, such as operating cash and debt. The results of
transactions between FEC and the Companies are reflected as net transfers from
affiliates in the accompanying combined statements of operations and changes in
net assets.
Prior to December 1, 1994, management services were provided to the
Companies by FEC. Management fees allocated from FEC totaled $283,000 for the
year ended June 30, 1994 and $23,000 for the five months ended November 30,
1994. From December 1, 1994 to June 30, 1996, management services were provided
to the Companies by Unison, based on a percentage of net patient revenue.
Management fees totaled $298,000 in 1996 and $182,000 in 1995, and are included
in other expenses. Management fee accrual totaled $26,252 at June 30, 1996 and
$16,493 at June 30, 1995.
LEASES
Future minimum lease payments for the Companies at June 30, 1996, by year
and in the aggregate, under noncancelable operating lease arrangements with
initial or remaining terms of one year or more consist of the following:
<TABLE>
<S> <C>
1997..................................................... $ 629,724
1998..................................................... 629,724
1999..................................................... 629,724
2000..................................................... 629,724
2001..................................................... 629,724
Thereafter............................................... 5,341,980
----------
$8,490,600
=========
</TABLE>
INSURANCE
Health care companies are subject to medical malpractice, personal injury
and other liability claims that are customary risks inherent in their operations
and are generally covered by insurance. The Companies are subject to claims and
litigation for which FEC carries professional, general liability and other
insurance coverages. In the opinion of the Companies management, the outcome of
such claims and litigation will not have a material impact on the Companies'
combined financial position or results of operations.
SUBSEQUENT EVENT
In July 1996, FEC entered into a purchase agreement, pursuant to which
Monica R. Salusky and Walla Walla Partners, L.P. (the acquirers) purchased
certain accounts receivable, equipment, leasehold improvements and supply
inventory, and acquired FEC's rights under certain contracts of the Companies.
Beginning in August of 1996, Unison leased the Companies' skilled nursing
facilities from the acquirers. The lease agreements require that Unison be
responsible for management and operation of the Companies' facilities.
F-80
<PAGE> 185
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS MEMORANDUM DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS MEMORANDUM NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 10
Certain Federal Income Tax
Consequences........................ 25
Use of Proceeds....................... 25
Capitalization........................ 27
Unaudited Pro Forma Condensed Com-
bined Financial Statements.......... 28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 35
Business.............................. 46
Management............................ 61
Certain Transactions.................. 67
Principal Stockholders................ 70
Description of the Senior Notes....... 71
The Registration Rights Agreement..... 96
Plan of Distribution.................. 98
Legal Matters......................... 99
Experts............................... 99
Available Information................. 100
Proposed Amendment to the Registration
Rights Agreement.................... A-1
Index to Financial Statements......... F-1
</TABLE>
------------------
UNTIL , 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
$100,000,000
LOGO
UNISON HEALTHCARE CORPORATION
12 1/4% SENIOR NOTES DUE 2006
------------------------------------------------------
OFFER TO EXCHANGE ITS 12 1/4% SENIOR
NOTES DUE 2006, WHICH HAVE
BEEN REGISTERED UNDER THE
SECURITIES ACT, FOR ANY AND
ALL OF ITS OUTSTANDING
12 1/4% SENIOR NOTES DUE 2006
------------------------------------------------------
, 1997
======================================================
<PAGE> 186
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under provisions of Section 145 of the Delaware General Corporation Law and
the Bylaws of the Company (Exhibit 3.2 hereto), directors, officers and persons
controlling the Company are indemnified by the Company under certain
circumstances for certain liabilities and expenses. In addition, officers and
directors of the Company are insured, under a policy of insurance paid for by
the Company, under certain circumstances for certain liabilities and expenses.
Section 102 of the Delaware General Corporation Law permits a Delaware
corporation to include in its certificate of incorporation a provision
eliminating or limiting a director's liability to a corporation or its
stockholders for monetary damages for breaches of fiduciary duty. The enabling
statute provides, however, that liability for breaches of the duty of loyalty,
acts or omissions not in good faith or involving intentional misconduct, or
knowing violation of the law, and the unlawful purchase or redemption of stock
or payment of unlawful dividends or the receipt of improper personal benefits
cannot be eliminated or limited in this manner. The Certificate of Incorporation
(Exhibits 3.1 and 3.1.1 hereto) and Bylaws of the Company include a provision
which eliminates, to the fullest extent permitted, director liability for
monetary damages for breaches of fiduciary duty.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for such indemnification is
asserted (except to the extent that such claim seeks reimbursement of expenses
in connection with a successful defense of any action, suit or proceeding) by a
director, officer or controlling person of the Company in connection with the
securities being registered and the Securities and Exchange Commission is still
of the same opinion, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in said Act and will be governed by the final
adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(C) EXHIBITS
<TABLE>
<C> <S>
2 Second Amended and Restated Purchase and Sale Agreement among Unison HealthCare
Corporation and Whitehead Family Investments, Ltd., as amended (incorporated by
reference to Exhibit 2 to Amendment No. 1 to the Registration Statement on Form
S-1 filed on November 16, 1995, File No. 33-97662)
2.1 Modification Agreement dated April 15, 1996 among Unison HealthCare Corporation,
BritWill HealthCare Company and Bruce H. Whitehead (incorporated by reference to
Exhibit 2.1 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995)
2.1.1 Modification Agreement dated August 28, 1996 among Unison HealthCare Corporation,
BritWill HealthCare Company and Bruce H. Whitehead (incorporated by reference to
Exhibit 2.1.1 to the Registration Statement on Form S-4 filed on September 18,
1996, File No. 333-12263)
2.2 Purchase and Sale Agreement effective as of February 1, 1996 by and among Unison
HealthCare Corporation, a Delaware corporation, Sunbelt Therapy Management
Services, Inc., an Arizona corporation, Paul G. Henderson and Paige B. Plash
(incorporated by reference to Exhibit 2.1 to the Form 8-K filed on April 12, 1996)
2.2.1 Agreement for Purchase of Shares as of November 24, 1996, among Unison HealthCare
Corporation, Paul G. Henderson and Paige B. Plash (incorporated by reference to
Exhibit 2.2.1 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
</TABLE>
II-1
<PAGE> 187
<TABLE>
<C> <S>
2.3 Agreement and Plan of Merger among Unison HealthCare Corporation, Signature Health
Care Corporation, David A. Kremser and John D. Filkoski (incorporated by reference
to Exhibit 2.3 to the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1996)
2.3.1 Amendment to Agreement and Plan of Merger among Union HealthCare Corporation,
Signature Health Care Corporation, David A. Kremser and John D. Filkoski
(incorporated by reference to Exhibit 2.3.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
2.4 Agreement and Plan of Merger among Unison HealthCare Corporation, Arkansas, Inc.,
David A. Kremser and John D. Filkoski (incorporated by reference to Exhibit 2.4 to
the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996)
2.5 Agreement and Plan of Merger among Unison HealthCare Corporation, Cornerstone
Care, Inc., David A. Kremser and John D. Filkoski (incorporated by reference to
Exhibit 2.5 to the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1996)
2.6 Agreement and Plan of Merger among Unison HealthCare Corporation, Douglas Manor,
Inc., David A. Kremser and John D. Filkoski (incorporated by reference to Exhibit
2.6 to the Company's Quarterly Report on Form 10-Q for the period ended June 30,
1996)
2.7 Agreement and Plan of Merger among Unison HealthCare Corporation, Safford Care,
Inc., David A. Kremser and John D. Filkoski (incorporated by reference to Exhibit
2.7 to the Company's Quarterly Report on Form 10-Q for the period ended June 30,
1996)
2.7.1 Amendment to Agreements and Plans of Merger among Unison HealthCare Corporation,
Arkansas, Inc., Cornerstone Care, Inc., Douglas Manor, Inc., Safford Care, Inc.,
David A. Kremser and John D. Filkoski (incorporated by reference to Exhibit 2.7.1
to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
2.8 Agreement and Plan of Merger among Unison HealthCare Corporation, a Delaware
corporation, Labco Acquisition Co., a Delaware corporation, and American
Professional Holding, Inc., a Utah corporation (incorporated by reference to the
Company's Current Report on Form 8-K dated July 31, 1996)
2.8.1 First Amendment to Agreement and Plan of Merger among Unison HealthCare
Corporation, a Delaware corporation, Labco Acquisition Co., a Delaware
corporation, and American Professional Holding, Inc., a Utah corporation
(incorporated by reference to Exhibit 2.8.1 to Amendment No. 1 to the Registration
Statement on Form S-4 filed on October 11, 1996, File No. 333-12263)
2.9 Agreement and Plan of Merger among Unison HealthCare Corporation, a Delaware
corporation, Memphis Acquisition Co., a Delaware corporation, and Memphis Clinical
Laboratory, Inc., a Tennessee corporation (incorporated by reference to the
Company's Current Report on Form 8-K dated July 31, 1996)
2.10 Stock Purchase Agreement among Unison HealthCare Corporation, Linda Redwine, David
A. Kremser and John D. Filkoski (incorporated by reference to the Company's
Current Report on Form 8-K dated October 10, 1996)
3.1 Restated Certificate of Incorporation of Unison HealthCare Corporation
(incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Registration
Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
3.1.1 Amendment to Restated Certificate of Incorporation of Unison HealthCare
Corporation (incorporated by reference to Exhibit 3.1.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
3.2 Articles of Incorporation of SunQuest SPC, Inc. (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
3.3 Certificate of Incorporation of BritWill HealthCare Company (incorporated by
reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
</TABLE>
II-2
<PAGE> 188
<TABLE>
<C> <S>
3.4 Certificate of Incorporation of BritWill Investments-I, Inc. (incorporated by
reference to Exhibit 3.4 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
3.5 Certificate of Incorporation of BritWill Investments-II, Inc. (incorporated by
reference to Exhibit 3.5 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
3.6 Certificate of Incorporation of BritWill Funding Corporation (incorporated by
reference to Exhibit 3.6 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
3.7 Articles of Incorporation of Emory Care Center, Inc. (incorporated by reference to
Exhibit 3.7 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
3.8 Charter of Memphis Clinical Laboratory, Inc. (incorporated by reference to Exhibit
3.8 to the Company's Annual Report on Form 10-K for the year ended December 31,
1996)
3.9 Articles of Incorporation of American Professional Holding, Inc. (incorporated by
reference to Exhibit 3.9 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
3.10 Articles of Incorporation of Ampro Medical Services, Inc. (incorporated by
reference to Exhibit 3.10 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
3.11 Articles of Incorporation of Gamma Laboratories, Inc. (incorporated by reference
to Exhibit 3.11 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
3.12 Certificate of Incorporation of Signature Health Care Corporation (incorporated by
reference to Exhibit 3.12 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
3.13 Articles of Incorporation of Brookshire House, Inc. (incorporated by reference to
Exhibit 3.13 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
3.14 Articles of Incorporation of Christopher Nursing Center, Inc. (incorporated by
reference to Exhibit 3.14 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
3.15 Articles of Incorporation of Amberwood Court, Inc. (incorporated by reference to
Exhibit 3.15 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
3.16 Articles of Incorporation of The Arbors Health Care Center, Inc. (incorporated by
reference to Exhibit 3.16 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
3.17 Articles of Incorporation of Los Arcos, Inc. (incorporated by reference to Exhibit
3.17 to the Company's Annual Report on Form 10-K for the year ended December 31,
1996)
3.18 Articles of Incorporation of Pueblo Norte, Inc. (incorporated by reference to
Exhibit 3.18 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
3.19 Articles of Incorporation of Rio Verde Nursing Center, Inc. (incorporated by
reference to Exhibit 3.19 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
3.20 Articles of Incorporation of Signature Management Group, Inc. (incorporated by
reference to Exhibit 3.20 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
3.21 Articles of Incorporation of Cornerstone Care, Inc. (incorporated by reference to
Exhibit 3.21 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
3.22 Articles of Incorporation of Arkansas, Inc. (incorporated by reference to Exhibit
3.22 to the Company's Annual Report on Form 10-K for the year ended December 31,
1996)
</TABLE>
II-3
<PAGE> 189
<TABLE>
<C> <S>
3.23 Articles of Incorporation of Douglas Manor, Inc. (incorporated by reference to
Exhibit 3.23 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
3.24 Articles of Incorporation of Safford Care, Inc. (incorporated by reference to
Exhibit 3.24 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
3.25 Articles of Incorporation of RehabWest, Inc. (incorporated by reference to Exhibit
3.25 to the Company's Annual Report on Form 10-K for the year ended December 31,
1996)
3.26 Articles of Incorporation of Quest Pharmacies, Inc., as amended, and related
Shareholder Agreements (incorporated by reference to Exhibit 3.26 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
3.27 Articles of Incorporation of Sunbelt Therapy Management Services, Inc.
(incorporated by reference to Exhibit 3.27 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
3.28 Articles of Incorporation of Decatur SportsFit & Wellness Center, Inc.
(incorporated by reference to Exhibit 3.28 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
3.29 Articles of Incorporation of Therapy Health Systems, Inc. (incorporated by
reference to Exhibit 3.29 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
3.30 Articles of Incorporation of Henderson & Associates Rehabilitation, Inc.
(incorporated by reference to Exhibit 3.30 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
3.31 Articles of Incorporation of Sunbelt Therapy Management Services, Inc.
(incorporated by reference to Exhibit 3.31 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
3.32 Articles of Incorporation of Cedar Care, Inc. (incorporated by reference to
Exhibit 3.32 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
3.33 Articles of Incorporation of Sherwood Healthcare Corporation (incorporated by
reference to Exhibit 3.33 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
3.34 Partnership Agreement of BritWill Indiana Partnership (incorporated by reference
to Exhibit 3.34 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
3.35 Bylaws of Unison HealthCare Corporation (incorporated by reference to Exhibit 3.2
to the Registration Statement on Form S-1 filed on October 2, 1995, File No.
33-97662)
3.36 Bylaws of Henderson & Associates Rehabilitation, Inc. (incorporated by reference
to Exhibit 3.36 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
3.37 Form of Bylaws of SunQuest SPC, Inc., The Arbors Health Care Center, Inc. and
Sunbelt Therapy Management Services, Inc. (incorporated by reference to Exhibit
3.37 to the Company's Annual Report on Form 10-K for the year ended December 31,
1996)
3.38 Form of Bylaws of Brookshire House, Inc., Christopher Nursing Center, Inc.,
Amberwood Court, Inc., Los Arcos, Inc., Pueblo Norte, Inc., Rio Verde Nursing
Center, Inc., Signature Management Group, Inc., Cornerstone Care, Inc., Arkansas,
Inc., Douglas Manor, Inc., Safford Care, Inc. and RehabWest, Inc. (incorporated by
reference to Exhibit 3.38 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
3.39 Form of Bylaws of BritWill HealthCare Company, BritWill Investments-I, Inc.,
BritWill Investments-II, Inc., BritWill Funding Corporation and Signature Health
Care Corporation (incorporated by reference to Exhibit 3.39 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
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3.40 Bylaws of Therapy Health Systems, Inc. (incorporated by reference to Exhibit 3.40
to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
3.41 Bylaws of Gamma Laboratories, Inc. (incorporated by reference to Exhibit 3.41 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
3.42 Bylaws of Memphis Clinical Laboratory, Inc. (incorporated by reference to Exhibit
3.42 to the Company's Annual Report on Form 10-K for the year ended December 31,
1996)
3.43 Bylaws of Emory Care Center, Inc. (incorporated by reference to Exhibit 3.43 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
3.44 Bylaws of Ampro Medical Services, Inc. (incorporated by reference to Exhibit 3.44
to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
3.45 Bylaws of American Professional Holding, Inc. (incorporated by reference to
Exhibit 3.45 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
3.46 Form of Bylaws of Cedar Care, Inc. and Sherwood Healthcare Corporation**
4.1 Specimen 12 1/4% Senior Note due 2006 (incorporated by reference to Exhibit 4.1 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
4.2 Securities Purchase Agreement dated as of October 28, 1996 between Unison
HealthCare Corporation and the Initial Purchasers (incorporated by reference to
Exhibit 4.2 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
4.3 Indenture dated as of October 31, 1996 among Unison HealthCare Corporation, the
Guarantors and First Bank National Association, as Trustee (incorporated by
reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
4.3.1 Supplement No. 1 dated as of February 1, 1997 to Indenture dated as of October 28,
1996 (incorporated by reference to Exhibit 4.3.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996)
4.4 Senior Note Registration Rights Agreement dated as of October 31, 1996 among
Unison HealthCare Corporation, the Guarantors and the Initial Purchasers
(incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
5.1 Form of Opinion Regarding Legality of Securities*
9 Voting Agreement among the Company and Messrs. Walker, Rollins, Contris, Lynch,
Boystak and King (incorporated by reference to Exhibit 9 to the Registration
Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.1 Promissory Note of Unison HealthCare Corporation to the Agent for the Former
BritWill Shareholders in the amount of $1,000,000 dated May 6, 1996 (incorporated
by reference to Exhibit 10.1 to the Company's quarterly report on Form 10-Q filed
on May 15, 1996, File No. 0-27374)
10.1.1 Second Amended and Restated Subordinated Promissory Note of the Company to the
former shareholders of BritWill (incorporated by reference to Exhibit 10.1.1 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
10.1.2 Contingent Payment Agreement dated April 15, 1996 among Unison HealthCare
Corporation, BritWill HealthCare Company and Bruce H. Whitehead (incorporated by
reference to Exhibit 10.1.2 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995)
10.2 Term Note of the Company to the former shareholders of BritWill (incorporated by
reference to Exhibit 10.2 to the Registration Statement on Form S-1 filed on
October 2, 1995, File No. 33-97662)
10.3 Convertible Debenture of the Company issued to the former shareholders of BritWill
(incorporated by reference to Exhibit 10.3 to Amendment No. 1 to the Registration
Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
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10.4 Renewal Note of BritWill to the former shareholders of BritWill (incorporated by
reference to Exhibit 10.4 to the Registration Statement on Form S-1 filed on
December 4, 1995, File No. 33-97662)
10.4.1 Letter agreement modifying the Term Note and the Renewal Note (incorporated by
reference to Exhibit 10.4.1 to Amendment No. 2 to the Registration Statement on
Form S-1 filed on December 4, 1995, File No. 33-97662)
10.5 $500,000 Supplemental Note of the Company to the former shareholders of BritWill
(incorporated by reference to Exhibit 10.5 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.5.1 Letter agreement regarding the $500,000 Supplemental Note (incorporated by
reference to Exhibit 10.5.1 to Amendment No. 1 to the Registration Statement on
Form S-1 filed on November 16, 1995, File No. 33-97662)
10.6 $250,000 Supplemental Note of the Company to WFI (incorporated by reference to
Exhibit 10.6 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.7 Example of Stock Pledge Agreement of certain officers and the Former Shareholders
of BritWill (incorporated by reference to Exhibit 10.7 to the Registration
Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.8 Registration Rights Agreement between the Company and WFI (incorporated by
reference to Exhibit 10.8 to the Registration Statement on Form S-1 filed on
October 2, 1995, File No. 33-97662)
10.9 Employment Agreement of Jerry M. Walker (incorporated by reference to Exhibit 10.9
to Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.10 Employment Agreement of Phillip R. Rollins, Sr. (incorporated by reference to
Exhibit 10.10 to Amendment No. 1 to the Registration Statement on Form S-1 filed
on November 16, 1995, File No. 33-97662)
10.11 Employment Agreement of Craig R. Clark (incorporated by reference to Exhibit 10.11
to Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.12 Employment Agreement of Paul J. Contris (incorporated by reference to Exhibit
10.12 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.13 Employment and Non-Competition Agreement of L. Robert Oberfield (incorporated by
reference to Exhibit 10.13 to Amendment No. 1 to the Registration Statement on
Form S-1 filed on November 16, 1995, File No. 33-97662)
10.14 Shareholders Agreement dated May 15, 1995, among Quest Pharmacies, Inc., the
Company and L. Robert Oberfield (incorporated by reference to Exhibit 10.14 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.15 Unison HealthCare Corporation 1995 Stock Option Plan, as amended (incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996)
10.16 [Intentionally Omitted]
10.17 Receivables Acquisition Agreement, dated November 14, 1994, as amended, with
HealthPartners Funding, L.P. (incorporated by reference to Exhibit 10.17 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.18 Agreements between the Company and Trouver Capital Partners, L.P. dated March 16,
1992 and July 10, 1995 (incorporated by reference to Exhibit 10.18 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
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10.19 Agreement between BritWill and Trouver Capital Partners, L.P. dated September 15,
1992, as amended (incorporated by reference to Exhibit 10.19 to the Registration
Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.20 Master Lease between BritWill -- I and Omega, dated as of November 1, 1992, for
Capital Care HealthCare Center, Cedar Crest HealthCare Center (Wellington Manor),
English Estates (Kingsbury Rehabilitation and HealthCare Center), Lockerbie
HealthCare Center, Parkview Manor and Sunset Manor (incorporated by reference to
Exhibit 10.20 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.21 Agreement of Acquisition and Lease between BritWill and Omega, dated as of
November 1, 1992 (incorporated by reference to Exhibit 10.21 to the Registration
Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.22 Leasehold Mortgage between BritWill -- I and Omega, dated November 1, 1992
(incorporated by reference to Exhibit 10.22 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.23 Loan Agreement (Texas Facilities) between BritWill Investments -- Texas and Omega,
dated April 1, 1993 (incorporated by reference to Exhibit 10.23 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.24 [Intentionally Omitted]
10.25 Loan Agreement between BritWill Investments -- Texas and Omega, dated November 30,
1993 (incorporated by reference to Exhibit 10.25 to the Registration Statement on
Form S-1 filed on October 2, 1995, File No. 33-97662)
10.26 BritWill Master Guaranty between BritWill and Omega, dated November 30, 1993
(incorporated by reference to Exhibit 10.26 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.27 Letter of Credit Agreement between BritWill Investments -- II and Omega, dated
November 30, 1993 (incorporated by reference to Exhibit 10.27 to the Registration
Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.28 Master Lease between BritWill -- II and Omega, dated as of November 30, 1993
(incorporated by reference to Exhibit 10.28 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.29 Agreement Regarding Financial Covenants Compliance and Amendment Agreement among
BritWill and Omega, dated December 13, 1994 (incorporated by reference to Exhibit
10.29 to the Registration Statement on Form S-1 filed on October 2, 1995, File No.
33-97662)
10.30 Master Lease between BritWill -- II and Omega, dated December 12, 1994
(incorporated by reference to Exhibit 10.30 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.31 Amendment Agreement between the Company and Omega, dated August 10, 1995
(incorporated by reference to Exhibit 10.31 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.32 Unison Master Guaranty to Omega, dated August 10, 1995 (incorporated by reference
to Exhibit 10.32 to the Registration Statement on Form S-1 filed on October 2,
1995, File No. 33-97662)
10.32.1 Letter Agreement among Unison HealthCare Corporation, Bruce H. Whitehead and Omega
dated October 31, 1996 (incorporated by reference to Exhibit 10.32.1 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996)
10.33 Subordinated Promissory Note in the amount of $2,475,000 of BritWill to WFI, dated
December 24, 1992 (incorporated by reference to Exhibit 10.33 to the Registration
Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
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10.34 Participation Agreement among BritWill, WFI and Garth Financial Services, Inc.,
dated December 24, 1992 (incorporated by reference to Exhibit 10.34 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.35 Bonus Participation Agreement between BritWill and WFI, dated December 24, 1992
(incorporated by reference to Exhibit 10.35 to the Registration Statement on Form
S-1 filed on October 2, 1995, File No. 33-97662)
10.36 Unsecured Promissory Note of BritWill -- II to BritWill Investments -- Texas in
the amount of $1,081,548.39, dated November, 1993 (incorporated by reference to
Exhibit 10.36 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.37 Unsecured Promissory Note of BritWill -- II to BritWill Investments -- Texas in
the amount of $500,000, dated November, 1993 (incorporated by reference to Exhibit
10.37 to the Registration Statement on Form S-1 filed on October 2, 1995, File No.
33-97662)
10.38 Unsecured Promissory Note of BritWill -- II to BritWill Investments -- Texas in
the amount of $660,000, dated November, 1993 (incorporated by reference to Exhibit
10.38 to the Registration Statement on Form S-1 filed on October 2, 1995, File No.
33-97662)
10.39 [Intentionally Omitted]
10.40 Management Services Agreement between Unison and Lake City Nursing Homes, Inc.,
dated December 1, 1993 (incorporated by reference to Exhibit 10.40 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.41 Lease Contract and Agreement between BritWill Investments -- Texas, as Lessor and
BritWill -- II, as Lessee, dated December 1, 1993, for Four States Care Center,
Heritage Plaza Nursing Center, Pine Haven Care Center, Reunion Plaza Senior Care
and Retirement Center and Texarkana Nursing Center (incorporated by reference to
Exhibit 10.41 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.42 Management Agreement between Sherwood HealthCare Corp. and BritWill Investments --
Indiana, dated November 1, 1991, as amended, for Capital Care, Parkview, Sunset
Manor, Boonville, Holiday Manor, Kendallville Manor and Owensville (incorporated
by reference to Exhibit 10.42 to the Registration Statement on Form S-1 filed on
October 2, 1995, File No. 33-97662)
10.43 Management Agreement between Cedar Care, Inc. and BritWill Investments -- Indiana,
dated November 1, 1991, as amended, for Cedar Crest, Country Side, English, Harty,
Lockerbie and Willow Manor (incorporated by reference to Exhibit 10.43 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.44 [Intentionally Omitted]
10.44.1 Lease for Oakwood Nursing Care Center (incorporated by reference to Exhibit
10.44.1 to the Company's Annual Report on Form 10-K for the year ended December
31, 1996)
10.45 Lease for Elkhart Nursing Home (incorporated by reference to Exhibit 10.45 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.46 Management Services Agreement between the Company and Marshall Manor (Michigan),
dated September 15, 1992 (incorporated by reference to Exhibit 10.46 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
10.47 Leases for Center (aka Pine Grove Care Center) and Waxahachie (aka Pleasant Manor
Living Center) with BritWill Investments -- Texas (incorporated by reference to
Exhibit 10.47 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.48 Management Services Agreement between the Company and HP/HealthCare Acquirors,
Inc. for Windsor Manor (incorporated by reference to Exhibit 10.48 to the
Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
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10.49 Management Services Agreement for Bayshore Convalescent Center (incorporated by
reference to Exhibit 10.49 to the Registration Statement on Form S-1 filed on
October 2, 1995, File No. 33-97662)
10.50 Lease for Henry Clay Villa, dated July 1, 1995 (incorporated by reference to
Exhibit 10.50 to the Registration Statement on Form S-1 filed on October 2, 1995,
File No. 33-97662)
10.51 Lease for Marshall Manor Nursing Home (Alabama) (incorporated by reference to
Exhibit 10.51 to Amendment No. 1 to the Registration Statement on Form S-1 filed
on November 16, 1995, File No. 33-97662)
10.52 [Intentionally Omitted]
10.53 [Intentionally Omitted]
10.54 [Intentionally Omitted]
10.55 Sublease for Ridgewood Health Care Center (incorporated by reference to Exhibit
10.55 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.56 Management Services Agreement for Peachtree Nursing Center (aka Smyrna Nursing
Center) and Rehabilitation Facility, dated September 15, 1993 (incorporated by
reference to Exhibit 10.56 to Amendment No. 1 to the Registration Statement on
Form S-1 filed on November 16, 1995, File No. 33-97662)
10.57 Management Services Agreement for St. Barnabas Nursing Home, and Retirement
Apartments, dated January 12, 1995 (incorporated by reference to Exhibit 10.57 to
Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.58 [Intentionally Omitted]
10.59 Lease for Boonville Convalescent Center (incorporated by reference to Exhibit
10.59 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.60 [Intentionally Omitted]
10.61 [Intentionally Omitted]
10.62 [Intentionally Omitted]
10.63 Sublease for Holiday Manor (incorporated by reference to Exhibit 10.63 to
Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
1995, File No. 33-97662)
10.64 [Intentionally Omitted]
10.65 [Intentionally Omitted]
10.66 Lease for Owensville Convalescent Center (incorporated by reference to Exhibit
10.66 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.67 [Intentionally Omitted]
10.68 [Intentionally Omitted]
10.69 [Intentionally Omitted]
10.70 Lease for Willow Manor Convalescent Center (incorporated by reference to Exhibit
10.70 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.71 Lease for Bonner Health Center, dated February 1, 1995 (incorporated by reference
to Exhibit 10.71 to Amendment No. 1 to the Registration Statement on Form S-1
filed on November 16, 1995, File No. 33-97662)
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10.72 Lease for Hillside Care Center (aka Prairie Manor), dated February 1, 1995
(incorporated by reference to Exhibit 10.72 to Amendment No. 1 to the Registration
Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
10.73 Lease for Oswego Manor, dated March 2, 1994 (incorporated by reference to Exhibit
10.73 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.74 [Intentionally Omitted]
10.75 Lease for SunCrest HealthCare Center, dated September 14, 1994 (incorporated by
reference to Exhibit 10.75 to Amendment No. 1 to the Registration Statement on
Form S-1 filed on November 16, 1995, File No. 33-97662)
10.76 Sublease for The Oaks of Boise (aka Franciscan Health Care Center of Boise)
(incorporated by reference to Exhibit 10.76 to Amendment No. 1 to the Registration
Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
10.77 Lease for Mountainside Care Center (aka Sandpoint Manor) and St. Francis Preschool
and Childcare Center (incorporated by reference to Exhibit 10.77 to Amendment No.
1 to the Registration Statement on Form S-1 filed on November 16, 1995, File No.
33-97662)
10.77.1 Sublease for Mountainside Care Center (incorporated by reference to Exhibit
10.77.1 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
November 16, 1995, File No. 33-97662)
10.78 [Intentionally Omitted]
10.79 Lease for White Pine Care Center, dated November 1, 1994 (incorporated by
reference to Exhibit 10.79 to Amendment No. 1 to the Registration Statement on
Form S-1 filed on November 16, 1995, File No. 33-97662)
10.80 [Intentionally Omitted]
10.81 [Intentionally Omitted]
10.82 [Intentionally Omitted]
10.83 Lease for Green Acres Nursing Home, dated August 30, 1995 (incorporated by
reference to Exhibit 10.83 to Amendment No. 1 to the Registration Statement on
Form S-1 filed on November 16, 1995, File No. 33-97662)
10.84 Lease for Hemphill Care Center, dated September 1, 1994 (incorporated by reference
to Exhibit 10.84 to Amendment No. 1 to the Registration Statement on Form S-1
filed on November 16, 1995, File No. 33-97662)
10.85 [Intentionally Omitted]
10.86 [Intentionally Omitted]
10.87 [Intentionally Omitted]
10.88 [Intentionally Omitted]
10.89 [Intentionally Omitted]
10.90 Lease for Nightingale West Nursing Home, dated August 24, 1995 (incorporated by
reference to Exhibit 10.90 to Amendment No. 1 to the Registration Statement on
Form S-1 filed on November 16, 1995, File No. 33-97662)
10.91 Sublease for Twin Pines of Lewisville, dated September 8, 1995 (incorporated by
reference to Exhibit 10.91 to Amendment No. 1 to the Registration Statement on
Form S-1 filed on November 16, 1995, File No. 33-97662)
10.92 Lease for Homestead of McKinney dated as of July 1, 1996 between Westminister
Healthcare, Inc. and Brit Will Investments-II, Inc. (incorporated by reference to
Exhibit 10.92 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
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10.93 [Intentionally Omitted]
10.94 Letter Agreement regarding licensing and operation of the Indiana facilities from
Cedar Care and Sherwood to the Company, dated August 10, 1995 (incorporated by
reference to Exhibit 10.94 to Amendment No. 2 to the Registration Statement on
Form S-1 filed on December 4, 1995, File No. 33-97662)
10.95 Agreement Regarding Conversion of the Convertible Debenture, dated December 1,
1995 (incorporated by reference to Exhibit 10.95 to Amendment No. 2 to the
Registration Statement on Form S-1 filed on December 4, 1995, File No. 33-97662)
10.96 Letter Agreement Regarding Consulting Services (incorporated by reference to
Exhibit 10.96 to Amendment No. 3 to the Registration Statement on Form S-1 filed
on December 12, 1995, File No. 33-97662)
10.97 Loan and Security Agreement dated February 16, 1996 by and between Unison
HealthCare Corporation, SunQuest SPC, Inc., BritWill HealthCare Company, BritWill
Investments-I, Inc., BritWill Funding Corporation, BritWill Investments-II, Inc.,
Emory Care Center, Inc., Cedar Care, Inc., Sherwood Healthcare Corp. (collectively
as borrowers) and HealthPartners Funding, L.P. (as lender) (incorporated by
reference to Exhibit 10.97 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995)
10.97.1 Letter Agreement dated October 4, 1996 between HealthPartners Funding, L.P. and
Unison HealthCare Corporation (incorporated by reference to Exhibit 10.97.1 to
Amendment No. 1 to the Registration Statement on Form S-4 filed on October 11,
1996, File No. 333-12263)
10.98 Security Agreement effective as of February 1, 1996 by and among Unison HealthCare
Corporation, a Delaware corporation, Sunbelt Therapy Management Services, Inc., an
Arizona corporation, Paul G. Henderson and Paige B. Plash (incorporated by
reference to Exhibit 10.1 to the Form 8-K filed on April 12, 1996)
10.99 Promissory Note of Unison HealthCare Corporation to Omega Healthcare Investors,
Inc. in the amount of $3,500,000, dated February 9, 1996 (incorporated by
reference to Exhibit 10.99 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995)
10.100 Lease dated November 30, 1994 between Monica R. Salusky and SunQuest SPC, Inc.
(commencement date: August 1, 1996) (incorporated by reference to the Company's
Current Report on Form 8-K dated August 14, 1996)
10.101 Modification of Lease dated as of July 31, 1996 between Monica R, Salusky,
SunQuest SPC, Inc. and Unison HealthCare Corporation (incorporated by reference to
the Company's Current Report on Form 8-K dated August 14, 1996)
10.102 Lease dated June 19, 1996 between Walla Walla Partners, L.P. and SunQuest SPC,
Inc. (commencement date: August 1, 1996) (incorporated by reference to the
Company's Current Report on Form 8-K dated August 14, 1996)
10.103 First Amendment to Lease dated July 26, 1996 between Walla Walla Partners, L.P.
and SunQuest SPC, Inc. (incorporated by reference to the Company's Current Report
on Form 8-K dated August 14, 1996)
10.109 Promissory Note of Unison HealthCare Corporation to Red Line Healthcare
Corporation in the amount of $771,004.60 dated August 30, 1996 (incorporated by
reference to Exhibit 10.109 to the Registration Statement on Form S-4 filed on
September 18, 1996, File No. 333-12263)
10.110 Receivables Purchase and Sale Agreement dated August 8, 1996 between
HealthPartners Funding, L.P., Sunbelt Therapy Management Services, Inc. (an
Arizona corporation), Henderson & Associates Rehabilitation, Inc., Decator
Sportsfit & Wellness Center, Inc., Therapy Health Systems, Inc., Sunbelt Therapy
Management Services, Inc. (an Alabama corporation), Quest Pharmacies, Inc. and
SunQuest SPC, Inc. (incorporated by reference to Exhibit 10.110 to the
Registration Statement on Form S-4 filed on September 18, 1996, File No.
333-12263)
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10.111 Master Lease Agreement dated June 4, 1996 between Unison HealthCare Corporation
and LINC Anthem Corporation (incorporated by reference to Exhibit 10.111 to the
Registration Statement on Form S-4 filed on September 18, 1996, File No.
333-12263)
10.112 Form of Promissory Notes dated March 17, 1997, to former Signature shareholders in
partial payment of Equity Adjustment Amount (incorporated by reference to Exhibit
10.112 to the Company's Annual Report on Form 10-K for the year ended December 31,
1996)
10.113 Services Agrement dated as of March 31, 1997, between the Registrant and David A.
Kremser (incorporated by reference to Exhibit 10.113 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
10.114 Indemnification Agreement dated as of March 31, 1997, between the Registrant and
David A. Kremser (incorporated by reference to Exhibit 10.114 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
10.115 Tolling Agreement dated as of March 31, 1997, between the Registrant and David A.
Kremser (incorporated by reference to Exhibit 10.115 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
10.116 Stock Option Agreement dated as of March 31, 1997, between the Registrant and
David A. Kremser (incorporated by reference to Exhibit 10.116 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
10.117.1 Form of Loan and Security Agreement dated as of April 21, 1997 among the
Registrant, Elk Meadows Investments, L.L.C. and BritWill Investments Company, Ltd.
(incorporated by reference to Exhibit 10.117.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996)
10.117.2 Form of Stock Pledge Agreement dated as of April 21, 1997 among the Registrant,
Elk Meadows Investments, L.L.C. and BritWill Investments Company, Ltd.
(incorporated by reference to Exhibit 10.117.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996)
10.118 Asset Purchase Agreement dated as of December 20, 1996, among Sunbelt Therapy
Management Services, Inc., Spine Rehabilitation and Physical Therapy Center, Inc.
and Douglas L. Bates (incorporated by reference to Exhibit 10.118 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
10.119 Master Lease Agreement dated November 25, 1996, between Unison HealthCare
Corporation and Pacific Financial Company, relating to computer equipment and
software (incorporated by reference to Exhibit 10.119 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996)
10.120 Form of sublease agreement dated as of March 1, 1997, between BritWill
Investments-II, Inc. and Hasmark East Ltd., relating to Four States Care Center,
Green Acres, Heritage Oaks and Texarkana Nursing Center (incorporated by reference
to Exhibit 10.120 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.121 Lease dated as of June 13, 1995, between AHP of Colorado, Inc. and Arkansas, Inc.*
10.122 Lease dated as of June 13, 1995, between AHP of Colorado, Inc. and Cornerstone
Care, Inc.*
10.123 Lease dated as of July 28, 1995, between American Health Properties of Arizona,
Inc. and Safford Care, Inc.*
10.124 Lease dated as of July 28, 1995, between American Health Properties of Arizona,
Inc. and Douglas Manor, Inc. (incorporated by reference to Exhibit 10.124 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996)
10.125 Promissory Note and related Mortgage dated March 30, 1994 in the original
principal amount of $19.1 million between Signature Health Care, Inc. and National
Health Investors, Inc. (incorporated by reference to Exhibit 10.125 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996)
</TABLE>
II-12
<PAGE> 198
<TABLE>
<C> <S>
10.126 Lease dated as of December 1, 1990 between Health Care Reit, Inc. and The Arbors
Health Care Center Inc. (incorporated by reference to Exhibit 10.126 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996)
11.1 Unison HealthCare Corporation Statement Re: Computation of Per Share Earnings
(incorporated by reference to Exhibit 11.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
12 Computation of Ratio of Earnings to Fixed Charges(reference is made to II-27)*
21 List of subsidiaries (incorporated by reference to Exhibit 21 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
23.1 Consent of Ernst & Young LLP (reference is made to page II-21)*
23.2 Consent of Price Waterhouse (reference is made to page II-22)*
23.3 Consent of Arthur Andersen LLP (reference is made to II-23)*
23.4 Consent of Anderson & Whitney, P.C. (reference is made to II-24)*
23.12 Consent of Quarles & Brady (contained in its opinion filed as Exhibit 5.1 hereto)*
24.1 Power of Attorney (reference is made to pages II-17 and II-20)*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery**
99.3 Report of Ernst & Young LLP (reference is made to II-25)*
99.4 Report of Ernst & Young LLP (reference is made to II-26)*
99.5 Report of Ronald H. Ridgers, P.C. related to American Professional Holding, Inc.
(incorporated by reference to Exhibit 99.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
99.6 Report of Ronald H. Ridgers, P.C. related to Memphis Clinical Laboratory, Inc.
(incorporated by reference to Exhibit 99.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULES
Unison HealthCare Corporation
Schedule II Valuation and Qualifying Accounts (reference is made to
II-15)
BritWill HealthCare Company
Schedule II Valuation and Qualifying Accounts (reference is made to
II-16)
All other schedules are omitted because they are not applicable or required
or because the information required is included in the financial statements or
notes thereto.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
II-13
<PAGE> 199
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein and this offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired therein, that was not the subject of and included in the
registration statement when it became effective.
II-14
<PAGE> 200
SCHEDULE II
UNISON HEALTHCARE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------
CHARGED
BALANCE AT TO COST CHARGED BALANCE AT
BEGINNING AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Allowance for doubtful
accounts........................ $164,000 $ 128,000 $ $ (2,000)(1) $ 290,000
Year ended December 31, 1995
Allowance for doubtful
accounts........................ $290,000 $ 29,000 $801,000(2) $(337,000)(1) $ 783,000
Year ended December 31, 1996
Allowance for doubtful
accounts........................ $783,000 $2,742,000 $672,000(3) $(420,000)(1) $3,776,000
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Represents the allowance for doubtful accounts recorded by BritWill at July
31, 1995.
(3) Represents the allowance for doubtful accounts recorded by Signature at
October 31, 1996.
II-15
<PAGE> 201
SCHEDULE II
BRITWILL HEALTHCARE COMPANY
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
CHARGED
BALANCE AT TO COST CHARGED BALANCE AT
BEGINNING AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Allowance for uncollectible
accounts........................ $ (480,039) $(644,471) $127,264(2) $(997,246)
Six Months ended June 30, 1995
Allowance for uncollectible
accounts........................ $ (997,246) $ (21,442) $227,821(2) $(790,867)
One Month ended July 31, 1995
Allowance for uncollectible
accounts........................ $ (790,867) $ (48,631) $ 38,724(2) $(800,774)
</TABLE>
- ---------------
(1) Adjustment related to increasing accounts receivable and the allowance to
reconcile to accounts receivable agings.
(2) Uncollectible accounts written off, net of recoveries.
II-16
<PAGE> 202
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, State of
Arizona, on the third day of July 1997.
Unison HealthCare Corporation
By: /s/ DAVID A. KREMSER
------------------------------------
David A. Kremser
Interim Chief Executive Officer
and Chief Financial Officer
POWER OF ATTORNEY
Know All Men by These Presents, that each person whose signature appears
below constitutes and appoints David A. Kremser and Phillip R. Rollins, and each
one of them individually, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all said attorneys-in-fact
and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on behalf of
Unison HealthCare Corporation in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ---------------------------------------- -------------
<C> <S> <C>
/s/ DAVID A. KREMSER Interim Chief Executive Officer July 3, 1997
- ----------------------------------- and Chief Financial Officer
David A. Kremser (Principal Executive Officer)
/s/ PHILLIP R. ROLLINS Executive Vice President -- Operations, July 3, 1997
- ----------------------------------- Chief Operating Officer, Director
Phillip R. Rollins
/s/ WARREN K. JERREMS Vice President, Chief Accounting Officer July 3, 1997
- ----------------------------------- (Principal Accounting Officer)
Warren K. Jerrems
/s/ BRUCE H. WHITEHEAD Chairman of the Board of Directors July 3, 1997
- -----------------------------------
Bruce H. Whitehead
/s/ TYRRELL L. GARTH Director July 3, 1997
- -----------------------------------
Tyrrell L. Garth
/s/ JOHN T. LYNCH, JR. Director July 3, 1997
- -----------------------------------
John T. Lynch, Jr.
</TABLE>
II-17
<PAGE> 203
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ---------------------------------------- -------------
<C> <S> <C>
- ----------------------------------- Director July 3, 1997
Mark W. White
/s/ JOHN T. CASEY Director July 3, 1997
- -----------------------------------
John T. Casey
</TABLE>
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the undersigned
thereunto duly authorized, in the City of Scottsdale, State of Arizona on the
third day of July 1997.
Quest Pharmacies, Inc., an Arizona
corporation
By: /s/ PHILLIP R. ROLLINS
------------------------------------
Phillip R. Rollins
Vice President for the above
subsidiary of
Unison HealthCare Corporation
Sunbelt Therapy Management Services,
Inc., an
Arizona corporation
By: /s/ PHILLIP R. ROLLINS
------------------------------------
Phillip R. Rollins
President and Chief Executive
Officer for the above
subsidiary of Unison HealthCare
Corporation
Decatur Sports Fit & Wellness Center,
Inc., an
Alabama corporation
Therapy Health Systems, Inc., a
Mississippi corporation
Henderson & Associates Rehabilitation,
Inc., an
Alabama corporation
Sunbelt Therapy Management Services,
Inc., an
Alabama Corporation
By: /s/ PHILLIP R. ROLLINS
------------------------------------
Phillip R. Rollins
President and Chief Executive
Officer for the above direct or
indirect subsidiaries of Unison
HealthCare Corporation
II-18
<PAGE> 204
Sunquest SPC, Inc.,
an Arizona corporation
BritWill HealthCare Company
a Colorado corporation
BritWill Investments - I, Inc.,
a Delaware corporation
BritWill Investments - II, Inc.,
a Delaware corporation
BritWill Funding Corporation,
a Delaware corporation
Emory Care Center, Inc.,
a Texas corporation
Memphis Clinical Laboratory, Inc.,
a Tennessee corporation
American Professional Holding, Inc.,
a Utah corporation
Ampro Medical Services, Inc.,
a Texas corporation
Gamma Laboratories, Inc.,
a Missouri corporation
Signature Health Care Corporation,
a Delaware corporation
Brookshire House, Inc.,
a Colorado corporation
Christopher Nursing Center, Inc.,
a Colorado corporation
Amberwood Court, Inc.,
a Colorado corporation
The Arbors Health Care Center, Inc.,
an Arizona corporation
Los Arcos, Inc.,
a Colorado corporation
Pueblo Norte, Inc.,
a Colorado corporation
Signature Management Group, Inc.,
a Colorado corporation
Cornerstone Care, Inc.,
a Colorado corporation
Arkansas Inc.,
a Colorado corporation
Douglas Manor, Inc.,
a Colorado corporation
Safford Care, Inc.,
a Colorado corporation
RehabWest, Inc.,
a Colorado corporation
By: /s/ PHILLIP R. ROLLINS
-----------------------------------------
Phillip R. Rollins
President and Chief Executive
Officer for the above direct or
indirect subsidiaries of
Unison HealthCare Corporation
II-19
<PAGE> 205
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature appears
below constitutes and appoints David A. Kremser and Phillip R. Rollins, and each
of them individually, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------------ ---------------------
Quest Pharmacies, Inc., an Arizona corporation
<C> <S> <C>
/s/ L. ROBERT OBERFIELD President, Director (Principal July 3, 1997
- ----------------------------------- Executive Officer)
L. Robert Oberfield
/s/ PHILLIP R. ROLLINS Vice President, Director July 3, 1997
- -----------------------------------
Phillip R. Rollins
<CAPTION>
Sunbelt Therapy Management Service, Inc., an Arizona corporation
<S> <C> <C>
/s/ PHILLIP R. ROLLINS President and Chief Executive July 3, 1997
- ----------------------------------- Officer, Director
Phillip R. Rollins
<CAPTION>
Decatur Sports Fit & Wellness Center, Inc., an Alabama corporation
Therapy Health Systems, Inc., a Mississippi corporation
Henderson & Associates Rehabilitation, Inc., an Alabama corporation
Sunbelt Therapy Management Services, Inc., an Alabama corporation
<S> <C> <C>
/s/ PHILLIP R. ROLLINS President and Chief Executive July 3, 1997
- ----------------------------------- Officer, Director
Phillip R. Rollins
<CAPTION>
Sunquest SPC, Inc., an Arizona corporation, Christopher Nursing Center, Inc., a Colorado
corporation, BritWill HealthCare Company, a Delaware corporation, Amberwood Court, Inc., a
Colorado corporation, BritWill Investments - I, Inc., a Delaware corporation, The Arbors
Health Care Center, Inc., an Arizona corporation, BritWill Investments -II, Inc., a Delaware
corporation, Los Arcos, Inc., a Colorado corporation, BritWill Funding Corporation, a
Delaware corporation, Pueblo Norte, Inc., a Colorado corporation, Emory Care Center Inc., a
Texas corporation, Rio Verde Nursing Center, Inc., a Colorado corporation, Memphis Clinical
Laboratory, Inc., a Tennessee corporation, Signature Management Group, Inc., a Colorado
corporation, American Professional Holding, Inc., a Utah corporation, Cornerstone Care,
Inc., a Colorado corporation, Ampro Medical Services, Inc., a Texas corporation, Arkansas,
Inc., a Colorado corporation, Gamma Laboratories, Inc., a Missouri corporation, Douglas
Manor, Inc., a Colorado corporation, Signature Health Care Corporation, a Delaware
corporation, Safford Care, Inc., a Colorado corporation, Brookshire House, Inc., a Colorado
corporation, RehabWest, Inc., a Colorado corporation
<S> <C> <C>
/s/ PHILLIP R. ROLLINS President and Chief Executive July 3, 1997
- ----------------------------------- Officer, Director
Phillip R. Rollins
</TABLE>
II-20
<PAGE> 206
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated May 16, 1997 with respect to the financial
statements and schedule of Unison HealthCare Corporation for the three years
ended December 31, 1996, which, as to the years 1995 and 1994, are based in part
on the reports of other auditors; our reports dated April 10, 1996 with respect
to the financial statements and schedule of BritWill HealthCare Company for the
month ended July 31, 1995; our report dated May 16, 1996 with respect to the
financial statements of Henderson & Associates Rehabilitation and Sunbelt
Therapy Management Services, Inc. for the two years ended December 31, 1995; and
our report dated October 4, 1996 with respect to the financial statements of
Franciscan Healthcare Centers at Enumclaw and Walla Walla for the three years
ended June 30, 1996, all of which are included in the Registration Statement
(Form S-4 No. 333- ) and related Prospectus of Unison HealthCare
Corporation for the registration of $100,000,000 of its 12 1/4% Senior Notes Due
2006.
Ernst & Young LLP
Phoenix, Arizona
June 27, 1997
II-21
<PAGE> 207
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of our report dated November 8, 1995 relating
to the financial statements of BritWill HealthCare Company, which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the six month period ended June 30, 1995 and
for the year ended December 31, 1994 included in Part II of this Registration
Statement when such schedule is read in conjunction with the financial
statements referred to in our report. The audits referred to in such report also
included this schedule. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Dallas, Texas
June 27, 1997
II-22
<PAGE> 208
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated April 15, 1996, on the consolidated balance sheets of Signature
Health Care Corporation (a Delaware corporation) and subsidiaries as of December
31, 1995 and 1994 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1995 and
1994; and our report dated April 15, 1996, on the combined balance sheet of
Arkansas, Inc., Cornerstone Care, Inc., Douglas Manor, Inc. and Safford Care,
Inc. (Colorado corporations) as of December 31, 1995 and the related combined
statements of operations, stockholders' equity and cash flows for the period
from inception, May 9, 1995, through December 31, 1995, and to all references to
our Firm included in or made a part of the Registration Statement on Form S-4
(File No. ) for Unison HealthCare Corporation.
ARTHUR ANDERSEN LLP
Denver, Colorado
July 3, 1997
II-23
<PAGE> 209
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated September 27, 1996 accompanying the financial
statements of RehabWest, Inc. contained in the Prospectus of Unison HealthCare
Corporation that is made a part of the Registration Statement (Form S-4) for the
registration of the exchange of its 12.25% Senior Notes due 2006.
ANDERSON & WHITNEY, P.C.
Greeley, Colorado
July 3, 1997
II-24
<PAGE> 210
EXHIBIT 99.3
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Unison HealthCare Corporation
We have audited the consolidated balance sheets of Unison HealthCare
Corporation as of December 31, 1996 and 1995, and the related consolidated
statement of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996 and have issued our report
thereon dated May 16, 1997 which, as to the years 1995 and 1994, are based upon
the report of other auditors. Our audits also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to express
our opinion on this schedule based on our audits.
In our opinion, the financial statement schedule referred to above, based
on our audits and, for 1995 and 1994, the report of other auditors, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Phoenix, Arizona
May 16, 1997
II-25
<PAGE> 211
EXHIBIT 99.4
REPORT OF INDEPENDENT AUDITORS
Board of Directors
BritWill HealthCare Company
We have audited the consolidated statements of operations and cash flows of
BritWill HealthCare Company for the month ended July 31, 1995 and have issued
our report thereon dated April 10, 1996. Our audit also included the financial
statement schedule listed in Item 16(b) of this Registration Statement. This
schedule is the responsibility of the Company's management. Our responsibility
is to express our opinion on this schedule based on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Phoenix, Arizona
April 10, 1996
II-26
<PAGE> 212
EXHIBIT 12
UNISON HEALTHCARE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
ACTUAL PRO
-------------------------------------------- FORMA
1992 1993 1994 1995 1996 1996
---- ---- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes....... $338 $286 $ 512 $ 249 $(31,794) $(31,731)
---- ---- ------ ------ -------- --------
Fixed charges:
Interest expense...................... 14 44 147 1,176 5,824 15,638
Amortization of debt expense.......... -- -- -- 69 246 700
Portion of rents representing
interest -- 33%.................... 52 69 468 2,222 5,214 5,199
---- ---- ------ ------ -------- --------
Total fixed charges..................... 66 113 615 3,467 11,284 21,537
---- ---- ------ ------ -------- --------
Income (loss) before income taxes and
fixed charges......................... $404 $399 $1,127 $3,716 $(20,510) $(10,194)
==== ==== ====== ====== ======== ========
Ratio of earnings to fixed charges...... 6.15 3.54 1.83 1.07 -- --
</TABLE>
- ---------------
Earnings were inadequate to cover fixed charges by $31,794 in 1996 and $31,731
in 1996 on a pro forma basis.
II-27
<PAGE> 1
Exhibit 5
_______________, 1997
Unison HealthCare Corporation
8800 North Gainey Center Drive
Suite 245
Scottsdale, AZ 85258
Gentlemen:
We are providing this opinion in connection with the Registration
Statement of Unison HealthCare Corporation (the "Company") on Form S-4 as
amended (the "Registration Statement") filed under the Securities Act of 1933 as
amended. The Registration Statement relates to the proposed exchange offer by
the Company of up to $1,000,000 of 12 1/4% Senior Notes (the "Exchange Notes")
for outstanding 12 1/4% Senior Notes (the "Original Notes") in the same
principal amount, all in the manner set forth in the Registration Statement and
the Prospectus constituting a part thereof (the "Prospectus"). We have examined
(1) the Registration Statement, including the Prospectus; (2) the Company's
Certificate of Corporation and Bylaws as amended to date; (3) corporate
proceedings relating to the organization of the Company and the issuance of the
Exchange Notes in exchange for the Original Notes; and (4) such other documents
and records as we have deemed necessary in order to render this opinion.
Based upon the foregoing, it is our opinion that:
1. The Company is a corporation organized and existing under the laws of
the state of Delaware.
2. The Exchange Notes, when issued in exchange for Original Notes as
contemplated by the Registration Statement and the Prospectus, will be validly
issued, fully paid and nonassessable by the Company, and will be binding
obligations of the Company.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Opinions" in
the Prospectus.
Very truly yours,
QUARLES & BRADY
Joseph D. Masterson
JDM:sk9
<PAGE> 1
Exhibit 10.121
ARKANSAS MANOR LEASE
by and between
AHP OF COLORADO, INC.
"Landlord"
and
ARKANSAS, INC.
"Tenant"
Dated as of June 13, 1995
June 14, 1995 4:22pm
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS...................................................... 1
ARTICLE II LEASE OF PROPERTY........................................ 12
ARTICLE III TERM OF LEASE............................................ 13
3.1 Term of Lease............................................ 13
3.2 Option to Extend Term of Lease........................... 13
ARTICLE IV RENT..................................................... 14
4.1 Payment of Landlord's Transaction Expenses..................... 14
4.2 Payment of Base Rent and Additional Charges.................... 14
4.3 Base Rent...................................................... 14
4.4 Rent Adjustment................................................ 15
4.5 Additional Charges............................................. 15
4.6 Triple Net Lease............................................... 15
ARTICLE V IMPOSITIONS.................................................... 19
5.1 Payment of Impositions......................................... 19
5.2 Notice of Impositions.......................................... 20
5.3 Adjustment of Impositions...................................... 20
5.4 Utility Charges................................................ 21
5.5 Insurance Premiums............................................. 21
ARTICLE VI TERMINATION OR ABATEMENT OF LEASE........................ 21
ARTICLE VII OWNERSHIP OF PROPERTY.................................... 22
7.1 Ownership of the Property...................................... 22
7.2 Tenant's Personal Property; Security Interest.................. 22
ARTICLE VIII CONDITION AND USE OF PROPERTY............................ 23
8.1 Condition of the Property...................................... 23
8.2 Use of the Property............................................ 24
8.3 Landlord to Grant Easements.................................... 25
i
<PAGE> 3
Page
8.4 Hazardous Substances........................................... 25
ARTICLE IX LEGAL REQUIREMENTS AND INSURANCE
REQUIREMENTS............................................. 29
9.1 Compliance with Legal Requirements, Insurance
Requirements and Instruments............................. 29
9.2 Covenants Regarding Legal Requirements......................... 29
ARTICLE X CONDITION OF THE PROPERTY................................ 29
10.1 Maintenance and Repair......................................... 29
10.2 Encroachments and Restrictions................................. 31
ARTICLE XI CAPITAL ADDITIONS........................................ 32
11.1 Construction of Capital Additions.............................. 32
11.2 Capital Additions Financed or Paid for by Landlord............. 32
11.3 Capital Additions Paid for by Tenant........................... 34
11.4 Disposition of Capital Additions upon Expiration or
Termination of Lease........................................... 35
11.5 Non-Capital Additions.......................................... 35
11.6 Salvage........................................................ 35
11.7 No Liens on Landlord's Interest................................ 35
ARTICLE XII LIENS.................................................... 35
ARTICLE XIII CONTESTS................................................. 36
ARTICLE XIV INSURANCE................................................ 37
14.1 Central Insurance Requirements................................. 37
14.2 Replacement Cost............................................... 38
14.3 Additional Insurance........................................... 39
14.4 Waiver of Subrogation.......................................... 39
14.5 Form of Insurance.............................................. 39
14.6 Change in Limits............................................... 39
14.7 Blanket Policy................................................. 40
14.8 No Separate Insurance.......................................... 40
ii
<PAGE> 4
Page
ARTICLE XV INSURANCE PROCEEDS....................................... 40
15.1 Handling of Insurance Proceeds................................. 40
15.2 Reconstruction in the Event of Damage or
Destruction Covered by Insurance............................... 41
15.3 Reconstruction in the Event of Damage or
Destruction Not Covered by Insurance........................... 42
15.4 Payment of Proceeds on Tenant's Property and
Capital Additions Paid by Tenant............................... 43
15.5 Handling of Business Interruption Insurance.................... 43
15.6 Restoration of Tenant's Property............................... 43
15.7 Abatement of Rent.............................................. 43
15.8 Damage Near End of Term........................................ 43
15.9 Termination of Option to Purchase.............................. 44
15.10 Waiver................................................... 44
ARTICLE XVI CONDEMNATION............................................. 44
16.1 Definitions.................................................... 44
16.2 Parties' Rights and Obligations................................ 45
16.3 Total Taking................................................... 45
16.4 Allocation of Portion of Award................................. 45
16.5 Partial Taking................................................. 46
16.6 Temporary Taking............................................... 46
ARTICLE XVII DEFAULTS AND REMEDIES.................................... 47
17.1 Events of Default.............................................. 47
17.2 Certain Remedies............................................... 49
17.3 Termination.................................................... 50
17.4 Application of Funds........................................... 51
17.5 Landlord's Right to Cure Tenant's Default...................... 51
17.6 NHI's Right to Cure............................................ 51
17.7 Waiver......................................................... 51
ARTICLE XVIII CURE BY TENANT OF LANDLORD DEFAULTS...................... 52
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Page
ARTICLE XIX PURCHASE OF PROPERTY BY TENANT........................... 52
19.1 Purchase of the Property....................................... 52
19.2 Failure to Close Purchase...................................... 53
ARTICLE XX HOLDING OVER............................................. 53
ARTICLE XXI RISK OF LOSS............................................. 53
ARTICLE XXII LIABILITY OF PARTIES..................................... 54
22.1 Indemnification by Tenant...................................... 54
22.2 Indemnification by Landlord.................................... 55
22.3 Continuing Liability........................................... 55
ARTICLE XXIII ASSIGNMENT............................................... 55
23.1 Assignment and Subletting...................................... 55
23.2 Attornment..................................................... 56
23.3 Sublease Limitation............................................ 56
ARTICLE XXIV INFORMATION FROM TENANT.................................. 57
24.1 Officer's Certificates......................................... 57
24.2 Financial Information.......................................... 57
24.3 Licensing Information.......................................... 58
ARTICLE XXV APPRAISALS OF THE PROPERTY AND
OPTIONS.................................................. 58
25.1 Appraisers..................................................... 58
25.2 Method of Appraisal............................................ 59
ARTICLE XXVI OPTIONS TO PURCHASE...................................... 59
26.1 Landlord's Option to Purchase Tenant's Personal
Property; Transfer of Licenses................................. 59
26.2 Tenant's Option to Purchase the Property....................... 60
26.3 Tenant's Right of First Refusal................................ 61
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Page
ARTICLE XXVII FACILITY MORTGAGE....................................... 61
ARTICLE XXVIII LIMITATION OF LIABILITY................................. 62
ARTICLE XXIX ADDITIONAL COVENANTS OF TENANT.......................... 62
29.1 Additional Negative Covenants................................. 62
29.2 Additional Affirmative Covenants.............................. 64
29.3 Security for the Lease........................................ 66
ARTICLE XXX MISCELLANEOUS........................................... 67
30.1 Landlord's Right to Inspect................................... 67
30.2 No Waiver..................................................... 67
30.3 Remedies Cumulative........................................... 68
30.4 Acceptance of Surrender....................................... 68
30.5 No Merger of Title............................................ 68
30.6 Conveyance by Landlord........................................ 68
30.7 Quiet Enjoyment............................................... 68
30.8 Notices....................................................... 69
30.9 Survival of Terms; Applicable Law............................. 70
30.10 Exculpation of Landlord's Officers and Agents........... 70
30.11 Transfers Following Termination......................... 70
30.12 Tenant's Waivers........................................ 71
30.13 Memorandum of Lease..................................... 71
30.14 Arbitration............................................. 71
30.15 Modifications........................................... 71
30.16 Attorneys' Fees......................................... 71
30.17 Brokers................................................. 71
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ARKANSAS MANOR LEASE
This ARKANSAS MANOR LEASE (the "Lease") is executed as of June 13, 1995,
by and between AHP OF COLORADO, INC., a Colorado corporation, having its
principal office at 6400 South Fiddler's Green Circle (Suite 1800), Englewood,
Colorado 80111, as Landlord, ("Landlord") and ARKANSAS, INC., a Colorado
corporation, having its principal office at 2105 Clubhouse Drive, Greeley,
Colorado 80634, as Tenant ("Tenant").
RECITALS
Signature Health Care Corporation, a Delaware corporation ("Signature")
and Landlord have entered into the Assignment Agreement of even date herewith
(the "Assignment"), pursuant to which Signature has assigned to Landlord all of
Signature's rights under the Purchase and Sale Agreement dated April 11, 1995
between Signature and Colorado National Bank to acquire certain real and
personal property utilized in connection with the operations of "Arkansas Manor,
" a 120 bed long-term care property located in Denver, Colorado ("Arkansas
Manor") and "Cornerstone Care Center," a 153 bed long-term care property in
Lakewood, Colorado ("Cornerstone") (collectively, Arkansas Manor and Cornerstone
are the "Colorado Properties"), and related facilities, including, but not
limited to, the Property (as defined in Article II). Landlord desires to lease
Arkansas Manor to Tenant who desires to hire the same from Landlord pursuant to
this Lease.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
ARTICLE I
DEFINITIONS
For all purposes of this Lease, unless otherwise expressly provided in
this Agreement or the context in which such term is used indicates a contrary
intent, (a) the terms defined in this Article shall have the meanings ascribed
to them in this Article, (b) all accounting terms not otherwise defined in this
Article shall have the meanings ascribed to them in accordance with generally
accepted accrual method accounting principles at the time applicable, (c) all
references in this Lease to designated "Articles," Sections" and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Lease and (d) the words "herein," hereof" and "hereunder" and other words
of similar import refer to this Lease as a whole and not to any particular
Article, Section or other subdivision.
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"ACH Transfer" shall mean the method of electronic payment initiated by
Tenant through Tenant's financial institution utilizing the National Automated
Clearinghouse Association system.
"Additional Charges" shall have the meaning ascribed to such term in
Section 4.5.
"Affiliate" of any person or entity (the "Subject") shall mean (a) any
person which, directly or indirectly, controls or is controlled by or is under
common control with the Subject, (b) any person owning, beneficially, directly
or indirectly, ten percent (10%) or more of the outstanding capital stock,
shares or equity interests of the Subject or (c) any officer, director,
employee, general partner or trustee of the Subject or any person controlling,
controlled by or under common control with the Subject (excluding trustees and
persons serving in similar capacities who are not otherwise an Affiliate of the
Subject). As used in this definition, the term "person" means and includes
governmental agencies and authorities, political subdivisions, individuals,
corporations, limited liability companies, general partnerships, limited
partnerships, stock companies or associations, joint ventures, associations,
trusts, banks, trust companies, land trusts, business trusts and any other
entity of any form whatsoever, and "control" (including the correlative meanings
of the terms "controlled by" and "under common control with"), as used with
respect to any person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
person, through the ownership of voting securities, partnership interests or
other equity interests, or through any other means.
"AHP" shall mean American Health Properties, Inc., a Delaware corporation.
"Assignment" shall have the meaning ascribed thereto in the Recitals to
this Lease.
"Award" shall have the meaning ascribed to such term in Section 16.1(c)
"Base Rent" shall mean, with respect to the Fixed Term, the amount of
$406,310.57 per year.
"Business Day" shall mean any day on which banking institutions in Denver,
Colorado are open for the conduct of normal banking business.
"Capital Additions" shall mean (a) one or more new buildings located on
the Land or to be used, directly or indirectly, as part of the Facilities, one
or more additional structures annexed to any portion of any of the Improvements,
(c) the material expansion of existing Improvements, (d) the construction of a
new wing or new
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story on existing Improvements, or (e) any expansion, construction, renovation
or conversion of existing Improvements to (i) increase the bed or service
capacity of the Facilities or (ii) change the purpose for which the Facilities
are utilized. Notwithstanding anything to the contrary contained in Article XI,
in the event it is necessary to abate or otherwise take corrective action with
respect to the existence of a Hazardous Substance (as hereinafter defined)
located in, on or under the Property or in the Improvements, such abatement or
corrective action shall not be deemed to be a Capital Addition and shall be the
sole responsibility of Tenant at its sole cost and expense.
"Capital Additions Cost" shall mean the cost of any Capital Additions made
by Tenant, whether paid for by Tenant or Landlord. Such cost shall include (a)
the costs of constructing the Capital Additions, including site preparation and
improvement, materials, labor, supervision, developer and administrative fees,
the costs of design, engineering and architectural services, the costs of
fixtures, the costs of construction financing (including but not limited to
capitalized interest) and other similar costs approved in writing by Landlord,
(b) if agreed to by Landlord in writing in advance, the purchase price and other
acquisition costs, or applicable ground lease rental payable for any period such
ground lease is in effect to and including the date upon which such Capital
Addition is completed and occupied or in operation, as the case may be, of any
land which is acquired or leased for the purpose of placing thereon all or any
portion of the Capital Additions or for providing means of access thereto, or
parking, facilities therefor (including the costs of surveying the same and
recording, title insurance and escrow fees and charges), (c) insurance premiums,
real estate taxes, water and sewage charges and other carrying, charges for such
Capital Additions during their construction, (d) fees and expenses of legal
counsel, (e) any documentary transfer or similar taxes, (f) any applicable
regulatory or administrative fees and charges, and any costs, charges, fees or
expenses paid or incurred in connection with obtaining, any applicable permits,
licenses, franchises, authorizations, certificates of need, certificates of
occupancy and similar authorizations and entitlements and (g) all other
reasonable costs and expenses of Landlord or Tenant, as applicable, and any
lending institution which has committed to finance the Capital Additions,
including, but not limited to, (i) the fees and expenses of their respective
legal counsel, (ii) any printing, duplicating and messenger expenses, (iii) any
filing, registration and recording taxes and fees, (iv) any documentary transfer
or similar taxes, (v) any title insurance charges and appraisal fees, (vi) any
rating agency fees and (vii) any commitment or similar fees charged by any
lending institution financing or offering to finance any portion of such Capital
Additions.
"Cash Flow" shall mean, for any period of determination, an amount equal
to the sum of the amounts for such period of (i) net
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<PAGE> 10
income before income taxes, (ii) depreciation, amortization and other similar
non-cash charges, including depreciation and interest expense related to the
Equipment, (iii) Base Rent and (iv) Additional Rent.
"Check Payment Date" shall mean that certain day five Business Days prior
to the first day of each calendar month occurring during the Term hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commencement Date" shall have the meaning ascribed to such term in
Section 3.1.
"Condemnation" shall have the meaning ascribed to such term in Section
16.1(a).
"Condemnor shall have the meaning ascribed to such term in Section
16.1(d).
"Consolidated Financials" shall mean, for any fiscal year (or other
accounting period) for Tenant and Guarantors and Affiliates thereof statements
of earnings and retained earnings and of changes in financial position for such
period and for the period from the beginning of the respective fiscal year to
the end of such period and the related balance sheet as at the end of such
period, together with the notes thereto, all in reasonable detail and setting
forth in comparative form the corresponding figures for the corresponding period
in the preceding fiscal year (or period), all of which shall be prepared in
accordance with generally accepted accounting principles.
"Cornerstone Lease" shall mean that certain lease entered into between
Landlord and Cornerstone Care, Inc., a Colorado corporation, as of June 13, 1995
with respect to Cornerstone.
"Date of Taking" shall have the meaning ascribed to such term in Section
16.1(b).
"Douglas Manor Lease" shall mean that certain lease entered into between
Landlord and Douglas Manor, Inc., a Colorado corporation, as of June 30, 1995
with respect to that certain property known as Douglas Manor, a 64 bed long-term
care property located in Douglas, Arizona.
"Encumbrance" shall have the meaning ascribed to such term in Article
XXVII.
"Equipment" shall have the meaning given to that term in the Purchase
Agreement.
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"Event of Default" shall have the meaning ascribed to such term in Section
17.1.
"Extended Term" shall have the meaning ascribed to such term in Section
3.2.
"Facility" shall mean the health care facility presently operated on the
Land, or with Landlord's consent, such other general health care facility,
general health and rehabilitation hospital, psychiatric hospital, nursing home,
retirement center, congregate living facility, health care related apartments or
hotel, medical office building, or other medical facility with treatment,
diagnostic, or surgical facilities for inpatient or outpatient care (which may
include but is not limited to acute care inpatient facilities, skilled nursing
facilities, intermediate care facilities, home health agencies, ambulatory care
clinics or similar facilities) offering other related health care products and
services being operated or proposed to be operated on the Land from time to time
in accordance with the Provisions of this Lease.
"Facility Mortgage" shall have the meaning ascribed to such term in
Section 14.1.
"Fair Market Added Value" shall mean the Fair Market Value (hereinafter
defined) of the Property (including all Capital Additions without regard to the
source of payment for such Capital Additions) less the Fair Market Value of the
Property determined as if no Capital Additions which were paid for by Tenant (to
the extent not reimbursed by Landlord) had been constructed.
"Fair Market Rental" shall mean, with respect to the Property (including
any Capital Additions or portions thereof paid for by Landlord) the rental paid
on a net basis as provided in Section 4.6 hereof which a willing, tenant not
compelled to rent would pay to a willing landlord not compelled to lease for the
highest and best medical use and occupancy of such property permitted pursuant
to this Lease for the term in question, assuming that Tenant is not in default
under this Lease. For purposes of this Lease, Fair Market Rental shall be
determined in accordance with the appraisal procedures set forth in Article XXV.
"Fair Market Value" shall mean, with respect to the Property, including
all Capital Additions, the price that a willing buyer not compelled to buy would
pay to a willing seller not compelled to sell such property, assuming that (a)
this Lease is not in effect, (b) that the Property had been exposed for sale in
the market for a reasonable period of time, (c) that such seller must pay any
closing costs and title insurance premiums with respect to such sale and (d)
that the Property is fully licensed by all governmental agencies having
jurisdiction thereof, is and will continue to be operated for the Primary
Intended Use and is otherwise a going concern. For purposes of this Lease, Fair
Market
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<PAGE> 12
Value shall be determined in accordance with the appraisal procedures set forth
in Article XXV.
"Fair Market Value Purchase Price" shall mean the Fair Market Value of the
Property less the Fair Market Added Value.
"Fiscal Year" shall mean the 12-month period commencing January 1 and
terminating December 31.
"Fixed Charges" shall mean the amount equal to the sum of Base Rent plus
principal and interest payments on debt.
"Fixed Term" shall have the meaning ascribed to such term in Section 3.1.
"Fixtures" shall have the meaning ascribed to such term in clause (d) of
Article II.
"Guarantors" shall mean Signature Health Care Corporation and Yankee Creek
Management Services LLC.
"Hazardous Substances" shall mean those substances, materials, and wastes
listed in the United States Department of Transportation Table (49 CFR 172 101)
or by the Environmental Protection Agency as hazardous substances (40 CFR Part
302) and amendments thereto, or such substances, materials and wastes which are
or become regulated under any applicable local, state or federal law including,
without limitations any material, waste or substance which is (i) hydrocarbons,
petroleum and petroleum products, (ii) asbestos, (iii) polychlorinatedbiphenyls,
(iv) formaldehyde, (v) radioactive substances, (vi) flammables and explosives,
(vii) described as a "hazardous substances pursuant to Section 311 of the Clean
Water Act, 33 U.S.C. Section 1251 et seq. (33 U.S.C. Section 1321 or listed
pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section 1317), (viii)
defined as a "hazardous waste" pursuant to Section 1004 of the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C. Section
6903), (ix) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et. seq. (42 U.S.C. Section 9601), as the same may be amended from
time to time, or (x) any other substance, waste or material which could
presently or at any time in the future cause a detriment to or impair the value
or beneficial use of the Land or other Property (which, for purposes of this
definition shall include all air, soils, ground water, surface water and soil
vapor) or constitute or cause a health, safety or environmental hazard on, under
or about the Land or other Property or to any person who may enter on, under, or
about the Land or other Property or require remediation at the behest of any
governmental agency.
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<PAGE> 13
"Impacted Facility" shall have the meaning specified in Section 15.2.
