<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 1, 1996
REGISTRATION NO. 333-05877
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
INTEGRATED LIVING COMMUNITIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
Delaware 8059 52-1967027
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
10065 Red Run Boulevard, Owings Mills, Maryland 21117
(410) 998-8425
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
EDWARD J. KOMP
Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Tel.: 410-998-8425
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
with copies to:
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<S> <C> <C>
CARL E. KAPLAN, ESQ. MARSHALL A. ELKINS, ESQ. FREDERICK W. KANNER, ESQ.
Fulbright & Jaworski L.L.P. Integrated Health Services, Inc. Dewey Ballantine
666 Fifth Avenue 10065 Red Run Boulevard 1301 Avenue of the Americas
New York, New York 10103 Owings Mills, Maryland 21117 New York, New York 10019-6092
Tel.: 212-318-3000 Tel.: 410-998-8400 Tel.: 212-259-8000
</TABLE>
-------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]_____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ] ______________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
--------------------
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 the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall thereafter
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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<PAGE>
INTEGRATED LIVING COMMUNITIES, INC.
-----------------------
CROSS-REFERENCE SHEET
-----------------------
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FORM S-1 ITEM AND CAPTION PROSPECTUS CAPTIONS
- ------------------------- -------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover Page and Outside Back Cover
Page of Prospectus; Additional Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges......................... Prospectus Summary; Risk Factors (Ratio of
Earnings to Fixed Charges Not Applicable)
4. Use of Proceeds................................... Use of Proceeds
5. Determination of Offering Price................... Outside Front Cover Page of Prospectus; Risk
Factors; Underwriting
6. Dilution.......................................... Risk Factors; Dilution
7. Selling Security Holders.......................... Principal and Selling Stockholders
8. Plan of Distribution.............................. Outside and Inside Front Cover Pages of
Prospectus; Underwriting
9. Description of Securities to be Registered........ Outside of Front Cover Page of Prospectus;
Description of Capital Stock; Underwriting
10. Interests of Named Experts and Counsel............ Not Applicable
11. Information With Respect to the Registrant:
(a) Description of Business...................... Prospectus Summary; The Company; Management's
Discussion and Analysis of Financial Condition
and Results of Operations; Business
(b) Description of Property...................... Business-Properties
(c) Legal Proceedings............................ Business-Legal Proceedings
(d) Market Price and Dividends on Registrant's
Common Equity and Related Stockholder
Matters...................................... Description of Capital Stock; Dividend Policy
Financial Statements; Pro Forma Financial
(e) Financial Statements......................... Information
Prospectus Summary; Selected Consolidated
(f) Selected Financial Information............... Financial Data
(g) Supplementary Financial Information.......... Not Applicable
<PAGE>
FORM S-1 ITEM AND CAPTION PROSPECTUS CAPTIONS
- ------------------------- -------------------
(h) Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
(i) Changes in and Disagreements With Accountants
on Accounting and Financial Disclosures...... Not Applicable
(j) Directors and Executive Officers............. Management
(k) Executive Compensation....................... Management-Executive Compensation
(l) Security Ownership of Certain Beneficial
Owners and Management........................ Principal and Selling Stockholders
(m) Certain Relationships and Related
Transactions................................. Prospectus Summary; Company History; Management
-- Compensation Committee Interlocks and Insider
Participation; Certain Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.... Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 1, 1996
PROSPECTUS
6,530,000 SHARES
INTEGRATED LIVING COMMUNITIES, INC.
COMMON STOCK
-------------
Of the 6,530,000 shares of Common Stock offered hereby, 3,100,000 shares are
being sold by Integrated Living Communities, Inc. ("ILC" or the "Company") and
3,430,000 shares are being sold by Integrated Health Services, Inc. ("IHS"), the
sole stockholder of the Company prior to this offering. Upon completion of this
offering, IHS and its directors and executive officers will continue to
beneficially own approximately 23.0% of the Company's outstanding Common Stock
(approximately 20.7% if the Underwriters exercise their over-allotment option in
full). The Company will not receive any proceeds from the sale of shares by IHS.
Prior to this offering there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $15.00 and $18.00 per share. See "Underwriting" for information
related to the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for quotation on The Nasdaq
Stock Market's National Market under the symbol "ILCC."
See "Risk Factors" beginning on page 6 for a discussion of certain factors
that should be considered by prospective purchasers of the Common Stock offered
hereby.
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 ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THE OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
================================================================================
Price to Underwriting Proceeds to Proceeds to
Public Discounts(1) Company(2) IHS
Per Share $ $ $ $
Total (3) $ $ $ $
================================================================================
(1) The Company and IHS have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933. See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 979,500 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Proceeds to
Company will be $ , $ and $ , respectively. See "Underwriting."
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them, and
subject to certain conditions. It is expected that certificates for the shares
of the Common Stock offered hereby will be available for delivery on or about ,
1996 at the offices of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.
------------------
SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
Donaldson, Lufkin & Jenrette
Securities Corporation
, 1996
<PAGE>
------------------
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants
and quarterly reports containing unaudited financial information for each of the
first three quarters of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Prospective investors should carefully consider
the information set forth under "Risk Factors."
THE COMPANY
The Company provides assisted living and related services to the private pay
elderly market. Assisted living facilities combine housing, personalized support
and healthcare services in a cost-effective, non-institutional setting designed
to address the individual needs of the elderly who need regular assistance with
activities of daily living, such as eating, bathing, dressing and personal
hygiene, but who do not require the level of healthcare provided in a skilled
nursing facility. The Company currently operates 18 assisted living and other
senior housing facilities containing 1,777 units in seven states. The 1,777
units operated by the Company consist of 1,152 assisted living units (including
137 units devoted to Alzheimer's and dementia care), 544 independent living
units for persons who require occasional assistance with the activities of daily
living, and 81 skilled nursing units. The Company is pursuing a strategy of
rapid growth through development and acquisition and intends to acquire, develop
or obtain agreements to manage approximately 60 to 75 assisted living facilities
per year in each of the next three years. As part of this strategy, ILC is
currently developing 35 new assisted living facilities, of which 25 are
scheduled to open during 1997, has entered into agreements to acquire one
facility containing 258 units simultaneous with the closing of this offering and
a leasehold interest in one facility containing 35 units in August 1996, and is
evaluating numerous additional acquisition opportunities. All of ILC's revenues
from its owned and leased facilities for 1995 and the first six months of 1996
were derived from private-pay sources.
The Company's objective is to expand its operations to become a leading
provider of high-quality, affordable assisted living services. Key elements of
the Company's strategy to achieve this goal are to: (i) provide high-quality
healthcare-oriented services; (ii) grow rapidly through development and
acquisition of assisted living facilities; (iii) utilize a flexible,
cost-effective approach for the development of new assisted living facilities;
and (iv) target a broad segment of the private-pay population.
The assisted living industry is highly fragmented and characterized by
numerous small operators whose scope of services vary widely. Annual
expenditures for assisted living services were estimated to be $10 to 12 billion
in 1995. The Company believes that factors contributing to the growth of the
assisted living industry include: (i) the aging of the U.S. population; (ii) the
increasing affluence of the elderly and their families; (iii) the decreasing
availability of family care in the home; (iv) consumer preference for greater
independence and a less institutional setting; (v) the increasing emphasis by
both federal and state governments and private insurers on containing long-term
care costs; and (vi) the reduced availability of skilled nursing beds for less
medically intensive residents. The Company believes that the foregoing factors,
combined with the fragmented nature of the industry and the inexperience and
lack of resources of many operators, have created a significant opportunity for
ILC to become a leading provider of high-quality, affordable assisted living
services.
The Company believes that its approach to the development of new assisted
living facilities differs from that of many other operators. Unlike many
assisted living operators, the Company intends to rely primarily on a limited
number of third-party developers, rather than maintain a large internal
development staff. ILC currently has relationships with three developers, which
developers are responsible for 32 of the 35 facilities currently under
development by the Company. The Company has, together with these developers,
developed three flexible and expandable prototype building designs. The
flexibility feature is expected to allow the facility's assisted living and
Alzheimer's bed allotment to be quickly and cost-effectively reconfigured based
on changing market demand. The expandability feature is expected to allow the
prototype buildings to be easily and cost-effectively expanded with little or no
disruption to current operations. The Company believes its development approach
will offer many advantages, including better construction quality control, lower
architectural and engineering fees, bulk purchasing of materials and fixtures,
and faster development and construction schedules.
3
<PAGE>
THE OFFERING
Common Stock being offered by:
The Company................. 3,100,000 shares
IHS......................... 3,430,000 shares
Common Stock to be outstanding
after the offering.......... 8,061,000 shares(1)
Use of proceeds.................. For acquisition and development of assisted
living facilities, for repayment of certain
indebtedness due to IHS and for general
corporate purposes
Proposed Nasdaq National Market
symbol...................... ILCC
- ------------------
(1) Excludes (i) 1,084,500 shares of Common Stock issuable upon exercise of
outstanding options and (ii) 124,650 additional shares of Common Stock
reserved for issuance pursuant to the Company's stock option plans. See
"Management -- Stock Options."
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------- -------------------------
1995 1996
---- ----
1993 1994 ACTUAL PRO FORMA(1) 1995 ACTUAL PRO FORMA(1)
---- ---- ------ ------------ ---- ------ ------------
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Statement of Operations Data(2):
Net revenues ........................ $5,240 $11,645 $16,269 $27,452 $8,018 $11,295 $14,241
Facility operations.................. 3,455 8,254 11,243 18,522 5,576 7,138 9,379
Facility rents....................... 856 1,466 2,430 1,770 1,215 1,309 1,005
Corporate administrative and
general............................. 315 726 1,005 3,895 499 678 1,948
Depreciation and amortization ...... 24 369 414 1,671 206 480 912
Loss on impairment of long-lived
assets(3)........................... -- -- 5,126 5,126 -- -- --
-------- --------- ---------- ------------ -------- --------- ------------
Earnings (loss) before income taxes . 590 830 (3,949) (3,532) 522 1,690 997
Federal and state income taxes ..... 230 311 (629) (468) 201 651 384
-------- --------- ---------- ------------ -------- --------- ------------
Net earnings (loss) ................. $ 360 $ 519 $(3,320) $(3,064) $ 321 $ 1,039 $ 613
======== ========= ========== ============ ======== ========= ============
Earnings (loss) per common share .... $ 0.07 $ 0.10 $ (0.67) $ (0.53) $ 0.06 $ 0.21 $ 0.11
======== ========= ========== ============ ======== ========= ============
Weighted average shares
outstanding(4)...................... 4,961 4,961 4,961 5,756 4,961 4,961 5,756
======== ========= ========== ============ ======== ========= ============
</TABLE>
JUNE 30, 1996
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(5) AS ADJUSTED(6)
------ ---------- -----------
Balance Sheet Data:
Cash and cash equivalents . $ 120 $ 120 $30,777
Total assets................ 55,465 67,745 98,402
Note payable to parent
company ................... 3,363 3,363 --
Stockholder's equity........ 40,331 52,531 86,551
- --------------
(1) The pro forma statements of operations data for the year ended December
31, 1995 and the six months ended June 30, 1996 were prepared as if the
Company's interest in the following facilities had been acquired on
January 1, 1995: Vintage Healthcare Center ("Vintage"), which was leased
by the Company commencing January 29, 1996; Terrace Gardens Healthcare and
Retirement Center ("Terrace Gardens"), which the Company has agreed to
acquire simultaneous with the closing of this offering; Homestead of
Garden City ("Garden City"), which the Company leased effective July 1,
1996; and Carrington Pointe, which the Company acquired effective December
31, 1995. Effective June 1, 1996, the Company received as a capital
contribution condominium interests in the assisted living and related
portions of the Vintage, Treemont Retirement Community ("Treemont") and
West Palm Beach Retirement ("West Palm Beach") facilities which the
Company had previously leased from IHS. Accordingly, the pro forma
statement of operations data is adjusted to decrease rent expense
4
<PAGE>
associated with these facilities and to increase depreciation resulting
from the receipt of a condominium interest in these facilities. The pro
forma statement of operations data is also adjusted to (i) increase
facility rents to reflect an increase in rent for the Company's Shores and
Cheyenne Place Retirement ("Cheyenne Place") facilities effective June 1,
1996 and (ii) increase corporate administrative and general expenses to
reflect management's estimate of the additional corporate administrative
and general expense that would have been incurred during the period if the
Company had operated on a stand-alone basis. No pro forma adjustments have
been made to reflect the operations of the Homestead of Wichita facility
("Homestead Wichita"), which the Company leased commencing July 17, 1996,
or the Cabot Pointe facility, which the Company has agreed to lease
commencing in August 1996, because such facilities were not in operation
at June 30, 1996. See "Company History," "Use of Proceeds," "Pro Forma
Financial Information" and "Business -- Properties."
(2) The Company has grown substantially through acquisitions, which materially
affects the comparability of the financial data reflected herein. See
"Company History" and "Certain Transactions."
(3) In 1995, the Company implemented Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121 in connection with
IHS' implementation thereof. Through evaluation of the recent financial
performance and a recent appraisal of one of its facilities, the Company
estimated the fair value of this facility and determined that the carrying
value of certain long-lived assets, including goodwill and buildings and
improvements, exceeded their fair value. The excess carrying value was
written off and is included in the statement of operations for 1995 as a
loss on impairment of long-lived assets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(4) The pro forma weighted average shares outstanding is presented as if the
Company sold 795,047 shares of Common Stock, representing the number of
shares which would be required to be sold by the Company at the assumed
initial public offering price of $16.50 per share (net of estimated
underwriting discounts) in order for the Company to pay the purchase price
for the Terrace Gardens facility. See "Use of Proceeds."
(5) The pro forma balance sheet data as of June 30, 1996 was prepared as if
the acquisition of the Terrace Gardens facility, which is expected to
close simultaneous with the closing of this offering, had been consummated
as of June 30, 1996. No pro forma adjustments have been made to reflect
the acquisition of leasehold interests in the Cabot Pointe, Garden City
and Homestead Wichita facilities because such acquisitions will have no
effect on the Company's balance sheet. See "Company History," "Use of
Proceeds," "Pro Forma Financial Information" and "Business -- Properties."
(6) Adjusted to reflect (i) the transaction reflected in note 5 above and (ii)
the sale of 3,100,000 shares of Common Stock offered by the Company hereby
at an assumed initial public offering price of $16.50 per share and the
application of the estimated net proceeds therefrom as described under
"Use of Proceeds."
RELATIONSHIPS WITH INTEGRATED HEALTH SERVICES, INC.
The Company is a wholly-owned subsidiary of Integrated Health Services, Inc.
Upon completion of this offering, IHS and its directors and executive officers
will continue to beneficially own approximately 23.0% of the Company's
outstanding Common Stock (approximately 20.7% if the Underwriters exercise their
over-allotment option in full), and IHS will be the Company's largest
stockholder. As a result of its ownership interest upon completion of this
offering, IHS could have a significant influence over, and may be able to
control, the vote on all matters submitted to stockholders, including the
election of directors and the approval of extraordinary transactions. Currently,
two of the six members of the Company's Board of Directors are directors and
executive officers of IHS. Prior to this offering, IHS provided capital and
healthcare and administrative services to the Company. Following completion of
this offering certain of these arrangements and services will be terminated and
others will be modified. See "Risk Factors -- Dependence on IHS," "-- Potential
Conflicts of Interest with IHS" and "Certain Transactions."
---------------------
Unless otherwise indicated, all information in this Prospectus (i) assumes no
exercise of the Underwriters' option to purchase from the Company up to 979,500
additional shares of Common Stock to cover over-allotments, if any, and (ii)
gives effect to the issuance of 4,960,900 shares of Common Stock as a dividend
to effect a 49,610-for-1 stock split of the Common Stock on June 10, 1996. As
used herein, unless the context requires otherwise, the terms "Company" and
"ILC" include Integrated Living Communities, Inc. and its subsidiaries and
predecessors and the term "IHS" includes Integrated Health Services, Inc. and
its subsidiaries other than the Company.
5
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the factors set forth below, as well as other information contained in
this Prospectus, before making a decision to purchase the Common Stock offered
hereby. This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed below as
well as those discussed elsewhere in this Prospectus.
RECENT ORGANIZATION; HISTORY OF LOSSES; ANTICIPATED OPERATING LOSSES
The Company was organized in November 1995 to own, operate and develop
assisted living facilities and has a limited operating history. The Company is
currently a wholly-owned subsidiary of IHS, which operated 14 of the 18
facilities currently operated by the Company until such operations were
transferred to the Company following its formation. For the year ended December
31, 1995 and the six months ended June 30, 1996, the Company had net income
(loss) of $(3,320,000) and $1,039,000, respectively. On a pro forma basis,
giving effect to the acquisition of the Terrace Gardens facility, which is
expected to close simultaneous with this offering, and a leasehold interest in
the Cabot Pointe facility in a sale/leaseback transaction which is expected to
close in August 1996 (the "Proposed Acquisitions"), the acquisition of a
leasehold interest in two facilities in July 1996, the acquisition of the
Carrington Pointe facility and the contribution by IHS to the Company's capital
of the condominium interests in the Treemont, Vintage and West Palm Beach
facilities as if such transactions had occurred on January 1, 1995, as well as
the related adjustments to facility rents, depreciation and corporate
administrative and general expense, the net income (loss) for the year ended
December 31, 1995 and the six months ended June 30, 1996 would have been
$(3,064,000) and $613,000, respectively. See "Pro Forma Financial Information."
The Company's growth strategy focuses on the rapid acquisition and
development of assisted living facilities. The Company currently expects to open
25 newly developed assisted living facilities in 1997, all of which are expected
to incur start-up losses for at least eight months after commencing operations.
The Company estimates that it will take approximately six to 12 months for a
newly developed assisted living facility to achieve a stabilized level of
occupancy (i.e., an occupancy level in excess of 90%). As a result, the Company
expects to incur losses at least through the end of 1997. The Company may incur
additional operating losses thereafter if it fails to achieve expected occupancy
rates at newly acquired or developed facilities or if expenses related to the
development, acquisition or operation of newly acquired or developed facilities
exceed expectations. There can be no assurance as to when the Company's
operations will become profitable, if at all. The inability to achieve
profitability at a newly acquired or developed facility on a timely basis could
have an adverse effect on the Company's business, operating results and
financial condition and the market price of the Common Stock. The success of the
Company's future operations is dependent to a large extent on expansion of the
Company's operational base. There can be no assurance that the Company will not
experience unforeseen expenses, difficulties, complications and delays which
could result in greater than anticipated operating losses or otherwise
materially adversely affect the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations," "--Liquidity and
Capital Resources" and "Business -- Business Strategy."
DIFFICULTIES OF MANAGING RAPID GROWTH
The Company expects the number of facilities it operates will increase
substantially as it pursues its rapid growth strategy. The Company's success
will depend in large part on identifying suitable development and acquisition
opportunities, and its ability to pursue such opportunities, complete
developments, consummate acquisitions, create demand for its facilities and
effectively operate its assisted living facilities. The Company competes for
acquisition and expansion opportunities with companies which have significantly
greater financial and management resources than the Company. The Company's
growth will place a significant burden on the Company's management and operating
personnel and its financial resources. The Company's ability to manage its
growth effectively will require it to continue to improve its operational,
financial
6
<PAGE>
and management information systems and to continue to attract, train, motivate,
manage and retain key employees. There can be no assurance that the Company will
be able to implement its rapid growth strategy or that such strategy will
ultimately be profitable. If the Company is unable to implement its rapid growth
strategy or to manage its growth effectively, its business, operating results
and financial condition could be adversely affected. See "-- Difficulties of
Integrating Acquisitions," "-- Limited Development Experience; Development
Delays and Cost Overruns," "-- Need for Substantial Additional Capital,"
"--Dependence on Senior Management and Skilled Personnel," "--Competition,"
"Business -- Business Strategy" and "Management -- Directors and Executive
Officers."
DIFFICULTIES OF INTEGRATING ACQUISITIONS
The Company's growth strategy depends significantly upon the rapid
acquisition (through purchase, lease or management agreements) of existing
assisted living facilities and other properties that it believes it can
efficiently reposition as assisted living facilities. The Company's strategy of
acquiring, developing or attaining agreements to manage 60 to 75 assisted living
facilities per year in each of the next three years is likely to place a
significant strain on the Company's management and financial resources. If the
Company is unsuccessful in operating newly acquired facilities and integrating
them into the Company's existing operations, the Company's business, operating
results and financial condition could be adversely affected. There can be no
assurance that the Company's acquisition of assisted living facilities will
occur at the rate currently expected by the Company or that future acquisitions
will be completed in a timely manner, if at all. The success of the Company's
acquisitions will be determined by numerous factors, including the Company's
ability to identify suitable acquisition candidates, competition for such
acquisitions, the purchase price, the financial performance of the facilities
after acquisition and the ability of the Company to integrate effectively the
operations of acquired facilities. Acquisitions of facilities are typically
subject to a number of closing conditions, including those regarding the status
of title to real property included in the acquisition, the results of
environmental investigations performed on the Company's behalf, the transfer of
applicable licenses or permits and the availability of appropriate financing. In
addition, the Company may under certain circumstances acquire skilled-nursing
facilities that for various reasons it does not reposition as assisted living
facilities or integrate into a continuing care retirement community. There can
be no assurance that the Company will successfully dispose of or operate such
skilled-nursing facilities. Furthermore, the acquisition of skilled nursing
facilities by the Company may exacerbate potential conflicts of interest between
the Company and IHS, and could expose directors of the Company to claims that
duties to one or both companies have not been met. Any failure by the Company
with respect to the repositioning, integration or operation of any acquired
facilities may have a material adverse effect on the Company's business,
operating results and financial condition. See "--Potential Conflicts of
Interest with IHS," "--Difficulties of Managing Rapid Growth," "Business --
Business Strategy" and "Certain Transactions."
LIMITED DEVELOPMENT EXPERIENCE; DEVELOPMENT DELAYS AND COST OVERRUNS
The Company currently expects to open approximately 25 to 35 newly developed
assisted living facilities per year over the next three years, and currently has
35 assisted living facilities in various early stages of development. The
Company has very limited experience in developing new assisted living facilities
and its ability to achieve this objective will be dependent to a great extent
upon the experience and abilities of the third-party developers with which the
Company has established relationships. To date, the Company has not opened any
newly developed assisted living facilities, and there can be no assurance it
will be successful in doing so. There can be no assurance that the Company will
not suffer delays in its development program, which could slow the Company's
growth. Achieving the Company's plan to open 25 to 35 new assisted living
facilities in each of the next three years is dependent on numerous factors,
many of which the Company is unable to control or significantly influence, which
could adversely affect the Company's growth. These factors include, but are not
limited to: (i) locating sites for new facilities at acceptable costs; (ii)
obtaining proper zoning use permits, development plan approval, authorization
and licensing from governmental units in a timely manner; (iii) obtaining
adequate financing under acceptable terms; (iv) relying on third-party
architects and contractors and the availability and costs of labor and
construction materials, as well as weather; and (v) obtaining qualified staff.
Development of assisted living facilities can be delayed or precluded by various
zoning, healthcare licensing and other applicable governmental regulations and
restric-
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tions. ILC may also incur construction costs that exceed original estimates, may
experience competition in the search for suitable development sites and may be
unable to arrange financing for development. The Company intends to rely on
third-party developers to construct new assisted living facilities. There can be
no assurance that the Company will not experience difficulties in working with
developers, project managers, general contractors and subcontractors, any of
which difficulties could result in increased construction costs and delays.
Furthermore, project development is subject to a number of contingencies over
which the Company will have little control and that may adversely affect project
cost and completion time, including shortages of, or the inability to obtain,
labor or materials, the inability of the general contractor or subcontractors to
perform under their contracts, strikes, adverse weather conditions and changes
in applicable laws or regulations or in the method of applying such laws and
regulations. If the Company's development schedule is delayed, the Company's
business, operating results and financial condition could be adversely affected.
In addition, the Company estimates that it will take approximately six to 12
months for a newly developed assisted living facility to achieve a stabilized
level of occupancy (i.e., an occupancy level in excess of 90%) and that each new
facility will incur start-up losses for at least eight months after commencing
operations. See "-- Recent Organization; History of Losses; Anticipated
Operating Losses," "--Difficulties of Managing Rapid Growth," "--Dependence on
Senior Management and Skilled Personnel," "Business -- Business Strategy,"
"--Development and Acquisition" and "--Properties -- Development."
NEED FOR SUBSTANTIAL ADDITIONAL CAPITAL
To achieve its growth objectives, the Company will need to obtain substantial
additional financial resources to fund its development, construction and
acquisition activities and anticipated operating losses. Accordingly, the
Company's future growth will depend on its ability to obtain additional
financing on acceptable terms. The Company does not expect any of its newly
developed assisted living facilities to generate positive cash flow for at least
eight months after commencing operations. As a result, the Company expects
negative cash flow for at least the next several years as it continues to
develop and acquire assisted living facilities. There can be no assurance that
any newly developed facility will achieve a stabilized occupancy rate and
resident mix that meets the Company's expectations or generates positive cash
flow. The Company currently estimates that the net proceeds to be received by it
in this offering, together with financing commitments and sale/leaseback and
mortgage financing that it anticipates will be available, will be sufficient to
fund its acquisition and development program and its anticipated operating
losses for at least the next 12 months. There can be no assurance, however, that
the Company will not be required to seek additional capital earlier. There are a
number of circumstances beyond the Company's control that may result in the
Company's financial resources being inadequate to meet its needs. The Company
expects from time to time to seek additional funds through public or private
financing, including equity financing. If additional funds are raised by issuing
equity securities, the Company's stockholders may experience dilution. Further,
such equity securities may have rights, preferences or privileges senior to
those of the Common Stock. To the extent the Company finances its activities
through debt or sale/leaseback arrangements, the Company may become subject to
certain financial and other covenants which may restrict its ability to pursue
its rapid growth strategy and to pay dividends on the Common Stock. There can be
no assurance that adequate equity, debt or sale/leaseback financing will be
available as needed or on terms acceptable to the Company. A lack of available
funds may require the Company to delay, scale back or eliminate all or some of
its development and acquisition projects and could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "--Recent Organization; History of Losses; Anticipated Operating Losses,"
"--Substantial Anticipated Debt and Lease Obligations," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Capital
Stock."
SUBSTANTIAL ANTICIPATED DEBT AND LEASE OBLIGATIONS
The Company intends to finance the development and acquisition of its
assisted living facilities through mortgage financing, operating leases
(including sale/leaseback financing) and lines of credit. As a result, the
Company expects to incur substantial indebtedness and debt related payments
(including payments on operating leases) as the Company pursues its growth
strategy. The Company is presently a
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party to long-term operating leases for four of its residential facilities and
has agreed to lease the Cabot Pointe facility commencing in August 1996. These
leases require minimum annual lease payments aggregating approximately $2.4
million in 1996, and generally provide for annual rent increases. The Company
expects to finance 25 of its assisted living facilities currently under
development through sale/leaseback transactions or mortgage financing. The
remaining ten facilities currently under development are expected to be leased
from the developer which owns the facilities. As a result, it is anticipated
that a substantial portion of the Company's cash flow will be devoted to debt
service and lease payments. There can be no assurance that the Company will
generate sufficient cash flow from operations to cover required interest,
principal and lease payments. If the Company were unable to meet interest,
principal or lease payments, or satisfy financial covenants relating to, among
other things, cash flow and debt coverage ratios, it could be required to seek
renegotiation of such payments or obtain additional equity or debt financing.
There can be no assurance that any such efforts would be successful or timely or
that the terms of any such financing or refinancing would be acceptable to the
Company. Any payment or other default could cause the lender to foreclose upon
the facilities securing such indebtedness or, in the case of an operating lease,
could result in termination of the lease, with a consequent loss of income and
asset value to the Company. Furthermore, to the extent the Company's mortgage
and sale/leaseback agreements contain cross-default and cross-collateralization
provisions, a default by the Company on one of its payment obligations could
adversely affect a significant number of the Company's properties. The Company's
leverage may also adversely affect the Company's ability to respond to changing
business and economic conditions or continue its development and acquisition
program. See "--Need for Substantial Additional Capital," "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Business -- Properties."
UNCERTAINTY OF THE PROPOSED ACQUISITIONS; DIFFICULTIES OF INTEGRATING THE
PROPOSED ACQUISITIONS
The Company has entered into agreements to acquire two assisted living
facilities for an aggregate purchase price of $14.9 million, one of which will
be sold to and leased back from a real estate investment trust. The closing of
the Proposed Acquisitions are subject to certain customary conditions, including
conditions regarding the status of title to real property being acquired, the
results of environmental investigations performed on the Company's behalf and
the transfer of applicable licenses and permits. Although the Company expects
the proposed acquisition of the Cabot Pointe facility and its subsequent sale
and leaseback to be consummated in August 1996 and the proposed acquisition of
the Terrace Gardens facility to be consummated simultaneous with the closing of
this offering, there can be no assurance that the conditions to closing will be
satisfied in a timely manner, if at all. Any delay or failure to consummate any
of the Proposed Acquisitions could have an adverse effect on the Company's
operating results. The Proposed Acquisitions, together with the acquisition of a
leasehold interest in two facilities in July 1996, will result in a 23.5%
increase in the number of facilities, and a 21.1% increase in the number of
units, operated by the Company at June 30, 1996. Such an increase in the
Company's operations may strain the Company's available resources, and there can
be no assurance that the Company will successfully assume operational control
over the newly acquired facilities or integrate them with the Company's existing
operations. If the Company is unsuccessful in operating the newly acquired
facilities and integrating them into the Company's existing operations, the
Company's business, operating results and financial condition could be adversely
affected. See "--Difficulties of Managing Rapid Growth," "--Difficulties of
Integrating Acquisitions," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Business -- Properties -- Proposed Acquisitions."
DEPENDENCE ON SENIOR MANAGEMENT AND SKILLED PERSONNEL
The Company depends, and will continue to depend, on the services of Robert
N. Elkins, M.D., its Chairman of the Board, Edward Komp, its President and Chief
Executive Officer and other key management staff. The loss of the services of
Dr. Elkins or Mr. Komp could have a material adverse effect on the Company's
business, operating results and financial condition. Dr. Elkins is Chairman of
the Board and Chief Executive Officer of IHS. As a result, he will not be
devoting his full time and efforts to the Company. See "--Potential Conflicts of
Interest with IHS." The Company also depends on its ability to attract and
retain management personnel who will be responsible for the day-to-day
operations
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of each of its residential facilities. The Company's ability to attract and
retain management personnel for its facilities will be critical to the success
of the Company's rapid growth strategy, which contemplates acquiring, developing
or acquiring agreements to manage 60 to 75 new assisted living facilities per
year for each of the next three years. If the Company is unable to hire
qualified management to operate its assisted living facilities, the Company's
business, operating results and financial condition could be adversely affected.
See "Management."
STAFFING AND LABOR COSTS
The Company competes with various healthcare providers, including other
assisted living providers, with respect to attracting and retaining qualified or
skilled personnel. The Company also depends on the available labor pool of
low-wage employees. A shortage of nurses or other trained personnel or general
inflationary pressures may require the Company to enhance its wage and benefits
package in order to compete. There can be no assurance that the Company's labor
costs will not increase or, if they do, that they can be matched by
corresponding increases in revenues. Any significant failure by the Company to
attract and retain qualified employees, to control its labor costs or to match
increases in its labor expenses with corresponding increases in revenues could
have a material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Employees."
DEPENDENCE ON ATTRACTING SENIORS WITH SUFFICIENT RESOURCES TO PAY
The Company currently, and for the foreseeable future, expects to rely
primarily on its residents' ability to pay the Company's fees from their own or
familial financial resources. Generally only seniors with income or assets
meeting or exceeding the comparable median in the region where the Company's
assisted living facilities are located are expected to be able to afford the
Company's fees. Inflation or other circumstances that adversely affect the
ability of seniors to pay for the Company's services could have an adverse
effect on the Company. If the Company encounters difficulty in attracting
seniors with adequate resources to pay for its services, its business, operating
results and financial condition could be adversely affected. See "Business --
Services."
SUBSTANTIAL PORTION OF THE OFFERING TO BENEFIT IHS
IHS will receive approximately $52.6 million (assuming an initial public
offering price of $16.50 per share and after deducting estimated underwriting
discounts) for the shares of Common Stock to be sold by it in this offering,
which shares were received by IHS from the Company in January 1996 in
consideration of IHS' transfer to the Company of 14 of the 18 assisted living
facilities currently operated by the Company. In addition, the Company will use
a portion of the proceeds of this offering to repay all amounts the Company has
borrowed from IHS, which at July 26, 1996 aggregated $3.7 million. See
"--Potential Conflicts of Interest with IHS," "Company History" and "Use of
Proceeds."
DEPENDENCE ON IHS
The Company was formed in November 1995 as a wholly-owned subsidiary of IHS
to operate the assisted living and other senior housing facilities owned, leased
or managed by IHS. To date, IHS has provided all required financial, legal,
accounting, human resources and information systems services to the Company, and
has satisfied all the Company's capital requirements in excess of internally
generated funds. Subsequent to the closing of this offering, the Company will be
responsible for obtaining its own external sources of financing and for its own
financial, legal, accounting, human resources and information systems services.
The Company believes that the cost of these services following this offering
will exceed substantially the expense for these services allocated to the
Company by IHS. There can be no assurance that the Company will be successful in
obtaining these services. IHS has agreed to provide certain accounting and
information systems services to the Company until it has relocated to Florida
and implemented its own MIS and accounting systems, which the Company
anticipates will occur in the fourth quarter of 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Operations" and "Certain Transactions."
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The Company currently subleases The Shores and Cheyenne Place facilities from
IHS. IHS leases these facilities, as well as 41 other facilities, from
Litchfield Asset Management Corp. ("LAM"). IHS is required to meet certain
financial tests under its agreement with LAM and, to the extent IHS is unable to
meet such tests, LAM has the right to terminate IHS' lease of the 43 facilities,
which would result in the termination of the subleases. The loss of these
facilities, which accounted for approximately 39.0% and 29.0% of the Company's
revenues, and approximately 39.6% and 14.8% of the Company's earnings before
loss from impairment of long-lived assets in the year ended December 31, 1995
and the six months ended June 30, 1996, respectively, could have a material
adverse effect on the Company's business, results of operations and financial
condition. There can be no assurance that IHS will be able to meet such tests.
POTENTIAL CONFLICTS OF INTEREST WITH IHS
Robert N. Elkins, M.D., the Chairman of the Board of the Company, and
Lawrence P. Cirka, a director of the Company, are the Chairman of the Board and
Chief Executive Officer and President, Chief Operating Officer and a director,
respectively, of IHS and, as a result, may have conflicts of interest in
addressing business opportunities and strategies with respect to which the
Company's and IHS' interests differ. The Company and IHS have not adopted any
formal procedures designed to assure that conflicts of interest will not occur
or to resolve any such conflicts. Dr. Elkins is also a director and principal
stockholder of Community Care of America, Inc. ("CCA"), which operates long-term
care and assisted living facilities, and is a director of Capstone Capital
Corporation, a real estate investment trust from which the Company expects to
receive financing. IHS will continue to operate Alzheimer's units in certain of
its skilled nursing facilities, including the skilled nursing facilities located
in the condominiums in which the Company's Treemont and West Palm Beach
facilities are located. The Company is prohibited from including a segregated
and secured Alzheimer's ward in its portion of these facilities. In geographic
areas where the Company and either IHS or CCA operates a facility, ILC will be
competing with these companies for residents for its facilities. In addition,
upon completion of this offering IHS, Dr. Elkins and Mr. Cirka will continue to
beneficially own approximately 23.0% of the Company's outstanding Common Stock
(approximately 20.7% if the Underwriters' exercise their over-allotment option
in full), and IHS will be the Company's largest stockholder. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources," "Business -- Properties," "Certain
Transactions" and "Principal and Selling Stockholders."
DISCRETIONARY USE OF PROCEEDS
The Company will use approximately $12.2 million of the net proceeds from
this offering to finance the purchase of the Terrace Gardens facility and a
portion of the net proceeds to repay outstanding loans from IHS, which
aggregated $3.7 million at July 26, 1996. The Company expects to use the
remaining net proceeds (approximately $30.3 million, assuming an initial public
offering price of $16.50 per share) to fund the development and acquisition of
additional assisted living facilities and for general corporate purposes,
including working capital. The Company will have broad discretion in using the
unallocated net proceeds of this offering. See "Use of Proceeds."
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
held liable for the costs of removal or remediation of certain hazardous or
toxic substances, including, without limitation, asbestos-containing materials
or petroleum, that could be located on, in or under such property. Such laws and
regulations often impose liability whether or not the owner or operator knew of,
or was responsible for, the presence of the hazardous or toxic substances. The
costs of any required remediation or removal of these substances could be
substantial and the liability of an owner or operator as to any property is
generally not limited under such laws and regulations, and could exceed the
value of the property and the aggregate assets of the owner or operator. The
presence of these substances or failure to remediate such substances properly
may also adversely affect the owner's ability to sell or rent the property, to
borrow using the property as collateral or, in the case of
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facilities currently being developed, to occupy and use the property. Under
these laws and regulations, an owner, operator or any entity which arranges for
the disposal of hazardous or toxic substances, such as asbestos-containing
materials, at a disposal site may also be liable for the costs of any required
remediation or removal of the hazardous or toxic substances at the disposal
site. In connection with the ownership or operation of its properties, the
Company could be liable for these costs, as well as certain other costs,
including governmental fines and injuries to persons or properties. As a result,
the presence, with or without the Company's knowledge, of hazardous or toxic
substances at any property held, operated or developed by the Company could have
an adverse effect on the Company's business, operating results and financial
condition. Further, the Company cannot predict the nature, scope or effect of
legislation or regulatory requirements that could be imposed or how existing or
future laws or regulations will be administered or interpreted with respect to
activities to which they have not previously applied. Compliance with more
stringent laws or regulations, as well as more vigorous enforcement policies of
regulatory agencies, could require substantial expenditures by the Company and
could adversely affect the results of operations of the Company.
GOVERNMENTAL REGULATION
Healthcare is heavily regulated at the federal, state and local levels and
represents an area of extensive and frequent regulatory change. A number of
legislative and regulatory initiatives relating to long-term care are proposed
or under study at both the federal and state levels that, if enacted or adopted,
could have an adverse effect on the Company's business and operating results.
The Company cannot predict whether and to what extent any such legislative or
regulatory initiatives will be enacted or adopted, and therefore cannot assess
what effect any current or future initiatives would have on the Company's
business and operating results. Changes in applicable laws and new
interpretations of existing laws can significantly affect the Company's
operations, as well as its revenues (particularly those from governmental
sources) and expenses. The Company's facilities are subject to varying degrees
of regulation and licensing by local and state health and social service
agencies and other regulatory authorities specific to their location. While
regulations and licensing requirements often vary significantly from state to
state, they typically address, among other things: personnel education, training
and records; facility services, including administration of medication,
assistance with self-administration of medication and limited nursing services;
physical plant specifications; furnishing of resident units; food and
housekeeping services; emergency evacuation plans; and resident rights and
responsibilities. In several states assisted living facilities also require a
certificate of need before the facility can be opened. In most states, assisted
living facilities also are subject to state or local building codes, fire codes
and food service licensure or certification requirements. Like other healthcare
facilities, assisted living facilities are subject to periodic survey or
inspection by governmental authorities. The Company's success will depend in
part on its ability to satisfy such regulations and requirements and to acquire
and maintain any required licenses. The Company's operations could also be
adversely affected by, among other things, regulatory developments such as
mandatory increases in the scope and quality of care to be offered to residents
and revisions in licensing and certification standards. In addition, the Company
is subject to certain federal and state laws that regulate relationships among
providers of healthcare services. These laws include the Medicare and Medicaid
anti-kickback provisions of the Social Security Act, which prohibit the payment
or receipt of any remuneration by anyone in return for, or to induce, the
referral of patients for items or services that are paid for, in whole or in
part, by Medicare or Medicaid. A violation of these provisions may result in
civil or criminal penalties for individuals or entities and/or exclusion from
participation in the Medicare and Medicaid programs. Federal, state and local
governments occasionally conduct unannounced investigations, audits and reviews
to determine whether violations of applicable rules and regulations exist.
Devoting management and staff time and legal resources to such investigations,
as well as any material violation by the Company that is discovered in any such
investigation, audit or review, could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business --
Business Strategy" and "--Governmental Regulation."
The Company and its activities are subject to zoning and other state and
local government regulations. Zoning variances or use permits are often required
for construction. Severely restrictive regulations could impair the ability of
the Company to open additional residences at desired locations or could result
in costly delays, which could adversely affect the Company's growth strategy and
results. See "--Limited Development Experience; Development Delays and Cost
Overruns," "Business -- Business Strategy" and "--Development and Acquisition."
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Certain states provide for Medicaid reimbursement for assisted living
services pursuant to Medicaid Waiver Programs permitted by the Federal
government. In the event the Company elects to provide services in states with a
Medicaid Waiver Program, the Company may then elect to become certified as a
Medicaid provider in such states. As a provider of services under the Medicaid
Waiver Program, the Company will be subject to all of the requirements of such
program, including the fraud and abuse laws, violations of which may result in
civil and criminal penalties and exclusion from further participation in the
Medicaid Waiver Program. The Company intends to comply with all applicable laws,
including the fraud and abuse laws; however, there can be no assurance that
administrative or judicial interpretation of existing laws or regulations will
not in the future have a material adverse impact on the Company's results of
operations or financial condition. See "Business -- Governmental Regulation."
Under the Americans with Disabilities Act of 1990, all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state and
local laws exist which also may require modifications to existing and planned
properties to create access to the properties by disabled persons. While the
Company believes that its properties are substantially in compliance with
present requirements or are exempt therefrom, if required changes involve a
greater expenditure than anticipated or must be made on a more accelerated basis
than anticipated, additional costs would be incurred by the Company. Further
legislation may impose additional burdens or restrictions with respect to access
by disabled persons, the costs of compliance with which could be substantial.
COMPETITION
The healthcare industry is highly competitive and the Company expects that
the assisted living segment in particular will become more competitive in the
future. In general, regulatory and other barriers to competitive entry in the
assisted living industry are presently not substantial. The Company will
continue to face competition from numerous local, regional and national
providers of assisted living and long-term care. The Company will compete with
skilled nursing facilities and acute care hospitals primarily on the bases of
cost, quality of care, array of services provided and physician referrals. The
Company will also compete with companies providing home-based healthcare, and
even family members, based on those factors as well as the reputation,
geographic location, physical appearance of facilities and family preferences.
Some of the Company's competitors operate on a not-for-profit basis or as
charitable organizations, while others have, or may obtain, greater financial
resources than those of the Company. However, the Company anticipates that its
most significant competition will come from other assisted living and long-term
care facilities within the same geographic area as the Company's facilities
because management's experience indicates that senior citizens frequently elect
to move into facilities near their homes.
In implementing its growth strategy, the Company expects to face competition
in its efforts to develop and acquire assisted living facilities. Some of the
Company's present and potential competitors are significantly larger and have,
or may obtain, greater financial resources than those of the Company. A
significant number of industry competitors have recently raised financing in the
public markets, providing them with cash to develop and acquire assisted living
facilities and making it easier for them to use their equity and debt securities
as consideration for acquisitions. Consequently, there can be no assurance that
the Company will not encounter increased competition in the future that could
limit its ability to attract residents or expand its business and therefore have
a material adverse effect on its business, operating results and financial
condition. Further, if the development of new assisted living facilities
outpaces demand for those facilities in the markets in which the Company has or
is developing facilities, such markets may become saturated. Such an oversupply
of facilities could cause the Company to experience decreased occupancy,
depressed margins and lower profitability. See "Business -- Competition."
POTENTIAL ADVERSE IMPACT OF GOVERNMENTAL REIMBURSEMENT PROGRAMS
Currently, the federal government does not provide any reimbursement for the
type of assisted living services offered by the Company, although the federal
government does provide reimbursement for the services provided in the skilled
nursing beds located in the Company's continuing care retirement communities.
Although some states have reimbursement programs in place, the level of
reimbursement is generally
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insufficient to cover the costs of the Company's assisted living services.
Currently all of the Company's revenue is from private pay sources except that
one of its managed facilities, which includes 60 skilled nursing units, received
approximately 23% of its revenues in the year ended December 31, 1995 from
federal and state reimbursement programs. Depending in part on the results of
the Company's acquisition and development program, net revenues from
governmental reimbursement programs could increase from time to time. There can
be no assurance that the Company or the facilities which it manages will
continue to meet the requirements for participating in governmental
reimbursement programs. Furthermore, governmental reimbursement programs are
subject to statutory and regulatory changes, retroactive rate settlements,
administrative rulings and governmental funding restrictions, some of which
could have a material adverse effect on the future rate of payment to facilities
operated by the Company. A substantial dependence on governmental reimbursement
programs, changes in the funding levels of such programs or the failure of the
Company's operations to qualify for governmental reimbursement could have an
adverse effect on the Company's business, operating results and financial
condition. See "--Governmental Regulation," "Business -- Governmental
Regulation" and "--Operations -- Service Revenue Sources."
GEOGRAPHIC CONCENTRATION
A significant number of the 55 properties currently operated, managed,
proposed to be acquired or under development are located in California and Texas
(15 and 13 facilities, respectively). The market value of these properties and
the income generated from properties managed or leased by the Company could be
negatively affected by changes in local and regional economic conditions and by
acts of nature. See "Business -- Properties." In addition, the Company
anticipates that a substantial portion of its business and operations will
ultimately be concentrated in several states in the southern, midwestern and
western portion of the United States, and that economic conditions in such
states may adversely affect the Company's business, results of operations and
financial condition.
LIABILITY AND INSURANCE
The Company's business entails an inherent risk of liability. In recent
years, participants in the long-term care industry, including the Company, have
become subject to an increasing number of lawsuits alleging malpractice or
related legal theories, many of which involve large claims and significant legal
costs. The Company expects that from time to time it will be subject to such
suits as a result of the nature of its business. The Company currently maintains
insurance policies in amounts and with such coverage and deductibles as it deems
appropriate, based on the nature and risks of its business, historical
experience and industry standards. There can be no assurance, however, that
claims in excess of the Company's insurance coverage or claims not covered by
the Company's insurance coverage will not arise. A successful claim against the
Company not covered by, or in excess of, the Company's insurance could have a
material adverse effect on the Company's operating results and financial
condition. Claims against the Company, regardless of their merit or eventual
outcome, may also have a material adverse effect on the Company's ability to
attract residents or expand its business and would require management to devote
time to matters unrelated to the operation of the Company's business. In
addition, the Company's insurance policies must be renewed annually, and there
can be no assurance that the Company will be able to obtain liability insurance
coverage in the future or, if available, that such coverage will be on
acceptable terms.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of substantial amounts of shares of Common Stock in the public market
after this offering or the perception that such sales could occur could
adversely affect the market price of the Common Stock and the Company's ability
to raise equity. Upon completion of this offering, the Company will have
8,061,000 shares of Common Stock outstanding (9,040,500 shares if the
Underwriters' over-allotment option is exercised in full). Of these shares, the
6,530,000 shares sold in this offering will be freely tradable without
restriction or limitation under the Securities Act of 1933, as amended (the
"Securities Act"), except for any shares purchased by "affiliates" of the
Company, as such term is defined in Rule 144 promulgated under the Securities
Act. The remaining 1,531,000 shares, all of which will be owned by IHS, are
"restricted securities" within the meaning of Rule 144. The Company, its
directors and officers and IHS have agreed with the Underwriters
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pursuant to "lock-up" agreements not to sell or otherwise dispose of any shares
of Common Stock, any options or warrants to purchase shares of Common Stock or
any securities convertible into or exchangeable for shares of Common Stock for a
period of 180 days after the date of this Prospectus other than, in the case of
the Company, grants of stock options pursuant to the Company's stock option
plans, without the prior written consent of Smith Barney Inc. Smith Barney Inc.
may, in its sole discretion and at any time without prior notice, release all or
any portion of the shares of Common Stock subject to the "lock-up" agreements.