"Impositions" shall mean all taxes (including without limitation all real
property taxes imposed upon the Land, Improvements or other portions of the
Property, including, but not limited to all tangible and intangible personal
property, ad valorem, sales, use, single business, gross receipts, transaction
privilege, documentary stamp (if any are associated with this Lease or the
transactions contemplated hereby), rent or similar taxes relating to or imposed
upon Landlord, any portion of the Property, Tenant or its business conducted
upon the Land), assessments (including without limitation all supplemental real
property tax assessments or assessments for public improvements or benefit,
whether or not commenced or completed prior to the date hereof and whether or
not to be completed within the Term), ground rents, water, sewer or other rents
and charges, excises, tax levies, fees (including without limitation license,
permit, franchise, inspection, authorization and similar fees) and all other
governmental charges, in each case whether general or special, ordinary or
extraordinary, foreseen or unforeseen, of every character or nature whatsoever
with respect to or connected with the Property or the business conducted thereon
by Tenant (including all interest, penalties and fines thereon due to any
failure or delay in payment thereof) which at any time prior to, during or with
respect to the Term hereof may be assessed or imposed on or with respect to, or
may be a lien upon (a) Landlord's interest in the Property, (b) the Property or
any part thereof or any Rent therefrom or any estate, right, title or interest
therein, (c) Landlord's capital invested in the State as represented by the
Property, or (d) any occupancy, operation, use or possession of, or sales from,
or activity conducted on or in connection with the Property or the leasing or
use of the Property or any part thereof by Tenant. Impositions shall not include
(1) any tax based on net income (whether denominated as a franchise, capital
stock or other tax) imposed upon Landlord or any other person, whether imposed
on "net taxable earned surplus" or otherwise, (2) any transfer tax imposed upon
Landlord or any other person or (3) any tax imposed with respect to the sale,
exchange or other disposition by Landlord of any Property or the proceeds
thereof, nor any tax, assessment, tax levy or charge described in the first
sentence of this paragraph which is in effect at any time during the Term hereof
to the extent such tax, assessment, tax levy or charge is totally or partially
repealed, unless a tax, assessment, tax levy or charge set forth in clause (1)
or (2) is levied, assessed or imposed expressly in lieu thereof, in which case
the substitute tax, assessment, tax levy or charge shall be deemed to be an
Imposition.
"Improvements" shall have the meaning ascribed to such term in clause (b)
of Article II.
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<PAGE> 14
"Initial Base Rent" shall mean the amount of Base Rent in the initial year
of the Term.
"Initial Investment Cost" shall mean $4,066,155.28.
"Insurance Requirements" shall mean all terms and conditions of any
insurance policy required by this Lease and all requirements of the issuer of
any such insurance policy.
"Land" shall mean all of that certain real property situated in the City
and County of Denver, State of Colorado and more particularly described in
Exhibit A attached hereto and incorporated herein by reference, and any other
parcel of land acquired or leased and made subject to this Lease in connection
with a Capital Addition.
"Landlord Group" shall mean any one or more of Landlord, AHP, any
Affiliate of Landlord or AHP and any shareholder of AHP.
"Landlord's Total Investment" shall mean an amount equal to the sum of (y)
the Initial Investment Cost and (z) all Capital Additions Costs pertaining to
the Property paid for by Landlord pursuant to Section 11.2 of the Lease.
"Landlord's Transaction Expenses" shall mean all reasonable out-of-pocket
expenses incurred by Landlord in connection with (i) the preparation of this
Lease, the Purchase Agreement and any Substitute Lease and the instruments
contemplated hereunder and thereunder, and any other instruments required to be
executed and delivered by Tenant to Landlord in connection, herewith or
therewith (whether or not the transactions hereby or thereby contemplated shall
be consummated) and (ii) the transactions contemplated to be performed hereunder
and thereunder, including but not limited to the reasonable fees and
disbursements of Landlord's legal counsel, title insurance premiums, recording
taxes and fees, survey fees, valuation or appraisal fees, engineering fees and
architects' fees.
"Lease" shall mean this document, as the same may be amended from time to
time in accordance herewith.
"Lease Reserve Fund" shall have the meaning ascribed thereto in Section
29.3(c).
"Lease Year" shall mean the period commencing on the Commencement Date and
ending on the first anniversary thereof, except that if the Commencement date is
other than the first day of a calendar month, the first Lease Year shall end 12
months from the last day of the calendar month immediately preceding the
Commencement Date. Thereafter, each Lease Year shall be the 12 month period
beginning on the next day following expiration of the preceding Lease Year. If
the Term ends prior to the last day of a
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Lease Year, the final Lease Year shall be deemed to end on the day the Term
ends.
"Leases" shall mean the Lease, the Cornerstone Lease, the Douglas Manor
Lease and the Safford Lease, collectively.
"Legal Requirements" shall mean all federal, state, county, municipal and
other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, common law, decrees and injunctions affecting the Property or the
maintenance, construction, use, alteration, occupancy or operation thereof,
whether now or hereafter enacted and in force (including any of the foregoing
which may require repairs, modifications or alterations in or to the Property),
all permits, licenses, certificates, franchises, authorizations, land use
entitlements, zoning and regulations relating thereto, and all covenants,
conditions, agreements, restrictions and encumbrances contained in any
instruments, either of record or known to Tenant (other than encumbrances
created by Landlord without the consent of Tenant), at any time in force
affecting the Property.
"Minimum Repurchase Price" shall mean the Initial Investment Cost, plus
the Capital Additions Cost of any Capital Additions financed or paid for by
Landlord, less the net amount (after deduction of all reasonable legal fees and
other costs and expenses, including without limitation expert witness fees,
incurred by Landlord in connection with obtaining any such proceeds or awards)
of any proceeds of insurance paid to and retained by Landlord in accordance with
Article XV of this Lease and of any Awards received by Landlord and not applied
to restoration of the Property in accordance with Article XVI of this Lease.
"NM" shall mean National Health Investors, Inc.
"Notice" shall mean a notice given pursuant to Section 30.8 hereof.
"Officer's Certificate" shall mean a certificate of Tenant signed by the
chief financial officer or another officer authorized so to sign by resolutions
adopted by the board of directors or the articles of incorporation or by-laws of
the general partner of the Tenant or by any other person whose power and
authority to act has been authorized by delegation in writing by the chief
financial officer of the general partner of the Tenant.
"Overdue Rate" shall mean, as of a specified date, a rate of interest
equal to the Prime Rate plus three percent, but in no event greater than the
maximum rate of interest then permitted under applicable law.
"Payment Date" shall mean any due date for the payment of any installment
of Base Rent.
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"Permitted Encumbrances" shall mean the matters, if any, set forth in
Exhibit B attached hereto and incorporated herein by reference.
A "person" shall mean any natural person, corporation, limited liability
company, business trust, association, company, partnership or government (or any
agency or political subdivision thereof) or, for purposes of the definition of
"Change of Control" herein, any group acting in concert (within the meaning of
Section 13(d) of the Securities Exchange Act of 1934).
"Primary Intended Use" shall mean a long-term care facility licensed by
the State and such additional uses which are licensed or applied for on the date
hereof or are permitted by Landlord from time to time hereunder.
"Properties" shall mean the Property subject to the Leases, collectively.
"Property" shall have the meaning ascribed to such term in Article II.
"Purchase Agreement" shall have the meaning given to that term in the
Assignment.
"Rent" shall mean the Base Rent and Additional Charges.
"Safford Lease" shall mean that certain lease entered into between
Landlord and Safford Care, Inc., a Colorado corporation, as of June 30, 1995
with respect to that certain property known as Safford Care Center, a 128 bed
long-term care property located in Safford, Arizona.
"Sale" shall have the meaning specified in Section 26.2.
"Security Agreement" shall mean the Security and Pledge Agreement of even
date between Tenant, as Debtor, and Landlord, as Secured Party.
"Security Letter of Credit" shall have the meaning ascribed thereto in
Section 29.3.
"Signature Guaranty" shall mean that certain Guaranty of even date
herewith executed by Signature Health Care Corporation in favor of Landlord.
"State" shall mean the State of Colorado.
"Taking" shall mean a taking or voluntary conveyance during the Term
hereof of all or any part of the Property, or any interest therein, right with
respect thereto or use thereof, as a result of, incidental to, or in settlement
of any condemnation or other
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eminent domain proceedings affecting such Property, regardless of whether such
Proceedings shall have actually been commenced.
"Tangible Net Worth" shall mean, as of the date of determination, the sum
of the following for Tenant and its consolidated subsidiaries, if any, on a
consolidated basis, determined in accordance with generally accepted accounting
principles (a) the amount of capital or stated capital (after deducting the cost
of any shares held in the applicable entity's treasury); plus (b) the amount of
capital surplus and retained earnings; or (c) in the care of a capital or
retained earnings deficit, minus the amount of such deficit and less (d) the
amount, if any, carried on the books of the entity and any consolidated
subsidiaries of the entity for goodwill, patents, trademarks, copyrights,
licenses, and other assets which are properly classified as intangible assets
under generally accepted accounting principles.
"Tenants" shall mean Arkansas, Inc., Cornerstone Care, Inc., Douglas
Manor, Inc. and Safford Care, Inc., collectively.
"Tenant's Personal Property" shall mean all machinery, equipment,
furniture, furnishings, movable walls or partitions, computers or other personal
property, and consumable inventory and supplies, including, without limiting the
generality of the foregoing, sterilizer units, scrub sinks, mail boxes, desks,
lamps, chairs, beds, bedstands, surgical lamps, water stills, fume hoods,
non-affixed cabinetry, tables, and similar movable equipment, owned by Tenant
and used or useful in Tenant's business on the Land, but in no event any items
included within the definition of Equipment or Fixtures.
"Term" shall mean the Fixed Term and any Extended Terms, as the context
may require, unless earlier terminated pursuant to the Provisions of this Lease.
"Total Rent" shall mean the sum of Base Rent and Additional Charges.
"Transfer Payment Date" shall mean the first Business Day of each calendar
month occurring during, the Term hereof.
"Unavoidable Delays" shall mean delays due to strikes, lockouts, inability
to procure materials, power failures, acts of God, governmental restrictions,
enemy action, civil commotion, unavoidable casualty and other causes beyond the
control of the party responsible for performing an obligation hereunder,
provided that lack of funds shall not be deemed a cause beyond the control of
either party hereto.
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"Yankee Creek Guaranty" shall mean that certain Guaranty of even date
herewith executed by Yankee Creek Management Services LLC in favor of Landlord.
ARTICLE II
LEASE OF PROPERTY
Landlord hereby leases, demises and lets to Tenant, and Tenant hereby
hires, takes and leases from Landlord, upon the terms and subject to the
conditions hereinafter set forth, TO HAVE AND TO HOLD, all of Landlord's right,
title and interest in and to all of the following (the "Property"):
(a) the Land;
(b) all buildings, structures and other improvements of every kind,
including but not limited to the Facility, all buildings and structures
hereafter constructed upon the Land and all alleyways and connecting tunnels,
sidewalks, utility pipes, conduits and lines (on-site and off-site), parking
areas, roadways and other related on-site and offsite improvements appurtenant
to such buildings and structures presently or hereafter situated upon the Land,
and any and all Capital Additions paid for by Landlord pursuant to Section 11.2
of this Lease (the "Improvements");
(c) all machinery and equipment and all other tangible personal property,
fittings, appliances, apparatus, furniture, furnishings now and hereafter
located on, affixed to or used in connection with the Facility;
(d) all easements, licenses, rights-of-way and appurtenances
relating to the Land and the Improvements); and
(e) all "fixtures" as that term is defined in the State now and hereafter
located in, on or used and incorporated into the Land or Improvements (the
"Fixtures").
ARTICLE III
TERM OF LEASE
3.1 Term of Lease. The initial term of this Lease shall commence on June
13, 1995 ("Commencement Date"), and, unless extended or terminated earlier in
accordance with the provisions of this Lease, shall remain in effect until June
30, 2005 (the "Fixed Term"). Notwithstanding the foregoing, if, for any reason,
through no fault of Landlord, Landlord cannot deliver possession of the Property
to Tenant on the Commencement Date, Landlord shall not be subject to any
liability, nor shall such failure affect the validity of this Lease or the
obligations of Tenant hereunder or extend the Term hereof, but in such case,
Tenant shall not be obligated to pay Rent or to perform any other obligation of
Tenant
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under this Lease until possession of the Property is tendered to Tenant.
3.2 Option to Extend Term of Lease.
(a) Subject to the provisions of Paragraph (c) below, Landlord hereby
grants to Tenant an option to extend the term of the Lease, for three additional
consecutive ten-year renewal terms (each, an "Extended Term," and collectively,
the "Extended Terms"). Each of the Extended Terms shall be upon the same terms
and conditions as those set forth for the Fixed Term except that Base Rent shall
be the then current Fair Market Rental which, unless otherwise mutually agreed
to by Landlord and Tenant, shall be determined by appraisal pursuant to the
provisions of Article XXV; provided that the annual Base Rent for each Extended
Term shall not be less than 102 1/2% of the sum of Base Rent payable during the
last year of the Fixed Term or preceding Extended Term, as the case may be. The
Base Rent for the Extended Term provided for herein for the second and each
subsequent Lease Year of the Extended Term shall be increased to an amount equal
to one hundred two and one-half percent (102 1/2%) of the Base Rent for the
preceding twelve month period, calculated by applying such percentage increases
on a cumulative basis to the Base Rent payable during each of the preceding
Lease Years. Each such option may only be exercised by Tenant if, at the time
such option is exercised, an Event of Default shall not exist and be continuing,
and shall be exercised by Tenant by delivery of Notice to that effect to
Landlord not less than 180 days but not more than 360 days prior to the date
upon which this Lease otherwise would terminate. Tenant's exercise of any option
to extend the term of this Lease for an extended term pursuant to this Section
3.2 shall constitute Tenants' irrevocable and binding commitment to lease the
Property on the terms stated in this Lease for the whole of such Extended Term.
If Tenant is unable to exercise any option due to the provisions of this Lease,
the time during which such option may be exercised shall not be extended or
enlarged. The failure of Tenant to exercise any of the options for the Extended
Terms within the respective times specified in this Section shall thereby
terminate any remaining such options.
(b) Time is strictly of the essence with respect to the requirement that
Tenant gives timely Notice of its exercise of any options hereunder, including,
but not limited to, the options for the Extended Terms, and Tenant's failure
timely to exercise any option strictly in accordance with its terms shall
constitute a material, irredeemable and incurable failure to satisfy a condition
precedent to the vesting of any rights in Tenant pursuant to such option, and
Tenant hereby expressly waives any right to claim relief from forfeiture, or any
other form of equitable relief, from consequences of an untimely exercise of any
such option strictly in accordance with its terms. The implied covenant of good
faith and fair dealing under this Lease shall not be construed to impose upon
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Landlord any obligation to notify Tenant in advance of the impending deadline
for the exercise of any option hereunder, nor shall it obligate Landlord to
excuse the tardy exercise of any option however slight.
(c) Unless Landlord shall otherwise consent in its sole discretion,
Tenant's right to extend the Term of the Lease is subject to the condition that
upon any such extension, the terms of all of the other Leases will be extended
concurrently.
ARTICLE IV
RENT
4.1 Payment of Landlord's Transaction Expenses. On the Commencement Date,
Tenant shall pay to Landlord all Landlord's Transaction Expenses. Landlord shall
furnish Tenant with reasonable documentation concerning Landlord's Transaction
Expenses.
4.2 Payment of Base Rent and Additional Charges. During the Term, Tenant
shall pay to Landlord at the times specified herein, in lawful money of the
United States of America, without right of abatement, deduction, counterclaim,
defense, reduction, recoupment or offset, by wire transfer or ACH Transfer of
Federal Funds to such account or accounts as Landlord may designate from
time-to-time in a Notice, by check delivered to Landlord at the address in
Section 30.8, or at such other place as Landlord may designate in writing, the
Base Rent and the Additional Charges.
4.3 Base Rent. Commencing on the first Business Day of the first full
calendar month occurring coincident with or after the Commencement Date, and
thereafter, for any Base Rent payment by wire transfer or ACH Transfer on the
Transfer Payment Date, and if by check, Base Rent payment is due on the Check
Payment Date, for the period beginning on the first Business Day and ending on
the last day of the Term hereof, Tenant shall pay to Landlord an amount
calculated by dividing (x) Base Rent by (y) 12, provided that the first payment
of Base Rent shall include an additional payment for any partial calendar month
occurring between the Commencement Date and the date of the first payment of
Base Rent. Any payment of Base Rent for a period of less than one calendar month
shall be prorated based upon the number of days for which such Base Rent is due
divided by 30.
4.4 Rent Adjustment. The Base Rent provided for herein for the second and
each subsequent Lease Year of the Term shall be increased to an amount equal to
one hundred two and one-half percent (102 1/2%) of the Base Rent for the
preceding twelve month period, calculated by applying such percentage increases
on a cumulative basis to the Base Rent payable during each of the preceding
Lease Years.
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4.5 Additional Charges. Subject to Article XIII hereof, Tenant shall pay
and discharge as and when due and payable all Impositions and other amounts,
liabilities and obligations which Tenant assumes or agrees to pay under this
Lease. If Tenant falls or refuses to pay any of the items referred to in the
immediately preceding sentence, Tenant shall promptly pay and discharge every
fine, penalty, interest and cost which may arise or accrue for the non-payment
or late payment of such items. The aforementioned amounts, liabilities,
obligations, Impositions, fines, penalties, interest and costs are referred to
herein as "Additional Charges." The Additional Charges shall constitute Rent
hereunder. If any Rent (but as to Additional Charges, only those which are
payable directly to Landlord) shall not be paid on its due date, Tenant shall
pay to Landlord on demand, as an Additional Charge, a late charge to the extent
permitted by law, computed at the Overdue Rate on the amount of such Rent from
the due date of such Rent to the date such Rent is paid. Any payment by Tenant
of Additional Charges to Landlord pursuant to any requirement of this Lease
shall relieve Tenant of its obligation to pay such Additional Charges to the
entity to which they would otherwise be paid.
4.6 Triple Net Lease.
(a) Triple Net Lease. This Lease is what is commonly called a "net net net
lease", it being understood that Landlord shall receive all Rent as provided in
this Article free and clear of any and all Impositions, encumbrances, charges,
obligations or expenses of any nature whatsoever in connection with the
ownership and operation of the Property. In addition to the Rent reserved by
this Article, except as expressly provided herein to the contrary, Tenant shall
pay to the parties respectively entitled thereto all Impositions, insurance
premiums, operating charges, maintenance charges, construction costs and any
other charges, costs and expenses which arise or may be contemplated under any
provisions of this Lease during the Term hereof. All of such charges, costs and
expenses shall constitute Rent, and upon the failure of Tenant to pay any such
costs, charges or expenses, Landlord shall have the same rights and remedies as
otherwise provided in this Lease for the failure of Tenant to pay Rent and
Landlord shall be indemnified and saved harmless by Tenant from and against the
same. It is the intention of the parties hereto that this Lease shall not be
terminable for any reason by the Tenant and that Tenant shall in no event be
entitled to any abatement of or reduction in Rent payable under this Lease
except as herein expressly provided. Any present or future law to the contrary
shall not alter this agreement of the parties.
(b) Bankruptcy. Tenant covenants and agrees that it shall remain obligated
under this Lease in accordance with its terms, and that Tenant shall not take
any action to terminate, rescind or avoid this Lease, notwithstanding the
bankruptcy, insolvency, reorganization, composition, readjustment, liquidation,
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dissolution, winding up or other proceeding affecting Landlord or any assignee
of Landlord in any such proceeding and notwithstanding any action with respect
to this Lease which may be taken by any trustee or receiver of Landlord or any
such assignee in any such proceeding or by any court in any such proceeding.
(i) In the event that Tenant shall file a petition, or an order for
relief is entered against Tenant, under Chapter 7, 9, 11 or 13 of the Bankruptcy
Code, 11 U.S.C.S. 101 et seq. (the "Bankruptcy Code") and the trustee of Tenant
shall elect to assume this Lease for the purpose of assigning the same, such
assumption or assignment may only be made if all the conditions of subsections
(ii) and (iii) of this Section 4.8(b) are satisfied. If the trustee or
debtor-in-possession, as the case may be, shall fail to elect to assume this
Lease within 60 days after such trustee shall have been appointed, or the date
of filing of the petition, at Landlord's election (and in its sole and absolute
discretion) this Lease shall be deemed to have been rejected and, in such event,
Landlord shall thereupon immediately be entitled to possession of the Property
without further obligation to the trustee or Tenant, and this Lease shall be
canceled, but Landlord's right to be compensated for damages in the bankruptcy
proceedings shall survive such cancellation.
(ii) No election to assume this Lease shall be effective unless in writing
and addressed to Landlord and unless, in Landlord's business judgment, all the
following conditions, which Landlord and Tenant acknowledge to be commercially
reasonable, have been satisfied:
(A) The trustee (or Tenant, as debtor-in-possession) has cured or has
provided Landlord adequate assurance that:
(I) within ten days from the date of such assumption, the trustee (or
debtor-in-possession) will cure all monetary defaults under this Lease; and
(II) within 30 days from the date of such assumption, the trustee (or
debtor-in-possession) will cure all non-monetary defaults under this Lease or
commence to cure within 30 days and thereafter diligently pursue to completion.
(B) The trustee (or debtor-in-possession) has compensated, or has
provided to Landlord adequate assurance that within ten days from the date of
assumption Landlord will be compensated, for any pecuniary loss incurred by
Landlord arising from the default of the Tenant or the trustee (or the
debtor-in-possession) as recited in Landlord's written statement of pecuniary
loss sent to the trustee (or debtor-in-possession);
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(C) The trustee (or debtor-in-possession) has provided Landlord with
adequate assurance of the future performance of each of Tenant's obligations
under this Lease, provided that:
(I) the trustee (or debtor-in-possession) shall also deposit with
Landlord, as security for the timely payment of Rent, an amount equal to (w)
three months' Base Rent and (x) the last quarterly payment of Percentage Rent
and (y) the other monetary charges accruing under this Lease; and
(II) the obligations imposed upon the trustee (or
debtor-in-possession) shall continue with respect to Tenant after completion of
bankruptcy proceedings.
(D) Landlord has determined that the assumption of the Lease will not:
(I) breach any provision in any agreement by which Landlord is
bound relating to the Property; or
(II) disrupt, in Landlord's reasonable judgment, the reputation and
profitability of the Property.
(E) For purposes of this subsection, "adequate assurance" shall mean:
(I) Landlord shall determine that the trustee (or
debtor-in-possession) has and will continue to have sufficient unencumbered
assets after the payment of all secured obligations and administrative expenses
to assure Landlord that the trustee (or debtor-in-possession) will have
sufficient funds to fulfill the obligations of Tenant under this Lease; and
(II) an order shall have been entered segregating sufficient cash
payable to Landlord, or there shall have been granted a valid and perfected
first lien and security interest in property of the Tenant or trustee (or
debtor-in-possession), acceptable as to value and kind to Landlord, to secure to
Landlord the obligation of the Trustee (or debtor-in-possession) to cure the
monetary or nonmonetary defaults under this Lease within the time periods set
forth above.
(iii) If the trustee (or debtor-in-possession) has assumed the Lease
pursuant to all the provisions of subsections (i) and (ii) of this Section 4
8(b), for the purpose of assigning (or electing to assign) Tenant's interest
under this Lease or the estate created thereby to any other person, such
interest or estate may be so assigned only if Landlord shall acknowledge in
writing that the intended assignee has provided adequate assurance of future
performance of all the terms, covenants and conditions of this Lease to be
performed by Tenant. For purposes of this subsection (iii), "adequate assurance
of future performance" means
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that Landlord shall have ascertained that each of the following conditions has
been satisfied:
(A) the assignee has submitted a current financial statement audited by a
certified public accountant which shows tangible net worth and working, capital
in amounts determined to be sufficient by Landlord to assure the future
performance by such assignee of Tenant's obligations under this Lease;
(B) if requested by Landlord, the assignee shall have obtained guarantees
in form and substance satisfactory to Landlord from one or more persons who
satisfy Landlord's standards of creditworthiness;
(C) Landlord has obtained all consents to waivers from any third parties
required under any lease, mortgage, financing arrangement or other agreement by
which Landlord is bound to enable Landlord to permit such assignment;
(D) the assignee has deposited an adequate security deposit with
Landlord; and
(E) the assignee has demonstrated that its intended use of the Property
is consistent with the terms of this Lease and will not diminish the reputation
of the Facility, or violate any "exclusive" which has been guaranteed by Tenant
to any permitted subtenant in the Property.
(iv) When, pursuant to the Bankruptcy Code, the trustee (or
debtor-in-possession) shall be obligated to pay reasonable use and occupancy
charges for the use of the Property or any portion thereof, such charges shall
not be less than the Rent.
(v) Neither Tenant's interest in the Lease, nor any lesser interest of
Tenant herein, nor any estate of Tenant hereby created, shall pass to any
trustee, receiver, assignee for the benefit of creditors or any other person by
operation of law or otherwise unless Landlord shall consent to such transfer in
writing. No acceptance by Landlord of rent or any other payments from any such
trustee, receiver, assignee or person shall be deemed to have waived, nor shall
it waive the need to obtain Landlord's consent to, or Landlord's right to
terminate this Lease for, any transfer of Tenant's interest under this Lease
without such consent.
(vi) Any person to whom this Lease is assigned pursuant to the provisions
of the Bankruptcy Code shall be deemed without further act or deed to have
assumed all the obligations arising under this Lease on or after the date of
such assignment. Any such assignee shall, upon demand, execute and deliver to
Landlord an instrument confirming such assumption.
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ARTICLE V
IMPOSITIONS
5.1 Payment of Impositions. Tenant shall pay, or cause to be paid, all
Impositions prior to delinquency and before any fine, penalty, interest or cost
may be added for non-payment (subject to Tenant's rights of contest pursuant to
the provisions of Article XIII). Such payments shall be made directly to the
authorities levying such Impositions, if possible. Tenant shall, promptly upon
request by Landlord, furnish to Landlord original or certified copies of
receipts or other reasonably satisfactory evidence of such payments. Tenant's
obligation to pay Impositions shall be deemed absolutely fixed upon the date
such Impositions become a lien upon the Property or any part thereof.
Notwithstanding, the foregoing, if any such Imposition may, at the option of the
payor, lawfully be paid in installments (whether or not interest shall accrue on
the unpaid balance of such Imposition), and so long as no Event of Default shall
have occurred hereunder and be continuing, Tenant may pay the same (and shall
pay any accrued interest on the unpaid balance of such Imposition) in
installments, and in such event shall pay such installments (subject to Tenant's
right of contest pursuant to the provisions of Article XIII) as the same become
due and before any fine, penalty, premium, further interest or cost is added
thereto. Landlord shall, at its expense and to the extent required or permitted
by applicable laws and regulations, prepare and file all returns with respect to
Landlord's net income, gross receipts, sales, use, single business, transaction
privilege, rent, ad valorem and franchise taxes, and with respect to taxes on
Landlord's capital stock. Tenant shall, at its expense, and to the extent
required or permitted by applicable laws and regulations, prepare and file all
other tax returns and reports with respect to any Imposition as may be required
of Tenant by governmental agencies or authorities. If any refund shall be due
from any taxing, authority with respect to any Imposition paid by Tenant, the
same shall be paid over to and retained by Tenant unless an Event of Default
shall have occurred hereunder and be continuing, in which case such refund shall
be paid over to and retained by Landlord. Any such funds retained by Landlord
due to an Event of Default shall be applied as provided in Article XVII.
Landlord and Tenant shall, each upon a request by the other, provide such
information as is maintained by the party to whom the request is made with
respect to the Property as may be reasonably necessary to prepare any required
returns or reports. If any governmental agency or authority classifies any
property covered by this Lease personal property, Tenant shall file all personal
property tax returns in such jurisdictions where it may legally so file.
Landlord, to the extent it possesses the same, and Tenant, to the extent it
possesses the same, will provide to the other party, promptly upon request, cost
and depreciation records reasonably necessary for filing returns for any
property so classified as personal property. If Landlord is legally required to
file any personal property tax returns, Landlord shall provide
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Tenant with copies of any assessment notices with respect thereto in sufficient
time for Tenant to file a protest with respect thereto if it so elects pursuant
to Article XIII. If no Event of Default is then continuing, Tenant may at its
option and sole cost and expense, upon written notice to Landlord, protest,
appeal or institute such other proceedings as Tenant reasonably may deem
appropriate to effect a reduction of real estate or personal property
assessments so long as such action is conducted in good faith and with due
diligence. In such event, Landlord, at Tenant's sole cost and expense, shall
fully cooperate with Tenant in such protest, appeal, or other action. Tenant
hereby agrees to indemnify, defend, save and hold Landlord harmless from and
against any and all losses, demands, claims, obligations and liabilities against
or incurred by Landlord in connection with such cooperation by Landlord.
Billings by either party to the other for reimbursement of personal property
taxes shall be accompanied by copies of a bill therefor and evidence of payments
thereof which identify the personal property with respect to which such payments
have been made.
5.2 Notice of Impositions. Landlord shall give prompt Notice to Tenant of
all Impositions payable by Tenant hereunder of which Landlord at any time has
knowledge. Notwithstanding the foregoing, however, Landlord's failure to give
any such Notice shall in no way diminish Tenant's obligations hereunder to pay
such Impositions, but Landlord shall be responsible for any fine, penalty or
interest resulting from its failure to give such notice and any default by
Tenant hereunder shall be obviated for a reasonable time after Tenant receives
Notice of any Imposition which it is obligated to pay.
5.3 Adjustment of Impositions. Impositions imposed with respect to the tax
period during which the Term expires or terminates shall be adjusted and
prorated between Landlord and Tenant, whether or not such Imposition is imposed
before or after such expiration or termination, so that Tenant is only obligated
to pay that portion of such Imposition(s) pertaining to the tax period within
the Term. The obligation of Tenant to pay its prorated share of Impositions
shall survive expiration or earlier termination of this Lease.
5.4 Utility Charges. Tenant shall pay or cause to be paid all charges for
all utilities, including but not limited to electricity, power, gas, oil and
water, used in the Property during the Term.
5.5 Insurance Premiums. Tenant shall pay or cause to be paid all premiums
for insurance coverage required to be maintained pursuant to Article XIV.
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ARTICLE VI
TERMINATION OR ABATEMENT OF LEASE
Without limiting, the generality of Section 4.6, Tenant, to the full
extent permitted by law, shall remain bound by this Lease in accordance with its
terms. Tenant shall not take any action without the prior written consent of
Landlord to modify, surrender or terminate this Lease. The obligations of
Landlord and Tenant hereunder shall be separate and independent covenants and
agreements, and Rent and all other sums shall continue to be payable by Tenant
hereunder in any event unless the obligation of Tenant to pay the same
terminates pursuant to the express provisions of this Lease or by termination of
this Lease (other than by reason of an Event of Default). Without limiting the
generality of the immediately preceding sentence, Tenant shall not seek or be
entitled to any abatement, deduction, deferment or reduction of Rent, or set-off
against Rent, nor shall the respective obligations of Landlord and Tenant be
otherwise affected by reason of: (a) any damage to, or destruction of, all or
any portion of the Property from whatever cause or any Taking of all or any
portion of the Property; (b) the lawful or unlawful prohibition of, or
restriction upon, Tenant's use of all or any portion of the Property, or the
interference with such use or with Tenant's quiet enjoyment of the Property by
any person or entity other than Landlord, or by reason of eviction by paramount
title; (c) any claim which Tenant has or may have against Landlord by reason of
any default or breach of any warranty by Landlord under this Lease or under any
other agreement between Landlord and Tenant or to which Landlord and Tenant are
parties; (d) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other proceeding affecting
Landlord or any assignee or transferee of Landlord; or (e) any other cause,
whether similar or dissimilar to any of the foregoing (other than a discharge of
Tenant from any such obligations as a matter of law). Tenant hereby specifically
waives all rights, arising from any occurrence whatsoever, which (i) may now or
hereafter be conferred upon it by law to modify, surrender or terminate this
Lease or quit or surrender all or any portion of the Property or (ii) entitle
Tenant to any abatement, reduction, suspension or deferment of Rent or other
sums payable by Tenant hereunder.
ARTICLE VII
OWNERSHIP OF PROPERTY
7.1 Ownership of the Property. As between Landlord and Tenant the Property
is, and throughout the Term shall continue to be, the property of Landlord.
Tenant has only the right to the exclusive possession and use of the Property,
upon the terms and subject to the conditions set forth in this Lease.
7.2 Tenant's Personal Property; Security Interest. Tenant may, at its
expense, install, affix, assemble or place on the
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Property any items of Tenant's Personal Property and may, subject to the
conditions set forth below, remove Tenant's Personal Property upon the
expiration or earlier termination of this Lease or in the ordinary course of
business (other than a termination upon an Event of Default) so long as any
damage caused by such removal shall be promptly repaired by Tenant.
Notwithstanding the foregoing, in order to secure the payment and the
performance of all of Tenant's obligations under this Lease, Tenant hereby
grants to Landlord a security interest in (and hereby pledges and collaterally
assigns to Landlord) all of Tenant's rights, title and interest in and to
Tenant's Personal Property, all whether now existing, or hereafter acquired and
hereby further agrees to execute and deliver to Landlord, forthwith after demand
by Landlord from time to time, any security agreement in a reasonable form
determined by Landlord and such additional writings and instruments, including
without limitation financing statements, as may be reasonably required by
Landlord for the purpose of effectuating the intent of this sentence and Tenant
agrees that Landlord shall have with respect to all Personal Property all rights
and remedies of a secured party under the Uniform Commercial Code as adopted in
the State, including, but not limited to, the right after the occurrence of an
Event of Default to use or sell Tenant's Personal Property, and Landlord shall
not be required to remove any of such Personal Property from the Property and in
no event shall Landlord be liable to Tenant for use of such Personal Property.
Pending disposition of such Personal Property by Landlord, Landlord shall be
entitled to use such Personal Property in connection with the operation (if any)
of the Facility. Tenant shall not permit the Property or Personal Property to
become subject to any liens or encumbrances of any kind without first obtaining
the prior written consent of Landlord, except for liens or encumbrances
permitted by Section 29.1(a). This Lease and the security interest granted
Landlord hereby shall be subordinate to any purchase money security interest or
capital lease permitted under Section 29.1(a). Landlord further agrees that
Tenant may lease Personal Property, and Landlord shall execute and deliver such
agreements as may be reasonably required by any permitted equipment lessor or
the holder of a permitted purchase money security interest to confirm that
Landlord's lien on the Personal Property in question is subordinate to the
rights of such equipment lessor or lender and in each case Tenant shall use its
best efforts to obtain from the holder of the purchase money debt or lessor of
Personal Property, as the case may be, its agreement to (i) notify Landlord or
its successors and assigns of any default by Tenant, (ii) allow Landlord or its
successors and assigns an opportunity to cure any default, (iii) recognize
Landlord or its successors and assigns as succeeding to Tenant's rights under
the agreement in question and to the undisturbed use of the equipment, provided
that Landlord fully complies with the terms of such agreement. Tenant shall
provide and maintain on the Property during the entire Term such Tenant's
Personal Property as shall be necessary to operate the Facility in compliance
with all licensure and certification
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requirements, in substantial compliance with all Legal Requirements and
Insurance Requirements and otherwise in accordance with customary practice in
the health care industry with respect to the Primary Intended Use or other uses
then conducted on the Property by Tenant and permitted hereunder. All Tenant's
Personal Property not removed by Tenant within thirty days following the
expiration or earlier termination of this Lease shall be considered abandoned by
Tenant and may be appropriated, sold, destroyed or otherwise disposed of by
Landlord without first giving Notice thereof to Tenant and without any payment
or obligation to account to Tenant. Tenant shall, at its sole cost and expense,
restore the Property to the condition required by Section 10.1(d), including
repair of all damage to the Property caused by the removal of Tenant's Personal
Property, whether effected by Tenant or Landlord, except that caused by the
gross negligence or willful misconduct of Landlord.
ARTICLE VIII
CONDITION AND USE OF PROPERTY
8.1 Condition of the Property. LANDLORD MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, AND SHALL BE SUBJECT TO NO LIABILITY WITH
RESPECT TO, NOR SHALL THE VALIDITY OF THIS LEASE BE, AFFECTED. BY ANY CLAIM,
DEMAND OR CAUSE OF ACTION REGARDING THE PROPERTY OR ANY PART THEREOF, EITHER AS
TO ITS DESIGN, CONDITION OR FITNESS FOR ANY PARTICULAR USE OR PURPOSE OR
OTHERWISE, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT
OR PATENT. TENANT ACKNOWLEDGES AND AGREES THAT THE PROPERTY HAS BEEN INSPECTED
BY TENANT, HAS BEEN APPROVED FOR OCCUPANCY BY ALL GOVERNMENT AGENCIES HAVING
JURISDICTION THEREOVER AND IS SATISFACTORY TO IT IN ALL RESPECTS, INCLUDING FOR
ITS PRIMARY INTENDED USE, AND THAT TENANT IS LEASING THE PROPERTY "AS IS" IN ITS
PRESENT CONDITION, AND SUBJECT TO (A) THE EXISTING STATE OF TITLE, INCLUDING ALL
COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS, LICENSES, LEGAL REQUIREMENTS,
MORTGAGES, DEEDS OF TRUST, ASSIGNMENTS OF LEASES, FIXTURE FILINGS AND OTHER
FINANCING INSTRUMENTS AND ANY AND ALL OTHER MATTERS OF RECORD AND OTHERWISE
EXCEPT TO THE EXTENT ANY OF THE FOREGOING WERE CAUSED OR CREATED BY LANDLORD,
AND (B) MATTERS WHICH WOULD BE DISCLOSED BY AN INSPECTION OF THE PROPERTY OR BY
AN ACCURATE SURVEY OF THE LAND. TENANT WAIVES ANY AND ALL CLAIMS, DEMANDS AND
CAUSE OR CAUSES OF ACTION HERETOFORE OR HEREAFTER ARISING AGAINST LANDLORD WITH
RESPECT TO THE CONDITION OF THE PROPERTY.
8.2 Use of the Property.
(a) Tenant has obtained or duly applied for and shall maintain in effect
all permits, licenses, authorizations and approvals needed to use and operate
the Property and the Facility for Tenant's Primary Intended Use in accordance
with all Legal Requirements.
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(b) Throughout the entire Term, Tenant shall use or cause to be used the
Property in accordance with its Primary Intended Use and for such other uses as
may be necessary in connection with or incidental to such use. Tenant shall not
use the Property or any portion thereof for any other purpose whatsoever without
the prior written consent of Landlord. The parties agree that Landlord's consent
will not be deemed to be unreasonably withheld if, in the reasonable opinion of
Landlord, the Tenant's proposed use of the Property will significantly alter the
character or purpose or detract from the value or operating efficiency of the
Property, or significantly impair the revenue-producing capability of the
Property. No use shall be made or permitted to be made of the Property and no
acts shall be done which violate any Legal Requirements or Insurance
Requirements or which will cause the cancellation of any insurance policy
covering the Property or any part thereof, nor shall Tenant sell or otherwise
provide to patients therein, or permit to be kept, used or sold in, about or
under the Property any Hazardous Substance (except in strict compliance with all
Legal Requirements, but only as may be necessary to the operation of the
Facility, with respect to such substances other than asbestos and hydrocarbons)
or any other article which may be prohibited by the Legal Requirements or
Insurance Requirements. Tenant shall, at its sole cost, comply with all of the
requirements pertaining to the Property of any insurance board, association,
organization or company necessary for the maintenance of the insurance required
pursuant to this Lease.
(c) Tenant shall not commit or suffer to be committed any waste nor shall
Tenant cause or permit any nuisance on the Property.
(d) Tenant shall neither suffer nor permit all or any portion of
Tenant's Personal Property or the Property, including any Capital Addition
whether or not financed or paid for by Landlord, to be used in such a manner as
(i) may impair the owner's title thereto or to any portion thereof or (ii) may
make possible a claim or claims of adverse usage, adverse possession or implied
dedication of all or any portion of the Property to the public, except as is
necessary in the ordinary and prudent operation of the Property.
8.3 Landlord to Grant Easements. Subject to the provisions of this Section
8.3, Landlord shall, from time to time so long as no Event of Default has
occurred and is continuing, at the request of Tenant and at Tenant's sole cost
and expense (but subject to the approval of Landlord, which approval shall not
be unreasonably withheld or delayed), (a) grant easements and other rights in
the nature of easements burdening the Property for the benefit of real property
adjacent to the Land or for the exclusive use and enjoyment of persons or
entities specified by Tenant in such request but only as may be necessary for
the operations of the Facility; (b) dedicate or transfer unimproved portions of
the
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Property for road, highway or other public purposes but only as may be necessary
for the operation of the Facility; (c) execute petitioner to have the Property
annexed to any municipal corporation or utility district; and (d) execute
amendments to any covenants, conditions, restrictions and equitable servitudes
affecting the Property, but only if each such grant, dedication, transfer,
petition or amendment is not detrimental to the proper conduct of the business
of Tenant on the Property and does not materially reduce the value of the
Property in Landlord's reasonable discretion.
8.4 Hazardous Substances.
(a) All operations or activities upon, or any use or occupancy of the
Property, or any portion thereof, by Tenant, or any agent, contractor, employee
or subtenant of Tenant shall at all times during the Term be in all respects in
strict compliance with any and all Local Requirements and Insurance Requirements
relating to Hazardous Substances, including, but not limited to, the discharge
and removal of Hazardous Substances. Tenant will keep the Property free and
clear of all Hazardous Substances other than those Hazardous Substances which
are necessary for the operation of the Facility (which Hazardous Substances
shall be handled, used and disposed of in strict compliance with the Legal
Requirements and Insurance Requirements) and Tenant shall pay all costs required
properly to use, handle and dispose of all Hazardous Substance and shall keep
the Property free and clear of any lien relating, to Hazardous Substances which
may be imposed pursuant to the Legal Requirements and Insurance Requirements.
Neither Tenant, nor any agent, contractor, employee or subtenant of Tenant shall
allow the manufacture, storage, voluntary transmission or presence of any
Hazardous Substances over or upon the Property (except in strict compliance with
the Legal Requirements and Insurance Requirements). Landlord shall have the
right at any time with notice to Tenant to conduct an environmental audit of the
Property and Tenant shall cooperate in the conduct of such environmental audit.
Furthermore, neither Tenant, nor any agent, contractor, employee or any
subtenant of Tenant shall install or permit to be installed in or on the
Property friable asbestos or any substance containing, asbestos or similarly
deemed hazardous by governmental authorities or the Legal Requirements
respecting such materials, and with respect to any such materials currently
present in the Property, shall promptly either, subject to the terms of the
letter agreement of even date herewith between Landlord and Tenant, (x) remove
any material which such Legal Requirements deem hazardous and require be
removed, at its sole cost and expense, or (y) otherwise comply with the Legal
Requirements. Tenant shall promptly notify Landlord in writing of any order,
receipt of any notice of violation or noncompliance with any applicable law,
rule, regulation, standard or order, any threatened or pending action by any
regulatory agency or other governmental authority or any claims made by any
third party relating to Hazardous Substances on, emanations on or from,
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releases on or from, or threats of releases on or from any of the Property and
shall promptly furnish Landlord with copies of any correspondence, notices or
legal pleadings in connection therewith. Landlord shall have the right, but
shall not be obligated, to notify any governmental authority of any state of
facts which may come to its attention with respect to Hazardous Substances on,
released from or emanating on or from any part of the Property.
(b) Without limiting, Section 22. 1, Tenant shall, with the right to
participate in the applicable proceedings, indemnify, protect, defend (with
counsel reasonably approved by Landlord) and hold Landlord, and the directors,
officers, shareholders, employees and agents of Landlord, harmless from any
claims (including, but not limited to, third party claims for personal injury or
real or personal property damage), or natural resources damage, actions,
administrative proceedings (including informal proceedings), judgments, damages,
punitive damages, penalties, fines, costs, liabilities (including sums paid in
settlements of claims), interest or losses, including reasonable attorneys' and
paralegals' fees and expenses (including any such fees and expenses incurred in
enforcing the covenants and obligations of Tenant under this Lease or collecting
any sums due hereunder), consultant fees, and expert fees, together with all
other costs and expenses of any kind or nature ("Costs") that arise directly or
indirectly from or in connection with the presence, suspected presence, release
or threatened release of any Hazardous Substance in or into or at, on, about,
under or within the Property, to the extent that such Costs are not attributable
to the gross negligence or willful misconduct of Landlord. The indemnification
provided in this Section 8.4(b) shall specifically apply to and include claims
or actions brought by or on behalf of employees or contractors of Tenant or
employees or contractors of Tenant, and Tenant hereby expressly waives any
immunity to which Tenant may otherwise be entitled under any industrial or
workers' compensation laws. In the event Landlord shall suffer or incur any such
Costs, Tenant shall pay to Landlord the total of all such Costs suffered or
incurred by Landlord upon demand therefor by Landlord. Without limiting the
generality of the foregoing, the indemnification provided by this Section 8.4(b)
shall specifically cover Costs, including capital, operating and maintenance
costs, incurred in connection with any investigation or monitoring of site
conditions, any cleanup, containment, remedial, removal or restoration work
required or performed by any federal, state or local governmental agency or
political subdivision or performed by any non-governmental entity or person
because of the presence, suspected presence, release or suspected release of any
Hazardous Substance in or into the air, soil, groundwater, surface water or soil
vapor at, on, about, under or within the Property (or any portion thereof), and
any claims of third parties for loss or damage due to such Hazardous Substance,
to the extent that such Costs are not attributable to the gross negligence or
willful misconduct of Landlord. In addition, such indemnification shall include,
but not be limited to, all loss or damage sustained by
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Landlord or any third party to whom Landlord may be liable due to any Hazardous
Substance (i) that is present or suspected to be present on, about, under or
within the Property or (ii) that migrates, flows, percolates, diffuses or in any
way moves onto, into or under the air, soil, groundwater, surface water or soil
vapor at, on, about, under or within the Property, irrespective of whether such
Hazardous Substance shall be present or suspected to be present on, about, under
or within the Property as a result of any release, discharge, disposal, dumping,
spilling or leaking (accidental or otherwise) onto the Property or caused by any
person or entity; provided, however, that the indemnification obligation arising
out of clauses (i) and (ii) above shall apply solely to the extent that such
loss or damage is not attributable to the gross negligence or willful misconduct
of Landlord.
(c) In the event any investigation or monitoring of site conditions or any
clean-up, containment, restoration, removal or other such work ("Remedial Work")
is required under any applicable Legal Requirements, including, but not limited
to, any judicial order or order of any governmental entity, or in order to
comply with any agreements affecting the Property because of, or in connection
with, any occurrence or event described in Section 8.4(b), Tenant shall perform
or cause to be performed the Remedial Work in compliance with such law,
regulation, order or agreement and subject to the final review and approval of
Landlord, which approval shall not be unreasonably withheld or delayed;
provided, however, that Tenant may withhold such performance pursuant to a good
faith dispute regarding the application, interpretation or validity of the law,
regulation, order, or agreement, subject to the requirements of Section 8.4(d);
provided, further, however, that Landlord shall reasonably cooperate with Tenant
to the extent necessary to deliver such authorizations as may be required in
order for Tenant to perform its obligations under this Section 8.4(c). All
Remedial Work shall be performed by one or more contractors, selected by Tenant
and approved in advance in writing by Landlord, which approval shall not be
unreasonably withheld or delayed, and under the supervision of a consulting
engineer, selected by Tenant and approved in advance in writing by Landlord,
which approval shall not be unreasonably withheld or delayed. All costs and
expenses of Remedial Work shall be paid by Tenant, including, but not limited
to, the charges of such contractors and consulting engineer, and Landlord's
reasonable attorneys' and paralegals' fees and other costs incurred in
connection with the monitoring or review of such Remedial Work. In performing
its obligations hereunder, Tenant shall be subrogated to any rights Landlord may
have under any indemnifications or warranties from any present, future or former
owners, tenants or occupants or users of the Property, to the extent available.
In the event Tenant shall fail timely to commence, diligently to prosecute to
completion or to complete to Landlord's reasonable satisfaction any necessary
Remedial Work, Landlord may, but shall not be required to, cause such Remedial
Work to be performed, and all costs and expenses
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thereof paid or incurred by Landlord in connection therewith shall be Costs
within the meaning of Section 8.4(b). Landlord's disapproval of or
dissatisfaction with any Remedial Work shall be deemed to be reasonable so long
as Landlord's requirements for any Remedial Work are consistent with the then
current requirements and standards imposed by prudent institutional investors in
connection with their management of real property. All such Costs shall be due
and payable upon demand therefor by Landlord. If Tenant fails to perform its
obligations hereunder, Landlord shall be subrogated to any rights Tenant may
have under any indemnifications from any present, future or former owners,
tenants or other occupants or users of the Property relating to the matters
covered by this Section 8.4.
(d) Notwithstanding any provision of this Section 8.4 to the contrary, but
without limiting, the provisions of Article XIII, Tenant shall be permitted to
contest or cause to be contested, subject to compliance with the requirements of
this Section 8.4(d) and Article XIII, by appropriate action any Remedial Work
requirement, and Landlord shall not perform such requirement on its behalf, so
long as Tenant has given Landlord written notice that Tenant is contesting or
shall contest or cause to be contested the same, and Tenant actually contests or
causes to be contested the application, interpretation or validity of the law,
regulation, order or agreement pertaining to the Remedial Work by appropriate
proceedings conducted in good faith with due diligence, provided that such
contest shall not subject Landlord to civil liability nor jeopardize Landlord's
interest in the Property or affect in any way the payment of any sums to be paid
to Landlord. Tenant shall give such security or assurances as may be reasonably
required by Landlord to insure compliance with the Legal Requirements pertaining
to the Remedial Work (and payment of all costs, expenses, interest and penalties
in connection therewith) and to prevent any sale, forfeiture or loss by reason
of such nonpayment or noncompliance.
(e) The provisions of this Section may be enforced by Landlord without
regard to any other rights and remedies Landlord may have against Tenant under
this Lease and without regard to any limitations on Landlord's recourse as may
be otherwise provided in this Lease Tenant agrees that, notwithstanding any
provision in this Lease to the contrary, a separate action or actions to enforce
Tenant's obligations under this Section 8.4 may be brought and prosecuted
against Tenant. Any costs and other payments required to be paid by Tenant to
Landlord under this Section 8.4 which are not paid on demand therefor shall
thereupon be considered delinquent Tenant shall pay to Landlord immediately upon
demand therefor interest on such overdue amounts, from the date when due until
paid, at the Overdue Rate.
ARTICLE IX
LEGAL REQUIREMENTS AND INSURANCE REQUIREMENTS
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9.1 Compliance with Legal Requirements, Insurance Requirements and
Instruments. Subject to the rights of Tenant as provided in Article XIII
relating to permitted contests, Tenant, at its sole cost and expense, shall
promptly (a) comply with all applicable Legal Requirements and Insurance
Requirements with respect to the use, operation, maintenance, repair and
restoration of the Property, whether or not compliance therewith shall require
structural change in any of the Improvements or interfere with the use and
enjoyment of the Property, and (b) procure, maintain and comply with all
appropriate licenses, certificates of need, provider agreements and other
permits, licenses, franchises and authorizations required for any use of the
Property and Tenant's Personal Property then being made, and for the proper
erection, installation, operation and maintenance of the Property or any part
thereof, including without limitation any Capital Additions.
9.2 Covenants Regarding Legal Requirements. Tenant covenants and agrees
that it shall not use the Property or Tenant's Personal Property for any purpose
which violates the Legal Requirements. Tenant has obtained or duly applied for
and shall maintain all appropriate licenses, certificates, permits, provider
agreements, franchises, authorizations and approvals necessary to operate the
Property in its customary manner for the Primary Intended Use, and any other use
conducted on the Property by Tenant and permitted by Landlord hereunder Tenant
may, however, contest the legality or applicability of any such Legal
Requirement as provided in Article XIII hereof.
ARTICLE X
CONDITION OF THE PROPERTY
10.1 Maintenance and Repair.
(a) Tenant, at its sole cost and expense, shall keep the Property and all
private roadways, sidewalks and curbs appurtenant thereto and which are under
Tenant's control in good order, condition and repair and, except as otherwise
expressly provided to the contrary in Article XIV, XV, or XVI with reasonable
promptness, shall make all necessary and appropriate repairs and replacements
thereto of every kind and nature, whether interior or exterior, structural or
nonstructural, ordinary or extraordinary, patent or latent, foreseen or
unforeseen, or arising by reason of a condition existing prior to the
commencement of the Term of this Lease and regardless of the cause necessitating
repair. Tenant shall also be obligated at its expense to make all repairs,
modifications and renovations necessary to comply with all licensing, safety and
health and building code, regulations applicable to the Property so that it can
be legally operated for its Primary Intended Use. All repairs by Tenant shall,
to the extent reasonably achievable, be at least equal in quality to the
original work. Tenant shall not take or omit to take any action, the taking or
omission of which might
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materially impair the value or the usefulness of all or any portion of the
Property for the Primary Intended Use. Tenant shall give Landlord ten days prior
written notice of any repair, replacement, modification or renovation pursuant
to this Section the cost of which exceeds $200,000 and, prior to commencing any
such repair, replacement, modification or renovation, shall provide to Landlord
either (i) a lien payment and completion bond in form and substance and issued
by a surety reasonably acceptable to Landlord or (ii) a payment and completion
guaranty in form and substance and executed by a guarantor reasonably acceptable
to Landlord, as Tenant may elect.
(b) Landlord shall not under any circumstances be required to make any
repairs, replacements, alterations, restorations or renewals of any nature or
description to the Property, whether interior or exterior, structural or
non-structural, ordinary or extraordinary, patent or latent, foreseen or
unforeseen, or to make any expenditure whatsoever with respect thereto, in
connection with this Lease, nor shall Landlord under any circumstances be
required to maintain the Property in any other way, except as specifically
provided herein. Tenant hereby waives, to the fullest extent permitted by law,
the right to make repairs at the expense of Landlord pursuant to any law or
equitable principle in effect at the time of the execution of this Lease or
hereafter enacted. Landlord shall have the right to give, record and post, as
appropriate, notices of non-responsibility under any mechanic's lien laws now or
hereafter existing, and any other notices of a similar nature that Landlord may
reasonably elect to give, record or post from time to time during, the Term.
(c) Nothing, contained in this Lease, and no action or inaction by
Landlord, shall be deemed or construed in any manner as (i) constituting the
consent or request of Landlord, expressed or implied, to any contractor,
subcontractor, laborer, materialman or vendor to or for the performance of any
labor or services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to all or any
portion of the Property or (ii) giving Tenant any right, power or permission to
contract for or permit the performance of any labor or services or the
furnishing of any materials or other property in such a manner as would permit
the making of any claim against Landlord with respect thereto, or to make any
agreement that may create, or in any way may be the basis for the assertion of
any right, title, interest, lien, claim or other encumbrance upon the estate of
Landlord in all or any portion of the Property.
(d) Unless Landlord conveys title to any of the Property to Tenant
pursuant to the provisions of this Lease, Tenant shall, upon the expiration or
earlier termination of this Lease, vacate and surrender the Property to Landlord
in the condition in which the Property was originally received from Landlord,
except as repaired, rebuilt, restored, altered or added to as permitted or
required by
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the provisions of this Lease, and except for ordinary wear and tear (but subject
to the obligation of Tenant under this Section to maintain the Property in good
order, condition and repair during the entire Term of this Lease) and except for
damage or destruction by casualty or condemnation which Tenant is not required
to repair by the provisions of this Lease.
10.2 Encroachments and Restrictions. If any of the Improvements shall at
any time, during the Term violate any agreement or condition contained in any
lawful covenant, condition, restriction, equitable servitude or other agreement
affecting all or any portion of the Property, or shall impair the rights of
others under any casement or right-of-way burdening the Property, provided that
such agreement, covenant, condition, restriction or easement has not been
created by Landlord, then promptly upon the request of Landlord, or at the
behest of any person affected by violation or impairment and in such case, in
the event of an adverse final determination, Tenant shall either (a) obtain
valid and effective waivers or settlements of all claims, liabilities and
damages resulting from each such encroachment, violation or impairment, whether
the same shall affect Landlord or Tenant, provided that Landlord shall consent
to all such settlements or waivers or (b) make such changes in the Improvements
and take such other actions as Tenant in the reasonable and good faith exercise
of its judgment deems practicable to remove such encroachment and to end such
violation or impairment, including, if necessary, the alteration of any of the
Improvements provided that Landlord shall consent to all such alterations and
the chances are not the result of any condition created solely by Landlord. With
respect to any encroachments identified on the ALTA surveys of the Property
delivered by Tenant to Landlord pursuant to the Purchase Agreement, Landlord
agrees that it shall not require Tenant to obtain a waiver of or otherwise
correct any such encroachment unless and until an affected third party notifies
Landlord of its objection to any such encroachment. In any event Tenant shall,
subject to Landlord's consent, take all such actions as may be necessary in
order to be able to continue the operation of the Improvements for the Primary
Intended Use substantially in the manner and to the extent the Improvements were
operated prior to the assertion of such violation or impairment. Tenant shall
not be responsible for any claims covered by Landlord's title insurance policy,
and Landlord agrees that any proceeds recovered under such title insurance
policy shall be made available to Tenant to remedy the claimed violation or
restriction.
ARTICLE XI
CAPITAL ADDITIONS
11.1 Construction of Capital Additions.
(a) If no Event of Default shall have occurred and be continuing, Tenant
may, subject to the terms and conditions
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contained in this Article, construct or install Capital Additions on the
Property with the prior written approval of Landlord, which approval shall not
be unreasonably withheld or delayed as expressly provided herein. Tenant shall
not be permitted to create any Encumbrance on the Property in connection with
any such Capital Addition.
(b) Prior to commencing construction of any Capital Addition, Tenant
shall submit to Landlord in writing a proposal setting forth in reasonable
detail any proposed Capital Addition and shall provide to Landlord such plans
and specifications, permits, licenses, contracts and other information
concerning the proposed Capital Addition as Landlord may reasonably request.
Without limiting the generality of the foregoing, such proposal shall indicate
the approximate projected cost of constructing such Capital Addition, the use or
uses to which it will be put and a good faith estimate of the change, if any, in
the Gross Revenues that Tenant anticipates will be caused by such Capital
Addition.
(c) No Capital Addition shall be made which would tie in or connect any
Improvements with any other improvements on property adjacent to the Property
(and not part of the Property), including without limitation, tie-ins of
buildings or other structures or utilities unless Tenant shall have obtained the
prior written consent of Landlord, which consent Landlord may grant, withhold or
delay in its sole discretion. All proposed Capital Additions shall be
architecturally integrated and consistent with the Property.
11.2 Capital Additions Financed or Paid for by Landlord.
(a) Tenant shall be required to request that Landlord provide or arrange
financing for any Capital Addition by providing to Landlord such information
about such Capital Addition as Landlord may reasonably request. Landlord may,
but shall be under no obligation to, meet the request, and within 60 days of
receipt of such information, Landlord shall notify Tenant as to whether it will
finance the proposed Capital Addition and, if so, the terms and conditions upon
which it would do so, including the terms of any amendment to this Lease
(including, without limitation, the increase in Base Rent described in clause
(iii) of subparagraph (b), below to compensate Landlord for the additional funds
advanced by it). Notwithstanding the foregoing, Landlord shall not finance the
cost of any proposed Capital Addition if such cost is less than $25,000. In no
event shall the portion of the material, labor charges and fixtures of the
Capital Additions Cost be less than seventy-five percent (75%) of the total
amount of such cost. Tenant shall, within thirty (30) days of Tenant's receipt
of Landlord's affirmative notice that Landlord will finance the proposed Capital
Addition, give Landlord a notice accepting or rejecting Landlord's proposed
financing.
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(b) If Landlord finances the Capital Additions Cost of the
proposed Capital Addition, Tenant shall provide Landlord with the following
(unless waived by Landlord in writing):
(i) prior to any disbursement of funds, such information,
certificates, licenses, permits, authorizations, evidence of zoning and other
documents reasonably requested by Landlord, or by any third party lender with
whom Landlord has agreed or may agree to provide financing, as necessary to
confirm that Tenant will be able to use the Capital Addition upon completion
thereof in accordance with the Primary Intended Use for such Capital Addition,
including all required federal, state or local government licenses, permits,
authorizations and approvals;
(ii) prior to any disbursement of funds, an Officer's
Certificate and, if requested, a certificate from Tenant's architect, setting
forth in reasonable detail the projected (or actual, if available) Capital
Additions Cost;
(iii) prior to or coincident with the first disbursement of
funds, an amendment to this Lease (together with a memorandum thereof in
recordable form), duly executed and acknowledged, in form and substance
reasonably satisfactory to Landlord, providing for an increase in the Base Rent
equal to the product of (x) the Capital Additions Cost of such Capital Addition
and (y) 350 basis points in excess of the Ten-Year Treasury Rate, along with the
legal description of any land obtained in connection with such Capital Addition
and such other provisions as may be necessary or appropriate;
(iv) prior to or coincident with the first disbursement of
funds, a construction and development agreement setting, forth the terms for
Landlord's financing, and Tenant's construction of such Capital Additions;
(v) prior to or coincident with payment for any land
obtained in connection with such Capital Addition, a deed conveying to Landlord
title to such land, or, if applicable, a ground lease on terms acceptable to
Landlord, which title or leasehold shall be free and clear of any liens,
encumbrances or other exceptions to or matters affecting title except those
approved by Landlord, and, upon completion of the Capital Addition, a final
as-built survey thereof reasonably satisfactory to Landlord;
(vi) during construction and following completion of the
Capital Addition, endorsements to any outstanding policy of title insurance
covering the Property, or commitments therefor reasonably satisfactory in form
and content to Landlord (x) updating the same without any additional exception
except such as may be reasonably permitted by Landlord and (y) adding to its
coverage any land acquired or leased in connection with such
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Capital Addition and increasing the coverage thereof by an amount equal to the
Fair Market Value of the Capital Addition (except to the extent covered by the
owner's policy of title insurance referred to in subparagraph (vii) below);
(vii) following the advance of funds, if appropriate, (x) an
extended coverage owner's policy of title insurance insuring fee simple title to
any land conveyed to Landlord pursuant to subparagraph (v), free and clear of
all liens and encumbrances except those approved by Landlord, and (y) a lender's
policy of title insurance reasonably satisfactory in form and substance to
Landlord and to any Lender with whom Landlord has agreed or may agree to provide
financing; and
(viii) during or following the advancement of funds, prints of
architectural and engineering drawings relating, to the Capital Addition and
such other certificates (including, but not limited to, endorsements increasing
the insurance coverage, if any, at the time required by Section 14.1),
documents, opinions of counsel, appraisals, surveys, certified copies of duly
adopted resolutions of the board of directors of Tenant authorizing the
execution and delivery of the lease amendment, construction and development
agreement and any other instruments as may be reasonably required by Landlord
and any lender from whom Landlord has agreed or may agree to obtain financing.
(c) Any new mortgage or supplement to any existing mortgage
entered into by Landlord with any lending institution covering, the Property or
any land referred to in subparagraph (iv) above shall be subject to the rights
of Tenant under this Lease, as this Lease may be amended from time to time.
11.3 Capital Additions Paid for by Tenant. If Landlord does not finance
the cost of a Capital Addition under the terms of Section 11.2 and Tenant elects
nevertheless to construct or cause to be constructed such Capital Addition, (i)
Tenant shall not commence any construction with respect to such Capital Addition
without first obtaining the prior written consent of Landlord (which Landlord
shall not unreasonably withhold so long as the proposed Capital Addition will
not, in Landlord's reasonable opinion, either (x) diminish the value of the
property or (y) impair the Facility's ability to produce Gross Revenues and
which consent shall be delivered to Tenant within 60 days of receipt by Landlord
of Tenant's written proposal with respect to such Capital Addition), and (ii)
Tenant shall pay the cost of such Capital Addition, and there shall be no
adjustment in the Rent by reason of any such Capital Addition.
11.4 Disposition of Capital Additions upon Expiration or Termination of
Lease. Upon the expiration or earlier termination of this Lease, all Capital
Additions shall pass to and become the property of Landlord, free and clear of
all encumbrances.
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11.5 Non-Capital Additions. Tenant shall have the right to make additions,
modifications or improvements to the Property which are not Capital Additions
from time to time as it, in its reasonable discretion, may deem to be desirable
for the Property's uses and purposes permitted hereunder, provided that such
action does not (i) significantly and adversely alter the character or purpose
or detract in any manner from the value or operating efficiency of the Property,
(ii) significantly impair the revenue-producing capability of the Property,
(iii) materially and adversely affect the ability of Tenant to comply with the
provisions of this Lease, or (iv) result in a violation of any of the provisions
of this Lease (including, but not limited to Articles XII or XXIX), and provided
that, if the cost of such non-capital additions, modifications or improvements
exceed $200,000 in any 12-month period, Tenant gives Landlord ten days' prior
Notice of such addition, modification or improvement. The cost of such
non-capital additions, modifications or improvements to the Property shall be
paid by Tenant, and all such non-capital additions, modifications and
improvements shall, without payment by Landlord at any time, be included under
the terms of this Lease, and upon expiration or earlier termination of this
Lease shall pass to and become the property of Landlord.
11.6 Salvage. All materials which are scrapped or removed in connection
with the construction of either Capital Additions permitted by Section 11.1,
non-capital additions permitted by Section 11.5, or repairs required by Article
X shall be or become the property of the party which paid for, or provided the
financing for such work.
11.7 No Liens on Landlord's Interest. In no event shall the interest of
Landlord be subject to liens for improvements made by Tenant, whether under
Article 10, this Article 11, Article 15 or otherwise, and Tenant shall notify
any and all contractors making, any improvements, repairs or additions to any
portion of the Property that any lien to which such contractor may be entitled
pursuant to the laws of the State shall not extend to the interest of Landlord
in the Property.
ARTICLE XII
LIENS
Subject to the provisions of Article XIII relating to permitted contests,
Tenant shall not directly or indirectly create or allow to remain and shall
promptly discharge at its expense any lien, encumbrance, security interest,
attachment, title retention agreement or claim upon the Property or any
attachment, levy, claim or encumbrance in respect of Rent, not including,
however, (a) this Lease, (b) Permitted Encumbrances, (c) restrictions, liens and
other encumbrances which are consented to in writing, by Landlord or expressly
permitted under Section 29.1 (a) hereof, (d) liens for
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those taxes of Landlord which Tenant is not required to pay hereunder, (e)
subleases permitted by Article XXIII, (f) liens for Impositions or for sums
resulting from noncompliance with Legal Requirements so long as the same are not
yet payable or are payable without the addition of any fine or penalty and are
in the process of being contested as permitted by Article XIII, (g) liens of
mechanics, laborers, materialmen, suppliers or vendors for sums either disputed
or not yet due, provided that (i) the payment of such sums shall not be
postponed for more than five days after the completion of the action giving rise
to such lien and such reserve or other appropriate provisions as shall be
required by law or Generally accepted accounting principles shall have been made
therefor or (ii) any such liens are in the process of being contested as
permitted by Article XIII, and (h) any liens which are the responsibility of
Landlord pursuant to the provisions of Article XXVII or are directly created or
permitted by Landlord.
ARTICLE XIII
CONTESTS
If no Event of Default has occurred and is then continuing, Tenant, on its
own or on Landlord's behalf (or in Landlord's name), but at Tenant's sole cost
and expense, upon ten days' prior Notice to Landlord, may contest, by
appropriate legal proceedings conducted in good faith and with due diligence,
without prejudice to Landlord's rights hereunder the amount, validity or
application, in whole or in part, of any Imposition, Legal Requirement,
Insurance Requirement, lien, attachment, levy, encumbrance, charge or claim not
otherwise permitted by Article XII, provided that (a) in the case of an unpaid
Imposition, lien, attachment, levy, encumbrance, charge or claim, the
commencement and continuation of such proceedings shall suspend the collection
thereof from Landlord and from the Property, (b) neither the Property nor any
Rent therefrom nor any part thereof or interest therein would be subject to any
risk of being sold, forfeited, attached, foreclosed, or lost, (c) in the case of
a Legal Requirement, Landlord would not be in any danger of incurring any lien,
charge, fine, penalty, or other civil or criminal liability for failure to
comply therewith pending the outcome of such proceedings, (d) in the event that
any such contest shall involve a sum of money or potential loss in excess of
$100,000 then, in any such event, Tenant shall deliver to Landlord an Officer's
Certificate to the effect set forth in clauses (a), (b) and (c), to the extent
applicable, (e) in the case of a Legal Requirement or an Imposition, lien,
encumbrance or charge, Tenant shall give such reasonable security as may be
demanded by Landlord to insure ultimate payment of the same and to prevent any
loss or injury to Landlord, including but not limited to any sale or forfeiture
of the affected portion of the Property or the Rent by reason of such
non-payment or non-compliance; provided, however, the provisions of this Article
shall not be construed to permit Tenant to contest the payment of Rent (except
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as to contests concerning the method of computation or the basis of levy of any
Imposition) or any other sums payable by Tenant to Landlord hereunder, (f) in
the case of an Insurance Requirement, the coverage required by Article XIV shall
be maintained, and (g) if such contest be finally resolved against Landlord or
Tenant, Tenant shall, as Additional Charges due hereunder, promptly pay the
amount required to be paid, together with all interest and penalties accrued
thereon, or comply with the applicable Legal Requirement or Insurance
Requirement. Landlord, at Tenant's expense, shall execute and deliver to Tenant
such authorizations and other documents as may reasonably be required in any
such contest and, if reasonably requested by Tenant or if Landlord so desires,
Landlord shall join as a party therein. Tenant shall indemnify and save Landlord
harmless against any liability, cost or expense of any kind that may be imposed
upon Landlord in connection with any such contest and any loss resulting
therefrom.
ARTICLE XIV
INSURANCE
14.1 Central Insurance Requirements. Tenant shall at all times maintain
policies of insurance insuring the Property, and all property located in or on
the Property, against the kind of risks and in the amounts of coverage described
below. All such insurance shall be written by companies of recognized
responsibility authorized to conduct an insurance business in the State. All
such insurance (other than insurance with respect to Tenant's Personal Property)
shall name Landlord as an additional insured. Proceeds of insurance policies
payable to compensate any loss shall be payable to Landlord or Tenant as
provided in Article XV. All such insurance shall name as an additional insured
or loss payee, as appropriate, the holder (a "Facility Mortgagee") of any
mortgage, deed of trust or other security agreement establishing any Encumbrance
placed on the Property in accordance with the provisions of Article XXVII
("Facility Mortgage") by way of a standard form of mortgagee's loss payable
endorsement. Any loss adjustment or other settlement in excess of $250,000 shall
require the written consent of Landlord and each Facility Mortgagee and any
other lender of Landlord or its Affiliates ("Landlord Lender") having, any
contractual insurance requirements which would impact on the insurance
requirements of this Lease to the extent so required and Landlord has given
Tenant written notice thereof. Originals or certified copies of all insurance
policies obtained pursuant to this Article shall be deposited with Landlord and,
if requested, with any Facility Mortgagee(s) or Landlord Lender(s). The policies
on the Property, including the Improvements, Fixtures and Tenant's Personal
Property, shall insure against the following risks:
(a) loss or damage by fire, vandalism and malicious mischief, extended
coverage perils, and all physical loss perils insurance
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including but not limited to sprinkler leakage, in an amount not less than 100%
of the then full replacement cost thereof (as defined below in Section 14.2) or
such lesser amount as is approved by Landlord in writing;
(b) loss or damage by explosion of steam boilers, pressure vessels or
similar apparatus, now or hereafter installed in either of the Facility in such
amounts with respect to any one accident as may be reasonably requested by
Landlord from time to time;
(c) business interruption or loss of rental under a rental value
insurance policy covering risk of loss during the lesser of the first 12 months
of reconstruction or the actual reconstruction period necessitated by the
occurrence of any of the hazards described in Sections 14.1(a) or 14.1(b), in an
amount sufficient to prevent Landlord from becoming a coinsurer:
(d) claims for personal injury or property damage under a policy of
comprehensive general public liability insurance, in an amount not less than one
million dollars per occurrence with respect to bodily injury and death and three
million dollars with respect to property damage;
(e) claims arising out of medical malpractice in an amount not less than
one million dollars for each person and three million dollars for each
occurrence:
(f) flood (when the Property is located in whole or in part within an
area designated by an appropriate agency or authority of the United States as a
flood plain) and such other hazards, and in such amounts as may be customary for
comparable properties in the area and as may be available from insurance
companies, insurance pools, or other appropriate companies authorized to do
business in the State; and
(g) During any period during which any Capital Addition is under
construction, course of construction insurance and all risks insurance in such
amounts as Landlord shall reasonably require.
14.2 Replacement Cost. The term "full replacement cost" as used herein
shall mean the actual replacement cost of the Property requiring replacement
from time to time, less exclusions provided in a normal fire insurance policy.
If either party believes that full replacement cost (the then replacement cost
less such exclusions) has increased or decreased at any time during, the Lease
Term, it may have such full replacement cost redetermined by the insurer then
providing the largest amount of fire insurance coverage carried on the Property.
14.3 Additional Insurance. In addition to the insurance described in
Section 14.1, throughout the Term Tenant shall maintain such additional
insurance as may be required from time to
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time by Landlord provided that the types and amounts of any such additional
insurance required by Landlord is then customarily maintained by the operators
of similar health care facilities in the region in which the Facility is
located. Tenant shall further maintain adequate workers' compensation insurance
coverage for all persons employed by Tenant on the Property. Such workers'
compensation insurance shall be in accordance with the requirements of
applicable local, state and federal law.
14.4 Waiver of Subrogation. All insurance policies carried by Landlord or
Tenant covering the Property, the Fixtures, the Facility or Tenant's Personal
Property shall expressly waive any right of subrogation on the part of the
insurer against the other party. Landlord and Tenant agree that the respective
policies of insurance carried by them will include such waiver clauses or
endorsements so long as the same are obtainable without extra cost. If such
clauses and endorsements are only available upon the payment of an extra charge,
the other party, at its election, may pay the same, but shall not be obligated
to do so; provided that the Tenant shall at all times be obligated to carry the
policies of insurance required under this Article regardless of whether the
waiver of subrogation required under this Section 14.4 is available.
14.5 Form of Insurance. All of the policies of insurance referred to in
this Article shall be written in a form, and issued by insurance companies,
satisfactory to Landlord. Landlord agrees that it will not unreasonably withhold
or delay its approval as to the form of the policies or the insurance companies
selected by Tenant. Tenant shall pay all of the premiums therefor, and shall
deliver an original or certified copy of any policy, or renewal thereof, to
Landlord, any Facility Mortgagee and any Landlord Lender at least 10 days prior
to the expiration of the existing, policy to which such renewal policy relates.
If Tenant either fails to effect such insurance as herein required or to pay the
premiums therefor, or to deliver such policies or certified copies thereof to
Landlord at the times required, Landlord shall be entitled, but shall have no
obligation, to effect such insurance and pay the premiums therefor, which
premiums shall be repayable to Landlord upon demand therefor in a Notice, and
failure by Tenant to repay the same shall constitute an Event of Default within
the meaning, of Section 17.1(d). Each insurer mentioned in this Article shall
agree, by endorsement on the policy or policies issued by it, or by independent
instrument furnished to Landlord, that it will Give to Landlord (and to any
Facility Mortgagee and Landlord Lender of which Tenant has notice, if required)
30 days prior written notice before such policy or policies expire, are altered
or are canceled.
14.6 Change in Limits. If either party shall at any time deem the limits
of the personal injury or property damage public liability insurance or
malpractice insurance then carried by Tenant
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to be insufficient or excessive, the parties shall endeavor in good faith to
agree promptly upon the proper and reasonable limits for such insurance to be
carried, and such insurance shall thereafter be carried with the limits thus
agreed upon until further change pursuant to the provisions of this Section.