Beginning in November 1997, all of the shares which will be held by IHS upon
completion of this offering may be sold subject to the volume and other
limitations of Rule 144. The Securities and Exchange Commission (the
"Commission") has proposed an amendment to Rule 144 under the Securities Act
which, if adopted as currently proposed, would permit the sale of such 1,531,000
shares of Common Stock held by IHS upon expiration of the 180-day "lock-up"
period referred to above, rather than beginning in January 1998, subject to the
volume and other limitations of Rule 144. All shares of Common Stock held by IHS
will be eligible for sale to certain qualified institutional buyers in
accordance with Rule 144A under the Securities Act. Furthermore, the Company
intends to register soon after the date of this Prospectus 1,209,150 shares of
Common Stock reserved for issuance pursuant to the Company's stock option plans
and agreements, under which options to purchase 1,084,500 shares of Common Stock
are currently outstanding. The Company has granted IHS "piggyback" registration
rights with respect to the shares held by IHS upon completion of this offering.
If the Company is required to include in a Company-initiated registration shares
held by IHS pursuant to the exercise of its "piggyback" registration rights,
such sales may have an adverse effect on the Company's ability to raise needed
capital. See "Management -- Stock Options," "Description of Capital Stock --
Registration Rights" and "Shares Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained after this offering. The initial public offering price of the Common
Stock will be determined by negotiation among the Company, IHS and the
Underwriters and may bear no relationship to the price at which the Common Stock
will trade after completion of this offering. For factors that will be
considered in determining the initial public offering price, see "Underwriting."
After completion of this offering, the market price of the Common Stock could be
subject to significant fluctuations in response to various factors and events,
including the liquidity of the market for the shares of Common Stock, variations
in the Company's operating results, changes in earnings estimates by securities
analysts, publicity regarding the assisted living industry or the Company and
new statutes or regulations or changes in the interpretation of existing
statutes or regulations affecting the healthcare industry in general or the
assisted living industry in particular. In addition, the stock market in recent
years has experienced broad price and volume fluctuations that often have been
unrelated to the operating performance of particular companies. These market
fluctuations also may adversely affect the market price of the shares of Common
Stock. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
initiated against such company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which could have
a material adverse effect upon the Company's business, operating results and
financial condition.
CONTROL BY CERTAIN PRINCIPAL STOCKHOLDERS
Following completion of this offering, IHS and the Company's executive
officers and directors as a group will beneficially own approximately 27.8% of
the outstanding Common Stock. Currently, IHS' Chairman of the Board and Chief
Executive Officer and President and Chief Operating Officer are two of the six
members of the Company's Board of Directors, and IHS' Chairman of the Board
serves as Chairman of the Board of the Company. As a result, IHS and the
Company's executive officers and directors as a group could have a significant
influence over, and may be able to control, the outcome of all matters submitted
to a vote of the Company's stockholders, including the election of directors and
significant corporate transactions. See "--Potential Conflicts of Interest with
IHS" and "Principal and Selling Stockholders."
15
<PAGE>
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation and By-laws, as well as
Delaware corporate law, contain certain provisions that could have the effect of
making it more difficult for a third party to acquire, or discouraging a third
party from attempting to acquire, control of the Company. These provisions could
limit the price that certain investors might be willing to pay in the future for
shares of Common Stock. Certain of these provisions allow the Company to issue,
without stockholder approval, preferred stock having voting rights senior to
those of the Common Stock. Other provisions impose various procedural and other
requirements that could make it more difficult for stockholders to effect
certain corporate actions. In addition, the Company's Board of Directors is
divided into three classes, each of which serves for a staggered three-year
term, which may make it more difficult for a third party to gain control of the
Board of Directors. As a Delaware corporation, the Company is subject to Section
203 of the Delaware General Corporation Law which, in general, prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
the corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) for three years following the date such person became
an interested stockholder unless certain conditions are satisfied. See
"Description of Capital Stock -- Preferred Stock," "-- Certain Provisions of the
Restated Certificate of Incorporation and By-laws" and "--Delaware Anti-Takeover
Law."
IMMEDIATE AND SUBSTANTIAL DILUTION
The existing stockholder of the Company acquired its shares of Common Stock
at an average cost substantially below the initial public offering price set
forth on the cover page of this Prospectus. Therefore, purchasers of Common
Stock in this offering will experience immediate and substantial dilution,
which, at the assumed initial public offering price of $16.50 per share, will be
$5.76 per share. See "Dilution."
NO DIVIDENDS
The Company anticipates that future earnings will be retained by the Company
for the development of its business. Accordingly, the Company does not
anticipate paying cash dividends on its Common Stock in the forseeable future.
See "Dividend Policy."
16
<PAGE>
COMPANY HISTORY
GENERAL
The Company was formed in November 1995 as a wholly-owned subsidiary of IHS
to operate the assisted living and other senior housing facilities owned, leased
and managed by IHS. Following the Company's formation, IHS transferred to the
Company as a capital contribution its ownership interest in the Waterside
Retirement Estates ("Waterside") and The Homestead facilities, sublet to the
Company The Shores and Cheyenne Place facilities, and leased to the Company the
assisted living and related portions of the Treemont Retirement Community and
West Palm Beach Retirement facilities. IHS also transferred to the Company
agreements to manage nine facilities (one of which was cancelled by mutual
agreement in July 1996). The Company's principal executive offices are located
at IHS' executive offices at 10065 Red Run Boulevard, Owings Mills, Maryland
21117, and its telephone number is 410-998-8425. The Company intends to relocate
its executive offices to Bonita Springs, Florida in the third quarter of 1996.
ACQUISITION HISTORY
In January 1989, IHS acquired a leasehold interest in the Dallas at Treemont
facility, a skilled nursing facility with a 231 unit assisted living,
Alzheimer's and adult day care facility, and IHS subsequently purchased the
Dallas at Treemont facility in June 1994. The Company leased the assisted
living, Alzheimer's and adult day care portions of this facility from IHS until
June 1, 1996, when the Company and IHS entered into a condominium agreement for
the Dallas at Treemont facility. In connection with the condominium agreement,
the Company received as a capital contribution from IHS the condominium interest
in the assisted living, Alzheimer's and adult day care portion of the facility.
In December 1993, IHS acquired Central Park Lodges, Inc., which owned the
West Palm Beach skilled nursing and assisted living facility and a partnership
interest in the Waterside facility, a continuing care retirement community; IHS
subsequently acquired the remaining partnership interests in Waterside. The
Company received the Waterside facility from IHS as a capital contribution and
leased the assisted living portion of the West Palm Beach facility from IHS
until June 1, 1996, when the Company and IHS entered into a condominium
agreement for the West Palm Beach facility. In connection with the condominium
agreement, the Company received as a capital contribution from IHS the
condominium interest in the assisted living portion of the facility.
In March 1994, IHS acquired The Homestead, a 50 unit assisted living and
adult day care facility for a total cost of approximately $1.3 million, adjusted
for certain accrued liabilities, prepayments and deposits assumed by IHS. Prior
to the purchase IHS had managed the facility under a management agreement with
the prior owner. The Company received this facility from IHS as a capital
contribution.
In August 1994, IHS entered into separate facility operating leases for the
260 unit Shores and 95 unit Cheyenne Place facilities. IHS has subleased these
assisted living facilities, including the related equipment, furniture and
fixtures, to the Company. These facilities are part of 43 facilities leased by
IHS from LAM. IHS is required to meet certain financial tests under its
agreement with LAM and, to the extent IHS is unable to meet such tests, LAM has
the right to terminate IHS' lease of the 43 facilities, which would result in
the termination of the subleases. There can be no assurance that IHS will be
able to meet such tests. See "Risk Factors -- Dependence on IHS."
In December 1995, IHS acquired Carrington Pointe, a 172 unit congregate care
and assisted living facility. Prior to the acquisition, IHS had managed the
facility under a management agreement with the prior owner. Following the
acquisition, IHS transferred ownership of the facility to the Company as a
capital contribution.
In January 1996, IHS acquired Vintage Health Care Center, a skilled nursing
and assisted and independent living facility which it had previously managed
from April 1995. The Company leased the assisted and independent living portions
of the facility from IHS until June 1, 1996, when the Company
17
<PAGE>
and IHS entered into a condominium agreement for the facility. In connection
with the condominium agreement, the Company received as a capital contribution
from IHS the condominium interest in the assisted living portion of the
facility.
In July 1996 the Company acquired a leasehold interest in the Homestead of
Garden City and Homestead Wichita facilities from one of its third party
developers. In addition, the Company has entered into definitive agreements to
acquire the Cabot Pointe and Terrace Gardens facilities. The Company anticipates
that it will acquire the Cabot Pointe facility in August 1996 with funds
borrowed from IHS, and thereafter sell the facility to, and lease back this
facility from, a real estate investment trust. The proceeds of the
sale/leaseback transaction will be used to repay amounts borrowed from IHS to
fund the acquisition. The Company anticipates that it will acquire the Terrace
Gardens facility simultaneous with the closing of this offering. See "Business
- -- Properties."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,100,000 shares of
Common Stock offered hereby, assuming an initial public offering price of $16.50
per share and after deducting estimated underwriting discounts and offering
expenses, are estimated to be $46.2 million ($61.2 million if the over-allotment
option granted by the Company to the Underwriters is exercised in full). The
Company will not receive any proceeds from the sale of Common Stock by IHS.
The Company intends to use approximately $12.2 million of the net proceeds to
purchase the Terrace Gardens facility and a portion of the net proceeds to repay
outstanding loans from IHS, which aggregated $3.7 million at July 26, 1996. The
remainder of the net proceeds, approximately $30.3 million, will be used to
finance development and acquisition of additional assisted living facilities and
for working capital and general corporate purposes. Pending such uses, the net
proceeds will be invested in short-term, interest-bearing investment grade
securities. See "Business -- Strategy."
The outstanding indebtedness to be repaid was borrowed from IHS pursuant to a
$75 million revolving credit facility to finance the Company's development
activities. Borrowings under the facility bear interest at the rate of 14% per
annum and are due at the earlier of (i) the closing of an initial public
offering by ILC or (ii) June 30, 1998. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Although an integral part of the Company's business strategy is growth
through acquisitions and the Company is currently in discussions with several
acquisition candidates, the Company has not entered into any definitive
agreements respecting any acquisitions except as set forth under "Business --
Properties -- Proposed Acquisitions."
DIVIDEND POLICY
The Company anticipates that future earnings will be retained by the Company
for the development of its business. Accordingly, the Company does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
The payment of future dividends is within the discretion of the Board of
Directors and will depend upon, among other things, the Company's future
earnings, if any, its capital requirements, financial condition, the terms of
the Company's debt instruments and lease agreements then in effect and other
relevant factors. Under a cash management facility provided by IHS, the
operating cash balances of the Company's facilities were generally transferred
to a centralized account and applied to reduce additional paid-in-capital. See
"Risk Factors -- No Dividends" and Note 1 of Notes to Consolidated Financial
Statements.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1996, (ii) on a pro forma basis as of such date to give effect to the
acquisition of the Terrace Gardens facility and the issuance of 795,047 shares
of Common Stock, representing the number of shares which would be required to be
sold by the Company at the assumed initial public offering price of $16.50 per
share (net of estimated underwriting discounts) in order for the Company to pay
the purchase price for the Terrace Gardens facility, as if such transactions had
occurred on June 30, 1996, and (iii) on a pro forma basis as of such date as
adjusted to reflect the sale of the 3,100,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $16.50 per
share and the application of the estimated net proceeds therefrom as described
under "Use of Proceeds." The table should be read in conjunction with the
Financial Statements and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Note payable to parent company..................... $ 3,363 $ 3,363 $ --
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares
authorized; none issued and outstanding......... -- -- --
Common Stock, $.01 par value, 100,000,000 shares
authorized; 4,961,000 shares issued and outstand-
ing actual; 5,756,047 shares issued and outstand-
ing pro forma; 8,061,000 shares issued and
outstanding pro forma as adjusted(1)............ 50 58 81
Additional paid-in capital....................... 42,337 54,529 88,526
Accumulated deficit ............................. (2,056) (2,056) (2,056)
--------- ----------- -------------
Total stockholders' equity..................... 40,331 52,531 86,551
--------- ----------- -------------
Total capitalization............................... $43,694 $55,894 $86,551
========= =========== =============
- -----------------
<FN>
(1) Excludes (i) 1,084,500 shares of Common Stock issuable upon exercise of
outstanding options and (ii) 124,650 additional shares of Common Stock
reserved for issuance pursuant to the Company's stock option plans. See
"Management -- Stock Options."
</FN>
</TABLE>
19
<PAGE>
DILUTION
At June 30, 1996, the pro forma net tangible book value of the Company was
approximately $52,531,000, or $9.13 per share. Pro forma net tangible book value
per share represents the total pro forma tangible assets of the Company, reduced
by its total pro forma liabilities, after giving effect to the acquisition of
the Terrace Gardens facility, as if such transaction had occurred on June 30,
1996, and divided by the number of shares of Common Stock outstanding (including
795,047 shares of Common Stock which the Company would be required to sell at
the assumed initial public offering price of $16.50 per share (net of estimated
underwriting discounts) in order for the Company to pay the purchase price for
the Terrace Gardens facility). Dilution per share represents the difference
between the price per share to be paid by investors in this offering and the pro
forma net tangible book value per share of Common Stock immediately after the
offering. After giving effect to the sale of the 3,100,000 shares of Common
Stock offered by the Company hereby (at an assumed initial public offering price
of $16.50 per share) and the application of the estimated net proceeds therefrom
as described under "Use of Proceeds," the pro forma net tangible book value of
the Common Stock at June 30, 1996 would have been $86,551,000, or $10.74 per
share. This represents an immediate increase in the pro forma net tangible book
value of $1.61 per share to existing stockholders and an immediate dilution of
$5.76 per share to purchasers in this offering, as illustrated in the following
table.
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share............................. $16.50
Pro forma net tangible book value per share as of June 30, 1996........... $9.13
Increase in pro forma net tangible book value per share attributable to
this offering ........................................................... 1.61
-------
Adjusted pro forma net tangible book value per share after this offering
(1)........................................................................ 10.74
---------
Dilution per share to new investors (2)..................................... $ 5.76
=========
<FN>
(1) After deduction of estimated underwriting discounts and expenses of the
offering to be paid by the Company.
(2) Assumes no exercise of outstanding options. As of the date of this
Prospectus, there are outstanding options to purchase 1,084,500 shares of
Common Stock, all of which have an exercise price equal to the initial
public offering price as set forth on the cover page of this Prospectus.
See "Management -- Stock Options."
</FN>
</TABLE>
The following table sets forth as of June 30, 1996 the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by IHS and by new investors purchasing shares from
the Company in this offering, at an assumed initial public offering price of
$16.50 per share.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- -----
IHS (1)......... 4,961,000 61.5% $42,387,000 45.3% $ 8.54
New investors . 3,100,000 38.5 51,150,000 54.7 $16.50
----------- --------- ------------- --------- -----------
Total......... 8,061,000 100.0% $93,537,000 100.0%
=========== ========= ============= =========
(1) Sales by IHS in this offering will reduce the number of shares held by it
to 1,531,000 shares or 19.0% (16.9% if the Underwriters' over-allotment
option is exercised in full) of the total Common Stock outstanding after
this offering, and will increase the number of shares held by new
investors to 6,530,000 or 81.0% of the total number of shares of Common
Stock outstanding after this offering (83.1% if the Underwriters'
over-allotment option is exercised in full). Total consideration
represents the net book value of the facilities contributed as capital to
the Company by IHS less the cash distributions received by IHS from the
Company. See "Principal and Selling Stockholders."
The foregoing table assumes no exercise of outstanding stock options or
warrants. See "Management -- Stock Options."
20
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited pro forma financial statements have been prepared
based on the audited consolidated financial statements of ILC for the year ended
December 31, 1995 and the unaudited consolidated financial statements of ILC for
the six months ended June 30, 1996, as well as the following financial
statements:
1) The audited financial statements of Terrace Gardens Health Care and
Retirement Center ("Terrace Gardens") as of and for the year ended
December 31, 1995, and the unaudited financial statements of
Terrace Gardens as of and for the six months ended June 30, 1996.
2) The audited financial statements of Vintage Health Care Center
Retirement Division ("Vintage") as of and for the year ended
December 31, 1995, and the unaudited twenty-nine day period ended
January 29, 1996.
3) The audited financial statements of Carrington Pointe as of and for
the year ended December 31, 1995.
4) The audited financial statements of Homestead of Garden City, L.C.
("Garden City") as of and for the period from inception (November
1, 1995) to December 31, 1995, and the unaudited financial
statements of Garden City as of and for the six months ended June
30, 1996.
The pro forma balance sheet as of June 30, 1996 was prepared as if the
acquisition of the Terrace Gardens facility, which is expected to close
simultaneous with the closing of this offering, and the issuance of 795,047
shares of Common Stock, representing the number of shares which would be
required to be sold by the Company at the assumed initial public offering price
of $16.50 per share (net of estimated underwriting discounts) in order for the
Company to pay the purchase price for the Terrace Gardens facility had been
consummated as of June 30, 1996. No pro forma adjustments have been made to
reflect the acquisition of leasehold interests in the Cabot Pointe, Garden City
and Homestead Wichita facilities because such acquisitions will have no effect
on the Company's balance sheet. See "Company History," "Use of Proceeds" and
"Business -- Properties."
The pro forma statements of operations for the year ended December 31, 1995
and the six months ended June 30, 1996 were prepared as if the Company's
interest in the following facilities had been acquired on January 1, 1995:
Vintage, which was leased by the Company commencing January 29, 1996; Terrace
Gardens, which the Company has agreed to acquire simultaneous with the closing
of this offering; Garden City, which was leased by the Company commencing July
1, 1996; and Carrington Pointe, which the Company acquired effective December
31, 1995. No pro forma adjustments have been made to reflect the operations of
the Homestead Wichita facility, which was leased by the Company commencing July
17, 1996, or the Cabot Pointe facility, which the Company has agreed to acquire
and thereafter sell and leaseback in August 1996, because such facilities were
not in operation at June 30, 1996. Effective June 1, 1996, the Company received
as a capital contribution condominium interests in the assisted living and
related portions of the Vintage, Treemont and West Palm Beach facilities which
the Company had previously leased. Accordingly, the pro forma financial
statements are adjusted to decrease rent expense associated with these
facilities and to increase depreciation resulting from the ownership of a
condominium interest in these facilities. Effective June 1, 1996, the rent for
The Shores and Cheyenne Place facilities, which the Company subleases from IHS,
was increased, and the pro forma statements of operations are adjusted to
reflect this increase in rent. Finally, the pro forma statements are adjusted to
reflect the estimated additional corporate administrative and general expenses
that would have been incurred if ILC had operated as a stand-alone company. See
"Company History," "Use of Proceeds" and "Business -- Properties."
To date IHS has provided all required financial, legal, accounting, human
resources and information systems services to the Company, and has satisfied all
the Company's capital requirements in excess of internally generated funds. IHS
has charged the Company a flat fee of 6% of total revenue for these services,
except that with respect to the Waterside facility prior to October 1995, IHS
and the minority owner of the facility each charged the Company a fee of 4.5% of
monthly service fee revenue for these services. The Company estimates that the
cost of obtaining these services from third parties would have been
significantly higher than the fees charged by IHS. IHS has agreed to provide
certain administrative services to the Company after the closing of this
offering until the Company has relocated to Florida and implemented its own MIS
and accounting systems, which the Company anticipates will occur in the fourth
quarter of 1996. See "Business -- Operations" and "Certain Transactions."
21
<PAGE>
The unaudited pro forma combined financial information set forth below is not
necessarily indicative of the Company's combined financial position or the
results of operations that actually would have occurred if the transactions had
been consummated on the dates shown. In addition, they are not intended to be a
projection of results of operations that may be obtained in the Company's
future. The unaudited pro forma combined financial information should be read in
conjunction therewith and in conjunction with the financial statements and
related notes thereto included elsewhere in the Prospectus.
INTEGRATED LIVING COMMUNITIES, INC.
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ILC TERRACE GARDENS
------ ---------------------- PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS(A) CONSOLIDATED
------ ------ -------------- ------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents................................. $ 120 $ 457 $ (457) $ 120
Accounts receivable....................................... 355 387 (387) 355
Prepaid expenses and other current assets................. 407 79 (79) 407
--------- --------- --------------- ---------------
Total current assets..................................... 882 923 (923) 882
--------- --------- --------------- ---------------
Assets limited as to use.................................. 705 -- 705
Property, plant and equipment, net........................ 50,626 7,895 4,385 62,906
Other assets.............................................. 3,252 133 (133) 3,252
--------- --------- --------------- ---------------
$55,465 $ 8,951 $ 3,329 $67,745
========= ========= =============== ===============
Liabilities and Stockholder's Equity
Accounts payable ......................................... $ 828 $ 176 $ (176) $ 828
Accrued expenses.......................................... 1,309 711 (631) 1,389
Current portion of long-term debt......................... -- 324 (324) --
--------- --------- --------------- ---------------
Total current liabilities................................ 2,137 1,211 (1,131) 2,217
--------- --------- --------------- ---------------
Note payable to parent company............................ 3,363 -- 3,363
Refundable deposits....................................... 5,398 -- 5,398
Deferred income taxes..................................... 324 -- 324
Unearned entrance fees.................................... 3,912 -- 3,912
Long-term debt less current portion....................... -- 7,927 (7,927) --
--------- --------- --------------- ---------------
Total liabilities........................................ 15,134 9,138 (9,058) 15,214
--------- --------- --------------- ---------------
Stockholder's equity:
Common stock, $.01 par value. Authorized 100,000,000
shares; issued and outstanding 4,961,000 shares issued
and outstanding actual and 5,756,047 shares issued and
outstanding pro forma.................................... 50 -- 8 58
Additional paid-in capital................................ 42,337 -- 12,192 54,529
Retained earnings (deficit)............................... (2,056) (187) 187 (2,056)
--------- --------- --------------- ---------------
Net stockholder's equity................................. 40,331 (187) 12,387 52,531
--------- --------- --------------- ---------------
$55,465 $ 8,951 $ 3,329 $67,745
========= ========= =============== ===============
</TABLE>
22
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ILC TERRACE GARDENS VINTAGE CARRINGTON POINTE GARDEN CITY
---------------------- ------------------- -------------------- -------------------- ------------------
ADJUST- ADJUST- ADJUST- ADJUST- ADJUST- PRO FORMA
ACTUAL MENTS ACTUAL MENTS ACTUAL MENTS ACTUAL MENTS ACTUAL MENTS CONSOLIDATED
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Monthly service and
entrance fees........$15,123 $5,642 $1,598 $3,486 $ 31 $25,880
Management services
and other............ 1,146 301 23 102 -- 1,572
------- ------- ------- ------ ----- -------
Total revenues....... 16,269 5,943 1,621 3,588 31 27,452
------- ------- ------- ------ ----- -------
Expenses:
Facility operations... 11,243 4,068 1,208 1,937 66 18,522
Facility rents........ 2,430 $ (708)(b) -- -- -- -- $ 48 (g) 1,770
Corporate
administrative and
general ............. 1,005 2,008 (c) 546 81 249 6 3,895
Depreciation and
amortization......... 414 593 (b) 345 $ (47)(d) 200 $(113)(b) 425 $(146)(f) 14 (14)(g) 1,671
Loss on impairment of
long-lived assets.... 5,126 -- -- -- -- 5,126
Interest.............. -- 739 (739)(d) 429 (429)(e) -- 16 (16)(g) --
------- ------- ------- ------ ------- ------ ------ ------ ----- ----- -------
Total expenses....... 20,218 1,893 5,698 (786) 1,918 (542) 2,611 (146) 102 18 30,984
------- ------- ------- ------ ------- ------ ------ ------ ----- ----- -------
Earnings (loss) before
income taxes......... (3,949) $(1,893) $ 245 $ 786 $ (297) $ 542 $ 977 $ 146 $(71) $(18) (3,532)
======= ======= ====== ======= ====== ====== ====== ===== ===== =======
Federal and state
income taxes ........ (629) (468)(h)
-------- -------
Net loss..............$(3,320) $(3,064)
======= =======
Net earnings per
common share.........$ (.67) $ (.53)
======== =======
Weighted average
shares outstanding... 4,961 5,756
======= =======
</TABLE>
INTEGRATED LIVING COMMUNITIES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ILC TERRACE GARDENS VINTAGE GARDEN CITY
--------------------- ------------------- ------------------- -------------------
ADJUST- ADJUST- ADJUST- ADJUST- PRO FORMA
ACTUAL MENTS ACTUAL MENTS ACTUAL MENTS ACTUAL MENTS CONSOLIDATED
--------- ----------- -------- ---------- ------ ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Monthly service and entrance fees.. $10,568 $2,467 $139 $181 $13,355
Management services and other...... 727 157 2 -- 886
-------- ------- ------ ------ --------
Total revenues.................... 11,295 2,624 141 181 14,241
-------- ------- ------ ------ --------
Expenses:
Facility operations................ 7,138 1,966 104 171 9,379
Facility rents..................... 1,309 $ (448)(b) -- -- -- $144 (g) 1,005
Corporate administrative and
general........................... 678 1,004 (c) 245 -- 21 1,948
Depreciation and amortization...... 480 276 (b) 173 $ (24)(d) 17 $(10)(b) 43 (43)(g) 912
Interest........................... -- 339 (339)(d) 36 (36)(e) 56 (56)(g) --
-------- -------- ------- ------- ------ -------- ------ ------ --------
Total expenses.................... 9,605 832 2,723 (363) 157 (46) 291 45 13,244
-------- -------- ------- ------- ------ -------- ------ ------ --------
Earnings (loss) before income
taxes.............................. 1,690 $(832) $(99) $363 $(16) $ 46 $(110) $(45) 997
======== ======== ======= ======= ====== ======== ====== ====== ========
Federal and state income taxes ..... 651 384 (h)
-------- --------
Net earnings ....................... $1,039 $ 613
======== ========
Net earnings per common share ...... $ .21 $ .11
======== ========
Weighted average shares
outstanding........................ 4,961 5,756
======== ========
</TABLE>
23
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
PRO FORMA ADJUSTMENTS
(a) To reflect the purchase price of, and estimated transaction costs related
to, the acquisition of the Terrace Gardens facility and the issuance of
795,047 shares of Common Stock, representing the number of shares which
would be required to be sold by the Company at the assumed initial public
offering price of $16.50 per share (net of estimated underwriting
discounts) in order for the Company to pay the purchase price for the
Terrace Gardens facility, and to eliminate the assets and liabilities
retained by the seller. See "Business -- Properties -- Proposed
Acquisitions."
(b) To reflect depreciation and amortization on the new cost bases; the
reduction of rent resulting from the capital contribution of condominium
interests in the Treemont, West Palm Beach and Vintage facilities by IHS;
and the increase in rent related to The Shores and Cheyenne Place
facilities. The Company assumed a 40 year life for the condominium
interests.
(c) To reflect management's estimate that corporate pro forma consolidated
administrative and general expenses would have been $3,895,000 for the
year ended December 31, 1995 and $1,948,000 for the six months ended June
30, 1996 if the Company had operated without the benefit of IHS'
management services. This adjustment is based on Company budgets and does
not include any additional corporate expenses which may be incurred in
implementing the Company's future growth strategy.
(d) To reflect the impact of the Company's new basis in the assets of Terrace
Gardens and the elimination of amortization of deferred financing fees and
interest expense on debt not assumed. The Company assumed a 40 year life
for building and improvements and a 10 year life for equipment.
(e) To reflect elimination of Vintage's interest expense on debt not assumed.
(f) To reflect the impact of the Company's new basis in the assets of
Carrington Pointe. The Company assumed a 40 year life for building and
improvements and a 10 year life for equipment.
(g) To reflect the impact of the lease agreement between the Company and
Garden City.
(h) To adjust consolidated income tax expense for the effect of the
adjustments above.
24
<PAGE>
SELECTED CONSOLDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31, 1994
and 1995, and for each of the years in the three-year period ended December 31,
1995 are derived from consolidated financial statements of the Company which
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, which appear elsewhere in this Prospectus. The selected
consolidated financial data as of December 31, 1991, 1992 and 1993, and for the
years ended December 31, 1991 and 1992 are derived from the unaudited
consolidated financial statements of the Company. The selected consolidated
financial data as of June 30, 1996 and for the six months ended June 30, 1995
and 1996 are derived from the unaudited consolidated financial statements of the
Company. In the opinion of management, such unaudited consolidated financial
statements contain all adjustments (which consist only of normal recurring
adjustments) necessary to present fairly the financial position and results of
operations of the Company as of such dates and for such periods. Operating
results for the six-month period ended June 30, 1996 are not necessarily
indicative of the results that may be expected for any other interim period or
for the full year. This selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- --------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:(1)
Revenues:
Monthly service and entrance fees.. $4,893 $4,681 $5,010 $10,906 $15,123 $7,471 $10,568
Management services and other...... 72 48 230 739 1,146 547 727
--------- --------- --------- ---------- ----------- --------- ----------
Total revenue..................... 4,965 4,729 5,240 11,645 16,269 8,018 11,295
--------- --------- --------- ---------- ----------- --------- ----------
Expenses:
Facility operations................ 2,987 3,020 3,455 8,254 11,243 5,576 7,138
Facility rents..................... 797 821 856 1,466 2,430 1,215 1,309
Corporate administrative and
general........................... 298 284 315 726 1,005 499 678
Depreciation and amortization...... -- -- 24 369 414 206 480
Loss on impairment of long-lived
assets(2)......................... -- -- -- -- 5,126 -- --
--------- --------- --------- ---------- ----------- --------- ----------
Total expenses.................... 4,082 4,125 4,650 10,815 20,218 7,496 9,605
--------- --------- --------- ---------- ----------- --------- ----------
Earnings (loss) before income
taxes.............................. 883 604 590 830 (3,949) 522 1,690
Federal and state income taxes ..... 228 230 230 311 (629) 201 651
--------- --------- --------- ---------- ----------- --------- ----------
Net earnings (loss)................. $ 655 $ 374 $ 360 $ 519 $(3,320) $ 321 $ 1,039
========= ========= ========= ========== =========== ========= ==========
Earnings (loss) per common share ... $ 0.13 $ 0.08 $ 0.07 $ 0.10 $ (0.67) $ 0.06 $ 0.21
========= ========= ========= ========== =========== ========= ==========
Weighted average shares
outstanding........................ 4,961 4,961 4,961 4,961 4,961 4,961 4,961
========= ========= ========= ========== =========== ========= ==========
</TABLE>
DECEMBER 31, JUNE 30,
------------ --------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
(IN THOUSANDS)
Balance Sheet Data:
Cash and cash
equivalents........... $ -- $ -- $ 1 $ 787 $ 413 $ 120
Working capital
(deficit)............. 27 26 (36) 208 (315) (1,256)
Total assets........... 27 26 15,834 18,300 25,774 55,465
Note payable to parent
company............... -- -- -- -- -- 3,363
Stockholder's equity .. 27 26 7,286 8,718 14,773 40,331
(1) The Company has grown substantially through acquisitions, which materially
affects the comparability of the financial data reflected herein.
<PAGE>
(2) In 1995, the Company implemented Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121 in connection with
IHS' implementation thereof. Through evaluation of the recent financial
performance and a recent appraisal of one of its facilities, the Company
estimated the fair value of this facility and determined that the carrying
value of certain long-lived assets, including goodwill and buildings and
improvements, exceeded their fair value. The excess carrying value was
written off and is included in the statement of operations for 1995 as a
loss from impairment of long-lived assets. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Consolidated Financial Statements
and related Notes thereto included elsewhere in this Prospectus. This Prospectus
contains, in addition to historical information, forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in "Risk Factors" as well as those
discussed elsewhere in this Prospectus.
OVERVIEW
The Company currently operates 18 assisted living and other senior housing
facilities containing 1,777 units in seven states. The 1,777 units operated by
the Company consist of 1,152 assisted living units (including 162 units devoted
to Alzheimer's and dementia care), 544 independent living units for persons who
require occasional assistance with the activities of daily living and 81 skilled
nursing units. The Company is pursuing a strategy of rapid growth through
development and acquisition, and intends to acquire, develop or obtain
agreements to manage approximately 60 to 75 assisted living facilities per year
in each of the next three years. As part of this strategy, ILC is currently
developing 35 assisted living facilities, of which 25 are scheduled to open
during 1997, has entered into agreements to acquire one facility containing 258
units simultaneous with the closing of this offering and a leasehold interest in
one facility containing 35 units in August 1996, and is evaluating numerous
additional acquisition opportunities. All of ILC's revenues from its owned and
leased facilities in 1995 and the first six months of 1996 were derived from
private pay sources. The Company's historical results of operations are not
necessarily indicative of the Company's future financial performance because of
the Company's prior operation as a wholly-owned subsidiary of IHS and its
strategy to significantly expand its operating base over the next three years.
To achieve its growth objectives, the Company will need to obtain sufficient
financial resources to fund its development, construction and acquisition
activities and anticipated operating losses. Accordingly, the Company's future
growth will depend on its ability to obtain additional financing on acceptable
terms. The Company expects negative cash flow for at least the next several
years as it continues to develop and acquire assisted living facilities,
primarily as a result of the development and opening of 25 to 35 new assisted
living facilities in each of the next three years. There can be no assurance
that any newly developed facility will achieve a stabilized occupancy rate and
resident mix that meets the Company's expectations or generates positive cash
flow. The Company currently estimates that the net proceeds to be received by it
in this offering, together with financing commitments and sale/leaseback and
mortgage financing that it anticipates will be available, will be sufficient to
fund its acquisition and development program and its anticipated operating
losses for at least the next 12 months. There can be no assurance, however, that
the Company will not be required to seek additional capital earlier. See "Risk
Factors -- Need for Substantial Additional Capital" and "-- Liquidity and
Capital Resources."
The Company intends to finance the development and acquisition of its
assisted living facilities through mortgage financing, operating leases
(including sale/leaseback financing) and lines of credit. As a result, the
Company expects to incur substantial indebtedness and debt related payments
(including payments on operating leases) as the Company pursues its growth
strategy. Consequently, the Company anticipates that a substantial portion of
the Company's cash flow will be devoted to debt service and lease payments.
There can be no assurance that the Company will generate sufficient cash flow
from operations to cover required interest, principal and lease payments. The
Company's leverage may also adversely affect the Company's ability to respond to
changing business and economic conditions or continue its development and
acquisition program. See "Risk Factors -- Substantial Anticipated Debt and Lease
Obligations."
The Company derives its revenues from two primary sources: (i) resident fees
for the delivery of assisted living services and (ii) management services and
other income, primarily for management of facilities owned by third parties.
Historically, most of the Company's operating revenue has come from resident
fees, which in 1995 and the first half of 1996 comprised 93.0% and 93.6%,
respectively, of total revenues. Resident fees typically are paid monthly by
residents, their families or other responsible parties.
26
<PAGE>
Resident fees include revenue derived from basic care, entrance fees, healthcare
services provided by the Company, Alzheimer's care and other sources. Entrance
fees are one-time fees generally payable by a resident upon admission. Residents
who require personal care in excess of services provided under the basic care
program pay additional fees. Management services and other income, which in 1995
and the first half of 1996 accounted for the remaining 7.0% and 6.4%,
respectively, of revenues, consists principally of management fees. Management
fees are generally in the range of four to five percent of a managed facility's
total operating revenues. Resident fees and management fees are recognized as
revenues when services are provided.
The Company classifies its operating expenses into the following categories:
(i) facility operating expenses, which include labor, food, marketing and other
direct facility expenses; (ii) facility development and pre-opening expenses,
which include non-capitalized development expenses and pre-opening labor and
marketing expenses; (iii) corporate administrative and general expenses, which
primarily includes headquarters and regional staff expenses and other overhead
costs; and (iv) depreciation and amortization. In anticipation of its growth
plans, the Company intends to increase significantly its corporate management
and staff in the 12 months following this offering.
From its inception in November 1995 through the present, the Company has been
operated as a wholly-owned subsidiary of Integrated Health Services, Inc. To
date IHS has provided all required financial, legal, accounting, human resources
and information systems services to the Company, and has satisfied all the
Company's capital requirements in excess of internally generated funds. IHS has
charged the Company a flat fee of 6% of total revenue for these services, except
that with respect to the Waterside facility prior to October 1995, IHS and the
minority owner of the facility each charged ILC a fee of 4.5% of monthly service
fee revenue for these services. The Company estimates that the cost of obtaining
these services from third parties would have been significantly higher than the
fee charged by IHS. IHS has agreed to provide certain administrative services to
the Company after the closing of this offering until the Company has relocated
to Florida and implemented its own MIS and accounting systems, which the Company
anticipates will occur in the fourth quarter of 1996. See "Business --
Operations" and "Certain Transactions."
The Company believes that for the foreseeable future the greatest portion of
its revenue growth will be from the development and acquisition of new
facilities. The Company generated 100% of its revenues from its owned and leased
facilities from private pay sources during 1995 and the first six months of
1996. However, depending in part on the results of future acquisitions, this
percentage could decrease from time to time. The Company believes that, for the
foreseeable future, the level of governmental reimbursement for its services
that will be available to its residents who receive such reimbursement will be
insufficient to cover the costs of delivering the level of service that the
Company currently provides. As a result, the Company currently and for the
foreseeable future expects to rely primarily on its residents' ability to pay
the Company's charges from their own familial financial resources.
RESULTS OF OPERATIONS
The following table presents selected financial data as a percentage of total
revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------- ------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Monthly service and entrance fees ..... 95.6% 93.7% 93.0% 93.2% 93.6%
Management services and other.......... 4.4 6.3 7.0 6.8 6.4
------ ------ ----- ------ ------
Total revenues........................ 100.0 100.0 100.0 100.0 100.0
------ ------ ----- ------ ------
Facility operations.................... 66.0 70.8 69.1 69.5 63.2
Facility rents......................... 16.3 12.6 14.9 15.2 11.6
Corporate administrative and general .. 6.0 6.2 6.2 6.2 6.0
Depreciation and amortization ......... 0.4 3.2 2.6 2.6 4.2
Loss on impairment of long-lived
assets................................ -- -- 31.5 -- --
------ ------ ----- ------ ------
Total expenses........................ 88.7 92.8 124.3 93.5 85.0
------ ------ ----- ------ ------
Earnings (loss) before income taxes ... 11.3 7.2 (24.3) 6.5 15.0
Federal and state income taxes......... 4.4 2.7 (3.9) 2.5 5.8
------ ------ ----- ------ ------
Net earnings (loss).................... 6.9% 4.5% (20.4)% 4.0% 9.2%
====== ====== ===== ====== ======
</TABLE>
27
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995
Revenues increased from $8.0 million in 1995 to $11.3 million in 1996,
representing a 40.9% increase. Substantially all of the increase in revenues
resulted from the acquisition of the Carrington Pointe facility on December 31,
1995 and the leasing of the Vintage facility on January 29, 1996. Average
occupancy of the Company's owned and leased facilities during the six months
ended June 30, 1996 was 94.4% as compared to 88.1% during the six months ended
June 30, 1995. Management services and other revenue increased from $547,000 in
1995 to $727,000 in 1996, representing a 32.9% increase, primarily due to the
addition of four managed facilities subsequent to June 30, 1995 and increased
other revenue at its existing owned and leased facilities.
Facility operations expense increased from $5.6 million in 1995 to $7.1
million in 1996, representing a 28.0% increase. Substantially all of the
increase resulted from the addition of the Carrington Pointe and Vintage
facilities. Facility operations expense as a percentage of revenues decreased
from 69.5% in 1995 to 63.2% in 1996 due to the higher margins of the Carrington
Pointe facility, as well as improved operating results at facilities in
operation in both periods.
Facility rents increased from $1.2 million in 1995 to $1.3 million in 1996,
representing an 7.7% increase. Substantially all of the increase resulted from
the leasing of the Vintage facility commencing January 29, 1996, partially
offset by a reduction in rent as a result of the contribution to the Company of
condominium interests in the Treemont, Vintage and West Palm Beach facilities on
June 1, 1996. Facility rents as a percentage of revenue decreased from 15.2% in
1995 to 11.6% in 1996 due to the higher revenue base of the Carrington Pointe
facility, which is an owned facility.
Corporate administrative and general expense increased from $499,000 in 1995
to $678,000 in 1996, an increase of 35.9%. Substantially all of the increase is
due to the addition of the Carrington Pointe and Vintage facilities. Corporate
administrative and general expense as a percentage of revenue decreased from
6.2% in 1995 to 6.0% in 1996. The Company's facilities were charged a management
fee of 6% of total revenues by IHS, except that prior to October 1995, the
Company's Waterside facility was charged a management fee of 4.5% of monthly
service fee revenue by each of IHS and the minority partner (whose interest was
subsequently acquired by IHS in October 1995). The reason for the decrease in
corporate administrative and general expense as a percentage of revenues from
1995 to 1996 is that in 1996 the Company paid a fee of 6.0% of total revenues
with respect to the Waterside facility compared to a fee of 9.0% of monthly
service revenues in the comparable period in 1995. See Note 7 of Notes to
Consolidated Financial Statements.
Depreciation and amortization expense increased from $206,000 in 1995 to
$480,000 in 1996, representing a 133.1% increase. Of the $274,000 increase,
$140,000 resulted from the addition of the Carrington Pointe facility on
December 31, 1995, $70,000 resulted from a write-off of software costs in the
first quarter of 1996, $57,000 resulted from depreciation of the condominium
interests in the Treemont, Vintage and West Palm Beach facilities acquired June
1, 1996 and the remaining $7,000 resulted from depreciation of routine additions
of $35,000 partially offset by a $28,000 reduction in depreciation resulting
from the write-down of excess carrying value related to the Waterside facility.
Depreciation and amortization expense as a percentage of revenue increased from
2.6% in 1995 to 4.2% in 1996 due to the above mentioned reasons.
Earnings before income taxes increased $1,168,000 from $522,000 in 1995 to
$1,690,000 in 1996, representing a 223.4% increase. This was primarily due to
the acquisition of the Carrington Pointe and Vintage facilities subsequent to
June 30, 1995, as well as improved operating results at facilities in operation
in both periods.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Revenues increased from $11.6 million in 1994 to $16.3 million in 1995,
representing a 39.7% increase. Substantially all of the increase in revenues
resulted from the lease of The Shores and Cheyenne Place facilities commencing
August 31, 1994 and the addition of The Homestead facility on April 1, 1994.
Average occupancy of the Company's owned and leased facilities during the year
ended December 31, 1995 was 90.9% as compared to 79.7% during the year ended
December 31, 1994. Management
28
<PAGE>
services and other revenue increased from $739,000 in 1994 to $1.1 million in
1995, representing a 55.1% increase, primarily due to the addition of three
managed facilities in 1995 and increased other revenue at its existing owned and
leased facilities.
Facility operations expense increased from $8.3 million in 1994 to $11.2
million in 1995, representing a 36.2% increase. Substantially all of the
increase in facility operations expense resulted from the addition of the
Cheyenne Place, The Homestead and The Shores facilities. Facility operations
expense as a percentage of revenue decreased from 70.8% of revenues in 1994 to
69.1% of revenues in 1995 due to the improved operating results in 1995 of the
two facilities leased and the one facility acquired in 1994.
Facility rents increased from $1.5 million in 1994 to $2.4 million in 1995,
representing a 65.8% increase. The increase in rent expense primarily resulted
from the two leases entered into in 1994. Facility rents as a percentage of
revenues increased from 12.6% in 1994 to 14.9% in 1995 due to the lease of The
Shores and Cheyenne Place facilities in 1994.
Corporate administrative and general expense increased from $725,000 in 1994
to $1.0 million in 1995, representing a 38.6% increase. Substantially all of the
increase in corporate administrative and general expense resulted from the
addition of the Cheyenne Place, The Homestead and The Shores facilities.
Corporate administrative and general expenses as a percentage of revenues
remained constant in both periods at 6.2% of revenues.
Depreciation and amortization expense increased from $369,000 in 1994 to
$414,000 in 1995, representing a 12.4% increase. The increase in depreciation
and amortization expense primarily resulted from the addition of The Homestead
facility and routine capital additions at other facilities. Depreciation and
amortization decreased as a percentage of revenue from 3.2% to 2.6% due to the
increase in revenue from the two facilities leased in 1994.
Loss on Impairment of Long-Lived Assets. In 1995, the Company implemented
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 121 in connection with IHS' implementation thereof. Through
evaluation of the recent financial performance and a recent appraisal of its
Waterside facility, the Company estimated the fair value of this facility and
determined that the carrying value of certain long-lived assets, including
goodwill and buildings and improvements, exceeded their fair value. The excess
carrying value of $5,126,000 was written off and is included in the statement of
operations for 1995 as a loss on impairment of long-lived assets. See Notes 1
and 12 of Notes to Consolidated Financial Statements.
Earnings (loss) before income taxes decreased from earnings of $830,000 in
1994 to loss of $3,949,000 in 1995, representing a decrease of 575.7%. This was
primarily due to improved operating results at facilities in operation in both
periods and facilities acquired subsequent to December 31, 1994 offset by the
loss on impairment of long-lived assets.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
Revenues increased from $5.2 million in 1993 to $11.6 million in 1994,
representing a 122.2% increase. The increase primarily resulted from the
addition of the Waterside and West Palm Beach facilities on December 1, 1993 and
The Homestead facility on April 1, 1994, and the leasing of the Cheyenne Place
and The Shores facilities on August 31, 1994. Management services and other
revenue increased from $231,000 in 1993 to $739,000 in 1994, representing a
220.4% increase, primarily due to one additional managed facility in 1994 and
increased other revenue at its existing owned and leased facilities.
Facility operations expense increased from $3.5 million in 1993 to $8.3
million in 1994, representing a 138.9% increase. The increase primarily resulted
from the addition of the Cheyenne Place, The Homestead, The Shores, Waterside
and West Palm Beach facilities. Facility operations expense as a percentage of
revenues increased from 66.0% in 1993 to 70.8% in 1994 due to the increased
operating expenses incurred to integrate the five new facilities.
Facility rents increased from $856,000 in 1993 to $1.5 million in 1994,
representing an increase of 71.3%. The increase primarily resulted from the
lease of the Cheyenne Place and The Shores facilities in 1994. Facility rents as
a percentage of total revenues decreased from 16.3% in 1993 to 12.6% in 1994,
primarily as a result of the addition of The Homestead and Waterside facilities,
which are owned facilities.
29
<PAGE>
Corporate administrative and general expense increased from $315,000 in 1993
to $725,000 in 1994, representing an increase of 130.7%. The increase primarily
resulted from the addition of the Cheyenne Place, The Homestead, The Shores,
Waterside and West Palm Beach facilities. Corporate administrative and general
expense as a percentage of revenue increased from 6.0% in 1993 to 6.2% in 1994.