14.7 Blanket Policy. Notwithstanding anything to the contrary contained in
this Article, Tenant's obligations to carry the insurance provided for herein
may be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Tenant so long as (a) the coverage afforded
to Landlord is not reduced or diminished or otherwise altered from that which
would exist under a separate policy meeting all other requirements of this Lease
by reason of the use of such blanket policy of insurance and (b) the
requirements of this Article are otherwise satisfied.
14.8 No Separate Insurance. Tenant shall not obtain separate insurance
concurrent in form or contributing in the event of loss with that required in
this Article XIV to be furnished by, or which may reasonably be required to be
furnished by Tenant, nor shall Tenant increase the amount of any then existing
insurance by securing an additional policy or additional policies, unless all
parties having an insurable interest in the subject matter of the insurance,
including in all cases Landlord and all Facility Mortgagees, are named therein
as additional insureds, and the loss is payable under said insurance in the same
manner as losses are payable under this Lease. Tenant shall immediately notify
Landlord of the obtaining of any such separate insurance or of the increasing of
any of the amounts of the then existing, insurance.
ARTICLE XV
INSURANCE PROCEEDS
15.1 Handling of Insurance Proceeds. Subject to Section 15.4 hereof, all
proceeds from any policy of insurance required by Article XIV of this Lease
(except Sections 14.1(d) and (e)) shall be paid to Landlord and held in trust by
Landlord (subject to the provisions of Section 15.7) and shall be made available
for reconstruction, repair or replacement, as the case may be, of any damage to
or destruction of all or any portion of the Property to which such proceeds
relate, and shall be paid out by Landlord from time to time subject to the
provisions hereof for the cost of such reconstruction, repair or replacement.
Any unused portion shall be retained by Landlord free and clear upon completion
of such repair and restoration but shall be applied by Landlord against Tenant's
obligations for Rent next coming due under this Lease. If neither Landlord nor
Tenant is required or elects to repair and restore, and the Lease is terminated
without purchase by Tenant as described in Section 15.2(a), then all such
insurance proceeds shall be retained by Landlord. All salvage resulting from any
risk covered by insurance shall belong to Landlord, except that any salvage
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relating to Tenant's Personal Property shall be the property of Tenant.
15.2 Reconstruction in the Event of Damage or Destruction Covered by
Insurance.
(a) Except as provided in Section 15.7, if during the Term a portion
of the Property is totally or substantially destroyed by a risk covered by the
insurance described in Article XIV so that the Facility thereby is rendered
unsuitable for its Primary Intended Use (taking into account all relevant
factors, including but not limited to the number of useable beds, the amount of
square footage reasonably available for use by Tenant and the type and amount of
Gross Revenues lost) (the "Impacted Facility"), Tenant shall at its option
either (i) restore the Impacted Facility to substantially the same condition as
existed immediately before the damage or destruction or (ii) acquire the
Property from Landlord for a purchase price equal to the greater of the Minimum
Repurchase Price or the Fair Market Value Purchase Price of the Property
immediately prior to such damage or destruction, or (iii) terminate the Lease
with respect to the Property effective upon Landlord's receipt of the insurance
proceeds and any "Shortfall" (as hereinafter defined) and in such event Landlord
shall be entitled to retain or collect for its own benefit the insurance
proceeds, provided that, in the event the amount of the insurance proceeds
received by Landlord are less than the amounts which would be payable in the
aggregate under the insurance policies specified in Section 14.1(a) such
termination shall not be effective until Tenant pays Landlord the amount of such
shortfall ("Shortfall") in cash. If Tenant restores the Impacted Facility, the
insurance proceeds shall be paid out by Landlord to Tenant or its designee from
time to time as reasonably requested by Tenant to pay for the reasonable costs
of such restoration and any excess proceeds remaining after such restoration
shall be retained by Tenant. If Tenant acquires the Property, all applicable
insurance proceeds shall be the property of Tenant.
(b) Except as provided in Section 15.7, if during, the Term, the
Improvements or Fixtures are partially destroyed due to a risk covered by the
insurance described in Article XIV but the Impacted Facility is not thereby
rendered unsuitable for the Primary Intended Use (taking into account all
relevant factors, including but not limited to the number of useable beds, the
amount of square footage reasonably available for use by Tenant and the type and
amount of Gross Revenues lost), Tenant shall restore the Impacted Facility to
substantially the same condition as existed immediately before the damage or
destruction. Such damage or destruction shall not terminate this Lease;
provided, however, that if Tenant cannot, with reasonable diligence and within a
reasonable time, obtain all government approvals, including building permits,
licenses, conditional use permits and any certificates of need, necessary to
perform all required repair and restoration work and to operate the
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Impacted Facility in substantially the same manner and for the Primary Intended
Use, Tenant shall either (i) offer to purchase the Property for a purchase price
equal to the greater of the Minimum Repurchase Price or the Fair Market Value
Purchase Price immediately prior to such damage or destruction or (ii) continue
to operate under the Lease which shall remain in full force and effect and
Landlord shall be entitled to retain the insurance proceeds, less the amount
needed to restore the Property so that the portion of the Facility unaffected by
the casualty can be used as a complete architectural unit. If Tenant shall make
such offer and Landlord does not accept the same within 120 days of Landlord's
receipt of such offer, Tenant may either (x) withdraw such offer, in which case
this Lease shall remain in full force and effect and Tenant shall proceed to
restore the Impacted Facility as soon as reasonably practicable to substantially
the same condition as existed immediately before such damage or destruction, or
(y) terminate this Lease after recovery by Landlord of all insurance proceeds
and the payment by Tenant of any Shortfall in cash. If Tenant so restores the
Impacted Facility, insurance proceeds shall be paid out by Landlord from time to
time as reasonably requested by Tenant to pay for the reasonable costs of such
restoration, and any excess proceeds remaining after such restoration shall be
retained by Tenant.
(c) If Tenant elects to repair or restore any damage or destruction to
the Property and the cost of any such repair or restoration exceeds the amount
of proceeds received by Landlord from the insurance required under Article XIV,
Tenant shall contribute any and all excess amounts necessary to repair or
restore the Facility.
(d) If Landlord accepts Tenant's offer to purchase the Property this
Lease shall terminate as to the Property upon payment of the purchase price
therefor and Landlord shall thereupon remit to Tenant all insurance proceeds
pertaining to the Property less Landlord's reasonable expenses, including
attorneys' fees, and assign Landlord's rights in any uncollected insurance
proceeds to Tenant.
15.3 Reconstruction in the Event of Damage or Destruction Not Covered by
Insurance. Except as provided in Section 15.7 below, if during the Term either
of the Facility is totally destroyed or materially damaged (i) from a risk not
covered by insurance described in Article XIV but that would have been covered
if Tenant carried the insurance customarily maintained by, and Generally
available to, the operators of reputable health care facilities in the region in
which the Facility is located, (ii) from a risk for which insurance coverage is
voided due to any act or omission by Tenant, or (iii) as result of an
earthquake, whether or not such damage or destruction renders the Impacted
Facility unsuitable for their Primary Intended Use (taking into account all
relevant factors, including but not limited to the number of useable beds,
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the amount of square footage reasonably available for use by Tenant and the type
and amount of Gross Revenues lost), Tenant shall restore the Impacted Facility
to substantially the same condition as existed immediately before such damage or
destruction and not terminate this Lease. Otherwise, if the Facility is totally
destroyed or materially damaged by a risk not covered by insurance such that the
Facility shall be unusable for its Primary Intended Use, this Lease shall
terminate within 90 days of such destruction or damage, provided that the Tenant
may elect to restore the Impacted Facility, in which event, this Lease shall
continue in full force and effect. If such damage or destruction does not render
the Impacted Facility unusable for its Primary Intended Use, Tenant shall also
restore the Facility to substantially the same condition as existed immediately
before the damage or destruction.
15.4 Payment of Proceeds on Tenant's Property and Capital Additions Paid
by Tenant. Notwithstanding any provision herein, all insurance proceeds payable
by reason of any loss of or damage to any of Tenant's Personal Property or
Capital Additions paid for by Tenant shall be paid to Tenant and Tenant shall
hold such insurance in trust to pay the cost of repairing or replacing damaged
Tenant's Personal Property or Capital Additions paid for by Tenant provided,
however, that if the damaged Tenant's Personal Property or Capital Additions
paid for by Tenant were no longer useful to Tenant's operations prior to their
destruction, Tenant shall not be obligated to repair or replace them.
15.5 Handling of Business Interruption Insurance. Notwithstanding any
provision of this Article XV, proceeds from any policy of insurance required by
Section 14.1(c) shall be paid to the Landlord, and Landlord shall apply the
proceeds against any currently unpaid obligation or obligations of Tenant
hereunder in such amount or amounts as Landlord reasonably shall decide. Any
remaining proceeds from such insurance, after giving effect hereto, shall be
paid to Tenant.
15.6 Restoration of Tenant's Property. Upon any restoration of the
Impacted Facility as provided in Section 15.2 or 15.3, Tenant shall either (i)
at Tenant's sole cost and expense, restore all alterations and improvements made
by Tenant, Tenant's Personal Property and all Capital Additions paid for by
Tenant, or (ii) at Tenant's sole cost and expense, replace such alterations and
improvements, Tenant's Personal Property or Capital Additions with improvements
or items of the same or better quality and utility in the operation of the
Property; provided, however, that if the damaged Tenant's Personal Property or
Capital Additions paid for by Tenant were no longer useful to Tenant's
operations prior to their destruction, Tenant shall not be obligated to replace
them.
15.7 Abatement of Rent. Unless and until Tenant shall pay the purchase
price for the Property to Landlord in accordance with this Article XV (and this
Lease is thereby terminated or otherwise
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terminated as provided in this Article XV), in the event of any damage or
destruction of the Property, this Lease shall remain in fall force and effect
and Tenant's obligation to make rental payments and to pay all other charges
required by this Lease shall not be abated by reason of any damage or
destructions to the Property or the subsequent loss of Landlord's entitlement to
the Property.
15.8 Damage Near End of Term. Notwithstanding any provisions of this
Article XV to the contrary, if damage to or destruction of the Facility occurs
during the last 12 months of the then applicable term (whether Fixed or
Extended), if Tenant has not elected to extend such term, and if such damage or
destruction cannot be fully repaired and restored within six months immediately
following the date of loss, then Tenant shall have the right to terminate this
Lease by giving written Notice thereof to Landlord within 30 days after the date
of such damage or destruction, in which event, Landlord shall collect any
insurance proceeds to which it is entitled, and Tenant shall assign Tenant's
rights in any additional insurance proceeds. In the event that the Facility is
totally destroyed or damaged (i) from a risk not covered by insurance described
in Article XIV but that would have been covered if Tenant carried the insurance
customarily maintained by, and generally available to, the operators of
reputable health care facilities in the region in which the Facility is located,
(ii) from a risk for which insurance coverage is voided due to any act or
omission by Tenant, or (iii) as a result of an earthquake, whether or not such
damage or destruction renders the Facility unsuitable for its Primary Intended
Use (taking into account all relevant factors, including but not limited to the
number of useable beds, the amount of square footage reasonably available for
use by Tenant and the type and amount of Gross Revenues lost), then Tenant shall
pay to Landlord a sum equal to the amount reasonably necessary to repair such
damage or destruction.
15.9 Termination of Option to Purchase. Any termination of this Lease
pursuant to this Article shall cause any option to purchase granted to Tenant
under this Lease and the right to extend the Term by any Extended Term to be
terminated and to be without further force or effect.
15.10 Waiver. Tenant hereby waives any statutory rights of termination
which may arise by reason of any damage or destruction of the Facility which
Landlord is obligated to restore or may restore under any of the provisions of
this Lease.
ARTICLE XVI
CONDEMNATION
16.1 Definitions.
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For purposes of this Article XVI the following terms have the meanings
specified in this Section 16.1.
(a) "Condemnation" means (a) the exercise of any governmental power,
whether by legal proceedings or otherwise, by a Condemnor, or (b) a voluntary
sale or transfer by Landlord with Tenant's consent (provided no Event of Default
has occurred and is continuing at such time) to any Condemnor, either under
threat of condemnation or while legal proceedings for condemnation are pending.
(b) "Date of Taking" means the first date the Condemnor has the right to
immediate possession of the property being condemned.
(c) "Award" means all compensation, sums and any other value awarded, paid
or received on a total or partial condemnation.
(d) "Condemnor" means any public or quasi-public authority, or private
corporation or individual, having the power of condemnation
16.2 Parties' Rights and Obligations. If during the Term there is any
Taking of all or any part of the Property or of any interest in this Lease by
Condemnation, the rights and obligations of the parties with respect to such
Condemnation shall be determined by this Article.
16.3 Total Taking. If title to the whole of Tenant's interest in the
Property shall be taken or condemned by any Condemnor, this Lease shall cease
and terminate as of the Date of Taking. If title to less than the whole of the
Property shall be so taken or condemned, which nevertheless renders the Property
unsuitable for its Primary Intended Use (taking into account all relevant
factors, including but not limited to the number of useable beds, the amount of
square footage reasonably available for use by Tenant, and the type and amount
of Gross Revenues lost), Tenant and Landlord each shall have the option by
Notice to the other, at any time prior to the taking of possession by, or the
date of vesting of title in, such Condemnor, whichever first occurs, to
terminate this Lease as of such earlier to occur date. Upon such earlier to
occur date, if such Notice has been given, this Lease shall cease and terminate.
In either of such events, all Rent paid or payable by Tenant hereunder shall be
apportioned as of the date the Lease shall have been so terminated as aforesaid.
16.4 Allocation of Portion of Award. Subject to the rights of any Facility
Mortgagee, the total Condemnation Award made with respect to all or any portion
of the Property shall be distributed to Landlord and Tenant ratably in
accordance with the value of their respective interests in and to such Property
as hereafter set forth in this Section 16.4. All of the Award shall be the sole
and exclusive property of Landlord and shall be payable to Landlord,
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subject to the rights of any Facility Mortgagee; provided that any portion of
such Condemnation Award which is expressly allocated by the Condemnor to the
taking of Tenant's leasehold interest in the Property, the taking, of any
Capital Additions (or any portion thereof) paid for by Tenant, any loss of
business by Tenant during, the remaining Term of this Lease, the taking of
Tenant's Personal Property, or any removal and relocation expenses of Tenant in
any such proceedings shall be the sole property of and payable to Tenant. In any
Condemnation proceedings Landlord and Tenant each shall seek their own Award in
conformity herewith, at their own expense.
16.5 Partial Taking. If title to less than the whole of the Property shall
be taken or condemned, and the Property is still suitable for its then Primary
Intended Use, or if Tenant or Landlord shall be entitled (but shall not elect)
to terminate this Lease as provided in Section 16.3 hereof, Tenant at its own
cost and expense shall with all reasonable diligence restore the untaken portion
of any Improvements so that such improvements shall constitute a complete
architectural unit of the same General character and condition (as nearly as may
be possible under the circumstances) as the Improvements existing immediately
prior to such Condemnation or Taking. Landlord and Tenant shall each contribute
to the cost of restoration that part of their Award specifically allocated to
such restoration, if any (or if no such specific allocation is made, a just,
fair and reasonable portion of its Award as reasonably determined by Landlord
and Tenant or by arbitration in accordance with Section 28.14 if Landlord and
Tenant are unable to agree within 30 days of the Award), together with any and
all severance and other damages awarded for any taken Improvements; provided,
however, the amount of such contribution shall not exceed such cost. If such
amounts are not sufficient to cover the cost of restoration Landlord and Tenant
shall contribute any additional amounts needed for restoration in proportion to
the amounts already contributed by them, provided that in no event shall
Landlord contribute any amount to such restoration in excess of its Award.
Thereafter, any excess restoration cost shall be borne solely by Tenant.
Landlord agrees that Tenant shall be entitled to an equitable abatement of Base
Rent in the event of a partial taking, of the Property, but such abatement shall
be strictly limited to any amount of excess Award paid to Landlord after the
restoration cost has been paid.
16.6 Temporary Taking. If the whole or any part of the Property or of
Tenant's interest under this Lease shall be taken or condemned by any Condemnor
for its temporary use or occupancy for a period of not more than one
hundred-eighty (180) days, this Lease shall not terminate, and Tenant shall
continue to pay, in the manner and at the times herein specified, the full
amounts of Base Rent, Additional Rent, if any, and Additional Charges, provided
that during any such Temporary Taking Tenant shall pay Additional Rent at a rate
equal to the average Additional Rent during the
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three immediately preceding Fiscal Years (or if three Fiscal Years shall not
have elapsed, the average during the last preceding Fiscal Years occurring
during the Term). Except to the extent Tenant may be prevented from so doing
pursuant to the terms of the order of the Condemnor, Tenant shall continue to
perform and observe all of the other terms, covenants, conditions and
obligations hereof on the part of the Tenant to be performed and observed as
though such Taking or Condemnation had not occurred. Upon any such Taking or
Condemnation described in this Section, the entire amount of any such Award made
for such Taking or Condemnation allocable to the Term of this Lease, whether
paid by way of damages, Rent or otherwise, shall be paid to Tenant. Tenant
covenants that upon the termination of any such Taking, or Condemnation set
forth in this Section, Tenant will, at its sole cost and expense (subject to any
contribution by Landlord as set forth in Section 16.5), restore the Property as
nearly as may be reasonably possible to the condition in which the same was
immediately prior to such Taking or Condemnation, unless such period of
temporary use or occupancy shall extend beyond the expiration of the Term, in
which case Tenant shall not be required to make such restoration.
ARTICLE XVII
DEFAULTS AND REMEDIES
17.1 Events of Default. Any one or more of the following events shall be
deemed an "Event of Default" hereunder:
(a) Tenant shall fail to pay Rent payable by Tenant under this Lease when
the same becomes due and payable and such failure continues for 5 days after
notice of such failure (except that Landlord shall not be required to give more
than one such notice in any 12-month period);
(b) Tenant shall violate the covenant described in Section 29.3(c) hereof;
(c) Any representation or warranty made by the Tenant in connection with
this Lease or the Security Agreement, or in any report, certificate, financial
statement or other instrument furnished in connection herewith or therewith,
from time to time, whether under Article XXIV of this Lease or otherwise, shall
prove to be false or misleading in any material respect and shall not be
remedied within 30 days after Tenant receives notice thereof;
(d) Tenant shall fail to observe or perform any other term, covenant or
condition of this Lease and such failure is not cured by Tenant within a period
of 30 days after Notice thereof from Landlord, unless such failure cannot with
due diligence be cured within a period of 30 days, in which case such failure
shall not be deemed to continue if Tenant proceeds promptly and with due
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diligence to cure the failure and diligently completes the curing thereof;
(e) Tenant or either of Guarantors shall: (1) admit in writing its
inability to pay its debts generally as they mature, (ii) make a general
assignment for the benefit of its creditors, (iii) have appointed a trustee,
receiver or liquidator pursuant to an order of a court of competent jurisdiction
of itself or of the whole or any part of its property which is not discharged in
sixty (60) days, (iv) terminate or suspend its business, (v) have any of its
assets executed upon, attached or judicially seized and such execution,
attachment or seizure is not vacated or set aside within sixty (60) days;
(f) Tenant or either of Guarantors shall: (i) file a voluntary case under
any applicable bankruptcy, insolvency, debtor relief or other similar law or
statute of the United States of America or any State thereof now or hereinafter
in effect ("Bankruptcy Laws"), (ii) consent to or acquiesce in the appointment
of a receiver, liquidator, assignee, trustee, custodian or sequestrator (or
similar official of itself or of the whole or any part of its property) which is
not discharged in thirty (30) days, or (iii) fail generally to pay its debts as
they mature or become due;
(g) Tenant or either of Guarantors shall, on a petition filed under any
applicable Bankruptcy Laws against any of them, be adjudicated a bankrupt or
have an order for relief thereunder entered against it or fail to oppose any
such proceeding or if a court of competent jurisdiction shall enter an order or
decree appointing, without its consent, a receiver, liquidator, assignee,
custodian, trustee or sequestrator (or similar official) of itself or of the
whole or any part of its property and such judgment, order or decree shall not
be vacated or set aside or stayed within sixty (60) days from the date of the
entry thereof; or
(h) Tenant or either of Guarantors shall be liquidated or dissolved, or
shall voluntarily begin proceedings toward such liquidation or dissolution, or
shall, in any manner, permit the sale or divestiture of substantially all of its
assets;
(i) an Event of Default under the terms of the Security Agreement shall
occur and be continuing;
(j) Tenant or either of Guarantors shall fail to make when due any
scheduled payment with respect to indebtedness (other than indebtedness which is
subordinated to this Lease), unless such failure is being diligently contested
in accordance with the requirements of this Lease or any lease pursuant to which
it enjoys the use of any real or personal property and such failure shall
continue for five days following its receipt of written advice with respect
thereto, if the effect of such failure is (i) to accelerate
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the maturity of such indebtedness or to require the prepayment thereof, (ii) to
permit the holder or obligee thereof (or any trustee on behalf of such holder or
obligee) to cause such indebtedness to become due prior to its stated maturity,
(iii) to give the lessor the right to terminate such lease or (iv) to have a
material adverse effect on the business, operations, properties or condition
(financial or otherwise) of Tenant or Guarantor; provided, however, that such
effect in (i), (ii) or (iii) hereto has a material adverse effect on the
business, operations, properties or condition (financial or otherwise) of Tenant
or Guarantor.
(k) any Notification Event described in Section 29.2(c) shall occur, which
is reasonably likely to result in liability to the Tenant or either of
Guarantors having a material adverse effect on the business, operations,
properties or condition (financial or otherwise) of Tenant or either of
Guarantors;
(l) an Event of Default under the terms of the Cornerstone Lease, the
Safford Lease or the Douglas Manor Lease shall occur and be continuing; or
(m) either Tenant or Signature sells, assigns or transfers a controlling
interest in Tenant or Signature or a controlling interest in Tenant's operations
of the Property (other than as permitted by Section 23 and Section 29.1(d))
without the prior written consent of Landlord, which consent shall not
unreasonably be withheld.
No Event of Default (other than a failure to make a payment of money)
shall be deemed to exist under clause (d) above during any time the curing
thereof is prevented by an Unavoidable Delay, provided that upon the cessation
of such Unavoidable Delay, Tenant immediately shall remedy such default.
Tenant shall immediately notify Landlord and NHI of the occurrence of any
event set forth in subsections 17.1(b) through (m). Landlord shall provide
identical notice to NHI as it provides to Tenant of any event set forth in
subsection 17.1(a) through (m).
17.2 Certain Remedies. Upon any Event of Default, Landlord shall have all
legal, equitable and contractual rights, powers and remedies provided either in
this Lease, at common law or in equity, or by statute or otherwise. Tenant
expressly acknowledges and agrees that the Landlord will also have the right of
injunction in accordance with applicable law.
Without limiting the foregoing, if an Event of Default occurs, is not
cured within the period, if any, for any such cure provided in Section 17.1, and
is continuing, Tenant shall, to the extent permitted by law and if required by
Landlord so to do, immediately surrender to Landlord the Property and quit the
same. Landlord may
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enter upon and repossess the Property by reasonable force, summary proceedings,
ejectment or otherwise, and may remove Tenant and all other persons and any and
all personal property from the Property subject to rights of any residents or
patients and to any requirement of law. No such entry or repossession by
Landlord shall be deemed an election by Landlord to terminate this Lease unless
specifically stated by Landlord in writing, from Landlord to Tenant. Thereafter
Landlord shall use reasonable, (good faith efforts to relet the Property or
otherwise mitigate Landlord's damages. Landlord may so terminate Tenant's right
of possession and may repossess the Premises without liability for trespass or
conversion, without demand or notice of any kind to Tenant and without
terminating this Lease, in which event Landlord may, but shall be under no
obligation to, relet the same for the account of Tenant for such rent and upon
such terms as shall be satisfactory to Landlord. For the purpose of such
reletting, Landlord is authorized to decorate or to make any repairs, changes,
alterations, or additions in or to the Premises that may be necessary or
convenient. If Landlord exercises the remedies provided in this subparagraph,
Tenant shall pay to Landlord, and Landlord shall be entitled to recover from
Tenant, an amount equal to the total of the following: (A) unpaid Rent, plus
interest at the Overdue Rate, owing under the Lease for all periods of time that
the Premises are not relet (including any period prior to Landlord's
repossession); plus (B) the reasonable costs of recovering possession, and all
of the reasonable costs and expenses of such decorations, repairs, changes,
alterations, and additions, and the reasonable expense of such reletting and of
the collection of the rent accruing therefrom to satisfy the Rent provided for
the Lease to be paid; plus (C) any deficiency in the rentals and other sums
actually received by Landlord from any such reletting from the Rent required to
be paid under this Lease with respect to the periods the Premises are so relet,
and Tenant shall satisfy and pay any such deficiency upon demand therefor from
time to time. Neither the repossession of the Property, the failure of Landlord
to relet the Property, nor the reletting of all or any portion of the Property,
shall relieve Tenant of its liability and obligation hereunder, all of which
shall survive any such repossession or reletting Tenant agrees that Landlord may
file suit to recover any sums falling due under the terms of this subparagraph
from time to time; and that no delivery or recovery of any portion due Tenant
hereunder shall be a defense in any action to recover any amount not theretofore
reduced to judgment in favor of Landlord, nor shall such reletting be construed
as an election on the part of Landlord to terminate this Lease unless
specifically stated by Landlord in writing, from Landlord to Tenant.
Notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect to terminate this Lease for such previous breach in accordance
with the procedure hereinafter provided.
Without limiting the foregoing, whether or not this Lease has been
terminated, Landlord shall have the right to offset against
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any Rent, damages, or other sums of money owed by Tenant any advance Rent
applicable to any time period after the occurrence of the Event of Default.
17.3 Termination. Upon the occurrence of any Event of Default, Landlord
may terminate this Lease by giving Tenant not less than ten days' Notice of such
termination during which time Tenant shall have the opportunity to cure any such
Event of Default. Upon the expiration of the time fixed in such Notice, unless
such Event of Default is cured, the Term shall terminate and all rights of
Tenant under this Lease shall cease. Landlord shall have all rights at law and
in equity available to Landlord as a result of Tenant's breach of this Lease. If
any litigation is commenced with respect to any alleged default under this Lease
whether under this Section 17.3 or under Section 17.2, the prevailing party in
such litigation shall receive, in addition to its damages incurred, its
reasonable attorneys' fees, and all costs and expenses incurred in connection
therewith. Neither the termination of this Lease pursuant to this Section 17.3,
the repossession of the Property, the failure of Landlord to relet the Property,
nor the reletting of all or any portion of the Property, shall relieve Tenant of
its liability and obligations hereunder, all of which shall survive any such
termination, repossession or reletting. Upon any such termination, Tenant shall
forthwith pay to Landlord as damages a sum of money equal to the total of (A)
the costs of recovering the Premises, (B) the unpaid Rent due and payable at the
termination, plus interest thereon at the Overdue Rate, (C) the balance of the
Rent for the remainder of the term less the fair market rental value of the
Premises for such period, and (D) any other sum of money rental owed by Tenant
to Landlord and the amount of other damages suffered by Landlord as a result of
Tenant's default.
17.4 Application of Funds. Any payments normally made to Tenant hereunder
which are made to and received by Landlord under any of the provisions of this
Lease during the continuance of any Event of Default shall be applied to
Tenant's obligations in the order which Landlord may determine or as may be
prescribed by applicable laws.
17.5 Landlord's Right to Cure Tenant's Default. If an Event of Default
occurs under this Lease and is not cured within the time provided under this
Lease with respect to such Event of Default, Landlord, without waiving or
releasing any obligation of Tenant, and without waiving any such Event of
Default, may (but shall be under no obligation to) at any time thereafter cure
such default for the account and at the expense Of Tenant, and may, to the
extent permitted by law, enter upon the Property for such purpose and take all
such action thereon as, in Landlord's sole judgment, may be necessary or
appropriate with respect thereto. No such entry by Landlord on the Property
shall be deemed an eviction of Tenant. All sums so paid by Landlord and all
reasonable costs and
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expenses (including, without limitation, reasonable attorneys' fees and
expenses) so incurred, together with a late charge thereon computed at the
Overdue Rate from the date on which such sums or expenses are paid or incurred
by Landlord until the date reimbursed, shall be reimbursed by Tenant to Landlord
on demand. The obligations of Tenant and rights of Landlord contained in this
Article shall survive the expiration or earlier termination of this Lease.
17.6 NHI's Right to Cure. If an Event of Default occurs under this Lease,
NHI may (but shall be under no obligation to) at any time thereafter cure such
default for the account and at the expense of Tenant.
17.7 Waiver. If this Lease is terminated pursuant to the provisions of
this Article, Tenant waives, to the extent permitted by applicable law, (a) any
right of redemption, re-entry or repossession, (b) any right to trial by jury in
the event of summary proceedings to enforce the remedies set forth in this
Article, and (c) the benefit of any laws now or hereafter enforced exempting
property from liability for rent or for debt.
ARTICLE XVIII
CURE BY TENANT OF LANDLORD DEFAULTS
Landlord shall be in default of its obligations under this Lease if
Landlord shall fail to observe or perform any term, covenant or condition of
this Lease on its part to be performed, and such failure shall continue for a
period of 30 days after Notice thereof from Tenant (or such shorter time as may
be necessary in order to protect the health or welfare of any patient or other
resident of the Property), unless such failure cannot be cured with due
diligence within a period of 30 days, in which case such failure shall not be
deemed to continue if Landlord, within said 30 day period, proceeds promptly and
with due diligence to cure the failure and diligently completes the curing
thereof. The time within which Landlord shall be obligated to cure any such
failure shall also be subject to extension of time due to the occurrence of any
Unavoidable Delay. If Landlord fails to commence or complete such cure as
provided herein, Tenant may cure such default, and for so long as Tenant
continues to pay Rent, Tenant shall have the right by separate and independent
action to pursue any claim it may have against Landlord for Landlord's failure
to cure such default.
ARTICLE XIX
PURCHASE OF PROPERTY BY TENANT
19.1 Purchase of the Property. If Tenant purchases the Property from
Landlord pursuant to any of the terms of this Lease, Landlord shall, except as
otherwise expressly provided, upon receipt from Tenant of the applicable
purchase price, together with
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full payment of any unpaid Rent due and payable with respect to any period
ending on or before the date of such purchase, deliver to Tenant an ALTA Owner
Policy of Title Insurance or such equivalent policy of title insurance as may be
available in the State, together with such endorsements, reinsurance agreements
and direct access agreements as Tenant may reasonably request, together with an
appropriate special warranty deed or other conveyance conveying marketable fee
simple title in and to the Property to Tenant in the condition set forth in
Article XXVI, except that the Property shall be free and clear of all mortgages
and encumbrances other than (a) those Tenant has agreed hereunder to pay or
discharge, (b) those mortgages which Tenant has agreed in writing to accept and
to take title subject to on the date the Property was originally conveyed to
Landlord and which are not in default, (c) encumbrances required to be imposed
on the Property under Section 8.3, and (d) any other encumbrances permitted to
be imposed on the Property under the provisions of Article XXVII which are
assumable at no cost or expense to Tenant or to which Tenant may take subject
without cost or expense to Tenant. The difference between the applicable
purchase price and the total amount of the encumbrances assumed or taken subject
to, if a positive number, shall be paid in cash to Landlord or as Landlord may
direct, in federal or other immediately available funds, unless otherwise
mutually agreed by Landlord and Tenant; provided, Landlord shall be obligated to
pay to Tenant in cash any negative difference between the applicable purchase
price and the total amount of the encumbrances so assumed or taken subject to by
Tenant. All reasonable expenses of conveying the Property to Tenant, including,
without limitation, the cost of the aforementioned title insurance and
attorneys' fees incurred by Landlord in connection with such conveyance and
release, and documentary transfer and similar taxes, recording fees and expenses
of Tenant's counsel, shall be paid by Tenant.
19.2 Failure to Close Purchase. The closing of any such sale shall be
contingent upon and subject to Tenant obtaining all required governmental
consents and approvals for such transfer. If such sale shall fail to be
consummated by reason of the inability of Tenant to obtain all such approvals
and consents, then this Lease shall remain in effect on a month-to-month basis
until the consummation of the purchase or until Tenant's inability to obtain the
approvals and consents is confirmed.
ARTICLE XX
HOLDING OVER
If Tenant for any reason remains in possession of the Property after the
expiration or earlier termination of the Term, such possession shall be a
month-to-month tenancy during which time Tenant shall pay to Landlord as rental
each month one and one half (1-1/2) times the aggregate of (i) one-twelfth of
the aggregate total Base Rent payable with respect to the last 12-month. period
of the Term just expired or terminated, (ii) all Additional Charges
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accruing during the month with respect to which such payment relates, and (iii)
all other sums, if any, payable by Tenant pursuant to the provisions of this
Lease with respect to the Property. During such period of month-to-month
tenancy, Tenant shall be obligated to perform and observe all of the terms,
covenants and conditions of this Lease, but shall have no rights hereunder other
than the right, to the extent given by law to month-to-month tenancies, to
continue its occupancy and use of the Property. Nothing contained herein shall
constitute the consent, express or implied, of Landlord to the holding over of
Tenant after the expiration or earlier termination of the Term.
ARTICLE XXI
RISK OF LOSS
During the Term of this Lease, Tenant shall bear the risk of loss or of
decrease in the enjoyment and beneficial use of the Property resulting from the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or any other cause, or resulting from foreclosures, attachments, levies or
executions (other than those caused by Landlord and those claiming from, through
or under Landlord) and, in the absence of the gross negligence, willful
misconduct or breach of this Lease by Landlord, Landlord shall in no event be
responsible therefor nor shall any of the events mentioned in this Section
entitle Tenant to any abatement of Rent except as specifically provided in this
Lease.
ARTICLE XXII
LIABILITY OF PARTIES
22.1 Indemnification by Tenant. Notwithstanding the existence of any
insurance provided for in Article XIV, and notwithstanding the policy limits of
any such insurance, Tenant shall indemnify, defend, save and hold Landlord
harmless from and against any and all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses ("Claims") (including, without
limitation, reasonable attorneys' fees and expenses), to the extent permitted by
law, imposed upon, incurred by or asserted against Landlord arising out of,
connected with or incidental to:
(a) any Hazardous Substance located at, in, on, under or about the
Property due to the act or omission of Tenant, including any improvements,
repairs, handling, removal or other actions taken by Landlord in order to comply
with all rules and regulations promulgated by any applicable federal, state, or
local government rule and regulation with respect to any such Hazardous
Substance or related problems that Landlord becomes aware of;
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(b) any accident, injury to or death of persons, or loss of or damage to
property, occurring on or about the Property or adjoining sidewalks, alleys or
roadways, including without limitation any claims of malpractice;
(c) any past, present or future use, misuse, non-use, condition,
management, maintenance or repair by Tenant of the Property or Tenant's Personal
Property and any litigation, proceeding, or claim by governmental entities or
other third parties to which Landlord is made a party or other participant
related to the Property or Tenant's Personal Property or such use, misuse,
non-use, condition, management, maintenance or repair thereof, including but not
limited to any failure to perform obligations (other than condemnation
proceedings) to which Landlord is made a party;
(d) any Impositions which are the obligations of Tenant to pay pursuant to
the applicable provisions of this Lease:
(e) any failure on the part of Tenant to perform or comply with any of the
terms of this Lease; and
(f) the non-performance of any of the terms and provisions of any and all
existing and future subleases of the Property to be performed by Tenant
thereunder.
22.2 Indemnification by Landlord. Landlord shall indemnify, defend, save
and hold Tenant harmless from and against any and all liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) imposed upon,
incurred by or asserted against Tenant arising out of, connected with or
incidental to the sole or gross negligence or willful misconduct of Landlord;
provided, however, that Tenant's right to indemnification as provided herein,
shall be subject to the limitation set forth in Article XXVIII.
22.3 Continuing Liability. Tenant's and Landlord's liability under this
Article shall survive any termination of this Lease and shall continue for the
term provided herein or as permitted by the laws of the State, whichever is
longer.
ARTICLE XXIII
ASSIGNMENT
23.1 Assignment and Subletting. Subject to the provisions of Section 23.3
below and any other express conditions or limitations set forth in this Lease,
Tenant may without the consent of Landlord, (i) sublet up to an aggregate of 25%
of the rentable square footage of the Facility, to concessionaires or other
third party users or operators thereof, provided that any subletting to
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any party shall not individually as to any one such subletting, or in the
aggregate, materially diminish the actual or potential Additional Rent payable
under this Lease or (ii) assign its rights hereunder to a joint venture or
partnership in which Tenant holds a controlling interest and, in the case of a
partnership, Tenant is a general partner. Except as otherwise permitted in the
immediately preceding sentence, a conveyance, transfer, assignment or subletting
of all or any portion of the Property shall not be permitted unless the consent
of Landlord is first obtained; provided, however, that Landlord hereby
acknowledges notice that NHI has a lien on Tenant's leasehold estate under this
Lease, and hereby consents to NHI or any nursing home affiliate thereof becoming
the Tenant hereunder upon any foreclosure of such lien. Such consent by Landlord
will not be unreasonably withheld if (x) the assignee assumes all obligations of
Lessee under the Lease in a writing, in form and content reasonably acceptable
to Landlord, (y) such assignee meets the financial covenants applicable to
Tenant hereunder and demonstrates such fact to Landlord's reasonable
satisfaction, and (z) no Event of Default is in effect and continuing hereunder.
Landlord shall not unreasonably withhold its consent to any subletting or
assignment, provided that the assignee or sublessee has a financial condition
comparable to the greater of (i) Tenant's financial condition as of the
Commencement Date or (ii) Tenant's financial condition as of the date of the
proposed assignment or subletting and (w) in the case of a subletting the
sublessee shall comply with the provisions of Section 23.2, (x) in the case of
an assignment, (i) the assignee assumes in writing and agrees to keep and
perform all of the terms of this Lease on the part of Tenant to be kept and
performed, (ii) the assignee complies with the covenants set forth in Section 28
hereof, (iii) the assignment causes no violation of any other covenants under
this Lease by Tenant or the assignee, and (iv) the assignee becomes jointly and
severally liable with Tenant for the performance thereof, (y) an original
counterpart of each such sublease and assignment and assumption, duly executed
by Tenant and such sublessee or assignee, as the case may be, in form and
substance satisfactory to Landlord, is delivered promptly to Landlord, and (z)
in case of either an assignment or subletting, Tenant remains primarily liable,
as principal rather than as surety, for the prompt payment of Rent and for the
performance and observance of all covenants and agreements to be performed by
Tenant hereunder. Tenant shall not, without Landlord's approval, which Landlord
may not unreasonably withhold, permit any person other than its Affiliates, to
own at any time 50% or more of the beneficial interest in Tenant.
23.2 Attornment. Tenant shall insert in each sublease permitted under
Section 23.1 provisions reasonably satisfactory to Landlord which provide for
the benefit of Landlord that (a) such sublease is subject and subordinate to all
of the terms and provisions of this Lease and to the rights of Landlord
hereunder, (b) in the event this Lease shall terminate before the expiration
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of such sublease, the sublessee thereunder will, at Landlord's option, either
attorn to Landlord and waive any right the sublessee may have to terminate the
sublease or surrender possession under such sublease, and (c) in the event the
sublessee receives Notice from Landlord or Landlord's assignees, if any,
stating, that Tenant is in default under this Lease, the sublessee shall
thereafter be obligated to pay all rentals accruing under said sublease directly
to the party Giving such Notice, or as such party may otherwise direct. All
rentals received from the sublessee by Landlord or Landlord's assignees, if any,
as the case may be, shall be credited against the amounts owed to Landlord under
this Lease.
23.3 Sublease Limitation. Anything contained in this Lease to the contrary
notwithstanding, Tenant shall not sublet the Property on any basis such that the
rental to be paid by the sublessee thereunder would be based, in whole or in
part, on either (a) the income or profits derived by the business activities of
the sublessee, or (b) any other formula such that any portion of the sublease
rental would fail to qualify as "rents from real property" within the meaning of
Section 856(d) of the Code, or any similar or successor provision thereto.
ARTICLE XXIV
INFORMATION FROM TENANT
24.1 Officer's Certificates. At anytime and from time to time, upon not
less than 20 days Notice by Landlord, Tenant shall furnish to Landlord an
Officer's Certificate certifying that this Lease is unmodified and in full force
and effect (or that this Lease is in full force and effect as modified and
setting forth the modifications), the date to which the Rent has been paid,
whether there exists any Event of Default or any situation which, with the
giving of notice, passage of time, or both, would constitute an Event of Default
hereunder based upon Tenant's current knowledge, whether Tenant contends that
Landlord is in default hereunder, and if Tenant so contends, the basis for such
contention, the date upon which the Term terminates, and such other information
as Landlord reasonably may request. Any such certificate furnished pursuant to
this Section 24.1 may be relied upon by Landlord, any prospective purchaser of
the Property, and any Facility Mortgagee or Landlord Lender.
24.2 Financial Information. Tenant shall furnish, the following statements
to Landlord:
(a) within 120 days after the end of each Fiscal Year, a balance sheet
and statements of revenues and expenses and changes in retained earnings and
cash flows for Tenant, certified by independent public accountants of recognized
standing acceptable to Landlord, such statements to be prepared in accordance
with generally accepted accounting principles consistently applied, to be for
such Fiscal Year and the immediately preceding Fiscal Year
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and to be in comparative columnar form; within 90 days after the end of each
Fiscal Year, Tenant shall provide unaudited preliminary financial statements
similar to those referred to above;
(b) within 120 days after the end of each Fiscal Year, a schedule of
capital expenditures or reserves therefor of Tenant for such Fiscal Year as
required by Section 29.2(a)(i) hereof;
(c) within 45 days after the end of each of the first three fiscal
quarters of each Fiscal Year, financial statements similar to those referred to
in clause (a) above, but only certified by the principal financial or other
appropriate officer of Tenant, as having been prepared in accordance with
generally accepted accounting principles consistently applied (but which may
exclude footnote disclosures), such financial statements to be for the period
from the beginning of such Fiscal Year (and immediately preceding Fiscal Year)
to the end of such quarter (and comparable quarter);
(d) concurrent with the statements furnished pursuant to clauses (a) and
(b) above, an Officer's Certificate stating that, after making, due inquiry,
Tenant is not in default in the performance or observance of any of the terms of
this Lease, or if Tenant shall be in default to its knowledge, specifying all
such defaults, the nature of such defaults, and the steps being taken to remedy
the same;
(e) within 30 days after the end of each month, financial statements
similar to those referred to in clause (a) together with operating statistics
but only certified by the principal financial or other appropriate officer of
Tenant, as having been prepared in accordance with generally accepted accounting
principles consistently applied, and
(f) with reasonable promptness, such other information respecting the
financial condition and affairs of Tenant as Landlord may reasonably request
from time to time.
24.3 Licensing Information. Tenant shall promptly furnish to Landlord
complete copies of all surveys, examinations, inspections, compliance
certificates and similar reports of any kind issued to Tenant by any
governmental agencies or authorities having jurisdiction over the licensing of
the operation of the Property which are material to the Property or the
Facility, their ownership or operation.
ARTICLE XXV
APPRAISALS OF THE PROPERTY AND OPTIONS
25.1 Appraisers. If at any time it becomes necessary to determine the Fair
Market Value, Fair Market Value Purchase Price
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or Fair Market Rental of the Property for any purpose under this Lease, and the
parties are unable to agree thereupon, the party required or permitted to give
Notice of such required determination shall include in the Notice the name of a
person selected to act as appraiser on its behalf. Within ten days after such
Notice, Landlord or Tenant, as the case may be, shall by Notice to Tenant or
Landlord, as the case may be, either agree to the appointment of the appraiser
identified in such initial Notice, in which case such appraiser shall be the
sole appraiser for purposes of determining the Fair Market Value, Fair Market
Value Purchase Price or Fair Market Rental, as the case may be, or shall appoint
a second person as an appraiser on its behalf. Any appraiser appointed pursuant
to this Section must be a member of the American Institute of Real Estate
Appraisers (or any successor organization thereto). The appraiser(s) thus
appointed shall, within 45 days after the date of the Notice appointing the
first appraiser, proceed to appraise the Property to determine the Fair Market
Value, Fair Market Value Purchase Price or Fair Market Rental thereof (as the
case may be) as of the relevant date (giving effect to the impact, if any, of
inflation from the date of their decision to the relevant date). In the case of
two appraisers, except as provided in Section 25.2, the two appraisals shall be
averaged to determine the Fair Market Value, Fair Market Value Purchase Price or
Fair Market Rental, as the case may be. In any event, the appraised value
determined in accordance with this Section shall be final and binding on
Landlord and Tenant.
25.2 Method of Appraisal. Any appraisal required or permitted by the terms
of this Lease shall be conducted in a manner consistent with sound appraisal
practice, taking into account each of the income, market and cost appraisal
methodologies. Notwithstanding the provisions of Section 25.1, if the difference
between the appraisal amounts determined by the appraisers appointed pursuant to
Section 25.1 exceeds ten percent of the lesser of such appraisal amounts, then
the two appraisers shall have 20 days to appoint a third appraiser. If no such
appraiser is appointed within such 20 days or within 90 days of the original
request for a determination of Fair Market Value, Fair Market Value Purchase
Price or Fair Market Rental (as the case may be), whichever is earlier, either
Landlord or Tenant may apply to any court having jurisdiction to have such
appointment made by such court. Any appraiser appointed by the original
appraisers or by such court shall be instructed to determine the Fair Market
Value, Fair Market Value Purchase Price or Fair Market Rental (as the case may
be) within 45 days after the appointment of such appraiser. The determination of
the three appraisers which differs most in the terms of dollar amount from the
determinations of the other two appraisers shall be excluded, and 50% of the sum
of the remaining two determinations shall be the appraised value, which
appraised value shall be final and binding upon Landlord and Tenant as the Fair
Market Value, Fair Market Value Purchase Price or Fair Market Rental of the
Property, as the case may be. If the lowest and
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highest appraised values are equidistant in amount from the middle appraised
value, then such middle appraised value shall be the Fair Market Value, Fair
Market Value Purchase Price or Fair Market Rental (as the case may be). The
provisions of this Article shall be specifically enforceable to the extent such
remedy is available under applicable law, and any determination hereunder shall
be final and binding upon the parties except as otherwise provided by applicable
law. Landlord and Tenant each shall pay the fees and expenses of the appraiser
appointed by it, and each shall pay one-half of the fees and expenses of the
third appraiser and one-half of all other costs and expenses incurred in
connection with each appraisal.
ARTICLE XXVI
OPTIONS TO PURCHASE
26.1 Landlord's Option to Purchase Tenant's Personal Property; Transfer of
Licenses. Provided Tenant has not exercised its option pursuant to Section 26.2
hereof, effective upon not less than ninety (90) days prior notice given at any
time within one hundred eighty (180) days prior to the expiration of the Term of
this Lease, or upon such shorter Notice as shall be reasonable if this Lease is
terminated prior to its expiration date, Landlord shall have the option to
purchase all (but not less than all) of Tenant's Personal Property, if any, at
the expiration or termination of this Lease, for an amount equal to the then
fair market value thereof, taking into account and with appropriate price
adjustments for all equipment leases, conditional sale contracts, UCC-1
financing statements and other encumbrances to which such Tenant's Personal
Property is subject. Upon the expiration or termination of the Lease and such
purchase by Landlord, Tenant shall use good faith efforts, at Landlord's sole
cost and expense, to transfer and assign to Landlord or its designee, or assist
Landlord or its designee in obtaining, any contracts, licenses, and certificates
required for the then operation of the Facility.
26.2 Tenant's Option to Purchase the Property. Provided no Event of
Default specified in Section 17.1 (a) hereof nor any other material Event of
Default has occurred and is continuing, and provided Tenant simultaneously
exercises its option to purchase the Properties subject to the other Leases,
Tenant shall have the option exercisable on not less than one hundred eighty
(180) days nor more than three hundred sixty (360) days Notice to purchase the
Property, at the expiration of the Fixed Term, or at the expiration of any
Extended Term, at the greater of (y) the Fair Market Value of the Property as of
the date specified for transfer of the Property in such Notice or (z) the Total
Investment Cost. Any such purchase of the Property by Tenant will constitute a
Sale, and will be subject to the indemnification provisions of Section 22.1
hereof. Upon exercise by Tenant of its option to purchase the Property, Landlord
shall, at the election of Tenant, either convey
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the Property as a sale of assets or as a sale of the stock of a corporation
whose sole assets consist of the Property.
If Tenant shall timely and properly exercise the foregoing option, the
sale of the Property shall be consummated through an escrow to be opened with a
mutually acceptable title or escrow company and shall close within ten Business
Days following the expiration of the Fixed Term or Extended Term in connection
with which Tenant exercised such purchase option. The purchase price of the
Property (net of the principal balance of any Facility Mortgage placed on the
Property by Landlord and expressly assumed by Tenant) shall be deposited into
escrow by wire transfer of Federal Funds at least two business days prior to
close of escrow and shall be paid to Landlord at close of escrow by wire
transfer of Federal Funds to such account as Landlord shall designate. Tenant
acknowledges and agrees that it shall purchase the Property from Landlord "AS
IS" and subject to all faults, defects in title and other matters whatsoever,
including, but not limited to, all matters of record other than Facility
Mortgage not expressly assumed by Tenant and any other liens, encumbrances,
attachments, levies or claims encumbering, at the instance of Landlord, the
Property, all of which shall be removed of record prior to purchase. Landlord
shall be conclusively deemed not to have made any warranty or representation
regarding the title, condition or other status of the Property. All title
insurance premiums and other closing costs associated with the purchase of the
Property by Tenant pursuant to this Section shall be paid by Tenant.
26.3 Tenant's Right of First Refusal. In the event that at any time during
the Term or the Extended Term, Landlord should receive an offer to acquire its
interest in the whole or any portion of the Property, and if such offer is
acceptable to Landlord, or if Landlord should make an offer to sell, convey or
transfer the whole or any portion of its interest in the Property, the Tenant
shall have, and Landlord does hereby grant to Tenant, the right of first refusal
to acquire Landlord's interest in the Property under the same terms and
conditions as such offer; provided, however, that if such offer to acquire or to
sell, convey or transfer all or any portion of the Property is part of an offer
to acquire other property from Landlord, in addition to all or any portion of
the Landlord's interest in the Property, Tenant may exercise the right of first
refusal granted in this section 26.3 only by agreeing to acquire all of the
property which is the subject of the offer on the same terms, conditions and
payment timetable as in the original offer. Upon receipt of any such acceptable
offer or upon transmittal of any offer, Landlord shall certify a complete, true
and correct copy of such offer to Tenant including all of the terms thereof.
Tenant shall have a period of 20 days from the date of the receipt of such
certification to exercise such right of first refusal by Notice to Landlord
within such period. Failure to exercise the right with respect to any particular
offer shall not terminate the right with respect to any
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other offer. If Tenant refuses to acquire the Property pursuant hereto and
Landlord sells the Property to a third party, such sale shall provide that it is
subject to the rights of Tenant under this Lease.
ARTICLE XXVII
FACILITY MORTGAGE
Without the consent of Tenant, Landlord may, subject to the terms and
conditions set forth below in this Section, from time to time, directly or
indirectly, create or otherwise cause to exist any lien, encumbrance, security
interest or title retention agreement ("Encumbrance") upon the Property, or any
portion thereof or interest therein, whether to secure any borrowing or other
means of financing or refinancing provided that the principal amount of such
borrowing, financing or refinancing does not exceed 80% of the then Fair Market
Value of the Property. Any such Encumbrance (i) shall contain the right to
prepay (whether or not subject to a prepayment penalty, which penalty shall be
paid by Landlord), (ii) shall provide that it is subject to the rights of Tenant
under this Lease, including, the rights of Tenant to acquire the Property
pursuant to the applicable provisions of this Lease, provided, however, that
Tenant agrees that it will not unreasonably withhold its consent to any request
by Landlord that Tenant subordinate this Lease to any mortgage or deed of trust
that may hereafter from time to time be recorded on the Property, and to any and
all advances made or to be made thereunder, and to renewals, replacements and
extensions thereof and (iii) shall be paid in full and released and reconveyed
in the event Tenant purchases the Property pursuant to this Lease, unless Tenant
elects to assume such Encumbrance. Any such subordination, however, shall be
subject to the condition precedent that the mortgagee under such mortgage or the
beneficiary under such deed of trust enter into a written nondisturbance and
attornment agreement with Tenant, in form and content satisfactory to Tenant,
whereunder it is agreed that in the event of a sale or foreclosure under such
mortgage or deed of trust, the purchaser of the Property (including the
mortgagee or beneficiary under such mortgage or deed of trust), shall acquire or
hold the Property subject to this Lease so long as Tenant is not in default
hereunder, and so long as Tenant recognizes such purchaser as the landlord under
this Lease and agrees, if requested to do so, to attorn to such purchaser and,
if instructed to do so by such purchaser, to make rental payments directly to
it.
ARTICLE XXVIII
LIMITATION OF LIABILITY
Tenant specifically agrees that neither AHP nor Landlord nor any officer,
shareholder, employee or agent of AHP or Landlord (each of which shall, for
purposes of this Article XXVII, be
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considered an Affiliate of Landlord) shall be held to any personal liability,
jointly or severally, for any obligation of, or claims against Landlord, Tenant
agreeing to look solely to Landlord's equity interest in the Property for
recovery of any judgment from Landlord. The provisions contained in the
foregoing sentence are not intended to, and shall not, limit any right that
Tenant might otherwise have to obtain injunctive relief against Landlord or
Landlord's successors in interest, or any action not involving the personal
liability of Landlord (original or successor). In no event shall Landlord
(original or successor) or any Affiliate of Landlord be required to respond in
monetary damages from Landlord's assets other than Landlord's equity interest in
the Property. Furthermore, except as otherwise expressly provided herein, in no
event shall Landlord or any Affiliate of Landlord (original or successor) ever
be liable to Tenant for any indirect or consequential damages suffered by Tenant
from whatever cause.
ARTICLE XXIX
ADDITIONAL COVENANTS OF TENANT
29.1 Additional Negative Covenants. Tenant covenants and agrees with
Landlord that, during the Term hereof, Tenant shall not, either directly or
indirectly:
(a) Liens. Incur, create, assume or permit to exist any mortgage,
pledge, lien, charge or other encumbrance of any nature whatsoever (including
conditional sales or other title retention agreements) on any property or other
assets now owned or hereafter acquired by Tenant, including, but not limited to,
Tenant's leasehold interest under this Lease and Tenant's Personal Property,
other than:
(i) deposits or pledges to secure payment of workmen's
compensation, unemployment insurance, old age pensions or other
social security;
(ii) liens for taxes or assessments or other governmental charges or
levies if not yet due and payable, or if in good faith being contested or
litigated, provided that a reserve against such taxes, assessments, charges and
levies deemed adequate by Landlord shall be maintained and Tenant shall furnish
security reasonably satisfactory to Landlord for the payment of such taxes,
assessments, charges and levies;
(iii) liens in favor of Landlord or NHI;
(iv) purchase money security interests securing the payment of not more
than 75% of the purchase price of any item of personal property;
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(v) security interests in accounts receivable under working capital
lines of credit securing, indebtedness not exceeding 80% of the net book value
of such accounts receivable;
(vi) judgments and other similar liens, provided that the execution or
other enforcement of such liens is effectively stayed and the claims secured
thereby are being actively contested in good faith and by appropriate
proceedings in accordance with the requirements of this Lease;
(vii) liens constituting renewals, extensions or replacements of liens
described in the foregoing clauses, but only, in the case of each such renewal,
extension or replacement lien, to the extent of the principal amount of the
obligation so secured at the time of the extension, renewal or replacement, and
to the extent that such renewal, extension or replacement lien is limited to all
or part of the property that secured the lien extended, renewed or replaced; and
(viii) liens being contested in accordance with the provisions of Article
XIII.
(b) Cash Flow Coverage Ratio. Unless Tenant is in full compliance with
the provisions of Section 3.1 of the Security Agreement, Tenant shall not permit
the ratio of: (a) Cash Flow to (b) Total Rent reserved for any calendar quarter
to be less than 1.75 to one; provided, however, that the failure to maintain
either of such ratios shall not constitute an event of default if the Lease
Reserve Fund is (i) then maintained in an amount equal to six months Initial
Base Rent or (ii) reinstated to an amount equal to six months Initial Base Rent
within thirty (30) days after Tenant delivers to Landlord financial statements
indicating such failure.
(c) Sale of Assets. Sell, lease, transfer or otherwise dispose of all
or any substantial part of its properties or assets, except for (x) properties
that are no longer useful in its business or have been replaced and (y) during
any 12-month period, Properties with an aggregate market value of up to
$500,000.
(d) Consolidation or Merger. Consolidate with or merge into any other
corporation or partnership or permit any other corporation or partnership to
merge into it unless after giving pro forma effect to the merger, based on its
and the disappearing corporation's financial statements for, in each case, its
most recently completed fiscal year or quarter, there is no violation of any of
the covenants of this Lease to be observed or performed by Tenant.
(e) Guarantees. Guarantee or otherwise incur liability for the
obligations of others except for endorsement of negotiable instruments for
deposit or collection.
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(f) Dividends. Declare or pay any dividend or make any distribution
unless (i) Tenant is not in default under the Lease and (ii) the Lease Reserve
Fund is maintained in an amount equal to six months Initial Base Rent, or,
Signature shall have a Tangible Net Worth of not less than $5,000,000.
(g) Management Fee. Pay any person or entity a management or advisory
fee in connection with the management and operation of the Facility in any
Fiscal Year unless Tenant is not in default under the Lease and the obligation
to pay such management fee is subordinated to the payment obligations under the
Lease and such person or entity provides a guaranty of the obligations of the
Leases.
29.2 Additional Affirmative Covenants. Tenant covenants and
agrees with Landlord that, during the Term hereof, Tenant shall:
(a) Maintenance of Properties and Intangible Assets.
(i) Do or cause to be done all things necessary to preserve, renew and
keep in full force and effect its existence and, except as permitted in Section
29.1(d), with such exceptions, if any, as are not material in the aggregate, to
obtain and, having obtained, preserve, renew and keep in full force and effect
all customary accreditation, rights, licenses and permits and, with such
exceptions, if any, as are not material in the aggregate, comply with all laws
and regulations applicable to it and conduct and operate the Facility in
substantially the manner, with such chances as may from time to time be
considered by management as necessary or appropriate, in which it is presently
conducted and operated, and at all times, with such exceptions as are not
material in the aggregate, to obtain, maintain, preserve and protect all
necessary franchises, provide agreements, contract rights, trademarks and trade
names used or useful in its operations and preserve all its assets which are
used or useful in the conduct of its operations, and keep the same in working
order and condition, and, with such exceptions as are not material in the
aggregate, from time to time to make, or cause to be made, all necessary
repairs, renewals, replacements, betterments and improvements thereto, so that
the operation of the Facility may be properly and advantageously conducted at
all times. Tenant shall maintain the Facility in good condition and repair
pursuant to an annual capital expenditure budget or reserve of not less than
$300 per Facility bed with any such reserves to be expended within three years
of the reserve, and all such reserves to be expended during the Term. Without
limiting the generality of the foregoing, Tenant shall use or cause the Property
to be used for the Primary Intended Use and only for such other uses as may be
necessary in connection with or incidental to said use or as may be agreed to by
Landlord in its sole and absolute determination. With such exceptions as are not
material in the aggregate, no use shall be made or permitted to be made of the
Property and no acts shall be done which violate any Legal
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Requirements or Insurance Requirements or which will cause the cancellation of
any insurance policy covering the Property or any part thereof or any provider
agreements. Tenant shall comply in all material respects with all Legal
Requirements and all of the requirements pertaining to the Property of any
insurance board, association, organization or company necessary for the
maintenance of the insurance required pursuant to this Lease.
(ii) Tenant, immediately upon obtaining knowledge of facts which are
reasonably likely to result in an action by any Federal, state or local agency
(or the staff thereof) to revoke, withdraw or suspend any permit, license,
conditional use permit, variance certificate, certificate of need, letter of
nonreviewability, provider agreement or other governmental approval, or an
action of any other type, which would have a material adverse effect on the
Tenant or the operations of the Facility, shall notify the Landlord thereof
immediately.
(b) Obligations and Taxes. With such exceptions as are not material
individually or in the aggregate, none of which exceptions results in the
creation of a lien prohibited by this Lease on any property of Tenant, pay all
indebtedness and obligations in accordance with customary trade practices and
pay and discharge promptly all taxes, assessments and governmental charges or
levies imposed on it or upon its income and profit, or upon any of its property,
real, personal or mixed, or upon any part thereof, before the same shall become
in default, as well as pay before they shall become in default all lawful claims
for labor, material and supplies or otherwise which, if unpaid, might become a
lien or charge upon such Property or any part thereof.
(c) Pension Plans. Tenant shall notify Landlord within ten business days
of the occurrence of any of the following events ("Notification Events") with
respect to Tenant's Plans and within ten days of obtaining knowledge of any
Notification Event with respect to Plans of its Affiliates: (i) the termination
of a Plan, unless such Plan can be terminated without material adverse effect on
the business, properties or condition (financial or otherwise) of Tenant or its
Affiliates; (ii) the failure to make contributions to any of Tenant's Plans
(including any Multiemployer Plans) in a timely manner and in sufficient amount
to comply with the requirements of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"); (iii) the failure to comply with all material
requirements of ERISA and the Code which relate to such Plans and Multiemployer
Plans (as defined by ERISA), the failure with which to comply would have a
material adverse effect on the business, properties or condition (financial or
otherwise) of Tenant or its Affiliates; (iv) receipt by Tenant of any notice of
the institution of any proceeding or other action which may directly result in
the termination of any Plans or Multiemployer Plans; (v) a Termination Event or
Reportable Event (as defined by ERISA) with respect to a Plan; and (vi) any
event or condition
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which would cause the lien provided for in Section 4068 of ERISA to attach to
the assets of Tenant. Tenant shall not fail to make any payments to any
Multiemployer Plan that Tenant may be required to make under any agreement
relating to any Multiemployer Plan, ERISA or any other law pertaining thereto,
except for any payments being contested in good faith in accordance with Article
XIII with respect to which Tenant has established adequate reserves or which, if
not made, would not have a material adverse effect on the business, properties
or condition (financial or otherwise) of Tenant or its Affiliates.
29.3 Security for the Lease.
(a) Security Agreement. On or before the Commencement Date,
Tenant shall execute and deliver to Landlord the Security
Agreement.
(b) Absolute Assignment. Tenant shall, on or before the Commencement
Date, execute and deliver to Landlord an absolute assignment of subleases and
rents pursuant to which Tenant shall assign to Landlord, subject to a license to
Tenant to retain so long as no Event of Default is continuing, all of Tenant's
rights, title and interest in any subleases and assignments permitted under this
Lease and the proceeds thereof.
(c) Lease Reserve Fund. As security for the timely and faithful
performance by Tenant of each and every one of Tenant's obligations under this
Lease, Tenant shall, on the Commencement Date and thereafter as provided in
Section 3.1 of the Security Agreement, create and maintain the Lease Reserve
Fund referred to in Section 3.1 of the Security Agreement in an amount equal to
six months Initial Base Rent (the "Lease Reserve Fund"). Notwithstanding any
contrary provision of this Section 29.3(c), Tenant shall maintain the Lease
Reserve Fund in a reduced amount equal to the amount of the Initial Base Rent
for three months, if, for each of the four consecutive full calendar quarters
most recently completed (during the Term), (i) (x) Tenant's Cash Flow is at
least 1.75 times (y) Total Rent, (ii) Guarantors' Cash Flow is at least 2.5
times Fixed Charges, and (iii) Guarantors have maintained a tangible net worth
of at least $5,000,000, all as reflected in financial statements prepared in
accordance with generally accepted accounting principals as set forth in an
Officer's Certificate delivered not later than sixty (60) days after the end of
such most recent quarter. Such Officer's Certificate shall be accompanied by an
appropriate cash flow statement and a compilation report thereon, without
material qualification, of Tenant's independent public accountants. If Tenant
delivers financial information to Landlord pursuant to Section 24.2 hereof which
indicates that Tenant has failed to maintain the financial conditions therein
and herein for the most recent period of two consecutive calendar quarters,
Tenant shall within ten (10) business days reinstate the Lease Reserve Fund to
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the fall amount of six months Initial Base Rent, and Tenant's failure so to do
shall be deemed an immediate Event of Default hereunder, without requirement of
demand therefor by Landlord or the giving, of any Notice, and, in such event,
Landlord shall have the right to draw the entire balance of the Lease Reserve
Fund and apply the proceeds against any obligation or obligations of Tenant
hereunder in such amount or amounts as Landlord, in its sole discretion, shall
decide and exercise any other remedies permitted Landlord hereunder, at law or
in equity. Landlord shall not be deemed to hold the Lease Reserve Fund in trust,
but shall not commingle such funds with other assets of Landlord. Tenant shall
not be entitled to any interest with respect to any such funds held by Landlord.
ARTICLE XXX
MISCELLANEOUS
30.1 Landlord's Right to Inspect. Landlord and its authorized
representatives may, at any time and from time to time, upon reasonable notice
to Tenant, inspect the Property during usual business hours subject to any
security, health, safety or patient business confidentiality requirements of
Tenant or any Governmental agency, or created by any Insurance Requirement or
Legal Requirement relating, to the Property
30.2 No Waiver. No failure by Landlord or Tenant to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
provided hereunder, and no acceptance of full or partial payment of Rent during
the continuance of any such breach, shall constitute a waiver of any such breach
or of any such term. To the extent permitted by applicable law, no waiver of any
breach shall affect or alter this Lease, which shall continue in full force and
effect with respect to any other then existing or subsequent breach.
30.3 Remedies Cumulative. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Landlord or Tenant now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy the exercise or beginning of the exercise by Landlord or Tenant of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Landlord or Tenant of any or all of such
other rights, powers and remedies.
30.4 Acceptance of Surrender. No surrender to Landlord of this Lease or of
all or any portion of or interest in the Property shall be valid or effective
unless agreed to and accepted in writing by Landlord, and no act by Landlord or
any representative or agent of Landlord, other than such a written acceptance by
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Landlord, shall constitute an acceptance of any such surrender by Tenant.
30.5 No Merger of Title. There shall be no merger of this Lease or of the
leasehold estate created hereby if the same person, firm, corporation or other
entity acquires, owns or holds, directly or indirectly, this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate, and the fee estate in the Property.
30.6 Conveyance by Landlord. If Landlord or any successor owner of the
Property conveys the Property in accordance with the terms hereof (other than as
security for a debt), and the grantee or transferee of the Property expressly
assumes all obligations of Landlord hereunder arising, or accruing from and
after the date of such conveyance or transfer, Landlord or such successor owner,
as the case may be, thereupon shall be released from all liabilities and
obligations of Landlord under this Lease.
If Tenant assigns the Lease in accordance with the terms hereof, Landlord
consents to such assignment pursuant to Section 23.1 and the assignee expressly
assumes all obligations of Tenant hereunder arising or accruing from and after
the date of such conveyance or transfer, Tenant and Guarantors thereupon shall
be released from their respective liabilities and obligations under this Lease.
30.7 Quiet Enjoyment. So long as Tenant pays all Rent as the same becomes
due and fully complies with all of the terms of this Lease and fully performs
its obligations hereunder, Landlord warrants, represents and covenants that
Tenant shall peaceably and quietly have, hold and enjoy the Property for the
Term hereof, free of any claim or other action by Landlord or anyone claiming
by, through or under Landlord, but subject to all liens and encumbrances of
record as of the date hereof or hereafter consented to by Tenant. Except as
otherwise provided in this Lease, no failure by Landlord to comply with the
foregoing covenant shall give Tenant any right to cancel or terminate this Lease
or abate, reduce or make a deduction from or offset against the Rent or any
other sum payable under this Lease, or to fail or refuse to perform any other
obligation of Tenant hereunder. Notwithstanding the foregoing, Tenant shall have
the right, by separate and independent action, to pursue any claim it may have
against Landlord as a result of a breach by Landlord of the covenant of quiet
enjoyment contained in this Section.
30.8 Notices. All notices, demands, requests, consents, approvals and
other communications ("Notice" or "Notices") hereunder shall be in writing and
delivered by personal delivery, courier or messenger service, express or
overnight mail, or by registered or certified mail, return receipt requested and
postage prepaid, addressed to the respective parties as follows:
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If to Tenant: Arkansas, Inc.
2105 Clubhouse Drive
Greeley, Colorado 80634
Attention: President
If to Landlord: AHP of Colorado, Inc.
c/o American Health Properties, Inc. 6400
South Fiddler's Green Circle Suite 1800
Englewood, Colorado 80111
Attention: General Counsel
If to NHI: National Health Investors, Inc. City
Center
100 Vine Street
Murfreesboro, Tennessee 37130
or to such other address as either party may hereafter designate. Personally
delivered Notices sent by courier or messenger service or by express or
overnight mail shall be effective upon receipt, and Notices given by mail shall
be complete at the time of deposit in the U.S. mail system, but any prescribed
period of Notice and any right or duty to do any act or make any response within
any prescribed period or on a date certain after the service of such Notice
given by mail shall be extended five (5) days.
30.9 Survival of Terms; Applicable Law. Anything contained in this Lease
to the contrary notwithstanding, all claims against, and liabilities of, Tenant
or Landlord arising prior to any date of termination of this Lease shall survive
such termination for two years, except for third party claims based on alleged
tortious actions and omissions of Tenant during the term of this Lease, which
third party claims shall survive the term of this Lease. If any term or
provision of this Lease or any application thereof shall be invalid or
unenforceable for any reason whatsoever, the remainder of this Lease and any
other application of such term or provisions shall not be affected thereby. If
any late charge or any interest rate provided for in any provision of this Lease
based upon a rate in excess of the maximum rate permitted by applicable law,
such charges shall be fixed at the maximum permissible rate. Neither this Lease
nor any provision hereof may be changed, waived, discharged, modified or
terminated except by an instrument in writing and in recordable form, signed by
Landlord and Tenant. Subject to any limitations on assignment contained in this
Lease, all the terms and provisions of this Lease shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. The headings in this Lease are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof. THIS LEASE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO,
BUT NOT INCLUDING ITS CONFLICTS OF LAWS RULES.
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30.10 Exculpation of Landlord's Officers and Agents. This Lease is made on
behalf of Landlord by an officer thereof, not individually, but solely in his
capacity in such office as authorized by the directors of Landlord pursuant to
its by-laws. The obligations of this Lease are not binding upon, nor shall
resort be had to, the private property of any of the directors, shareholders,
officers, employees or agents of Landlord personally, but bind only Landlord's
property. The provision contained in the foregoing sentence is not intended to,
and shall not, limit any right that Tenant might otherwise have to obtain
injunctive relief against Landlord or Landlord's successors in interest, or any
action not involving the personal liability of the directors, Shareholders,
officers, employees or agents of Landlord. Except as otherwise expressly
provided herein, in no event shall Landlord ever be liable to Tenant for any
indirect or consequential damages suffered by Tenant from whatever cause.
30.11 Transfers Following Termination. Upon the expiration or earlier
termination of the Term, Tenant shall use good faith efforts to transfer to
Landlord or Landlord's nominee, or to cooperate with Landlord or Landlord's
nominee in connection with the processing by Landlord or Landlord's nominee of
any applications for, all licenses, operating permits and other governmental
authorizations and all contracts (including contracts with governmental or
quasi-governmental entities) which may be necessary for the operation of the
Facility provided, however, that the costs and expenses of any such transfer or
the processing of any such application shall be paid by Landlord or Landlord's
nominee.
30.12 Tenant's Waivers. Tenant waives all presentments, demands for
performance, notices of nonperformance, protests, notices of protest, notices of
dishonor, and notices of acceptance and waives all notices of the existence,
creation, or incurring of new or additional obligations, except as expressly
granted herein.
30.13 Memorandum of Lease. Landlord and Tenant shall, promptly upon the
request of either party, enter into a short form memorandum of this Lease and
all options contained herein, in form suitable for recording under the laws of
the State in which the Property is located. Tenant shall pay all costs and
expenses of recording such memorandum of this Lease.
30.14 Arbitration. Any controversy (a) involving $1,000,000 or less
(exclusive of interest and costs) arising out of, connected with or incidental
to this Agreement (except disputes concerning determinations of Fair Market
Value which shall be resolved exclusively as provided in Article XXV) and (b)
involving clauses (vii) and (viii) in the definition of Substitute Property
shall be decided by arbitration under the expedited procedures of the American
Arbitration Association, provided that claim is made within the applicable
period of limitation. Depositions to obtain
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discovery may be taken upon good cause, upon leave to do so granted by the
arbitrator. If either party hereto alleges in a court action that such
controversy exceeds $1,000,000, such party shall be deemed to have waived the
right to interest and costs in any award obtained therein if such award does not
exceed $1,000,000.
30.15 Modifications. No provision of this Lease may be amended,
supplemented or otherwise modified except by an agreement in writing, signed by
the parties hereto or their respective successors in interest.
30.16 Attorneys' Fees. If either party commences an action against the
other to interpret or enforce any of the terms of this Lease or because of the
breach by the other party of any of the terms hereof, the losing or defaulting
party shall pay to the prevailing party reasonable attorneys' fees, costs and
expenses incurred in connection with the prosecution or defense of such action,
whether or not the action is prosecuted to a final judgment.
30.17 Brokers.
(a) Tenant. Tenant hereby warrants that no real estate broker or
finder who is not an employee of Tenant has represented or will represent it in
this transaction and that no finder's fees have been earned by a third party who
may claim through Tenant. Tenant shall indemnify and hold harmless the Landlord
against any claim for brokerage fees made by any employee of Tenant.
(b) Landlord. Landlord hereby warrants that no real estate broker or
finder who is not an employee of Landlord has represented or will represent it
in this transaction and that no finder's fees have been earned by a third party
who may claim through Landlord. Landlord shall indemnify and hold harmless the
Tenant against any claim for brokerage fees made by any employee of Landlord.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
date first above written.
ARKANSAS, INC., a Colorado
corporation
By: /s/ David A. Kremser
----------------------------------
David A. Kremser,
President
AHP OF COLORADO, INC.,
a Colorado corporation
By: /s/ Geoffrey D. Lewis
----------------------------------
Geoffrey D. Lewis,
Vice President
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<PAGE> 1
Exhibit 10.122
CORNERSTONE CARE LEASE
by and between
AHP OF COLORADO, INC.
"Landlord"
and
CORNERSTONE CARE INC.