The increase primarily resulted from Waterside, which had a higher management
fee than the other facilities, being an owned facility for all of 1994 but only
one month of 1993.
Depreciation and amortization expense increased from $24,000 in 1993 to
$369,000 in 1994, representing a 1,466.8% increase. The increase primarily
resulted from the addition of The Homestead, Waterside and West Palm Beach
facilities. Depreciation and amortization expense as a percentage of revenue
increased from 0.4% to 3.2% due to the addition of these three new facilities.
Earnings before income taxes increased from $590,000 in 1993 to $830,000 in
1994, representing a 40.6% increase. This was primarily due to additional
pre-tax income generated at facilities acquired subsequent to December 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
To date the Company has financed its operations through cash contributions
and loans from IHS and cash from operations.
At June 30, 1996, the Company had a working capital deficit of $1.3 million
compared to a deficit of $315,000 at December 31, 1995.
The Company has obtained a commitment (the "Financing Commitment") from
Health Care Property Investors, Inc. ("HCPI"), a real estate investment trust,
to make available to ILC up to $100 million to develop, construct and acquire
facilities. No less than $40 million is to be invested in existing facilities
("Existing Facilities") through purchase and lease or sale/leaseback
transactions. Remaining funds (up to $60 million) may be invested in new
development projects ("New Facilities"). The Company will develop each New
Facility pursuant to a separate development agreement with HCPI and will lease
each New Facility and financed Existing Facility from HCPI pursuant to a
separate lease agreement. Each acquisition, development, lease and ancillary
agreement executed pursuant to the Financing Commitment will contain
representations and warranties, indemnities, affirmative covenants and
conditions precedent customary for real estate investment trust transactions.
HCPI's funding of New Facilities is contingent upon the Company's completion of
an initial public offering which results in the Company having stockholders'
equity of not less than $75 million. A $200,000 deposit (the "Expense Deposit"),
to ensure the payment of HCPI's expenses in the event transactions contemplated
pursuant to the Financing Commitment are not completed, was paid upon the
Company's execution of the Financing Commitment. The Financing Commitment
expires on June 30, 1997.
Each development agreement executed pursuant to the Financing Commitment will
require the Company, as developer, to arrange, coordinate and carry out all
services necessary to develop each New Facility. The Maximum Cost (as defined)
based on an appraisal of Fair Market Value (as defined) and a development budget
for each facility will be approved by HCPI and included in the development
agreement. Total Construction Cost (as defined) will equal land cost plus total
actual construction costs, one percent of Maximum Cost (accrued as a cost by
HCPI), all legal costs and fees (including in-house legal costs) incurred in
connection with the project, a construction administration fee to be accrued as
a cost by HCPI equal to $1,550 per month (subject to reduction) and an allowance
for HCPI's cost of money at 1.5% over the Bank of New York prime rate. The cost
of overruns, if any, including HCPI's carrying cost on overruns, are to be paid
by the Company. HCPI will not be required to pay a Total Construction Cost in
excess of Maximum Cost. The Company will guarantee the completion of a New
Facility within 12 months and will guarantee to make all payments in excess of
Maximum Cost to complete the facility. The Company may include in the Total
Construction Cost the amount of any actual development fee paid to an unrelated
developer, up to a maximum of 5% of Maximum Cost.
HCPI will pay fair market value, based on an appraisal, to purchase an
Existing Facility. All leases will be "triple net" (i.e., where the lessee is
obligated to pay, in addition to rent, all taxes, repairs and insurance in
respect of the facility) and HCPI will have the right to a higher lease rate on
facilities
30
<PAGE>
located in states that tax real estate investment trust income. The primary term
for each lease will be 15 years with two 10 year renewal options at fair market
value lease rates. All leases covering facilities financed under the Financing
Commitment must be renewed together as a group and not individually.
The base lease rate for Existing Facility leases executed under the Financing
Commitment will equal 325 basis points above the 10-year Treasury Note rate
published in The Wall Street Journal three business days prior to lease
commencement. The base rent under such leases will equal the base lease rate
multiplied by the Existing Facility purchase price. The base lease rate for New
Facility leases will equal 350 basis points above the 10-year Treasury Note rate
published in The Wall Street Journal three busi ness days prior to lease
commencement. The base rent under New Facility leases will equal the base lease
rate multiplied by the lesser of Total Construction Cost or Maximum Cost.
Beginning in the second year of the lease, annual rent will be increased by an
amount equal to the annual change in the consumer price index multiplied by the
prior year's total rent. In no event will the rent increase be less than the sum
of (a) the additional rent paid for the previous year plus (b) one hundred
percent of the facility's Gross Revenues (as defined) in excess of Base Revenue
(as defined), up to but not exceeding an amount equal to two percent (2%) of the
prior year's total rent. In no event will the rent increase represent more than
a 5% increase over the prior year's total rent. In addition to the payment of
rent and the Expense Deposit, the Company is required to provide an annually
renewed letter of credit for each financed facility equal to six months total
lease payments to secure acquisition, development and lease obligations (subject
to reduction to four months upon completion of an initial public offering which
results in the Company having stockholders' equity of not less than $75
million). All leases under the Financing Commitment will be cross-defaulted and
cross-collateralized and all leases between HCPI and a subsidiary of the Company
will be guaranteed by the Company. The Company will be obligated to reimburse
HCPI for certain costs and expenses incurred in connection with transactions
completed pursuant to the Financing Commitment. In addition, a non-refundable
commitment fee, equal to one percent (1%) of the purchase price of each Existing
Facility, will be due and payable at the closing of the acquisition of each
Existing Facility.
The Company has also obtained a non-binding term sheet from Capstone Capital
Corporation ("Capstone") relating to the availability of up to $40 million in
financing through sale/leaseback transactions. An expense deposit of $100,000 is
payable by the Company within one business day of the execution of a commitment
agreement and a fee equal to 1% of total building cost is payable upon the
initial draw on the commitment relating to each facility purchased. As proposed,
leases executed with Capstone will have an initial term of 12 to 15 years and
three separate five year extension options. All leases funded under the proposed
commitment, however, will have the same initial term and no lease may be
extended unless all leases under the commitment are extended. Subject to a
minimum rate of 10%, the initial lease rate will be 350 basis points in excess
of the yield on U.S. Treasury bills with similar maturities/terms. Lease rates
during the first year of each extended period will be based upon fair market
rental values. Lease rates will be adjusted annually (except for the first year
of each renewal period) in an amount equal to the positive change in the
consumer price index; provided, however, in no event will the change be less
than 2% or more than 5% of the previous year's lease payment.
All leases under the proposed Capstone commitment will be cross-defaulted and
all leases between Capstone and a subsidiary of the Company will be guaranteed
by the Company. Each facility lease will contain minimum rent coverage
requirements and will require the Company to maintain a minimum net worth of $80
million and minimum rent and interest coverage ratios. Each lease will be
"triple-net" and will grant the Company a right of first refusal to purchase the
facility from Capstone. The Company will reimburse Capstone for all costs
incurred in connection with transactions completed under the proposed commitment
and up to $2,000 per year for independent third-party inspections of each
facility. There can be no assurance that the Company will receive a financing
commitment from Capstone on these terms, on different terms or at all. Dr.
Elkins, the Chairman of the Board of Directors of the Company, is a director of
Capstone.
Following this offering, the Company will be dependent on third-party
financing for its acquisition and development program. Except for the financing
commitments discussed above, the Company has no other arrangements for
financing. There can be no assurance that financing for the Company's acquisi-
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tion and development program will be available to the Company on acceptable
terms or at all. Moreover, to the extent the Company acquires facilities that do
not generate positive cash flow (after rent expense and/or interest), the
Company may be required to seek additional capital for working capital and
liquidity purposes. See "Risk Factors -- Need for Substantial Additional
Capital."
The Company presently anticipates that it will make capital expenditures of
approximately $3 million in 1996 relating to its existing facilities. In
addition, the Company will use approximately $12.2 million of the net proceeds
of this offering to acquire the Terrace Gardens facility simultaneous with the
closing of this offering, and anticipates that it will make capital expenditures
of approximately $500,000 with respect to the Cabot Pointe and Terrace Gardens
facilities. The Company anticipates that it will spend approximately $9.0
million in 1996 to purchase land for the development of new assisted living
facilities. The Company has provided two of its third-party developers lines of
credit aggregating $2.0 million. See "Business -- Properties."
IHS has made available to the Company a $75 million revolving credit
facility. Borrowings under the facility bear interest at the rate of 14% per
annum. All outstanding borrowings, together with all accrued but unpaid
interest, are due at the earlier of (i) the closing of an initial public
offering by ILC or (ii) June 30, 1998. At June 30, 1996 and July 26, 1996, $3.4
million and $3.7 million, respectively, were outstanding under this facility.
The Company intends to use a portion of the proceeds of this offering to repay
all amounts outstanding under the facility. See "Use of Proceeds." Borrowings
under this facility were used to finance the Company's development activities.
The Company currently estimates that the net proceeds to be received by it
from this offering, together with financing commitments and sale/leaseback and
mortgage financing that it anticipates will be available, will be sufficient to
fund its acquisition and development program and operations for the next 12
months. There can be no assurance, however, that the Company will not be
required to seek additional capital earlier. Additional financing will be
necessary to enable the Company to respond to changing economic conditions or to
effect further expansion. There can be no assurance that the Company will
generate sufficient cash flow during such time to fund its future working
capital, rent, debt service requirements or growth. In such event, the Company
would have to seek additional financing through debt or equity offerings, bank
borrowings, sale/leaseback transactions or otherwise, and there can be no
assurance that such financing will be available on acceptable terms or at all.
See "Risk Factors -- Need for Substantial Additional Funds."
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BUSINESS
OVERVIEW
The Company provides assisted living and related services to the private pay
elderly market. Assisted living facilities combine housing, personalized support
and healthcare services in a cost-effective, non-institutional setting designed
to address the individual needs of the elderly who need regular assistance with
activities of daily living, such as eating, bathing, dressing and personal
hygiene, but who do not require the level of healthcare provided in a skilled
nursing facility. The Company currently operates 18 assisted living and other
senior housing facilities containing 1,777 units in seven states. The 1,777
units operated by the Company consist of 1,152 assisted living units (including
162 units devoted to Alzheimer's and dementia care), 544 independent living
units for persons who require occasional assistance with the activities of daily
living and 81 skilled nursing units. The Company is pursuing a strategy of rapid
growth through development and acquisition, and intends to acquire, develop or
obtain agreements to manage approximately 60 to 75 assisted living facilities
per year in each of the next three years. As part of this strategy, ILC is
currently developing 35 assisted living facilities, of which 25 are scheduled to
open during 1997, has entered into agreements to acquire one facility containing
258 units simultaneous with the closing of the offering and a leasehold interest
in one facility containing 35 units in August 1996, and is evaluating numerous
additional acquisition opportunities. All of ILC's revenues from its owned and
leased facilities in 1995 and the first six months of 1996 were derived from
private pay sources.
The Company's objective is to expand its operations to become a leading
provider of high-quality, affordable assisted living services. Key elements of
the Company's strategy to achieve this goal are to: (i) provide high-quality
healthcare oriented services; (ii) grow rapidly through development and
acquisition of additional assisted living facilities; (iii) utilize a flexible,
cost-effective approach for the development of new assisted living facilities;
and (iv) target a broad segment of the private-pay population.
The assisted living industry is highly fragmented and characterized by
numerous small operators whose scope of services vary widely. Annual
expenditures for assisted living services were estimated to be $10 to 12 billion
in 1995. The Company believes that factors contributing to the growth of the
assisted living industry include: (i) the aging of the U.S. population; (ii) the
increasing affluence of the elderly and their families; (iii) the decreasing
availability of family care in the home; (iv) consumer preference for greater
independence and a less institutional setting; (v) the increasing emphasis by
both federal and state governments and private insurers on containing long-term
care costs; and (vi) the reduced availability of skilled nursing beds for less
medically intensive residents. The Company believes that the foregoing factors,
combined with the fragmented nature of the industry and the inexperience and
lack of resources of many operators, have created a significant opportunity for
ILC to become a leading provider of high-quality, affordable assisted living
services.
The Company believes that its approach to the development of new assisted
living facilities differs from that of many other operators. Unlike many
assisted living operators, the Company intends to rely primarily on a limited
number of third-party developers, rather than maintain a large internal
development staff. ILC currently has relationships with three developers, which
developers are responsible for 32 of the 35 facilities currently under
development by the Company. The Company has, together with these developers,
developed three flexible and expandable prototype building designs. The
flexibility feature is expected to allow the facility's assisted living and
Alzheimer's bed allotment to be quickly and cost-effectively reconfigured based
on changing market demand. The expandability feature is expected to allow the
prototype buildings to be easily and cost-effectively expanded with little or no
disruption to current operations. The Company believes its development approach
will offer many advantages, including better construction quality control, lower
architectural and engineering fees, bulk purchasing of materials and fixtures
and faster development and construction schedules.
BACKGROUND
Assisted living is quickly emerging as an important component in the
continuum of care within the healthcare delivery system and can be viewed as
falling in the middle of the elder care continuum, with home-based care on one
end and skilled nursing facilities and acute care hospitals on the other. It is
a
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cost-effective setting for the elderly who do not require the higher level of
medical care provided by skilled nursing facilities but cannot live
independently because of physical frailties or cognitive impairments. Assisted
living facilities combine housing, personalized support services and healthcare
in a non-institutional setting designed to address the individual needs of the
elderly who need regular assistance with certain activities of daily living.
The assisted living industry is highly fragmented and characterized by
numerous small operators whose scope of services vary widely from small "board
and care" facilities (generally 12 or fewer residents) with little or no
services to large facilities offering a full array of personal care services. In
comparison to the nursing home and other healthcare industries, the assisted
living industry is currently subject to little government regulation. The
Company expects government regulation to increase, however, as more assisted
living facilities begin to expand the type and amount of healthcare services
they offer and states continue to expand Medicaid funding of assisted living as
a cost-effective alternative to skilled nursing facilities. The Company believes
that because of increased governmental regulation of the industry, a
transformation of the industry from housing and personal care services to more
healthcare-oriented services, cost containment pressures, the growth of
healthcare networks and the inexperience and limited capital resources of many
operators, the highly-fragmented assisted living industry will consolidate in
the near future. According to the U.S. Health Care Financing Administration,
annual expenditures for assisted living services were estimated to be
approximately $10 to $12 billion in 1995. Private pay services account for the
majority of payments; however, in some states, Medicaid funds are available for
assisted living, although no funding is currently available from the federal
Medicare program.
The Company believes that assisted living is one of the fastest growing
segments of elder care, benefiting from the following significant trends:
Aging Population. The Company's target market, comprised of seniors
aged 75 and older, is one of the fastest growing segments of the U.S.
population. According to the U.S. Bureau of the Census, this population is
expected to increase 28% from approximately 13 million in 1990 to
approximately 17 million by 2000, as compared to the total U.S. population,
which is expected to increase by approximately 11% during the same period.
According to the U.S. General Accounting Office, in 1993 more than 7 million
people in the U.S. needed assistance with activities of daily living, and
this number is expected to double by 2020. It is further estimated that
approximately 57% of the population of seniors over the age of 85 need
assistance with activities of daily living and more than one-half of such
seniors develop Alzheimer's disease or other forms of dementia.
Increasing Financial Net Worth. As the ratio of elderly in need of
assistance has increased, so too has the number of elderly able to afford
assisted living. According to U.S. Bureau of the Census data, the median net
worth of families in which the head of the family is age 75 or older has
increased from $55,178 in 1984 to $61,491 in 1988 to $76,541 in 1991.
Changing Family Role. Historically, the family has been the primary
provider of care to the elderly. The Company believes, however, that the
increased percentage of women in the workforce, the growing number of two
income families and the increased mobility of society are reducing the
family's role as the traditional caregiver for the elderly, which will make
it necessary for many of the elderly to look outside the family for
assistance as they age.
Consumer Preference. The Company believes that assisted living is
increasingly becoming the setting preferred by prospective residents and
their families in which to care for the elderly. Assisted living offers
residents greater independence and allows them to "age in place" in a
residential setting, which the Company believes results in a higher quality
of life than that experienced in more institutional or clinical settings,
such as skilled nursing facilities.
Cost-Containment Pressures. In response to rapidly rising healthcare
costs, both governmental and private-pay sources have adopted
cost-containment measures that have reduced admissions and encouraged reduced
lengths of stays in hospitals and skilled nursing facilities. As a result,
hospitals are discharging patients earlier and referring seniors to skilled
nursing facilities where the cost of
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providing care is lower, and skilled nursing facility operators continue to
focus on expanding services to higher acuity patients. As a result, the
supply of skilled nursing facility beds is increasingly being filled by
patients with higher acuity needs paying higher fees, leaving little excess
capacity for seniors needing a lower level of care. The Company believes that
this trend creates a significant opportunity for assisted living facilities,
as states, as well as long-term care insurance companies and managed care
companies, are increasingly focusing on assisted living as a cost-effective
alternative to skilled nursing facilities. Based on industry data, the
average cost for assisted living facilities is approximately $24,000 per year
as compared to an average cost of approximately $35,000 per year for skilled
nursing facilities.
BUSINESS STRATEGY
The Company's objective is to expand its operations to become a leading
provider of high-quality, affordable assisted living services. Key elements of
the Company's strategy to achieve this goal are to:
Provide High-Quality, Healthcare-Oriented Services. In addition to
providing a broad range of assistance with the activities of daily living and
offering special care programs to residents suffering from Alzheimer's
disease or other forms of dementia, the Company focuses on meeting the
healthcare needs of its residents to the maximum extent permitted by law,
thereby enabling its residents to age in place. As a result, residents are
generally able to remain at ILC facilities until they develop medical
conditions requiring institutional care available only in a skilled nursing
facility or an acute care hospital. Where allowed by law, the Company's
assisted living facilities offer care to residents who are incontinent, mild
to moderately confused, convalescing, nonambulatory, diabetic, oxygen
dependent or similarly dependent. All of the Company's assisted living
facilities (excluding its senior housing and congregate care facilities)
employ licensed nurses. The Company ensures that all its facilities are
appropriately staffed to provide its residents with high-quality personalized
care and services.
Grow Rapidly Through Development, Acquisition and Facility Expansion.
The Company intends to pursue rapid growth over the next three years to
benefit from the anticipated increased market demand for assisted living
services and the expected industry consolidation. The Company intends to
acquire, develop or obtain agreements to manage approximately 60 to 75
assisted living facilities per year in each of the next three years. The
Company is currently developing 35 assisted living facilities, of which 25
are scheduled to open in 1997. Management has extensive contacts in the
senior housing and healthcare industries, and the Company is frequently
presented with opportunities to acquire, develop or manage assisted living
facilities. The Company expects that industry consolidation will result in
increased future acquisition opportunities. In addition, as demand increases
in its existing markets, the Company plans to grow by expanding the capacity
of existing buildings.
Utilize Flexible, Cost-Effective Development Approach. The Company
believes that its development approach will allow it to quickly and
cost-effectively develop new assisted living facilities. The Company intends
to rely primarily on a limited number of third-party developers, rather than
maintain a large internal development staff, to develop assisted living
facilities. The Company currently has relationships with three developers,
with which the Company has developed three flexible and expandable prototype
building designs: a 35 unit/40 bed pure assisted living facility, a 40
unit/40 bed pure Alzheimer's facility and an 80 unit/92 bed combination
assisted living/Alzheimer's facility. Flexibility, which will allow the
Company to respond to changing utilization patterns and service needs, and
expandability, which will allow the Company to cost-effectively respond to
increased market demand, are key features of the prototype designs. The
Company believes the use of prototype designs and a small number of
developers will offer many advantages to the development process, including
better construction quality control, lower architectural and engineering
fees, bulk purchasing of materials and fixtures at a lower cost, and faster
development and construction schedules.
Target Broad Segment of Private-Pay Population. The Company's target
markets are generally second or third tier cities or suburbs of major cities.
The target population in these markets is private-pay seniors over the age of
75 with annual incomes of at least $25,000. This mass-market
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approach enables the Company to evaluate a multitude of markets and be
selective in acquiring and developing properties. The Company believes this
approach allows it to appeal to the largest segment of the elderly
population, the middle to upper-middle income group. The Company believes
that by targeting this population segment, it will be well-positioned to
achieve and sustain high occupancy rates.
DEVELOPMENT AND ACQUISITION
The Company targets areas where there is a need for assisted living
facilities based on demographics and market studies. In selecting geographic
markets for potential expansion, the Company utilizes individual market studies
which consider such factors as population, income levels, economic climate and
competitive environment. The Company generally seeks to select assisted-living
facility locations that (a) are second or third tier cities or suburbs of major
cities, (b) have residents who generally enjoy mid-level incomes compared to
incomes generally realized in the region, (c) have a regulatory climate that the
Company considers favorable toward development and (d) are established and
economically stable compared to newer, faster-growing areas. The Company has
found that locations with these characteristics generally have a receptive
population of seniors who desire and can afford the services offered in the
Company's assisted living facilities.
Development. The Company currently expects to open approximately 25 to 35
newly developed assisted living facilities per year in each of the next three
years. The Company is currently pursuing the development of 35 new assisted
living facilities, of which 25 are scheduled to open in 1997. The Company
intends to rely primarily on a limited number of third-party developers, rather
than maintain a large internal development staff, to develop assisted living
facilities, and currently has relationships with three developers. The Company
maintains control over the entire development process by retaining authority for
site selection, prototype design, pricing, development and construction
schedules, and quality of workmanship. See "-- Properties -- Development."
The principal stages in the development process are (i) site selection and
contract signing, (ii) zoning and site plan approval, (iii) architectural
planning and design and (iv) construction and licensure. Once a market has been
identified, site selection and contract signing typically take three months.
Zoning and site plan approval generally take one to three months. The Company
anticipates that facility construction will generally take six to nine months.
The Company's use of prototype facilities facilitates architectural planning and
design. After a facility receives a certificate of occupancy and appropriate
licenses, residents usually begin to move in immediately. The Company's
experience indicates that new facilities typically reach a stable level of
occupancy of over 90% within six to 12 months of opening, but there can be no
assurance that these results will be achieved in new facilities. The Company
anticipates that the total capitalized cost to develop, construct and open a
prototype facility, including land acquisition and construction costs, will be
approximately $72,000 per unit, although the cost of any particular facility may
vary considerably based on a variety of site-specific factors. See "Risk Factors
- -- Limited Development Experience; Development Delays and Cost Overruns."
The Company is presented with land sites by independent brokers, developers,
healthcare organizations and financial institutions. The third-party developers
with which the Company has relationships are also utilized to locate suitable
sites in selected regions of the country. If a site meets the Company's general
market criteria, then the Company will order a preliminary market study by an
independent third party. If the market study indicates that the site meets its
geographic selection criteria, the Company will then conduct a more in-depth
analysis of the market, in conjunction with developers, to ensure there is a
demonstrated need for assisted living services and that the site is appropriate
in terms of location, size and zoning. If the market and site meet all of the
Company's selection criteria, the property is purchased for development.
The Company has, together with its developers, developed three flexible and
expandable prototype building designs: a 35 unit/40 bed pure assisted living
facility, a 40 unit/40 bed pure Alzheimer's facility and an 80 unit/92 bed
combination assisted living/Alzheimer's facility. Flexibility, which will allow
the Company to respond to changing utilization patterns and service needs, and
expandability, which will allow the Company to cost-effectively respond to
increased market demand, are key features of the
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prototype design. The flexibility feature allows the facility to quickly and
cost effectively reconfigure its assisted living and Alzheimer's bed allotment
based on changing market demand. The expandability feature allows the prototype
buildings to be easily and cost-effectively expanded with little or no
disruption to current operations. Facility expansion is often more
cost-effective than constructing or acquiring a new facility because of lower
incremental capital, operating and fixed costs. The Company believes that the
use of a small number of developers working with prototype designs will allow
the Company to: (a) save time and money on architectural and engineering work,
because only minor modifications will be required at each location to site adapt
the prototype; (b) ensure better construction quality control, because the
Company's third-party developers will gain experience by constructing the same
facility design, rather than a different facility design, at each site; and (c)
save time and money with bulk purchasing of materials and fixtures at a lower
cost, because each facility will, for example, utilize the same kitchen
equipment and windows. In addition, once a development site is identified, the
Company will be able to move quickly to obtain zoning approvals, since only
limited architectural and engineering work will be required. All of these
factors should contribute to faster and cost-effective development and
construction schedules. See "-- Business Strategy."
Acquisition. The Company has entered into definitive agreements to acquire
two additional assisted living facilities, one of which will be sold to, and
leased back from, HCPI. The Company anticipates that this transaction will be
consummated in August 1996. The second facility is expected to be acquired
simultaneous with the closing of this offering. The Company seeks to acquire
individual or groups of assisted living facilities from smaller owners and
operators in its targeted markets. In evaluating possible acquisitions, the
Company considers (i) the location, construction quality, condition and design
of the facility, (ii) the ability to expand the facility, (iii) the current and
projected cash flow of the facility and the anticipated ability to increase
revenue through rent and occupancy increases and additional assisted living
services and (iv) the ability to acquire the facility below replacement cost.
The Company's management has extensive contacts in the senior housing and
healthcare industries, and the Company is frequently presented with
opportunities to acquire, develop or manage assisted living facilities. In
addition, the Company believes that consolidation in the assisted living
industry will offer substantial opportunities to acquire assisted living
facilities or other facilities that can be repositioned as assisted living
facilities. See "Risk Factors -- Difficulties of Integrating Acquisitions" and
"-- Uncertainty of the Proposed Acquisitions; Difficulties of Integrating the
Proposed Acquisitions."
Although the Company intends to focus its efforts primarily on the
development and acquisition, directly or through long-term operating leases, of
additional assisted living facilities, it may in certain cases also target
additional third-party management contracts as an interim step to acquisition of
facilities. Under a typical management agreement, the Company receives a
percentage of the gross operating revenues of the facility and has a right of
first refusal to acquire the facility. See "-- Properties -- Management
Agreements."
SERVICES
The Company's assisted living facilities offer residents a supportive,
"home-like" setting and assistance with activities of daily living. Residents of
the Company's facilities are typically unable to live alone, but do not require
the 24-hour nursing care provided in skilled nursing facilities. Services
provided to the Company's residents are designed to respond to their individual
needs and to improve their quality of life, are available 24 hours a day to meet
resident needs, and generally include three meals per day, housekeeping and
groundskeeping and building maintenance services. Available support services
include nursing care and health-related services, social and recreational
services, transportation and special services (such as banking and shopping).
Personal services include bathing, dressing, personal hygiene, grooming,
ambulating and eating assistance. Health-related services, which are made
available and provided according to the resident's individual needs and in
accordance with state regulatory requirements, may include assistance with
taking medication, skin care and injections, as well as healthcare monitoring.
By providing programs that are designed to offer residents a range of service
options as their needs change, the Company seeks to achieve greater continuity
of care, enabling seniors to age in place and thereby maintain their residency
for a longer time period.
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Clinical Assessment. Each resident is clinically assessed upon admission to
determine his/her health status including functional abilities, need for
personal care services and assistance with the activities of daily living
(ADL's) as well as likes and dislikes. The goal of the clinical assessment is to
determine the care needs of residents as well as their lifestyle preferences. A
current physician's report is also utilized to further ascertain the health
status and needs of the resident. From these assessments a plan of care is
developed for each resident to help ensure that all staff who render care and
services meet the specific needs and preferences of each resident. Residents are
reassessed periodically and when there is a significant change in a resident's
condition to be sure the care plan reflects their current needs. The care plan,
as the document which reflects the needs of the resident, is the basis for
determining the monthly charges for care and services.
Healthcare Services. The Company fosters wellness by offering health
screenings such as blood pressure checks, periodic special services such as
influenza inoculations, chronic disease management (such as diabetes with its
attendant blood glucose monitoring), dietary and similar programs as well as
ongoing exercise and fitness classes. Classes are given by healthcare
professionals to keep residents informed about disease management.
Regulations differ by state regarding the type of care that can be rendered
as well as the personnel allowed to provide such care. The Company utilizes
licensed nurses, certified and/or trained staff to meet the healthcare needs of
its residents. Staff administer or assist with medications, observe and
intervene as the health status of residents change, and provide assistance and
care to enable residents to perform the activities of daily living: dressing,
bathing, grooming, toileting, ambulating and the like. Residents who are
incontinent, mild to moderately confused, convalescing, nonambulatory, diabetic,
oxygen dependent or similarly dependent are cared for where allowed by law.
Hospice care is offered in many of the Company's facilities, as are special
programs such as post-plastic surgery recuperation, stroke recovery and
intensive rehabilitation. Dietary programs, nutritional support and special
retraining programs are also offered by the Company.
The Company's facilities provide rehabilitation services, including physical
therapy, speech and language pathology and occupational therapy, audiology,
pharmacy and physician services, as well as podiatry, dentistry and other
professional services. These specialized healthcare services are generally
provided to the residents by third-party providers, who are reimbursed by the
resident or a third-party payor (such as Medicare or Medicaid) or, in certain
cases, by the staff of the facility where permitted by state law. The Company's
facilities also provide transportation services for residents to visit
physicians and other professionals in the surrounding areas.
Alzheimer's and Dementia Care. Certain of the Company's facilities contain a
special unit to service the needs of residents with Alzheimer's disease,
dementia and other cognitive impairments. These special needs units are located
in a separate area of the facility and have their own dining facilities,
resident lounge areas and specially trained staff. This physical separation of
the special needs unit enables residents to receive the specialized care they
require with a minimum of disruption to other residents. The areas are designed
to allow residents the freedom to ambulate as they wish while keeping them
safely contained within an alarmed area. Programming for a minimum of 12 hours
per day keeps these special need residents channeled into meaningful activity.
Special nutritional programs are used to help assure caloric intake is
maintained in residents whose constant movement increases their caloric
expenditure. Family support groups meet regularly with the families of these
residents.
Adult Day Care. Some of the Company's facilities offer adult day care
services for the mentally and/or physically frail. The services are offered up
to six days per week, 12 hours per day. Many of the day care attendees
eventually become permanent residents at the facility. Residents spend the day
engaged in meaningful activities and socialize with other residents and staff.
Healthcare needs are monitored by staff and medication assistance is available.
Assistance with activities of daily living, as well as meals and nutritious
snacks, are also provided. Day care offers families the ability to continue
employment despite caregiving responsibilities and also offers residents an
opportunity to leave their home and interact with their peers.
Respite Care. The Company's facilities accept residents for short term
placement (several days to several months) to accommodate their or their
family's need for placement, either while the family is on
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vacation or is otherwise absent or because the resident cannot stay alone while
convalescing from illness or injury. Many residents are frequent returnees and
often eventually become permanent residents at the facility.
OPERATIONS
The Company offers a broad range of assisted living services and an
environment in which residents can age in place in an effort to retain residents
over longer periods as they become increasingly frail. The Company continually
assesses and monitors the health needs and desires of its residents and
periodically adjusts the level and frequency of care and services provided to
such residents to meet their increasing needs. The Company's multi-tiered rate
structure for the services it provides is based upon the acuity level of, or
level of services needed by, each resident. Specialized healthcare services for
those residents requiring 24-hour supervision or more extensive assistance with
activities of daily living is provided to the residents by third-party
providers, who are reimbursed by the resident or a third-party payor (such as
Medicare or Medicaid) or, in certain cases, by the staff of the facility where
permitted by state law. In order to meet the evolving needs of its residents as
they age in place, the Company expects to continually expand the range of care
and services offered at its residences. In the future, the Company may elect to
provide these services directly using its own skilled employees. In the event
that a resident's acuity reaches a level such that the Company is unable to meet
such resident's needs, the Company maintains relationships with local hospitals
and skilled nursing facilities to facilitate a transfer of the resident.
Marketing. The Company's marketing strategy is designed to integrate its
assisted living facilities into the continuum of healthcare providers in the
geographic markets in which it operates. Thus, the Company seeks to establish
relationships with local hospitals (including through joint marketing efforts,
where appropriate) and home healthcare agencies, alliances with visiting nurse
associations and, on a more limited basis, priority transfer agreements with
local skilled nursing facilities. The Company believes this marketing strategy
benefits its residents as well as strengthens and expands the Company's network
of referral sources.
The Company begins premarketing its facilities up to six months in advance of
opening so that, by the time the facility opens, referral sources, including
professionals in the community, hospitals and physicians, will be well
familiarized with the care and services provided. Age and income qualified
seniors are recipients of target marketing efforts as are their children. The
Company's goal is to open a new facility with a substantial number of residents
ready to move in. After opening, the Company continues its marketing efforts to
attain and then maintain full occupancy.
The Company seeks to position its facilities as the "senior resource center"
in each of its markets; thus when the public thinks of care and/or services for
the elderly they think of the ILC facility. Each facility offers its physical
plant for classes, meetings, social events, etc., to the surrounding city in
order to foster interdependence. The Company also intends to focus on selling
the care and services component of its facilities to those seniors who live in
the surrounding area.
Staffing. The Company ensures that all its facilities are appropriately
staffed with well-trained professionals to provide its residents with
high-quality personalized care and services. The day-to-day operations of each
facility, including quality of care and financial performance, are overseen by
an Executive Director trained in the Company's operating philosophy, policies
and procedures. A Healthcare Coordinator, who is a licensed nurse, oversees the
day-to-day care of residents and employees providing services to residents.
Other key facility employees include a Director of Dining Services, Activities
Director, Maintenance Director and Marketing Director.
Administration. The Company's corporate structure has been designed to
provide appropriate levels of support to, and oversight of, the operating
facilities. The Company's philosophy is to allow the facility administrators
enough autonomy and flexibility to expeditiously adjust operations to meet the
needs of local and changing market conditions while at the same time holding
them accountable to established quality and financial performance criteria.
In anticipation of its rapid development plans, the Company has made a
significant investment in recruiting and developing a management team with
extensive experience in the post-acute care, sub-acute care, long-term care and
assisted living industries. The Company believes that the depth and
39
<PAGE>
experience of its management team positions the Company to effectively manage
its growth plans and the increasing government regulation of assisted living
facilities which the Company anticipates. Additionally, the Company is
developing its infrastructure to manage its anticipated growth. Key
infrastructure components include standardized policies and procedures, computer
systems, management information systems, staff training and education programs
and staff recruitment and retention systems. See "Management."
The Company employs an integrated structure of management and financial
systems and controls in order to contain costs and maximize operating
efficiency. The Company provides management support services to each of its
residential facilities, including establishment of operating standards,
recruiting, training and financial and accounting services. IHS has agreed to
provide resident billing, occupancy, accounts payable and payroll information
services to the Company until the Company has relocated to Florida and
implemented its own MIS and accounting systems, which the Company anticipates
will occur in the fourth quarter of 1996. See "Certain Transactions." In
addition, the Company believes it can benefit from economies of scale by
centralizing certain functions such as purchases of supplies and equipment,
employee training and certain sales and marketing activities. The Company has
established reporting and monitoring systems which allow early detection of
deviations to allow rapid correction.
Service Revenue Sources. The Company currently and for the foreseeable future
expects to rely primarily on its residents' ability to pay the Company's charges
from their own or familial resources. Although care in an assisted living
facility is typically less expensive than in a skilled nursing facility, the
Company believes generally only seniors with income or assets meeting or
exceeding the regional median will be able to afford to reside in the Company's
facilities. Inflation or other circumstances that adversely affect seniors'
ability to pay for services such as those provided by the Company could have an
adverse effect on the Company's business or operations. Furthermore, the federal
government does not currently provide any reimbursement for the type of assisted
living services provided by the Company. Although some states have reimbursement
programs in place, in many cases the level of reimbursement is insufficient to
cover the costs of delivering the level of care that the Company currently
provides. Except for the Treyton Oak Towers' assisted living facility managed by
the Company (which is 77% private pay), all of the revenues from the Company's
remaining assisted living facilities were derived from private-pay sources.
There can be no assurance, however, that the Company will continue its
private-pay mix or that it will not in the future become more dependent on
governmental reimbursement programs.
PROPERTIES
Existing Facilities. The Company currently operates 18 assisted living
facilities in seven states, containing 1,777 units. Six of the facilities are
owned, four are leased and the remaining eight are managed. The Company's
existing facilities consist of assisted living facilities, continuing care
retirement communities, congregate care facilities and senior housing. Several
of the Company's facilities have specially designed wings for residents with
Alzheimer's disease, and several offer adult day care services. The Company
believes that the physical configuration of its facilities, combined with its
level of service, contributes to resident satisfaction and allows seniors
residing at the Company's facilities to maintain an appropriate level of
autonomy.
40
<PAGE>
The table below summarizes certain information regarding the Company's
existing facilities:
<TABLE>
<CAPTION>
OPERATIONS SERVICES
FACILITY LOCATION COMMENCED(1) UNITS(2) BEDS(3) OFFERED(4) STATUS
-------- -------- ----------------------------- ---------- ------
CALIFORNIA
- ----------
<S> <C> <C> <C> <C> <C> <C>
Beth Avot Santa Monica 8/95 34 34 ALZ,AL Managed
Carrington Pointe Fresno 5/90 172 181 C,AL Owned
Claremont Senior Apts. Clovis 2/94 72 120 SH Managed
Claremont II. Clovis 10/95 72 120 SH Managed
Elim Place Sangar 2/96 24 49 AL,ALZ Managed
Hallmark -- Bakersfield Bakersfield 1/93 51 52 AL Managed
Hallmark -- Palm Springs Palm Springs 1/93 46 47 AL Managed
Villa Alamar Santa Barbara 11/95 30 31 ALZ,AL Managed
COLORADO
- --------
Cheyenne Place Retirement Colorado Springs 9/94 95 106 C Leased
FLORIDA
- --------
Waterside Retirement Estates Sarasota 12/93 164 201 CCRC Owned
The Shores(5) Bradenton 9/94 260 287 CCRC,ALZ Leased
West Palm Beach Retirement((6)) West Palm Beach 12/93 34 38 AL Owned
KANSAS
- -------
Homestead of Garden City Garden City 7/96 35 46 AL Leased
Homestead of Wichita Wichita 7/96 35 46 AL Leased
KENTUCKY
- ---------
Treyton Oak Towers(7) Louisville 3/93 267 290 CCRC Managed
MARYLAND
- --------
The Homestead(8) Denton 12/92 50 50 AL,ADC(42) Owned
TEXAS
- -----
Treemont Retirement CCRC,ALZ,
Community(6) Dallas 2/89 231 251 ADC(25) Owned
Vintage Retirement
Community(6)(9) Denton 4/95 105 111 C,AL Owned
- ---------------
<FN>
(1) Represents date operations commenced by IHS for facilities operated prior
to November 1995. See "Company History."
(2) A unit is a single- or double-occupancy residential living space,
typically an apartment or studio.
(3) "Beds" reflects the actual number of beds, which in no event is greater
than the maximum number of licensed beds allowed under the facility's
license.
(4) ADC = Adult Day Care; AL = Assisted Living; ALZ = Alzheimer's/Dementia
Care; C = Congregate; CCRC = Continuing Care Retirement Community; and SH
= Senior Housing. Number of residents served in Adult Day Care is listed
next to ADC.
o Assisted Living Facilities are typically designed for the frail
and/or cognitively impaired elderly, with staff personnel and programs
that assist residents with personalized support services. Meals are served
in a central dining room, and staff personnel provide limited medical
services, such as medication administration and physical rehabilitation.
o Continuing Care Retirement Communities are retirement complexes
providing a full continuum of care on a single campus, including
congregate care units for those residents still able to adequately care
for themselves, assisted living facilities for those residents requiring
assistance with activities of daily living, and skilled nursing units for
residents who require full-time nursing care or supervision.
o Congregate Care Facilities are typically similar to senior housing,
except they generally provide meals in a common dining room, housekeeping,
laundry, transportation and emergency response. Medical care is provided
by third-party providers as required.
o Senior Housing is typically a multifamily complex catering to senior
citizens. These facilities typically offer limited services, such as
transportation and security, and arrange for healthcare services as
required.
See "--Services."
(5) Includes 21 skilled nursing beds.
(6) The Company owns a condominium interest in the assisted living and related
services portion of this facility; the remaining condominium interest in
the facility, which consists of a skilled nursing facility, is owned by
IHS. The Company is prohibited from including a segregated and secured
Alzheimer's ward in its portion of these facilities. IHS provides certain
services to these facilities. The Company cannot transfer its condominium
interest without the prior consent of IHS. The IHS facility in which the
Treemont facility is located is subject to a mortgage. Should IHS default
on its obligations under the mortgage, the lender could foreclose on the
mortgage, which could materially adversely affect the Company's business,
results of operations and financial condition. See "Certain Transactions."
(7) Includes 60 skilled nursing beds.
(8) IHS managed the facility from December 1992 until its purchase by IHS in
March 1994.
(9) IHS managed the facility from April 1995 until its purchase by IHS in
January 1996.
</FN>
</TABLE>
41
<PAGE>
Management Agreements. The Company currently manages eight assisted living
facilities with an aggregate of 621 units. The Company is responsible for
providing all personnel, marketing, nursing, resident care and dietary services,
accounting and data processing reports and services for these facilities at the
facility owner's expense. The facility owner is also obligated to pay for all
required capital expenditures. The Company manages these facilities in the same
manner as the facilities it owns or leases, and provides the same assisted
living services as are provided in its owned or leased facilities.
The Company receives a management fee for its services which generally ranges
from 4% to 5% of gross revenues of the assisted living facility. Certain
management agreements also provide the Company with an incentive fee based on
the amount of the facility's operating income that exceeds a target. The
management agreements generally have an initial term of one to five years, with
the right to renew under certain circumstances. The management agreements expire
at various times between October 1996 and November 2000, although all can be
terminated earlier under certain circumstances. Certain of the management
agreement's provide the Company with a right of first refusal in respect of the
sale of each managed facility. The Company believes that management agreements
are a cost-effective way to test new markets without having to make the capital
outlay necessary to acquire or develop a facility.
Proposed Acquisitions. The Company has entered into definitive agreements to
acquire ownership of one assisted living facility and a leasehold interest in
one assisted living facility. The table below summarizes certain information
regarding the Proposed Acquisitions. There can be no assurance that these
acquisitions will close as scheduled or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
SERVICES
FACILITY LOCATION OFFERED(1) UNITS(2) BEDS(3) STATUS
-------- -------- --------------------------- ------
FLORIDA
- --------
Cabot Pointe Bradenton AL, ALZ 35 56 Lease(4)
KANSAS
- -------
Terrace Gardens Wichita AL, SH 258 342 Own(5)
(1) AL = Assisted Living; ALZ = Alzheimer's/Dementia Care; and SH = Senior
Housing. See "-- Services."
(2) A unit is a single- or double-occupancy residential living space,
typically an apartment or studio.
(3) "Beds" reflects the actual number of beds, which in no event is greater
than the maximum number of licensed beds allowed under the facility's
license.
(4) The Company expects to acquire this facility in August 1996 for a purchase
price of $2,700,000 with funds borrowed from IHS and thereafter to sell
the facility to, and leaseback the facility from, HCPI. The proceeds from
the sale/leaseback financing will be used to repay the loan from IHS.
There can be no assurance that the sale/leaseback financing will be
consummated.
(5) Purchase price of $12,200,000. This acquisition is expected to close
simultaneous with the closing of this offering. This facility includes a
100-bed nursing facility.
Development. The Company intends to develop assisted living facilities
generally ranging in size from 32 to 80 units, consisting of an aggregate of
approximately 23,000 to 54,000 square feet, which are located on sites typically
ranging from 2.5 to 5 acres. Unit size is expected to range from 325 to 500
square feet. The Company estimates that the development cost of most of its
assisted living facilities will generally range from approximately $68,000 to
$75,000 per unit, depending on local variations in land and construction costs,
with an overall average development cost of approximately $72,000 per unit. The
Company estimates that it will require approximately six months from the date of
land acquisition to develop its 40 unit facilities and approximately nine months
from the date of land acquisition to develop its 80 unit facilities. The Company
owns two development sites and has acquired options to purchase 35 development
sites for an aggregate of $9.0 million. The Company is currently pursuing the
development of assisted living facilities on each of these sites, of which 25
are scheduled to open in 1997. Because, however, of uncertainties associated
with development of assisted living facilities, including zoning and other
governmental limitations, there can be no assurance that the Company will be
successful in meeting scheduled opening dates for these facilities. See "Risk
Factors -- Limited Development Experience; Development Delays and Cost
Overruns."
42
<PAGE>
The table below summarizes certain information regarding the facilities
currently under development:
SCHEDULED SERVICES FACILITY
LOCATION OPENING UNITS(1) BEDS(2) OFFERED(3) STATUS(4)
-----------------------------------------------------------------
CALIFORNIA(5)
- --------------
Bakersfield Q1/97 120 120 SH Z
Escondido Q4/97 80 92 AL,ALZ Z
Hemet Q1/98 40 40 ALZ D
Merced Q1/98 40 40 ALZ D
Oceanside Q1/98 80 92 AL,ALZ D
San Bernadino Q4/97 80 92 AL,ALZ Z
Yorba Linda Q4/97 80 92 AL,ALZ Z
COLORADO(5)
- -----------
Colorado Springs Q1/98 80 92 AL,ALZ D
ILLINOIS(6)
- -----------
Barrington Q1/98 80 92 AL, ALZ D
KANSAS(6)
- ---------
Great Bend Q3/97 35 40 AL Z
Hutchinson Q4/97 35 40 AL Z
Leavenworth Q1/97 35 40 AL Z
Manhattan Q1/97 35 40 AL Z
LOUISIANA(5)
- ------------
Alexandria Q2/97 80 92 AL,ALZ D
Baton Rouge Q2/97 80 92 AL,ALZ Z
Baton Rouge Q3/97 80 92 AL,ALZ Z
Bossier City Q3/97 80 92 AL,ALZ Z
Lafayette Q3/97 80 92 AL,ALZ Z
NEBRASKA(6)
- -----------
Columbus Q4/97 35 40 AL Z
Freemont Q2/97 35 40 AL Z
Grand Island Q2/97 35 40 AL Z
Hastings Q3/97 35 40 AL Z
Kearney Q2/97 35 40 AL Z
Norfolk Q2/97 35 40 AL Z
TEXAS(5)
- --------
Bedford/Colleyville Q1/98 40 40 ALZ D
Dallas Q1/98 80 92 AL,ALZ D
Ft. Worth Q1/98 80 92 AL,ALZ D
Grand Prairie Q3/97 80 92 AL,ALZ Z
Henderson Q2/97 40 40 ALZ Z
New Braunfels Q1/98 80 92 AL,ALZ D
Plano Q4/97 80 92 AL,ALZ D
San Antonio Q1/98 80 92 AL,ALZ D
San Antonio Q2/97 80 92 AL,ALZ Z
San Antonio Q4/97 40 40 ALZ D
Southlake Q3/97 80 92 AL,ALZ D
- ----------------
(1) A unit is a single- or double-occupancy residential living space,
typically an apartment or studio.
(2) "Beds" reflects the actual number of beds, which in no event is greater
than the maximum number of licensed beds allowed under the facility's
license.
(3) AL = Assisted Living; ALZ = Alzheimer's/Dementia Care; and SH = Senior
Housing. See "-- Services."
(4) "Development" means that development activities, such as site surveys,
preparation of architectural plans or initiation of zoning changes, have
commenced (but construction has not commenced). "Construction" means that
construction activities,
43
<PAGE>
such as ground-breaking activities, exterior construction or interior
build-out, have commenced. "Zoning" means that the zoning process has been
completed or is not applicable.