"Tenant"
Dated as of June 13, 1995
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS..........................................................1
ARTICLE II LEASE OF PROPERTY...........................................12
ARTICLE III TERM OF LEASE...............................................13
3.1 Term of Lease...................................................13
3.2 Option to Extend Term of Lease..................................13
ARTICLE IV RENT........................................................14
4.1 Payment of Landlord's Transaction Expenses......................14
4.2 Payment of Base Rent and Additional Charges.....................14
4.3 Base Rent.......................................................14
4.4 Rent Adjustment.................................................15
4.5 Additional Charges..............................................15
4.6 Triple Net Lease................................................15
ARTICLE V IMPOSITIONS.................................................19
5.1 Payment of Impositions..........................................19
5.2 Notice of Impositions...........................................20
5.3 Adjustment of Impositions.......................................20
5.4 Utility Charges.................................................21
5.5 Insurance Premiums..............................................21
ARTICLE VI TERMINATION OR ABATEMENT OF LEASE...........................21
ARTICLE VII OWNERSHIP OF PROPERTY.......................................22
7.1 Ownership of the Property.......................................22
7.2 Tenant's Personal Property; Security Interest...................22
ARTICLE VIII CONDITION AND USE OF PROPERTY...............................23
8.1 Condition of the Property.......................................23
8.2 Use of the Property.............................................24
8.3 Landlord to Grant Easements.....................................25
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Page
8.4 Hazardous Substances............................................25
ARTICLE IX LEGAL REQUIREMENTS AND INSURANCE
REQUIREMENTS.......................................29
9.1 Compliance with Legal Requirements, Insurance
Requirements and Instruments....................................29
9.2 Covenants Regarding Legal Requirements..........................29
ARTICLE X CONDITION OF THE PROPERTY...................................29
10.1 Maintenance and Repair..........................................29
10.2 Encroachments and Restrictions..................................31
ARTICLE XI CAPITAL ADDITIONS...........................................32
11.1 Construction of Capital Additions...............................32
11.2 Capital Additions Financed or Paid for by Landlord..............32
11.3 Capital Additions Paid for by Tenant............................34
11.4 Disposition of Capital Additions upon Expiration or
Termination of Lease............................................35
11.5 Non-Capital Additions...........................................35
11.6 Salvage.........................................................35
11.7 No Liens on Landlord's Interest.................................35
ARTICLE XII LIENS.......................................................35
ARTICLE XIII CONTESTS....................................................36
ARTICLE XIV INSURANCE...................................................37
14.1 Central Insurance Requirements..................................37
14.2 Replacement Cost................................................38
14.3 Additional Insurance............................................39
14.4 Waiver of Subrogation...........................................39
14.5 Form of Insurance...............................................39
14.6 Change in Limits................................................39
14.7 Blanket Policy..................................................40
14.8 No Separate Insurance...........................................40
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Page
ARTICLE XV INSURANCE PROCEEDS..........................................40
15.1 Handling of Insurance Proceeds..................................40
15.2 Reconstruction in the Event of Damage or
Destruction Covered by Insurance................................41
15.3 Reconstruction in the Event of Damage or
Destruction Not Covered by Insurance............................42
15.4 Payment of Proceeds on Tenant's Property and
Capital Additions Paid by Tenant................................43
15.5 Handling of Business Interruption Insurance.....................43
15.6 Restoration of Tenant's Property................................43
15.7 Abatement of Rent...............................................43
15.8 Damage Near End of Term.........................................43
15.9 Termination of Option to Purchase...............................44
15.10 Waiver..........................................................44
ARTICLE XVI CONDEMNATION................................................44
16.1 Definitions.....................................................44
16.2 Parties' Rights and Obligations.................................45
16.3 Total Taking....................................................45
16.4 Allocation of Portion of Award..................................45
16.5 Partial Taking..................................................46
16.6 Temporary Taking................................................46
ARTICLE XVII DEFAULTS AND REMEDIES.......................................47
17.1 Events of Default...............................................47
17.2 Certain Remedies................................................49
17.3 Termination.....................................................50
17.4 Application of Funds............................................51
17.5 Landlord's Right to Cure Tenant's Default.......................51
17.6 NHI's Right to Cure.............................................51
17.7 Waiver..........................................................51
ARTICLE XVIII CURE BY TENANT OF LANDLORD DEFAULTS.........................52
<PAGE> 5
Page
ARTICLE XIX PURCHASE OF PROPERTY BY TENANT..............................52
19.1 Purchase of the Property........................................52
19.2 Failure to Close Purchase.......................................53
ARTICLE XX HOLDING OVER................................................53
ARTICLE XXI RISK OF LOSS................................................53
ARTICLE XXII LIABILITY OF PARTIES........................................54
22.1 Indemnification by Tenant.......................................54
22.2 Indemnification by Landlord.....................................55
22.3 Continuing Liability............................................55
ARTICLE XXIII ASSIGNMENT..................................................55
23.1 Assignment and Subletting.......................................55
23.2 Attornment......................................................56
23.3 Sublease Limitation.............................................56
ARTICLE XXIV INFORMATION FROM TENANT.....................................57
24.1 Officer's Certificates..........................................57
24.2 Financial Information...........................................57
24.3 Licensing Information...........................................58
ARTICLE XXV APPRAISALS OF THE PROPERTY AND
OPTIONS.....................................................58
25.1 Appraisers......................................................58
25.2 Method of Appraisal.............................................59
ARTICLE XXVI OPTIONS TO PURCHASE.........................................59
26.1 Landlord's Option to Purchase Tenant's Personal
Property; Transfer of Licenses..................................59
26.2 Tenant's Option to Purchase the Property........................60
26.3 Tenant's Right of First Refusal.................................61
<PAGE> 6
Page
ARTICLE XXVII FACILITY MORTGAGE...............................................61
ARTICLE XXVIII LIMITATION OF LIABILITY........................................62
ARTICLE XXIX ADDITIONAL COVENANTS OF TENANT...................................62
29.1 Additional Negative Covenants...................................62
29.2 Additional Affirmative Covenants................................64
29.3 Security for the Lease..........................................66
ARTICLE XXX MISCELLANEOUS............................................67
30.1 Landlord's Right to Inspect.....................................67
30.2 No Waiver.......................................................67
30.3 Remedies Cumulative.............................................68
30.4 Acceptance of Surrender.........................................68
30.5 No Merger of Title..............................................68
30.6 Conveyance by Landlord..........................................68
30.7 Quiet Enjoyment.................................................68
30.8 Notices.........................................................69
30.9 Survival of Terms; Applicable Law...............................70
30.10 Exculpation of Landlord's Officers and Agents...................70
30.11 Transfers Following Termination.................................70
30.12 Tenant's Waivers................................................71
30.13 Memorandum of Lease.............................................71
30.14 Arbitration.....................................................71
30.15 Modifications...................................................71
30.16 Attorneys' Fees.................................................71
30.17 Brokers.........................................................71
<PAGE> 7
CORNERSTONE CARE MANOR LEASE
This CORNERSTONE CARE LEASE (the "Lease") is executed as of June 13,
1995, by and between AHP OF COLORADO, INC., a Colorado corporation, having its
principal office at 6400 South Fiddler's Green Circle (Suite 1800), Englewood,
Colorado 80111, as Landlord, ("Landlord") and CORNERSTONE CARE, INC., a Colorado
corporation, having, its principal office at 2105 Clubhouse Drive, Greeley,
Colorado 80634, as Tenant ("Tenant").
RECITALS
Signature Health Care Corporation, a Delaware corporation ("Signature")
and Landlord have entered into the Assignment Agreement of even date herewith
(the "Assignment"), pursuant to which Signature has assigned to Landlord all of
Signature's rights under the Purchase and Sale Agreement dated April 11, 1995
between Signature and Colorado National Bank to acquire certain real and
personal property utilized in connection with the operations of "Arkansas Manor,
" a 120 bed long-term care property located in Denver, Colorado (" Arkansas
Manor") and " Cornerstone Care Center," a 153 bed long-term care property in
Lakewood, Colorado ("Cornerstone") (collectively, Arkansas Manor and Cornerstone
are the "Colorado Properties"), and related facilities, including, but not
limited to, the Property (as defined in Article II). Landlord desires to lease
Cornerstone to Tenant who desires to hire the same from Landlord pursuant to
this Lease.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
ARTICLE I
DEFINITIONS
For all purposes of this Lease, unless otherwise expressly provided in
this Agreement or the context in which such term is used indicates a contrary
intent, (a) the terms defined in this Article shall have the meanings ascribed
to them in this Article, (b) all accounting terms not otherwise defined in this
Article shall have the meanings ascribed to them in accordance with generally
accepted accrual method accounting principles at the time applicable, (c) all
references in this Lease to designated "Articles," Sections" and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Lease and (d) the
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words "herein, "hereof" and "hereunder" and other words of similar import refer
to this Lease as a whole and not to any particular Article, Section or other
subdivision.
"ACH TRANSFER" shall mean the method of electronic payment initiated by
Tenant through Tenant's financial institution utilizing the National Automated
Clearinghouse Association system.
"ADDITIONAL CHARGES" shall have the meaning ascribed to such term in
Section 4.5.
"AFFILIATE" of any person or entity (the "Subject") shall mean (a) any
person which, directly or indirectly, controls or is controlled by or is under
common control with the Subject, (b) any person owning, beneficially, directly
or indirectly, ten percent (10%) or more of the outstanding capital stock,
shares or equity interests of the Subject or (c) any officer, director,
employee, general partner or trustee of the Subject or any person controlling,
controlled by or under common control with the Subject (excluding trustees and
persons serving in similar capacities who are not otherwise an Affiliate of the
Subject). As used in this definition, the term "person" means and includes
governmental agencies and authorities, political subdivisions, individuals,
corporations, limited liability companies, general partnerships, limited
partnerships, stock companies or associations, joint ventures, associations,
trusts, banks, trust companies, land trusts, business trusts and any other
entity of any form whatsoever, and "control" (including the correlative meanings
of the terms "controlled by" and "under common control with"), as used with
respect to any person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
person, through the ownership of voting securities, partnership interests or
other equity interests, or through any other means.
"AHP" shall mean American Health Properties, Inc., a Delaware
corporation.
"ARKANSAS MANOR LEASE" shall mean that certain lease entered into
between Landlord and Arkansas Manor, Inc., a Colorado corporation, as of June
13, 1995 with respect to that certain property known as Arkansas Manor, a 120
bed long-term care property located in the City and County of Denver, Colorado,
"ASSIGNMENT" shall have the meaning ascribed thereto in the Recitals to
this Lease.
"AWARD" shall have the meaning ascribed to such term in Section 16. 1
(c).
"BASE RENT" shall mean, with respect to the Fixed Term, the amount of
$485,248.20 per year.
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<PAGE> 9
"BUSINESS DAY" shall mean any day on which banking institutions in
Denver, Colorado are open for the conduct of normal banking business.
"CAPITAL ADDITIONS" shall mean (a) one or more new buildings located on
the Land or to be used, directly or indirectly, as part of the Facilities, one
or more additional structures annexed to any portion of any of the Improvements,
(c) the material expansion of existing Improvements, (d) the construction of a
new wing or new story on existing Improvements, or (e) any expansion,
construction, renovation or conversion of existing Improvements to (i) increase
the bed or service capacity of the Facilities or (ii) change the purpose for
which the Facilities are utilized. Notwithstanding anything to the contrary
contained in Article XI, in the event it is necessary to abate or otherwise take
corrective action with respect to the existence of a Hazardous Substance (as
hereinafter defined) located in, on or under the Property or in the
Improvements, such abatement or corrective action shall not be deemed to be a
Capital Addition and shall be the sole responsibility of Tenant at its sole cost
and expense.
"CAPITAL ADDITIONS COST" shall mean the cost of any Capital Additions
made by Tenant, whether paid for by Tenant or Landlord. Such cost shall include
(a) the costs of constructing the Capital Additions, including site preparation
and improvement, materials, labor, supervision, developer and administrative
fees, the costs of design, engineering and architectural services, the costs of
fixtures, the costs of construction financing (including but not limited to
capitalized interest) and other similar costs approved in writing by Landlord,
(b) if agreed to by Landlord in writing in advance, the purchase price and other
acquisition costs, or applicable around lease rental payable for any period such
around lease is in effect to and including the date upon which such Capital
Addition is completed and occupied or in operation, as the case may be, of any
land which is acquired or leased for the purpose of placing thereon all or any
portion of the Capital Additions or for providing means of access thereto, or
parking facilities therefor (including the costs of surveying the same and
recording, title insurance and escrow fees and charges), (c) insurance premiums,
real estate taxes, water and sewage charges and other carrying charges for such
Capital Additions during their construction, (d) fees and expenses of legal
counsel, (e) any documentary transfer or similar taxes, (f) any applicable
regulatory or administrative fees and charges, and any costs, charges, fees or
expenses paid or incurred in connection with obtaining any applicable permits,
licenses, franchises, authorizations, certificates of need, certificates of
occupancy and similar authorizations and entitlements and (g) all other
reasonable costs and expenses of Landlord or Tenant, as applicable, and any
lending institution which has committed to finance the Capital Additions,
including, but not limited to, (i) the fees and expenses of their respective
legal counsel, (ii) any printing,
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duplicating and messenger expenses, (iii) any filing, registration and recording
taxes and fees, (iv) any documentary transfer or similar taxes, (v) any title
insurance charges and appraisal fees, (vi) any rating agency fees and (vii) any
commitment or similar fees charged by any lending institution financing or
offering to finance any portion of such Capital Additions.
"CASH FLOW" shall mean, for any period of determination, an amount
equal to the sum of the amounts for such period of (i) net income before income
taxes, (ii) depreciation, amortization and other similar non-cash charges,
including depreciation and interest expense related to the Equipment, (iii) Base
Rent and (iv) Additional Rent.
"CHECK PAYMENT DATE" shall mean that certain day five Business Days
prior to the first day of each calendar month occurring during the Term hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMENCEMENT DATE" shall have the meaning ascribed to such term in
Section 3. 1.
"CONDEMNATION" shall have the meaning ascribed to such term in Section
16.1(a).
"CONDEMNOR" shall have the meaning ascribed to such term in Section
16.1(d).
"CONSOLIDATED FINANCIALS" shall mean, for any fiscal year (or other
accounting period) for Tenant and Guarantors and Affiliates thereof statements
of earnings and retained earnings and of changes in financial position for such
period and for the period from the beginning of the respective fiscal year to
the end of such period and the related balance sheet as at the end of such
period, together with the notes thereto, all in reasonable detail and setting
forth in comparative form the corresponding figures for the corresponding period
in the preceding fiscal year (or period), all of which shall be prepared in
accordance with Generally accepted accounting principles.
"DATE OF TAKING" shall have the meaning ascribed to such term in
Section 16.1(b).
"DOUGLAS MANOR LEASE" shall mean that certain lease entered into
between Landlord and Douglas Manor, Inc., a Colorado corporation, as of June 30,
1995 with respect to that certain property known as Douglas Manor, a 64 bed
long-term care property located in Douglas, Arizona.
4
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"ENCUMBRANCE" shall have the meaning ascribed to such term in Article
XXVII.
"EQUIPMENT" shall have the meaning given to that term in the Purchase
Agreement.
"EVENT OF DEFAULT" shall have the meaning ascribed to such term in
Section 17.1.
"EXTENDED TERM" shall have the meaning ascribed to such term in Section
3.2.
"FACILITY" shall mean the health care facility presently operated on
the Land, or with Landlord's consent, such other general health care facility,
general health and rehabilitation hospital, psychiatric hospital, nursing home,
retirement center, congregate living facility, health care related apartments or
hotel, medical office building, or other medical facility with treatment,
diagnostic, or surgical facilities for inpatient or outpatient care (which may
include but is not limited to acute care inpatient facilities, skilled nursing
facilities, intermediate care facilities, home health agencies, ambulatory care
clinics or similar facilities) offering other related health care products and
services being operated or proposed to be operated on the Land from time to time
in accordance with the Provisions of this Lease.
"FACILITY MORTGAGE" shall have the meaning ascribed to such term in
Section 14.1.
"FAIR MARKET ADDED VALUE" shall mean the Fair Market Value (hereinafter
defined) of the Property (including all Capital Additions without regard to the
source of payment for such Capital Additions) less the Fair Market Value of the
Property determined as if no Capital Additions which were paid for by Tenant (to
the extent not reimbursed by Landlord) had been constructed.
"FAIR MARKET RENTAL" shall mean, with respect to the Property
(including any Capital Additions or portions thereof paid for by Landlord) the
rental paid on a net basis as provided in Section 4.6 hereof which a willing
tenant not compelled to rent would pay to a willing landlord not compelled to
lease for the highest and best medical use and occupancy of such property
permitted pursuant to this Lease for the term in question, assuming that Tenant
is not in default under this Lease. For purposes of this Lease, Fair Market
Rental shall be determined in accordance with the appraisal procedures set forth
in Article XXV.
"FAIR MARKET VALUE" shall mean, with respect to the Property, including
all Capital Additions, the price that a willing buyer not compelled to buy would
pay to a willing seller not compelled to sell such property, assuming that (a)
this Lease is not in effect, (b) that the Property had been exposed for sale in
the market for
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a reasonable period of time, (c) that such seller must pay any closing costs and
title insurance premiums with respect to such sale and (d) that the Property is
fully licensed by all governmental agencies having jurisdiction thereof, is and
will continue to be operated for the Primary Intended Use and is otherwise a
going concern. For purposes of this Lease, Fair Market Value shall be determined
in accordance with the appraisal procedures set forth in Article XXV.
"FAIR MARKET VALUE PURCHASE PRICE" shall mean the Fair Market Value of
the Property less the Fair Market Added Value.
"FISCAL YEAR" shall mean the 12-month period commencing January 1 and
terminating December 31.
"FIXED CHARGES" shall mean the amount equal to the sum of Base Rent
plus principal and interest payments on debt.
"FIXED TERM" shall have the meaning ascribed to such term in Section
3.1.
"FIXTURES" shall have the meaning ascribed to such term in clause (d)
of Article II.
"GUARANTORS" shall mean Signature Health Care Corporation and Yankee
Creek Management Services LLC.
"HAZARDOUS SUBSTANCES" shall mean those substances, materials, and
wastes listed in the United States Department of Transportation Table (49 CFR
172 101) or by the Environmental Protection Agency as hazardous substances (40
CFR Part 302) and amendments thereto, or such substances, materials and wastes
which are or become regulated under any applicable local, state or federal law
including, without limitation, any material, waste or substance which is (i)
hydrocarbons, petroleum and petroleum products, (ii) asbestos, (iii)
polychlorinated biphenyls, (iv) formaldehyde, (v) radioactive substances, (vi)
flammables and explosives, (vii) described as a "hazardous substances pursuant
to Section 311 of the Clean Water Act, 33 U.S.C. Section 1251 et seq. (33 U.S.C.
Section 1321 or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C
Section 1317), (viii) defined as a "hazardous waste" pursuant to Section 1004 of
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42
U.S.C. Section 6903), (ix) defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et. seq. (42 U.S.C. Section 9601), as the
same may be amended from time to time, or (x) any other substance, waste or
material which could presently or at any time in the future cause a detriment to
or impair the value or beneficial use of the Land or other Property (which, for
purposes of this definition shall include all air, soils, ground water, surface
water and soil vapor) or constitute or cause a health,
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safety or environmental hazard on, under or about the Land or other Property or
to any person who may enter on, under, or about the Land or other Property or
require remediation at the behest of any governmental agency.
"IMPACTED FACILITY" shall have the meaning specified in Section 15.2.
"IMPOSITIONS" shall mean all taxes (including without limitation all
real property taxes imposed upon the Land, Improvements or other portions of the
Property, including, but not limited to all tangible and intangible personal
property, ad valorem, sales, use, single business, gross receipts, transaction
privilege, documentary stamp (if any are associated with this Lease or the
transactions contemplated hereby), rent or similar taxes relating to or imposed
upon Landlord, any portion of the Property, Tenant or its business conducted
upon the Land), assessments (including without limitation all supplemental real
property tax assessments or assessments for public improvements or benefit,
whether or not commenced or completed prior to the date hereof and whether or
not to be completed within the Term), ground rents, water, sewer or other rents
and charges, excises, tax levies, fees (including without limitation license,
permit, franchise, inspection, authorization and similar fees) and all other
governmental charges, in each case whether general or special, ordinary or
extraordinary, foreseen or unforeseen, of every character or nature whatsoever
with respect to or connected with the Property or the business conducted thereon
by Tenant (including all interest, penalties and fines thereon due to any
failure or delay in payment thereof) which at any time prior to, during or with
respect to the Term hereof may be assessed or imposed on or with respect to, or
may be a lien upon (a) Landlord's interest in the Property, (b) the Property or
any part thereof or any Rent therefrom or any estate, right, title or interest
therein, (c) Landlord's capital invested in the State as represented by the
Property, or (d) any occupancy, operation, use or possession of, or sales from,
or activity conducted on or in connection with the Property or the leasing or
use of the Property or any part thereof by Tenant. Impositions shall not include
(1) any tax based on net income (whether denominated as a franchise, capital
stock or other tax) imposed upon Landlord or any other person, whether imposed
on "net taxable earned surplus" or otherwise, (2) any transfer tax imposed upon
Landlord or any other person or (3) any tax imposed with respect to the sale,
exchange or other disposition by Landlord of any Property or the proceeds
thereof, nor any tax, assessment, tax levy or charge described in the first
sentence of this paragraph which is in effect at any time during the Term hereof
to the extent such tax, assessment, tax levy or charge is totally or partially
repealed, unless a tax, assessment, tax levy or charge set forth in clause (1)
or (2) is levied, assessed or imposed expressly in lieu thereof, in which case
the substitute tax, assessment, tax levy or charge shall be deemed to be an
Imposition.
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"IMPROVEMENTS" shall have the meaning ascribed to such term in clause
(b) of Article II.
"INITIAL BASE RENT" shall mean the amount of Base Rent in the initial
year of the Term.
"INITIAL INVESTMENT COST" shall mean $4,856,124. 10.
"INSURANCE REQUIREMENTS" shall mean all terms and conditions of any
insurance policy required by this Lease and all requirements of the issuer of
any such insurance policy.
"LAND" shall mean all of that certain real property situated in
Jefferson County, State of Colorado and more particularly described in Exhibit A
attached hereto and incorporated herein by reference, and any other parcel of
land acquired or leased and made subject to this Lease in connection with a
Capital Addition.
"LANDLORD GROUP" shall mean any one or more of Landlord, AHP, any
Affiliate of Landlord or AHP and any shareholder of AHP.
"LANDLORD'S TOTAL INVESTMENT" shall mean an amount equal to the sum of
(y) the Initial Investment Cost and (z) all Capital Additions Costs pertaining
to the Property paid for by Landlord pursuant to Section 11.2 of the Lease.
"LANDLORD'S TRANSACTION EXPENSES" shall mean all reasonable
out-of-pocket expenses incurred by Landlord in connection with (i) the
preparation of this Lease, the Purchase Agreement and any Substitute Lease and
the instruments contemplated hereunder and thereunder, and any other instruments
required to be executed and delivered by Tenant to Landlord in connection,
herewith or therewith (whether or not the transactions hereby or thereby
contemplated shall be consummated) and (ii) the transactions contemplated to be
performed hereunder and thereunder, including but not limited to the reasonable
fees and disbursements of Landlord's legal counsel, title insurance premiums,
recording taxes and fees, survey fees, valuation or appraisal fees, engineering
fees and architects' fees.
"LEASE" shall mean this document, as the same may be amended from time
to time in accordance herewith.
"LEASE RESERVE FUND" shall have the meaning ascribed thereto in Section
29.3(c).
"LEASE YEAR" shall mean the period commencing on the Commencement Date
and ending on the first anniversary thereof, except that if the Commencement
date is other than the first day of a calendar month, the first Lease Year shall
end 12 months from the last day of the calendar month immediately preceding the
Commencement Date. Thereafter, each Lease Year shall be the 12
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month period beginning on the next day following expiration of the preceding
Lease Year. If the Term ends prior to the last day of a Lease Year, the final
Lease Year shall be deemed to end on the day the Term ends.
"LEASES" shall mean the Lease, the Arkansas Manor Lease, the Douglas
Manor Lease and the Safford Care Lease, collectively.
"LEGAL REQUIREMENTS" shall mean all federal, state, county, municipal
and other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, common law, decrees and injunctions affecting the Property or the
maintenance, construction, use, alteration, occupancy or operation thereof,
whether now or hereafter enacted and in force (including any of the foregoing
which may require repairs, modifications or alterations in or to the Property),
all permits, licenses, certificates, franchises, authorizations, land use
entitlements, zoning and regulations relating thereto, and all covenants,
conditions, agreements, restrictions and encumbrances contained in any
instruments, either of record or known to Tenant (other than encumbrances
created by Landlord without the consent of Tenant), at any time in force
affecting the Property.
"MINIMUM REPURCHASE PRICE" shall mean the Initial Investment Cost, plus
the Capital Additions Cost of any Capital Additions financed or paid for by
Landlord, less the net amount (after deduction of all reasonable legal fees and
other costs and expenses, including without limitation expert witness fees,
incurred by Landlord in connection with obtaining any such proceeds or awards)
of any proceeds of insurance paid to and retained by Landlord in accordance with
Article XV of this Lease and of any Awards received by Landlord and not applied
to restoration of the Property in accordance with Article XVI of this Lease.
"NHI" shall mean National Health Investors, Inc.
"NOTICE" shall mean a notice given pursuant to Section 30.8 hereof.
"OFFICER'S CERTIFICATE" shall mean a certificate of Tenant signed by
the chief financial officer or another officer authorized so to sign by
resolutions adopted by the board of directors or the articles of incorporation
or by-laws of the general partner of the Tenant or by any other person whose
power and authority to act has been authorized by delegation in writing by the
chief financial officer of the general partner of the Tenant.
"OVERDUE RATE" shall mean, as of a specified date, a rate of interest
equal to the Prime Rate plus three percent, but in no event greater than the
maximum rate of interest then permitted under applicable law.
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"PAYMENT DATE" shall mean any due date for the payment of any
installment of Base Rent.
"PERMITTED ENCUMBRANCES" shall mean the matters, if any, set forth in
Exhibit B attached hereto and incorporated herein by reference.
A "PERSON" shall mean any natural person, corporation, limited
liability company, business trust, association, company, partnership or
government (or any agency or political subdivision thereof) or, for purposes of
the definition of "Change of Control" herein, any group acting in concert
(within the meaning of Section 13(d) of the Securities Exchange Act of 1934).
"PRIMARY INTENDED USE" shall mean a long-term care facility licensed by
the State and such additional uses which are licensed or applied for on the date
hereof or are permitted by Landlord from time to time hereunder.
"PROPERTIES" shall mean the Property subject to the Leases,
collectively.
"PROPERTY" shall have the meaning ascribed to such term in Article II.
"PURCHASE AGREEMENT" shall have the meaning given to that term in the
Assignment.
"RENT" shall mean the Base Rent and Additional Charges.
"SAFFORD CARE LEASE" shall mean that certain lease entered into between
Landlord and Safford Care, Inc., a Colorado corporation, as of June 30, 1995
with respect to that certain property known as Safford Care Center, a 128 bed
long-term care property located in Safford, Arizona.
"SALE" shall have the meaning specified in Section 26.2.
"SECURITY AGREEMENT" shall mean the Security and Pledge Agreement of
even date between Tenant, as Debtor, and Landlord, as Secured Party.
"SECURITY LETTER OF CREDIT" shall have the meaning ascribed thereto in
Section 29.3.
"SIGNATURE GUARANTY" shall mean that certain Guaranty of even date
herewith executed by Signature Health Care Corporation in favor of Landlord.
"STATE" shall mean the State of Colorado.
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"TAKING" shall mean a taking or voluntary conveyance during the Term
hereof of all or any part of the Property, or any interest therein, right with
respect thereto or use thereof, as a result of, incidental to, or in settlement
of any condemnation or other eminent domain proceedings affecting such Property,
regardless of whether such Proceedings shall have actually been commenced.
"TANGIBLE NET WORTH" shall mean, as of the date of determination, the
sum of the following for Tenant and its consolidated subsidiaries, if any, on a
consolidated basis, determined in accordance with generally accepted accounting
principles (a) the amount of capital or stated capital (after deducting the cost
of any shares held in the applicable entity's treasury); plus (b) the amount of
capital surplus and retained earnings; or (c) in the care of a capital or
retained earnings deficit, minus the amount of such deficit and less (d) the
amount, if any, carried on the books of the entity and any consolidated
subsidiaries of the entity for goodwill, patents, trademarks, copyrights,
licenses, and other assets which are properly classified as intangible assets
under generally accepted accounting principles.
"TENANTS" shall mean Arkansas, Inc., Cornerstone Care, Inc., Douglas
Manor, Inc. and Safford Care, Inc., collectively.
"TENANT'S PERSONAL PROPERTY" shall mean all machinery, equipment,
furniture, furnishings, movable walls or partitions, computers or other personal
property, and consumable inventory and supplies, including, without limiting the
generality of the foregoing, sterilizer units, scrub sinks, mail boxes, desks,
lamps, chairs, beds, bedstands, surgical lamps, water stills, fume hoods,
non-affixed cabinetry, tables, and similar movable equipment, owned by Tenant
and used or useful in Tenant's business on the Land, but in no event any items
included within the definition of Equipment or Fixtures.
"TERM" shall mean the Fixed Term and any Extended Terms, as the context
may require, unless earlier terminated pursuant to the Provisions of this Lease.
"TOTAL RENT" shall mean the sum of Base Rent and Additional Charges.
"TRANSFER PAYMENT DATE" shall mean the first Business Day of each
calendar month occurring during the Term hereof.
"UNAVOIDABLE DELAYS" shall mean delays due to strikes, lockouts,
inability to procure materials, power failures, acts of God, governmental
restrictions, enemy action, civil commotion, unavoidable casualty and other
causes beyond the control of the party responsible for performing an obligation
hereunder, provided
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that lack of funds shall not be deemed a cause beyond the control of either
party hereto.
"YANKEE CREEK GUARANTY" shall mean that certain Guaranty of even date
herewith executed by Yankee Creek Management Services LLC in favor of Landlord.
ARTICLE II
LEASE OF PROPERTY
Landlord hereby leases, demises and lets to Tenant, and Tenant hereby
hires, takes and leases from Landlord, upon the terms and subject to the
conditions hereinafter set forth, TO HAVE AND TO HOLD, all of Landlord's right,
title and interest in and to all of the following (the "Property"):
(a) the Land;
(b) all buildings, structures and other improvements of every kind,
including but not limited to the Facility, all buildings and structures
hereafter constructed upon the Land and all alleyways and connecting tunnels,
sidewalks, utility pipes, conduits and lines (on-site and off-site), parking
areas, roadways and other related on-site and offsite improvements appurtenant
to such buildings and structures presently or hereafter situated upon the Land,
and any and all Capital Additions paid for by Landlord pursuant to Section 11.2
of this Lease (the "Improvements");
(c) all machinery and equipment and all other tangible personal
property, fittings, appliances, apparatus, furniture, furnishings now and
hereafter located on, affixed to or used in connection with the Facility;
(d) all easements, licenses, rights-of-way and appurtenances relating
to the Land and the Improvements); and
(e) all "fixtures" as that term is defined in the State now and
hereafter located in, on or used and incorporated into the Land or Improvements
(the "Fixtures").
ARTICLE III
TERM OF LEASE
3.1 TERM OF LEASE. The initial term of this Lease shall commence on
June 13, 1995 ("Commencement Date"), and, unless extended or terminated earlier
in accordance with the provisions of this Lease, shall remain in effect until
June 30, 2005 (the "Fixed Term"). Notwithstanding the foregoing, if, for any
reason, through no fault of Landlord, Landlord cannot deliver possession of the
Property to Tenant on the Commencement Date, Landlord shall not be subject to
any liability, nor shall such failure affect the validity of this Lease or the
obligations of Tenant hereunder or
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extend the Term hereof, but in such case, Tenant shall not be obligated to pay
Rent or to perform any other obligation of Tenant under this Lease until
possession of the Property is tendered to Tenant.
3.2 OPTION TO EXTEND TERM OF LEASE.
(a) Subject to the provisions of Paragraph (c) below, Landlord hereby
grants to Tenant an option to extend the term of the Lease, for three additional
consecutive ten-year renewal terms (each, an "Extended Term," and collectively,
the "Extended Terms"). Each of the Extended Terms shall be upon the same terms
and conditions as those set forth for the Fixed Term except that Base Rent shall
be the then current Fair Market Rental which, unless otherwise mutually agreed
to by Landlord and Tenant, shall be determined by appraisal pursuant to the
provisions of Article XXV; provided that the annual Base Rent for each Extended
Term shall not be less than 102 1/2% of the sum of Base Rent payable during the
last year of the Fixed Term or preceding Extended Term, as the case may be. The
Base Rent for the Extended Term provided for herein for the second and each
subsequent Lease Year of the Extended Term shall be increased to an amount equal
to one hundred two and one-half percent (102 1/2%) of the Base Rent for the
preceding twelve month period, calculated by applying such percentage increases
on a cumulative basis to the Base Rent payable during each of the preceding
Lease Years. Each such option may only be exercised by Tenant if, at the time
such option is exercised, an Event of Default shall not exist and be continuing,
and shall be exercised by Tenant by delivery of Notice to that effect to
Landlord not less than 180 days but not more than 360 days prior to the date
upon which this Lease otherwise would terminate. Tenant's exercise of any option
to extend the term of this Lease for an extended term pursuant to this Section
3.2 shall constitute Tenants' irrevocable and binding commitment to lease the
Property on the terms stated in this Lease for the whole of such Extended Term.
If Tenant is unable to exercise any option due to the provisions of this Lease,
the time during which such option may be exercised shall not be extended or
enlarged. The failure of Tenant to exercise any of the options for the Extended
Terms within the respective times specified in this Section shall thereby
terminate any remaining such options.
(b) Time is strictly of the essence with respect to the requirement
that Tenant gives timely Notice of its exercise of any options hereunder,
including, but not limited to, the options for the Extended Terms, and Tenant's
failure timely to exercise any option strictly in accordance with its terms
shall constitute a material, irredeemable and incurable failure to satisfy a
condition precedent to the vesting of any rights in Tenant pursuant to such
option, and Tenant hereby expressly waives any right to claim relief from
forfeiture, or any other form of equitable relief, from consequences of an
untimely exercise of any such option strictly in
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accordance with its terms. The implied covenant of good faith and fair dealing
under this Lease shall not be construed to impose upon Landlord any obligation
to notify Tenant in advance of the impending deadline for the exercise of any
option hereunder, nor shall it obligate Landlord to excuse the tardy exercise of
any option however slight.
(c) Unless Landlord shall otherwise consent in its sole discretion,
Tenant's right to extend the Term of the Lease is subject to the condition that
upon any such extension, the terms of all of the other Leases will be extended
concurrently.
ARTICLE IV
RENT
4.1 PAYMENT OF LANDLORD'S TRANSACTION EXPENSES. On the Commencement
Date, Tenant shall pay to Landlord all Landlord's Transaction Expenses. Landlord
shall furnish Tenant with reasonable documentation concerning, Landlord's
Transaction Expenses.
4.2 PAYMENT OF BASE RENT AND ADDITIONAL CHARGES. During the Term,
Tenant shall pay to Landlord at the times specified herein, in lawful money of
the United States of America, without right of abatement, deduction,
counterclaim, defense, reduction, recoupment or offset, by wire transfer or ACH
Transfer of Federal Funds to such account or accounts as Landlord may designate
from time-to-time in a Notice or by check delivered to Landlord at the address
in Section 30.8, or at such other place as Landlord may designate in writing,
the Base Rent and the Additional Charges.
4.3 BASE RENT. Commencing on the first Business Day of the first full
calendar month occurring coincident with or after the Commencement Date, and
thereafter, for any Base Rent payment by wire transfer or ACH Transfer on the
Transfer Payment Date, and if by check, Base Rent payment is due on the Check
Payment Date, for the period beginning on the first Business Day and ending on
the last day of the Term hereof, Tenant shall pay to Landlord an amount
calculated by dividing, (x) Base Rent by (y) 12, provided that the first payment
of Base Rent shall include an additional payment for any partial calendar month
occurring between the Commencement Date and the date of the first payment of
Base Rent. Any payment of Base Rent for a period of less than one calendar month
shall be prorated based upon the number of days for which such Base Rent is due
divided by 30.
4.4 RENT ADJUSTMENT. The Base Rent provided for herein for the second
and each subsequent Lease Year of the Term shall be increased to an amount equal
to one hundred two and one-half percent (102 1/2%) of the Base Rent for the
preceding twelve month period, calculated by applying such percentage increases
on a
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cumulative basis to the Base Rent payable during each of the preceding Lease
Years.
4.5 ADDITIONAL CHARGES. Subject to Article XIII hereof, Tenant shall
pay and discharge as and when due and payable all Impositions and other amounts,
liabilities and obligations which Tenant assumes or agrees to pay under this
Lease. If Tenant fails or refuses to pay any of the items referred to in the
immediately preceding sentence, Tenant shall promptly pay and discharge every
fine, penalty, interest and cost which may arise or accrue for the non-payment
or late payment of such items. The aforementioned amounts, liabilities,
obligations, Impositions, fines, penalties, interest and costs are referred to
herein as "Additional Charges." The Additional Charges shall constitute Rent
hereunder. If any Rent (but as to Additional Charges, only those which are
payable directly to Landlord) shall not be paid on its due date, Tenant shall
pay to Landlord on demand, as an Additional Charge, a late charge to the extent
permitted by law, computed at the Overdue Rate on the amount of such Rent from
the due date of such Rent to the date such Rent is paid. Any payment by Tenant
of Additional Charges to Landlord pursuant to any requirement of this Lease
shall relieve Tenant of its obligation to pay such Additional Charges to the
entity to which they would otherwise be paid.
4.6 TRIPLE NET LEASE.
(a) TRIPLE NET LEASE. This Lease is what is commonly called a "net net
net lease", it being understood that Landlord shall receive all Rent as provided
in this Article free and clear of any and all Impositions, encumbrances,
charges, obligations or expenses of any nature whatsoever in connection with the
ownership and operation of the Property. In addition to the Rent reserved by
this Article, except as expressly provided herein to the contrary, Tenant shall
pay to the parties respectively entitled thereto all Impositions, insurance
premiums, operating charges, maintenance charges, construction costs and any
other charges, costs and expenses which arise or may be contemplated under any
provisions of this Lease during, the Term hereof. All of such charges, costs and
expenses shall constitute Rent, and upon the failure of Tenant to pay any such
costs, charges or expenses, Landlord shall have the same rights and remedies as
otherwise provided in this Lease for the failure of Tenant to pay Rent and
Landlord shall be indemnified and saved harmless by Tenant from and against the
same. It is the intention of the parties hereto that this Lease shall not be
terminable for any reason by the Tenant and that Tenant shall in no event be
entitled to any abatement of or reduction in Rent payable under this Lease
except as herein expressly provided. Any present or future law to the contrary
shall not alter this agreement of the parties.
(b) BANKRUPTCY. Tenant covenants and agrees that it shall remain
obligated under this Lease in accordance with its terms, and
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that Tenant shall not take any action to terminate, rescind or avoid this Lease,
notwithstanding the bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other proceeding affecting
Landlord or any assignee of Landlord in any such proceeding and notwithstanding
any action with respect to this Lease which may be taken by any trustee or
receiver of Landlord or any such assignee in any such proceeding or by any court
in any such proceeding.
(i) In the event that Tenant shall file a petition, or an order for
relief is entered against Tenant, under Chapter 7, 9, 11 or 13 of the Bankruptcy
Code, 11 U.S.C.S. 101 et seq. (the "BANKRUPTCY CODE") and the trustee of Tenant
shall elect to assume this Lease for the purpose of assigning the same, such
assumption or assignment may only be made if all the conditions of subsections
(ii) and (iii) of this Section 4.8(b) are satisfied. If the trustee or
debtor-in-possession, as the case may be, shall fail to elect to assume this
Lease within 60 days after such trustee shall have been appointed, or the date
of filing of the petition, at Landlord's election (and in its sole and absolute
discretion) this Lease shall be deemed to have been rejected and, in such event,
Landlord shall thereupon immediately be entitled to possession of the Property
without further obligation to the trustee or Tenant, and this Lease shall be
canceled, but Landlord's right to be compensated for damages in the bankruptcy
proceedings shall survive such cancellation.
(ii) No election to assume this Lease shall be effective unless in
writing and addressed to Landlord and unless, in Landlord's business judgment,
all the following conditions, which Landlord and Tenant acknowledge to be
commercially reasonable, have been satisfied:
(A) The trustee (or Tenant, as debtor-in-possession) has cured or
has provided Landlord adequate assurance that:
(I) within ten days from the date of such assumption, the
trustee (or debtor-in-possession) will cure all monetary defaults under this
Lease; and
(II) within 30 days from the date of such assumption, the
trustee (or debtor-in-possession) will cure all non-monetary defaults under this
Lease or commence to cure within 30 days and thereafter diligently pursue to
completion.
(B) The trustee (or debtor-in-possession) has compensated, or has
provided to Landlord adequate assurance that within ten days from the date of
assumption Landlord will be compensated, for any pecuniary loss incurred by
Landlord arising from the default of the Tenant or the trustee (or the
debtor-in-possession) as recited in Landlord's written statement of pecuniary
loss sent to the trustee (or debtor-in-possession);
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(C) The trustee (or debtor-in-possession) has provided Landlord
with adequate assurance of the future performance of each of Tenant's
obligations under this Lease, provided that:
(I) the trustee (or debtor-in-possession) shall also deposit
with Landlord, as security for the timely payment of Rent, an amount equal to
(w) three months' Base Rent and (x) the last quarterly payment of Percentage
Rent and (y) the other monetary charges accruing under this Lease; and
(II) the obligations imposed upon the trustee (or
debtor-in-possession) shall continue with respect to Tenant after completion of
bankruptcy proceedings.
(D) Landlord has determined that the assumption of the Lease will
not:
(I) breach any provision in any agreement by which Landlord is
bound relating to the Property; or
(II) disrupt, in Landlord's reasonable judgment, the
reputation and profitability of the Property.
(E) For purposes of this subsection, "adequate assurance" shall
mean:
(I) Landlord shall determine that the trustee (or
debtor-in-possession) has and will continue to have sufficient unencumbered
assets after the payment of all secured obligations and administrative expenses
to assure Landlord that the trustee (or debtor-in-possession) will have
sufficient funds to fulfill the obligations of Tenant under this Lease; and
(II) an order shall have been entered segregating sufficient
cash payable to Landlord, or there shall have been granted a valid and perfected
first lien and security interest in property of the Tenant or trustee (or
debtor-in-possession), acceptable as to value and kind to Landlord, to secure to
Landlord the obligation of the Trustee (or debtor-in-possession) to cure the
monetary or nonmonetary defaults under this Lease within the time periods set
forth above.
(III) If the trustee (or debtor-in-possession) has assumed the
Lease pursuant to all the provisions of subsections (i) and (ii) of this Section
4 8(b), for the purpose of assigning (or electing to assign) Tenant's interest
under this Lease or the estate created thereby to any other person, such
interest or estate may be so assigned only if Landlord shall acknowledge in
writing that the intended assignee has provided adequate assurance of future
performance of all the terms, covenants and conditions of this Lease to be
performed by Tenant. For purposes of this subsection (iii), "adequate assurance
of future performance" means
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that Landlord shall have ascertained that each of the following conditions has
been satisfied:
(A) the assignee has submitted a current financial statement
audited by a certified public accountant which shows tangible net worth and
working capital in amounts determined to be sufficient by Landlord to assure the
future performance by such assignee of Tenant's obligations under this Lease;
(B) if requested by Landlord, the assignee shall have obtained
guarantees in form and substance satisfactory to Landlord from one or more
persons who satisfy Landlord's standards of credit worthiness;
(C) Landlord has obtained all consents to waivers from any third
parties required under any lease, mortgage, financing arrangement or other
agreement by which Landlord is bound to enable Landlord to permit such
assignment;
(D) the assignee has deposited an adequate security deposit with
Landlord; and
(E) the assignee has demonstrated that its intended use of the
Property is consistent with the terms of this Lease and will not diminish the
reputation of the Facility, or violate any "exclusive" which has been granted by
Tenant to any permitted subtenant in the Property.
(iv) When, pursuant to the Bankruptcy Code, the trustee (or
debtor-in-possession) shall be obligated to pay reasonable use and occupancy
charges for the use of the Property or any portion thereof, such charges shall
not be less than the Rent.
(v) Neither Tenant's interest in the Lease, nor any lesser interest
of Tenant herein, nor any estate of Tenant hereby created, shall pass to any
trustee, receiver, assignee for the benefit of creditors or any other person by
operation of law or otherwise unless Landlord shall consent to such transfer in
writing. No acceptance by Landlord of rent or any other payments from any such
trustee, receiver, assignee or person shall be deemed to have waived, nor shall
it waive the need to obtain Landlord's consent to, or Landlord's right to
terminate this Lease for, any transfer of Tenant's interest under this Lease
without such consent.
(vi) Any person to whom this Lease is assigned pursuant to the
provisions of the Bankruptcy Code shall be deemed without further act or deed to
have assumed all the obligations arising under this Lease on or after the date
of such assignment. Any such assignee shall, upon demand, execute and deliver to
Landlord an instrument confirming such assumption.
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ARTICLE V
IMPOSITIONS
5.1 PAYMENT OF IMPOSITIONS. Tenant shall pay, or cause to be paid, all
Impositions prior to delinquency and before any fine, penalty, interest or cost
may be added for non-payment (subject to Tenant's rights of contest pursuant to
the provisions of Article XIII). Such payments shall be made directly to the
authorities levying such Impositions, if possible. Tenant shall, promptly upon
request by Landlord, furnish to Landlord original or certified copies of
receipts or other reasonably satisfactory evidence of such payments. Tenant's
obligation to pay Impositions shall be deemed absolutely fixed upon the date
such Impositions become a lien upon the Property or any part thereof.
Notwithstanding the foregoing, if any such Imposition may, at the option of the
payor, lawfully be paid in installments (whether or not interest shall accrue on
the unpaid balance of such Imposition), and so long as no Event of Default shall
have occurred hereunder and be continuing, Tenant may pay the same (and shall
pay any accrued interest on the unpaid balance of such Imposition) in
installments, and in such event shall pay such installments (subject to Tenant's
right of contest pursuant to the provisions of Article XIII) as the same become
due and before any fine, penalty, premium, further interest or cost is added
thereto. Landlord shall, at its expense and to the extent required or permitted
by applicable laws and regulations, prepare and file all returns with respect to
Landlord's net income, gross receipts, sales, use, single business, transaction
privilege, rent, ad valorem and franchise taxes, and with respect to taxes on
Landlord's capital stock. Tenant shall, at its expense, and to the extent
required or permitted by applicable laws and regulations, prepare and file all
other tax returns and reports with respect to any Imposition as may be required
of Tenant by governmental agencies or authorities. If any refund shall be due
from any taxing authority with respect to any Imposition paid by Tenant, the
same shall be paid over to and retained by Tenant unless an Event of Default
shall have occurred hereunder and be continuing, in which case such refund shall
be paid over to and retained by Landlord. Any such funds retained by Landlord
due to an Event of Default shall be applied as provided in Article XVII.
Landlord and Tenant shall, each upon a request by the other, provide such
information as is maintained by the party to whom the request is made with
respect to the Property as may be reasonably necessary to prepare any required
returns or reports. If any governmental agency or authority classifies any
property covered by this Lease personal property, Tenant shall file all personal
property tax returns in such jurisdictions where it may legally so file.
Landlord, to the extent it possesses the same, and Tenant, to the extent it
possesses the same, will provide to the other party, promptly upon request, cost
and depreciation records reasonably necessary for filing, returns for any
property so classified as personal property. If Landlord is legally required to
file any personal property tax returns, Landlord shall
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provide Tenant with copies of any assessment notices with respect thereto in
sufficient time for Tenant to file a protest with respect thereto if it so
elects pursuant to Article XIII. If no Event of Default is then continuing,
Tenant may at its option and sole cost and expense, upon written notice to
Landlord, protest, appeal or institute such other proceedings as Tenant
reasonably may deem appropriate to effect a reduction of real estate or personal
property assessments so long as such action is conducted in good faith and with
due diligence. In such event, Landlord, at Tenant's sole cost and expense, shall
fully cooperate with Tenant in such protest, appeal, or other action. Tenant
hereby agrees to indemnify, defend, save and hold Landlord harmless from and
against any and all losses, demands, claims, obligations and liabilities against
or incurred by Landlord in connection with such cooperation by Landlord.
Billings by either party to the other for reimbursement of personal property
taxes shall be accompanied by copies of a bill therefor and evidence of payments
thereof which identify the personal property with respect to which such payments
have been made.
5.2 NOTICE OF IMPOSITIONS. Landlord shall give prompt Notice to Tenant
of all Impositions payable by Tenant hereunder of which Landlord at any time has
knowledge. Notwithstanding the foregoing, however, Landlord's failure to give
any such Notice shall in no way diminish Tenant's obligations hereunder to pay
such Impositions, but Landlord shall be responsible for any fine, penalty or
interest resulting from its failure to give such notice and any default by
Tenant hereunder shall be obviated for a reasonable time after Tenant receives
Notice of any Imposition which it is obligated to pay.
5.3 ADJUSTMENT OF IMPOSITIONS. Impositions imposed with respect to the
tax period during which the Term expires or terminates shall be adjusted and
prorated between Landlord and Tenant, whether or not such Imposition is imposed
before or after such expiration or termination, so that Tenant is only obligated
to pay that portion of such Imposition(s) pertaining to the tax period within
the Term. The obligation of Tenant to pay its prorated share of Impositions
shall survive expiration or earlier termination of this Lease.
5.4 UTILITY CHARGES. Tenant shall pay or cause to be paid all charges
for all utilities, including but not limited to electricity, power, gas, oil and
water, used in the Property during the Term.
5.5 INSURANCE PREMIUMS. Tenant shall pay or cause to be paid all
premiums for insurance coverage required to be maintained pursuant to Article
XIV.
ARTICLE VI
TERMINATION OR ABATEMENT OF LEASE
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Without limiting the generality of Section 4.6, Tenant, to the full
extent permitted by law, shall remain bound by this Lease in accordance with its
terms. Tenant shall not take any action without the prior written consent of
Landlord to modify, surrender or terminate this Lease. The obligations of
Landlord and Tenant hereunder shall be separate and independent covenants and
agreements, and Rent and all other sums shall continue to be payable by Tenant
hereunder in any event unless the obligation of Tenant to pay the same
terminates pursuant to the express provisions of this Lease or by termination of
this Lease (other than by reason of an Event of Default). Without limiting the
generality of the immediately preceding sentence, Tenant shall not seek or be
entitled to any abatement, deduction, deferment or reduction of Rent, or set-off
against Rent, nor shall the respective obligations of Landlord and Tenant be
otherwise affected by reason of: (a) any damage to, or destruction of, all or
any portion of the Property from whatever cause or any Taking of all or any
portion of the Property; (b) the lawful or unlawful prohibition of, or
restriction upon, Tenant's use of all or any portion of the Property, or the
interference with such use or with Tenant's quiet enjoyment of the Property by
any person or entity other than Landlord, or by reason of eviction by paramount
title; (c) any claim which Tenant has or may have against Landlord by reason of
any default or breach of any warranty by Landlord under this Lease or under any
other agreement between Landlord and Tenant or to which Landlord and Tenant are
parties; (d) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other proceeding,
affecting Landlord or any assignee or transferee of Landlord; or (e) any other
cause, whether similar or dissimilar to any of the foregoing (other than a
discharge of Tenant from any such obligations as a matter of law). Tenant hereby
specifically waives all rights, arising, from any occurrence whatsoever, which
(i) may now or hereafter be conferred upon it by law to modify, surrender or
terminate this Lease or quit or surrender all or any portion of the Property or
(ii) entitle Tenant to any abatement, reduction, suspension or deferment of Rent
or other sums payable by Tenant hereunder.
ARTICLE VII
OWNERSHIP OF PROPERTY
7.1 OWNERSHIP OF THE PROPERTY. As between Landlord and Tenant the
Property is, and throughout the Term shall continue to be, the property of
Landlord. Tenant has only the right to the exclusive possession and use of the
Property, upon the terms and subject to the conditions set forth in this Lease.
7.2 TENANT'S PERSONAL PROPERTY; SECURITY INTEREST. Tenant may, at its
expense, install, affix, assemble or place on the Property any items of Tenant's
Personal Property and may, subject to the conditions set forth below, remove
Tenant's Personal Property upon the expiration or earlier termination of this
Lease
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or in the ordinary course of business (other than a termination upon an Event of
Default) so long as any damage caused by such removal shall be promptly repaired
by Tenant. Notwithstanding the foregoing, in order to secure the payment and the
performance of all of Tenant's obligations under this Lease, Tenant hereby
grants to Landlord a security interest in (and hereby pledges and collaterally
assigns to Landlord) all of Tenant's rights, title and interest in and to
Tenant's Personal Property, all whether now existing or hereafter acquired and
hereby further agrees to execute and deliver to Landlord, forthwith after demand
by Landlord from time to time, any security agreement in a reasonable form
determined by Landlord and such additional writings and instruments, including
without limitation financing statements, as may be reasonably required by
Landlord for the purpose of effectuating the intent of this sentence and Tenant
agrees that Landlord shall have with respect to all Personal Property all rights
and remedies of a secured party under the Uniform Commercial Code as adopted in
the State, including, but not limited to, the right after the occurrence of an
Event of Default to use or sell Tenant's Personal Property, and Landlord shall
not be required to remove any of such Personal Property from the Property and in
no event shall Landlord be liable to Tenant for use of such Personal Property.
Pending disposition of such Personal Property by Landlord, Landlord shall be
entitled to use such Personal Property in connection with the operation (if any)
of the Facility. Tenant shall not permit the Property or Personal Property to
become subject to any liens or encumbrances of any kind without first obtaining
the prior written consent of Landlord, except for liens or encumbrances
permitted by Section 29.1(a). This Lease and the security interest granted
Landlord hereby shall be subordinate to any purchase money security interest or
capital lease permitted under Section 29. 1 (a). Landlord further agrees that
Tenant may lease Personal Property, and Landlord shall execute and deliver such
agreements as may be reasonably required by any permitted equipment lessor or
the holder of a permitted purchase money security interest to confirm that
Landlord's lien on the Personal Property in question is subordinate to the
rights of such equipment lessor or lender and in each case Tenant shall use its
best efforts to obtain from the holder of the purchase money debt or lessor of
Personal Property, as the case may be, its agreement to (i) notify Landlord or
its successors and assigns of any default by Tenant, (ii) allow Landlord or its
successors and assigns an opportunity to cure any default, (iii) recognize
Landlord or its successors and assigns as succeeding to Tenant's rights under
the agreement in question and to the undisturbed use of the equipment, provided
that Landlord fully complies with the terms of such agreement. Tenant shall
provide and maintain on the Property during the entire Term such Tenant's
Personal Property as shall be necessary to operate the Facility in compliance
with all licensure and certification requirements, in substantial compliance
with all Legal Requirements and Insurance Requirements and otherwise in
accordance with customary practice in the health care industry with respect to
the
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Primary Intended Use or other uses then conducted on the Property by Tenant and
permitted hereunder. All Tenant's Personal Property not removed by Tenant within
thirty days following the expiration or earlier termination of this Lease shall
be considered abandoned by Tenant and may be appropriated, sold, destroyed or
otherwise disposed of by Landlord without first Giving Notice thereof to Tenant
and without any payment or obligation to account to Tenant. Tenant shall, at its
sole cost and expense, restore the Property to the condition required by Section
10.1(d), including repair of all damage to the Property caused by the removal of
Tenant's Personal Property, whether effected by Tenant or Landlord, except that
caused by the gross negligence or willful misconduct of Landlord.
ARTICLE VIII
CONDITION AND USE OF PROPERTY
8.1 CONDITION OF THE PROPERTY. LANDLORD MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, AND SHALL BE SUBJECT TO NO LIABILITY WITH
RESPECT TO, NOR SHALL THE VALIDITY OF THIS LEASE BE AFFECTED BY ANY CLAIM,
DEMAND OR CAUSE OF ACTION REGARDING THE PROPERTY OR ANY PART THEREOF, EITHER AS
TO ITS DESIGN, CONDITION OR FITNESS FOR ANY PARTICULAR USE OR PURPOSE OR
OTHERWISE, OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT
OR PATENT. TENANT ACKNOWLEDGES AND AGREES THAT THE PROPERTY HAS BEEN INSPECTED
BY TENANT, HAS BEEN APPROVED FOR OCCUPANCY BY ALL GOVERNMENT AGENCIES HAVING
JURISDICTION THEREOVER AND IS SATISFACTORY TO IT IN ALL RESPECTS, INCLUDING FOR
ITS PRIMARY INTENDED USE, AND THAT TENANT IS LEASING THE PROPERTY "AS IS" IN ITS
PRESENT CONDITION, AND SUBJECT TO (A) THE EXISTING STATE OF TITLE, INCLUDING ALL
COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS, LICENSES, LEGAL REQUIREMENTS,
MORTGAGES, DEEDS OF TRUST, ASSIGNMENTS OF LEASES, FIXTURE FILINGS AND OTHER
FINANCING INSTRUMENTS AND ANY AND ALL OTHER MATTERS OF RECORD AND OTHERWISE
EXCEPT TO THE EXTENT ANY OF THE FOREGOING WERE CAUSED OR CREATED BY LANDLORD,
AND (B) MATTERS WHICH WOULD BE DISCLOSED BY AN INSPECTION OF THE PROPERTY OR BY
AN ACCURATE SURVEY OF THE LAND. TENANT WAIVES ANY AND ALL CLAIMS, DEMANDS AND
CAUSE OR CAUSES OF ACTION HERETOFORE OR HEREAFTER ARISING AGAINST LANDLORD WITH
RESPECT TO THE CONDITION OF THE PROPERTY.
8.2 USE OF THE PROPERTY.
(a) Tenant has obtained or duly applied for and shall maintain in
effect all permits, licenses, authorizations and approvals needed to use and
operate the Property and the Facility for Tenant's Primary Intended Use in
accordance with all Legal Requirements.
(b) Throughout the entire Term, Tenant shall use or cause to be
used the Property in accordance with its Primary Intended Use and for such other
uses as may be necessary in
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connection with or incidental to such use. Tenant shall not use the Property or
any portion thereof for any other purpose whatsoever without the prior written
consent of Landlord. The parties agree that Landlord's consent will not be
deemed to be unreasonably withheld if, in the reasonable opinion of Landlord,
the Tenant's proposed use of the Property will significantly alter the character
or purpose or detract from the value or operating efficiency of the Property, or
significantly impair the revenue-producing capability of the Property. No use
shall be made or permitted to be made of the Property and no acts shall be done
which violate any Legal Requirements or Insurance Requirements or which will
cause the cancellation of any insurance policy covering the Property or any part
thereof, nor shall Tenant sell or otherwise provide to patients therein, or
permit to be kept, used or sold in, about or under the Property any Hazardous
Substance (except in strict compliance with all Legal Requirements, but only as
may be necessary to the operation of the Facility, with respect to such
substances other than asbestos and hydrocarbons) or any other article which may
be prohibited by the Legal Requirements or Insurance Requirements. Tenant shall,
at its sole cost, comply with all of the requirements pertaining to the Property
of any insurance board, association, organization or company necessary for the
maintenance of the insurance required pursuant to this Lease,
(c) Tenant shall not commit or suffer to be committed any waste nor
shall Tenant cause or permit any nuisance on the Property.
(d) Tenant shall neither suffer nor permit all or any portion of
Tenant's Personal Property or the Property, including any Capital Addition
whether or not financed or paid for by Landlord, to be used in such a manner as
(i) may impair the owner's title thereto or to any portion thereof or (ii) may
make possible a claim or claims of adverse usage, adverse possession or implied
dedication of all or any portion of the Property to the public, except as is
necessary in the ordinary and prudent operation of the Property.
8.3 LANDLORD TO GRANT EASEMENTS. Subject to the provisions of this
Section 8.3, Landlord shall, from time to time so long, as no Event of Default
has occurred and is continuing, at the request of Tenant and at Tenant's sole
cost and expense (but subject to the approval of Landlord, which approval shall
not be unreasonably withheld or delayed), (a) grant easements and other rights
in the nature of easements burdening the Property for the benefit of real
property adjacent to the Land or for the exclusive use and enjoyment of persons
or entities specified by Tenant in such request but only as may be necessary for
the operations of the Facility; (b) dedicate or transfer unimproved portions of
the Property for road, highway or other public purposes but only as may be
necessary for the operation of the Facility; (c) execute petitioner to have the
Property annexed to any municipal
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corporation or utility district; and (d) execute amendments to any covenants,
conditions, restrictions and equitable servitudes affecting the Property, but
only if each such grant, dedication, transfer, petition or amendment is not
detrimental to the proper conduct of the business of Tenant on the Property and
does not materially reduce the value of the Property in Landlord's reasonable
discretion.
8.4 HAZARDOUS SUBSTANCES.
(a) All operations or activities upon, or any use or occupancy of
the Property, or any portion thereof, by Tenant, or any agent, contractor,
employee or subtenant of Tenant shall at all times during the Term be in all
respects in strict compliance with any and all Legal Requirements and Insurance
Requirements relating to Hazardous Substances, including, but not limited to,
the discharge and removal of Hazardous Substances. Tenant will keep the Property
free and clear of all Hazardous Substances other than those Hazardous Substances
which are necessary for the operation of the Facility (which Hazardous
Substances shall be handled, used and disposed of in strict compliance with the
Legal Requirements and Insurance Requirements) and Tenant shall pay all costs
required properly to use, handle and dispose of all Hazardous Substance and
shall keep the Property free and clear of any lien relating to Hazardous
Substances which may be imposed pursuant to the Legal Requirements and Insurance
Requirements. Neither Tenant, nor any agent, contractor, employee or subtenant
of Tenant shall allow the manufacture, storage, voluntary transmission or
presence of any Hazardous Substances over or upon the Property (except in strict
compliance with the Legal Requirements and Insurance Requirements). Landlord
shall have the right at any time with notice to Tenant to conduct an
environmental audit of the Property and Tenant shall cooperate in the conduct of
such environmental audit. Furthermore, neither Tenant, nor any agent,
contractor, employee or any subtenant of Tenant shall install or permit to be
installed in or on the Property friable asbestos or any substance containing
asbestos or similarly deemed hazardous by Governmental authorities or the Legal
Requirements respecting such materials, and with respect to any such materials
currently present in the Property, shall promptly either, subject to the terms
of the letter agreement of even date herewith between Landlord and Tenant, (x)
remove any material which such Legal Requirements deem hazardous and require be
removed, at its sole cost and expense, or (y) otherwise comply with the Legal
Requirements. Tenant shall promptly notify Landlord in writing of any order,
receipt of any notice of violation or noncompliance with any applicable law,
rule, regulation, standard or order, any threatened or pending action by any
regulatory agency or other governmental authority or any claims made by any
third party relating to Hazardous Substances on, emanations on or from, releases
on or from, or threats of releases on or from any of the Property and shall
promptly furnish Landlord with copies of any correspondence, notices or legal
pleadings in connection therewith.
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Landlord shall have the right, but shall not be obligated, to notify any
governmental authority of any state of facts which may come to its attention
with respect to Hazardous Substances on, released from or emanating on or from
any part of the Property.
(b) Without limiting Section 22.1, Tenant shall, with the right to
participate in the applicable proceedings, indemnify, protect, defend (with
counsel reasonably approved by Landlord) and hold Landlord, and the directors,
officers, shareholders, employees and agents of Landlord, harmless from any
claims (including, but not limited to, third party claims for personal injury or
real or personal property damage), or natural resources damage, actions,
administrative proceedings (including informal proceedings), judgments, damages,
punitive damages, penalties, fines, costs, liabilities (including sums paid in
settlements of claims), interest or losses, including reasonable attorneys' and
paralegals' fees and expenses (including any such fees and expenses incurred in
enforcing the covenants and obligations of Tenant under this Lease or collecting
any sums due hereunder), consultant fees, and expert fees, together with all
other costs and expenses of any kind or nature ("Costs") that arise directly or
indirectly from or in connection with the presence, suspected presence, release
or threatened release of any Hazardous Substance in or into or at, on, about,
under or within the Property, to the extent that such Costs are not attributable
to the gross negligence or willful misconduct of Landlord. The indemnification
provided in this Section 8.4(b) shall specifically apply to and include claims
or actions brought by or on behalf of employees or contractors of Tenant or
employees or contractors of Tenant, and Tenant hereby expressly waives any
immunity to which Tenant may otherwise be entitled under any industrial or
workers' compensation laws. In the event Landlord shall suffer or incur any such
Costs, Tenant shall pay to Landlord the total of all such Costs suffered or
incurred by Landlord upon demand therefor by Landlord. Without limiting the
Generality of the foregoing, the indemnification provided by this Section 8.4(b)
shall specifically cover Costs, including capital, operating and maintenance
costs, incurred in connection with any investigation or monitoring, of site
conditions, any cleanup, containment, remedial, removal or restoration work
required or performed by any federal, state or local governmental agency or
political subdivision or performed by any non-governmental entity or person
because of the presence, suspected presence, release or suspected release of any
Hazardous Substance in or into the air, soil, groundwater, surface water or soil
vapor at, on, about, under or within the Property (or any portion thereof), and
any claims of third parties for loss or damage due to such Hazardous Substance,
to the extent that such Costs are not attributable to the gross negligence or
willful misconduct of Landlord. In addition, such indemnification shall include,
but not be limited to, all loss or damage sustained by Landlord or any third
party to whom Landlord may be liable due to any Hazardous Substance (i) that is
present or suspected to be present on, about, under or within the Property or
(ii) that
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migrates, flows, percolates, diffuses or in any way moves onto, into or under
the air, soil, groundwater, surface water or soil vapor at, on, about, under or
within the Property, irrespective of whether such Hazardous Substance shall be
present or suspected to be present on, about, under or within the Property as a
result of any release, discharge, disposal, dumping, spilling or leaking
(accidental or otherwise) onto the Property or caused by any person or entity;
provided, however, that the indemnification obligation arising out of clauses
(i) and (ii) above shall apply solely to the extent that such loss or damage is
not attributable to the gross negligence or willful misconduct of Landlord.
(c) In the event any investigation or monitoring of site conditions
or any clean-up, containment, restoration, removal or other such work ("Remedial
Work") is required under any applicable Legal Requirements, including, but not
limited to, any judicial order or order of any governmental entity, or in order
to comply with any agreements affecting the Property because of, or in
connection with, any occurrence or event described in Section 8.4(b), Tenant
shall perform or cause to be performed the Remedial Work in compliance with such
law, regulation, order or agreement and subject to the final review and approval
of Landlord, which approval shall not be unreasonably withheld or delayed;
provided, however, that Tenant may withhold such performance pursuant to a good
faith dispute regarding the application, interpretation or validity of the law,
regulation, order, or agreement, subject to the requirements of Section 8.4(d);
provided, further, however, that Landlord shall reasonably cooperate with Tenant
to the extent necessary to deliver such authorizations as may be required in
order for Tenant to perform its obligations under this Section 8.4(c). All
Remedial Work shall be performed by one or more contractors, selected by Tenant
and approved in advance in writing by Landlord, which approval shall not be
unreasonably withheld or delayed, and under the supervision of a consulting
engineer, selected by Tenant and approved in advance in writing, by Landlord,
which approval shall not be unreasonably withheld or delayed. All costs and
expenses of Remedial Work shall be paid by Tenant, including, but not limited
to, the charges of such contractors and consulting engineer, and Landlord's
reasonable attorneys' and paralegals' fees and other costs incurred in
connection with the monitoring or review of such Remedial Work. In performing
its obligations hereunder, Tenant shall be subrogated to any rights Landlord may
have under any indemnifications or warranties from any present, future or former
owners, tenants or occupants or users of the Property, to the extent available.
In the event Tenant shall fail timely to commence, diligently to prosecute to
completion or to complete to Landlord's reasonable satisfaction any necessary
Remedial Work, Landlord may, but shall not be required to, cause such Remedial
Work to be performed, and all costs and expenses thereof paid or incurred by
Landlord in connection therewith shall be Costs within the meaning of Section
8.4(b). Landlord's disapproval of or dissatisfaction with any Remedial Work
shall be
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deemed to be reasonable so long as Landlord's requirements for any Remedial Work
are consistent with the then current requirements and standards imposed by
prudent institutional investors in connection with their management of real
property. All such Costs shall be due and payable upon demand therefor by
Landlord. If Tenant fails to perform its obligations hereunder, Landlord shall
be subrogated to any rights Tenant may have under any indemnifications from any
present, future or former owners, tenants or other occupants or users of the
Property relating to the matters covered by this Section 8.4.
(d) Notwithstanding any provision of this Section 8.4 to the
contrary, but without limiting the provisions of Article XIII, Tenant shall be
permitted to contest or cause to be contested, subject to compliance with the
requirements of this Section 8.4(d) and Article XIII, by appropriate action any
Remedial Work requirement, and Landlord shall not perform such requirement on
its behalf, so long as Tenant has given Landlord written notice that Tenant is
contesting or shall contest or cause to be contested the same, and Tenant
actually contests or causes to be contested the application, interpretation or
validity of the law, regulation, order or agreement pertaining to the Remedial
Work by appropriate proceedings conducted in good faith with due diligence,
provided that such contest shall not subject Landlord to civil liability nor
jeopardize Landlord's interest in the Property or affect in any way the payment
of any sums to be paid to Landlord. Tenant shall give such security or
assurances as may be reasonably required by Landlord to insure compliance with
the Legal Requirements pertaining to the Remedial Work (and payment of all
costs, expenses, interest and penalties in connection therewith) and to prevent
any sale, forfeiture or loss by reason of such nonpayment or noncompliance.
(e) The provisions of this Section may be enforced by Landlord
without regard to any other rights and remedies Landlord may have against Tenant
under this Lease and without record to any limitations on Landlord's recourse as
may be otherwise provided in this Lease Tenant agrees that, notwithstanding any
provision in this Lease to the contrary, a separate action or actions to enforce
Tenant's obligations under this Section 8.4 may be brought and prosecuted
against Tenant. Any costs and other payments required to be paid by Tenant to
Landlord under this Section 8.4 which are not paid on demand therefor shall
thereupon be considered delinquent Tenant shall pay to Landlord immediately upon
demand therefor interest on such overdue amounts, from the date when due until
paid, at the Overdue Rate.
ARTICLE IX
LEGAL REQUIREMENTS AND INSURANCE REQUIREMENTS
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9.1 COMPLIANCE WITH LEGAL REQUIREMENTS, INSURANCE REQUIREMENTS AND
INSTRUMENTS. Subject to the rights of Tenant as provided in Article XIII
relating to permitted contests, Tenant, at its sole cost and expense, shall
promptly (a) comply with all applicable Legal Requirements and Insurance
Requirements with respect to the use, operation, maintenance, repair and
restoration of the Property, whether or not compliance therewith. shall require
structural chance in any of the Improvements or interfere with the use and
enjoyment of the Property, and (b) procure, maintain and comply with all
appropriate licenses, certificates of need, provider agreements and other
permits, licenses, franchises and authorizations required for any use of the
Property and Tenant's Personal Property then being made, and for the proper
erection, installation, operation and maintenance of the Property or any part
thereof, including without limitation any Capital Additions.
9.2 COVENANTS REGARDING LEGAL REQUIREMENTS. Tenant covenants and agrees
that it shall not use the Property, or Tenant's Personal Property for any
purpose which violates the Legal Requirements. Tenant has obtained or duly
applied for and shall maintain all appropriate licenses, certificates, permits,
provider agreements, franchises, authorizations and approvals necessary to
operate the Property in its customary manner for the Primary Intended Use, and
any other use conducted on the Property by Tenant and permitted by Landlord
hereunder Tenant may, however, contest the legality or applicability of any such
Local Requirement as provided in Article XIII hereof.
ARTICLE X
CONDITION OF THE PROPERTY
10.1 MAINTENANCE AND REPAIR.
(a) Tenant, at its sole cost and expense, shall keep the Property
and all private roadways, sidewalks and curbs appurtenant thereto and which are
under Tenant's control in good order, condition and repair and, except as
otherwise expressly provided to the contrary in Article XIV, XV, or XVI with
reasonable promptness, shall make all necessary and appropriate repairs and
replacements thereto of every kind and nature, whether interior or exterior,
structural or nonstructural, ordinary or extraordinary, patent or latent,
foreseen or unforeseen, or arising by reason of a condition existing prior to
the commencement of the Term of this Lease and regardless of the cause
necessitating repair. Tenant shall also be obligated at its expense to make all
repairs, modifications and renovations necessary to comply with all licensing,
safety and health and building code, regulations applicable to the Property so
that it can be legally operated for its Primary Intended Use. All repairs by
Tenant shall, to the extent reasonably achievable, be at least equal in quality
to the original work. Tenant shall not take or omit to take any action, the
taking or omission of which might
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materially impair the value or the usefulness of all or any portion of the
Property for the Primary Intended Use. Tenant shall give Landlord ten days prior
written notice of any repair, replacement, modification or renovation pursuant
to this Section the cost of which exceeds $200,000 and, prior to commencing any
such repair, replacement, modification or renovation, shall provide to Landlord
either (i) a lien payment and completion bond in form and substance and issued
by a surety reasonably acceptable to Landlord or (ii) a payment and completion
guaranty in form and substance and executed by a guarantor reasonably acceptable
to Landlord, as Tenant may elect.
(b) Landlord shall not under any circumstances be required to make
any repairs, replacements, alterations, restorations or renewals of any nature
or description to the Property, whether interior or exterior, structural or
non-structural, ordinary or extraordinary, patent or latent, foreseen or
unforeseen, or to make any expenditure whatsoever with respect thereto, in
connection with this Lease, nor shall Landlord under any circumstances be
required to maintain the Property in any other way, except as specifically
provided herein. Tenant hereby waives, to the fullest extent permitted by law,
the right to make repairs at the expense of Landlord pursuant to any law or
equitable principle in effect at the time of the execution of this Lease or
hereafter enacted. Landlord shall have the right to give, record and post, as
appropriate, notices of non-responsibility under any mechanic's lien laws now or
hereafter existing, and any other notices of a similar nature that Landlord may
reasonably elect to give, record or post from time to time during the Term.
(c) Nothing, contained in this Lease, and no action or inaction by
Landlord, shall be deemed or construed in any manner as (i) constituting the
consent or request of Landlord, expressed or implied, to any contractor,
subcontractor, laborer, materialman or vendor to or for the performance of any
labor or services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to all or any
portion of the Property or (ii) giving Tenant any right, power or permission to
contract for or permit the performance of any labor or services or the
furnishing of any materials or other property in such a manner as would permit
the making of any claim against Landlord with respect thereto, or to make any
agreement that may create, or in any way may be the basis for the assertion of
any right, title, interest, lien, claim or other encumbrance upon the estate of
Landlord in all or any portion of the Property.
(d) Unless Landlord conveys title to any of the Property to Tenant
pursuant to the provisions of this Lease, Tenant shall, upon the expiration or
earlier termination of this Lease, vacate and surrender the Property to Landlord
in the condition in which the Property was originally received from Landlord,
except as repaired, rebuilt, restored, altered or added to as permitted or
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required by the provisions of this Lease, and except for ordinary wear and tear
(but subject to the obligation of Tenant under this Section to maintain the
Property in good order, condition and repair during the entire Term of this
Lease) and except for damage or destruction by casualty or condemnation which
Tenant is not required to repair by the provisions of this Lease.