(5) The Company expects to finance these developments through sale/leaseback
or mortgage financing.
(6) The Company expects to lease these facilities from the developer.
The Company currently has relationships with three developers relating to 32
of the 35 assisted living facilities currently under development. Two of these
developers are developing, in the aggregate, 26 facilities on a turn-key basis,
of which 21 facilities are scheduled to open in 1997. Pursuant to the terms of
the arrangements, the developer will provide all necessary site procurement,
design, construction, construction oversight and licensure services. The Company
intends to finance the 16 facilities being developed by one developer, of which
11 are scheduled to open in 1997, through sale/leaseback arrangements with
several real estate investment trusts or mortgage financing. The Company will
pay this developer a fixed percentage of the building cost. The Company will
lease the ten facilities being developed by the other developer, all of which
are scheduled to open in 1997, pursuant to ten year leases with three five-year
renewal options, and the right to purchase each facility at five year intervals
for a purchase price equal to the greater of its then fair market value or $2.1
million. The Company will make non-refundable purchase option deposits of
$100,000 per facility, and has provided the developer with a $1,000,000 working
capital line of credit that is due on demand and secured by the developer's
interest in all documentation, permits, licenses and the land sites. The Company
has engaged a third developer to provide site selection, zoning, permitting and
site adaptation services for six facilities, for which it will receive a fixed
percentage of the building cost. The Company has provided the president of this
developer with a $1,000,000 working capital line of credit that is due on demand
and secured by the developer's interest in all documentation, permits and
licenses and land contracts relating to the developments it is overseeing on
behalf of the Company. The Company has contracted with one of its other
developers to provide design, construction, construction oversight and licensure
services for these facilities. The Company intends to finance these facilities
through sale/leaseback arrangements with real estate investment trusts or with
mortgage financing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The Company expects that the average construction time for a typical assisted
living facility will be approximately six to nine months, depending on the
number of units. Once a site is developed, the Company estimates that it will
take approximately six to 12 months for the assisted living facility to achieve
a stabilized level of occupancy.
COMPETITION
The senior housing and healthcare industries are highly competitive and the
Company expects that the assisted living business in particular will become more
competitive in the future. The Company will continue to face competition from
numerous local, regional and national providers of assisted living and long-term
care whose facilities and services are on either end of the senior care
continuum. The Company will compete with such facilities primarily on the bases
of cost, quality of care, array of services provided and physician referrals.
The Company will also compete with companies providing home based healthcare,
and even family members, based on those factors as well as the reputation,
geographic location, physical appearance of facilities and family preferences.
Some of the Company's competitors operate on a not-for-profit basis or as
charitable organizations, while others have, or may obtain, greater financial
resources than those of the Company. However, the Company anticipates that its
most significant competition will come from other assisted living facilities
within the same geographic area as the Company's facilities because management's
experience indicates that senior citizens frequently elect to move into
facilities near their homes.
Moreover, in the implementation of the Company's expansion program, the
Company expects to face competition for the acquisition and development of
assisted living facilities. Some of the Company's current and potential
competitors are significantly larger or have, or may obtain, greater financial
resources than those of the Company. Consequently, there can be no assurance
that the Company will not
44
<PAGE>
encounter increased competition in the future which could limit its ability to
attract residents or expand its business and could have a material adverse
effect on the Company's financial condition, results of operations and
prospects. See "Risk Factors -- Competition."
GOVERNMENTAL REGULATION
The Company's assisted living facilities are subject to varying degrees of
regulation and licensing by local and state health and social service agencies
and other regulatory authorities specific to their location. While regulations
and licensing requirements often vary significantly from state to state, they
typically address, among other things: personnel education, training and
records; facility services, including administration of medication, assistance
with self-administration of medication and limited nursing services; physical
plant specifications; furnishing of resident units; food and housekeeping
services; emergency evacuation plans; and resident rights and responsibilities.
In several states assisted living facilities also require a certificate of need
before the facility can be opened. In most states, assisted living facilities
also are subject to state or local building codes, fire codes and food service
licensure or certification requirements. Like other healthcare facilities,
assisted living facilities are subject to periodic survey or inspection by
governmental authorities. The Company's success will depend in part on its
ability to satisfy such regulations and requirements and to acquire and maintain
any required licenses. The Company's operations could also be adversely affected
by, among other things, regulatory developments such as mandatory increases in
the scope and quality of care afforded residents and revisions in licensing and
certification standards.
Certain states provide for Medicaid reimbursement for assisted living
services pursuant to Medicaid Waiver Programs permitted by the Federal
government. In the event the Company elects to provide services in states with a
Medicaid Waiver Program, the Company may then elect to become certified as a
Medicaid provider in such states. The Company is subject to certain federal and
state laws that regulate relationships among providers of healthcare services.
These laws include the Medicare and Medicaid anti-kickback provisions of the
Social Security Act, which prohibit the payment or receipt of any remuneration
by anyone in return for, or to induce, the referral of patients for items or
services that are paid for, in whole or in part, by Medicare or Medicaid. A
violation of these provisions may result in civil or criminal penalties for
individuals or entities and/or exclusion from participation in the Medicare and
Medicaid programs. The Company intends to comply with all applicable laws,
including the fraud and abuse laws; however, there can be no assurance that
administrative or judicial interpretation of existing laws or regulations will
not in the future have a material adverse impact on the Company's results of
operations or financial condition. See "Risk Factors -- Governmental
Regulation."
The Company's failure to comply with such regulations could jeopardize its
reimbursement payments for any affected residents and could result in fines and
the suspension or failure to renew the Company's operating licenses. These
actions could have a material adverse effect on the Company's business and
operating results and on its ability to develop and acquire properties in the
future. The Company believes that it is currently in compliance with all
material applicable regulations and requirements with respect to its assisted
living facilities.
Twelve of the Company's 81 skilled nursing beds are currently certified to
receive benefits as a skilled nursing facility provided under the Health
Insurance for the Aged and Disabled Act (commonly referred to as "Medicare"),
and substantially all are also certified under programs administered by the
various states using federal and state funds to provide medical assistance to
qualifying needy individuals ("Medicaid"). Both initial and continuing
qualification of a skilled nursing care facility to participate in such programs
depend upon many factors including, among other things, accommodations,
equipment, services, patient care, safety, personnel, physical environment, and
adequate policies, procedures and controls.
Under the Medicare program, the federal government pays the reasonable direct
and indirect allowable costs (including depreciation and interest) of the
services furnished. Under the various Medicaid programs, the federal government
supplements funds provided by the participating states for medical assistance to
qualifying needy individuals. The programs are administered by the applicable
state welfare or social service agencies. Although Medicaid programs vary from
state to state, typically they provide
45
<PAGE>
for the payment of certain expenses, up to established limits. Funds received by
the Company under Medicare and Medicaid are subject to audit with respect to the
proper preparation of annual cost reports upon which reimbursement is based.
Such audits can result in retroactive adjustments of revenue from these
programs, resulting in either amounts due to the government agency from the
Company or amounts due the Company from the government agency.
Both the Medicare and Medicaid programs are subject to statutory and
regulatory changes, administrative rulings, interpretations of policy
determinations by insurance companies acting as Medicare fiscal intermediaries
and governmental funding restrictions, all of which may materially increase or
decrease the rate of program payments to healthcare facilities. Since 1985,
Congress has consistently attempted to limited the growth of federal spending
under the Medicare and Medicaid programs. In addition, a number of healthcare
reform proposals have been introduced in Congress in recent years. It is not
clear at this time what proposals, if any, will be adopted or, if adopted, what
effect such proposals would have on the Company's business. The Company can give
no assurance that payments under such programs will in the future remain at a
level comparable to the present level or be sufficient to cover the operating
and fixed costs allocable to such patients. Changes in reimbursement levels
under Medicare or Medicaid and changes in applicable governmental regulations
could significantly affect the Company's results of operations. It is uncertain
at this time whether legislation on healthcare reform will ultimately be
implemented or whether other changes in the administration or interpretation of
governmental healthcare programs will occur. There can be no assurance that
future healthcare legislation or other changes in the administration or
interpretation of governmental healthcare programs will not have an adverse
effect on the results of operations of the Company. The Company cannot at this
time predict whether any healthcare reform legislation will be adopted or, if
adopted and implemented, what effect, if any, such legislation will have on the
Company.
Under the Americans with Disabilities Act of 1990, all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state and
local laws exist which also may require modifications to existing and planned
properties to create access to the properties by disabled persons. While the
Company believes that its properties are substantially in compliance with
present requirements or are exempt therefrom, if required changes involve a
greater expenditure than anticipated or must be made on a more accelerated basis
than anticipated, additional costs would be incurred by the Company. Further
legislation may impose additional burdens or restrictions with respect to access
by disabled persons, the costs of compliance with which could be substantial.
The Company and its activities are subject to zoning and other state and
local government regulations. Zoning variances or use permits are often required
for construction. Severely restrictive regulations could impair the ability of
the Company to open additional residences at desired locations or could result
in costly delays, which could adversely affect the Company's growth strategy and
results of operations. See "Risk Factors -- Limited Development Experience;
Development Delays and Cost Overruns," "-- Business Strategy" and "--
Development and Acquisition."
EMPLOYEES
As of July 15, 1996, the Company had 482 employees, including 270 full-time
employees, of which 21 were employed at the Company's headquarters. None of the
Company's employees are currently represented by a labor union, and the Company
is not aware of any union-organizing activity among its employees. The Company
believes that its relationship with its employees is good.
Although the Company believes it is able to employ sufficient skilled
personnel to staff the facilities it operates or manages, a shortage of skilled
personnel in any of the geographic areas in which it operates could adversely
affect the Company's ability to recruit and retain qualified employees and
control its operating expenses. See "Risk Factors -- Dependence on Senior
Management and Skilled Personnel" and "-- Staffing and Labor Costs."
46
<PAGE>
EXECUTIVE OFFICES
The Company's executive office is located in Owings Mills, Maryland, where
the Company leases space from IHS. The Company will relocate to Bonita Springs,
Florida in September 1996, where it has leased approximately 20,000 square feet.
LEGAL PROCEEDINGS
The Company is involved in various lawsuits and claims arising in the normal
course of business. In the opinion of management of the Company, although the
outcomes of these suits and claims are uncertain, in the aggregate they should
not have a material adverse effect on the Company's business, financial
condition and results of operations.
47
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C>
Robert N. Elkins, M.D.. 52 Chairman of the Board of Directors
Edward J. Komp........ 42 President, Chief Executive Officer and Director
Kayda A. Johnson...... 48 Senior Vice President -- Chief Operating Officer and
Secretary
John B. Poole......... 44 Senior Vice President -- Chief Financial Officer and
Treasurer
Kyle D. Shatterly .... 35 Senior Vice President -- Acquisitions and
Development
Luis Bared............ 46 Director
Lawrence P. Cirka .... 44 Director
Charles A. Laverty ... 51 Director
Lisa K. Merritt....... 36 Director
</TABLE>
- ------------------
Robert N. Elkins, M.D. became the Chairman of the Board of the Company in
June 1996. Dr. Elkins has been the Chairman of the Board and Chief Executive
Officer of IHS, the selling stockholder in this offering, since March 1986 and
he served as President of IHS from March 1986 to July 1994. From 1980 until
co-founding IHS in 1985, Dr. Elkins was a co-founder and Vice President of
Continental Care Centers, Inc., an owner and operator of long-term healthcare
facilities. From 1976 through 1980, Dr. Elkins was a practicing physician. Dr.
Elkins is a graduate of the University of Pennsylvania, received his M.D. degree
from the Upstate Medical Center, State University of New York, and completed his
residency at Harvard University Medical Center. Dr. Elkins is a director of
Capstone Capital Corporation, Community Care of America, Inc. and UroHealth
Systems, Inc.
Edward J. Komp has served as President and Chief Executive Officer of the
Company since March 1996 and as a director of the Company since June 1996. Prior
to joining the Company, he served as Executive Vice President--Corporate
Operations of IHS from November 1995 to March 1996 and as Senior Vice
President--Managed Operations of IHS from October 1993 to November 1995, where
he had operational responsibility for over 100 assisted living and long-term
care facilities with approximately 13,000 beds nationwide. From 1979 until he
joined IHS, Mr. Komp served in various senior operational and financial
capacities with National Medical Enterprises, Inc., now Tenet Healthcare Corp.
Kayda A. Johnson has served as Senior Vice President--Chief Operating Officer
and Secretary of the Company since March 1996. Prior to joining the Company, she
served as Senior Vice President for Operations of IHS' Retirement Management
Services division from March 1991. Prior to joining IHS, she was Director of
Operations for Forum Group from 1990, and from 1982 to 1990 she was regional
Vice President of Operations for Retirement Corporation of America. Ms. Johnson
is a licensed Nursing Home Administrator and Registered Nurse. She is also a
licensed Preceptor for Nursing Home Administrators and a Certified Residential
Care Administrator. She has served on the faculty of the University of Redlands
for the past 15 years, teaching business and management courses to MBA and BBA
students. She is a member of the Board of Directors of the National Association
for the Senior Living Industries ("NASLI") and serves as NASLI's Commissioner
for Health Care as well as on the Executive Committee. She is a member of the
Board of Directors of the Assisted Living Facilities Association of America
("ALFAA"); serves on the Residential Services Committee for the California
Association of Homes and Services for the Aged ("CAHSA"); and is a member of the
advisory committee of the American Seniors Housing Association. She also serves
on the Assisted Living Advisory Board of the American Health Care Association
("AHCA"), the Assisted Living Advisory Board -- Contemporary Long Term Care, and
the Advisory Group for the NIC.
48
<PAGE>
John B. Poole has served as Chief Financial Officer of the Company since
March 1996. From November 1995 until he joined the Company, he was as an
independent consultant to the long-term care industry. From July 1994 through
October 1995 he served as Chief Financial Officer of American Care Communities,
Inc., an owner and operator of assisted living residences. From March 1993
through June 1994 he served as Chief Financial Officer of Medifit of America,
Inc., an owner and operator of outpatient physical therapy centers and corporate
fitness centers. From October 1990 to February 1993 he served as Chief Financial
Officer of Frankwood Holdings, Ltd., an owner and operator of a third-party
administrator of health claims. From 1979 to August 1990 he served in various
positions at Beverly Enterprises, Inc., an owner and operator of long-term
health care facilities, including Senior Vice President and Chief Accounting
Officer, where he had responsibility for all accounting and data processing for
the entire company.
Kyle D. Shatterly has served as Senior Vice President of Acquisitions and
Development of the Company since April 1996. From 1988 until 1995, he held
concurrent Vice President positions at both Health Equity Properties ("EQP"), a
New York Stock Exchange listed real estate investment trust, and at Benton
Investment Company ("BIC"). BIC was a holding company that controlled over $300
million of real estate assets, in addition to owning several operating companies
that specialized in healthcare, multi-family housing and computer networks. EQP
served as an advisory affiliate of BIC. His responsibilities included mergers
and acquisitions, financial analysis and structured finance. From 1982 until
1987, he was employed by Merrill Lynch & Co. and Alex. Brown and Sons
Incorporated.
Luis Bared has served as a director of the Company since June 1996. Mr. Bared
is currently the Chairman and Chief Executive Officer of several closely held
businesses located in Puerto Rico and also serves as President and Chief
Operating Officer of DFI Caribbean, a wholly owned subsidiary of Duty Free
International (DFI), a New York Stock Exchange listed company. From 1975 until
the sale of the company in May, 1993, Mr. Bared served as Chairman and Chief
Executive Officer of Bared Jewelers of the V.I., Inc., a chain of six duty-free
stores established by Mr. Bared in 1975, with locations in the U.S. Virgin
Islands.
Lawrence P. Cirka became a director of the Company in June 1996. He has been
President and Chief Operating Officer of IHS since July 1994 and a director of
IHS since July 1994. He was Senior Vice President and Chief Operating Officer
from October 1987 to July 1994. Prior to joining IHS, Mr. Cirka served in
various operational capacities with Unicare Healthcare Corporation, a long-term
health care company, for 15 years, most recently as Vice President-Western
Division.
Charles A. Laverty became a director of the Company in June 1996. Mr.
Laverty, Chairman and Chief Executive Officer of UroHealth Systems, Inc.
("UroHealth"), became President and Chief Executive Officer in September 1994,
and Chairman of the Board of Directors of UroHealth in December 1994. Prior to
joining UroHealth, Mr. Laverty was employed as Senior Executive Vice President
and was a director of Coram Healthcare Corporation, a home infusion therapy
company which was formed in 1994 by the merger of Curaflex Health Services,
Inc., HealthInfusion, Inc., Medisys, Inc., and T(2) Medical, Inc. Mr. Laverty
served as the Chairman of the Board, President and Chief Executive Officer of
Curaflex Health Services from February 1989 to August 1994. Prior to his
association with Curaflex, Mr. Laverty served as President and Chief Executive
Officer of InfusionCare, Inc., a home infusion services company, from October
1988 to February 1989. In addition, he has held several positions, including
Chief Operating Officer, with Foster Medical Corporation, a durable medical
equipment supply company, and worked in both sales and management for C.R. Bard,
a medical device company.
Lisa K. Merritt became a director of the Company in June 1996. She has been a
Vice President of The Chase Manhattan Private Bank since May 1996. From January
1989 to May 1996, Ms. Merritt served as Vice President/District Manager of Chase
Manhattan Personal Financial Services and from July 1987 to January 1989 served
in various capacities, including commercial real estate, residential real
estate, and consumer lending at Chase Manhattan Bank, N.A. Prior to joining
Chase Manhattan Bank, Ms. Merritt was Divisional Vice President at Pioneer
Savings Bank from 1986 to 1987. From 1983 to 1986, she served as Assistant Vice
President at Presidential Bank. Ms. Merritt is a past Director of the Mortgage
Bankers Association of Southwest Florida.
--------------
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The Company's Restated Certificate of Incorporation provides for the
classification of the Board of Directors into three classes of directors (Class
I, Class II and Class III), with the term of each class expiring at successive
annual stockholders' meetings. At and after the 1997 Annual Meeting of
Stockholders, all nominees of the class standing for election will be elected
for three-year terms. The terms of office for Messrs. Bared and Laverty expire
at the 1997 Annual Meeting of Stockholders, the terms of office of Mr. Cirka and
Ms. Merritt expire at the 1998 Annual Meeting Stockholders, and the terms of
office of Dr. Elkins and Mr. Komp expire at the 1999 Annual Meeting of
Stockholders.
The executive officers of the Company are elected annually by the Board of
Directors following the annual meeting of stockholders and serve at the
discretion of the Board of Directors.
The members of the Audit Committee and the Compensation Committee are Mr.
Laverty, Mr. Bared and Ms. Merritt. The Audit Committee reviews the adequacy of
the Company's internal control systems and financial reporting procedures,
reviews the general scope of the annual audit, reviews and monitors the
performance of non-audit services by the Company's independent auditors and
reviews interested transactions between the Company and any of its affiliates.
The Compensation Committee administers the Company's Stock Incentive Plan and
makes recommendations to the Board concerning compensation for the Company's
officers and employees.
COMPENSATION OF DIRECTORS
The Company will pay each director who is not an employee $1,000 for
attendance in person at each meeting of the Board of Directors or of any
committee thereof held on a day on which the Board of Directors does not meet.
In addition, the Company will reimburse the directors for travel expenses
incurred in connection with their activities on behalf of the Company. Directors
have been granted options to purchase Common Stock and will also receive stock
options under the Company's Non-Employee Director Stock Option Plan. See "--
Stock Options."
EXECUTIVE COMPENSATION
The Company was organized in November 1995. During fiscal 1995, Mr. Komp and
Ms. Johnson served as executive officers of IHS. For the year ended December 31,
1995, Mr. Komp received from IHS a salary of $261,000, a cash bonus of $32,500,
a bonus consisting of 2,614 shares of IHS common stock (having a value of
$57,508 based on the $22.00 price of the IHS common stock on the date of
issuance), a car allowance of $6,000 and a $67,720 contribution by IHS to a
Supplemental Deferred Compensation Plan. For the year ended December 31, 1995,
Ms. Johnson received from IHS a salary of $162,665, a cash bonus of $15,000, and
a bonus consisting of 682 shares of IHS common stock (having a value of $15,004
based on the $22.00 price of the IHS common stock on the date of issuance).
Neither Mr. Poole nor Mr. Shatterly, the other executive officers of the
Company, was employed by IHS or the Company during 1995. For information
regarding the 1996 compensation for Messrs. Komp, Poole and Shatterly and Ms.
Johnson see "--Employment Agreements."
EMPLOYMENT AGREEMENTS
The Company is a party to Employment Agreements (the "Employment Agreements")
with each of Edward J. Komp, Kayda A. Johnson, John B. Poole and Kyle D.
Shatterly to serve as President and Chief Executive Officer, Senior Vice
President -- Chief Operating Officer, Senior Vice President -- Chief Financial
Officer and Senior Vice President -- Acquisitions and Development, respectively.
Subject to earlier termination, as discussed below, each Employment Agreement is
for a three-year term commencing as of May 1, 1996; however, the Employment
Agreements of Mr. Komp and Ms. Johnson provide for automatic one-year extensions
on each anniversary thereof unless 120 days' notice of nonrenewal is given by
either party prior to such anniversary date. The current annual base salary
("Base Salary") for each executive is: $285,000 for Mr. Komp; $195,000 for Ms.
Johnson; $150,000 for Mr. Poole; and $135,000 for Mr. Shatterly. Each Employment
Agreement provides that the executive's Base Salary is to be increased annually
by a percentage equal to the percentage increase in the Consumer Price Index
("CPI") and, with respect to each executive other than Mr. Komp, by such
additional
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<PAGE>
amounts as may be determined in the discretion of the Company's President or
Chief Executive Officer. The Base Salary of Mr. Komp may be increased in the
discretion of the Board of Directors. Each executive may also receive annual
cash bonuses in an amount determined in the discretion of the Board of
Directors; provided, however, if the Company meets or exceeds performance goals
specified by the Board of Directors, each executive will receive a bonus of not
less than 30% of Base Salary (50% in the case of Mr. Komp). Mr. Shatterly's and
Mr. Poole's 1996 bonus will be prorated from the date of their respective
Employment Agreements.
Pursuant to the Employment Agreements, each executive is entitled to (a)
comprehensive individual and dependent health insurance, (b) Company paid life
insurance coverage in the amount of $500,000 ($1,000,000 in the case of Mr.
Komp) and accidental death and dismemberment insurance, (c) disability insurance
coverage in a monthly benefit amount equal to the sum of the executive's Base
Salary plus a "Bonus Amount" (as defined in the Employment Agreements), (d) an
annual automobile allowance of $9,600, subject to increase based on the CPI, (e)
a Company paid personal umbrella (excess) insurance policy in the amount of
$2,000,000 ($5,000,000 in the case of Mr. Komp), and (f) participate in any
executive retirement program established and maintained by the Company
(collectively, the "Executive Benefits"). In addition, each executive is
entitled to receive equity-based compensation in the discretion of the
Compensation Committee of the Board of Directors. The Company has also agreed to
reimburse each executive (other than Ms. Johnson) for certain expenses incurred
as a result of their relocation to Florida.
The Employment Agreement with Mr. Komp may be terminated by either party on
90 days' notice. Upon termination of Mr. Komp's employment without Cause, the
expiration of, or the Company's failure to renew, the Employment Agreement, or
the resignation of Mr. Komp for Good Reason, Mr. Komp will be entitled to the
sum of (1) the remaining Base Salary due under his Employment Agreement
(generally three years unless prior notice of nonrenewal has been given) and (2)
the higher of his bonus in the year of termination or in the previous year. In
addition, Mr. Komp will continue to receive his existing level of Executive
Benefits or the level of Executive Benefits received during the preceding year,
whichever is greater, throughout the severance period (generally three years)
and all stock options, other equity-based rights and rights under the Company's
Supplemental Deferred Compensation Plan ("SERP") then held by Mr. Komp will
become fully vested. The Employment Agreements with Ms. Johnson and Messrs.