10.2 ENCROACHMENTS AND RESTRICTIONS. If any of the Improvements shall
at any time during the Term violate any agreement or condition contained in any
lawful covenant, condition, restriction, equitable servitude or other agreement
affecting all or any portion of the Property, or shall impair the rights of
others under any easement or right-of-way burdening the Property, provided that
such agreement, covenant, condition, restriction or easement has not been
created by Landlord, then promptly upon the request of Landlord, or at the
behest of any person affected by violation or impairment and in such case, in
the event of an adverse final determination, Tenant shall either (a) obtain
valid and effective waivers or settlements of all claims, liabilities and
damages resulting from each such encroachment, violation or impairment, whether
the same shall affect Landlord or Tenant, provided that Landlord shall consent
to all such settlements or waivers or (b) make such changes in the Improvements
and take such other actions as Tenant in the reasonable and good faith exercise
of its judgment deems practicable to remove such encroachment and to end such
violation or impairment, including, if necessary, the alteration of any of the
Improvements provided that Landlord shall consent to all such alterations and
the changes are not the result of any condition created solely by Landlord. With
respect to any encroachments identified on the ALTA surveys of the Property
delivered by Tenant to Landlord pursuant to the Purchase Agreement, Landlord
agrees that it shall not require Tenant to obtain a waiver of or otherwise
correct any such encroachment unless and until an affected third party notifies
Landlord of its objection to any such encroachment. In any event Tenant shall,
subject to Landlord's consent, take all such actions as may be necessary in
order to be able to continue the operation of the Improvements for the Primary
Intended Use substantially in the manner and to the extent the Improvements were
operated prior to the assertion of such violation or impairment. Tenant shall
not be responsible for any claims covered by Landlord's title insurance policy,
and Landlord agrees that any proceeds recovered under such title insurance
policy shall be made available to Tenant to remedy the claimed violation or
restriction.
ARTICLE XI
CAPITAL ADDITIONS
11.1 CONSTRUCTION OF CAPITAL ADDITIONS.
(a) If no Event of Default shall have occurred and be continuing,
Tenant may, subject to the terms and conditions
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contained in this Article, construct or install Capital Additions on the
Property with the prior written approval of Landlord, which approval shall not
be unreasonably withheld or delayed as expressly provided herein. Tenant shall
not be permitted to create any Encumbrance on the Property in connection with
any such Capital Addition.
(b) Prior to commencing construction of any Capital Addition,
Tenant shall submit to Landlord in writing a proposal setting, forth in
reasonable detail any proposed Capital Addition and shall provide to Landlord
such plans and specifications, permits, licenses, contracts and other
information concerning the proposed Capital Addition as Landlord may reasonably
request. Without limiting the generality of the foregoing, such proposal shall
indicate the approximate projected cost of constructing such Capital Addition,
the use or uses to which it will be put and a good faith estimate of the change,
if any, in the Gross Revenues that Tenant anticipates will be caused by such
Capital Addition.
(c) No Capital Addition shall be made which would tie in or connect
any Improvements with any other improvements on property adjacent to the
Property (and not part of the Property), including without limitation, tie-ins
of buildings or other structures or utilities unless Tenant shall have obtained
the prior written consent of Landlord, which consent Landlord may grant,
withhold or delay in its sole discretion. All proposed Capital Additions shall
be architecturally integrated and consistent with the Property.
11.2 CAPITAL ADDITIONS FINANCED OR PAID FOR BY LANDLORD.
(a) Tenant shall be required to request that Landlord provide or
arrange financing for any Capital Addition by providing to Landlord such
information about such Capital Addition as Landlord may reasonably request.
Landlord may, but shall be under no obligation to, meet the request, and within
60 days of receipt of such information, Landlord shall notify Tenant as to
whether it will finance the proposed Capital Addition and, if so, the terms and
conditions upon which it would do so, including the terms of any amendment to
this Lease (including, without limitation, the increase in Base Rent described
in clause (iii) of subparagraph (b), below to compensate Landlord for the
additional funds advanced by it). Notwithstanding the foregoing, Landlord shall
not finance the cost of any proposed Capital Addition if such cost is less than
$25,000. In no event shall the portion of the material, labor charges and
fixtures of the Capital Additions Cost be less than seventy-five percent (75%)
of the total amount of such cost. Tenant shall, within thirty (30) days of
Tenant's receipt of Landlord's affirmative notice that Landlord will finance the
proposed Capital Addition, give Landlord a notice accepting or rejecting
Landlord's proposed financing.
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(b) If Landlord finances the Capital Additions Cost of the proposed
Capital Addition, Tenant shall provide Landlord with the following (unless
waived by Landlord in writing):
(i) prior to any disbursement of funds, such information,
certificates, licenses, permits, authorizations, evidence of zoning and other
documents reasonably requested by Landlord, or by any third party lender with
whom Landlord has agreed or may agree to provide financing, as necessary to
confirm that Tenant will be able to use the Capital Addition upon completion
thereof in accordance with the Primary Intended Use for such Capital Addition,
including all required federal, state or local, Government licenses, permits,
authorizations and approvals;
(ii) prior to any disbursement of funds, an Officer's
Certificate and, if requested, a certificate from Tenant's architect, setting
forth in reasonable detail the projected (or actual, if available) Capital
Additions Cost;
(iii) prior to or coincident with the first disbursement of
funds, an amendment to this Lease (together with a memorandum thereof in
recordable form), duly executed and acknowledged, in form and substance
reasonably satisfactory to Landlord, providing for an increase in the Base Rent
equal to the product of (x) the Capital Additions Cost of such Capital Addition
and (y) 350 basis points in excess of the Ten-Year Treasury Rate, along with the
legal description of any land obtained in connection with such Capital Addition
and such other provisions as may be necessary or appropriate;
(iv) prior to or coincident with the first disbursement of
funds, a construction and development agreement setting, forth the terms for
Landlord's financing and Tenant's construction of such Capital Additions;
(v) prior to or coincident with payment for any land obtained
in connection with such Capital Addition, a deed conveying to Landlord title to
such land, or, if applicable, a ground lease on terms acceptable to Landlord,
which title or leasehold shall be free and clear of any liens, encumbrances or
other exceptions to or matters affecting title except those approved by
Landlord, and, upon completion of the Capital Addition, a final as-built survey
thereof reasonably satisfactory to Landlord;
(vi) during construction and following completion of the
Capital Addition, endorsements to any outstanding policy of title insurance
covering the Property, or commitments therefor reasonably satisfactory in form
and content to Landlord (x) updating the same without any additional exception
except such as may be reasonably permitted by Landlord and (y) adding to its
coverage any land acquired or leased in connection with such Capital Addition
and
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increasing the coverage thereof by an amount equal to the Fair Market Value of
the Capital Addition (except to the extent covered by the owner's policy of
title insurance referred to in subparagraph (vii) below);
(vii) following the advance of funds, if appropriate, (x) an
extended coverage owner's policy of title insurance insuring, fee simple title
to any land conveyed to Landlord pursuant to subparagraph (v), free and clear of
all liens and encumbrances except those approved by Landlord, and (y) a lender's
policy of title insurance reasonably satisfactory in form and substance to
Landlord and to any Lender with whom Landlord has agreed or may agree to provide
financing; and
(viii) during or following the advancement of funds, prints of
architectural and engineering drawings relating to the Capital Addition and such
other certificates (including, but not limited to, endorsements increasing the
insurance coverage, if any, at the time required by Section 14.1), documents,
opinions of counsel, appraisals, surveys, certified copies of duly adopted
resolutions of the board of directors of Tenant authorizing the execution and
delivery of the lease amendment, construction and development agreement and any
other instruments as may be reasonably required by Landlord and any lender from
whom Landlord has agreed or may agree to obtain financing.
(c) Any new mortgage or supplement to any existing mortgage
entered into by Landlord with any lending institution covering the Property or
any land referred to in subparagraph (iv) above shall be subject to the rights
of Tenant under this Lease, as this Lease may be amended from time to time.
11.3 CAPITAL ADDITIONS PAID FOR BY TENANT. If Landlord does not finance
the cost of a Capital Addition under the terms of Section 11.2 and Tenant elects
nevertheless to construct or cause to be constructed such Capital Addition, (i)
Tenant shall not commence any construction with respect to such Capital Addition
without first obtaining, the prior written consent of Landlord (which Landlord
shall not unreasonably withhold so long as the proposed Capital Addition will
not, in Landlord's reasonable opinion, either (x) diminish the value of the
property or (y) impair the Facility's ability to produce Gross Revenues and
which consent shall be delivered to Tenant within 60 days of receipt by Landlord
of Tenant's written proposal with respect to such Capital Addition), and (ii)
Tenant shall pay the cost of such Capital Addition, and there shall be no
adjustment in the Rent by reason of any such Capital Addition.
11.4 DISPOSITION OF CAPITAL ADDITIONS UPON EXPIRATION OR TERMINATION OF
LEASE. Upon the expiration or earlier termination of this Lease, all Capital
Additions shall pass to and become the property of Landlord, free and clear of
all encumbrances.
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11.5 NON-CAPITAL ADDITIONS. Tenant shall have the right to make
additions, modifications or improvements to the Property which are not Capital
Additions from time to time as it, in its reasonable discretion, may deem to be
desirable for the Property's uses and purposes permitted hereunder, provided
that such action does not (i) significantly and adversely alter the character or
purpose or detract in any manner from the value or operating efficiency of the
Property, (ii) significantly impair the revenue-producing capability of the
Property, (iii) materially and adversely affect the ability of Tenant to comply
with the provisions of this Lease, or (iv) result in a violation of any of the
provisions of this Lease (including, but not limited to Articles XII or XXIX),
and provided that, if the cost of such non-capital additions, modifications or
improvements exceed $200,000 in any 12-month period, Tenant gives Landlord ten
days' prior Notice of such addition, modification or improvement. The cost of
such non-capital additions, modifications or improvements to the Property shall
be paid by Tenant, and all such non-capital additions, modifications and
improvements shall, without payment by Landlord at any time, be included under
the terms of this Lease, and upon expiration or earlier termination of this
Lease shall pass to and become the property of Landlord.
11.6 SALVAGE. All materials which are scrapped or removed in connection
with the construction of either Capital Additions permitted by Section 11.1,
non-capital additions permitted by Section 11.5, or repairs required by Article
X shall be or become the property of the party which paid for, or provided the
financing for such work.
11.7 NO LIENS ON LANDLORD'S INTEREST. In no event shall the interest of
Landlord be subject to liens for improvements made by Tenant, whether under
Article 10, this Article 11, Article 15 or otherwise, and Tenant shall notify
any and all contractors making any improvements, repairs or additions to any
portion of the Property that any lien to which such contractor may be entitled
pursuant to the laws of the State shall not extend to the interest of Landlord
in the Property.
ARTICLE XII
LIENS
Subject to the provisions of Article XIII relating to permitted
contests, Tenant shall not directly or indirectly create or allow to remain and
shall promptly discharge at its expense any lien, encumbrance, security
interest, attachment, title retention agreement or claim upon the Property or
any attachment, levy, claim or encumbrance in respect of Rent, not including,
however, (a) this Lease, (b) Permitted Encumbrances, (c) restrictions, liens and
other encumbrances which are consented to in writing by Landlord or expressly
permitted under Section 29.1(a) hereof, (d) liens for
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those taxes of Landlord which Tenant is not required to pay hereunder, (e)
subleases permitted by Article XXIII, (f) liens for Impositions or for sums
resulting from noncompliance with Legal Requirements so long as the same are not
yet payable or are payable without the addition of any fine or penalty and are
in the process of being contested as permitted by Article XIII, (g) liens of
mechanics, laborers, materialmen, suppliers or vendors for sums either disputed
or not yet due, provided that (i) the payment of such sums shall not be
postponed for more than five days after the completion of the action giving rise
to such lien and such reserve or other appropriate provisions as shall be
required by law or generally accepted accounting principles shall have been made
therefor or (ii) any such liens are in the process of being contested as
permitted by Article XIII, and (h) any liens which are the responsibility of
Landlord pursuant to the provisions of Article XXVII or are directly created or
permitted by Landlord.
ARTICLE XIII
CONTESTS
If no Event of Default has occurred and is then continuing, Tenant, on
its own or on Landlord's behalf (or in Landlord's name), but at Tenant's sole
cost and expense, upon ten days' prior Notice to Landlord, may contest, by
appropriate legal proceedings conducted in good faith and with due diligence,
without prejudice to Landlord's rights hereunder the amount, validity or
application, in whole or in part, of any Imposition, Legal Requirement,
Insurance Requirement, lien, attachment, levy, encumbrance, charge or claim not
otherwise permitted by Article XII, provided that (a) in the case of an unpaid
Imposition, lien, attachment, levy, encumbrance, charge or claim, the
commencement and continuation of such proceedings shall suspend the collection
thereof from Landlord and from the Property, (b) neither the Property nor any
Rent therefrom nor any part thereof or interest therein would be subject to any
risk of being sold, forfeited, attached, foreclosed, or lost, (c) in the case of
a Legal Requirement, Landlord would not be in any danger of incurring any lien,
charge, fine, penalty, or other civil or criminal liability for failure to
comply therewith pending the outcome of such proceedings, (d) in the event that
any such contest shall involve a sum of money or potential loss in excess of
$100,000 then, in any such event, Tenant shall deliver to Landlord an Officer's
Certificate to the effect set forth in clauses (a), (b) and (c), to the extent
applicable, (e) in the case of a Legal Requirement or an Imposition, lien,
encumbrance or charge, Tenant shall give such reasonable security as may be
demanded by Landlord to insure ultimate payment of the same and to prevent any
loss or injury to Landlord, including but not limited to any sale or forfeiture
of the affected portion of the Property or the Rent by reason of such
non-payment or non-compliance; provided, however, the provisions of this Article
shall not be construed to permit Tenant to contest the payment of Rent (except
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as to contests concerning the method of computation or the basis of levy of any
Imposition) or any other sums payable by Tenant to Landlord hereunder, (f) in
the case of an Insurance Requirement, the coverage required by Article XIV shall
be maintained, and (g) if such contest be finally resolved against Landlord or
Tenant, Tenant shall, as Additional Charges due hereunder, promptly pay the
amount required to be paid, together with all interest and penalties accrued
thereon, or comply with the applicable Legal Requirement or Insurance
Requirement. Landlord, at Tenant's expense, shall execute and deliver to Tenant
such authorizations and other documents as may reasonably be required in any
such contest and, if reasonably requested by Tenant or if Landlord so desires,
Landlord shall join as a party therein. Tenant shall indemnify and save Landlord
harmless against any liability, cost or expense of any kind that may be imposed
upon Landlord in connection with any such contest and any loss resulting
therefrom.
ARTICLE XIV
INSURANCE
14.1 CENTRAL INSURANCE REQUIREMENTS. Tenant shall at all times maintain
policies of insurance insuring the Property, and all property located in or on
the Property, against the kind of risks and in the amounts of coverage described
below. All such insurance shall be written by companies of recognized
responsibility authorized to conduct an insurance business in the State. All
such insurance (other than insurance with respect to Tenant's Personal Property)
shall name Landlord as an additional insured. Proceeds of insurance policies
payable to compensate any loss shall be payable to Landlord or Tenant as
provided in Article XV. All such insurance shall name as an additional insured
or loss payee, as appropriate, the holder (a "Facility Mortgagee") of any
mortgage, deed of trust or other security agreement establishing any Encumbrance
placed on the Property in accordance with the provisions of Article XXVII
("Facility Mortgage") by way of a standard form of mortgagee's loss payable
endorsement. Any loss adjustment or other settlement in excess of $250,000 shall
require the written consent of Landlord and each Facility Mortgagee and any
other lender of Landlord or its Affiliates ("Landlord Lender") having any
contractual insurance requirements which would impact on the insurance
requirements of this Lease to the extent so required and Landlord has given
Tenant written notice thereof. Originals or certified copies of all insurance
policies obtained pursuant to this Article shall be deposited with Landlord and,
if requested, with any Facility Mortgagee(s) or Landlord Lender(s). The policies
on the Property, including the Improvements, Fixtures and Tenant's Personal
Property, shall insure against the following risks:
(a) loss or damage by fire, vandalism and malicious mischief,
extended coverage perils, and all physical loss perils insurance including but
not limited to sprinkler leakage, in an
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amount not less than 100% of the then full replacement cost thereof (as defined
below in Section 14.2) or such lesser amount as is approved by Landlord in
writing;
(b) loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus, now or hereafter installed in either of the
Facility in such amounts with respect to any one accident as may be reasonably
requested by Landlord from time to time;
(c) business interruption or loss of rental under a rental
value insurance policy covering risk of loss during the lesser of the first 12
months of reconstruction or the actual reconstruction period necessitated by the
occurrence of any of the hazards described in Sections 14.1(a) or 14.1(b), in an
amount sufficient to prevent Landlord from becoming a coinsurer:
(d) claims for personal injury or property damage under a
policy of comprehensive general public liability insurance, in an amount not
less than one million dollars per occurrence with respect to bodily injury and
death and three million dollars with respect to property damage;
(e) claims arising out of medical malpractice in an amount not
less than one million dollars for each person and three million dollars for each
occurrence:
(f) flood (when the Property is located in whole or in part
within an area designated by an appropriate agency or authority of the United
States as a flood plain) and such other hazards and in such amounts as may be
customary for comparable properties in the area and as may be available from
insurance companies, insurance pools, or other appropriate companies authorized
to do business in the State; and
(g) During any period during which any Capital Addition is
under construction, course of construction insurance and all risks insurance in
such amounts as Landlord shall reasonably require.
14.2 REPLACEMENT COST. The term "full replacement cost" as used herein
shall mean the actual replacement cost of the Property requiring replacement
from time to time, less exclusions provided in a normal fire insurance policy.
If either party believes that full replacement cost (the then replacement cost
less such exclusions) has increased or decreased at any time during the Lease
Term, it may have such full replacement cost redetermined by the insurer then
providing the largest amount of fire insurance coverage carried on the Property.
14.3 ADDITIONAL INSURANCE. In addition to the insurance described in
Section 14.1, throughout the Term Tenant shall
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maintain such additional insurance as may be required from time to time by
Landlord provided that the types and amounts of any such additional insurance
required by Landlord is then customarily maintained by the operators of similar
health care facilities in the region in which the Facility is located. Tenant
shall further maintain adequate workers' compensation insurance coverage for all
persons employed by Tenant on the Property. Such workers' compensation insurance
shall be in accordance with the requirements of applicable local, state and
federal law.
14.4 WAIVER OF SUBROGATION. All insurance policies carried by Landlord
or Tenant covering the Property, the Fixtures, the Facility or Tenant's Personal
Property shall expressly waive any right of subrogation on the part of the
insurer against the other party. Landlord and Tenant agree that the respective
policies of insurance carried by them will include such waiver clauses or
endorsements so long as the same are obtainable without extra cost. If such
clauses and endorsements are only available upon the payment of an extra charge,
the other party, at its election, may pay the same, but shall not be obligated
to do so; provided that the Tenant shall at all times be obligated to carry the
policies of insurance required under this Article regardless of whether the
waiver of subrogation required under this Section 14.4 is available.
14.5 FORM OF INSURANCE. All of the policies of insurance referred to in
this Article shall be written in a form, and issued by insurance companies,
satisfactory to Landlord. Landlord agrees that it will not unreasonably withhold
or delay its approval as to the form of the policies or the insurance companies
selected by Tenant. Tenant shall pay all of the premiums therefor, and shall
deliver an original or certified copy of any policy, or renewal thereof, to
Landlord, any Facility Mortgagee and any Landlord Lender at least 10 days prior
to the expiration of the existing policy to which such renewal policy relates.
If Tenant either fails to effect such insurance as herein required or to pay the
premiums therefor, or to deliver such policies or certified copies thereof to
Landlord at the times required, Landlord shall be entitled, but shall have no
obligation, to effect such insurance and pay the premiums therefor, which
premiums shall be repayable to Landlord upon demand therefor in a Notice, and
failure by Tenant to repay the same shall constitute an Event of Default within
the meaning of Section 17.1(d). Each insurer mentioned in this Article shall
agree, by endorsement on the policy or policies issued by it, or by independent
instrument furnished to Landlord, that it will give to Landlord (and to any
Facility Mortgagee and Landlord Lender of which Tenant has notice, if required)
30 days prior written notice before such policy or policies expire, are altered
or are canceled.
14.6 CHANGE IN LIMITS. If either party shall at any time deem the
limits of the personal injury or property damage public
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liability insurance or malpractice insurance then carried by Tenant to be
insufficient or excessive, the parties shall endeavor in good faith to agree
promptly upon the proper and reasonable limits for such insurance to be carried,
and such insurance shall thereafter be carried with the limits thus agreed upon
until further change pursuant to the provisions of this Section.
14.7 BLANKET POLICY. Notwithstanding anything to the contrary contained
in this Article, Tenant's obligations to carry the insurance provided for herein
may be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Tenant so long as (a) the coverage afforded
to Landlord is not reduced or diminished or otherwise altered from that which
would exist under a separate policy meeting all other requirements of this Lease
by reason of the use of such blanket policy of insurance and (b) the
requirements of this Article are otherwise satisfied.
14.8 NO SEPARATE INSURANCE. Tenant shall not obtain separate insurance
concurrent in form or contributing in the event of loss with that required in
this Article XIV to be furnished by, or which may reasonably be required to be
furnished by Tenant, nor shall Tenant increase the amount of any then existing
insurance by securing an additional policy or additional policies, unless all
parties having, an insurable interest in the subject matter of the insurance,
including in all cases Landlord and all Facility Mortgagees, are named therein
as additional insureds, and the loss is payable under said insurance in the same
manner as losses are payable under this Lease. Tenant shall immediately notify
Landlord of the obtaining of any such separate insurance or of the increasing of
any of the amounts of the then existing insurance.
ARTICLE XV
INSURANCE PROCEEDS
15.1 HANDLING OF INSURANCE PROCEEDS. Subject to Section 15.4 hereof,
all proceeds from any policy of insurance required by Article XIV of this Lease
(except Sections 14.1(d) and (e)) shall be paid to Landlord and held in trust by
Landlord (subject to the provisions of Section 15.7) and shall be made available
for reconstruction, repair or replacement, as the case may be, of any damage to
or destruction of all or any portion of the Property to which such proceeds
relate, and shall be paid out by Landlord from time to time subject to the
provisions hereof for the cost of such reconstruction, repair or replacement.
Any unused portion shall be retained by Landlord free and clear upon completion
of such repair and restoration but shall be applied by Landlord against Tenant's
obligations for Rent next coming due under this Lease. If neither Landlord nor
Tenant is required or elects to repair and restore, and the Lease is terminated
without purchase by Tenant as described in Section 15.2(a), then all such
insurance proceeds shall be
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retained by Landlord. All salvage resulting from any risk covered by insurance
shall belong to Landlord, except that any salvage relating to Tenant's Personal
Property shall be the property of Tenant.
15.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION COVERED BY
INSURANCE.
(a) Except as provided in Section 15.7, if during, the Term a
portion of the Property is totally or substantially destroyed by a risk covered
by the insurance described in Article XIV so that the Facility thereby is
rendered unsuitable for its Primary Intended Use (taking into account all
relevant factors, including but not limited to the number of useable beds, the
amount of square footage reasonably available for use by Tenant and the type and
amount of Gross Revenues lost) (the "Impacted Facility"), Tenant shall at its
option either (i) restore the Impacted Facility to substantially the same
condition as existed immediately before the damage or destruction or (ii)
acquire the Property from Landlord for a purchase price equal to the greater of
the Minimum Repurchase Price or the Fair Market Value Purchase Price of the
Property immediately prior to such damage or destruction, or (iii) terminate the
Lease with respect to the Property effective upon Landlord's receipt of the
insurance proceeds and any "Shortfall" (as hereinafter defined) and in such
event Landlord shall be entitled to retain or collect for its own benefit the
insurance proceeds, provided that, in the event the amount of the insurance
proceeds received by Landlord are less than the amounts which would be payable
in the aggregate under the insurance policies specified in Section 14.1(a) such
termination shall not be effective until Tenant pays Landlord the amount of such
shortfall ("Shortfall") in cash. If Tenant restores the Impacted Facility, the
insurance proceeds shall be paid out by Landlord to Tenant or its designee from
time to time as reasonably requested by Tenant to pay for the reasonable costs
of such restoration and any excess proceeds remaining after such restoration
shall be retained by Tenant. If Tenant acquires the Property, all applicable
insurance proceeds shall be the property of Tenant.
(b) Except as provided in Section 15.7, if during the Term,
the Improvements or Fixtures are partially destroyed due to a risk covered by
the insurance described in Article XIV but the Impacted Facility is not thereby
rendered unsuitable for the Primary Intended Use (taking into account all
relevant factors, including but not limited to the number of useable beds, the
amount of square footage reasonably available for use by Tenant and the type and
amount of Gross Revenues lost), Tenant shall restore the Impacted Facility to
substantially the same condition as existed immediately before the damage or
destruction. Such damage or destruction shall not terminate this Lease; provided
however, that if Tenant cannot, with reasonable diligence and within a
reasonable time, obtain all government approvals, including building permits,
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licenses, conditional use permits and any certificates of need, necessary to
perform all required repair and restoration work and to operate the Impacted
Facility in substantially the same manner and for the Primary Intended Use,
Tenant shall either (i) offer to purchase the Property for a purchase price
equal to the greater of the Minimum Repurchase Price or the Fair Market Value
Purchase Price immediately prior to such damage or destruction or (ii) continue
to operate under the Lease which shall remain in full force and effect and
Landlord shall be entitled to retain the insurance proceeds, less the amount
needed to restore the Property so that the portion of the Facility unaffected by
the casualty can be used as a complete architectural unit. If Tenant shall make
such offer and Landlord does not accept the same within 120 days of Landlord's
receipt of such offer, Tenant may either (x) withdraw such offer, in which case
this Lease shall remain in fall force and effect and Tenant shall proceed to
restore the Impacted Facility as soon as reasonably practicable to substantially
the same condition as existed immediately before such damage or destruction, or
(y) terminate this Lease after recovery by Landlord of all insurance proceeds
and the payment by Tenant of any Shortfall in cash. If Tenant so restores the
Impacted Facility, insurance proceeds shall,be paid out by Landlord from time to
time as reasonably requested by Tenant to pay for the reasonable costs of such
restoration, and any excess proceeds remaining after such restoration shall be
retained by Tenant.
(c) If Tenant elects to repair or restore any damage or
destruction to the Property and the cost of any such repair or restoration
exceeds the amount of proceeds received by Landlord from the insurance required
under Article XIV, Tenant shall contribute any and all excess amounts necessary
to repair or restore the Facility.
(d) If Landlord accepts Tenant's offer to purchase the
Property this Lease shall terminate as to the Property upon payment of the
purchase price therefor and Landlord shall thereupon remit to Tenant all
insurance proceeds pertaining to the Property less Landlord's reasonable
expenses, including attorneys' fees, and assign Landlord's rights in any
uncollected insurance proceeds to Tenant.
15.3 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION NOT COVERED
BY INSURANCE. Except as provided in Section 15.7 below, if during the Term
either of the Facility is totally destroyed or materially damaged (i) from a
risk not covered by insurance described in Article XIV but that would have been
covered if Tenant carried the insurance customarily maintained by, and generally
available to, the operators of reputable health care facilities in the region in
which the Facility is located, (ii) from a risk for which insurance coverage is
voided due to any act or omission by Tenant, or (iii) as result of an
earthquake, whether or not such damage or destruction renders the Impacted
Facility unsuitable for
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their Primary Intended Use (taking into account all relevant factors, including
but not limited to the number of useable beds, the amount of square footage
reasonably available for use by Tenant and the type and amount of Gross Revenues
lost), Tenant shall restore the Impacted Facility to substantially the same
condition as existed immediately before such damage or destruction and not
terminate this Lease. Otherwise, if the Facility is totally destroyed or
materially damaged by a risk not covered by insurance such that the Facility
shall be unusable for its Primary Intended Use, this Lease shall terminate
within 90 days of such destruction or damage, provided that the Tenant may elect
to restore the Impacted Facility, in which event, this Lease shall continue in
full force and effect. If such damage or destruction does not render the
Impacted Facility unusable for its Primary Intended Use, Tenant shall also
restore the Facility to substantially the same condition as existed immediately
before the damage or destruction.
15.4 PAYMENT OF PROCEEDS ON TENANT'S PROPERTY AND CAPITAL ADDITIONS
PAID BY TENANT. Notwithstanding any provision herein, all insurance proceeds
payable by reason of any loss of or damage to any of Tenant's Personal Property
or Capital Additions paid for by Tenant shall be paid to Tenant and Tenant shall
hold such insurance in trust to pay the cost of repairing or replacing damaged
Tenant's Personal Property or Capital Additions paid for by Tenant provided,
however, that if the damaged Tenant's Personal Property or Capital Additions
paid for by Tenant were no longer useful to Tenant's operations prior to their
destruction, Tenant shall not be obligated to repair or replace them.
15.5 HANDLING OF BUSINESS INTERRUPTION INSURANCE. Notwithstanding any
provision of this Article XV, proceeds from any policy of insurance required by
Section 14.1(c) shall be paid to the Landlord, and Landlord shall apply the
proceeds against any currently unpaid obligation or obligations of Tenant
hereunder in such amount or amounts as Landlord reasonably shall decide. Any
remaining, proceeds from such insurance, after giving effect hereto, shall be
paid to Tenant.
15.6 RESTORATION OF TENANT'S PROPERTY. Upon any restoration of the
Impacted Facility as provided in Section 15.2 or 15.3, Tenant shall either (i)
at Tenant's sole cost and expense, restore all alterations and improvements made
by Tenant, Tenant's Personal Property and all Capital Additions paid for by
Tenant, or (ii) at Tenant's sole cost and expense, replace such alterations and
improvements, Tenant's Personal Property or Capital Additions with improvements
or items of the same or better quality and utility in the operation of the
Property; provided, however, that if the damaged Tenant's Personal Property or
Capital Additions paid for by Tenant were no longer useful to Tenant's
operations prior to their destruction, Tenant shall not be obligated to replace
them.
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15.7 ABATEMENT OF RENT. Unless and until Tenant shall pay the purchase
price for the Property to Landlord in accordance with this Article XV (and this
Lease is thereby terminated or otherwise terminated as provided in this Article
XV), in the event of any damage or destruction of the Property, this Lease shall
remain in full force and effect and Tenant's obligation to make rental payments
and to pay all other charges required by this Lease shall not be abated by
reason of any damage or destructions to the Property or the subsequent loss of
Landlord's entitlement to the Property.
15.8 DAMAGE NEAR END OF TERM. Notwithstanding any provisions of this
Article XV to the contrary, if damage to or destruction of the Facility occurs
during the last 12 months of the then applicable term (whether Fixed or
Extended), if Tenant has not elected to extend such term, and if such damage or
destruction cannot be fully repaired and restored within six months immediately
following the date of loss, then Tenant shall have the right to terminate this
Lease by giving written Notice thereof to Landlord within 30 days after the date
of such damage or destruction, in which event, Landlord shall collect any
insurance proceeds to which it is entitled, and Tenant shall assign Tenant's
rights in any additional insurance proceeds. In the event that the Facility is
totally destroyed or damaged (i) from a risk not covered by insurance described
in Article XIV but that would have been covered if Tenant carried the insurance
customarily maintained by, and generally available to, the operators of
reputable health care facilities in the region in which the Facility is located,
(ii) from a risk for which insurance coverage is voided due to any act or
omission by Tenant, or (iii) as a result of an earthquake, whether or not such
damage or destruction renders the Facility unsuitable for its Primary Intended
Use (taking into account all relevant factors, including but not limited to the
number of useable beds, the amount of square footage reasonably available for
use by Tenant and the type and amount of Gross Revenues lost), then Tenant shall
pay to Landlord a sum equal to the amount reasonably necessary to repair such
damage or destruction.
15.9 TERMINATION OF OPTION TO PURCHASE. Any termination of this Lease
pursuant to this Article shall cause any option to purchase granted to Tenant
under this Lease and the right to extend the Term by any Extended Term to be
terminated and to be without further force or effect.
15.10 WAIVER. Tenant hereby waives any statutory rights of termination
which may arise by reason of any damage or destruction of the Facility which
Landlord is obligated to restore or may restore under any of the provisions of
this Lease.
ARTICLE XVI
CONDEMNATION
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16.1 DEFINITIONS.
For purposes of this Article XVI the following terms have the meanings
specified in this Section 16.1.
(a) "CONDEMNATION" means (a) the exercise of any governmental
power, whether by legal proceedings or otherwise, by a Condemnor, or (b) a
voluntary sale or transfer by Landlord with Tenant's consent (provided no Event
of Default has occurred and is continuing at such time) to any Condemnor, either
under threat of condemnation or while legal proceedings for condemnation are
pending.
(b) "DATE OF TAKING" means the first date the Condemnor has
the right to immediate possession of the property being condemned.
(c) "AWARD" means all compensation, sums and any other value
awarded, paid or received on a total or partial condemnation.
(d) "CONDEMNOR" means any public or quasi-public authority, or
private corporation or individual, having the power of condemnation.
16.2 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term there is any
Taking of all or any part of the Property or of any interest in this Lease by
Condemnation, the rights and obligations of the parties with respect to such
Condemnation shall be determined by this Article.
16.3 TOTAL TAKING. If title to the whole of Tenant's interest in the
Property shall be taken or condemned by any Condemnor, this Lease shall cease
and terminate as of the Date of Taking. If title to less than the whole of the
Property shall be so taken or condemned, which nevertheless renders the Property
unsuitable for its Primary Intended Use (taking into account all relevant
factors, including but not limited to the number of useable beds, the amount of
square footage reasonably available for use by Tenant, and the type and amount
of Gross Revenues lost), Tenant and Landlord each shall have the option by
Notice to the other, at any time prior to the taking of possession by, or the
date of vesting of title in, such Condemnor, whichever first occurs, to
terminate this Lease as of such earlier to occur date. Upon such earlier to
occur date, if such Notice has been given, this Lease shall cease and terminate.
In either of such events, all Rent paid or payable by Tenant hereunder shall be
apportioned as of the date the Lease shall have been so terminated as aforesaid.
16.4 ALLOCATION OF PORTION OF AWARD. Subject to the rights of any
Facility Mortgagee, the total Condemnation Award made with respect to all or any
portion of the Property shall be distributed to Landlord and Tenant ratably in
accordance with the value of
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their respective interests in and to such Property as hereafter set forth in
this Section 16.4. All of the Award shall be the sole and exclusive property of
Landlord and shall be payable to Landlord, subject to the rights of any Facility
Mortgagee; provided that any portion of such Condemnation Award which is
expressly allocated by the Condemnor to the taking of Tenant's leasehold
interest in the Property, the taking of any Capital Additions (or any portion
thereof) paid for by Tenant, any loss of business by Tenant during the remaining
Term of this Lease, the taking of Tenant's Personal Property, or any removal and
relocation expenses of Tenant in any such proceedings shall be the sole property
of and payable to Tenant. In any Condemnation proceedings Landlord and Tenant
each shall seek their own Award in conformity herewith, at their own expense.
16.5 PARTIAL TAKING. If title to less than the whole of the Property
shall be taken or condemned, and the Property is still suitable for its then
Primary Intended Use, or if Tenant or Landlord shall be entitled (but shall not
elect) to terminate this Lease as provided in Section 16.3 hereof, Tenant at its
own cost and expense shall with all reasonable diligence restore the untaken
portion of any Improvements so that such improvements shall constitute a
complete architectural unit of the same general character and condition (as
nearly as may be possible under the circumstances) as the Improvements existing
immediately prior to such Condemnation or Taking. Landlord and Tenant shall each
contribute to the cost of restoration that part of their Award specifically
allocated to such restoration, if any (or if no such specific allocation is
made, a just, fair and reasonable portion of its Award as reasonably determined
by Landlord and Tenant or by arbitration in accordance with Section 28.14 if
Landlord and Tenant are unable to agree within 30 days of the Award), together
with any and all severance and other damages awarded for any taken improvements;
provided, however, the amount of such contribution shall not exceed such cost.
If such amounts are not sufficient to cover the cost of restoration Landlord and
Tenant shall contribute any additional amounts needed for restoration in
proportion to the amounts already contributed by them, provided that in no event
shall Landlord contribute any amount to such restoration in excess of its Award.
Thereafter, any excess restoration cost shall be borne solely by Tenant.
Landlord agrees that Tenant shall be entitled to an equitable abatement of Base
Rent in the event of a partial taking of the Property, but such abatement shall
be strictly limited to any amount of excess Award paid to Landlord after the
restoration cost has been paid.
16.6 TEMPORARY TAKING. If the whole or any part of the Property or of
Tenant's interest under this Lease shall be taken or condemned by any Condemnor
for its temporary use or occupancy for a period of not more than one
hundred-eighty (180) days, this Lease shall not terminate, and Tenant shall
continue to pay, in the manner and at the times herein specified, the full
amounts of Base
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Rent, Additional Rent, if any, and Additional Charges, provided that during any
such Temporary Taking, Tenant shall pay Additional Rent at a rate equal to the
average Additional Rent during the three immediately preceding Fiscal Years, (or
if three Fiscal Years shall not have elapsed, the average during the last
preceding Fiscal Years occurring during the Term). Except to the extent Tenant
may be prevented from so doing, pursuant to the terms of the order of the
Condemnor, Tenant shall continue to perform and observe all of the other terms,
covenants, conditions and obligations hereof on the part of the Tenant to be
performed and observed as though such Taking or Condemnation had not occurred.
Upon any such Taking or Condemnation described in this Section, the entire
amount of any such Award made for such Taking or Condemnation allocable to the
Term of this Lease, whether paid by way of damages, Rent or otherwise, shall be
paid to Tenant. Tenant covenants that upon the termination of any such Taking or
Condemnation set forth in this Section, Tenant will, at its sole cost and
expense (subject to any contribution by Landlord as set forth in Section 16.5),
restore the Property as nearly as may be reasonably possible to the condition in
which the same was immediately prior to such Taking or Condemnation, unless such
period of temporary use or occupancy shall extend beyond the expiration of the
Term, in which case Tenant shall not be required to make such restoration.
ARTICLE XVII
DEFAULTS AND REMEDIES
17.1 EVENTS OF DEFAULT. Any one or more of the following events shall
be deemed an "Event of Default" hereunder:
(a) Tenant shall fail to pay Rent payable by Tenant under this
Lease when the same becomes due and payable and such failure continues for 5
days after notice of such failure (except that Landlord shall not be required to
give more than one such notice in any 12-month period);
(b) Tenant shall violate the covenant described in Section
29.3(c) hereof;
(c) Any representation or warranty made by the Tenant in
connection with this Lease or the Security Agreement, or in any report,
certificate, financial statement or other instrument furnished in connection
herewith or therewith, from time to time, whether under Article XXIV of this
Lease or otherwise, shall prove to be false or misleading in any material
respect and shall not be remedied within 30 days after Tenant receives notice
thereof;
(d) Tenant shall fail to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured by Tenant
within a period of 30 days after Notice thereof
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from Landlord, unless such failure cannot with due diligence be cured within a
period of 30 days, in which case such failure shall not be deemed to continue if
Tenant proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof;
(e) Tenant or either of Guarantors shall: (i) admit in writing
its inability to pay its debts generally as they mature, (ii) make a general
assignment for the benefit of its creditors, (iii) have appointed a trustee,
receiver or liquidator pursuant to an order of a court of competent jurisdiction
of itself or of the whole or any part of its property which is not discharged in
sixty (60) days, (iv) terminate or suspend its business, (v) have any of its
assets executed upon, attached or judicially seized and such execution,
attachment or seizure is not vacated or set aside within sixty (60) days;
(f) Tenant or either of Guarantors shall: (i) file a voluntary
case under any applicable bankruptcy, insolvency, debtor relief or other similar
law or statute of the United States of America or any State thereof now or
hereinafter in effect ("BANKRUPTCY LAWS"), (ii) consent to or acquiesce in the
appointment of a receiver, liquidator, assignee, trustee, custodian or
sequestrator (or similar official of itself or of the whole or any part of its
property) which is not discharged in thirty (30) days, or (iii) fail generally
to pay its debts as they mature or become due;
(g) Tenant or either of Guarantors shall, on a petition filed
under any applicable Bankruptcy Laws against any of them, be adjudicated a
bankrupt or have an order for relief thereunder entered against it or fail to
oppose any such proceeding or if a court of competent jurisdiction shall enter
an order or decree appointing, without its consent, a receiver, liquidator,
assignee, custodian, trustee or sequestrator (or similar official) of itself or
of the whole or any part of its property and such judgment, order or decree
shall not be vacated or set aside or stayed within sixty (60) days from the date
of the entry thereof; or
(h) Tenant or either of Guarantors shall be liquidated or
dissolved, or shall voluntarily begin proceedings toward such liquidation or
dissolution, or shall, in any manner, permit the sale or divestiture of
substantially all of its assets;
(i) an Event of Default under the terms of the Security
Agreement shall occur and be continuing;
(j) Tenant or either of Guarantors shall fail to make when due
any scheduled payment with respect to indebtedness (other than indebtedness
which is subordinated to this Lease), unless such failure is being diligently
contested in accordance with the requirements of this Lease or any lease
pursuant to which it enjoys
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the use of any real or personal property and such failure shall continue for
five days following its receipt of written advice with respect thereto, if the
effect of such failure is (i) to accelerate the maturity of such indebtedness or
to require the prepayment thereof, (ii) to permit the holder or obligee thereof
(or any trustee on behalf of such holder or obligee) to cause such indebtedness
to become due prior to its stated maturity, (iii) to give the lessor the right
to terminate such lease or (iv) to have a material adverse effect on the
business, operations, properties or condition (financial or otherwise) of Tenant
or Guarantor; provided, however, that such effect in (i), (ii) or (iii) hereto
has a material adverse effect on the business, operations, properties or
condition (financial or otherwise) of Tenant or Guarantor.
(k) any Notification Event described in Section 29.2(c) shall
occur, which is reasonably likely to result in liability to the Tenant or either
of Guarantors having a material adverse effect on the business, operations,
properties or condition (financial or otherwise) of Tenant or either of
Guarantors;
(l) an Event of Default under the terms of the Cornerstone
Lease, the Safford Lease or the Douglas Manor Lease shall occur and be
continuing; or
(m) either Tenant or Signature sells, assigns or transfers a
controlling interest in Tenant or Signature or a controlling interest in
Tenant's operations of the Property (other than as permitted by Section 23 and
Section 29.1(d)) without the prior written consent of Landlord, which consent
shall not unreasonably be withheld.
No Event of Default (other than a failure to make a payment of money)
shall be deemed to exist under clause (d) above during any time the curing
thereof is prevented by an Unavoidable Delay, provided that upon the cessation
of such Unavoidable Delay, Tenant immediately shall remedy such default.
Tenant shall immediately notify Landlord and NHI of the occurrence of
any event set forth in subsections 17.1(b) through (m). Landlord shall provide
identical notice to NHI as it provides to Tenant of any event set forth in
subsection 17.1(a) through (m).
17.2 CERTAIN REMEDIES. Upon any Event of Default, Landlord shall have
all legal, equitable and contractual rights, powers and remedies provided either
in this Lease, at common law or in equity, or by statute or otherwise. Tenant
expressly acknowledges and agrees that the Landlord will also have the right of
injunction in accordance with applicable law.
Without limiting the foregoing, if an Event of Default occurs, is not
cured within the period, if any, for any such cure provided
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in Section 17.1, and is continuing Tenant shall, to the extent permitted by law
and if required by Landlord so to do, immediately surrender to Landlord the
Property and quit the same. Landlord may enter upon and repossess the Property
by reasonable force, summary proceedings, ejectment or otherwise, and may remove
Tenant and all other persons and any and all personal property from the Property
subject to rights of any residents or patients and to any requirement of law. No
such entry or repossession by Landlord shall be deemed an election by Landlord
to terminate this Lease unless specifically stated by Landlord in writing from
Landlord to Tenant. Thereafter Landlord shall use reasonable, good faith efforts
to relet the Property or otherwise mitigate Landlord's damages. Landlord may so
terminate Tenant's right of possession and may repossess the Premises without
liability for trespass or conversion, without demand or notice of any kind to
Tenant and without terminating this Lease, in which event Landlord may, but
shall be under no obligation to, relet the same for the account of Tenant for
such rent and upon such terms as shall be satisfactory to Landlord. For the
purpose of such reletting, Landlord is authorized to decorate or to make any
repairs, changes, alterations, or additions in or to the Premises that may be
necessary or convenient. If Landlord exercises the remedies provided in this
subparagraph, Tenant shall pay to Landlord, and Landlord shall be entitled to
recover from Tenant, an amount equal to the total of the following: (A) unpaid
Rent, plus interest at the Overdue Rate, owing under the Lease for all periods
of time that the Premises are not relet (including any period prior to
Landlord's repossession); plus (B) the reasonable costs of recovering
possession, and all of the reasonable costs and expenses of such decorations,
repairs, changes, alterations, and additions, and the reasonable expense of such
reletting, and of the collection of the rent accruing, therefrom to satisfy the
Rent provided for the Leave to be paid; plus (C) any deficiency in the rentals
and other sums actually received by Landlord from any such reletting from the
Rent required to be paid under this Lease with respect to the periods the
Premises are so relet, and Tenant shall satisfy and pay any such deficiency upon
demand therefor from time to time. Neither the repossession of the Property, the
failure of Landlord to relet the Property, nor the reletting of all or any
portion of the Property, shall relieve Tenant of its liability and obligation
hereunder, all of which shall survive any such repossession or reletting. Tenant
agrees that Landlord may file suit to recover any sums falling due under the
terms of this subparagraph from time to time; and that no delivery or recovery
of any portion due Tenant hereunder shall be a defense in any action to recover
any amount not theretofore reduced to judgment in favor of Landlord, nor shall
such reletting be construed as an election on the part of Landlord to terminate
this Lease unless specifically stated by Landlord in writing from Landlord to
Tenant. Notwithstanding, any such reletting without termination, Landlord may at
any time thereafter elect to terminate this Lease for such previous breach in
accordance with the procedure hereinafter provided.
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Without limiting, the foregoing, whether or not this Lease has been
terminated, Landlord shall have the right to offset against any Rent, damages,
or other sums of money owed by Tenant any advance Rent applicable to any time
period after the occurrence of the Event of Default.
17.3 TERMINATION. Upon the occurrence of any Event of Default, Landlord
may terminate this Lease by giving Tenant not less than ten days' Notice of such
termination during which time Tenant shall have the opportunity to cure any such
Event of Default. Upon the expiration of the time fixed in such Notice, unless
such Event of Default is cured, the Term shall terminate and all rights of
Tenant under this Lease shall cease. Landlord shall have all rights at law and
in equity available to Landlord as a result of Tenant's breach of this Lease. If
any litigation is commenced with respect to any alleged default under this Lease
whether under this Section 17.3 or under Section 17.2, the prevailing party in
such litigation shall receive, in addition to its damages incurred, its
reasonable attorneys' fees, and all costs and expenses incurred in connection
therewith. Neither the termination of this Lease pursuant to this Section 17.3,
the repossession of the Property, the failure of Landlord to relet the Property,
nor the reletting, of all or any portion of the Property, shall relieve Tenant
of its liability and obligations hereunder, all of which shall survive any such
termination, repossession or reletting. Upon any such termination, Tenant shall
forthwith pay to Landlord as damages a sum of money equal to the total of (A)
the costs of recovering the Premises, (B) the unpaid Rent due and payable at the
termination, plus interest thereon at the Overdue Rate, (C) the balance of the
Rent for the remainder of the term less the fair market rental value of the
Premises for such period, and (D) any other sum of money rental owed by Tenant
to Landlord and the amount of other damages suffered by Landlord as a result of
Tenant's default.
17.4 APPLICATION OF FUNDS. Any payments normally made to Tenant
hereunder which are made to and received by Landlord under any of the provisions
of this Lease during the continuance of any Event of Default shall be applied to
Tenant's obligations in the order which Landlord may determine or as may be
prescribed by applicable laws.
17.5 LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. If an Event of Default
occurs under this Lease and is not cured within the time provided under this
Lease with respect to such Event of Default, Landlord, without waiving or
releasing any obligation of Tenant, and without waiving any such Event of
Default, may (but shall be under no obligation to) at any time thereafter cure
such default for the account and at the expense of Tenant, and may, to the
extent permitted by law, enter upon the Property for such purpose and take all
such action thereon as, in Landlord's sole judgment, may be necessary or
appropriate with respect thereto. No such
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entry by Landlord on the Property shall be deemed an eviction of Tenant. All
sums so paid by Landlord and all reasonable costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) so incurred,
together with a late charge thereon computed at the Overdue Rate from the date
on which such sums or expenses are paid or incurred by Landlord until the date
reimbursed, shall be reimbursed by Tenant to Landlord on demand. The obligations
of Tenant and rights of Landlord contained in this Article shall survive the
expiration or earlier termination of this Lease.
17.6 NHI'S RIGHT TO CURE. If an Event of Default occurs under this
Lease, NHI may (but shall be under no obligation to) at any time thereafter cure
such default for the account and at the expense of Tenant.
17.7 WAIVER. If this Lease is terminated pursuant to the provisions of
this Article, Tenant waives, to the extent permitted by applicable law, (a) any
right of redemption, re-entry or repossession, (b) any right to trial by jury in
the event of summary proceedings to enforce the remedies set forth in this
Article, and (c) the benefit of any laws now or hereafter enforced exempting,
property from liability for rent or for debt.
ARTICLE XVIII
CURE BY TENANT OF LANDLORD DEFAULTS
Landlord shall be in default of its obligations under this Lease if
Landlord shall fail to observe or perform any term, covenant or condition of
this Lease on its part to be performed, and such failure shall continue for a
period of 30 days after Notice thereof from Tenant (or such shorter time as may
be necessary in order to protect the health or welfare of any patient or other
resident of the Property), unless such failure cannot be cured with due
diligence within a period of 30 days, in which case such failure shall not be
deemed to continue if Landlord, within said 30 day period, proceeds promptly and
with due diligence to cure the failure and diligently completes the curing
thereof. The time within which Landlord shall be obligated to cure any such
failure shall also be subject to extension of time due to the occurrence of any
Unavoidable Delay. If Landlord fails to commence or complete such cure as
provided herein, Tenant may cure such default, and for so long as Tenant
continues to pay Rent, Tenant shall have the right by separate and independent
action to pursue any claim it may have against Landlord for Landlord's failure
to cure such default.
ARTICLE XIX
PURCHASE OF PROPERTY BY TENANT
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19.1 PURCHASE OF THE PROPERTY. If Tenant purchases the Property from
Landlord pursuant to any of the terms of this Lease, Landlord shall, except as
otherwise expressly provided, upon receipt from Tenant of the applicable
purchase price, together with full payment of any unpaid Rent due and payable
with respect to any period ending on or before the date of such purchase,
deliver to Tenant an ALTA Owner Policy of Title Insurance or such equivalent
policy of title insurance as may be available in the State, together with such
endorsements, reinsurance agreements and direct access agreements as Tenant may
reasonably request, together with an appropriate special warranty deed or other
conveyance conveying marketable fee simple title in and to the Property to
Tenant in the condition set forth in Article XXVI, except that the Property
shall be free and clear of all mortgages and encumbrances other than (a) those
Tenant has agreed hereunder to pay or discharge, (b) those mortgages which
Tenant has agreed in writing to accept and to take title subject to on the date
the Property was originally conveyed to Landlord and which are not in default,
(c) encumbrances required to be imposed on the Property under Section 8.3, and
(d) any other encumbrances permitted to be imposed on the Property under the
provisions of Article XXVII which are assumable at no cost or expense to Tenant
or to which Tenant may take subject without cost or expense to Tenant. The
difference between the applicable purchase price and the total amount of the
encumbrances assumed or taken subject to, if a positive number, shall be paid in
cash to Landlord or as Landlord may direct, in federal or other immediately
available funds, unless otherwise mutually agreed by Landlord and Tenant;
provided, Landlord shall be obligated to pay to Tenant in cash any negative
difference between the applicable purchase price and the total amount of the
encumbrances so assumed or taken subject to by Tenant. All reasonable expenses
of conveying the Property to Tenant, including, without limitation, the cost of
the aforementioned title insurance and attorneys' fees incurred by Landlord in
connection with such conveyance and release, and documentary transfer and
similar taxes, recording fees and expenses of Tenant's counsel, shall be paid by
Tenant.
19.2 FAILURE TO CLOSE PURCHASE. The closing of any such sale shall be
contingent upon and subject to Tenant obtaining all required governmental
consents and approvals for such transfer. If such sale shall fail to be
consummated by reason of the inability of Tenant to obtain all such approvals
and consents, then this Lease shall remain in effect on a month-to-month basis
until the consummation of the purchase or until Tenant's inability to obtain the
approvals and consents is confirmed.
ARTICLE XX
HOLDING OVER
If Tenant for any reason remains in possession of the Property after
the expiration or earlier termination of the Term, such
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possession shall be a month-to-month tenancy during which time Tenant shall pay
to Landlord as rental each month one and one half (1-1/2) times the aggregate of
(i) one-twelfth of the aggregate total Base Rent payable with respect to the
last 12-month period of the Term just expired or terminated, (ii) all Additional
Charges accruing during, the month with respect to which such payment relates,
and (iii) all other sums, if any, payable by Tenant pursuant to the provisions
of this Lease with respect to the Property. During such period of month-to-month
tenancy, Tenant shall be obligated to perform and observe all of the terms,
covenants and conditions of this Lease, but shall have no rights hereunder other
than the right, to the extent given by law to month-to-month tenancies, to
continue its occupancy and use of the Property. Nothing contained herein shall
constitute the consent, express or implied, of Landlord to the holding over of
Tenant after the expiration or earlier termination of the Term.
ARTICLE XXI
RISK OF LOSS
During the Term of this Lease, Tenant shall bear the risk of loss or of
decrease in the enjoyment and beneficial use of the Property resulting from the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or any other cause, or resulting from foreclosures, attachments, levies or
executions (other than those caused by Landlord and those claiming from, through
or under Landlord) and, in the absence of the cross negligence, willful
misconduct or breach of this Lease by Landlord, Landlord shall in no event be
responsible therefor nor shall any of the events mentioned in this Section
entitle Tenant to any abatement of Rent except as specifically provided in this
Lease.
ARTICLE XXII
LIABILITY OF PARTIES
22.1 INDEMNIFICATION BY TENANT. Notwithstanding the existence of any
insurance provided for in Article XIV, and notwithstanding the policy limits of
any such insurance, Tenant shall indemnify, defend, save and hold Landlord
harmless from and against any and all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses ("Claims") (including, without
limitation, reasonable attorneys' fees and expenses), to the extent permitted by
law, imposed upon, incurred by or asserted against Landlord arising out of,
connected with or incidental to:
(a) any Hazardous Substance located at, in, on, under or about the
Property due to the act or omission of Tenant, including any improvements,
repairs, handling, removal or other actions taken by Landlord in order to comply
with all rules and regulations
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promulgated by any applicable federal, state, or local government rule and
regulation with respect to any such Hazardous Substance or related problems that
Landlord becomes aware of;
(b) any accident, injury to or death of persons, or loss of or
damage to property, occurring on or about the Property or adjoining sidewalks,
alleys or roadways, including without limitation any claims of malpractice;
(c) any past, present or future use, misuse, non-use,
condition, management, maintenance or repair by Tenant of the Property or
Tenant's Personal Property and any litigation, proceeding or claim by
governmental entities or other third parties to which Landlord is made a party
or other participant related to the Property or Tenant's Personal Property or
such use, misuse, non-use, condition, management, maintenance or repair thereof,
including but not limited to any failure to perform obligations (other than
condemnation proceedings) to which Landlord is made a party;
(d) any Impositions which are the obligations of Tenant to pay
pursuant to the applicable provisions of this Lease:
(e) any failure on the part of Tenant to perform or comply
with any of the terms of this Lease; and
(f) the non-performance of any of the terms and provisions of
any and all existing, and future subleases of the Property to be performed by
Tenant thereunder.
22.2 INDEMNIFICATION BY LANDLORD. Landlord shall indemnify, defend,
save and hold Tenant harmless from and against any and all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) imposed
upon, incurred by or asserted against Tenant arising out of, connected with or
incidental to the sole or gross negligence or willful misconduct of Landlord;
provided, however, that Tenant's right to indemnification as provided herein,
shall be subject to the limitation set forth in Article XXVIII.
22.3 CONTINUING LIABILITY. Tenant's and Landlord's liability under this
Article shall survive any termination of this Lease and shall continue for the
term provided herein or as permitted by the laws of the State, whichever is
longer.
ARTICLE XXIII
ASSIGNMENT
23.1 ASSIGNMENT AND SUBLETTING. Subject to the provisions of Section
23.3 below and any other express conditions or limitations
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set forth in this Lease, Tenant may, without the consent of Landlord, (i) sublet
up to an aggregate of 25% of the rentable square footage of the Facility, to
concessionaires or other third party users or operators thereof, provided that
any subletting to any party shall not individually as to any one such
subletting, or in the aggregate, materially diminish the actual or potential
Additional Rent payable under this Lease or (ii) assign its rights hereunder to
a joint venture or partnership in which Tenant holds a controlling interest and,
in the case of a partnership, Tenant is a general partner. Except as otherwise
permitted in the immediately preceding sentence, a conveyance, transfer,
assignment or subletting of all or any portion of the Property shall not be
permitted unless the consent of Landlord is first obtained; provided, however,
that Landlord hereby acknowledges notice that NHI has a lien on Tenant's
leasehold estate under this Lease, and hereby consents to NHI or any nursing
home affiliate thereof becoming the Tenant hereunder upon any foreclosure of
such lien. Such consent by Landlord will not be unreasonably withheld if (x) the
assignee assumes all obligations of Lessee under the Lease in a writing in form
and content reasonably acceptable to Landlord, (y) such assignee meets the
financial covenants applicable to Tenant hereunder and demonstrates such fact to
Landlord's reasonable satisfaction, and (z) no Event of Default is in effect and
continuing hereunder. Landlord shall not unreasonably withhold its consent to
any subletting or assignment, provided that the assignee or sublessee has a
financial condition comparable to the greater of (i) Tenant's financial
condition as of the Commencement Date or (ii) Tenant's financial condition as of
the date of the proposed assignment or subletting and (w) in the case of a
subletting the sublessee shall comply with the provisions of Section 23.2, (x)
in the case of an assignment, (i) the assignee assumes in writing and agrees to
keep and perform all of the terms of this Lease on the part of Tenant to be kept
and performed, (ii) the assignee complies with the covenants set forth in
Section 28 hereof, (iii) the assignment causes no violation of any other
covenants under this Lease by Tenant or the assignee, and (iv) the assignee
becomes jointly and severally liable with Tenant for the performance thereof,
(y) an original counterpart of each such sublease and assignment and assumption,
duly executed by Tenant and such sublessee or assignee, as the case may be, in
form and substance satisfactory to Landlord, is delivered promptly to Landlord,
and (z) in case of either an assignment or subletting, Tenant remains primarily
liable, as principal rather than as surety, for the prompt payment of Rent and
for the performance and observance of all covenants and agreements to be
performed by Tenant hereunder. Tenant shall not, without Landlord's approval,
which Landlord may not unreasonably withhold, permit any person other than its
Affiliates, to own at any time 50% or more of the beneficial interest in Tenant.
23.2 ATTORNMENT. Tenant shall insert in each sublease permitted under
Section 23.1 provisions reasonably satisfactory to
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Landlord which provide for the benefit of Landlord that (a) such sublease is
subject and subordinate to all of the terms and provisions of this Lease and to
the rights of Landlord hereunder, (b) in the event this Lease shall terminate
before the expiration of such sublease, the sublessee thereunder will, at
Landlord's option, either attorn to Landlord and waive any right the sublessee
may have to terminate the sublease or surrender possession under such sublease,
and (c) in the event the sublessee receives Notice from Landlord or Landlord's
assignees, if any, stating that Tenant is in default under this Lease, the
sublessee shall thereafter be obligated to pay all rentals accruing under said
sublease directly to the party Giving such Notice, or as such party may
otherwise direct. All rentals received from the sublessee by Landlord or
Landlord's assignees, if any, as the case may be, shall be credited against the
amounts owed to Landlord under this Lease.
23.3 SUBLEASE LIMITATION. Anything contained in this Lease to the
contrary notwithstanding, Tenant shall not sublet the Property on any basis such
that the rental to be paid by the sublessee thereunder would be based, in whole
or in part, on either (a) the income or profits derived by the business
activities of the sublessee, or (b) any other formula such that any portion of
the sublease rental would fall to qualify as "rents from real property" within
the meaning of Section 856(d) of the Code, or any similar or successor provision
thereto.
ARTICLE XXIV
INFORMATION FROM TENANT
24.1 OFFICER'S CERTIFICATES. At any time and from time to time, upon
not less than 20 days Notice by Landlord, Tenant shall furnish to Landlord an
Officer's Certificate certifying that this Lease is unmodified and in fall force
and effect (or that this Lease is in full force and effect as modified and
setting forth the modifications), the date to which the Rent has been paid,
whether there exists any Event of Default or any situation which, with the
giving of notice, passage of time, or both, would constitute an Event of Default
hereunder based upon Tenant's current knowledge, whether Tenant contends that
Landlord is in default hereunder, and if Tenant so contends, the basis for such
contention, the date upon which the Term terminates, and such other information
as Landlord reasonably may request. Any such certificate furnished pursuant to
this Section 24.1 may be relied upon by Landlord, any prospective purchaser of
the Property, and any Facility Mortgagee or Landlord Lender.
24.2 FINANCIAL INFORMATION. Tenant shall furnish, the following
statements to Landlord:
(a) within 120 days after the end of each Fiscal Year, a
balance sheet and statements of revenues and expenses and changes
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in retained earnings and cash flows for Tenant, certified by independent public
accountants of recognized standing acceptable to Landlord, such statements to be
prepared in accordance with generally accepted accounting principles
consistently applied, to be for such Fiscal Year and the immediately preceding
Fiscal Year and to be in comparative columnar form; within 90 days after the end
of each Fiscal Year, Tenant shall provide unaudited preliminary financial
statements similar to those referred to above;
(b) within 120 days after the end of each Fiscal Year, a
schedule of capital expenditures or reserves therefor of Tenant for such Fiscal
Year as required by Section 29.2(a)(1) hereof;
(c) within 45 days after the end of each of the first three
fiscal quarters of each Fiscal Year, financial statements similar to those
referred to in clause (a) above, but only certified by the principal financial
or other appropriate officer of Tenant, as having been prepared in accordance
with generally accepted accounting principles consistently applied (but which
may exclude footnote disclosures), such financial statements to be for the
period from the beginning of such Fiscal Year (and immediately preceding Fiscal
Year) to the end of such quarter (and comparable quarter);
(d) concurrent with the statements furnished pursuant to
clauses (a) and (b) above, an Officer's Certificate stating that, after making,
due inquiry, Tenant is not in default in the performance or observance of any of
the terms of this Lease, or if Tenant shall be in default to its knowledge,
specifying all such defaults, the nature of such defaults, and the steps being
taken to remedy the same;
(e) within 30 days after the end of each month, financial
statements similar to those referred to in clause (a) together with operating
statistics but only certified by the principal financial or other appropriate
officer of Tenant, as having been prepared in accordance with generally accepted
accounting principles consistently applied; and
(f) with reasonable promptness, such other information
respecting the financial condition and affairs of Tenant as Landlord may
reasonably request from time to time.
24.3 LICENSING INFORMATION. Tenant shall promptly furnish to Landlord
complete copies of all surveys, examinations, inspections, compliance
certificates and similar reports of any kind issued to Tenant by any
governmental agencies or authorities having jurisdiction over the licensing of
the operation of the Property which are material to the Property or the
Facility, their ownership or operation.
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ARTICLE XXV
APPRAISALS OF THE PROPERTY AND OPTIONS
25.1 APPRAISERS. If at any time it becomes necessary to determine the
Fair Market Value, Fair Market Value Purchase Price or Fair Market Rental of the
Property for any purpose under this Lease, and the parties are unable to agree
thereupon, the party required or permitted to give Notice of such required
determination shall include in the Notice the name of a person selected to act
as appraiser on its behalf. Within ten days after such Notice, Landlord or
Tenant, as the case may be, shall by Notice to Tenant or Landlord, as the case
may be, either agree to the appointment of the appraiser identified in such
initial Notice, in which case such appraiser shall be the sole appraiser for
purposes of determining the Fair Market Value, Fair Market Value Purchase Price
or Fair Market Rental, as the case may be, or shall appoint a second person as
an appraiser on its behalf. Any appraiser appointed pursuant to this Section
must be a member of the American Institute of Real Estate Appraisers (or any
successor organization thereto). The appraiser(s) thus appointed shall, within
45 days after the date of the Notice appointing the first appraiser, proceed to
appraise the Property to determine the Fair Market Value, Fair Market Value
Purchase Price or Fair Market Rental thereof (as the case may be) as of the
relevant date (giving effect to the impact, if any, of inflation from the date
of their decision to the relevant date). In the case of two appraisers, except
as provided in Section 25.2, the two appraisals shall be averaged to determine
the Fair Market Value, Fair Market Value Purchase Price or Fair Market Rental,
as the case may be. In any event, the appraised value determined in accordance
with this Section shall be final and binding on Landlord and Tenant.
25.2 METHOD OF APPRAISAL. Any appraisal required or permitted by the
terms of this Lease shall be conducted in a manner consistent with sound
appraisal practice, taking into account each of the income, market and cost
appraisal methodologies. Notwithstanding the provisions of Section 25.1, if the
difference between the appraisal amounts determined by the appraisers appointed
pursuant to Section 25.1 exceeds ten percent of the lesser of such appraisal
amounts, then the two appraisers shall have 20 days to appoint a third
appraiser. If no such appraiser is appointed within such 20 days or within 90
days of the original request for a determination of Fair Market Value, Fair
Market Value Purchase Price or Fair Market Rental (as the case may be),
whichever is earlier, either Landlord or Tenant may apply to any court having
jurisdiction to have such appointment made by such court. Any appraiser
appointed by the original appraisers or by such court shall be instructed to
determine the Fair Market Value, Fair Market Value Purchase Price or Fair Market
Rental (as the case may be) within 45 days after the appointment of such
appraiser. The determination of the three appraisers which differs most in the
terms of dollar amount from the determinations of the other two
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appraisers shall be excluded, and 50% of the sum of the remaining two
determinations shall be the appraised value, which appraised value shall be
final and binding upon Landlord and Tenant as the Fair Market Value, Fair Market
Value Purchase Price or Fair Market Rental of the Property, as the case may be.
If the lowest and highest appraised values are equidistant in amount from the
middle appraised value, then such middle appraised value shall be the Fair
Market Value, Fair Market Value Purchase Price or Fair Market Rental (as the
case may be). The provisions of this Article shall be specifically enforceable
to the extent such remedy is available under applicable law, and any
determination hereunder shall be final and binding, upon the parties except as
otherwise provided by applicable law. Landlord and Tenant each shall pay the
fees and expenses of the appraiser appointed by it, and each shall pay one-half
of the fees and expenses of the third appraiser and one-half of all other costs
and expenses incurred in connection with each appraisal.
ARTICLE XXVI
OPTIONS TO PURCHASE
26.1 LANDLORD'S OPTION TO PURCHASE TENANT'S PERSONAL PROPERTY; TRANSFER
OF LICENSES. Provided Tenant has not exercised its option pursuant to Section
26.2 hereof, effective upon not less than ninety (90) days prior notice given at
any time within one hundred eighty (180) days prior to the expiration of the
Term of this Lease, or upon such shorter Notice as shall be reasonable if this
Lease is terminated prior to its expiration date, Landlord shall have the option
to purchase all (but not less than all) of Tenant's Personal Property, if any,
at the expiration or termination of this Lease, for an amount equal to the then
fair market value thereof, taking into account and with appropriate price
adjustments for, all equipment leases, conditional sale contracts, UCC-1
financing statements and other encumbrances to which such Tenant's Personal
Property is subject. Upon the expiration or termination of the Lease and such
purchase by Landlord, Tenant shall use good faith efforts, at Landlord's sole
cost and expense, to transfer and assign to Landlord or its designee, or assist
Landlord or its designee in obtaining, any contracts, licenses, and certificates
required for the then operation of the Facility.
26.2 TENANT'S OPTION TO PURCHASE THE PROPERTY. Provided no Event of
Default specified in Section 17.1(a) hereof nor any other material Event of
Default has occurred and is continuing, and provided Tenant simultaneously
exercises its option to purchase the Properties subject to the other Leases,
Tenant shall have the option exercisable on not less than one hundred eighty
(180) days nor more than three hundred sixty (360) days Notice to purchase the
Property, at the expiration of the Fixed Term, or at the expiration of any
Extended Term, at the greater of (y) the Fair Market Value of the Property as of
the date specified for transfer of the
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Property in such Notice or (z) the Total Investment Cost. Any such purchase of
the Property by Tenant will constitute a Sale, and will be subject to the
indemnification provisions of Section 22.1 hereof. Upon exercise by Tenant of
its option to purchase the Property, Landlord shall, at the election of Tenant,
either convey the Property as a sale of assets or as a sale of the stock of a
corporation whose sole assets consist of the Property.
If Tenant shall timely and properly exercise the foregoing option, the
sale of the Property shall be consummated through an escrow to be opened with a
mutually acceptable title or escrow company and shall close within ten Business
Days following the expiration of the Fixed Term or Extended Term in connection
with which Tenant exercised such purchase option. The purchase price of the
Property (net of the principal balance of any Facility Mortgage placed on the
Property by Landlord and expressly assumed by Tenant) shall be deposited into
escrow by wire transfer of Federal Funds at least two business days prior to
close of escrow and shall be paid to Landlord at close of escrow by wire
transfer of Federal Funds to such account as Landlord shall designate. Tenant
acknowledges and agrees that it shall purchase the Property from Landlord "AS
IS" and subject to all faults, defects in title and other matters whatsoever,
including, but not limited to, all matters of record other than Facility
Mortgage not expressly assumed by Tenant and any other liens, encumbrances,
attachments, levies or claims encumbering, at the instance of Landlord, the
Property, all of which shall be removed of record prior to purchase. Landlord
shall be conclusively deemed not to have made any warranty or representation
regarding the title, condition or other status of the Property. All title
insurance premiums and other closing costs associated with the purchase of the
Property by Tenant pursuant to this Section shall be paid by Tenant.
26.3 TENANT'S RIGHT OF FIRST REFUSAL. In the event that at any time
during the Term or the Extended Term, Landlord should receive an offer to
acquire its interest in the whole or any portion of the Property, and if such
offer is acceptable to Landlord, or if Landlord should make an offer to sell,
convey or transfer the whole or any portion of its interest in the Property, the
Tenant shall have, and Landlord does hereby grant to Tenant, the right of first
refusal to acquire Landlord's interest in the Property under the same terms and
conditions as such offer; provided, however, that if such offer to acquire or to
sell, convey or transfer all or any portion of the Property is part of an offer
to acquire other property from Landlord, in addition to all or any portion of
the Landlord's interest in the Property, Tenant may exercise the right of first
refusal granted in this Section 26.3 only by agreeing, to acquire all of the
property which is the subject of the offer on the same terms, conditions and
payment timetable as in the original offer. Upon receipt of any such acceptable
offer or upon transmittal of any offer, Landlord shall certify a complete, true
and correct copy of such offer to Tenant
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including all of the terms thereof. Tenant shall have a period of 20 days from
the date of the receipt of such certification to exercise such right of first
refusal by Notice to Landlord within such period. Failure to exercise the right
with respect to any particular offer shall not terminate the right with respect
to any other offer. If Tenant refuses to acquire the Property pursuant hereto
and Landlord sells the Property to a third party, such sale shall provide that
it is subject to the rights of Tenant under this Lease.
ARTICLE XXVII
FACILITY MORTGAGE
Without the consent of Tenant, Landlord may, subject to the terms and
conditions set forth below in this Section, from time to time, directly or
indirectly, create or otherwise cause to exist any lien, encumbrance, security
interest or title retention agreement ("Encumbrance") upon the Property, or any
portion thereof or interest therein, whether to secure any borrowing or other
means of financing or refinancing provided that the principal amount of such
borrowing, financing or refinancing does not exceed 80% of the then Fair Market
Value of the Property. Any such Encumbrance (i) shall contain the right to
prepay (whether or not subject to a prepayment penalty, which penalty shall be
paid by Landlord), (ii) shall provide that it is subject to the rights of Tenant
under this Lease, including the rights of Tenant to acquire the Property
pursuant to the applicable provisions of this Lease, provided, however, that
Tenant agrees that it will not unreasonably withhold its consent to any request
by Landlord that Tenant subordinate this Lease to any mortgage or deed of trust
that may hereafter from time to time be recorded on the Property, and to any and
all advances made or to be made thereunder, and to renewals, replacements and
extensions thereof and (iii) shall be paid in full and released and reconveyed
in the event Tenant purchases the Property pursuant to this Lease, unless Tenant
elects to assume such Encumbrance. Any such subordination, however, shall be
subject to the condition precedent that the mortgagee under such mortgage or the
beneficiary under such deed of trust enter into a written nondisturbance and
attornment agreement with Tenant, in form and content satisfactory to Tenant,
whereunder it is agreed that in the event of a sale or foreclosure under such
mortgage or deed of trust, the purchaser of the Property (including the
mortgagee or beneficiary under such mortgage or deed of trust), shall acquire or
hold the Property subject to this Lease so long as Tenant is not in default
hereunder, and so long as Tenant recognizes such purchaser as the landlord under
this Lease and agrees, if requested to do so, to attorn to such purchaser and,
if instructed to do so by such purchaser, to make rental payments directly to
it.
ARTICLE XXVIII
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LIMITATION OF LIABILITY
Tenant specifically agrees that neither AHP nor Landlord nor any
officer, shareholder, employee or agent of AHP or Landlord (each of which shall,
for purposes of this Article XXVIII, be considered an Affiliate of Landlord)
shall be held to any personal liability, jointly or severally, for any
obligation of, or claims against Landlord, Tenant agreeing to look solely to
Landlord's equity interest in the Property for recovery of any judgment from
Landlord. The provisions contained in the foregoing sentence are not intended
to, and shall not, limit any right that Tenant might otherwise have to obtain
injunctive relief against Landlord or Landlord's successors in interest, or any
action not involving the personal liability of Landlord (original or successor).
In no event shall Landlord (original or successor) or any Affiliate of Landlord
be required to respond in monetary damages from Landlord's assets other than
Landlord's equity interest in the Property. Furthermore, except as Otherwise
expressly provided herein, in no event shall Landlord or any Affiliate of
Landlord (original or successor) ever be liable to Tenant for any indirect or
consequential damages suffered by Tenant from whatever cause.
ARTICLE XXIX
ADDITIONAL COVENANTS OF TENANT
29.1 ADDITIONAL NEGATIVE COVENANTS. Tenant covenants and agrees with
Landlord that, during the Term hereof, Tenant shall not, either directly or
indirectly:
(a) LIENS. Incur, create, assume or permit to exist any mortgage,
pledge, lien, charge or other encumbrance of any nature whatsoever (including
conditional sales or other title retention agreements) on any property or other
assets now owned or hereafter acquired by Tenant, including, but not limited to,
Tenant's leasehold interest under this Lease and Tenant's Personal Property,
other than:
(i) deposits or pledges to secure payment of workmen's
compensation, unemployment insurance, old age pensions or other social security;
(ii) liens for taxes or assessments or other governmental
charges or levies if not yet due and payable, or if in good faith being
contested or litigated, provided that a reserve against such taxes, assessments,
charges and levies deemed adequate by Landlord shall be maintained and Tenant
shall furnish security reasonably satisfactory to Landlord for the payment of
such taxes, assessments, charges and levies;
(iii) liens in favor of Landlord or NHI;
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(iv) purchase money security interests securing the payment of
not more than 75% of the purchase price of any item of personal property;
(v) security interests in accounts receivable under working
capital lines of credit securing indebtedness not exceeding 80% of the net book
value of such accounts receivable;
(vi) judgments and other similar liens, provided that the
execution or other enforcement of such liens is effectively stayed and the
claims secured thereby are being actively contested in good faith and by
appropriate proceedings in accordance with the requirements of this Lease;
(vii) liens constituting renewals, extensions or replacements
of liens described in the foregoing clauses, but only, in the case of each such
renewal, extension or replacement lien, to the extent of the principal amount of
the obligation so secured at the time of the extension, renewal or replacement,
and to the extent that such renewal, extension or replacement lien is limited to
all or part of the property that secured the lien extended, renewed or replaced;
and
(viii) liens being, contested in accordance with the
provisions of Article XIII.
(b) CASH FLOW COVERAGE RATIO. Unless Tenant is in full compliance
with the provisions of Section 3.1 of the Security Agreement, Tenant shall not
permit the ratio of: (a) Cash Flow to (b) Total Rent reserved for any calendar
quarter to be less than 1.75 to one; provided, however, that the failure to
maintain either of such ratios shall not constitute an event of default if the
Lease Reserve Fund is (i) then maintained in an amount equal to six months
Initial Base Rent or (ii) reinstated to an amount equal to six months Initial
Base Rent within thirty (30) days after Tenant delivers to Landlord financial
statements indicating such failure.
(c) SALE OF ASSETS. Sell, lease, transfer or otherwise dispose of
all or any substantial part of its properties or assets, except for (x)
properties that are no longer useful in its business or have been replaced and
(y) during any 12-month period, Properties with an aggregate market value of up
to $500,000.
(d) CONSOLIDATION OR MERGER. Consolidate with or merge into any
other corporation or partnership or permit any other corporation or partnership
to merge into it unless after giving pro forma effect to the merger, based on
its and the disappearing corporation's financial statements for, in each case,
its most recently completed fiscal year or quarter, there is no violation of any
of the covenants of this Lease to be observed or performed by Tenant.
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(e) GUARANTEES. Guarantee or otherwise incur liability for the
obligations of others except for endorsement of negotiable instruments for
deposit or collection.
(f) DIVIDENDS. Declare or pay any dividend or make any distribution
unless (i) Tenant is not in default under the Lease and (ii) the Lease Reserve
Fund is maintained in an amount equal to six months Initial Base Rent, or,
Signature shall have a Tangible Net Worth of not less than $5,000,000.
(g) MANAGEMENT FEE. Pay any person or entity a management or
advisory fee in connection with the management and operation of the Facility in
any Fiscal Year unless Tenant is not in default under the Lease and the
obligation to pay such management fee is subordinated to the payment obligations
under the Lease and such person or entity provides a guaranty of the obligations
of the Leases.
29.2 ADDITIONAL AFFIRMATIVE COVENANTS. Tenant covenants and agrees with
Landlord that, during the Term hereof, Tenant shall:
(a) Maintenance of Properties and Intangible Assets.
(i) Do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its existence and, except as permitted
in Section 29.1(d), with such exceptions, if any, as are not material in the
aggregate, to obtain and, having obtained, preserve, renew and keep in full
force and effect all customary accreditation, rights, licenses and permits and,
with such exceptions, if any, as are not material in the aggregate, comply with
all laws and regulations applicable to it and conduct and operate the Facility
in substantially the manner, with such changes as may from time to time be
considered by management as necessary or appropriate, in which it is presently
conducted and operated, and at all times, with such exceptions as are not
material in the aggregate, to obtain, maintain, preserve and protect all
necessary franchises, provide agreements, contract rights, trademarks and trade
names used or useful in its operations and preserve all its assets which are
used or useful in the conduct of its operations, and keep the same in working
order and condition, and, with such exceptions as are not material in the
aggregate, from time to time to make, or cause to be made, all necessary
repairs, renewals, replacements, betterments and improvements thereto, so that
the operation of the Facility may be properly and advantageously conducted at
all times. Tenant shall maintain the Facility in good condition and repair
pursuant to an annual capital expenditure budget or reserve of not less than
$300 per Facility bed with any such reserves to be expended within three years
of the reserve, and all such reserves to be expended during the Term. Without
limiting the Generality of the foregoing, Tenant shall use or cause the Property
to be used for the Primary Intended Use and only for such other uses as may be
necessary in connection
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with or incidental to said use or as may be agreed to by Landlord in its sole
and absolute determination. With such exceptions as are not material in the
aggregate, no use shall be made or permitted to be made of the Property and no
acts shall be done which violate any Legal Requirements or Insurance
Requirements or which will cause the cancellation of any insurance policy
covering the Property or any part thereof or any provider agreements. Tenant
shall comply in all material respects with all Legal Requirements and all of the
requirements pertaining to the Property of any insurance board, association,
organization or company necessary for the maintenance of the insurance required
pursuant to this Lease.
(ii) Tenant, immediately upon obtaining knowledge of facts
which are reasonably likely to result in an action by any Federal, state or
local agency (or the staff thereof) to revoke, withdraw or suspend any permit,
license, conditional use permit, variance certificate, certificate of need,
letter of nonreviewability, provider agreement or other governmental approval,
or an action of any other type, which would have a material adverse effect on
the Tenant or the operations of the Facility, shall notify the Landlord thereof
immediately.
(b) OBLIGATIONS AND TAXES. With such exceptions as are not material
individually or in the aggregate, none of which exceptions results in the
creation of a lien prohibited by this Lease on any property of Tenant, pay all
indebtedness and obligations in accordance with customary trade practices and
pay and discharge promptly all taxes, assessments and governmental charges or
levies imposed on it or upon its income and profit, or upon any of its property,
real, personal or mixed, or upon any part thereof, before the same shall become
in default, as well as pay before they shall become in default all lawful claims
for labor, material and supplies or otherwise which, if unpaid, might become a
lien or charge upon such Property or any part thereof.
(c) PENSION PLANS. Tenant shall notify Landlord within ten business
days of the occurrence of any of the following events ("NOTIFICATION EVENTS")
with respect to Tenant's Plans and within ten days of obtaining knowledge of any
Notification Event with respect to Plans of its Affiliates: (i) the termination
of a Plan, unless such Plan can be terminated without material adverse effect on
the business, properties or condition (financial or otherwise) of Tenant or its
Affiliates; (ii) the failure to make contributions to any of Tenant's Plans
(including any Multiemployer Plans) in a timely manner and in sufficient amount
to comply with the requirements of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"); (iii) the failure to comply with all material
requirements of ERISA and the Code which relate to such Plans and Multiemployer
Plans (as defined by ERISA), the failure with which to comply would have a
material adverse effect on the business, properties or condition (financial or
otherwise) of
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Tenant or its Affiliates; (iv) receipt by Tenant of any notice of the
institution of any proceeding or other action which may directly result in the
termination of any Plans or Multiemployer Plans; (v) a Termination Event or
Reportable Event (as defined by ERISA) with respect to a Plan; and (vi) any
event or condition which would cause the lien provided for in Section 4068 of
ERISA to attach to the assets of Tenant. Tenant shall not fail to make any
payments to any Multiemployer Plan that Tenant may be required to make under any
agreement relating to any Multiemployer Plan, ERISA or any other law pertaining
thereto, except for any payments being contested in good faith in accordance
with Article XIII with respect to which Tenant has established adequate reserves
or which, if not made, would not have a material adverse effect on the business,
properties or condition (financial or otherwise) of Tenant or its Affiliates.
29.3 SECURITY FOR THE LEASE.
(a) SECURITY AGREEMENT. On or before the Commencement Date, Tenant
shall execute and deliver to Landlord the Security Agreement.
(b) ABSOLUTE ASSIGNMENT. Tenant shall, on or before the
Commencement Date, execute and deliver to Landlord an absolute assignment of
subleases and rents pursuant to which Tenant shall assign to Landlord, subject
to a license to Tenant to retain so long as no Event of Default is continuing,
all of Tenant's rights, title and interest in any subleases and assignments
permitted under this Lease and the proceeds thereof.
(c) LEASE RESERVE FUND. As security for the timely and faithful
performance by Tenant of each and every one of Tenant's obligations under this
Lease, Tenant shall, on the Commencement Date and thereafter as provided in
Section 3.1 of the Security Agreement, create and maintain the Lease Reserve
Fund referred to in Section 3.1 of the Security Agreement in an amount equal to
six months Initial Base Rent (the "Lease Reserve Fund"). Notwithstanding any
contrary provision of this Section 29.3(c), Tenant shall maintain the Lease
Reserve Fund in a reduced amount equal to the amount of the Initial Base Rent
for three months, if, for each of the four consecutive full calendar quarters
most recently completed (during the Term), (i) (x) Tenant's Cash Flow is at
least 1.75 times (y) Total Rent, (ii) Guarantors' Cash Flow is at least 2.5
times Fixed Charges, and (iii) Guarantors have maintained a tangible net worth
of at least $5,000,000, all as reflected in financial statements prepared in
accordance with generally accepted accounting principals as set forth in an
Officer's Certificate delivered not later than sixty (60) days after the end of
such most recent quarter. Such Officer's Certificate shall be accompanied by an
appropriate cash flow statement and a compilation report thereon, without
material qualification, of Tenant's independent public accountants. If
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Tenant delivers financial information to Landlord pursuant to Section 24.2
hereof which indicates that Tenant has failed to maintain the financial
conditions therein and herein for the most recent period of two consecutive
calendar quarters, Tenant shall within ten (10) business days reinstate the
Lease Reserve Fund to the full amount of six months Initial Base Rent, and
Tenant's failure so to do shall be deemed an immediate Event of Default
hereunder, without requirement of demand therefor by Landlord or the giving of
any Notice, and, in such event, Landlord shall have the right to draw the entire
balance of the Lease Reserve Fund and apply the proceeds against any obligation
or obligations of Tenant hereunder in such amount or amounts as Landlord, in its
sole discretion, shall decide and exercise any other remedies permitted Landlord
hereunder, at law or in equity. Landlord shall not be deemed to hold the Lease
Reserve Fund in trust, but shall not commingle such funds with other assets of
Landlord. Tenant shall not be entitled, to any interest with respect, to any
such funds held by Landlord.
ARTICLE XXX
MISCELLANEOUS
30.1 LANDLORD'S RIGHT TO INSPECT. Landlord and its authorized
representatives may, at any time and from time to time, upon reasonable notice
to Tenant, inspect the Property during usual business hours subject to any
security, health, safety or patient business confidentiality requirements of
Tenant or any governmental agency, or created by any Insurance Requirement or
Legal Requirement relating, to the Property.
30.2 NO WAIVER. No failure by Landlord or Tenant to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
provided hereunder, and no acceptance of full or partial payment of Rent during
the continuance of any such breach, shall constitute a waiver of any such breach
or of any such term. To the extent permitted by applicable law, no waiver of any
breach shall affect or alter this Lease, which shall continue in full force and
effect with respect to any other then existing or subsequent breach.
30.3 REMEDIES CUMULATIVE. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Landlord or Tenant now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy the exercise or beginning of the exercise by Landlord or Tenant of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Landlord or Tenant of any or all of such
other rights, powers and remedies.
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30.4 ACCEPTANCE OF SURRENDER. No surrender to Landlord of this Lease or
of all or any portion of or interest in the Property shall be valid or effective
unless agreed to and accepted in writing by Landlord, and no act by Landlord or
any representative or agent of Landlord, other than such a written acceptance by
Landlord, shall constitute an acceptance of any such surrender by Tenant.
30.5 NO MERGER OF TITLE. There shall be no merger of this Lease or of
the leasehold estate created hereby if the same person, firm, corporation or
other entity acquires, owns or holds, directly or indirectly, this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate, and the fee estate in the Property.
30.6 CONVEYANCE BY LANDLORD. If Landlord or any successor owner of the
Property conveys the Property in accordance with the terms hereof (other than as
security for a debt), and the grantee or transferee of the Property expressly
assumes all obligations of Landlord hereunder arising or accruing, from and
after the date of such conveyance or transfer, Landlord or such successor owner,
as the case may be, thereupon shall be released from all liabilities and
obligations of Landlord under this Lease.
If Tenant assigns the Lease in accordance with the terms hereof,
Landlord consents to such assignment pursuant to Section 23.1 and the assignee
expressly assumes all obligations of Tenant hereunder arising or accruing from
and after the date of such conveyance or transfer, Tenant and Guarantors
thereupon shall be released from their respective liabilities and obligations of
Tenant under this Lease.
30.7 QUIET ENJOYMENT. So long as Tenant pays all Rent as the same
becomes due and fully complies with all of the terms of this Lease and fully
performs its obligations hereunder, Landlord warrants, represents and covenants
that Tenant shall peaceably and quietly have, hold and enjoy the Property for
the Term hereof, free of any claim or other action by Landlord or anyone
claiming, by, through or under Landlord, but subject to all liens and
encumbrances of record as of the date hereof or hereafter consented to by
Tenant. Except as otherwise provided in this Lease, no failure by Landlord to
comply with the foregoing covenant shall give Tenant any right to cancel or
terminate this Lease or abate, reduce or make a deduction from or offset against
the Rent or any other sum payable under this Lease, or to fail or refuse to
perform any other obligation of Tenant hereunder. Notwithstanding the foregoing,
Tenant shall have the right, by separate and independent action, to pursue any
claim it may have against Landlord as a result of a breach by Landlord of the
covenant of quiet enjoyment contained in this Section.
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30.8 NOTICES. All notices, demands, requests, consents, approvals and
other communications ("NOTICE" or "NOTICES") hereunder shall be in writing and
delivered by personal delivery, courier or messenger service, express or
overnight mail, or by registered or certified mail, return receipt requested and
postage prepaid, addressed to the respective parties as follows:
If to Tenant: Cornerstone Care, Inc.
2105 Clubhouse Drive
Greeley, Colorado 80634
Attention: President
If to Landlord: AHP of Colorado, Inc.
c/o American Health Properties, Inc.
6400 South Fiddler's Green Circle
Suite 1800
Englewood, Colorado 80111
Attention: General Counsel
If to NHI: National Health Investors, Inc.
City Center
100 Vine Street
Murfreesboro, Tennessee 37130
or to such other address as either party may hereafter designate. Personally
delivered Notices sent by courier or messenger service or by express or
overnight mail shall be effective upon receipt, and Notices given by mail shall
be complete at the time of deposit in the U.S. mail system, but any prescribed
period of Notice and any right or duty to do any act or make any response within
any prescribed period or on a date certain after the service of such Notice
given by mail shall be extended five (5) days.
30.9 SURVIVAL OF TERMS; APPLICABLE LAW. Anything contained in this
Lease to the contrary notwithstanding, all claims against, and liabilities of,
Tenant or Landlord arising prior to any date of termination of this Lease shall
survive such termination for two years, except for third party claims based on
alleged tortious actions and omissions of Tenant during the term of this Lease,
which third party claims shall survive the term of this Lease. If any term or
provision of this Lease or any application thereof shall be invalid or
unenforceable for any reason whatsoever, the remainder of this Lease and any
other application of such term or provisions shall not be affected thereby. If
any late charge or any interest rate provided for in any provision of this Lease
based upon a rate in excess of the maximum rate permitted by applicable law,
such charges shall be fixed at the maximum permissible rate. Neither this Lease
nor any provision hereof may be changed, waived, discharged, modified or
terminated except by an instrument in writing and in recordable form, signed by
Landlord and Tenant. Subject to any limitations on assignment contained in this
Lease, all the terms and provisions of this Lease shall be binding upon
70
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and inure to the benefit of the parties hereto and their respective successors
and assigns. The headings in this Lease are for convenience of reference only
and shall not limit or otherwise affect the meaning, hereof. THIS LEASE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO,
BUT NOT INCLUDING ITS CONFLICTS OF LAWS RULES.
30.10 EXCULPATION OF LANDLORD'S OFFICERS AND AGENTS. This Lease is made
on behalf of Landlord by an officer thereof, not individually, but solely in his
capacity in such office as authorized by the directors of Landlord pursuant to
its by-laws. The obligations of this Lease are not binding upon, nor shall
resort be had to, the private property of any of the directors, shareholders,
officers, employees or agents of Landlord personally, but bind only Landlord's
property. The provision contained in the foregoing sentence is not intended to,
and shall not, limit any right that Tenant might otherwise have to obtain
injunctive relief against Landlord or Landlord's successors in interest, or any
action not involving the personal liability of the directors, Shareholders,
officers, employees or agents of Landlord. Except as otherwise expressly
provided herein, in no event shall Landlord ever be liable to Tenant for any
indirect or consequential damages suffered by Tenant from whatever cause.
30.11 TRANSFERS FOLLOWING TERMINATION. Upon the expiration or earlier
termination of the Term, Tenant shall use good faith efforts to transfer to
Landlord or Landlord's nominee, or to cooperate with Landlord or Landlord's
nominee in connection with the processing by Landlord or Landlord's nominee of
any applications for, all licenses, operating permits and other Governmental
authorizations and all contracts (including contracts with governmental or
quasi-governmental entities) which may be necessary for the operation of the
Facility; provided, however, that the costs and expenses of any such transfer or
the processing of any such application shall be paid by Landlord or Landlord's
nominee.
30.12 TENANT'S WAIVERS. Tenant waives all presentments, demands for
performance, notices of nonperformance, protests, notices of protest, notices of
dishonor, and notices of acceptance and waives all notices of the existence,
creation, or incurring of new or additional obligations, except as expressly
granted herein.
30.13 MEMORANDUM OF LEASE. Landlord and Tenant shall, promptly upon the
request of either party, enter into a short form memorandum of this Lease and
all options contained herein, in form suitable for recording under the laws of
the State in which the Property is located. Tenant shall pay all costs and
expenses of recording such memorandum of this Lease.
30.14 ARBITRATION. Any controversy (a) involving $1,000,000 or less
(exclusive of interest and costs) arising out
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of, connected with or incidental to this Agreement (except disputes concerning
determinations of Fair Market Value which shall be resolved exclusively as
provided in Article XXV) and (b) involving clauses (vii) and (viii) in the
definition of Substitute Property shall be decided by arbitration under the
expedited procedures of the American Arbitration Association, provided that
claim is made within the applicable period of limitation. Depositions to obtain,
discovery may be taken upon good cause, upon leave to do so granted by the
arbitrator. If either party hereto alleges in a court action that such
controversy exceeds $1,000,000, such party shall be deemed to have waived the
right to interest and costs in any award obtained therein if such award does not
exceed $1,000,000.
30.15 MODIFICATIONS. No provision of this Lease may be amended,
supplemented or otherwise modified except by an agreement in writing signed by
the parties hereto or their respective successors in interest.
30.16 ATTORNEYS' FEES. If either party commences an action against the
other to interpret or enforce any of the terms of this Lease or because of the
breach by the other party of any of the terms hereof, the losing or defaulting
party shall pay to the prevailing party reasonable attorneys' fees, costs and
expenses incurred in connection with the prosecution or defense of such action,
whether or not the action is prosecuted to a final judgment.
30.17 BROKERS.
(a) Tenant. Tenant hereby warrants that no real estate broker
or finder who is not an employee of Tenant has represented or will represent it
in this transaction and that no finder's fees have been earned by a third party
who may claim through Tenant. Tenant shall indemnify and hold harmless the
Landlord against any claim for brokerage fees made by any employee of Tenant.
(b) Landlord. Landlord hereby warrants that no real estate
broker or finder who is not an employee of Landlord has represented or will
represent it in this transaction and that no finder's fees have been earned by a
third party who may claim through Landlord. Landlord shall indemnify and hold
harmless the Tenant against any claim for brokerage fees made by any employee of
Landlord.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the date first above written.
CORNERSTONE CARE, INC.,
a Colorado corporation
By: /s/ David A. Kremser
-------------------------
David A. Kremser,
President
AHP OF COLORADO, INC.,
a Colorado corporation
By: /s/ Geoffrey D. Lewis
-------------------------
Geoffrey D. Lewis,
Vice President
73
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Exhibit 10.123
SAFFORD CARE LEASE
BY AND BETWEEN
AMERICAN HEALTH PROPERTIES OF ARIZONA, INC.
"LANDLORD"
AND
SAFFORD CARE, INC.
"TENANT"
DATED AS OF JULY 28, 1995
<PAGE> 2
TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS...................................................1
ARTICLE II LEASE OF PROPERTY............................................12
ARTICLE III TERM OF LEASE................................................13
3.1 Term of Lease................................................13
3.2 Option to Extend Term of Lease...............................13
ARTICLE IV RENT.........................................................14
4.1 Payment of Landlord's Transaction Expenses...................14
4.2 Payment of Base Rent and Additional Charges..................14
4.3 Base Rent....................................................14
4.4 Rent Adjustment..............................................15
4.5 Additional Charges...........................................15
4.6 Triple Net Lease.............................................15
ARTICLE V IMPOSITIONS..................................................19
5.1 Payment of Impositions.......................................19
5.2 Notice of Impositions........................................20
5.3 Adjustment of Impositions....................................20
5.4 Utility Charges..............................................21
5.5 Insurance Premiums...........................................21
ARTICLE VI TERMINATION OR ABATEMENT OF LEASE............................21
ARTICLE VII OWNERSHIP OF PROPERTY........................................22
7.1 Ownership of the Property....................................22
7.2 Tenant's Personal Property; Security Interest................22
ARTICLE VIII CONDITION AND USE OF PROPERTY................................23
8.1 Condition of the Property....................................23
8.2 Use of the Property..........................................24
8.3 Landlord to Grant Easements..................................25
8.4 Hazardous Substances.........................................25
ARTICLE IX LEGAL REQUIREMENTS AND INSURANCE
REQUIREMENTS.................................................29
9.1 Compliance with Legal Requirements, Insurance
Requirements and Instruments.................................29
9.2 Covenants Regarding Legal Requirements.......................29
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Page
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ARTICLE X CONDITION OF THE PROPERTY....................................29
10.1 Maintenance and Repair.......................................29
10.2 Encroachments and Restrictions...............................31
ARTICLE XI CAPITAL ADDITIONS............................................32
11.1 Construction of Capital Additions............................32
11.2 Capital Additions Financed or
Paid for by Landlord.........................................32
11.3 Capital Additions Paid for by Tenant.........................34
11.4 Disposition of Capital Additions Upon
Expiration or Termination of Lease...........................35
11.5 Non-Capital Additions........................................35
11.6 Salvage......................................................35
11.7 No Liens on Landlord's Interest..............................35
ARTICLE XII LIENS........................................................35
ARTICLE XIII CONTESTS.....................................................36
ARTICLE XIV INSURANCE....................................................37
14.1 Central Insurance Requirements...............................37
14.2 Replacement Cost.............................................38
14.3 Additional Insurance.........................................39
14.4 Waiver of Subrogation........................................39
14.5 Form of Insurance............................................39
14.6 Change in Limits.............................................39
14.7 Blanket Policy...............................................40
14.8 No Separate Insurance........................................40
ARTICLE XV INSURANCE PROCEEDS...........................................40
15.1 Handling of Insurance Proceeds...............................40
15.2 Reconstruction in the Event of Damage or
Destruction Covered by Insurance.............................41
15.3 Reconstruction in the Event of Damage or
Destruction Not Covered by Insurance.........................42
15.4 Payment of Proceeds on Tenant's Property and
Capital Additions Paid by Tenant.............................43
15.5 Handling of Business Interruption Insurance..................43
15.6 Restoration of Tenant's Property.............................43
15.7 Abatement of Rent............................................43
15.8 Damage Near End of Term......................................43
15.9 Termination of Option to Purchase............................44
15.10 Waiver.......................................................44
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Page
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ARTICLE XVI CONDEMNATION.................................................44
16.1 Definitions..................................................44
16.2 Parties' Rights and Obligations..............................45
16.3 Total Taking.................................................45
16.4 Allocation of Portion of Award...............................45
16.5 Partial Taking...............................................46
16.6 Temporary Taking.............................................46
ARTICLE XVII DEFAULTS AND REMEDIES........................................47
17.1 Events of Default............................................47
17.2 Certain Remedies.............................................49
17.3 Termination..................................................50
17.4 Application of Funds.........................................51
17.5 Landlord's Right to Cure Tenant's Default....................51
17.6 NHI's Right to Cure..........................................51
17.7 Waiver.......................................................51
ARTICLE XVIII CURE BY TENANT OF LANDLORD DEFAULTS..........................52
ARTICLE XIX PURCHASE OF PROPERTY BY TENANT...............................52
19.1 Purchase of the Property.....................................52
19.2 Failure to Close Purchase....................................53
ARTICLE XX HOLDING OVER.................................................53
ARTICLE XXI RISK OF LOSS.................................................53
ARTICLE XXII LIABILITY OF PARTIES.........................................54
22.1 Indemnification by Tenant....................................54
22.2 Indemnification by Landlord..................................55
22.3 Continuing Liability.........................................55
ARTICLE XXIII ASSIGNMENT...................................................55
23.1 Assignment and Subletting....................................55
23.2 Attornment...................................................56
23.3 Sublease Limitation..........................................56
ARTICLE XXIV INFORMATION FROM TENANT......................................57
24.1 Officer's Certificates.......................................57
24.2 Financial Information........................................57
24.3 Licensing Information........................................58
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Page
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ARTICLE XXV APPRAISALS OF THE PROPERTY AND
OPTIONS......................................................58
25.1 Appraisers...................................................58
25.2 Method of Appraisal..........................................59
ARTICLE XXVI OPTIONS TO PURCHASE..........................................59
26.1 Landlord's Option to Purchase Tenant's Personal
Property; Transfer of Licenses...............................59
26.2 Tenant's Option to Purchase the Property.....................60
26.3 Tenant's Right of First Refusal..............................61
ARTICLE XXVII FACILITY MORTGAGE............................................61
ARTICLE XXVIII LIMITATION OF LIABILITY......................................62
ARTICLE XXIX ADDITIONAL COVENANTS OF TENANT...............................62
29.1 Additional Negative Covenants................................62
29.2 Additional Affirmative Covenants.............................64
29.3 Security for the Lease.......................................66
ARTICLE XXX MISCELLANEOUS................................................67
30.1 Landlord's Right to Inspect..................................67
30.2 No Waiver....................................................67
30.3 Remedies Cumulative..........................................68
30.4 Acceptance of Surrender......................................68
30.5 No Merger of Title...........................................68
30.6 Conveyance by Landlord.......................................68
30.7 Quiet Enjoyment..............................................68
30.8 Notices......................................................69
30.9 Survival of Terms; Applicable Law............................70
30.10 Exculpation of Landlord's Officers and Agents................70
30.11 Transfers Following Termination..............................70
30.12 Tenant's Waivers.............................................71
30.13 Memorandum of Lease..........................................71
30.14 Arbitration..................................................71
30.15 Modifications................................................71
30.16 Attorneys' Fees..............................................71
30.17 Brokers......................................................71
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SAFFORD CARE LEASE
This SAFFORD CARE LEASE (the "Lease") is executed as of July 28, 1995,
by and between AMERICAN HEALTH PROPERTIES OF ARIZONA, INC., an Arizona
corporation, having its principal office at 6400 South Fiddler's Green Circle
(Suite 1800), Englewood, Colorado 80111, as Landlord, ("Landlord") and SAFFORD
CARE, INC., a Colorado corporation, having its principal office at 2105
Clubhouse Drive, Greeley, Colorado 80634, as Tenant ("Tenant").
R E C I T A L S
Signature Health Care Corporation, a Delaware corporation ("Signature")
and Landlord have entered into the Assignment Agreement of even date herewith
(the "Assignment"), pursuant to which Signature has assigned to Landlord all of
Signature's rights under the Purchase and Sale Agreement dated as of July 28,
1995 between Signature and Arizona Income Properties, L.P. to acquire certain
real and personal property utilized in connection with the operations of
"Douglas Manor," a 64 bed long-term care property located in Douglas, Arizona
("Douglas Manor") and "Safford Care Center," a 128 bed long-term care property
in Safford, Arizona ("Safford") (collectively, Douglas Manor and Safford are the
"Arizona Properties"), and related facilities, including, but not limited to,
the Property (as defined in Article II). Landlord desires to lease Safford to
Tenant who desires to hire the same from Landlord pursuant to this Lease.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
ARTICLE I
DEFINITIONS
For all purposes of this Lease, unless otherwise expressly provided in
this Agreement or the context in which such term is used indicates a contrary
intent, (a) the terms defined in this Article shall have the meanings ascribed
to them in this Article, (b) all accounting terms not otherwise defined in this
Article shall have the meanings ascribed to them in accordance with generally
accepted accrual method accounting principles at the time applicable, (c) all
references in this Lease to designated "Articles," "Sections" and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Lease and (d) the words "herein," hereof" and "hereunder" and other words
of similar
<PAGE> 7
import refer to this Lease as a whole and not to any particular Article, Section
or other subdivision.
"ACH TRANSFER" shall mean the method of electronic payment initiated by
Tenant through Tenant's financial institution utilizing the National Automated
Clearinghouse Association system.
"ADDITIONAL CHARGES" shall have the meaning ascribed to such term in
Section 4.5.
"AFFILIATE" of any person or entity (the "Subject") shall mean (a) any
person which, directly or indirectly, controls or is controlled by or is under
common control with the Subject, (b) any person owning, beneficially, directly
or indirectly, ten percent (10%) or more of the outstanding capital stock,
shares or equity interests of the Subject or (c) any officer, director,
employee, general partner or trustee of the Subject or any person controlling,
controlled by or under common control with the Subject (excluding trustees and
persons serving in similar capacities who are not otherwise an Affiliate of the
Subject). As used in this definition, the term "person" means and includes
governmental agencies and authorities, political subdivisions, individuals,
corporations, limited liability companies, general partnerships, limited
partnerships, stock companies or associations, joint ventures, associations,
trusts, banks, trust companies, land trusts, business trusts and any other
entity of any form whatsoever, and "control" (including the correlative meanings
of the terms "controlled by" and "under common control with"), as used with
respect to any person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
person, through the ownership of voting securities, partnership interests or
other equity interests, or through any other means.
"ABP" shall mean American Health Properties, Inc., a Delaware
corporation.
"ARKANSAS MANOR LEASE" shall mean that certain lease entered into
between Landlord and Arkansas Manor, Inc., a Colorado corporation, as of June
13, 1995 with respect to that certain property known as Arkansas Manor, a 120
bed long-term care property located in the City and County of Denver, Colorado.
"ASSIGNMENT" shall have the meaning ascribed thereto in the Recitals to
this Lease.
"AWARD" shall have the meaning ascribed to such term in Section
16.1(c).
"BASE RENT" shall mean, with respect to the Fixed Term, the amount of
$477,980.30 per year.
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"BUSINESS DAY" shall mean any day on which banking institutions in
Denver, Colorado are open for the conduct of normal banking business.
"CAPITAL ADDITIONS" shall mean (a) one or more new buildings located on
the Land or to be used, directly or indirectly, as part of the Facilities, one
or more additional structures annexed to any portion of any of the Improvements,
(c) the material expansion of existing Improvements, (d) the construction of a
new wing or new story on existing Improvements, or (e) any expansion,
construction, renovation or conversion of existing Improvements to (i) increase
the bed or service capacity of the Facilities or (ii) change the purpose for
which the Facilities are utilized. Notwithstanding anything to the contrary
contained in Article XI, in the event it is necessary to abate or otherwise take
corrective action with respect to the existence of a Hazardous Substance (as
hereinafter defined) located in, on or under the Property or in the
Improvements, such abatement or corrective action shall not be deemed to be a
Capital Addition and shall be the sole responsibility of Tenant at its sole cost
and expense.
"CAPITAL ADDITIONS COST" shall mean the cost of any Capital Additions
made by Tenant, whether paid for by Tenant or Landlord. Such cost shall include
(a) the costs of constructing the Capital Additions, including site preparation
and improvement, materials, labor, supervision, developer and administrative
fees, the costs of design, engineering and architectural services, the costs of
fixtures, the costs of construction financing (including but not limited to
capitalized interest) and other similar costs approved in writing by Landlord,
(b) if agreed to by Landlord in writing in advance, the purchase price and other
acquisition costs, or applicable ground lease rental payable for any period such
ground lease is in effect to and including the date upon which such Capital
Addition is completed and occupied or in operation, as the case may be, of any
land which is acquired or leased for the purpose of placing thereon all or any
portion of the Capital Additions or for providing means of access thereto, or
parking facilities therefor (including the costs of surveying the same and
recording, title insurance and escrow fees and charges), (c) insurance premiums,
real estate taxes, water and sewage charges and other carrying charges for such
Capital Additions during their construction, (d) fees and expenses of legal
counsel, (e) any documentary transfer or similar taxes, (f) any applicable
regulatory or administrative fees and charges, and any costs, charges, fees or
expenses paid or incurred in connection with obtaining any applicable permits,
licenses, franchises, authorizations, certificates of need, certificates of
occupancy and similar authorizations and entitlement and (g) all other
reasonable costs and expenses of Landlord or Tenant, as applicable, and any
lending institution which has committed to finance the Capital Additions,
including, but not limited to, (i) the fees and expenses of their respective
legal counsel, (ii) any printing, duplicating and messenger expenses, (iii) any
filing, registration and
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recording taxes and fees, (iv) any documentary transfer or similar taxes, (v)
any title insurance charges and appraisal fees, (vi) any rating agency fees and
(vii) any commitment or similar fees charged by any lending institution
financing or offering to finance any portion of such Capital Additions.
"CASH FLOW" shall mean, for any period of determination, an
amount, equal to the sum of the amounts for such period of (i) net income before
income taxes, (ii) depreciation, amortization and other similar non-cash
charges, including depreciation and interest expense related to the Equipment,
(iii) Base Rent and (iv) Additional Rent.
"CHECK PAYMENT DATE" shall mean that certain day five Business Days
prior to the first day of each calendar month occurring during the Term hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMENCEMENT DATE" shall have the meaning ascribed to such term in
Section 3.1.
"CONDEMNATION" shall have the meaning ascribed to such term in Section
16.1(a).
"CONDEMNOR" shall have the meaning ascribed to such term in Section
16.1(d).
"CONSOLIDATED FINANCIALS" shall mean, for any fiscal year (or other
accounting period) for Tenant and Guarantors and Affiliates thereof statements
of earnings and retained earnings and of changes in financial position for such
period and for the period from the beginning of the respective fiscal year to
the end of such period and the related balance sheet as at the end of such
period, together with the notes thereto, all in reasonable detail and setting
forth in comparative form the corresponding figures for the corresponding period
in the preceding fiscal year (or period), all of which shall be prepared in
accordance with generally accepted accounting principles.
"CORNERSTONE CARE LEASE" shall mean that certain lease entered into
between Landlord and Cornerstone Care, Inc., a Colorado corporation, as of June
13, 1995 with respect to that certain property known as Cornerstone Care Center,
a 153 bed long-term care property located in Lakewood, Colorado.
"DATE OF TAKING" shall have the meaning ascribed to such term in
Section 16.1(b).
"DOUGLAS MANOR LEASE" shall mean that certain lease entered into
between Landlord and Douglas Manor, Inc., a Colorado corporation, as of July 28,
1995 with respect to that certain
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property known as Douglas Manor, a 64 bed long-term care property located in
Douglas, Arizona.
"ENCUMBRANCE" shall have the meaning ascribed to such term in Article
XXVII.
"EQUIPMENT" shall have the meaning given to that term in the Purchase
Agreement.
"EVENT OF DEFAULT" shall have the meaning ascribed to such term in
Section 17.1.
"EXTENDED TERM" shall have the meaning ascribed to such term in Section
3.2.
"FACILITY" shall mean the health care facility presently operated on
the Land, or with Landlord's consent, such other general health care facility,
general health and rehabilitation hospital, psychiatric hospital, nursing home,
retirement center, congregate living facility, health care related apartments or
hotel, medical office building, or other medical facility with treatment,
diagnostic, or surgical facilities for inpatient or outpatient care (which may
include but is not limited to acute care inpatient facilities, skilled nursing
facilities, intermediate care facilities, home health agencies, ambulatory care
clinics or similar facilities) offering other related health care products and
services being operated or proposed to be operated on the Land from time to time
in accordance with the Provisions of this Lease.
"FACILITY MORTGAGE" shall have the meaning ascribed to such term in
Section 14.1.
"FAIR MARKET ADDED VALUE" shall mean the Fair Market Value (hereinafter
defined) of the Property (including all Capital Additions without regard to the
source of payment for such Capital Additions) less the Fair Market Value of the
Property determined as if no Capital Additions which were paid for by Tenant (to
the extent not reimbursed by Landlord) had been constructed.
"FAIR MARKET RENTAL" shall mean, with respect to the Property
(including any Capital Additions or portions thereof paid for by Landlord) the
rental paid on a net basis as provided in Section 4.6 hereof which a willing
tenant not compelled to rent would pay to a willing landlord not compelled to
lease for the highest and best medical use and occupancy of such property
permitted pursuant to this Lease for the term in question, assuming that Tenant
is not in default under this Lease. For purposes of this Lease, Fair Market
Rental shall be determined in accordance with the appraisal procedures set forth
in Article XXV.
"FAIR MARKET VALUE" shall mean, with respect to the Property, including
all Capital Additions, the price that a willing buyer not compelled to buy would
pay to a willing seller not compelled to
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sell such property, assuming that (a) this Lease is not in effect, (b) that the
Property had been exposed for sale in the market for a reasonable period of
time, (c) that such seller must pay any closing costs and title insurance
premiums with respect to such sale and (d) that the Property is fully licensed
by all governmental agencies having jurisdiction thereof, is and will continue
to be operated for the Primary Intended Use and is otherwise a going concern.
For purposes of this Lease, Fair Market Value shall be determined in accordance
with the appraisal procedures set forth in Article XXV.
"FAIR MARKET VALUE PURCHASE PRICE" shall mean the Fair Market Value of
the Property less the Fair Market Added Value.
"FISCAL YEAR" shall mean the 12-month period commencing January 1 and
terminating December 31.
"FIXED CHARGES" shall mean the amount equal to the sum of Base Rent
plus principal and interest payments on debt.
"FIXED TERM" shall have the meaning ascribed to such term in Section
3.1.
"FIXTURES" shall have the meaning ascribed to such term in clause (d)
of Article II.
"GUARANTORS" shall mean Signature Health Care Corporation and Yankee
Creek Management Services LLC.
"HAZARDOUS SUBSTANCES" shall mean those substances, materials, and
wastes listed in the United States Department of Transportation Table (49 CFR
172 101) or by the Environmental Protection Agency as hazardous substances (40
CFR Part 302) and amendments thereto, or such substances, materials and wastes
which are or become regulated under any applicable local, state or federal law
including, without limitation, any material, waste or substance which is (i)
hydrocarbons, petroleum and petroleum products, (ii) asbestos, (iii)
polychlorinated biphenyls, (iv) formaldehyde, (v) radioactive substances, (vi)
flammables and explosives, (vii) described as a "hazardous substances pursuant
to Section 311 of the Clean Water Act, 33 U.S.C. Section 1251 et seq. (33 U.S.C.
Section 1321 or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C.
Section 1317), (viii) defined as a "hazardous waste" pursuant to Section 1004 of
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42
U.S.C. Section 6903), (ix) defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et. seq. (42 U.S.C. Section 9601), as the
same may be amended from time to time, or (x) any other substance, waste or
material which could presently or at any time in the future cause a detriment to
or impair the value or beneficial use of the Land or other Property (which, for
purposes of this definition shall include all air, soils, ground water,
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surface water and soil vapor) or constitute or cause a health, safety or
environmental hazard on, under or about the Land or other Property or to any
person who may enter on, under, or about the Land or other Property or require
remediation at the behest of any governmental agency.
"IMPACTED FACILITY" shall have the meaning, specified in Section 15.2.
"IMPOSITIONS" shall mean all taxes (including without limitation all
real property taxes imposed upon the Land, Improvements or other portions of the
Property, including, but not limited to all tangible and intangible personal
property, ad valorem, sales, use, single business, gross receipts, transaction
privilege, documentary stamp (if any are associated with this Lease or the
transactions contemplated hereby), rent or similar taxes relating to or imposed
upon Landlord, any portion of the Property, Tenant or its business conducted
upon the Land), assessments (including without limitation all supplemental real
property tax assessments or assessments for public improvements or benefit,
whether or not commenced or completed prior to the date hereof and whether or
not to be completed within the Term), ground rents, water, sewer or other rents
and charges, excises, tax levies, fees (including without limitation license,
permit, franchise, inspection, authorization and similar fees) and all other
governmental charges, in each case whether general or special, ordinary or
extraordinary, foreseen or unforeseen, of every character or nature whatsoever
with respect to or connected with the Property or the business conducted thereon
by Tenant (including all interest, penalties and fees thereon due to any failure
or delay in payment thereof) which at any time prior to, during or with respect
to the Tenn hereof may be assessed or imposed on or with respect to, or may be a
lien upon (a) Landlord's interest in the Property, (b) the Property or any part
thereof or any Rent therefrom or any estate, right, title or interest therein,
(c) Landlord's capital invested in the State as represented by the Property, or
(d) any occupancy, operation, use or possession of, or sales from, or activity
conducted on or in connection with the Property or the leasing or use of the
Property or any part thereof by Tenant. Impositions shall not include (1) any
tax based on net income (whether denominated as a franchise, capital stock or
other tax) imposed upon Landlord or any other person, whether imposed on "net
taxable earned surplus" or otherwise, (2) any transfer tax imposed upon Landlord
or any other person or (3) any tax imposed with respect to the sale, exchange or
other disposition by Landlord of any Property or the proceeds thereof, nor any
tax, assessment, tax levy or charge described in the first sentence of this
paragraph which is in effect at any time during the Term hereof to the extent
such tax, assessment, tax levy or charge is totally or partially repealed,
unless a tax, assessment, tax levy or charge set forth in clause (1) or (2) is
levied, assessed or imposed expressly in lieu thereof, in which case the
substitute tax, assessment, tax levy or charge shall be deemed to be an
Imposition.
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<PAGE> 13
"IMPROVEMENTS" shall have the meaning, ascribed to such term in clause
(b) of Article II.
"INITIAL BASE RENT" shall mean the amount of Base Rent in the initial
year of the Term.
"INITIAL INVESTMENT COST" shall mean $4,933,990.15.
"INSURANCE REQUIREMENTS" shall mean all terms and conditions of any
insurance policy required by this Lease and all requirements of the issuer of
any such insurance policy.
"LAND" shall mean all of that certain real property situated in
Safford, Arizona and more particularly described in Exhibit A attached hereto
and incorporated herein by reference, and any other parcel of land acquired or
leased and made subject to this Lease in connection with a Capital Addition.
"LANDLORD GROUP" shall mean any one or more of Landlord, AHP, any
Affiliate of Landlord or AHP and any shareholder of AHP.
"LANDLORD'S TOTAL INVESTMENT" shall mean an amount equal to the sum of
(y) the Initial Investment Cost and (z) all Capital Additions Costs pertaining
to the Property paid for by Landlord pursuant to Section 11.2 of the Lease.
"LANDLORD'S TRANSACTION EXPENSES" shall mean all reasonable
out-of-pocket expenses incurred by Landlord in connection with (i) the
preparation of this Lease, the Purchase Agreement and any Substitute Lease and
the instruments contemplated hereunder and thereunder, and any other instruments
required to be executed and delivered by Tenant to Landlord in connection,
herewith or therewith (whether or not the transactions hereby or thereby
contemplated shall be consummated) and (ii) the transactions contemplated to be
performed hereunder and thereunder, including but not limited to the reasonable
fees and disbursements of Landlord's legal counsel, title insurance premiums,
recording taxes and fees, survey fees, valuation or appraisal fees, engineering
fees and architects' fees.
"LEASE" shall mean this document, as the same may be amended from time
to time in accordance herewith.
"LEASE RESERVE FUND" shall have the meaning ascribed thereto in Section
29.3(c).
"LEASE YEAR" shall mean the period commencing on the Commencement Date
and ending on the first anniversary thereof, except that if the Commencement
date is other than the first day of a calendar month, the first Lease Year shall
end 12 months from the last day of the calendar month immediately preceding the
Commencement Date. Thereafter, each Lease Year shall be the 12 month period
beginning on the next day following expiration of the
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<PAGE> 14
preceding Lease Year. If the Term ends prior to the last day of a Lease Year,
the first Lease Year shall be deemed to end on the day the Term ends.
"LEASES" shall mean the Lease, the Arkansas Manor Lease, the
Cornerstone Care Lease and the Douglas Manor Lease, collectively.
"LEGAL REQUIREMENTS" shall mean all federal, state, county, municipal
and other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, common law, decrees and injunctions affecting the Property or the
maintenance, construction, use, alteration, occupancy or operation thereof,
whether now or hereafter enacted and in force (including any of the foregoing
which may require repairs, modifications or alterations in or to the Property),
all permits, licenses, certificates, franchises, authorizations, land use
entitlement, zoning and regulations relating thereto, and all covenants,
conditions, agreements, restrictions and encumbrances contained in any
instruments, either of record or known to Tenant (other than encumbrances
created by Landlord without the consent of Tenant), at any time in force
affecting the Property.
"MINIMUM REPURCHASE PRICE" shall mean the Initial Investment Cost, plus
the Capital Additions Cost of any Capital Additions financed or paid for by
Landlord, less the net amount (after deduction of all reasonable legal fees and
other costs and expenses, including without limitation expert witness fees,
incurred by Landlord in connection with obtaining any such proceeds or awards)
of any proceeds of insurance paid to and retained by Landlord in accordance with
Article XV of this Lease and of any Awards received by Landlord and not applied
to restoration of the Property in accordance with Article XVI of this Lease.
"NHI" shall mean National Health Investors, Inc.
"NOTICE" shall mean a notice given pursuant to Section 30.8 hereof.
"OFFICER'S CERTIFICATE" shall mean a certificate of Tenant signed by
the chief financial officer or another officer authorized so to sign by
resolutions adopted by the board of directors or the articles of incorporation
or bylaws of the general partner of the Tenant or by any other person whose
power and authority to act has been authorized by delegation in writing by the
chief financial officer of the general partner of the Tenant.
"OVERDUE RATE" shall mean, as of a specified date, a rate of interest
equal to the Prime Rate plus three percent, but in no event greater than the
maximum rate of interest then permitted under applicable law.
"PAYMENT DATE" shall mean any due date for the payment of any
installment of Base Rent.
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<PAGE> 15
"PERMITTED ENCUMBRANCES" shall mean the matters, if any, set forth in
Exhibit B attached hereto and incorporated herein by reference.
A "person" shall mean any natural person, corporation, limited
liability company, business trust, association, company, partnership or
government (or any agency or political subdivision thereof) or, for purposes of
the definition of "Change of Control" herein, any group acting in concert
(within the meaning of Section 13(d) of the Securities Exchange Act of 1934).
"PRIMARY INTENDED USE" shall mean a long-term care facility licensed by
the State and such additional uses which are licensed or applied for on the date
hereof or are permitted by Landlord from time to time hereunder.
"PROPERTIES" shall mean the Property subject to the Leases,
collectively.
"PROPERTY" shall have the meaning ascribed to such term in Article II.
"PURCHASE AGREEMENT" shall have the meaning given to that term in the
Assignment.
"RENT" shall mean the Base Rent and Additional Charges.
"SALE" shall have the meaning specified in Section 26.2.
"SECURITY AGREEMENT" shall mean the Security and Pledge Agreement of
even date between Tenant, as Debtor, and Landlord, as Secured Party.
"SECURITY LETTER OF CREDIT" shall have the meaning ascribed thereto in
Section 29.3.
"SIGNATURE GUARANTY" shall mean that certain Guaranty of even date
herewith executed by Signature Health Care Corporation in favor of Landlord.
"STATE" shall mean the State of Arizona.
"TAKING" shall mean a taking or voluntary conveyance during the Tenn
hereof of all or any part of the Property, or any interest therein, right with
respect thereto or use thereof, as a result of, incidental to, or in settlement
of any condemnation or other eminent domain proceedings affecting such Property,
regardless of whether such Proceedings shall have actually been commenced.
"TANGIBLE NET WORTH" shall mean, as of the date of determination, the
sum of the following for Tenant and its consolidated subsidiaries, if any, on a
consolidated basis, determined in accordance with generally accepted accounting
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principles (a) the amount of capital or stated capital (after deducting the cost
of any shares held in the applicable entity's treasury); plus (b) the amount of
capital surplus and retained earnings; or (c) in the care of a capital or
retained earnings deficit, minus the amount of such deficit and less (d) the
amount, if any, carried on the books of the entity and any consolidated
subsidiaries of the entity for goodwill, patents, trademarks, copyrights,
licenses, and other assets which are properly classified as intangible assets
under generally accepted accounting principles.
"TENANTS" shall mean Arkansas, Inc., Cornerstone Care, Inc., Douglas
Manor, Inc. and Safford Care, Inc., collectively.
"TENANT'S PERSONAL PROPERTY" shall mean all machinery, equipment,
furniture, furnishings, movable walls or partitions, computers or other personal
property, and consumable inventory and supplies, including, without limiting the
generality of the foregoing, sterilizer units, scrub sinks, mail boxes, desks,
lamps, chairs, beds, bedstands, surgical lamps, water stills, fume hoods,
non-affixed cabinetry, tables, and similar movable equipment, owned by Tenant
and used or useful in Tenant's business on the Land, but in no event any items
included within the definition of Equipment or Fixtures.
"TERM" shall mean the Fixed Term and any Extended Terms, as the context
may require, unless earlier terminated pursuant to the Provisions of this Lease.
"TOTAL RENT" shall mean the sum of Base Rent and Additional Charges.
"TRANSFER PAYMENT DATE" shall mean the first Business Day of each
calendar month occurring during the Term hereof.
"UNAVOIDABLE DELAYS" shall mean delays due to strikes, lockouts,
inability to procure materials, power failures, acts of God, governmental
restrictions, enemy action, civil commotion, unavoidable casualty and other
causes beyond the control of the party responsible for performing an obligation
hereunder, provided that lack of funds shall not be deemed a cause beyond the
control of either party hereto.
"YANKEE CREEK GUARANTY" shall mean that certain Guaranty of even date
herewith executed by Yankee Creek Management Services LLC in favor of Landlord.
ARTICLE II
LEASE OF PROPERTY
Landlord hereby leases, demises and lets to Tenant, and Tenant hereby
hires, takes and leases from Landlord, upon the terms and subject to the
conditions hereinafter set forth, TO HAVE AND TO
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HOLD, all of Landlord's right, title and interest in and to all of the following
(the "PROPERTY"):
(a) the Land;
(b) all buildings, structures and other improvements of every kind,
including but not limited to the Facility, all buildings and structures
hereafter constructed upon the Land and all alleyways and connecting tunnels,
sidewalks, utility pipes, conduits and lines (on-site and off-site), parking
areas, roadways and other related on-site and off-site improvements appurtenant
to such buildings and structures presently or hereafter situated upon the Land,
and any and all Capital Additions paid for by Landlord pursuant to Section 11.2
of this Lease (the "IMPROVEMENTS");
(c) all machinery and equipment and all other tangible personal
property, fittings, appliances, apparatus, furniture, furnishings now and
hereafter located on, affixed to or used in connection with the Facility;
(d) all easements, licenses, rights-of-way and appurtenances
relating to the Land and the Improvements); and
(e) all "fixtures" as that term is defined in the State now and
hereafter located in, on or used and incorporated into the Land or Improvements
(the "FIXTURES").
ARTICLE III
TERM OF LEASE
3.1 TERM OF LEASE. The initial term of this Lease shall commence on
July 28, 1995 ("COMMENCEMENT DATE"), and, unless extended or terminated earlier
in accordance with the provisions of this Lease, shall remain in effect until
June 30, 2005 (the "FIXED TERM"). Notwithstanding the foregoing, if, for any
reason, through no fault of Landlord, Landlord cannot deliver possession of the
Property to Tenant on the Commencement Date, Landlord shall not be subject to
any liability, nor shall such failure affect the validity of this Lease or the
obligations of Tenant hereunder or extend the Term hereof, but in such case,
Tenant shall not be obligated to pay Rent or to perform any other obligation of
Tenant under this Lease until possession of the Property is tendered to Tenant.
3.2 OPTION TO EXTEND TERM OF LEASE.
(a) Subject to the provisions of Paragraph (c) below, Landlord
hereby grants to Tenant an option to extend the term of the Lease, for three
additional consecutive ten-year renewal terms (each, an "Extended Term," and
collectively, the "Extended Terms"). Each of the Extended Terms shall be upon
the same terms and conditions as those set forth for the Fixed Term except that
Base Rent shall be the then current Fair Market Rental which, unless
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otherwise mutually agreed to by Landlord and Tenant, shall be determined by
appraisal pursuant to the provisions of Article XXV; provided that the annual
Base Rent for each Extended Term shall not be less than 102 1/2% of the sum of
Base Rent payable during the last year of the Fixed Term or preceding Extended
Term, as the case may be. The Base Rent for the Extended Term provided for
herein for the second and each subsequent Lease Year of the Extended Term shall
be increased to an amount equal to one hundred two and one-half percent
(102 1/2%) of the Base Rent for the preceding twelve month period, calculated
by applying such percentage increases on a cumulative basis to the Base Rent
payable during each of the preceding Lease Years. Each such option may only be
exercised by Tenant if, at the time such option is exercised, an Event of
Default shall not exist and be continuing,, and shall be exercised by Tenant by
delivery of Notice to that effect to Landlord not less than 180 days but not
more than 360 days prior to the date upon which this Lease otherwise would
terminate. Tenant's exercise of any option to extend the term of this Lease for
an extended term pursuant to this Section 3.2 shall constitute Tenants'
irrevocable and binding commitment to lease the Property on the terms stated in
this Lease for the whole of such Extended Term. If Tenant is unable to exercise
any option due to the provisions of this Lease, the time during which such
option may be exercised shall not be extended or enlarged. The failure of Tenant
to exercise any of the options for the Extended Terms within the respective
times specified in this Section shall thereby terminate any remaining such
options.
Time is strictly of the essence with respect to the requirement that Tenant
gives timely Notice of its exercise of any options hereunder, including, but not
limited to, the options for the Extended Terms, and Tenant's failure timely to
exercise any option strictly in accordance with its terms shall constitute a
material, irredeemable and incurable failure to satisfy a condition precedent to
the vesting of any rights in Tenant pursuant to such option, and Tenant hereby
expressly waives any right to claim relief from forfeiture, or any other form of
equitable relief, from consequences of an untimely exercise of any such option
strictly in accordance with its terms. The implied covenant of good faith and
fair dealing under this Lease shall not be construed to impose upon Landlord any
obligation to notify Tenant in advance of the impending deadline for the
exercise of any option hereunder, nor shall it obligate Landlord to excuse the
tardy exercise of any option however slight.
(c) Unless Landlord shall otherwise consent in its sole discretion,
Tenant's right to extend the Term of the Lease is subject to the condition that
upon any such extension, the terms of all of the other Leases will be extended
concurrently.
ARTICLE IV
RENT
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4.1 PAYMENT OF LANDLORD'S TRANSACTION EXPENSES. On the Commencement
Date, Tenant shall pay to Landlord all Landlord's Transaction Expenses. Landlord
shall furnish Tenant with reasonable documentation concerning Landlord's
Transaction Expenses.
4.2 PAYMENT OF BASE RENT AND ADDITIONAL CHARGES. During, the Term,
Tenant shall pay to Landlord at the times specified herein, in lawful money of
the United States of America, without right. of abatement, deduction,
counterclaim, defense, reduction, recoupment or offset, by wire transfer or ACH
Transfer of Federal Funds to such account or accounts as Landlord may designate
from time-to-time in a Notice or by check delivered to Landlord at the address
in Section 30.8, or at such other place as Landlord may designate in writing,
the Base Rent and the Additional Charges.
4.3 BASE RENT. Commencing on the first Business Day of the first full
calendar month occurring coincident with or after the Commencement Date, and
thereafter, for any Base Rent payment by wire transfer or ACH Transfer on the
Transfer Payment Date, and if by check, Base Rent payment is due on the Check
Payment Date, for the period beginning on the first Business Day and ending on
the last day of the Term hereof, Tenant shall pay to Landlord an amount
calculated by dividing (x) Base Rent by (y) 12, provided that the first payment
of Base Rent shall include an additional payment for any partial calendar month
occurring between the Commencement Date and the date of the first payment of
Base Rent. Any payment of Base Rent for a period of less than one calendar month
shall be prorated based upon the number of days for which such Base Rent is due
divided by 30.
4.4 RENT ADJUSTMENT. The Base Rent provided for herein for the second
and each subsequent Lease Year of the Term shall be increased to an amount equal
to one hundred two and one-half percent (102 1/2%) of the Base Rent for the
preceding twelve month period, calculated by applying such percentage increases
on a cumulative basis to the Base Rent payable during each of the preceding
Lease Years.
4.5 ADDITIONAL CHARGES. Subject to Article XIII hereof, Tenant shall
pay and discharge as and when due and payable all Impositions and other amounts,
liabilities and obligations which Tenant assumes or agrees to pay under this
Lease. If Tenant fails or refuses to pay any of the items referred to in the
immediately preceding sentence, Tenant shall promptly pay and discharge every
fee, penalty, interest and cost which may arise or accrue for the non-payment or
late payment of such items. The aforementioned amounts, liabilities,
obligations, Impositions, fees, penalties, interest and costs are referred to
herein as "Additional Charges." The Additional Charges shall constitute Rent
hereunder. If any Rent (but as to Additional Charges, only those which are
payable directly to Landlord) shall not be paid on its due date, Tenant shall
pay to Landlord on demand, as an Additional Charge, a late
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charge to the extent permitted by law, computed at the Overdue Rate on the
amount of such Rent from the due date of such Rent to the date such Rent is
paid. Any payment by Tenant of Additional Charges to Landlord pursuant to any
requirement of this Lease shall relieve Tenant of its obligation to pay such
Additional Charges to the entity to which they would otherwise be paid.
4.6 TRIPLE NET LEASE.
(a) TRIPLE NET LEASE. This Lease is what is commonly called a "net
net net lease," it being understood that Landlord shall receive all Rent as
provided in this Article free and clear of any and all Impositions,
encumbrances, charges, obligations or expenses of any nature whatsoever in
connection with the ownership and operation of the Property. In addition to the
Rent reserved by this Article, except as expressly provided herein to the
contrary, Tenant shall pay to the parties respectively entitled thereto all
Impositions, insurance premiums, operating charges, maintenance charges,
construction costs and any other charges, costs and expenses which arise or may
be contemplated under any provisions of this Lease during the Term hereof. All
of such charges, costs and expenses shall constitute Rent, and upon the failure
of Tenant to pay any such costs, charges or expenses, Landlord shall have the
same rights and remedies as otherwise provided in this Lease for the failure of
Tenant to pay Rent and Landlord shall be indemnified and saved harmless by
Tenant from and against the same. It is the intention of the parties hereto that
this Lease shall not be terminable for any reason by the Tenant and that Tenant
shall in no event be entitled to any abatement of or reduction in Rent payable
under this Lease except as herein expressly provided. Any present or future law
to the contrary shall not alter this agreement of the parties.
(b) BANKRUPTCY. Tenant covenants and agrees that it shall remain
obligated under this Lease in accordance with its terms, and that Tenant shall
not take any action to terminate, rescind or avoid this Lease, notwithstanding
the bankruptcy, insolvency, reorganization, composition, readjustment,
liquidation, dissolution, winding up or other proceeding affecting Landlord or
any assignee of Landlord in any such proceeding and notwithstanding any action
with respect to this Lease which may be taken by any trustee or receiver of
Landlord or any such assignee in any such proceeding or by any court in any such
proceeding.
(i) In the event that Tenant shall file a petition, or an order
for relief is entered against Tenant, under Chapter 7, 9, 11 or 13 of the
Bankruptcy Code, 11 U.S.C.S. 101, et seq. (the "BANKRUPTCY CODE") and the
trustee of Tenant shall elect to assume this Lease for the purpose of assigning
the same, such assumption or assignment may only be made if all the conditions
of subsections (ii) and (iii) of this Section 4.8(b) are satisfied. If the
trustee or debtor-in-possession, as the case may be, shall fail to elect to
assume this Lease within 60 days after such trustee shall
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have been appointed, or the date of filing of the petition, at Landlord's
election (and in its sole and absolute discretion) this Lease shall be deemed to
have been rejected and, in such event, Landlord shall thereupon immediately be
entitled to possession of the Property without further obligation to the trustee
or Tenant, and this Lease shall be canceled, but Landlord's right to be
compensated for damages in the bankruptcy proceedings shall survive such
cancellation.
(ii) No election to assume this Lease shall be effective unless
in writing and addressed to Landlord and unless, in Landlord's business
judgment, all the following conditions, which Landlord and Tenant acknowledge to
be commercially reasonable, have been satisfied:
(A) The trustee (or Tenant, as debtor-in-possession) has
cured or has provided Landlord adequate assurance that:
(I) within ten days from the date of such assumption,
the trustee (or debtor-in-possession) will cure all monetary defaults under this
Lease; and
(II) within 30 days from the date of such assumption,
the trustee (or debtor-in-possession) will cure all non-monetary defaults under
this Lease or commence to cure within 30 days and thereafter diligently pursue
to completion.
(B) The trustee (or debtor-in-possession) has compensated,
or has provided to Landlord adequate assurance that within ten days from the
date of assumption Landlord will be compensated, for any pecuniary loss incurred
by Landlord arising from the default of the Tenant or the trustee (or the
debtor-in-possession) as recited in Landlord's written statement of pecuniary
loss sent to the trustee (or debtor-in-possession);
(C) The trustee (or debtor-in-possession) has provided
Landlord with adequate assurance of the future performance of each of Tenant's
obligations under this Lease, provided that:
(I) the trustee (or debtor-in-possession) shall also
deposit with Landlord, as security for the timely payment of Rent, an amount
equal to (w) three months' Base Rent and (x) the last quarterly payment of
Percentage Rent and (y) the other monetary charges accruing under this Lease;
and
(II) the obligations imposed upon the trustee (or
debtor-in-possession) shall continue with respect to Tenant after completion of
bankruptcy proceedings.
(D) Landlord has determined that the assumption of the
Lease will not:
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(I) breach any provision in any agreement by which
Landlord is bound relating to the Property; or
(II) disrupt, in Landlord's reasonable judgment, the
reputation and profitability of the Property.
(E) For purposes of this subsection. "adequate assurance" shall
mean:
(I) Landlord shall determine that the trustee (or
debtor-in-possession) has and will continue to have sufficient unencumbered
assets after the payment of all secured obligations and administrative expenses
to assure Landlord that the trustee (or debtor-in-possession) will have
sufficient funds to fulfill the obligations of Tenant under this Lease; and
(II) an order shall have been entered segregating
sufficient cash payable to Landlord, or there shall have been granted a valid
and perfected first lien and security interest in property of the Tenant or
trustee (or debtor-in-possession), acceptable as to value and kind to Landlord,
to secure to Landlord the obligation of the Trustee (or debtor-in-possession) to
cure the monetary or nonmonetary defaults under this Lease within the time
periods set forth above.
(iii) If the trustee (or debtor-in-possession) has assumed the
Lease pursuant to all the provisions of subsections (i) and (ii) of this Section
48(b), for the purpose of assigning (or electing to assign) Tenant's interest
under this Lease or the estate created thereby to any other person, such
interest or estate may be so assigned only if Landlord shall acknowledge in
writing that the intended assignee has provided adequate assurance of future
performance of all the terms, covenants and conditions of this Lease to be
performed by Tenant. For purposes of this subsection (iii), "adequate assurance
of future performance" means that Landlord shall have ascertained that each of
the following conditions has been satisfied:
(A) the assignee has submitted a current financial statement
audited by a certified public accountant which shows tangible net worth and
working capital in amounts determined to be sufficient by Landlord to assure the
future performance by such assignee of Tenant's obligations under this Lease;
(B) if requested by Landlord, the assignee shall have
obtained guarantees in form and substance satisfactory to Landlord from one or
more persons who satisfy Landlord's standards of creditworthiness;
(C) Landlord has obtained all consents to waivers from any
third parties required under any lease, mortgage, financing arrangement or other
agreement by which Landlord is bound to enable Landlord to permit such
assignment;
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(D) the assignee has deposited an adequate security deposit
with Landlord; and
(E) the assignee has demonstrated that its intended use of
the Property is consistent with the terms of this Lease and will not diminish
the reputation of the Facility, or violate any "exclusive" which has been
granted by Tenant to any permitted subtenant in the Property.
(iv) When, pursuant to the Bankruptcy Code, the trustee
(or debtor-in-possession) shall be obligated to pay reasonable use and occupancy
charges for the use of the Property or any portion thereof, such charges shall
not be less than the Rent.
(v) Neither Tenant's interest in the Lease, nor any
lesser interest of Tenant herein, nor any estate of Tenant hereby created, shall
pass to any trustee, receiver, assignee for the benefit of creditors or any
other person by operation of law or otherwise unless Landlord shall consent to
such transfer in writing. No acceptance by Landlord of rent or any other
payments from any such trustee, receiver, assignee or person shall be deemed to
have waived, nor shall it waive the need to obtain Landlord's consent to, or
Landlord's right to terminate this Lease for, any transfer of Tenant's interest
under this Lease without such consent.
(vi) Any person to whom this Lease is assigned pursuant
to the provisions of the Bankruptcy Code shall be deemed without further act or
deed to have assumed all the obligations arising under this Lease on or after
the date of such assignment. Any such assignee shall, upon demand, execute and
deliver to Landlord an instrument confirming such assumption.
ARTICLE V
IMPOSITIONS
5.1 PAYMENT OF IMPOSITIONS. Tenant shall pay, or cause to be paid, all
Impositions prior to delinquency and before any fee, penalty, interest or cost
may be added for non-payment (subject to Tenant's rights of contest pursuant to
the provisions of Article XIII). Such payments shall be made directly to the
authorities levying such Impositions, if possible. Tenant shall, promptly upon
request by Landlord, furnish to Landlord original or certified copies of
receipts or other reasonably satisfactory evidence of such payments. Tenant's
obligation to pay Impositions shall be deemed absolutely fixed upon the date
such Impositions become a lien upon the Property or any part thereof.
Notwithstanding the foregoing, if any such Imposition may, at the option of the
payor, lawfully be paid in installments (whether or not interest shall accrue on
the unpaid balance of such Imposition), and so long as no Event of Default shall
have occurred hereunder and be continuing,
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Tenant may pay the same (and shall pay any accrued interest on the unpaid
balance of such Imposition) in installments, and in such event shall pay such
installments (subject to Tenant's right of contest pursuant to the provisions of
Article XIII) as the same become due and before any fee, penalty, premium,
further interest or cost is added thereto. Landlord shall, at its expense and to
the extent required or permitted by applicable laws and regulations, prepare and
file all returns with respect to Landlord's net income, gross receipts, sales,
use, single business, transaction privilege, rent, ad valorem and franchise
taxes, and with respect to taxes on Landlord's capital stock. Tenant shall, at
its expense, and to the extent required or permitted by applicable laws and
regulations, prepare and file all other tax returns and reports with respect to
any Imposition as may be required of Tenant by governmental agencies or
authorities. If any refund shall be due from any taxing authority with respect
to any Imposition paid by Tenant, the same shall be paid over to and retained by
Tenant unless an Event of Default shall have occurred hereunder and be
continuing, in which case such refund shall be paid over to and retained by
Landlord. Any such funds retained by Landlord due to an Event of Default shall
be applied as provided in Article XVII. Landlord and Tenant shall, each upon a
request by the other, provide such information as is maintained by the party to
whom the request is made with respect to the Property as may be reasonably
necessary to prepare any required returns or reports. If any governmental agency
or authority classifies any property covered by this Lease personal property,
Tenant shall file all personal property tax returns in such jurisdictions where
it may legally so file. Landlord, to the extent it possesses the same, and
Tenant, to the extent it possesses the same, will provide to the other party,
promptly upon request, cost and depreciation records reasonably necessary for
filing returns for any property so classified as personal property. If Landlord
is legally required to file any personal property tax returns, Landlord shall
provide Tenant with copies of any assessment notices with respect thereto in
sufficient time for Tenant to file a protest with respect thereto if it so
elects pursuant to Article XIII. If no Event of Default is then continuing,
Tenant may at its option and sole cost and expense, upon written notice to
Landlord, protest, appeal or institute such other proceedings as Tenant
reasonably may deem appropriate to effect a reduction of real estate or personal
property assessments so long as such action is conducted in good faith and with
due diligence. In such event, Landlord, at Tenant's sole cost and expense, shall
fully cooperate with Tenant in such protest, appeal, or other action. Tenant
hereby agrees to indemnify, defend, save and hold Landlord harmless from and
against any and all losses, demands, claims, obligations and liabilities against
or incurred by Landlord in connection with such cooperation by Landlord.
Billings by either party to the other for reimbursement of personal property
taxes shall be accompanied by copies of a bill therefor and evidence of payments
thereof which identify the personal property with respect to which such payments
have been made.
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5.2 NOTICE OF IMPOSITIONS. Landlord shall give prompt Notice to Tenant
of all Impositions payable by Tenant hereunder of which Landlord at any time has
knowledge. Notwithstanding the foregoing, however, Landlord's failure to give
any such Notice shall in no way diminish Tenant's obligations hereunder to pay
such Impositions, but Landlord shall be responsible for any fine, penalty or
interest resulting from its failure to give such notice and any default by
Tenant hereunder shall be obviated for a reasonable time after Tenant receives
Notice of any Imposition which it is obligated to pay.
5.3 ADJUSTMENT OF IMPOSITIONS. Impositions imposed with respect to the
tax period during which the Term expires or terminates shall be adjusted and
prorated between Landlord and Tenant, whether or not such Imposition is imposed
before or after such expiration or termination, so that Tenant is only obligated
to pay that portion of such Imposition(s) pertaining to the tax period within
the Term. The obligation of Tenant to pay its prorated share of Impositions
shall survive expiration or earlier termination of this Lease.
5.4 UTILITY CHARGES. Tenant shall pay or cause to be paid all charges
for all utilities, including but not limited to electricity, power, gas, oil and
water, used in the Property during the Term.
5.5 INSURANCE PREMIUMS. Tenant shall pay or cause to be paid all
premiums for insurance coverage required to be maintained pursuant to Article
XIV.
ARTICLE VI
TERMINATION OR ABATEMENT OF LEASE
Without limiting the generality of Section 4.6, Tenant, to the full
extent permitted by law, shall remain bound by this Lease in accordance with its
terms. Tenant shall not take any action without the prior written consent of
Landlord to modify, surrender or terminate this Lease. The obligations of
Landlord and Tenant hereunder shall be separate and independent covenants and
agreements, and Rent and all other sums shall continue to be payable by Tenant
hereunder in any event unless the obligation of Tenant to pay the same
terminates pursuant to the express provisions of this Lease or by termination of
this Lease (other than by reason of an Event of Default). Without limiting the
generality of the immediately preceding sentence, Tenant shall not seek or be
entitled to any abatement, deduction, deferment or reduction of Rent, or set-off
against Rent, nor shall the respective obligations of Landlord and Tenant be
otherwise affected by reason of: (a) any damage to, or destruction of, all or
any portion of the Property from whatever cause or any Taking of all or any
portion of the Property; (b) the lawful or unlawful prohibition of, or
restriction upon, Tenant's use of all or any portion of the
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Property, or the interference with such use or with Tenant's quiet enjoyment of
the Property by any person or entity other than Landlord, or by reason of
eviction by paramount title; (c) any claim which Tenant has or may have against
Landlord by reason of any default or breach of any warranty by Landlord under
this Lease or under any other agreement between Landlord and Tenant or to which
Landlord and Tenant are parties; (d) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceeding affecting Landlord or any assignee or transferee of Landlord; or (e)
any other cause, whether similar or dissimilar to any of the foregoing (other
than a discharge of Tenant from any such obligations as a matter of law). Tenant
hereby specifically waives all rights, arising from any occurrence whatsoever,
which (i) may now or hereafter be conferred upon it by law to modify, surrender
or terminate this Lease or quit or surrender all or any portion of the Property
or (ii) entitle Tenant to any abatement, reduction, suspension or deferment of
Rent or other sums payable by Tenant hereunder.
ARTICLE VII
OWNERSHIP OF PROPERTY
7.1 OWNERSHIP OF THE PROPERTY. As between Landlord and Tenant the
Property is, and throughout the Term shall continue to be, the property of
Landlord. Tenant has only the right to the exclusive possession and use of the
Property, upon the terms and subject to the conditions set forth in this Lease.
7.2 TENANT'S PERSONAL PROPERTY; SECURITY INTEREST. Tenant may, at its
expense, install, affix, assemble or place on the Property any items of Tenant's
Personal Property and may, subject to the conditions set forth below, remove
Tenant's Personal Property upon the expiration or earlier termination of this
Lease or in the ordinary course of business (other than a termination upon an
Event of Default) so long as any damage caused by such removal shall be promptly
repaired by Tenant. Notwithstanding the foregoing, in order to secure the
payment and the performance of all of Tenant's obligations under this Lease,
Tenant hereby grants to Landlord a security interest in (and hereby pledges and
collaterally assigns to Landlord) all of Tenant's rights, title and interest in
and to Tenant's Personal Property, all whether now existing or hereafter
acquired and hereby further agrees to execute and deliver to Landlord, forthwith
after demand by Landlord from time to time, any security agreement in a
reasonable form determined by Landlord and such additional writings and
instruments, including without limitation financing statements, as may be
reasonably required by Landlord for the purpose of effectuating the intent of
this sentence and Tenant agrees that Landlord shall have with respect to all
Personal Property all rights and remedies of a secured party under the Uniform
Commercial Code as adopted in the State, including, but not limited to, the
right after the occurrence of an Event of Default to use or sell Tenant's
Personal Property, and Landlord shall not be required to
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remove any of such Personal Property from the Property and in no event shall
Landlord be liable to Tenant for use of such Personal Property. Pending
disposition of such Personal Property by Landlord, Landlord shall be entitled to
use such Personal Property in connection with the operation (if any) of the
Facility. Tenant shall not permit the Property or Personal Property to become
subject to any liens or encumbrances of any kind without first obtaining the
prior written consent of Landlord, except for liens or encumbrances permitted by
Section 29.1(a). This Lease and the security interest granted Landlord hereby
shall be subordinate to any purchase money security interest or capital lease
permitted under Section 29.1(a). Landlord further agrees that Tenant may lease
Personal Property, and Landlord shall execute and deliver such agreements as may
be reasonably required by any permitted equipment lessor or the holder of a
permitted purchase money security interest to confirm that Landlord's lien on
the Personal Property in question is subordinate to the rights of such equipment
lessor or lender and in each case Tenant shall use its best efforts to obtain
from the holder of the purchase money debt or lessor of Personal Property, as
the case may be, its agreement to (i) notify Landlord or its successors and
assigns of any default by Tenant, (ii) allow Landlord or its successors and
assigns an opportunity to cure any default, (iii) recognize Landlord or its
successors and assigns as succeeding to Tenant's rights under the agreement in
question and to the undisturbed use of the equipment, provided that Landlord
fully complies with the terms of such agreement. Tenant shall provide and
maintain on the Property during the entire Term such Tenant's Personal Property
as shall be necessary to operate the Facility in compliance with all licensure
and certification requirements, in substantial compliance with all Legal
Requirements and Insurance Requirements and otherwise in accordance with
customary practice in the health care industry with respect to the Primary
Intended Use or other uses then conducted on the Property by Tenant and
permitted hereunder. All Tenant's Personal Property not removed by Tenant within
thirty days following the expiration or earlier termination of this Lease shall
be considered abandoned by Tenant and may be appropriated, sold, destroyed or
otherwise disposed of by Landlord without first giving Notice thereof to Tenant
and without any payment or obligation to account to Tenant. Tenant shall, at its
sole cost and expense, restore the Property to the condition required by Section
10.1(d), including repair of all damage to the Property caused by the removal of
Tenant's Personal Property, whether effected by Tenant or Landlord, except that
caused by the gross negligence or willful misconduct of Landlord.
ARTICLE VIII
CONDITION AND USE OF PROPERTY
8.1 CONDITION OF THE PROPERTY. LANDLORD MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, AND SHALL BE SUBJECT TO NO LIABILITY WITH
RESPECT TO, NOR SHALL THE VALIDITY OF THIS LEASE BE AFFECTED BY ANY CLAIM,
DEMAND OR CAUSE OF ACTION REGARDING THE
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PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS DESIGN, CONDITION OR FITNESS FOR
ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO THE QUALITY OF THE MATERIAL
OR WORKMANSHIP THEREIN, LATENT OR PATENT. TENANT ACKNOWLEDGES AND AGREES THAT
THE PROPERTY HAS BEEN INSPECTED BY TENANT, HAS BEEN APPROVED FOR OCCUPANCY BY
ALL GOVERNMENT AGENCIES HAVING JURISDICTION THEREOVER AND IS SATISFACTORY TO IT
IN ALL RESPECTS, INCLUDING FOR ITS PRIMARY INTENDED USE, AND THAT TENANT IS
LEASING THE PROPERTY "AS IS" IN ITS PRESENT CONDITION, AND SUBJECT TO (A) THE
EXISTING STATE OF TITLE, INCLUDING ALL COVENANTS, CONDITIONS, RESTRICTIONS,
EASEMENTS, LICENSES, LEGAL REQUIREMENTS, MORTGAGES? DEEDS OF TRUST, ASSIGNMENTS
OF LEASES, FIXTURE FILINGS AND OTHER FINANCING INSTRUMENTS AND ANY AND ALL OTHER
MATTERS OF RECORD AND OTHERWISE EXCEPT TO THE EXTENT ANY OF THE FOREGOING WERE
CAUSED OR CREATED BY LANDLORD, AND (B) MATTERS WHICH WOULD BE DISCLOSED BY AN
INSPECTION OF THE PROPERTY OR BY AN ACCURATE SURVEY OF THE LAND. TENANT WAIVES
ANY AND ALL CLAIMS, DEMANDS AND CAUSE OR CAUSES OF ACTION HERETOFORE OR
HEREAFTER ARISING AGAINST LANDLORD WITH RESPECT TO THE CONDITION OF THE
PROPERTY.
8.2 USE OF THE PROPERTY.
(a) Tenant has obtained or duly applied for and shall maintain in
effect all permits, licenses, authorizations and approvals needed to use and
operate the Property and the Facility for Tenant's Primary Intended Use in
accordance with all Legal Requirements.
(b) Throughout the entire Term, Tenant shall use or cause to be
used the Property in accordance with its Primary Intended Use and for such other
uses as may be necessary in connection with or incidental to such use. Tenant
shall not use the Property or any portion thereof for any other purpose
whatsoever without the prior written consent of Landlord. The parties agree that
Landlord's consent will not be deemed to be unreasonably withheld if, in the
reasonable opinion of Landlord, the Tenant's proposed use of the Property will
significantly alter the character or purpose or detract from the value or
operating efficiency of the Property, or significantly impair the
revenue-producing capability of the Property. No use shall be made or permitted
to be made of the Property and no acts shall be done which violate any Legal
Requirements or Insurance Requirements or which will cause the cancellation of
any insurance policy covering the Property or any part thereof, nor shall Tenant
sell or otherwise provide to patients therein, or permit to be kept, used or
sold in, about or under the Property any Hazardous Substance (except in strict
compliance with all Legal Requirements, but only as may be necessary to the
operation of the Facility, with respect to such substances other than asbestos
and hydrocarbons) or any other article which may be prohibited by the Legal
Requirements or Insurance Requirements. Tenant shall, at its sole cost, comply
with all of the requirements pertaining to the Property of any
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insurance board, association, organization or company necessary for the
maintenance of the insurance required pursuant to this Lease,
(c) Tenant shall not commit or suffer to be committed any waste nor
shall Tenant cause or permit any nuisance on the Property.
(d) Tenant shall neither suffer nor permit all or any portion of
Tenant's Personal Property or the Property, including any Capital Addition
whether or not financed or paid for by Landlord, to be used in such a manner as
(i) may impair the owner's title thereto or to any portion thereof or (ii) may
make possible a claim or claims of adverse usage, adverse possession or implied
dedication of all or any portion of the Property to the public, except as is
necessary in the ordinary and prudent operation of the Property.
8.3 LANDLORD TO GRANT EASEMENTS. Subject to the provisions of this
Section 8.3, Landlord shall, from time to time so long as no Event of Default
has occurred and is continuing, at the request of Tenant and at Tenant's sole
cost and expense (but subject to the approval of Landlord, which approval shall
not be unreasonably withheld or delayed), (a) grant easements and other rights
in the nature of easements burdening the Property for the benefit of real
property adjacent to the Land or for the exclusive use and enjoyment of persons
or entities specified by Tenant in such request but only as may be necessary for
the operations of the Facility; (b) dedicate or transfer unimproved portions of
the Property for road, highway or other public purposes but only as may be
necessary for the operation of the Facility; (c) execute petitioner to have the
Property annexed to any municipal corporation or utility district; and (d)
execute amendments to any covenants, conditions, restrictions and equitable
servitudes affecting the Property, but only if each such grant, dedication,
transfer, petition or amendment is not detrimental to the proper conduct of the
business of Tenant on the Property and does not materially reduce the value of
the Property in Landlord's reasonable discretion.
8.4 HAZARDOUS SUBSTANCES.
(a) All operations or activities upon, or any use or occupancy of
the Property, or any portion thereof, by Tenant, or any agent, contractor,
employee or subtenant of Tenant shall at all times during the Term be in all
respects in strict compliance with any and all Legal Requirements and Insurance
Requirements relating to Hazardous Substances, including, but not limited to,
the discharge and removal of Hazardous Substances. Tenant will keep the Property
free and clear of all Hazardous Substances other than those Hazardous Substances
which are necessary for the operation of the Facility (which Hazardous
Substances shall be handled, used and disposed of in strict compliance with the
Legal Requirements and Insurance Requirements) and Tenant shall pay all costs
required
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properly to use, handle and dispose of all Hazardous Substance and shall keep
the Property free and clear of any lien relating to Hazardous Substances which
may be imposed pursuant to the Legal Requirements and Insurance Requirements.
Neither Tenant, nor any agent, contractor, employee or subtenant of Tenant shall
allow the manufacture, storage, voluntary transmission or presence of any
Hazardous Substances over or upon the Property (except in strict compliance with
the Legal Requirements and Insurance Requirements). Landlord shall have the
right at any time with notice to Tenant to conduct an environmental audit of the
Property and Tenant shall cooperate in the conduct of such environmental audit
Furthermore, neither Tenant, nor any agent, contractor, employee or any
subtenant of Tenant shall install or permit to be installed in or on the
Property friable asbestos or any substance containing asbestos or similarly
deemed hazardous by governmental authorities or the Legal Requirements
respecting such materials, and with respect to any such materials currently
present in the Property, shall promptly either, subject to the terms of the
letter agreement of even date herewith between Landlord and Tenant, (x) remove
any material which such Legal Requirements deem hazardous and require be
removed, at its sole cost and expense, or (y) otherwise comply with the Legal
Requirements. Tenant shall promptly notify Landlord in writing of any order,
receipt of any notice of violation or noncompliance with any applicable law,
rule, regulation, standard or order, any threatened or pending action by any
regulatory agency or other governmental authority or any claims made by any
third party relating to Hazardous Substances on, emanations on or from, releases
on or from, or threats of releases on or from any of the Property and shall
promptly furnish Landlord with copies of any correspondence, notices or legal
pleadings in connection therewith. Landlord shall have the right, but shall not
be obligated, to notify any governmental authority of any state of facts which
may come to its attention with respect to Hazardous Substances on, released from
or emanating on or from any part of the Property.
(b) Without limiting Section 22.1, Tenant shall, with the right to
participate in the applicable proceedings, indemnify, protect, defend (with
counsel reasonably approved by Landlord) and hold Landlord, and the directors,
officers, shareholders, employees and agents of Landlord, harmless from any
claims (including, but not limited to, third party claims for personal injury or
real or personal property damage), or natural resources damage, actions,
administrative proceedings (including informal proceedings), judgments, damages,
punitive damages, penalties, fines, costs, liabilities (including sums paid in
settlements of claims), interest or losses, including reasonable attorneys' and
paralegals' fees and expenses (including any such fees and expenses incurred in
enforcing the covenants and obligations of Tenant under this Lease or collecting
any sums due hereunder), consultant fees, and expert fees, together with all
other costs and expenses of any kind or nature ("COSTS") that arise directly or
indirectly from or in connection with the presence, suspected presence, release
or threatened release of any Hazardous Substance in or into or at, on,
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about, under or within the Property, to the extent that such Costs are not
attributable to the gross negligence or willful misconduct of Landlord. The
indemnification provided in this Section 8.4(b) shall specifically apply to and
include claims or actions brought by or on behalf of employees or contractors of
Tenant or employees or contractors of Tenant, and Tenant hereby expressly waives
any immunity to which Tenant may otherwise be entitled under any industrial or
workers' compensation laws. In the event Landlord shall suffer or incur any such
Costs, Tenant shall pay to Landlord the total of all such Costs suffered or
incurred by Landlord upon demand therefor by Landlord. Without limiting the
generality of the foregoing, the indemnification provided by this Section 8.4(b)
shall specifically cover Costs, including capital, operating and maintenance
costs, incurred in connection with any investigation or monitoring of site
conditions, any cleanup, containment, remedial, removal or restoration work
required or performed by any federal, state or local governmental agency or
political subdivision or performed by any non-governmental entity or person
because of the presence, suspected presence, release or suspected release of any
Hazardous Substance in or into the air, soil, groundwater, surface water or soil
vapor at, on, about, under or within the Property (or any portion thereof), and
any claims of third parties for lost or damage due to such Hazardous Substance,
to the extent that such Costs are not attributable to the gross negligence or
willful misconduct of Landlord. In addition, such indemnification shall include,
but not be limited to, all loss or damage sustained by Landlord or any third
party to whom Landlord may be liable due to any Hazardous Substance (i) that is
present or suspected to be present on, about, under or within the Property or
(ii) that migrates, flows, percolates, diffuses or in any way moves onto, into
or under the air, soil, groundwater, surface water or soil vapor at, on, about,
under or within the Property, irrespective of whether such Hazardous Substance
shall be present or suspected to be present on, about, under or within the
Property as a result of any release, discharge, disposal, dumping, spilling or
leaking, (accidental or otherwise) onto the Property or caused by any person or
entity; provided, however, that the indemnification obligation arising out of
clauses (i) and (ii) above shall apply solely to the extent that such loss or
damage is not attributable to the gross negligence or willful misconduct of
Landlord.
(c) In the event any investigation or monitoring of site conditions
or any clean-up, containment, restoration, removal or other such work ("Remedial
Work") is required under any applicable Legal Requirements, including, but not
limited to, any judicial order or order of any governmental entity, or in order
to comply with any agreements affecting the Property because of, or in
connection with, any occurrence or event described in Section 8.4(b), Tenant
shall perform or cause to be performed the Remedial Work in compliance with such
law, regulation, order or agreement and subject to the final review and approval
of Landlord, which approval shall not be unreasonably withheld or delayed;
provided, however, that Tenant may withhold such performance pursuant to a
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good faith dispute regarding the application, interpretation or validity of the
law, regulation, order, or agreement, subject to the requirements of Section
8.4(d); provided, further, however, that Landlord shall reasonably cooperate
with Tenant to the extent necessary to deliver such authorizations as may be
required in order for Tenant to perform its obligations under this Section
8.4(c). All Remedial Work shall be performed by one or more contractors,
selected by Tenant and approved in advance in writing by Landlord, which
approval shall not be unreasonably withheld or delayed, and under the
supervision of a consulting engineer, selected by Tenant and approved in advance
in writing by Landlord, which approval shall not be unreasonably withheld or
delayed. All costs and expenses of Remedial Work shall be paid by Tenant,
including, but not limited to, the charges of such contractors and consulting
engineer, and Landlord's reasonable attorneys' and paralegals' fees and other
costs incurred in connection with the monitoring or review of such Remedial
Work. In performing its obligations hereunder, Tenant shall be subrogated to any
rights Landlord may have under any indemnifications or warranties from any
present, future or former owners, tenants or occupants or users of the Property,
to the extent available. In the event Tenant shall fail timely to commence,
diligently to prosecute to completion or to complete to Landlord's reasonable
satisfaction any necessary Remedial Work, Landlord may, but shall not be
required to, cause such Remedial Work to be performed, and all costs and
expenses thereof paid or incurred by Landlord in connection therewith shall be
Costs within the meaning of Section 8.4(b). Landlord's disapproval of or
dissatisfaction with any Remedial Work shall be deemed to be reasonable so long
as Landlord's requirements for any Remedial Work are consistent with the then
current requirements and standards imposed by prudent institutional investors in
connection with their management of real property. All such Costs shall be due
and payable upon demand therefor by Landlord. If Tenant fails to perform its
obligations hereunder, Landlord shall be subrogated to any rights Tenant may
have under any indemnifications from any present, future or former owners,
tenants or other occupants or users of the Property relating to the matters
covered by this Section 8.4.
(d) Notwithstanding any provision of this Section 8.4 to the
contrary, but without limiting the provisions of Article XIII, Tenant shall be
permitted to contest or cause to be contested, subject to compliance with the
requirements of this Section 8.4(d) and Article XIII, by appropriate action any
Remedial Work requirement, and Landlord shall not perform such requirement on
its behalf, so long as Tenant has given Landlord written notice that Tenant is
contesting or shall contest or cause to be contested the same, and Tenant
actually contests or causes to be contested the application, interpretation or
validity of the law, regulation, order or agreement pertaining to the Remedial
Work by appropriate proceedings conducted in good faith with due diligence,
provided that such contest shall not subject Landlord to civil liability nor
jeopardize Landlord's interest in the Property or affect in any way
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the payment of any sums to be paid to Landlord. Tenant shall give such security
or assurances as may be reasonably required by Landlord to insure compliance
with the Legal Requirements pertaining to the Remedial Work (and payment of all
costs, expenses, interest and penalties in connection therewith) and to prevent
any sale, forfeiture or loss by reason of such nonpayment or noncompliance.
(e) The provisions of this Section may be enforced by Landlord
without regard to any other rights and remedies Landlord may have against Tenant
under this Lease and without regard to any limitations on Landlord's recourse as
may be otherwise provided in this Lease Tenant agrees that, notwithstanding any
provision in this Lease to the contrary, a separate action or actions to enforce
Tenant's obligations under this Section 8.4 may be brought and prosecuted
against Tenant. Any costs and other payments required to be paid by Tenant to
Landlord under this Section 8.4 which are not paid on demand therefor shall
thereupon be considered delinquent Tenant shall pay to Landlord immediately upon
demand therefor interest on such overdue amounts, from the date when due until
paid, at the Overdue Rate.
ARTICLE IX
LEGAL REQUIREMENTS AND INSURANCE REQUIREMENTS
9.1 COMPLIANCE WITH LEGAL REQUIREMENTS, INSURANCE REQUIREMENTS AND
INSTRUMENTS. Subject to the rights of Tenant as provided in Article XIII
relating to permitted contests, Tenant, at its sole cost and expense, shall
promptly (a) comply with all applicable Legal Requirements and Insurance
Requirements with respect to the use, operation, maintenance, repair and
restoration of the Property, whether or not compliance therewith shall require
structural change in any of the Improvements or interfere with the use and
enjoyment of the Property, and (b) procure, maintain and comply with all
appropriate licenses, certificates of need, provider agreements and other
permits, licenses, franchises and authorizations required for any use of the
Property and Tenant's Personal Property then being made, and for the proper
erection, installation, operation and maintenance of the Property or any part
thereof, including without limitation any Capital Additions.
9.2 COVENANTS REGARDING LEGAL REQUIREMENTS. Tenant covenants and agrees
that it shall not use the Property or Tenant's Personal Property for any purpose
which violates the Legal Requirements. Tenant has obtained or duly applied for
and shall maintain all appropriate licenses, certificates, permits, provider
agreements, franchises, authorizations and approvals necessary to operate the
Property in its customary manner for the Primary Intended Use, and any other use
conducted on the Property by Tenant and permitted by Landlord hereunder Tenant
may, however, contest the legality or applicability of any such Legal
Requirement as provided in Article XIII hereof.
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ARTICLE X
CONDITION OF THE PROPERTY
10.1 MAINTENANCE AND REPAIR.
(a) Tenant, at its sole cost and expense, shall keep the Property
and all private roadways, sidewalks and curbs appurtenant thereto and which are
under Tenant's control in good order, condition and repair and, except as
otherwise expressly provided to the contrary in Article XIV, XV, or XVI with
reasonable promptness, shall make all necessary and appropriate repairs and
replacements thereto of every kind and nature, whether interior or exterior,
structural or nonstructural, ordinary or extraordinary, patent or latent,
foreseen or unforeseen, or arising by reason of a condition existing prior to
the commencement of the Term of this Lease and regardless of the cause
necessitating repair. Tenant shall also be obligated at its expense to make all
repairs, modifications and renovations necessary to comply with all licensing,
safety and health and building code, regulations applicable to the Property so
that it can be legally operated for its Primary Intended Use. All repairs by
Tenant shall, to the extent reasonably achievable, be at least equal in quality
to the original work. Tenant shall not take or omit to take any action, the
taking or omission of which might materially impair the value or the usefulness
of all or any portion of the Property for the Primary Intended Use. Tenant shall
give Landlord ten days prior written notice of any repair, replacement,
modification or renovation pursuant to this Section the cost of which exceeds
$200,000 and, prior to commencing any such repair, replacement, modification or
renovation, shall provide to Landlord either (i) a lien payment and completion
bond in form and substance and issued by a surety reasonably acceptable to
Landlord or (ii) a payment and completion guaranty in form and substance and
executed by a guarantor reasonably acceptable to Landlord, as Tenant may elect.
(b) Landlord shall not under any circumstances be required to make
any repairs, replacements, alterations, restorations or renewals of any nature
or description to the Property, whether interior or exterior, structural or
non-structural, ordinary or extraordinary, patent or latent, foreseen or
unforeseen, or to make any expenditure whatsoever with respect thereto, in
connection with this Lease, nor shall Landlord under any circumstances be
required to maintain the Property in any other way, except as specifically
provided herein. Tenant hereby waives, to the fullest extent permitted by law,
the right to make repairs at the expense of Landlord pursuant to any law or
equitable principle in effect at the time of the execution of this Lease or
hereafter enacted. Landlord shall have the right to give, record and post, as
appropriate, notices of non-responsibility under any mechanic's lien laws now or
hereafter existing, and any other notices of a similar nature that Landlord may
reasonably elect to give, record or post from time to time during the Term.
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(c) Nothing contained in this Lease, and no action or inaction by
Landlord, shall be deemed or construed in any manner as (i) constituting the
consent or request of Landlord, expressed or implied, to any contractor,
subcontractor, laborer, materialman or vendor to or for the performance of any
labor or services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to all or any
portion of the Property or (ii) giving Tenant any right, power or permission to
contract for or permit the performance of any labor or services or the
furnishing of any materials or other property in such a manner as would permit
the making of any claim against Landlord with respect thereto, or to make any
agreement that may create, or in any way may be the basis for the assertion of
any right, title, interest, lien, claim or other encumbrance upon the estate of
Landlord in all or any portion of the Property.
(d) Unless Landlord conveys title to any of the Property to Tenant
pursuant to the provisions of this Lease, Tenant shall, upon the expiration or
earlier termination of this Lease, vacate and surrender the Property to Landlord
in the condition in which the Property was originally received from Landlord,
except as repaired, rebuilt, restored, altered or added to as permitted or
required by the provisions of this Lease, and except for ordinary wear and tear
(but subject to the obligation of Tenant under this Section to maintain the
Property in good order, condition and repair during the entire Term of this
Lease) and except for damage or destruction by casualty or condemnation which
Tenant is not required to repair by the provisions of this Lease.
10.2 ENCROACHMENTS AND RESTRICTIONS. If any of the Improvements shall
at any time during the Term violate any agreement or condition contained in any
lawful covenant, condition, restriction, equitable servitude or other agreement
affecting all or any portion of the Property, or shall impair the rights of
others under any easement or right-of-way burdening the Property, provided that
such agreement, covenant, condition, restriction or easement has not been
created by Landlord, then promptly upon the request of Landlord, or at the
behest of any person affected by violation or impairment and in such case, in
the event of an adverse final determination, Tenant shall either (a) obtain
valid and effective waivers or settlements of all claims, liabilities and
damages resulting from each such encroachment, violation or impairment, whether
the same shall affect Landlord or Tenant, provided that Landlord shall consent
to all such settlements or waivers or (b) make such changes in the Improvements
and take such other actions as Tenant in the reasonable and good faith exercise
of its judgment deems practicable to remove such encroachment and to end such
violation or impairment, including, if necessary, the alteration of any of the
Improvements provided that Landlord shall consent to all such alterations and
the changes are not the result of any condition created solely by Landlord. With
respect to any encroachments identified on the ALTA surveys of the Property
delivered by Tenant to Landlord pursuant to the Purchase Agreement,
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Landlord agrees that it shall not require Tenant to obtain a waiver of or
otherwise correct any such encroachment unless and until an affected third party
notifies Landlord of its objection to any such encroachment. In any event Tenant
shall, subject to Landlord's consent, take all such actions as may be necessary
in order to be able to continue the operation of the Improvements for the
Primary Intended Use substantially in the manner and to the extent the
Improvements were operated prior to the assertion of such violation or
impairment. Tenant shall not be responsible for any claims covered by Landlord's
title insurance policy, and Landlord agrees that any proceeds recovered under
such title insurance policy shall be made available to Tenant to remedy the
claimed violation or restriction.
ARTICLE XI
CAPITAL ADDITIONS
11.1 Construction of Capital Additions
(a) If no Event of Default shall have occurred and be continuing,
Tenant may, subject to the terms and conditions contained in this Article,
construct or install Capital Additions on the Property with the prior written
approval of Landlord, which approval shall not be unreasonably withheld or
delayed as expressly provided herein. Tenant shall not be permitted to create
any Encumbrance on the Property in connection with any such Capital Addition.
(b) Prior to commencing construction of any Capital Addition,
Tenant shall submit to Landlord in writing a proposal setting forth in
reasonable detail any proposed Capital Addition and shall provide to Landlord
such plans and specifications, permits, licenses, contracts and other
information concerning the proposed Capital Addition as Landlord may reasonably
request. Without limiting the generality of the foregoing, such proposal shall
indicate the approximate projected cost of constructing such Capital Addition,
the use or uses to which it will be put and a good faith estimate of the change,
if any, in the Gross Revenues that Tenant anticipates will be caused by such
Capital Addition.
(c) No Capital Addition shall be made which would tie in or
connect any Improvements with any other improvements on property adjacent to the
Property (and not part of the Property), including without limitation, tie-ins
of buildings or other structures or utilities unless Tenant shall have obtained
the prior written consent of Landlord, which consent Landlord may grant,
withhold or delay in its sole discretion. All proposed Capital Additions shall
be architecturally integrated and consistent with the Property.
11.2 CAPITAL ADDITIONS FINANCED OR PAID FOR BY LANDLORD.
(a) Tenant shall be required to request that Landlord provide or
arrange financing for any Capital Addition by providing
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to Landlord such information about such Capital Addition as Landlord may
reasonably request. Landlord may, but shall be under no obligation to, meet the
request, and within 60 days of receipt of such information, Landlord shall
notify Tenant as to whether it will finance the proposed Capital Addition and,
if so, the terms and conditions upon which it would do so, including the terms
of any amendment to this Lease (including, without limitation, the increase in
Base Rent described in clause (iii) of subparagraph (b), below to compensate
Landlord for the additional funds advanced by it). Notwithstanding the
foregoing, Landlord shall not finance the cost of any proposed Capital Addition
if such cost is less than $25,000. In no event shall the portion of the
material, labor charges and fixtures of the Capital Additions Cost be less than
seventy-five percent (75%) of the total amount of such cost. Tenant shall,
within thirty (30) days of Tenant's receipt of Landlord's affirmative notice
that Landlord will finance the proposed Capital Addition, give Landlord a notice
accepting or rejecting Landlord's proposed financing.
(b) If Landlord finances the Capital Additions Cost of the
proposed Capital Addition, Tenant shall provide Landlord with the following
(unless waived by Landlord in writing): (i) prior to any disbursement of funds,
such information, certificates, licenses, permits, authorizations, evidence of
zoning and other documents reasonably requested by Landlord, or by any third
party lender with whom Landlord has agreed or may agree to provide financing, as
necessary to confirm that Tenant will be able to use the Capital Addition upon
completion thereof in accordance with the Primary Intended Use for such Capital
Addition, including all required federal, state or local government licenses,
permits, authorizations and approvals;
(ii) prior to any disbursement of funds, an Officer's Certificate
and, if requested, a certificate from Tenant's architect, setting forth in
reasonable detail the projected (or actual, if available) Capital Additions
Cost;
(iii) prior to or coincident with the first disbursement of funds,
an amendment to this Lease (together with a memorandum thereof in recordable
form), duly executed and acknowledged, in form and substance reasonably
satisfactory to Landlord, providing for an increase in the Base Rent equal to
the product of (x) the Capital Additions Cost of such Capital Addition and (y)
350 basis points in excess of the Ten-Year Treasury Rate, along with the legal
description of any land obtained in connection with such Capital Addition and
such other provisions as may be necessary or appropriate,
(iv) prior to or coincident with the first disbursement of funds,
a construction and development agreement setting forth the terms for Landlord's
financing and Tenant's construction of such Capital Additions;
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(v) prior to or coincident with payment for any land obtained in
connection with such Capital Addition, a deed conveying to Landlord title to
such land, or, if applicable, a ground lease on terms acceptable to Landlord,
which title or leasehold shall be free and clear of any liens, encumbrances or
other exceptions to or matters affecting title except those approved by
Landlord, and, upon completion of the Capital Addition, a final as-built survey
thereof reasonably satisfactory to Landlord;
(vi) during construction and following completion of the Capital
Addition, endorsements to any outstanding policy of title insurance covering the
Property, or commitments therefor reasonably satisfactory in form and content to
Landlord (x) updating the same without any additional exception except such as
may be reasonably permitted by Landlord and (y) adding to its coverage any land
acquired or leased in connection with such Capital Addition and increasing the
coverage thereof by an amount equal to the Fair Market Value of the Capital
Addition (except to the extent covered by the owner's policy of title insurance
referred to in subparagraph (vii) below);
(vii) following the advance of funds, if appropriate, (x) an
extended coverage owner's policy of title insurance insuring fee simple title to
any land conveyed to Landlord pursuant to subparagraph (v), free and clear of
all liens and encumbrances except those approved by Landlord, and (y) a lender's
policy of title insurance reasonably satisfactory in form and substance to
Landlord and to any Lender with whom Landlord has agreed or may agree to provide
financing; and
(viii) during or following the advancement of funds, prints of
architectural and engineering drawings relating to the Capital Addition and such
other certificates (including, but not limited to, endorsements increasing the
insurance coverage, if any, at the time required by Section 14.1), documents,
opinions of counsel, appraisals, surveys, certified copies of duly adopted
resolutions of the board of directors of Tenant authorizing the execution and
delivery of the lease amendment, construction and development agreement and any
other instruments as may be reasonably required by Landlord and any lender from
whom Landlord has agreed or may agree to obtain financing.
(c) Any new mortgage or supplement to any existing mortgage
entered into by Landlord with any lending, institution covering the Property or
any land referred to in subparagraph (iv) above shall be subject to the rights
of Tenant under this Lease, as this Lease may be amended from time to time.
11.3 CAPITAL ADDITIONS PAID FOR BY TENANT. If Landlord does not finance
the cost of a Capital Addition under the terms of Section 11.2 and Tenant elects
nevertheless to construct or cause to be constructed such Capital Addition, (i)
Tenant shall not commence any construction with respect to such Capital Addition
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without first obtaining the prior written consent of Landlord (which Landlord
shall not unreasonably withhold so long as the proposed Capital Addition will
not, in Landlord's reasonable opinion, either (x) diminish the value of the
property or (y) impair the Facility's ability to produce Gross Revenues and
which consent shall be delivered to Tenant within 60 days of receipt by Landlord
of Tenant's written proposal with respect to such Capital Addition), and (ii)
Tenant shall pay the cost of such Capital Addition, and there shall be no
adjustment in the Rent by reason of any such Capital Addition.
11.4 DEPOSITION OF CAPITAL ADDITIONS UPON EXPIRATION OR TERMINATION OF
LEASE. Upon the expiration or earlier termination of this Lease, all Capital
Additions shall pass to and become the property of Landlord, free and clear of
all encumbrances.
11.5 NON-CAPITAL ADDITIONS. Tenant shall have the right to make
additions, modifications or improvements to the Property which are not Capital
Additions from time to time as it, in its reasonable discretion, may deem to be
desirable for the Property's uses and purposes permitted hereunder, provided
that such action does not (i) significantly and adversely alter the character or
purpose or detract in any manner from the value or operating efficiency of the
Property, (ii) significantly impair the revenue-producing capability of the
Property, (iii) materially and adversely affect the ability of Tenant to comply
with the provisions of this Lease, or (iv) result in a violation of any of the
provisions of this Lease (including, but not limited to Articles XII or XXIX),
and provided that, if the cost of such non-capital additions, modifications or
improvements exceed $200,000 in any 12-month period, Tenant gives Landlord ten
days' prior Notice of such addition, modification or improvement. The cost of
such non-capital additions, modifications or improvements to the Property shall
be paid by Tenant, and all such non-capital additions, modifications and
improvements shall, without payment by Landlord at any time, be included under
the terms of this Lease, and upon expiration or earlier termination of this
Lease shall pass to and become the property of Landlord.
11.6 SALVAGE. All materials which are scrapped or removed in connection
with the construction of either Capital Additions permitted by Section 11.1,
non-capital additions permitted by Section 11.5, or repairs required by Article
X shall be or become the property of the party which paid for, or provided the
financing for such work.
11.7 NO LIENS ON LANDLORD'S INTEREST. In no event shall the interest of
Landlord be subject to liens for improvements made by Tenant, whether under
Article 10, this Article I 1, Article 15 or otherwise, and Tenant shall notify
any and all contractors making any improvements, repairs or additions to any
portion of the Property that any lien to which such contractor may be entitled
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pursuant to the laws of the State shall not extend to the interest of Landlord
in the Property.
ARTICLE XII
LIENS
Subject to the provisions of Article XIII relating to permitted
contests, Tenant shall not directly or indirectly create or allow to remain and
shall promptly discharge at its expense any lien, encumbrance, security
interest, attachment, title retention agreement or claim upon the Property or
any attachment, levy, claim or encumbrance in respect of Rent, not including,
however, (a) this Lease, (b) Permitted Encumbrances, (c) restrictions, liens and
other encumbrances which are consented to in writing by Landlord or expressly
permitted under Section 29.1(a) hereof, (d) liens for those taxes of Landlord
which Tenant is not required to pay hereunder, (e) subleases permitted by
Article XXIII, (f) liens for Impositions or for sums resulting from
noncompliance with Legal Requirements so long as the same are not yet payable or
are payable without the addition of any fee or penalty and are in the process of
being contested as permitted by Article XIII, (g) liens of mechanics, laborers,
materialmen, suppliers or vendors for sums either disputed or not yet due,
provided that (i) the payment of such sums shall not be postponed for more than
five days after the completion of the action giving rise to such lien and such
reserve or other appropriate provisions as shall be required by law or generally
accepted accounting principles shall have been made therefor or (ii) any such
liens are in the process of being contested as permitted by Article XIII, and
(h) any liens which are the responsibility of Landlord pursuant to the
provisions of Article XXVII or are directly created or permitted by Landlord.
ARTICLE XIII
CONTESTS
If no Event of Default has occurred and is then continuing, Tenant, on
its own or on Landlord's behalf (or in Landlord's name ), but at Tenant's sole
cost and expense, upon ten days' prior Notice to Landlord, may contest, by
appropriate legal proceedings conducted in good faith and with due diligence,
without prejudice to Landlord's rights hereunder the amount, validity or
application, in whole or in part, of any Imposition, Legal Requirement,
Insurance Requirement, lien, attachment, levy, encumbrance, charge or claim not
otherwise permitted by Article XII, provided that (a) in the case of an unpaid
Imposition, lien, attachment, levy, encumbrance, charge or claim, the
commencement and continuation of such proceedings shall suspend the collection
thereof from Landlord and from the Property, (b) neither the Property nor any
Rent therefrom nor any part thereof or interest therein would be subject to any
risk of being sold, forfeited, attached, foreclosed, or lost, (c) in the case of
a Legal Requirement, Landlord would not be
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in any danger of incurring any lien, charge, fee, penalty, or other civil or
criminal liability for failure to comply therewith pending the outcome of such
proceedings, (d) in the event that any such contest shall involve a sum of money
or potential loss in excess of $100,000 then, in any such event, Tenant shall
deliver to Landlord an Officer's Certificate to the effect set forth in clauses
(a), (b) and (c), to the extent applicable, (e) in the case of a Legal
Requirement or an Imposition, lien, encumbrance or charge, Tenant shall give
such reasonable security as may be demanded by Landlord to insure ultimate
payment of the same and to prevent any loss or injury to Landlord, including but
not limited to any sale or forfeiture of the affected portion of the Property or
the Rent by reason of such non-payment or non-compliance; provided, however, the
provisions of this Article shall not be construed to permit Tenant to contest
the payment of Rent (except as to contests concerning the method of computation
or the basis of levy of any Imposition) or any other sums payable by Tenant to
Landlord hereunder, (f) in the case of an Insurance Requirement, the coverage
required by Article XIV shall be maintained, and (g) if such contest be finally
resolved against Landlord or Tenant, Tenant shall, as Additional Charges due
hereunder, promptly pay the amount required to be paid, together with all
interest and penalties accrued thereon, or comply with the applicable Legal
Requirement or Insurance Requirement. Landlord, at Tenant's expense, shall
execute and deliver to Tenant such authorizations and other documents as may
reasonably be required in any such contest and, if reasonably requested by
Tenant or if Landlord so desires, Landlord shall join as a party therein. Tenant
shall indemnify and save Landlord harmless against any liability, cost or
expense of any kind that may be imposed upon Landlord in connection with any
such contest and any loss resulting therefrom.
ARTICLE XIV
INSURANCE
14.1 CENTRAL INSURANCE REQUIREMENTS. Tenant shall at all times maintain
policies of insurance insuring the Property, and all property located in or on
the Property, against the kind of risks and in the amounts of coverage described
below. All such insurance shall be written by companies of recognized
responsibility authorized to conduct an insurance business in the State. All
such insurance (other than insurance with respect to Tenant's Personal Property)
shall name Landlord as an additional insured. Proceeds of insurance policies
payable to compensate any loss shall be payable to Landlord or Tenant as
provided in Article XV. All such insurance shall name as an additional insured
or loss payee, as appropriate, the holder (a "FACILITY MORTGAGEE") of any
mortgage, deed of trust or other security agreement establishing any Encumbrance
placed on the Property in accordance with the provisions of Article XXVII
("FACILITY MORTGAGE") by way of a standard form of mortgagee's loss payable
endorsement. Any loss adjustment or other settlement in excess of $250,000 shall
require
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the written consent of Landlord and each Facility Mortgagee and any other lender
of Landlord or its Affiliates ("LANDLORD LENDER") having any contractual
insurance requirements which would impact on the insurance requirements of this
Lease to the extent so required and Landlord has given Tenant written notice
thereof. Originals or certified copies of all insurance policies obtained
pursuant to this Article shall be deposited with Landlord and, if requested,
with any Facility Mortagee(s) or Landlord Lender(s). The policies on the
Property, including the Improvements, Fixtures and Tenant's Personal Property,
shall insure against the following risks:
(a) loss or damage by fire, vandalism and malicious mischief,
extended coverage perils, and all physical loss perils insurance including but
not limited to sprinkler leakage, in an amount not less than 100% of the then
full replacement cost thereof (as defined below in Section 14.2) or such lesser
amount as is approved by Landlord in writing;
(b) loss or damage by explosion of steam boilers, pressure vessels
or similar apparatus, now or hereafter installed in either of the Facility in
such amounts with respect to any one accident as may be reasonably requested by
Landlord from time to time;
(c) business interruption or loss of rental under a rental value
insurance policy covering risk of loss during the lesser of the first 12 months
of reconstruction or the actual reconstruction period necessitated by the
occurrence of any of the hazards described in Sections 14. 1 (a) or 14. 1 (b),
in an amount sufficient to prevent Landlord from becoming a coinsurer:
(d) claims for personal injury or property damage under a policy
of comprehensive general public liability insurance, in an amount not less than
one million dollars per occurrence with respect to bodily injury and death and
three million dollars with respect to property damage;
(e) claims arising out of medical malpractice in an amount not
less than one million dollars for each person and three million dollars for each
occurrence:
(f) flood (when the Property is located in whole or in part within
an area designated by an appropriate agency or authority of the United States as
a flood plain) and such other hazards and in such amounts as may be customary
for comparable properties in the area and as may be available from insurance
companies, insurance pools, or other appropriate companies authorized to do
business in the State; and
(g) During, any period during which any Capital Addition is under
construction, course of construction insurance and all risks insurance in such
amounts as Landlord shall reasonably require.
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14.2 REPLACEMENT COST. The term "full replacement cost" as used herein
shall mean the actual replacement cost of the Property requiring replacement
from time to time, less exclusions provided in a normal fire insurance policy.
If either party believes that full replacement cost (the then replacement cost
less such exclusions) has increased or decreased at any time during the Lease
Term, it may have such full replacement cost redetermined by the insurer then
providing the largest amount of fire insurance coverage carried on the Property.
14.3 ADDITIONAL INSURANCE. In addition to the insurance described in
Section 14.1, throughout the Term Tenant shall maintain such additional
insurance as may be required from time to time by Landlord provided that the
types and amounts of any such additional insurance required by Landlord is then
customarily maintained by the operators of similar health care facilities in the
region in which the Facility is located. Tenant shall further maintain adequate
workers' compensation insurance coverage for all persons employed by Tenant on
the Property. Such workers' compensation insurance shall be in accordance with
the requirements of applicable local, state and federal law.
14.4 WAIVER OF SUBROGATION. All insurance policies carried by Landlord
or Tenant covering the Property, the Fixtures, the Facility or Tenant's Personal
Property shall expressly waive any right of subrogation on the part of the
insurer against the other party. Landlord and Tenant agree that the respective
policies of insurance carried by them will include such waiver clauses or
endorsements so long, as the same are obtainable without extra cost. If such
clauses and endorsements are only available upon the payment of an extra charge,
the other party, at its election, may pay the same, but shall not be obligated
to do so; provided that the Tenant shall at all times be obligated to carry the
policies of insurance required under this Article regardless of whether the
waiver of subrogation required under this Section 14.4 is available.
14.5 FORM OF INSURANCE. All of the policies of insurance referred to in
this Article shall be written in a form, and issued by insurance companies,
satisfactory to Landlord. Landlord agrees that it will not unreasonably withhold
or delay its approval as to the form of the policies or the insurance companies
selected by Tenant. Tenant shall pay all of the premiums therefor, and shall
deliver an original or certified copy of any policy, or renewal thereof, to
Landlord, any Facility Mortgagee and any Landlord Lender at least 10 days prior
to the expiration of the existing policy to which such renewal policy relates.
If Tenant either fails to effect such insurance as herein required or to pay the
premiums therefor, or to deliver such policies or certified copies thereof to
Landlord at the times required, Landlord shall be entitled, but shall have no
obligation, to effect such insurance and pay the premiums therefor, which
premiums shall be repayable to Landlord upon demand therefor in a Notice, and
failure by Tenant to
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repay the same shall constitute an Event of Default within the meaning of
Section 17.1(d). Each insurer mentioned in this Article shall agree, by
endorsement on the policy or policies issued by it, or by independent instrument
furnished to Landlord, that it will give to Landlord (and to any Facility
Mortgagee and Landlord Lender of which Tenant has notice, if required) 30 days
prior written notice before such policy or policies expire, are altered or are
canceled.
14.6 CHANGE IN LIMITS. If either party shall at any time deem the
limits of the personal injury or property damage public liability insurance or
malpractice insurance then carried by Tenant to be insufficient or excessive,
the parties shall endeavor in good faith to agree promptly upon the proper and
reasonable limits for such insurance to be carried, and such insurance shall
thereafter be carried with the limits thus agreed upon until further change
pursuant to the provisions of this Section.
14.7 BLANKET POLICY. Notwithstanding anything to the contrary contained
in this Article, Tenant's obligations to carry the insurance provided for herein
may be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Tenant so long as (a) the coverage afforded
to Landlord is not reduced or diminished or otherwise altered from that which
would exist under a separate policy meeting all other requirements of this Lease
by reason of the use of such blanket policy of insurance and (b) the
requirements of this Article are otherwise satisfied.
14.8 NO SEPARATE INSURANCE. Tenant shall not obtain separate insurance
concurrent in form or contributing in the event of loss with that required in
this Article XIV to be furnished by, or which may reasonably be required to be
furnished by Tenant, nor shall Tenant increase the amount of any then existing
insurance by securing an additional policy or additional policies, unless all
parties having an insurable interest in the subject matter of the insurance,
including in all cases Landlord and all Facility Mortgagees, are named therein
as additional insureds, and the loss is payable under said insurance in the same
manner as losses are payable under this Lease. Tenant shall immediately notify
Landlord of the obtaining of any such separate insurance or of the increasing of
any of the amounts of the then existing insurance.
ARTICLE XV
INSURANCE PROCEEDS
15.1 HANDLING OF INSURANCE PROCEEDS. Subject to Section 15.4 hereof,
all proceeds from any policy of insurance required by Article XIV of this Lease
(except Sections 14. 1 (d) and (e)) shall be paid to Landlord and held in trust
by Landlord (subject to the provisions of Section 15.7) and shall be made
available for reconstruction, repair or replacement, as the case may be, of any
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damage to or destruction of all or any portion of the Property to which such
proceeds relate, and shall be paid out by Landlord from time to time subject to
the provisions hereof for the cost of such reconstruction, repair or
replacement. Any unused portion shall be retained by Landlord free and clear
upon completion of such repair and restoration but shall be applied by Landlord
against Tenant's obligations for Rent next coming due under this Lease. If
neither Landlord nor Tenant is required or elects to repair and restore, and the
Lease is terminated without purchase by Tenant as described in Section 15.2(a),
then all such insurance proceeds shall be retained by Landlord. All salvage
resulting from any risk covered by insurance shall belong to Landlord, except
that any salvage relating to Tenant's Personal Property shall be the property of
Tenant.
15.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION COVERED BY
INSURANCE.
(a) Except as provided in Section 15.7, if during the Term a
portion of the Property is totally or substantially destroyed by a risk covered
by the insurance described in Article XIV so that the Facility thereby is
rendered unsuitable for its Primary Intended Use (taking into account all
relevant factors, including but not limited to the number of useable beds, the
amount of square footage reasonably available for use by Tenant and the type and
amount of Gross Revenues lost) (the "IMPACTED FACILITY"), Tenant shall at its
option either (i) restore the Impacted Facility to substantially the same
condition as existed immediately before the damage or destruction or (ii)
acquire the Property from Landlord for a purchase price equal to the greater of
the Minimum Repurchase Price or the Fair Market Value Purchase Price of the
Property immediately prior to such damage or destruction, or (iii) terminate the
Lease with respect to the Property effective upon Landlord's receipt of the
insurance proceeds and any "Shortfall" (as hereinafter defined) and in such
event Landlord shall be entitled to retain or collect for its own benefit the
insurance proceeds, provided that, in the event the amount of the insurance
proceeds received by Landlord are less than the amounts which would be payable
in the aggregate under the insurance policies specified in Section 14.1(a) such
termination shall not be effective until Tenant pays Landlord the amount of such
shortfall ("SHORTFALL") in cash. If Tenant restores the Impacted Facility, the
insurance proceeds shall be paid out by Landlord to Tenant or its designee from
time to time as reasonably requested by Tenant to pay for the reasonable costs
of such restoration and any excess proceeds remaining after such restoration
shall be retained by Tenant. If Tenant acquires the Property, all applicable
insurance proceeds shall be the property of Tenant.
(b) Except as provided in Section 15.7, if during the Term, the
Improvements or Fixtures are partially destroyed due to a risk covered by the
insurance described in Article XIV but the Impacted Facility is not thereby
rendered unsuitable for the
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Primary Intended Use (taking into account all relevant factors, including but
not limited to the number of useable beds, the amount of square footage
reasonably available for use by Tenant and the type and amount of Gross Revenues
lost), Tenant shall restore the Impacted Facility to substantially the same
condition as existed immediately before the damage or destruction. Such damage
or destruction shall not terminate this Lease; provided, however, that if Tenant
cannot, with reasonable diligence and within a reasonable time, obtain all
government approvals, including building permits, licenses, conditional use
permits and any certificates of need, necessary to perform all required repair
and restoration work and to operate the Impacted Facility in substantially the
same manner and for the Primary Intended Use, Tenant shall either (i) offer to
purchase the Property for a purchase price equal to the greater of the Minimum
Repurchase Price or the Fair Market Value Purchase Price immediately prior to
such damage or destruction or (ii) continue to operate under the Lease which
shall remain in full force and effect and Landlord shall be entitled to retain
the insurance proceeds, less the amount needed to restore the Property so that
the portion of the Facility unaffected by the casualty can be used as a complete
architectural unit. If Tenant shall make such offer and Landlord does not accept
the same "within 120 days of Landlord's receipt of such offer, Tenant may either
(x) withdraw such offer, in which case this Lease shall remain in fall force and
effect and Tenant shall proceed to restore the Impacted Facility as soon as
reasonably practicable to substantially the same condition as existed
immediately before such damage or destruction, or (y) terminate this Lease after
recovery by Landlord of all insurance proceeds and the payment by Tenant of any
Shortfall in cash. If Tenant so restores the Impacted Facility, insurance
proceeds shall be paid out by Landlord from time to time as reasonably requested
by Tenant to pay for the reasonable costs of such restoration, and any excess
proceeds remaining after such restoration shall be retained by Tenant.
(c) If Tenant elects to repair or restore any damage or
destruction to the Property and the cost of any such repair or restoration
exceeds the amount of proceeds received by Landlord from the insurance required
under Article XIV, Tenant shall contribute any and all excess amounts necessary
to repair or restore the Facility.
(d) If Landlord accepts Tenant's offer to purchase the Property
this Lease shall terminate as to the Property upon payment of the purchase price
therefor and Landlord shall thereupon remit to Tenant all insurance proceeds
pertaining to the Property less Landlord's reasonable expenses, including
attorneys' fees, and assign Landlord's rights in any uncollected insurance
proceeds to Tenant.
15.3 Reconstruction in the Event of Damage or Destruction Not Covered
by Insurance. Except as provided in Section 15.7 below, if during the Term
either of the Facility is totally destroyed or
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materially damaged (i) from a risk not covered by insurance described in Article
XIV but that would have been covered if Tenant carried the insurance customarily
maintained by, and generally available to, the operators of reputable health
care facilities in the region in which the Facility is located, (ii) from a risk
for which insurance coverage is voided due to any act or omission by Tenant, or
(iii) as result of an earthquake, whether or not such damage or destruction
renders the Impacted Facility unsuitable for their Primary Intended Use (taking
into account all relevant factors, including but not limited to the number of
useable beds, the amount of square footage reasonably available for use by
Tenant and the type and amount of Gross Revenues lost), Tenant shall restore the
Impacted Facility to substantially the same condition as existed immediately
before such damage or destruction and not terminate this Lease. Otherwise, if
the Facility is totally destroyed or materially damaged by a risk not covered by
insurance such that the Facility shall be unusable for its Primary Intended Use,
this Lease shall terminate within 90 days of such destruction or damage,
provided that the Tenant may elect to restore the Impacted Facility, in which
event, this Lease shall continue in full force and effect. If such damage or
destruction does not render the Impacted Facility unusable for its Primary
Intended Use, Tenant shall also restore the Facility to substantially the same
condition as existed immediately before the damage or destruction.
15.4 PAYMENT OF PROCEEDS ON TENANT'S PROPERTY AND CAPITAL ADDITIONS
PAID BY TENANT. Notwithstanding any provision herein, all insurance proceeds
payable by reason of any loss of or damage to any of Tenant's Personal Property
or Capital Additions paid for by Tenant shall be paid to Tenant and Tenant shall
hold such insurance in trust to pay the cost of repairing or replacing damaged
Tenant's Personal Property or Capital Additions paid for by Tenant provided,
however, that if the damaged Tenant's Personal Property or Capital Additions
paid for by Tenant were no longer useful to Tenant's operations prior to their
destruction, Tenant shall not be obligated to repair or replace them.
15.5 HANDLING OF BUSINESS INTERRUPTION INSURANCE. Notwithstanding any
provision of this Article XV, proceeds from any policy of insurance required by
Section 14.1(c) shall be paid to the Landlord, and Landlord shall apply the
proceeds against any currently unpaid obligation or obligations of Tenant
hereunder in such amount or amounts as Landlord reasonably shall decide. Any
remaining proceeds from such insurance, after giving effect hereto, shall be
paid to Tenant.
15.6 RESTORATION OF TENANT'S PROPERTY. Upon any restoration of the
Impacted Facility as provided in Section 15.2 or 15.3, Tenant shall either (i)
at Tenant's sole cost and expense, restore all alterations and improvements made
by Tenant, Tenant's Personal Property and all Capital Additions paid for by
Tenant, or (ii) at Tenant's sole cost and expense, replace such alterations and
improvements, Tenant's Personal Property or Capital Additions with
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improvements or items of the same or better quality and utility in the operation
of the Property; provided, however, that if the damaged Tenant's Personal
Property or Capital Additions paid for by Tenant were no longer useful to
Tenant's operations prior to their destruction, Tenant shall not be obligated to
replace them.
15.7 ABATEMENT OF RENT. Unless and until Tenant shall pay the purchase
price for the Property to Landlord in accordance with this Article XV (and this
Lease is thereby terminated or otherwise terminated as provided in this Article
XV), in the event of any damage or destruction of the Property, this Lease shall
remain in full force and effect and Tenant's obligation to make rental payments
and to pay all other charges required by this Lease shall not be abated by
reason of any damage or destructions to the Property or the subsequent loss of
Landlord's entitlement to the Property.
15.8 DAMAGE NEAR END OF TERM. Notwithstanding any provisions of this
Article XV to the contrary, if damage to or destruction of the Facility occurs
during the last 12 months of the then applicable term (whether Fixed or
Extended), if Tenant has not elected to extend such term, and if such damage or
destruction cannot be fully repaired and restored within six months immediately
following the date of loss, then Tenant shall have the right to terminate this
Lease by giving written Notice thereof to Landlord within 30 days after the date
of such damage or destruction, in which event, Landlord shall collect any
insurance proceeds to which it is entitled, and Tenant shall assign Tenant's
rights in any additional insurance proceeds. In the event that the Facility is
totally destroyed or damaged (i) from a risk not covered by insurance described
in Article XIV but that would have been covered if Tenant carried the insurance
customarily maintained by, and generally available to, the operators of
reputable health care facilities in the region in which the Facility is located,
(ii) from a risk for which insurance coverage is voided due to any act or
omission by Tenant, or (iii) as a result of an earthquake, whether or not such
damage or destruction renders the Facility unsuitable for its Primary Intended
Use (taking into account all relevant factors, including but not limited to the
number of useable beds, the amount of square footage reasonably available for
use by Tenant and the type and amount of Gross Revenues lost), then Tenant shall
pay to Landlord a sum equal to the amount reasonably necessary to repair such
damage or destruction.
15.9 TERMINATION OF OPTION TO PURCHASE. Any termination of this Lease
pursuant to this Article shall cause any option to purchase granted to Tenant
under this Lease and the right to extend the Term by any Extended Term to be
terminated and to be without further force or effect.
15.10 WAIVER. Tenant hereby waives any statutory rights of termination
which may arise by reason of any damage or destruction
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of the Facility which Landlord is obligated to restore or may restore under any
of the provisions of this Lease.
ARTICLE XVI
CONDEMNATION
16.1 DEFINITIONS.
For purposes of this Article XVI the following terms have the meanings
specified in this Section 16.1.
(a) "CONDEMNATION" means (a) the exercise of any governmental
power, whether by legal proceedings or otherwise, by a Condemnor, or (b) a
voluntary sale or transfer by Landlord with Tenant's consent (provided no Event
of Default has occurred and is continuing at such time) to any Condemnor, either
under threat of condemnation or while legal proceedings for condemnation are
pending.
(b) "DATE OF TAKING" means the first date the Condemnor has the
right to immediate possession of the property being condemned.
(c) "AWARD" means all compensation, sums and any other value
awarded, paid or received on a total or partial condemnation.
(d) "CONDEMNOR" means any public or quasi-public authority, or
private corporation or individual, having the power of condemnation.
16.2 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term there is any
Taking of all or any part of the Property or of any interest in this Lease by
Condemnation, the rights and obligations of the parties with respect to such
Condemnation shall be determined by this Article.
16.3 TOTAL TAKING. If title to the whole of Tenant's interest in the
Property shall be taken or condemned by any Condemnor, this Lease shall cease
and terminate as of the Date of Taking. If title to less than the whole of the
Property shall be so taken or condemned, which nevertheless renders the Property
unsuitable for its Primary Intended Use (taking into account all relevant
factors, including but not limited to the number of useable beds, the amount of
square footage reasonably available for use by Tenant, and the type and amount
of Gross Revenues lost), Tenant and Landlord each shall have the option by
Notice to the other, at any time prior to the taking of possession by, or the
date of vesting of title in, such Condemnor, whichever first occurs, to
terminate this Lease as of such earlier to occur date. Upon such earlier to
occur date, if such Notice has been given, this Lease shall cease and terminate.
In either of such events, all Rent paid or payable by Tenant
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hereunder shall be apportioned as of the date the Lease shall have been so
terminated as aforesaid.
16.4 ALLOCATION OF PORTION OF AWARD. Subject to the rights of any
Facility Mortgagee, the total Condemnation Award made with respect to all or any
portion of the Property shall be distributed to Landlord and Tenant ratably in
accordance with the value of their respective interests in and to such Property
as hereafter set forth in this Section 16.4. All of the Award shall be the sole
and exclusive property of Landlord and shall be payable to Landlord, subject to
the rights of any Facility Mortgagee; provided that any portion of such
Condemnation Award which is expressly allocated by the Condemnor to the taking
of Tenant's leasehold interest in the Property, the taking of any Capital
Additions (or any portion thereof) paid for by Tenant, any loss of business by
Tenant during the remaining Term of this Lease, the taking of Tenant's Personal
Property, or any removal and relocation expenses of Tenant in any such
proceedings shall be the sole property of and payable to Tenant. In any
Condemnation proceedings Landlord and Tenant each shall seek their own Award in
conformity herewith, at their own expense.
16.5 PARTIAL TAKING. If title to less than the whole of the Property
shall be taken or condemned, and the Property is still suitable for its then
Primary Intended Use, or if Tenant or Landlord shall be entitled (but shall not
elect) to terminate this Lease as provided in Section 16.3 hereof, Tenant at its
own cost and expense shall with all reasonable diligence restore the untaken
portion of any Improvements so that such improvements shall constitute a
complete architectural unit of the same general character and condition (as
nearly as may be possible under the circumstances) as the Improvements existing
immediately prior to such Condemnation or Taking. Landlord and Tenant shall each
contribute to the cost of restoration that part of their Award specifically
allocated to such restoration, if any (or if no such specific allocation is
made, a just, fair and reasonable portion of its Award as reasonably determined
by Landlord and Tenant or by arbitration in accordance with Section 28.14 if
Landlord and Tenant are unable to agree within 30 days of the Award), together
with any and all severance and other damages awarded for any taken Improvements;
provided, however, the amount of such contribution shall not exceed such cost.
If such amounts are not sufficient to cover the cost of restoration Landlord and
Tenant shall contribute any additional amounts needed for restoration in
proportion to the amounts already contributed by them, provided that in no event
shall Landlord contribute any amount to such restoration in excess of its Award.
Thereafter, any excess restoration cost shall be borne solely by Tenant.
Landlord agrees that Tenant shall be entitled to an equitable abatement of Base
Rent in the event of a partial taking of the Property, but such abatement shall
be strictly limited to any amount of excess Award paid to Landlord after the
restoration cost has been paid.
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16.6 TEMPORARY TAKING. If the whole or any part of the Property or of
Tenant's interest under this Lease shall be taken or condemned by any Condemnor
for its temporary use or occupancy for a period of not more than one hundred
eighty (180) days, this Lease shall not terminate, and Tenant shall continue to
pay, in the manner and at the times herein specified, the full amounts of Base
Rent, Additional Rent, if any, and Additional Charges, provided that during any
such Temporary Taking Tenant shall pay Additional Rent at a rate equal to the
average Additional Rent during the three immediately preceding Fiscal Years (or
if three Fiscal Years shall not have elapsed, the average during the last
preceding Fiscal Years occurring during the Term). Except to the extent Tenant
may be prevented from so doing pursuant to the terms of the order of the
Condemnor, Tenant shall continue to perform and observe all of the other terms,
covenants, conditions and obligations hereof on the part of the Tenant to be
performed and observed as though such Taking or Condemnation had not occurred.
Upon any such Taking or Condemnation described in this Section, the entire
amount of any such Award made for such Taking or Condemnation allocable to the
Term of this Lease, whether paid by way of damages, Rent or otherwise, shall be
paid to Tenant. Tenant covenants that upon the termination of any such Taking or
Condemnation set forth in this Section, Tenant will, at its sole cost and
expense (subject to any contribution by Landlord as set forth in Section 16.5),
restore the Property as nearly as may be reasonably possible to the condition in
which the same was immediately prior to such Taking or Condemnation, unless such
period of temporary use or occupancy shall extend beyond the expiration of the
Tenn, in which case Tenant shall not be required to make such restoration.
ARTICLE XVII
DEFAULTS AND REMEDIES
17.1 EVENTS OF DEFAULT. Any one or more of the following events shall
be deemed an "Event of Default" hereunder:
(a) Tenant shall fail to pay Rent payable by Tenant under this
Lease when the same becomes due and payable and such failure continues for 5
days after notice of such failure (except that Landlord shall not be required to
give more than one such notice in any 12-month period);
(b) Tenant shall violate the covenant described in Section 29.3(c)
hereof;
(c) Any representation or warranty made by the Tenant in
connection with this Lease or the Security Agreement, or in any report,
certificate, financial statement or other instrument furnished in connection
herewith or therewith, from time to time, whether under Article XXIV of this
Lease or otherwise, shall prove
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to be false or misleading in any material respect and shall not be remedied
within 30 days after Tenant receives notice thereof,
(d) Tenant shall fail to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured by Tenant
within a period of 30 days after Notice thereof from Landlord, unless such
failure cannot with due diligence be cured within a period of 30 days, in which
case such failure shall not be deemed to continue if Tenant proceeds promptly
and with due diligence to cure the failure and diligently completes the curing
thereof;
(e) Tenant or either of Guarantors shall: (i) admit in writing its
inability to pay its debts generally as they mature, (ii) make a general
assignment for the benefit of its creditors, (iii) have appointed a trustee,
receiver or liquidator pursuant to an order of a court of competent jurisdiction
of itself or of the whole or any part of its property which is not discharged in
sixty (60) days, (iv) terminate or suspend its business, (v) have any of its
assets executed upon, attached or judicially seized and such execution,
attachment or seizure is not vacated or set aside within sixty (60) days;
(f) Tenant or either of Guarantors shall: (i) file a voluntary
case under any applicable bankruptcy, insolvency, debtor relief or other similar
law or statute of the United States of America or any State thereof now or
hereinafter in effect ("BANKRUPTCY LAWS"), (ii) consent to or acquiesce in the
appointment of a receiver, liquidator, assignee, trustee, custodian or
sequestrator (or similar official of itself or of the whole or any part of its
property) which is not discharged in thirty (30) days, or (iii) fail generally
to pay its debts as they mature or become due;
(g) Tenant or either of Guarantors shall, on a petition filed
under any applicable Bankruptcy Laws against any of them, be adjudicated a
bankrupt or have an order for relief thereunder entered against it or fail to
oppose any such proceeding or if a court of competent jurisdiction shall enter
an order or decree appointing, without its consent, a receiver, liquidator,
assignee, custodian, trustee or sequestrator (or similar official) of itself or
of the whole or any part of its property and such judgment, order or decree
shall not be vacated or set aside or stayed within sixty (60) days from the date
of the entry thereof; or
(h) Tenant or either of Guarantors shall be liquidated or
dissolved, or shall voluntarily begin proceedings toward such liquidation or
dissolution, or shall, in any manner, permit the sale or divestiture of
substantially all of its assets;
(i) an Event of Default under the terms of the Security Agreement
shall occur and be continuing;
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(j) Tenant or either of Guarantors shall fail to make when due any
scheduled payment with respect to indebtedness (other than indebtedness which is
subordinated to this Lease), unless such failure is being diligently contested
in accordance with the requirements of this Lease or any lease pursuant to which
it enjoys the use of any real or personal property and such failure shall
continue for five days following its receipt of written advice with respect
thereto, if the effect of such failure is (i) to accelerate the maturity of such
indebtedness or to require the prepayment thereof, (ii) to permit the holder or
obligee thereof (or any trustee on behalf of such holder or obligee) to cause
such indebtedness to become due prior to its stated maturity, (iii) to give the
lessor the right to terminate such lease or (iv) to have a material adverse
effect on the business, operations, properties or condition (financial or
otherwise) of Tenant or Guarantor; provided, however, that such effect in (i),
(ii) or (iii) hereto has a material adverse effect on the business, operations,
properties or condition (financial or otherwise) of Tenant or Guarantor.
(k) any Notification Event described in Section 29.2(c) shall
occur, which is reasonably likely to result in liability to the Tenant or either
of Guarantors having a material adverse effect on the business, operations,
properties or condition (financial or otherwise) of Tenant or either of
Guarantors;
(l) an Event of Default under the terms of the Arkansas Manor
Lease, Cornerstone Lease or the Douglas Manor Lease shall occur and be
continuing; or
(m) either Tenant or Signature sells, assigns or transfers a
controlling interest in Tenant or Signature or a controlling interest in
Tenant's operations of the Property (other than as permitted by Section 23 and
Section 29.1(d)) without the prior written consent of Landlord, which consent
shall not unreasonably be withheld.
No Event of Default (other than a failure to make a payment of money)
shall be deemed to exist under clause (d) above during any time the curing
thereof is prevented by an Unavoidable Delay, provided that upon the cessation
of such Unavoidable Delay, Tenant immediately shall remedy such default.
Tenant shall immediately notify Landlord and NHI of the occurrence of
any event set forth in subsections 17.1(b) through (m). Landlord shall provide
identical notice to NHI as it provides to Tenant of any event set forth in
subsection 17.1(a) through (m).
17.2 CERTAIN REMEDIES. Upon any Event of Default, Landlord shall have
all legal, equitable and contractual rights, powers and remedies provided either
in this Lease, at common law or in equity, or by statute or otherwise. Tenant
expressly acknowledges and
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agrees that the Landlord will also have the right of injunction in accordance
with applicable law.
Without limiting the foregoing, if an Event of Default occurs, is not
cured within the period, if any, for any such cure provided in Section 17.1, and
is continuing, Tenant shall, to the extent permitted by law and if required by
Landlord so to do, immediately surrender to Landlord the Property and quit the
same. Landlord may enter upon and repossess the Property by reasonable force,
summary proceedings, ejectment or otherwise, and may remove Tenant and all other
persons and any and all personal property from the Property subject to rights of
any residents or patients and to any requirement of law. No such entry or
repossession by Landlord shall be deemed an election by Landlord to terminate
this Lease unless specifically stated by Landlord in writing from Landlord to
Tenant. Thereafter Landlord shall use reasonable, good faith efforts to relet
the Property or otherwise mitigate Landlord's damages. Landlord may so terminate
Tenant's right of possession and may repossess the Premises without liability
for trespass or conversion, without demand or notice of any kind to Tenant and
without terminating this Lease, in which event Landlord may, but shall be under
no obligation to, relet the same for the account of Tenant for such rent and
upon such terms as shall be satisfactory to Landlord. For the purpose of such
reletting, Landlord is authorized to decorate or to make any repairs, changes,
alterations, or additions in or to the Premises that may be necessary or
convenient. If Landlord exercises the remedies provided in this subparagraph,
Tenant shall pay to Landlord, and Landlord shall be entitled to recover from
Tenant, an amount equal to the total of the following: (A) unpaid Rent, plus
interest at the Overdue Rate, owing under the Lease for all periods of time that
the Premises are not relet (including any period prior to Landlord's
repossession); plus (B) the reasonable costs of recovering possession, and all
of the reasonable costs and expenses of such decorations, repairs, changes,
alterations, and additions, and the reasonable expense of such reletting and of
the collection of the rent accruing therefrom to satisfy the Rent provided for
the Leave to be paid; plus (C) any deficiency in the rentals and other sums
actually received by Landlord from any such reletting from the Rent required to
be paid under this Lease with respect to the periods the Premises are so relet,
and Tenant shall satisfy and pay any such deficiency upon demand therefor from
time to time. Neither the repossession of the Property, the failure of Landlord
to relet the Property, nor the reletting of all or any portion of the Property,
shall relieve Tenant of its liability and obligation hereunder, all of which
shall survive any such repossession or reletting. Tenant agrees that Landlord
may file suit to recover any sums falling due under the terms of this
subparagraph from time to time; and that no delivery or recovery of any portion
due Tenant hereunder shall be a defense in any action to recover any amount not
theretofore reduced to judgment in favor of Landlord, nor shall such reletting
be construed as an election on the part of Landlord to terminate this Lease
unless specifically stated by Landlord in
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writing from Landlord to Tenant. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect to terminate this Lease
for such previous breach in accordance with the procedure hereinafter provided.
Without limiting the foregoing, whether or not this Lease has been
terminated, Landlord shall have the right to offset against any Rent, damages,
or other sums of money owed by Tenant any advance Rent applicable to any time
period after the occurrence of the Event of Default.
17.3 TERMINATION. Upon the occurrence of any Event of Default, Landlord
may terminate this Lease by giving Tenant not less than ten days' Notice of such
termination during which time Tenant shall have the opportunity to cure any such
Event of Default. Upon the expiration of the time fixed in such Notice, unless
such Event of Default is cured, the Term shall terminate and all rights of
Tenant under this Lease shall cease. Landlord shall have all rights at law and
in equity available to Landlord as a result of Tenant's breach of this Lease. If
any litigation is commenced with respect to any alleged default under this Lease
whether under this Section 17.3 or under Section 17.2, the prevailing party in
such litigation shall receive, in addition to its damages incurred, its
reasonable attorneys' fees, and all costs and expenses incurred in connection
therewith. Neither the termination of this Lease pursuant to this Section 17.3,
the repossession of the Property, the failure of Landlord to relet the Property,
nor the reletting of all or any portion of the Property, shall relieve Tenant of
its liability and obligations hereunder, all of which shall survive any such
termination, repossession or reletting. Upon any such termination, Tenant shall
forthwith pay to Landlord as damages a sum of money equal to the total of (A)
the costs of recovering the Premises, (B) the unpaid Rent due and payable at the
termination, plus interest thereon at the Overdue Rate, (C) the balance of the
Rent for the remainder of the term less the fair market rental value of the
Premises for such period, and (D) any other sum of money rental owed by Tenant
to Landlord and the amount of other damages suffered by Landlord as a result of
Tenant's default.
17.4 APPLICATION OF FUNDS. Any payments normally made to Tenant
hereunder which are made to and received by Landlord under any of the provisions
of this Lease during the continuance of any Event of Default shall be applied to
Tenant's obligations in the order which Landlord may determine or as may be
prescribed by applicable laws.
17.5 LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. If an Event of Default
occurs under this Lease and is not cured within the time provided under this
Lease with respect to such Event of Default, Landlord, without waiving or
releasing any obligation of Tenant, and without waiving any such Event of
Default, may (but shall be under no obligation to) at any time thereafter cure
such default
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for the account and at the expense of Tenant, and may, to the extent permitted
by law, enter upon the Property for such purpose and take all such action
thereon as, in Landlord's sole judgment, may be necessary or appropriate with
respect thereto. No such entry by Landlord on the Property shall be deemed an
eviction of Tenant. All sums so paid by Landlord and all reasonable costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) so incurred, together with a late charge thereon computed at the
Overdue Rate from the date on which such sums or expenses are paid or incurred
by Landlord until the date reimbursed, shall be reimbursed by Tenant to Landlord
on demand. The obligations of Tenant and rights of Landlord contained in this
Article shall survive the expiration or earlier termination of this Lease.
17.6 NIH'S RIGHT TO CURE. If an Event of Default occurs under this
Lease, NHI may (but shall be under no obligation to) at any time thereafter cure
such default for the account and at the expense of Tenant.
17.7 WAIVER. If this Lease is terminated pursuant to the provisions of
this Article, Tenant waives, to the extent permitted by applicable law, (a) any
right of redemption, re-entry or repossession, (b) any right to trial by jury in
the event of summary proceedings to enforce the remedies set forth in this
Article, and (c) the benefit of any laws now or hereafter enforced exempting
property from liability for rent or for debt.
ARTICLE XVIII
CURE BY TENANT OF LANDLORD DEFAULTS
Landlord shall be in default of its obligations under this Lease if
Landlord shall fail to observe or perform any term, covenant or condition of
this Lease on its part to be performed, and such failure shall continue for a
period of 30 days after Notice thereof from Tenant (or such shorter time as may
be necessary in order to protect the health or welfare of any patient or other
resident of the Property), unless such failure cannot be cured with due
diligence within a period of 30 days, in which case such failure shall not be
deemed to continue if Landlord, within said 30 day period, proceeds promptly and
with due diligence to cure the failure and diligently completes the curing
thereof. The time within which Landlord shall be obligated to cure any such
failure shall also be subject to extension of time due to the occurrence of any
Unavoidable Delay. If Landlord fails to commence or complete such cure as
provided herein, Tenant may cure such default, and for so long as Tenant
continues to pay Rent, Tenant shall have the right by separate and independent
action to pursue any claim it may have against Landlord for Landlord's failure
to cure such default.
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ARTICLE XIX
PURCHASE OF PROPERTY BY TENANT
19.1 PURCHASE OF THE PROPERTY. If Tenant purchases the Property from
Landlord pursuant to any of the terms of this Lease, Landlord shall, except as
otherwise expressly provided, upon receipt from Tenant of the applicable
purchase price, together with full payment of any unpaid Rent due and payable
with respect to any period ending on or before the date of such purchase,
deliver to Tenant an ALTA Owner Policy of Title Insurance or such equivalent
policy of title insurance as may be available in the State, together with such
endorsements, reinsurance agreements and direct access agreements as Tenant may
reasonably request, together with an appropriate special warranty deed or other
conveyance conveying marketable fee simple title in and to the Property to
Tenant in the condition set forth in Article XXVI, except that the Property
shall be free and clear of all mortgages and encumbrances other than (a) those
Tenant has agreed hereunder to pay or discharge, (b) those mortgages which
Tenant has agreed in writing to accept and to take title subject to on the date
the Property was originally conveyed to Landlord and which are not in default,
(c) encumbrances required to be imposed on the Property under Section 8.3, and
(d) any other encumbrances permitted to be imposed on the Property under the
provisions of Article XXVII which are assumable at no cost or expense to Tenant
or to which Tenant may take subject without cost or expense to Tenant. The
difference between the applicable purchase price and the total amount of the
encumbrances assumed or taken subject to, if a positive number, shall be paid in
cash to Landlord or as Landlord may direct, in federal or other immediately
available funds, unless otherwise mutually agreed by Landlord and Tenant;
provided, Landlord shall be obligated to pay to Tenant in cash any negative
difference between the applicable purchase price and the total amount of the
encumbrances so assumed or taken subject to by Tenant. All reasonable expenses
of conveying the Property to Tenant, including, without limitation, the cost of
the aforementioned title insurance and attorneys' fees incurred by Landlord in
connection with such conveyance and release, and documentary transfer and
similar taxes, recording fees and expenses of Tenant's counsel, shall be paid by
Tenant.
19.2 FAILURE TO CLOSE PURCHASE. The closing of any such sale shall be
contingent upon and subject to Tenant obtaining all required Governmental
consents and approvals for such transfer. If such sale shall fail to be
consummated by reason of the inability of Tenant to obtain all such approvals
and consents, then this Lease shall remain in effect on a month-to-month basis
until the consummation of the purchase or until Tenant's inability to obtain the
approvals and consents is confirmed.
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ARTICLE XX
HOLDING OVER
If Tenant for any reason remains in possession of the Property after
the expiration or earlier termination of the Term, such possession shall be a
month-to-month tenancy during which time Tenant shall pay to Landlord as rental
each month one and one half (1-1/2) times the aggregate of (i) one-twelfth of
the aggregate total Base Rent payable with respect to the last 12-month period
of the Term just expired or terminated, (ii) all Additional Charges accruing
during the month with respect to which such payment relates, and (iii) all other
sums, if any, payable by Tenant pursuant to the provisions of this Lease with
respect to the Property. During such period of month-to-month tenancy, Tenant
shall be obligated to perform and observe all of the terms, covenants and
conditions of this Lease, but shall have no rights hereunder other than the
right, to the extent given by law to month-to-month tenancies, to continue its
occupancy and use of the Property. Nothing contained herein shall constitute the
consent, express or implied, of Landlord to the holding over of Tenant after the
expiration or earlier termination of the Term.
ARTICLE XXI
RISK OF LOSS
During the Term of this Lease, Tenant shall bear the risk of loss or of
decrease in the enjoyment and beneficial use of the Property resulting from the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or any other cause, or resulting from foreclosures, attachments, levies or
executions (other than those caused by Landlord and those claiming from, through
or under Landlord) and, in the absence of the gross negligence, willful
misconduct or breach of this Lease by Landlord, Landlord shall in no event be
responsible therefor nor shall any of the events mentioned in this Section
entitle Tenant to any abatement of Rent except as specifically provided in this
Lease.
ARTICLE XXII
LIABILITY OF PARTIES
22.1 INDEMNIFICATION BY TENANT. Notwithstanding the existence of any
insurance provided for in Article XIV, and notwithstanding the policy limits of
any such insurance, Tenant shall indemnify, defend, save and hold Landlord
harmless from and against any and all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses ("CLAIMS") (including, without
limitation, reasonable attorneys' fees and expenses), to the extent permitted by
law, imposed upon, incurred by or asserted against Landlord arising out of,
connected with or incidental to:
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(a) any Hazardous Substance located at, in, on, under or about the
Property due to the act or omission of Tenant, including any improvements,
repairs, handling, removal or other actions taken by Landlord in order to comply
with all rules and regulations promulgated by any applicable federal, state, or
local government rule and regulation with respect to any such Hazardous
Substance or related problems that Landlord becomes aware of;
(b) any accident, injury to or death of persons, or loss of or
damage to property, occurring on or about the Property or adjoining sidewalks,
alleys or roadways, including without limitation any claims of malpractice;
(c) any past, present or future use, misuse, non-use, condition,
management, maintenance or repair by Tenant of the Property or Tenant's Personal
Property and any litigation, proceeding or claim by governmental entities or
other third parties to which Landlord is made a party or other participant
related to the Property or Tenant's Personal Property or such use, misuse,
non-use, condition, management, maintenance or repair thereof, including but not
limited to any failure to perform obligations (other than condemnation
proceedings) to which Landlord is made a party;
(d) any Impositions which are the obligations of Tenant to pay
pursuant to the applicable provisions of this Lease:
(e) any failure on the part of Tenant to perform or comply with
any of the terms of this Lease; and
(f) the non-performance of any of the terms and provisions of any
and all existing and future subleases of the Property to be performed by Tenant
thereunder.
22.2 INDEMNIFICATION BY LANDLORD. Landlord shall indemnify, defend,
save and hold Tenant harmless from and against any and all liabilities,
obligations, claims, damages, penalties, causes. of action, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) imposed
upon, incurred by or asserted against Tenant arising out of, connected with or
incidental to the sole or gross negligence or willful misconduct of Landlord;
provided, however, that Tenant's right to indemnification as provided herein,
shall be subject to the limitation set forth in Article XXVIII.
22.3 CONTINUING LIABILITY. Tenant's and Landlord's liability under this
Article shall survive any termination of this Lease and shall continue for the
term provided herein or as permitted by the laws of the State, whichever is
longer.
ARTICLE XXIII
ASSIGNMENT
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23.1 ASSIGNMENT AND SUBLETTING. Subject to the provisions of Section
23.3 below and any other express conditions or limitations set forth in this
Lease, Tenant may, without the. consent of Landlord, (i) sublet up to an
aggregate of 25% of the rentable square footage of the Facility, to
concessionaires or other third party users or operators thereof, provided that
any subletting to any party shall not individually as to any one such
subletting, or in the aggregate, materially diminish the actual or potential
Additional Rent payable under this Lease or (ii) assign its rights hereunder to
a joint venture or partnership in which Tenant holds a controlling interest and,
in the case of a partnership, Tenant is a general partner. Except as otherwise
permitted in the immediately preceding sentence, a conveyance, transfer,
assignment or subletting of all or any portion of the Property shall not be
permitted unless the consent of Landlord is first obtained; provided, however,
that Landlord hereby acknowledges notice that NHI has a lien on Tenant's
leasehold estate under this Lease, and hereby consents to NHI or any nursing
home affiliate thereof becoming the Tenant hereunder upon any foreclosure of
such lien. Such consent by Landlord will not be unreasonably withheld if (x) the
assignee assumes all obligations of Lessee under the Lease in a writing in form
and content reasonably acceptable to Landlord, (y) such assignee meets the
financial covenants applicable to Tenant hereunder and demonstrates such fact to
Landlord's reasonable satisfaction, and (z) no Event of Default is in effect and
continuing hereunder. Landlord shall not unreasonably withhold its consent to
any subletting or assignment, provided that the assignee or sublessee has a
financial condition comparable to the greater of (i) Tenant's financial
condition as of the Commencement Date or (ii) Tenant's financial condition as of
the date of the proposed assignment or subletting and (w) in the case of a
subletting the sublessee shall comply with the provisions of Section 23.2, (x)
in the case of an assignment, (i) the assignee assumes in writing and agrees to
keep and perform all of the terms of this Lease on the part of Tenant to be kept
and performed, (ii) the assignee complies with the covenants set forth in
Section 28 hereof, (iii) the assignment causes no violation of any other
covenants under this Lease by Tenant or the assignee, and (iv) the assignee
becomes jointly and severally liable with Tenant for the performance thereof,
(y) an original counterpart of each such sublease and assignment and assumption,
duly executed by Tenant and such sublessee or assignee, as the case may be, in
form and substance satisfactory to Landlord, is delivered promptly to Landlord,
and (z) in case of either an assignment or subletting, Tenant remains primarily
liable, as principal rather than as surety, for the prompt payment of Rent and
for the performance and observance of all covenants and agreements to be
performed by Tenant hereunder. Tenant shall not, without Landlord's approval,
which Landlord may not unreasonably withhold, permit any person other than its
Affiliates, to own at any time 50% or more of the beneficial interest in Tenant.
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23.2 ATTORNMENT. Tenant shall insert in each sublease permitted under
Section 23.1 provisions reasonably satisfactory to Landlord which provide for
the benefit of Landlord that (a) such sublease is subject and subordinate to all
of the terms and provisions of this Lease and to the rights of Landlord
hereunder, (b) in the event this Lease shall terminate before the expiration of
such sublease, the sublessee thereunder will, at Landlord's option, either
attorn to Landlord and waive any right the sublessee may have to terminate the
sublease or surrender possession under such sublease, and (c) in the event the
sublessee receives Notice from Landlord or Landlord's assignees, if any, stating
that Tenant is in default under this Lease, the sublessee shall thereafter be
obligated to pay all rentals accruing under said sublease directly to the party
giving such Notice, or as such party may otherwise direct. All rentals received
from the sublessee by Landlord or Landlord's assignees, if any, as the case may
be, shall be credited against the amounts owed to Landlord under this Lease.
23.3 SUBLEASE LIMITATION. Anything contained in this Lease to the
contrary notwithstanding, Tenant shall not sublet the Property on any basis such
that the rental to be paid by the sublessee thereunder would be based, in whole
or in part, on either (a) the income or profits derived by the business
activities of the sublessee, or (b) any other formula such that any portion of
the sublease rental would fail to qualify as "rents from real property" within
the meaning of Section 856(d) of the Code, or any similar or successor provision
thereto.
ARTICLE XXIV
INFORMATION FROM TENANT
24.1 OFFICER'S CERTIFICATES. At any time and from time to time, upon
not less than 20 days Notice by Landlord, Tenant shall furnish to Landlord an
Officer's Certificate certifying that this Lease is unmodified and in full force
and effect (or that this Lease is in full force and effect as modified and
setting forth the modifications), the date to which the Rent has been paid,
whether there exists any Event of Default or any situation which, with the
giving of notice, passage of time, or both, would constitute an Event of Default
hereunder based upon Tenant's current knowledge, whether Tenant contends that
Landlord is in default hereunder, and if Tenant so contends, the basis for such
contention, the date upon which the Term terminates, and such other information
as Landlord reasonably may request. Any such certificate furnished pursuant to
this Section 24.1 may be relied upon by Landlord, any prospective purchaser of
the Property, and any Facility Mortgagee or Landlord Lender.
24.2 FINANCIAL INFORMATION. Tenant shall furnish, the following
statements to Landlord:
(a) within 120 days after the end of each Fiscal Year, a balance
sheet and statements of revenues and expenses and changes
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in retained earnings and cash flows for Tenant, certified by independent public
accountants of recognized standing acceptable to Landlord, such statements to be
prepared in accordance with generally accepted accounting principles
consistently applied, to be for such Fiscal Year and the immediately preceding
Fiscal Year and to be in comparative columnar form; within 90 days after the end
of each Fiscal Year, Tenant shall provide unaudited preliminary financial
statements similar to those referred to above;
(b) within 120 days after the end of each Fiscal Year, a schedule
of capital expenditures or reserves therefor of Tenant for such Fiscal Year as
required by Section 29.2(a)(i) hereof,
(c) within 45 days after the end of each of the first three fiscal
quarters of each Fiscal Year, financial statements similar to those referred to
in clause (a) above, but only certified by the principal financial or other
appropriate officer of Tenant, as having been prepared in accordance with
generally accepted accounting principles consistently applied (but which may
exclude footnote disclosures), such financial statements to be for the period
from the beginning of such Fiscal Year (and immediately preceding Fiscal Year)
to the end of such quarter (and comparable quarter);
(d) concurrent with the statements furnished pursuant to clauses
(a) and (b) above, an Officer's Certificate stating that, after making due
inquiry, Tenant is not in default in the performance or observance of any of the
terms of this Lease, or if Tenant shall be in default to its knowledge,
specifying all such defaults, the nature of such defaults, and the steps being
taken to remedy the same;
(e) within 30 days after the end of each month, financial
statements similar to those referred to in clause (a) together with operating
statistics but only certified by the principal financial or other appropriate
officer of Tenant, as having been prepared in accordance with generally accepted
accounting principles consistently applied; and
(f) with reasonable promptness, such other information respecting
the financial condition and affairs of Tenant as Landlord may reasonably request
from time to time.
24.3 Licensing Information. Tenant shall promptly furnish to Landlord
complete copies of all surveys, examinations, inspections, compliance
certificates and similar reports of any kind issued to Tenant by any
governmental agencies or authorities having jurisdiction over the licensing of
the operation of the Property which are material to the Property or the
Facility, their ownership or operation.
ARTICLE XXV
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APPRAISALS OF THE PROPERTY AND OPTIONS
25.1 APPRAISERS. If at any time it becomes necessary to determine the
Fair Market Value, Fair Market Value Purchase Price or Fair Market Rental of the
Property for any purpose under this Lease, and the parties are unable to agree
thereupon, the party required or permitted to give Notice of such required
determination shall include in the Notice the name of a person selected to act
as appraiser on its behalf. Within ten days after such Notice, Landlord or
Tenant, as the case may be, shall by Notice to Tenant or Landlord, as the case
may be, either agree to the appointment of the appraiser identified in such
initial Notice, in which case such appraiser shall be the sole appraiser for
purposes of determining the Fair Market Value, Fair Market Value Purchase Price
or Fair Market Rental, as the case may be, or shall appoint a second person as
an appraiser on its behalf. Any appraiser appointed pursuant to this Section
must be a member of the American Institute of Real Estate Appraisers (or any
successor organization thereto). The appraiser(s) thus appointed shall, within
45 days after the date of the Notice appointing the first appraiser, proceed to
appraise the Property to determine the Fair Market Value, Fair Market Value
Purchase Price or Fair Market Rental thereof (as the case may be) as of the
relevant date (giving effect to the impact, if any, of inflation from the date
of their decision to the relevant date). In the case of two appraisers, except
as provided in Section 25.2, the two appraisals shall be averaged to determine
the Fair Market Value, Fair Market Value Purchase Price or Fair Market Rental,
as the case may be. In any event, the appraised value determined in accordance
with this Section shall be final and binding on Landlord and Tenant.
25.2 METHOD OF APPRAISAL. Any appraisal required or permitted by the
terms of this Lease shall be conducted in a manner consistent with sound
appraisal practice, taking into account each of the income, market and cost
appraisal methodologies. Notwithstanding the provisions of Section 25.1, if the
difference between the appraisal amounts determined by the appraisers appointed
pursuant to Section 25.1 exceeds ten percent of the lesser of such appraisal
amounts, then the two appraisers shall have 20 days to appoint a third
appraiser. If no such appraiser is appointed within such 20 days or within 90
days of the original request for a determination of Fair Market Value, Fair
Market Value Purchase Price or Fair Market Rental (as the case may be),
whichever is earlier, either Landlord or Tenant may apply to any court having
jurisdiction to have such appointment made by such court. Any appraiser
appointed by the original appraisers or by such court shall be instructed to
determine the Fair Market Value, Fair Market Value Purchase Price or Fair Market
Rental (as the case may be) within 45 days after the appointment of such
appraiser. The determination of the three appraisers which differs most in the
terms of dollar amount from the determinations of the other two appraisers shall
be excluded, and 50% of the sum of the remaining two determinations shall be the
appraised value, which appraised
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value shall be final and binding upon Landlord and Tenant as the Fair Market
Value, Fair Market Value Purchase Price or Fair Market Rental of the Property,
as the case may be. If the lowest and highest appraised values are equidistant
in amount from the middle appraised value, then such middle appraised value
shall be the Fair Market Value, Fair Market Value Purchase Price or Fair Market
Rental (as the case may be). The provisions of this Article shall be
specifically enforceable to the extent such remedy is available under applicable
law, and any determination hereunder shall be final and binding upon the parties
except as otherwise provided by applicable law. Landlord and Tenant each shall
pay the fees and expenses of the appraiser appointed by it, and each shall pay
one-half of the fees and expenses of the third appraiser and one-half of all
other costs and expenses incurred in connection with each appraisal.
ARTICLE XXVI
OPTIONS TO PURCHASE
26.1 LANDLORD'S OPTION TO PURCHASE TENANT'S PERSONAL PROPERTY; TRANSFER
OF LICENSES. Provided Tenant has not exercised its option pursuant to Section
26.2 hereof, effective upon not less than ninety (90) days prior notice given at
any time within one hundred eighty (180) days prior to the expiration of the
Term of this Lease, or upon such shorter Notice as shall be reasonable if this
Lease is terminated prior to its expiration date, Landlord shall have the option
to purchase all (but not less than all) of Tenant's Personal Property, if any,
at the expiration or termination of this Lease, for an amount equal to the then
fair market value thereof, taking into account and with appropriate price
adjustments for, all equipment leases, conditional sale contracts, UCC-1
financing statements and other encumbrances to which such Tenant's Personal
Property is subject. Upon the expiration or termination of the Lease and such
purchase by Landlord, Tenant shall use good faith efforts, at Landlord's sole
cost and expense, to transfer and assign to Landlord or its designee, or assist
Landlord or its designee in obtaining, any contracts, licenses, and certificates
required for the then operation of the Facility.
26.2 TENANT'S OPTION TO PURCHASE THE PROPERTY. Provided no Event of
Default specified in Section 17.1 (a) hereof nor any other material Event of
Default has occurred and is continuing, and provided Tenant simultaneously
exercises its option to purchase the Properties subject to the other Leases,
Tenant shall have the option exercisable on not less than one hundred eighty
(180) days nor more than three hundred sixty (360) days Notice to purchase the
Property, at the expiration of the Fixed Term, or at the expiration of any
Extended Term, at the greater of (y) the Fair Market Value of the Property as of
the date specified for transfer of the Property in such Notice or (z) the Total
Investment Cost. Any such purchase of the Property by Tenant will constitute a
Sale, and will be subject to the indemnification provisions of Section 22.1
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hereof. Upon exercise by Tenant of its option to purchase the Property, Landlord
shall, at the election of Tenant, either convey the Property as a sale of assets
or as a sale of the stock of a corporation whose sole assets consist of the
Property.
If Tenant shall timely and properly exercise the foregoing option, the
sale of the Property shall be consummated through an escrow to be opened with a
mutually acceptable title or escrow company and shall close within ten Business
Days following the expiration of the Fixed Term or Extended Term in connection
with which Tenant exercised such purchase option. The purchase price of the
Property (net of the principal balance of any Facility Mortgage placed on the
Property by Landlord and expressly assumed by Tenant) shall be deposited into
escrow by wire transfer of Federal Funds at least two business days prior to
close of escrow and shall be paid to Landlord at close of escrow by wire
transfer of Federal Funds to such account as Landlord shall designate. Tenant
acknowledges and agrees that it shall purchase the Property from Landlord "AS
IS" and subject to all faults, defects in title and other matters whatsoever,
including, but not limited to, all matters of record other than Facility
Mortgage not expressly assumed by Tenant and any other liens, encumbrances,
attachments, levies or claims encumbering, at the instance of Landlord, the
Property, all of which shall be removed of record prior to purchase. Landlord
shall be conclusively deemed not to have made any warranty or representation
regarding the title, condition or other status of the Property. All title
insurance premiums and other closing costs associated with the purchase of the
Property by Tenant pursuant to this Section shall be paid by Tenant.
26.3 TENANT'S RIGHT OF FIRST REFUSAL. In the event that at any time
during the Term or the Extended Term, Landlord should receive an offer to
acquire its interest in the whole or any portion of the Property, and if such
offer is acceptable to Landlord, or if Landlord should make an offer to sell,
convey or transfer the whole or any portion of its interest in the Property, the
Tenant shall have, and Landlord does hereby grant to Tenant, the right of first
refusal to acquire Landlord's interest in the Property under the same terms and
conditions as such offer; provided, however, that if such offer to acquire or to
sell, convey or transfer all or any portion of the Property is part of an offer
to acquire other property from Landlord, in addition to all or any portion of
the Landlord's interest in the Property, Tenant may exercise the right of first
refusal granted in this Section 26.3 only by agreeing, to acquire all of the
property which is the subject of the offer on the same terms, conditions and
payment timetable as in the original offer. Upon receipt of any such acceptable
offer or upon transmittal of any offer, Landlord shall certify a complete, true
and correct copy of such offer to Tenant including all of the terms thereof.
Tenant shall have a period of 20 days from the date of the receipt of such
certification to exercise such right of first refusal by Notice to Landlord
within such period. Failure to exercise the right with respect to any
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particular offer shall not terminate the right with respect to any other offer.
If Tenant refuses to acquire the Property pursuant hereto and Landlord sells the
Property to a third party, such sale shall provide that it is subject to the
rights of Tenant under this Lease.
ARTICLE XXVII
FACILITY MORTGAGE
Without the consent of Tenant, Landlord may, subject to the terms and
conditions set forth below in this Section, from time to time, directly or
indirectly, create or otherwise cause to exist any lien, encumbrance, security
interest or title retention agreement ("Encumbrance") upon the Property, or any
portion thereof or interest therein, whether to secure any borrowing or other
means of financing or refinancing provided that the principal amount of such
borrowing, financing or refinancing does not exceed 80% of the then Fair Market
Value of the Property. Any such Encumbrance (i) shall contain the right to
prepay (whether or not subject to a prepayment penalty, which penalty shall be
paid by Landlord), (ii) shall provide that it is subject to the rights of Tenant
under this Lease, including the rights of Tenant to acquire the Property
pursuant to the applicable provisions of this Lease, provided, however, that
Tenant agrees that it will not unreasonably withhold its consent to any request
by Landlord that Tenant subordinate this Lease to any mortgage or deed of trust
that may hereafter from time to time be recorded on the Property, and to any and
all advances made or to be made thereunder, and to renewals, replacements and
extensions thereof and (iii) shall be paid in full and released and reconveyed
in the event Tenant purchases the Property pursuant to this Lease, unless Tenant
elects to assume such Encumbrance. Any such subordination, however, shall be
subject to the condition precedent that the mortgagee under such mortgage or the
beneficiary under such deed of trust enter into a written nondisturbance and
attornment agreement with Tenant, in form and content satisfactory to Tenant,
whereunder it is agreed that in the event of a sale or foreclosure under such
mortgage or deed of trust, the purchaser of the Property (including the
mortgagee or beneficiary under such mortgage or deed of trust), shall acquire or
hold the Property subject to this Lease so long as Tenant is not in default
hereunder, and so long as Tenant recognizes such purchaser as the landlord under
this Lease and agrees, if requested to do so, to attorn to such purchaser and,
if instructed to do so by such purchaser, to make rental payments directly to
it.
ARTICLE XXVIII
LIMITATION OF LIABILITY
Tenant specifically agrees that neither AHP nor Landlord nor any
officer, shareholder, employee or agent of AHP or Landlord (each of which shall,
for purposes of this Article XXVII, be
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considered an Affiliate of Landlord) shall be held to any personal liability,
jointly or severally, for any obligation of, or claims against Landlord, Tenant
agreeing to look solely to Landlord's equity interest in the Property for
recovery of any judgment from Landlord. The provisions contained in the
foregoing sentence are not intended to, and shall not, limit any right that
Tenant might otherwise have to obtain injunctive relief against Landlord or
Landlord's successors in interest, or any action riot involving the personal
liability of Landlord (original or successor). In no event shall Landlord
(original or successor) or any Affiliate of Landlord be required to respond in
monetary damages from Landlord's assets other than Landlord's equity interest in
the Property. Furthermore, except as otherwise expressly provided herein, in no
event shall Landlord or any Affiliate of Landlord (original or successor) ever
be liable to Tenant for any indirect or consequential damages suffered by Tenant
from whatever cause.
ARTICLE XXIX
ADDITIONAL COVENANTS OF TENANT
29.1 ADDITIONAL NEGATIVE COVENANTS. Tenant covenants and agrees with
Landlord that, during the Term hereof, Tenant shall not, either directly or
indirectly:
(a) LIENS. Incur, create, assume or permit to exist any mortgage,
pledge, lien, charge or other encumbrance of any nature whatsoever (including
conditional sales or other title retention agreements) on any property or other
assets now owned or hereafter acquired by Tenant, including, but not limited to,
Tenant's leasehold interest under this Lease and Tenant's Personal Property,
other than:
(i) deposits or pledges to secure payment of workmen's
compensation, unemployment insurance, old age pensions or other social security;
(ii) liens for taxes or assessments or other governmental
charges or levies if not yet due and payable, or if in good faith being
contested or litigated, provided that a reserve against such taxes, assessments,
charges and levies deemed adequate by Landlord shall be maintained and Tenant
shall furnish security reasonably satisfactory to Landlord for the payment of
such taxes, assessments, charges and levies;
(iii) liens in favor of Landlord or NHI;
(iv) purchase money security interests securing the payment of
not more than 75% of the purchase price of any item of personal property;
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(v) security interests in accounts receivable under working
capital lines of credit securing indebtedness not exceeding 80% of the net book
value of such accounts receivable;
(vi) judgments and other similar liens, provided that the
execution or other enforcement of such liens is effectively stayed and the
claims secured thereby are being actively contested in good faith and by
appropriate proceedings in accordance with the requirements of this Lease;
(vii) liens constituting renewals, extensions or replacements
of liens described in the foregoing clauses, but only, in the case of each such
renewal, extension or replacement lien, to the extent of the principal amount of
the obligation so secured at the time of the extension, renewal or replacement,
and to the extent that such renewal, extension or replacement lien is limited to
all or part of the property that secured the lien extended, renewed or replaced;
and
(viii) liens being contested in accordance with the provisions
of Article XIII.
(b) CASH FLOW COVERAGE RATIO. Unless Tenant is in full compliance
with the provisions of Section 3.1 of the Security Agreement, Tenant shall not
permit the ratio of: (a) Cash Flow to (b) Total Rent reserved for any calendar
quarter to be less than 1.75 to one; provided, however, that the failure to
maintain either of such ratios shall not constitute an event of default if the
Lease Reserve Fund is (i) then maintained in an amount equal to six months
Initial Base Rent or (ii) reinstated to an amount equal to six months Initial
Base Rent within thirty (30) days after Tenant delivers to Landlord financial
statements indicating such failure.
(c) SALE OF ASSETS. Sell, lease, transfer or otherwise dispose of
all or any substantial part of its properties or assets, except for (x)
properties that are no longer useful in its business or have been replaced and
(y) during any 12-month period, Properties with an aggregate market value of up
to $500,000.
(d) CONSOLIDATION OR MERGER. Consolidate with or merge into any
other corporation or partnership or permit any other corporation or partnership
to merge into it unless after giving, pro forma effect to the merger, based on
its and the disappearing corporation's financial statements for, in each case,
its most recently completed fiscal year or quarter, there is no violation of any
of the covenants of this Lease to be observed or performed by Tenant.
(e) GUARANTEES. Guarantee or otherwise incur liability for the
obligations of others except for endorsement of negotiable instruments for
deposit or collection.
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<PAGE> 69
(f) DIVIDENDS. Declare or pay any dividend or make any
distribution unless (i) Tenant is not in default under the Lease and (ii) the
Lease Reserve Fund is maintained in an amount equal to six months Initial Base
Rent, or, Signature shall have a Tangible Net Worth of not less than $5,000,000.
(g) MANAGEMENT FEE. Pay any person or entity a management or
advisory fee in connection with the management and operation of the Facility in
any Fiscal Year unless Tenant is not in default under the Lease and the
obligation to pay such management fee is subordinated to the payment obligations
under the Lease and such person or entity provides a guaranty of the obligations
of the Leases.
29.2 ADDITIONAL AFFIRMATIVE COVENANTS. Tenant covenants and agrees with
Landlord that, during the Term hereof, Tenant shall:
(a) MAINTENANCE OF PROPERTIES AND INTANGIBLE ASSETS.
(i) Do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its existence and, except as permitted
in Section 29.1(d), with such exceptions, if any, as are not material in the
aggregate, to obtain and, having obtained, preserve, renew and keep in full
force and effect all customary accreditation, rights, licenses and permits and,
with such exceptions, if any, as are not material in the aggregate, comply with
all laws and regulations applicable to it and conduct and operate the Facility
in substantially the manner, with such changes as may from time to time be
considered by management as necessary or appropriate, in which it is presently
conducted and operated, and at all times, with such exceptions as are not
material in the aggregate, to obtain, maintain, preserve and protect all
necessary franchises, provide agreements, contract rights, trademarks and trade
names used or useful in its operations and preserve all its assets which are
used or useful in the conduct of its operations, and keep the same in working
order and condition, and, with such exceptions as are not material in the
aggregate, from time to time to make, or cause to be made, all necessary
repairs, renewals, replacements, betterment and improvements thereto, so that
the operation of the Facility may be properly and advantageously conducted at
all times. Tenant shall maintain the Facility in good condition and repair
pursuant to an annual capital expenditure budget or reserve of not less than
$300 per Facility bed with any such reserves to be expended within three years
of the reserve, and all such reserves to be expended during the Term. Without
limiting the generality of the foregoing, Tenant shall use or cause the Property
to be used for the Primary Intended Use and only for such other uses as may be
necessary in connection with or incidental to said use or as may be agreed to by
Landlord in its sole and absolute determination. With such exceptions as are not
material in the aggregate, no use shall be made or permitted to be made of the
Property and no acts shall be done which violate any Legal Requirements or
Insurance Requirements or
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which will cause the cancellation of any insurance policy covering the Property
or any part thereof or any provider agreements. Tenant shall comply in all
material respects with all Legal Requirements and all of the requirements
pertaining to the Property of any insurance board, association, organization or
company necessary for the maintenance of the insurance required pursuant to this
Lease.
(ii) Tenant, immediately upon obtaining knowledge of facts
which are reasonably likely to result in an action by any Federal, state or
local agency (or the staff thereof) to revoke, withdraw or suspend any permit,
license, conditional use permit, variance certificate, certificate of need,
letter of nonreviewability, provider agreement or other governmental approval,
or an action of any other type, which would have a material adverse effect on
the Tenant or the operations of the Facility, shall notify the Landlord thereof
immediately.
(b) Obligations and Taxes. With such exceptions as are not
material individually or in the aggregate, none of which exceptions results in
the creation of a lien prohibited by this Lease on any property of Tenant, pay
all indebtedness and obligations in accordance with customary trade practices
and pay and discharge promptly all taxes, assessments and governmental charges
or levies imposed on it or upon its income and profit, or upon any of its
property, real, personal or mixed, or upon any part thereof, before the same
shall become in default, as well as pay before they shall become in default all
lawful claims for labor, material and supplies or otherwise which, if unpaid,
might become a lien or charge upon such Property or any part thereof.
(c) Pension Plans. Tenant shall notify Landlord within ten
business days of the occurrence of any of the following events ("NOTIFICATION
EVENTS") with respect to Tenant's Plans and within ten days of obtaining
knowledge of any Notification Event with respect to Plans of its Affiliates: (i)
the termination of a Plan, unless such Plan can be terminated without material
adverse effect on the business, properties or condition (financial or otherwise)
of Tenant or its Affiliates; (ii) the failure to make contributions to any of
Tenant's Plans (including any Multiemployer Plans) in a timely manner and in
sufficient amount to comply with the requirements of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); (iii) the failure to comply
with all material requirements of ERISA and the Code which relate to such Plans
and Multiemployer Plans (as defined by ERISA), the failure with which to comply
would have a material adverse effect on the business, properties or condition
(financial or otherwise) of Tenant or its Affiliates; (iv) receipt by Tenant of
any notice of the institution of any proceeding or other action which may
directly result in the termination of any Plans or Multiemployer Plans; (v) a
Termination Event or Reportable Event (as defined by ERISA) with respect to a
Plan; and (vi) any event or condition which would cause the lien provided for in
Section 4068 of ERISA to
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<PAGE> 71
attach to the assets of Tenant. Tenant shall not fail to make any payments to
any Multiemployer Plan that Tenant may be required to make under any agreement
relating to any Multiemployer Plan, ERISA or any other law pertaining thereto,
except for any payments being contested in good faith in accordance with Article
XIII with respect to which Tenant has established adequate reserves or which, if
not made, would not have a material adverse effect on the business, properties
or condition (financial or otherwise) of Tenant or its Affiliates.
29.3 SECURITY FOR THE LEASE.
(a) SECURITY AGREEMENT. On or before the Commencement Date, Tenant
shall execute and deliver to Landlord the Security Agreement.
(b) ABSOLUTE ASSIGNMENT. Tenant shall, on or before the
Commencement Date, execute and deliver to Landlord an absolute assignment of
subleases and rents pursuant to which Tenant shall assign to Landlord, subject
to a license to Tenant to retain so long as no Event of Default is continuing,
all of Tenant's rights, title and interest in any subleases and assignments
permitted under this Lease and the proceeds thereof.
(c) LEASE RESERVE FUND. As security for the timely and faithful
performance by Tenant of each and every one of Tenant's obligations under this
Lease, Tenant shall, on the Commencement Date and thereafter as provided in
Section 3.1 of the Security Agreement, create and maintain the Lease Reserve
Fund referred to in Section 3.1 of the Security Agreement in an amount equal to
six months Initial Base Rent (the "Lease Reserve Fund"). Notwithstanding any
contrary provision of this Section 29.3(c), Tenant shall maintain the Lease
Reserve Fund in a reduced amount equal to the amount of the Initial Base Rent
for three months, if, for each of the four consecutive full calendar quarters
most recently completed (during the Term), (i) (x) Tenant's Cash Flow is at
least 1.75 times (y) Total Rent, (ii) Guarantors' Cash Flow is at least 2.5
times Fixed Charges, and (iii) Guarantors have maintained a tangible net worth
of at least $5,000,000, all as reflected in financial statements prepared in
accordance with generally accepted accounting principals as set forth in an
Officer's Certificate delivered not later than sixty (60) days after the end of
such most recent quarter. Such Officer's Certificate shall be accompanied by an
appropriate cash flow statement and a compilation report thereon, without
material qualification, of Tenant's independent public accountants. If Tenant
delivers financial information to Landlord pursuant to Section 24.2 hereof which
indicates that Tenant has failed to maintain the financial conditions therein
and herein for the most recent period of two consecutive calendar quarters,
Tenant shall within ten (10) business days reinstate the Lease Reserve Fund to
the full amount of six months Initial Base Rent, and Tenant's failure so to do
shall be deemed an immediate Event of Default
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<PAGE> 72
hereunder, without requirement of demand therefor by Landlord or the giving of
any Notice, and, in such event, Landlord shall have the right to draw the entire
balance of the Lease Reserve Fund and apply the proceeds against any obligation
or obligations of Tenant hereunder in such amount or amounts as Landlord, in its
sole discretion, shall decide and exercise any other remedies permitted Landlord
hereunder, at law or in equity. Landlord shall not be deemed to hold the Lease
Reserve Fund in trust, but shall not commingle such funds with other assets of
Landlord. Tenant shall not be entitled. to any interest with respect to any such
funds held by Landlord.
ARTICLE XXX
MISCELLANEOUS
30.1 LANDLORD'S RIGHT TO INSPECT. Landlord and its authorized
representatives may, at any time and from time to time, upon reasonable notice
to Tenant, inspect the Property during usual business hours subject to any
security, health, safety or patient business confidentiality requirements of
Tenant or any governmental agency, or created by any Insurance Requirement or
Legal Requirement relating to the Property.
30.2 NO WAIVER. No failure by Landlord or Tenant to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
provided hereunder, and no acceptance of full or partial payment of Rent during
the continuance of any such breach, shall constitute a waiver of any such breach
or of any such term.
To the extent permitted by applicable law, no waiver of any breach shall affect
or alter this Lease, which shall continue in fall force and effect with respect
to any other then existing or subsequent breach.
30.3 REMEDIES CUMULATIVE. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Landlord or Tenant now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy the exercise or beginning of the exercise by Landlord or Tenant of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Landlord or Tenant of any or all of such
other rights, powers and remedies.
30.4 ACCEPTANCE OF SURRENDER. No surrender to Landlord of this Lease or
of all or any portion of or interest in the Property shall be valid or effective
unless agreed to and accepted in writing by Landlord, and no act by Landlord or
any representative or agent of Landlord, other than such a written acceptance by
Landlord, shall constitute an acceptance of any such surrender by Tenant.
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<PAGE> 73
30.5 NO MERGER OF TITLE. There shall be no merger of this Lease or of
the leasehold estate created hereby if the same person, firm, corporation or
other entity acquires, owns or holds, directly or indirectly, this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate, and the fee estate in the Property.
30.6 CONVEYANCE BY LANDLORD. If Landlord or any successor owner of the
Property conveys the Property in accordance with the terms hereof (other than as
security for a debt), and the grantee or transferee of the Property expressly
assumes all obligations of Landlord hereunder arising or accruing from and after
the date of such conveyance or transfer, Landlord or such successor owner, as
the case may be, thereupon shall be released from all liabilities and
obligations of Landlord under this Lease.
If Tenant assigns the Lease in accordance with the terms hereof,
Landlord consents to such assignment pursuant to Section 23.1 and the assignee
expressly assumes all obligations of Tenant hereunder arising or accruing from
and after the date of such conveyance or transfer, Tenant and Guarantors
thereupon shall be released from their respective liabilities and obligations of
Tenant under this Lease.
30.7 QUIET ENJOYMENT. So long as Tenant pays all Rent as the same
becomes due and fully complies with all of the terms of this Lease and fully
performs its obligations hereunder, Landlord warrants, represents and covenants
that Tenant shall peaceably and quietly have, hold and enjoy the Property for
the Term hereof, free of any claim or other action by Landlord or anyone
claiming by, through or under Landlord, but subject to all liens and
encumbrances of record as of the date hereof or hereafter consented to by
Tenant. Except as otherwise provided in this Lease, no failure by Landlord to
comply with the foregoing covenant shall give Tenant any right to cancel or
terminate this Lease or abate, reduce or make a deduction from or offset against
the Rent or any other sum payable under this Lease, or to fail or refuse to
perform any other obligation of Tenant hereunder. Notwithstanding the foregoing,
Tenant shall have the right, by separate and independent action, to pursue any
claim it may have against Landlord as a result of a breach by Landlord of the
covenant of quiet enjoyment contained in this Section.
30.8 NOTICES. All notices, demands, requests, consents, approvals and
other communications ("NOTICE" or "NOTICES") hereunder shall be in writing and
delivered by personal delivery, courier or messenger service, express or
overnight mail, or by registered or certified mail, return receipt requested and
postage prepaid, addressed to the respective parties as follows:
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<PAGE> 74
If to Tenant: Safford Care, Inc.
2105 Clubhouse Drive
Greeley, Colorado 80634
Attention: President
If to Landlord: American Health Properties of Arizona,
Inc. c/o American Health Properties, Inc.
6400 South Fiddler's Green Circle
Suite 1800
Englewood, Colorado 80111
Attention: General Counsel
If to NHI: National Health Investors, Inc.
City Center
100 Vine Street
Murfreesboro, Tennessee 37130
or to such other address as either party may hereafter designate. Personally
delivered Notices sent by courier or messenger service or by express or
overnight mail shall be effective upon receipt, and Notices given by mail shall
be complete at the time of deposit in the U.S. mail system, but any prescribed
period of Notice and any right or duty to do any act or make any response within
any prescribed period or on a date certain after the service of such Notice
given by mail shall be extended five (5) days.
30.9 SURVIVAL OF TERMS; APPLICABLE LAW. Anything contained in this
Lease to the contrary notwithstanding, all claims against, and liabilities of,
Tenant or Landlord arising prior to any date of termination of this Lease shall
survive such termination for two years, except for third party claims based on
alleged tortious actions and emissions of Tenant during the term of this Lease,
which third party claims shall survive the term of this Lease. If any term or
provision of this Lease or any application thereof shall be invalid or
unenforceable for any reason whatsoever, the remainder of this Lease and any
other application of such term or provisions shall not be affected thereby. If
any late charge or any interest rate provided for in any provision of this Lease
based upon a rate in excess of the maximum rate permitted by applicable law,
such charges shall be fixed at the maximum permissible rate. Neither this Lease
nor any provision hereof may be changed, waived, discharged, modified or
terminated except by an instrument in writing and in recordable form, signed by
Landlord and Tenant. Subject to any limitations on assignment contained in this
Lease, all the terms and provisions of this Lease shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. The headings in this Lease are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof. THIS LEASE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA,
BUT NOT INCLUDING ITS CONFLICTS OF LAWS RULES.
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<PAGE> 75
30.10 EXCULPATION OF LANDLORD'S OFFICERS AND AGENTS. This Lease is made
on behalf of Landlord by an officer thereof, not individually, but solely in his
capacity in such office as authorized by the directors of Landlord pursuant to
its bylaws. The obligations of this Lease are not binding upon, nor shall resort
be had to, the private property of any of the directors, shareholders, officers,
employees or agents of Landlord personally, but bind only Landlord's property.
The provision contained in the foregoing sentence is not intended to, and shall
not, limit any right that Tenant might otherwise have to obtain injunctive
relief against Landlord or Landlord's successors in interest, or any action not
involving the personal liability of the directors, Shareholders, officers,
employees or agents of Landlord. Except as otherwise expressly provided herein,
in no event shall Landlord ever be liable to Tenant for any indirect or
consequential damages suffered by Tenant from whatever cause.
30.11 TRANSFERS FOLLOWING TERMINATION. Upon the expiration or earlier
termination of the Term, Tenant shall use good faith efforts to transfer to
Landlord or Landlord's nominee, or to cooperate with Landlord or Landlord's
nominee in connection with the processing by Landlord or Landlord's nominee of
any applications for, all licenses, operating permits and other governmental
authorizations and all contracts (including contracts with governmental or
quasi-governmental entities) which may be necessary for the operation of the
Facility; provided, however, that the costs and expenses of any such transfer or
the processing of any such application shall be paid by Landlord or Landlord's
nominee.
30.12 TENANT'S WAIVERS. Tenant waives all presentments, demands for
performance, notices of nonperformance, protests, notices of protest, notices of
dishonor, and notices of acceptance and waives all notices of the existence,
creation, or incurring of new or additional obligations, except as expressly
granted herein.
30.13 MEMORANDUM OF LEASE. Landlord and Tenant shall, promptly upon the
request. of either party, enter into a short form memorandum of this Lease and
all options contained herein, in form suitable for recording under the laws of
the State in which the Property is located. Tenant shall pay all costs and
expenses of recording such memorandum of this Lease.
30.14 ARBITRATION. Any controversy (a) involving $1,000,000 or less
(exclusive of interest and costs) arising out of, connected with or incidental
to this Agreement (except disputes concerning determinations of Fair Market
Value which shall be resolved exclusively as provided in Article XXV) and (b)
involving clauses (vii) and (viii) in the definition of Substitute Property
shall be decided by arbitration under the expedited procedures of the American
Arbitration Association, provided that claim is made within the applicable
period of limitation. Depositions to obtain discovery may be taken upon good
cause, upon leave to do so granted
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<PAGE> 76
by the arbitrator. If either party hereto alleges in a court action that such
controversy exceeds $ 1, 000,000, such party shall be deemed to have waived the
right to interest and costs in any award obtained therein if such award does not
exceed $1,000,000.
30.15 MODIFICATIONS. No provision of this Lease may be amended,
supplemented or otherwise modified except by an agreement in writing signed by
the parties hereto or their respective successors in interest.
30.16 ATTORNEYS' FEES. If either party commences an action against the
other to interpret or enforce any of the terms of this Lease or because of the
breach by the other party of any of the terms hereof, the losing or defaulting
party shall pay to the prevailing party reasonable attorneys' fees, costs and
expenses incurred in connection with the prosecution or defense of such action,
whether or not the action is prosecuted to a final judgment.
30.17 BROKERS.
(a) TENANT. Tenant hereby warrants that no real estate broker or
finder who is not an employee of Tenant has represented or will represent it in
this transaction and that no finder's fees have been earned by a third party who
may claim through Tenant. Tenant shall indemnify and hold harmless the Landlord
against any claim for brokerage fees made by any employee of Tenant.
(b) LANDLORD. Landlord hereby warrants that no real estate broker
or finder who is not an employee of Landlord has represented or will represent
it in this transaction and that no finder's fees have been earned by a third
party who may claim through Landlord. Landlord shall indemnify and hold harmless
the Tenant against any claim for brokerage fees made by any employee of
Landlord.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the date first above written.
SAFFORD CARE, INC.,
a Colorado corporation
By: /s/ David A. Kremser
-----------------------------
David A. Kremser
President
AMERICAN HEALTH PROPERTIES OF
ARIZONA, INC.,
an Arizona corporation
By: /s/ Geoffrey D. Lewis
-----------------------------
Geoffrey D. Lewis
Vice President
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<PAGE> 1
EXHIBIT 99.1
UNISON HEALTHCARE CORPORATION
LETTER OF TRANSMITTAL
OFFER FOR ALL OUTSTANDING
12 1/4% SENIOR NOTES DUE 2006 ("ORIGINAL NOTES")
IN EXCHANGE FOR
12 1/4% SENIOR NOTES DUE 2006 ("EXCHANGE NOTES")
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
PURSUANT TO THE PROSPECTUS DATED _______________, 1997
THE EXCHANGE OFFER AND WITHDRAWAL PERIOD WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
________________, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE")
DELIVER TO FIRST BANK NATIONAL ASSOCIATION, the Exchange Agent:
BY FACSIMILE: BY MAIL/HAND/OVERNIGHT DELIVERY:
(612) 244-1537 c/o FIRST TRUST NATIONAL ASSOCIATION
180 EAST 5TH STREET
CONFIRMATION ST. PAUL, MN 55101
BY TELEPHONE: Attn: Mr. David Haugen
(612) 244-8162 Specialized Finance Group
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA A FACSIMILE NUMBER
OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated _________________,
1997 (the "Prospectus") of Unison HealthCare Corporation (the "Company") and
this Letter of Transmittal, which together constitute the Company's offer (the
"Exchange Offer") to exchange an aggregate principal amount of up to $100
million of its newly issued 12 1/4% Senior Notes due 2006 (the "Exchange Notes")
that have been registered under the Securities Act of 1933, as amended (the
"Securities Act") for a like amount of its issued and outstanding 12 1/4% Senior
Notes due 2006 (the "Original Notes") that were issued and sold in a transaction
exempt from registration under the Securities Act.
For each Original Note accepted for exchange, the holder of such Original Note
will receive an Exchange Note having a principal amount equal to that of the
surrendered Original Note. The Exchange Notes will bear interest from the most
recent date to which interest has been paid on the Original Notes, which is
currently from April 30, 1997. Accordingly, registered holders of Exchange Notes
on the relevant record date for the first interest payment date following
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no further interest has been
paid, from April 30, 1997. Original Notes accepted for exchange will cease to
accrue interest from and after the date of consummation of the Exchange Offer.
Holders whose Original Notes are accepted for exchange will not receive any
payment in respect of interest on such Original Notes otherwise payable on any
interest payment date the record date for which occurs on or after consummation
of the Exchange Offer.
This Letter of Transmittal is to be used (a) if certificates for Original Notes
are to be physically delivered to the Exchange Agent herewith or if a tender of
certificates for Original Notes, if available, is to be made by book-entry
transfer to the account maintained by the Exchange Agent at the Depository Trust
Company (the "Book-Entry Transfer Facility"), or (b) if tenders are to be made
according to the guaranteed delivery procedures set forth in the Prospectus
under "The Exchange Offer -- Guaranteed Delivery Procedures." Holders of
Original Notes whose certificates are not immediately available, or who are
unable to deliver their certificates or confirmation of the
<PAGE> 2
book-entry tender of their Original Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other
documents required hereby to the Exchange Agent before the Expiration Date, must
tender their Original Notes according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery Procedures" in the
Prospectus. See Instruction 1.
The Company has conditioned its obligation to consummate the Exchange Offer upon
certain matters, including consent by the holders of a majority in principal
amount of the Original Notes to an amendment to the Registration Rights
Agreement terminating the existing Registration Default thereunder as of the
effective date of the registration statement for the Exchange Notes.
The Exchange Offer will expire at 5:00 p.m., New York City time, on
_______________, 1997 (the "Expiration Date") unless extended, in which case the
term "Expiration Date" shall mean the last time and date to which the Exchange
Offer is extended. Capitalized terms used herein and not otherwise defined shall
have the respective meanings assigned to them in the Prospectus.
The undersigned has completed the appropriate boxes below and signed this Letter
to indicate the action the undersigned desires to take with respect to the
Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX
BELOW. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND LETTER OF TRANSMITTAL SHOULD BE DIRECTED TO THE EXCHANGE AGENT AT
___________________ OR ___________ OR AT ITS ADDRESS SET FORTH ABOVE.
Holders who wish to tender their Original Notes must complete the table in Box 1
and complete and sign in Box 5.
2
<PAGE> 3
List below the Original Notes to which this Letter of Transmittal relates. If
the space below is inadequate, the certificate numbers and amount of Original
Notes should be listed on a separate signed schedule attached hereto.
PLEASE READ THE ENTIRE LETTER OR TRANSMITTAL, INCLUDING THE ACCOMPANYING
INSTRUCTIONS, CAREFULLY BEFORE CHECKING ANY BOX BELOW.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF ORIGINAL NOTES TENDERED
- -------------------------------------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s)
(Please use pre-addressed label or fill in exactly as name(s) appear(s) on Tendered Certificate(s)
certificate(s)) (Attach Signed Additional List if Necessary)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate
Principal
Amount Aggregate
Certificate Represented by Amount
Number(s)* Certificate(s)** Tendered**
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
Total
Principal
Amount*
- -------------------------------------------------------------------------------------------------------------------------------
* DOES NOT need to be completed if Original Notes are tendered by book-entry transfer.
** Unless otherwise indicated, the holder will be deemed to have tendered the entire stated face amount of all Original Notes
represented by tendered certificates. See Instruction 3.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5, 6 AND 7)
To be completed ONLY if Exchange Notes are to be issued in the name of someone
other than the person whose signature appears in Box 5 of this Letter of
Transmittal, or if Original Notes delivered by book-entry transfer which are not
accepted for exchange are to be returned by credit to an account maintained at
the Book-Entry Transfer Facility other than the account indicated above.
- --------------------------------------------------------------------------------
Box 2
Issue Exchange Notes to:
Name
---------------------------------------------------------------------------
(PLEASE PRINT)
Address
------------------------------------------------------------------------
(ZIP CODE)
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
[ ] Credit undercharged Original Notes delivered by book-entry transfer to
the Book-Entry Transfer Facility account set forth below:
- -----------------------------
Book-Entry Transfer Facility
Account Number, if applicable
(COMPLETE SUBSTITUTE FORM W-9)
- --------------------------------------------------------------------------------
3
<PAGE> 4
SPECIAL DELIVERY INSTRUCTIONS (SEE
INSTRUCTIONS 4, 5, 6 AND 7)
To be completed ONLY if certificates for Exchange Notes are to be sent to
someone other than the person whose signature appears in Box 2 of this Letter of
Transmittal or such person at an address other than that shown in Box 1,
entitled "Description of Original Notes Tendered."
- --------------------------------------------------------------------------------
Box 3
Mail and Deliver Exchange Notes to:
Name
---------------------------------------------------------------------------
(PLEASE PRINT)
Address
------------------------------------------------------------------------
(ZIP CODE)
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
NOTE: SIGNATURES MUST BE PROVIDED UNDER BOX TWO
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
- --------------------------------------------------------------------------------
Ladies and Gentlemen:
In accordance with the terms and subject to the conditions set forth in the
Exchange Offer, the undersigned hereby tenders to the Company the
above-described Original Notes. Subject to, and effective upon, acceptance for
exchange of the Original Notes tendered herewith, the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to all the Original Notes that are being
tendered hereby and that are being accepted for exchange pursuant to the
Exchange Offer, and hereby irrevocably constitutes and appoints the Exchange
Agent the true and lawful agent and attorney-in-fact of the undersigned with
respect to such Original Notes (with full knowledge that the Exchange Agent also
acts as agent for the Company) with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest), to
(a)(1) deliver such Original Notes to the Company or (2) present such Original
Notes for transfer to the Registrar on the Company's register, together, in each
case, with all accompanying evidences of transfer and authenticity to, or upon
order of, the Company, upon receipt by the Exchange Agent, as the undersigned's
agent, of the certificates representing Exchange Notes to which the undersigned
is entitled upon the acceptance by the Company of such Original Notes pursuant
to the Exchange Offer, and (b) receive all benefits and otherwise exercise all
rights of beneficial ownership of such Original Notes, all in accordance with
the terms and subject to the conditions of the Exchange Offer.
The name and address of the registered holder(s) should be printed above in Box
One under "Description of Original Notes Tendered," exactly as they appear on
the certificates representing Original Notes tendered hereby. The certificate
number(s) and Original Notes to which this Letter of Transmittal relates should
be indicated in the appropriate boxes above under "Description of Original Notes
Tendered."
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, exchange, assign and transfer the Original Notes
tendered hereby, and that when the same are accepted for exchange by the
Company, the Company will acquire good and unencumbered title thereto, free and
clear of all
4
<PAGE> 5
liens, restrictions, charges and encumbrances, and such Original Notes shall not
be subject to any adverse claims. The undersigned will, upon request, execute
and deliver any additional documents deemed by the Exchange Agent or the Company
to be necessary or desirable to complete the exchange, assignment and transfer
of the Original Notes tendered hereby.
Further, the undersigned hereby represents and warrants that the undersigned is
acquiring the Exchange Notes in the ordinary course of its business; the
undersigned is not engaged in, and does not intend to engage in, a distribution
of the Exchange Notes; the undersigned has no arrangement or understanding with
any person to participate in the distribution of the Exchange Notes; neither the
undersigned nor any other such person is an affiliate of the Company; and, if
the undersigned is not a broker-dealer, the undersigned is not engaged in, and
does not intend to engage in, a distribution of the Exchange Notes. If the
undersigned is a broker-dealer, it acknowledges that it will deliver a copy of
the Prospectus in connection with any resale of the Exchange Notes; however, by
so acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the Exchange Notes issued in exchange for the Original Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such Exchange
Notes. However, the SEC has not considered the Exchange Offer in the context of
a no-action letter and there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in other
circumstances. If any holder is an affiliate of the Company, or is engaged in or
intends to engage in or has any arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired pursuant to the Exchange
Offer, such holder (i) could not rely on the applicable interpretations of the
staff of the SEC and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
All authority conferred, or agreed to be conferred, in this Letter of
Transmittal shall survive the death or incapacity of the undersigned, and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, legal representatives, successors and assigns of the
undersigned. This tender of Original Notes may be withdrawn at any time prior to
the Expiration Date. See "The Exchange Offer -- Withdrawal Rights" in the
Prospectus.
The undersigned understands that tenders of Original Notes pursuant to any of
the procedures described in the Prospectus and in this Letter of Transmittal
will constitute a binding agreement between the undersigned and the Company upon
the terms and subject to the conditions of the Exchange Offer.
Original Notes properly tendered and not withdrawn will be accepted as soon as
practicable after the satisfaction or waiver of all conditions to the Exchange
Offer. The undersigned understands that the Exchange Notes will be delivered as
promptly as practicable following acceptance of the tendered Original Notes by
the Company. The Exchange Offer is subject to a number of conditions, as more
particularly set forth in the Prospectus. See "The Exchange Offer -- Certain
Conditions to the Exchange Offer" in the Prospectus. The undersigned recognizes
that as a result of such conditions the Company may not be required to accept
any of the Original Notes tendered hereby. In such event, the Original Notes not
accepted for exchange will be returned to the undersigned at the address shown
below the undersigned's signature(s), unless otherwise indicated under "Special
Delivery Instructions."
5
<PAGE> 6
Unless otherwise indicated herein under "Special Issuance Instructions," please
issue the certificates for the Exchange Notes with respect to the Original Notes
accepted for exchange, or return the Original Notes not accepted for exchange,
in the name(s) of the undersigned at the address set forth above under
"Description of Original Notes Tendered" or in the case of a book-entry delivery
of Original Notes, please credit the account indicated above maintained at the
Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
"Special Delivery Instructions," please deliver the certificates for the
Exchange Notes with respect to the Original Notes accepted for exchange, or the
Original Notes if not accepted for exchange (and accompanying documents, as
appropriate), to the undersigned at the address set forth above under
"Description of Original Notes Tendered." In the event that both the "Special
Issuance Instructions" and the "Special Delivery Instructions" are completed,
please issue the certificates for Exchange Notes accepted for exchange or in the
case of a book-entry delivery of Original Notes, please credit the account
indicated above maintained at the Book-Entry Transfer Facility, and/or return or
issue any certificates for Original Notes not tendered or not accepted for
exchange, in the name(s) of, and deliver such certificates for Exchange Notes
and/or such certificates for Original Notes not tendered or accepted for
exchange to the person or persons so indicated. The undersigned recognizes that
the Company has no obligation pursuant to the "Special Issuance Instructions" to
make arrangements for the transfer of any Original Notes from the name of the
registered holder(s) thereof if the Company does not accept for exchange the
Original Notes so tendered. Further, the undersigned recognizes that the
undersigned must comply with all terms and conditions of the Indenture, by and
between the Company and the Guarantors and the Trustee dated as of October 31,
1996, as amended or supplemented from time to time in accordance therewith (the
"Indenture"), to transfer Original Notes either not tendered for exchange or not
accepted for exchange from the name of the registered holder(s).
6
<PAGE> 7
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
________________________________________________________________________________
Box 4
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK- ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ___________________________________________
Account Number _________________________________________________________________
Transaction Code Number ________________________________________________________
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT PRIOR
TO THE DATE HEREOF AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s): _________________________________________
Date of Execution of Notice of Guaranteed Delivery: _____________________
Name of Eligible Institution which Guaranteed Delivery: _________________
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number _________________________________________________________________
Transaction Code Number ________________________________________________________
________________________________________________________________________________
NOTE: Signature(s) must be guaranteed by an institution which is a participant
in the Securities Transfer Agent Medallion Program ("STAMP") or similar program.
7
<PAGE> 8
________________________________________________________________________________
Box 5
PLEASE SIGN HERE
TO BE COMPLETED BY ALL HOLDERS TENDERING ORIGINAL NOTES (WHETHER OR NOT
CERTIFICATES ARE BEING PHYSICALLY TENDERED HEREBY)
Must be signed by the registered holder(s) exactly as name(s) appear(s)
on the certificate(s) for Original Notes or by person(s) authorized to become
registered holder(s) as evidenced by endorsements and documents transmitted
herewith. See Instructions 4 and 5. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, agent, or
other person acting in a fiduciary or representative capacity, please provide
the following information. See Instruction 4.
________________________________________________________________________________
________________________________________________________________________________
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATORY
Dated: _____________________________________, 1997
Name(s) ________________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity (full title): _________________________________________________________
Address(es) (including zip code): ______________________________________________
Area Code(s) and Telephone Number(s): __________________________________________
Tax Identification or Social Security Number(s): _______________________________
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTION 4)
Name of Firm: __________________________________________________________________
Authorized Signature: __________________________________________________________
Name: __________________________________________________________________________
(PLEASE PRINT OR TYPE)
Title: _________________________________________________________________________
Address: _______________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number: ________________________________________________
Dated: _____________________________, 1997
________________________________________________________________________________
8
<PAGE> 9
________________________________________________________________________________
Box 6
TO CONSENT TO THE PROPOSED AMENDMENT TO THE REGISTRATION RIGHTS
AGREEMENT AS FOLLOWS:
"Notwithstanding anything to the contrary in the Registration Rights
Agreement, the Registration Default caused by the Company's failure to
file the Exchange Registration Statement by the Filing Date or to cause
it to become effective by the Effectiveness Date, or by its failure to
file and cause a Shelf Registration Statement to become effective, is
hereby cured and terminated, and the Additional Interest related to such
Registration Default shall cease to accrue, effective upon the effective
date of the Exchange Registration Statement."
[ ] CONSENT to such amendment [ ] WITHHOLD CONSENT to such amendment
X ________________________________________ X _________________________________
Signature(s) of Registered Holder(s) Signature(s) of Registered
or Authorized Signatory Holder(s) or Authorized
Signatory
X ________________________________________ X _________________________________
Type or Print Name Type or Print Name
Dated: , 1997 Dated: , 1997
___________________ ___________________
________________________________________________________________________________
9
<PAGE> 10
<TABLE>
<CAPTION>
PAYER'S NAME:
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR TIN IN THE Social Security number
FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND
DATING BELOW -------------------------------------
Department of the Treasury OR
Internal Revenue Service -------------------------------------
Employer identification number
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER (TIN)
-------------------------------------------------------------------------------------------
Part 2 - CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me) and
(2) I am not subject to backup withholding either because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service (the
"IRS") that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
-------------------------------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if Part 3
you have been notified by the IRS that you are currently subject to
backup withholding because of underreporting interest or dividends
on your tax return. However, if after being notified by the IRS that
you are subject to backup withholding, you received another
notification from the IRS that you are no longer subject to backup
withholding, do not cross out such item(2).
SIGNATURE DATE Awaiting TIN |_|
-------------------------- --------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE
FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 3 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office, or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
- ----------------------------------- -----------------------------------
Signature Date
- --------------------------------------------------------------------------------
10
<PAGE> 11
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Certificates; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be used if (a) certificates for
Original Notes are to be physically delivered to the Exchange Agent herewith or
tenders are to be made according to the guaranteed delivery procedures or (b)
tenders are to be made pursuant to the procedures for delivery by book-entry
transfer, all as set forth in the Prospectus.
To validly tender Original Notes pursuant to the Exchange Offer, either (a) a
properly completed and duly executed copy of this Letter of Transmittal (or
facsimile thereof) with any required signature guarantees, together with either
a properly completed and duly executed Notice of Guaranteed Delivery or
certificates for the Original Notes, or Book-Entry Confirmation, as the case may
be, and any other documents required by this Letter of Transmittal, must be
received by the Exchange Agent at its address or number set forth on the first
page of this Letter of Transmittal, or (b) a holder of Original Notes must
comply with the guaranteed delivery procedures described in the next succeeding
paragraph. Original Notes tendered must be in denominations of principal amount
of $1,000 and any integral multiple thereof.
Holders of Original Notes who desire to tender such Original Notes pursuant to
the Exchange Offer and whose certificates representing such Original Notes are
not lost but are not immediately available, or time will not permit all required
documents to reach the Exchange Agent prior to 5:00 p.m., New York City time, on
the Expiration Date, or who cannot complete the procedure for book-entry
transfer on a timely basis, may tender their Original Notes pursuant to the
guaranteed delivery procedures set forth in the Prospectus under "The Exchange
Offer -- Guaranteed Delivery Procedures." Pursuant to such procedures, (a)
tender must be made by a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or by a commercial bank or trust company having an office or correspondent in
the United States and, in each instance, which is a participant in the
Securities Transfer Agent Medallion Program ("STAMP") or similar program (an
"Eligible Institution"), (b) the Exchange Agent must have received from such
Eligible Institution, prior to 5:00 p.m., New York City time, on the Expiration
Date, a properly completed and duly executed Notice of Guaranteed Delivery (by
mail, hand delivery, telegram or facsimile transmission), and (c) the
certificates for all physically tendered Original Notes in proper form for
transfer or Book-Entry Confirmation as the case may be, together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and all
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent within five New York Stock Exchange trading days after the
Expiration Date, all as provided in the Prospectus under the caption "The
Exchange Offer -- Guaranteed Delivery Procedures."
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE CERTIFICATES FOR
ORIGINAL NOTES AND OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
TENDERING HOLDER. EXCEPT AS OTHERWISE PROVIDED HEREIN AND IN THE PROSPECTUS,
SUCH DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT THE HOLDER USE PROPERLY
INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE MAILING BE
MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE
EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
All questions as to the validity, form, eligibility (including time of receipt),
acceptance, withdrawal and revocation of Original Notes tendered for exchange
will be determined by the Company in its sole discretion, whose determination
will be final and binding. The Company reserves the absolute right to waive any
defects or irregularities in the tender or conditions of the Exchange Offer as
to particular Original Notes. The interpretation of the Company of the terms and
conditions of the Exchange Offer (including the Instructions herein) will be
final and binding. Unless waived, any defects or irregularities in connection
with tenders must be cured within such
11
<PAGE> 12
time as the Company shall determine. No alternative, conditional or contingent
tenders will be accepted. Neither the Company, the Exchange Agent nor any other
person will be under any duty to give notification of any defects or
irregularities in any tender or will incur any liability for failure to give any
such notification. Tenders of Original Notes will not be deemed to have been
made until irregularities have been cured or waived. Any certificates of
Original Notes received by the Exchange Agent that are not properly tendered and
as to which irregularities have not been cured or waived will be returned by the
Exchange Agent to the tendering holders of such Original Notes, unless otherwise
provided in this Letter of Transmittal, as soon as practicable following the
Expiration Date.
Any tendered Original Notes which are not accepted for exchange because of an
invalid tender, the occurrence or nonoccurrence of certain other events set
forth in the Prospectus or otherwise will be returned without expense to the
appropriate tendering holder thereof as promptly as practicable following the
expiration, withdrawal or termination of the Exchange Offer.
2. Withdrawal Rights. Original Notes tendered pursuant to the Exchange Offer may
be withdrawn, as hereinafter provided, at any time prior to 5:00 p.m., New York
City time, on the Expiration Date.
For the withdrawal of a tender to be effective, a written, telegraphic or
facsimile transmitted notice of withdrawal must be received by the Exchange
Agent at the address or number set forth on the front page of this Letter of
Transmittal prior to the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person who tendered the Original Notes, (ii) identify
the Original Notes to be withdrawn (including the certificate number or numbers
of any physically delivered Original Notes and the principal amount of the
Original Notes), and (iii) be signed in the same manner required by the Letter
of Transmittal by which such Original Notes were tendered (including any
required signature guarantees, endorsements and/or powers). All questions as to
the validity, form and eligibility (including time of receipt) of notices of
withdrawal will be determined by the Company, whose determination will be final
and binding on all parties. The Original Notes so withdrawn, if any, will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Original Notes which have been tendered for exchange but
which are withdrawn will be returned to the holder without cost to such holder
as soon as practicable after withdrawal. Properly withdrawn Original Notes may
be retendered on or prior to 5:00 p.m., New York City time, on the Expiration
Date by following any of the procedures described above under Instruction 1.
Neither the Company, the Exchange Agent nor any other person will be under any
duty to give notification of any defects or irregularities in any notice of
withdrawal or will incur any liability for failure to give such notification.
3. Acceptance of Original Notes for Exchange; No Partial Tenders. Tenders will
be accepted in denominations of $1,000 and any integral multiples thereof. The
entire aggregate principal amount of Original Notes will be deemed to have been
tendered unless otherwise indicated. If less than the entire aggregate principal
amount of any Original Notes evidenced by a submitted certificate is to be
tendered, the tendering holder should fill in the aggregate principal amount of
the Original Notes which is to be tendered in column (4) of the table in Box One
above.
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Original Notes validly tendered pursuant to the
Exchange Offer and not withdrawn, and delivery of the Exchange Notes, will be
made promptly after the Expiration Date.
For purposes of the Exchange Offer, the Company shall be deemed to have accepted
for exchange validly tendered Original Notes when, as and if the Company has
given oral or written notice thereof to the Exchange Agent. The Exchange Agent
will act as agent for the tendering holders of Original Notes for the purpose of
receiving the Exchange Notes and transmitting the Exchange Notes to such
holders. Tendered Original Notes
12
<PAGE> 13
not accepted for exchange by the Company will be returned without expense to
tendering holders as soon as practicable following the Expiration Date.
4. Signatures on this Letter of Transmittal; Stock Powers and Endorsements;
Guarantee of Signatures. With respect to a tender of Original Notes, this Letter
of Transmittal must be signed by the registered holder(s) of the Original Notes
tendered, and such signatures must correspond with the name(s) of such holder(s)
as written on the face of the certificate without alteration, enlargement, or
any change whatsoever. If this Letter of Transmittal is signed by a person other
than the registered holder(s) of the Original Notes tendered hereby, such
Original Notes must be endorsed or accompanied by appropriate stock powers
signed exactly as the name(s) of the registered holder(s) appear(s) on such
certificates. Signatures of endorsement on any such certificate or stock powers
must be guaranteed by an Eligible Institution.
(a) If any of the Original Notes tendered hereby are held of record by two or
more persons, all such persons must sign this Letter of Transmittal.
(b) If any of the Original Notes tendered hereby are registered in different
names, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal and any necessary accompanying documents as there are
different registrations.
(c) If this Letter of Transmittal is signed by the registered holder(s) of the
Original Notes tendered hereby, no endorsements of certificates or separate
stock powers are required, unless the Original Notes are not accepted for
exchange, or the certificates for Exchange Notes are to be issued in the name
of, or delivered to, any person other than the registered holder(s). Signatures
on any such certificate or stock powers must be guaranteed by an Eligible
Institution (unless signed by an Eligible Institution).
(d) If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Original Notes tendered hereby, certificates
representing such Original Notes tendered hereby, certificates representing such
Original Notes must be endorsed or accompanied by appropriate bond powers and
signed exactly as the name(s) of the registered holder(s) appear(s) on such
certificates. Signatures on any such certificate or bond powers must be
guaranteed by an Eligible Institution (unless signed by an Eligible
Institution).
(e) If this Letter of Transmittal or any certificates or bond powers are signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation, or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of the authority of such person to
so act must be submitted with this Letter of Transmittal.
5. Brokerage Fees and Transfer Taxes. Holders of Original Notes who tender
Original Notes will not be required to pay transfer taxes with respect to the
exchange of Original Notes pursuant to the Exchange Offer unless the box
entitled "Special Issuance Instructions" herein is marked as described in
Instruction 6. If, however, the box entitled "Special Issuance Instructions" is
marked and Exchange Notes are to be issued in the name of, or delivered to, any
person other than the registered holder(s), or if a transfer tax is imposed for
any reason other than the exchange of Original Notes for Exchange Notes pursuant
to the Exchange Offer, the amount of any transfer taxes (whether imposed on the
registered holder(s), such other person or otherwise) payable on account of the
transfer to such person will be the responsibility of the tendering holder(s).
Unless satisfactory evidence of the payment of such taxes, or exemption
therefrom, is submitted herewith, the amount of such transfer taxes will be
billed directly to the tendering holder(s). EXCEPT AS PROVIDED IN THIS
INSTRUCTION 5, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO
THE CERTIFICATES LISTED IN THIS LETTER OF TRANSMITTAL.
6. Special Issuance and Delivery Instructions. If (a) certificates for Exchange
Notes are to be issued in the name of a person other than the person(s) signing
this Letter of Transmittal or (b) Original Notes not accepted
13
<PAGE> 14
for exchange are to be delivered to a person other than the person(s) signing
this Letter of Transmittal, the appropriate boxes on this Letter of Transmittal
should be completed. Further, if Original Notes not accepted for exchange are to
be delivered to a person other than the person(s) signing this Letter of
Transmittal, such Original Notes must be accompanied by such documents as are
required under the terms and conditions of the Indenture.
7. Substitute Form W-9. Federal income tax law requires each holder who tenders
Original Notes to provide the Exchange Agent with such holder's Taxpayer
Identification Number ("TIN") and to certify that such holder is not subject to
backup withholding for underreporting interest or dividend income. These
certifications must be made by entering the TIN in the space provided on the
Substitute Form W-9 herein and signing and dating the form in the appropriate
places.
FAILURE TO PROVIDE THE INFORMATION REQUESTED ON THE SUBSTITUTE FORM W-9 MAY
SUBJECT A HOLDER TO A $50 PENALTY IMPOSED BY THE INTERNAL REVENUE SERVICE AND TO
BACKUP WITHHOLDING OF 31% OF ANY REPORTABLE PAYMENT TO BE MADE TO SUCH HOLDER.
If backup withholding applies to a holder, the Exchange Agent is required to
withhold 31% of any reportable payments made to such holder. Backup withholding
is not an additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
Certain holders (including, among others, all corporations and certain foreign
individuals that establish their entitlement to an exemption) are not subject to
these backup withholding and reporting requirements. In order for a foreign
individual to qualify as an exempt recipient, that holder must submit a
statement, signed under penalties of perjury, attesting to that individual's
exempt status. Such statements can be obtained from the Exchange Agent.
For additional information in this regard, please refer to the enclosed
Guidelines for Certification of TIN on Substitute Form W-9.
8. Waiver of Conditions. The Company reserves the absolute right to waive the
specified conditions to the Exchange Offer, as described in, and to the extent
provided in, the Prospectus under "The Exchange Offer-- Certain Conditions to
the Exchange Offer."
9. Mutilated, Lost, Stolen or Destroyed Certificates. Any holder whose
certificates for Original Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. Expiration Date. The Exchange Offer will expire at 5:00 p.m., New York City
time, on __________, 1997, unless extended by the Company. The Company expressly
reserves the right, at any time and from time to time, to extend the Exchange
Offer for such period or periods as it may determine in its sole discretion, in
which event the Expiration Date shall be the time and dated on which such
Exchange Offer, as so extended, shall expire. The Company will notify all
holders of any extension by issuing a press release prior to 9:00 a.m., New York
City time, on the next business day following the previously scheduled
Expiration Date. During any such extension, all Original Notes previously
tendered and not accepted for exchange will remain subject to the Exchange Offer
and may, subject to the terms and conditions hereof, be accepted for exchange by
the Company, subject to the withdrawal rights of tendering holders.
11. Requests for Assistance or Additional Copies. Questions and requests for
assistance may be directed to the Exchange Agent at its address and telephone
number set forth above. Additional copies of the Prospectus and this Letter of
Transmittal may be obtained from the Exchange Agent at its address and telephone
number set forth above.
14
<PAGE> 15
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE COPY HEREOF
(TOGETHER WITH CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS) OR THE NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY FIRST BANK NATIONAL ASSOCIATION, THE
EXCHANGE AGENT, PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
15
<PAGE> 16
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer Identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
FOR THIS TYPE OF ACCOUNT:
1. An individual's account
2. Two or more individuals (joint account)
3. Custodian account of a minor (Uniform
Gift to Minors Act)
4. (a) The usual revocable savings trust
(grantor is also trustee)
(b) So-called trust account that is not a
legal or valid trust under state law
5. Sole proprietorship
FOR THIS TYPE OF ACCOUNT:
6. Sole proprietorship
7. A valid trust, estate or pension trust
8. Corporate
9. Association, club, religious, charitable,
educational or other tax-exempt
organization
10. Partnership
11. A broker or registered nominee
12. Account with the Department of Agriculture in the name of a public
entity (such as a state or local government, school district, or
prison) that receives agriculture program payments
GIVE THE SOCIAL SECURITY NUMBER OF--
The individual
The actual owner of the account or, if combined
funds, any one of the individuals(1)
The minor(2)
The grantor-trustee(1)
The actual owner(1)
The owner(3)
GIVE THE EMPLOYER IDENTIFICATION NUMBER OF--
The owner(3)
Legal entity(4)
The corporation
The organization
The partnership
The broker or nominee
The public entity
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your
business or "doing business as" name. You may use either your Social
Security number or Employer Identification number.
(4) List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the identifying number of the personal
representative or trustee unless the legal entity itself is not
designated in the account title.)
NOTE: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
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GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
Section references are to the Internal Revenue Code.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service (the "IRS") and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempted except item (9). For broker transactions, payees listed in
items (1) through (13) and a person registered under the Investment Advisers Act
of 1940 who regularly acts as a broker are exempt. Payments subject to reporting
under Sections 6041 and 6041A are generally exempt from backup withholding only
if made to payees described in items (1) through (7), except that a corporation
that provides medical and health care services or bills and collects payments
for such services is not exempt from backup withholding or information
reporting. Only payees described in items (2) through (6) are exempt from backup
withholding for barter exchange transactions, patronage dividends, and payments
by certain fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under Section 501(a), or an individual
retirement plan ("IRA"), or a custodial account under Section 403(b)(7).
(3) The United States or any of its agencies or instrumentalities.
(4) A state, the District of Columbia, a possession of the United States, or any
of their political subdivisions or instrumentalities.
(5) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(6) An international organization or any of its agencies or instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the United
States or a possession of the United States.
(9) A futures commission merchant registered with the Commodity Futures Trading
Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the Investment
Company Act of 1940.
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(12) A common trust fund operated by a bank under Section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in the
most recent publication of the American Society of Corporate Secretaries, Inc.,
Nominee List.
(15) A trust exempt from tax under Section 664 or described in Section 4947.
Payments of dividends and patronage dividends generally not subject to backup
withholding also include the following:
- - Payments to nonresident aliens subject to withholding under Section 1441.
- - Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident partner.
- - Payments of patronage dividends not paid in money.
- - Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt interest dividends under
Section 852).
- - Payments described in Section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under Section 1451.
- - Payments made by certain foreign organizations.
- - Mortgage interest paid by you.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details see Sections 6041, 6041(a), 6042, 6044, 6045,
6049, 6050A and 6050N, and the regulations under such sections.
PRIVACY ACT NOTICE
Section 6109 requires you to give your correct taxpayer identification number to
persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, cancellation of debt, or
contributions you made to an IRA. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. You must provide
your taxpayer identification number whether or not you are required to file a
tax return. Payers must generally withhold 31% of taxable interest, dividend,
and certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
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PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make
a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
(4) MISUSE OF TAXPAYER IDENTIFICATION NUMBERS. If the requester discloses or
uses your taxpayer identification numbers in violation of federal law, the
requester may be subject to civil and criminal penalties.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
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