Poole and Shatterly may each be terminated by either party on 90 days' notice.
Upon termination without Cause, the expiration of the Employment Agreement, or
the resignation of the executive for Good Reason, or, in the case of Ms.
Johnson, the failure to renew the Employment Agreement, the executive will be
entitled to a payment of one and one-half times the sum of (1) the greater of
his or her salary in the year of termination or in the previous year and (2) the
higher of his or her bonus in the year of termination or in the previous year.
In addition, for a period of 18 months following such termination, each of Ms.
Johnson and Messrs. Poole and Shatterly will continue to receive their existing
level of Executive Benefits or the level of Executive Benefits received during
the preceding year, whichever is greater, and all stock options, other
equity-based rights and SERP rights then held by Ms. Johnson and Messrs. Poole
or Shatterly, respectively, will become fully vested.
For purposes of each of the Employment Agreements, "Cause" is defined as (i)
material failure to perform duties, (ii) material breach of confidentiality or
noncompete provisions, (iii) conviction of a felony, or (iv) theft, larceny, or
embezzlement of Company property. "Good Reason" is defined as (i) a material
breach of the agreement by the Company or (ii) resignation of the executive
within one year after a change in control. A "change of control" of the Company
is deemed to occur under the Employment Agreements, in general: (i) when a
person, other than the executive or a group controlled by the executive, becomes
the "beneficial owner" of 20% or more of the Company's Common Stock, (ii) in the
event of certain mergers or consolidations in which the Company is not the
surviving entity, (iii) in the event of the sale, lease or transfer of
substantially all of the Company's assets or the liquidation of the Company or
(iv) if, within any 24-month period, the persons who were members of the Board
of Directors at the beginning of such period cease to constitute a majority of
the Board of Directors of the Company or any successor entity.
Each Employment Agreement contains covenants by the executive to, among other
things, maintain the confidentiality of trade secrets of the Company during the
term of their Employment Agreements and thereafter, as well as covenants not to
solicit employees or customers of the Company and
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<PAGE>
not to be employed or have certain other relationships with entities which are
directly in the business of owning, operating or managing facilities which
compete with any such facility then operated by the Company or any of its
subsidiaries during the term of their Employment Agreement and for a 12 month
period thereafter.
STOCK OPTIONS
Stock Incentive Plan. The Company adopted the Stock Incentive Plan to enable
the Company and its stockholders to secure the benefits of Common Stock
ownership by key personnel of the Company and its subsidiaries. The Stock
Incentive Plan permits the issuance of restricted stock and the granting of
options to purchase an aggregate of 594,150 shares of the Company's Common Stock
to key employees of and consultants to the Company or any of its subsidiaries.
Directors who perform services for the Company solely in their capacities as
directors are not eligible to receive shares of restricted stock or options
under the Stock Incentive Plan. The number of shares which may be issued under
the Stock Incentive Plan is subject to adjustment in proportion to any increase
or decrease in the number of issued shares of Common Stock resulting from a
stock dividend, split-up, consolidation or any similar capital adjustment.
Options granted under the Stock Incentive Plan may be either incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended ("ISOs"), or options which do not qualify as ISOs ("non-ISOs").
The Stock Incentive Plan will be administered by the Compensation Committee
of the Board of Directors (the "Committee"). No member of the Committee may
receive an option or a restricted stock award under the Stock Incentive Plan
within one year prior to his or her becoming a member of the Committee or at any
time while he or she is serving as a member of the Committee. Subject to the
provisions of the Stock Incentive Plan, the Committee has the authority to
determine the individuals to whom shares of restricted stock or stock options
will be granted, the number of shares to be issued or covered by each restricted
stock or option grant, the purchase or option price, the type of option, the
option period, the vesting restrictions or repurchase restrictions, if any, with
respect to the restricted stock or exercise of the option, the terms for the
payment of the restricted stock or the option price and other terms and
conditions. Payment for shares under a restricted stock award or pursuant to the
exercise of an option may be made (as determined by the Committee) in cash or by
shares of Common Stock.
The exercise price for shares covered by an ISO may not be less than 100% of
the fair market value of the Common Stock on the date of grant (110% in the case
of a grant to an employee who owns stock possessing more than 10% of the
combined voting power of all classes of stock of the Company or any subsidiary
entitled to vote (a "10% Stockholder")). The purchase price for shares of
restricted stock and the exercise price for shares covered by a non-ISO may not
be less than the par value of the Common Stock at the date of grant. All options
must expire no later than ten years (five years in the case of an ISO granted to
a 10% Stockholder) from the date of grant. The Stock Incentive Plan also
provides that the options will become exercisable and restricted stock awards
will become fully vested upon a change in control of the Company or if, at any
time within two years following the date any person (as such term is used in
Section 13(d) and 14(d)(2) of the Exchange Act) shall become the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange Act) of 30% or more
of the Company's outstanding Common Stock other than pursuant to a plan or
arrangement entered into by such person and the Company, either the Company
terminates the optionee's employment (other than for Cause (as defined in the
Stock Incentive Plan)), or the optionee leaves the employ of the Company for
Good Reason (as defined in the Stock Incentive Plan). A "change in control of
the Company" is deemed to occur if (i) there shall be consummated (x) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving entity or pursuant to which shares of the Company's
Common Stock would be converted into cash, securities or other property, other
than a merger of the Company in which the holders of the Company's Common Stock
immediately prior to the merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the merger, or (y) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of the
Company, or (ii) the stockholders of the Company shall approve any plan or
proposal for liquidation or dissolution of the Company, or (iii)
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<PAGE>
during any period of two consecutive years, individuals who at the beginning of
such period constitute the entire Board of Directors shall cease for any reason
to constitute a majority thereof unless the election, or the nomination for
election by the Company's stockholders, of each new director was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who were
directors at the beginning of the period. In general, no option may be exercised
more than three months after the termination of the optionee's service with the
Company and its subsidiaries. However, the three-month period is extended to
twelve months if the optionee's service is terminated by reason of disability or
death and the Committee may in its discretion extend the period of exercise
following termination of employment. No individual may be granted ISOs that
become exercisable for the first time in any calendar year for Common Stock
having a fair market value at the time of grant in excess of $100,000. In
addition, the maximum option grant which may be made to an employee of the
Company in a calendar year shall not cover more than 500,000 shares.
Options may not be transferred during the lifetime of an optionee. Subject to
certain limitations set forth in the Stock Incentive Plan and applicable law,
the Board of Directors may amend or terminate the Stock Incentive Plan. In any
event, no restricted stock awards or stock options may be granted under the
Stock Incentive Plan after May 24, 2006.
On June 10, 1996, each of Ms. Johnson and Messrs. Komp, Poole and Shatterly
was granted an option to purchase 100,000 shares, 200,000 shares, 100,000 shares
and 70,000 shares, respectively, of Common Stock at an exercise price per share
equal to the initial public offering price set forth on the cover page of this
Prospectus. The options become exercisable in five equal annual installments
commencing June 10, 1997. The options expire on the earlier of June 10, 2006 or
three months after the optionee ceases to be an employee of the Company (one
year if by reason of death or disability).
Non-Plan Director Options. On June 10, 1996, each of Ms. Merritt, Dr. Elkins
and Messrs. Bared, Cirka and Laverty was granted an option to purchase 20,000
shares, 300,000 shares, 35,000 shares, 125,000 shares and 35,000 shares,
respectively, of Common Stock at an exercise price per share equal to the
initial public offering price set forth on the cover page of this Prospectus.
These options become exercisable in three equal annual installments, commencing
June 10, 1997, although they will become immediately exercisable upon (i) a
change in control of the Company (as defined below under "Non-Employee Director
Stock Option Plan"), (ii) the removal (other than for justifiable cause (as
defined in the option agreement)) of the optionee as, or the Company's failure
to renominate (other than for justifiable cause) the optionee for election as, a
director of the Company at any time within two years following the date any
person (as such term is used in Section 13(d) and 14(d)(2) of the Exchange Act)
shall become the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of 30% or more of the Company's outstanding Common Stock other
than pursuant to a plan or arrangement entered into by such person and the
Company, or (iii) the death or disability of the optionee. The options expire on
the earlier to occur of June 10, 2006 or six months after the optionee ceases to
be a director (one year if by reason of death or disability).
Non-Employee Director Stock Option Plan. The Company has adopted the
Non-Employee Director Stock Option Plan (the "Non-Employee Director Plan") to
promote the Company's interests by attracting and retaining highly skilled,
experienced and knowledgeable non-employee directors. Pursuant to the
Non-Employee Director Plan, each non-employee director of the Company will
automatically receive on the date of each annual meeting of stockholders of the
Company following completion of this offering at which such person is elected or
re-elected as a director (the "Grant Date") an option to purchase 10,000 shares
of the Company's Common Stock (the "Option") at a per share exercise price equal
to the fair market value of the Common Stock on the Grant Date. A total of
100,000 shares are reserved for issuance under the Non-Employee Director Plan.
The number of shares which may be issued under the Non-Employee Director Plan is
subject to adjustment to reflect any increase or decrease in the number of
shares of Common Stock resulting from a stock split, stock dividend,
consolidation or other similar capital adjustment.
Except as set forth below, Options become exercisable in three equal annual
installments commencing on the first anniversary of the Grant Date. In the event
that a director ceases to be a director of the Company, such person may exercise
the Option if it is exercisable by him at the time he ceases to be a
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<PAGE>
director of the Company, within six months after the date he ceases to be a
director of the Company (one year if he ceases to be a director by reason of
death or disability). Notwithstanding the foregoing, in the event a "Change of
Control of the Company" shall occur, or the optionee is removed (other than for
justifiable cause (as defined in the Non-Employee Director Plan)) as, or is not
renominated (other than for justifiable cause) for election as, a director of
the Company at any time within two years following the date any person (as such
term is used in Section 13(d) and 14(d)(2) of the Exchange Act) shall become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
30% or more of the Company's outstanding Common Stock other than pursuant to a
plan or arrangement entered into by such person and the Company, then all
options granted under the Non-Employee Director Plan which are then outstanding
shall immediately become exercisable. A "Change in Control of the Company" shall
be deemed to occur if (i) there shall be consummated (x) any consolidation or
merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's Common Stock would be
converted into cash, securities or other property, other than a merger of the
Company in which the holders of the Company's Common Stock immediately prior to
the merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, or (y) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, or
(ii) the stockholders of the Company shall approve any plan or proposal for
liquidation or dissolution of the Company, or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the entire Board of Directors shall cease for any reason to constitute a
majority thereof unless the election, or the nomination for election by the
Company's stockholders, of each director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of the period. Options granted under the Non-Employee Director Plan
shall have a term of ten years from the Grant Date and shall not be "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended.
The Non-Employee Director Plan will be administered by the Board of Directors
of the Company. However, the Non-Employee Director Plan prescribes the
individuals who would be awarded Options, the number of shares subject to the
Options, and the terms and conditions of each award. The Board of Directors may
at any time terminate the Non-Employee Director Plan and may from time to time
alter or amend the Non-Employee Director Plan or any part thereof, provided that
the rights of a director with respect to an option granted prior to such
termination, alteration or amendment may not be impaired.
Option Grants. The following table sets forth certain summary information
concerning individual grants of stock options to each of the Company's executive
officers. No stock options were granted in the year ended December 31, 1995.
<TABLE>
<CAPTION>
OPTION GRANTS
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
INDIVIDUAL GRANTS RATES OF STOCK PRICE
APPRECIATION FOR
--------------------- OPTION TERM (2)
PERCENT
OF
TOTAL
OPTIONS
NUMBER OF GRANTED
SECURITIES TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN PRICE EXPIRATION
NAME GRANTED(#) 1996 ($/SHARE)(1) DATE 5%($) 10%($)
- ---- ---------- ---- ------------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Edward J. Komp .. 200,000 35.1% $16.50 6/10/2006 $2,076,000 $5,260,000
Kayda Johnson ... 100,000 17.6% $16.50 6/10/2006 $1,038,000 $2,630,000
John B. Poole ... 100,000 17.6% $16.50 6/10/2006 $1,038,000 $2,630,000
Kyle D.Shatterly. 70,000 12.3% $16.50 6/10/2006 $ 726,600 $1,841,000
- -----------------
<FN>
(1) The exercise price per share of all options granted will be the initial
public offering price. Each option vests as to 20% of the shares on June
10, 1997 and as to an additional 20% on each successive June 10.
(2) These amounts represent assumed rates of appreciation in the price of the
Company's Common Stock during the terms of the options in accordance with
rates specified in applicable federal securities regulations. Actual
gains, if any, on stock option exercises will depend on the future price
of the Common Stock and overall stock market conditions. There is no
representation that the rates of appreciation reflected in this table will
be achieved.
</FN>
</TABLE>
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SUPPLEMENTAL DEFERRED COMPENSATION PLAN
The Company's Supplemental Deferred Compensation Plan (the "SERP") is an
unfunded deferred compensation plan which offers certain executive and other
highly compensated employees an opportunity to defer compensation until the
termination of their employment with the Company. Contributions to the SERP by
the Company, which vest over a period of ten years, are determined by the Board
upon recommendation of the Committee and are allocated to participants' accounts
on a pro rata basis based upon the compensation of all participants in the SERP
in the year such contribution is made. In addition, a participant may elect to
defer a portion of his or her compensation and have that amount added to his or
her SERP account. Participants may direct the investments in their respective
SERP accounts. All participant contributions and the earnings thereon, plus the
participant's vested portion of the Company's contribution account, are payable
upon termination of a participant's employment with the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Luis Bared, Charles A.
Laverty and Lisa Merritt. Each of Messrs. Bared and Laverty and Ms. Merritt has
received options to purchase shares of Common Stock. See "-- Stock Options --
Non-Plan Director Options."
CERTAIN TRANSACTIONS
The Company was formed in November 1995 as a wholly-owned subsidiary of IHS
to operate the assisted living and other senior housing facilities owned, leased
and managed by IHS. Following the Company's formation, IHS transferred to the
Company as a capital contribution its ownership interest in The Waterside and
The Homestead facilities, sublet to the Company The Shores and Cheyenne Place
facilities, and leased to the Company the assisted living and related portions
of the Treemont and West Palm Beach facilities. IHS also transferred to the
Company all the stock of a company which had agreements to manage nine
facilities (one of which was cancelled by mutual agreement in July 1996).
To date IHS has provided all required financial, legal, accounting, human
resources and information systems services to the Company, and has satisfied all
the Company's capital requirements in excess of internally generated funds. IHS
has charged the Company a flat fee of 6% of total revenue for these services,
except that with respect to the Waterside facility prior to October 1995, IHS
and the minority owner of the facility each charged the Company a fee of 4.5% of
monthly service fee revenue for these services. The Company estimates that the
cost of obtaining these services from third parties would have been
significantly higher than the fees charged by IHS. IHS has agreed to provide
certain administrative services to the Company after the closing of this
offering until the Company has relocated to Florida and implemented its own MIS
and accounting systems, which the Company anticipates will occur in the fourth
quarter of 1996. See "Business -- Operations."
Effective June 1, 1996, IHS contributed to the capital of the Company
condominium interests in the assisted living portions of the West Palm Beach,
Treemont and Vintage facilities to the Company as a contribution to capital.
These assisted living facilities are immediately adjacent to or are located
within the same building and share common areas with an existing IHS facility.
Prior to the contribution of condominium interests in the assisted living
portion of each of these facilities, a condominium association was created and a
Declaration of Condominium was filed that governs these facilities. The Company
and IHS are the only members of these condominium associations, and share the
cost of maintaining the common areas of such facilities.
In connection with the Company's operation of the West Palm Beach, Treemont
and Vintage assisted living facilities, the Company and an operating subsidiary
of IHS have entered into Services Agreements whereby IHS provides certain
facility services to the Company. Pursuant to the individual Service Agreements,
IHS provides the Company (and its residents) with a combination of the following
services: building maintenance services (West Palm Beach facility only: $3,200
monthly fee paid to IHS); housekeeping (West Palm Beach facility only: $2,000
monthly fee paid to IHS); laundry services (all facilities: monthly fees paid to
IHS are $850 (West Palm Beach), $1,500 (Vintage) and $3,300
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(Treemont)); emergency call services (all facilities: $100 monthly fee paid to
IHS); and nutrition (resident meals) services (all facilities: fees paid to IHS
equal $8.00 (Vintage) and $10.00 (West Palm Beach and Treemont) per resident/per
day). In addition, pursuant to each Services Agreement, the Company pays IHS a
monthly general building management and landscaping services fee equal to $4,583
(Vintage), $14,166 (West Palm Beach) and $31,083 (Treemont), respectively. In
connection with the administration of the Vintage facility, IHS and the Company
share the services of the executive director and the Company pays IHS an amount
equal to thirty percent (30%) of the total costs and expenses (including all
wages, benefits, payroll taxes, and workers' compensation premiums) of the
executive director of the facility. Other than the general building management
and landscaping services fee, each of the above described fees are subject to an
annual increase equal to the Consumer Price Index for All Urban Consumers--All
Cities (not to exceed 4%). Each Service Agreement has a one-year term and will
be automatically renewed for successive one-year terms unless otherwise
terminated. Each Service Agreement may be terminated by either party upon 180
days' notice or 30 days following the delivery of a notice of material breach if
the breach is not cured to the satisfaction of the non-breaching party.
The Company and IHS are parties to an Administrative Services Agreement,
dated effective June 1, 1996, pursuant to which IHS provides accounts payable,
accounts receivable, corporate accounting, payroll and payroll tax services,
human resources support and risk management support services (the "Services") to
the Company. The agreement allows the Company to terminate, upon 30 days' prior
notice, any portion of the Services prior to the expiration of the agreement.
The Company will pay IHS a monthly fee equal to 1.2% of the gross revenues of
each of the Company's assisted living facilities (subject to reduction, as the
Company terminates Services). The initial term of the Administrative Services
Agreement is 12 months and will be automatically renewed for an additional 12
month period unless terminated.
Pursuant to sublease agreements dated as of June 1, 1996, an operating
subsidiary of the Company subleases The Shores and The Cheyenne Place facilities
from IHS. The subleases provide for the payment of annual rent aggregating $1.7
million, which amount is substantially similar to the amount paid by IHS to the
property owner ($1.4 million in rent plus $321,000 in annual purchase option
deposits representing the facilities' allocable portion of the total annual
purchase option deposit IHS is required to make). In connection with the
execution of each sublease agreement, the Company has executed a guaranty
agreement whereby the Company guarantees the payment of obligations due under
the sublease agreements.
IHS has made available to the Company a $75 million revolving credit
facility. Borrowings under the facility bear interest at the rate of 14% per
annum. All outstanding borrowings, together with all accrued but unpaid
interest, are due at the earlier of (i) the closing of an initial public
offering by ILC or (ii) June 30, 1998. At June 30, 1996 and July 26, 1996, $3.4
million and $3.7 million, respectively, were outstanding under the facility. The
Company intends to use a portion of the proceeds of this offering to repay all
amounts outstanding under this facility. See "Use of Proceeds." Borrowings under
this facility were used to finance the Company's development activities.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of August 1, 1996 and as
adjusted to reflect the sale of 3,100,000 shares of Common Stock by the Company
and the sale of 3,430,000 shares of Common Stock by IHS, by (i) each person
known by the Company to own beneficially more than 5% of the Common Stock, (ii)
each director of the Company; (iii) each executive officer of the Company and
(iv) all directors and executive officers as a group. Except as otherwise noted,
each named beneficial owner has sole voting and investment power with respect to
the shares owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO NUMBER OF OWNED AFTER
OFFERING(1) SHARES BEING OFFERING(1)
------------------------ OFFERED -------------------
-------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Integrated Health Services, Inc. (2) ..... 4,961,000 100.0% 3,430,000 1,531,000 19.0%
Robert N. Elkins, M.D. (3)(4)............. 300,000 5.7 -- 300,000 3.6
Edward J. Komp (3)........................ 200,000 3.9 -- 200,000 2.4
Kayda Johnson (3)......................... 100,000 2.0 -- 100,000 1.2
John B. Poole (3)......................... 100,000 2.0 -- 100,000 1.2
Kyle D. Shatterly (3)..................... 70,000 1.4 -- 70,000 *
Luis Bared (3)............................ 35,000 * -- 35,000 *
Lawrence P. Cirka (3)..................... 125,000 2.5 -- 125,000 1.5
Charles A. Laverty (3).................... 35,000 * -- 35,000 *
Lisa Merritt (3).......................... 20,000 * -- 20,000 *
All executive officers and directors as a
group (9 persons)(5)...................... 5,946,000 100.0% 3,430,000 2,516,000 27.8%
- -------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, which attribute beneficial ownership
of securities to persons who possess sole or shared voting power and/or
investment power with respect to these securities.
(2) The address of Integrated Health Services is 10065 Red Run Boulevard,
Owings Mills, Maryland 21117.
(3) Consists of options to purchase shares of Common Stock, none of which are
currently exercisable.
(4) Does not include shares owned by IHS. Dr. Elkins is Chairman of the Board
and Chief Executive Officer of IHS and, as a result, may be deemed to
beneficially own the shares of Common Stock owned by IHS. Dr. Elkins
disclaims beneficial ownership of such shares. Dr. Elkin's address is c/o
IHS, 10065 Red Run Boulevard, Owings Mills, Maryland 21117.
(5) Consists of the shares of Common Stock owned by IHS and options to
purchase 985,000 shares of Common Stock, none of which are currently
exercisable.
</TABLE>
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue up to 100,000,000 shares of Common Stock,
par value $.01 per share, 4,961,000 shares of which are issued and outstanding
as of the date hereof and held of record by IHS, and 5,000,000 shares of
Preferred Stock, $.01 par value, none of which are outstanding as of the date
hereof.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. The Common Stock does not have
cumulative voting rights, and, as a result, the holders of a majority of the
shares of Common Stock entitled to vote in any election of directors may elect
all of the directors standing for election, and, in that event, the holders of
the remaining shares will not be able to elect any directors. Subject to the
rights and preferences of any Preferred Stock which may be issued, the holders
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared by the Board of Directors out of funds legally available therefor
and, upon the liquidation, dissolution or winding up of the Company, the holders
of Common Stock are entitled to receive ratably the net assets of the Company
available after the payment of all debts and other liabilities. Holders of
Common Stock have no preemptive, subscription, redemption or conversion rights.
The outstanding shares of Common Stock are, and the shares offered by the
Company in this offering will be, when issued and paid for, fully paid and
nonassessable. The rights, privileges and preferences of holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any shares of Preferred Stock which the Company may designate and issue in
the future.
At present, there is no active trading market for the Common Stock. The
Common Stock has been approved for quotation on the Nasdaq National Market under
the symbol "ILCC." See "Risk Factors -- No Prior Public Market; Possible
Volatility of Stock Price."
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series as
determined by the Board of Directors. The Board of Directors is authorized to
issue the shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders. The Preferred Stock could be issued by the Board of Directors
with voting and conversion rights that could adversely affect the voting power
and other rights of the holders of the Common Stock. In addition, because the
terms of the Preferred Stock may be fixed by the Board of Directors of the
Company without stockholder action, the Preferred Stock could be issued quickly
with terms calculated to defeat or delay a proposed takeover of the Company, or
to make the removal of the management of the Company more difficult. Under
certain circumstances, this could have the effect of decreasing the market price
of the Common Stock. The Company has no present plans to issue any Preferred
Stock. See "Risk Factors -- Effect of Certain Anti-Takeover Provisions."
REGISTRATION RIGHTS
The Company has granted "piggyback" registration rights with respect to the
shares of Common Stock owned by IHS after this offering. As a result, if the
Company proposes to register any of its securities, either for its own account
or for the account of other stockholders, the Company is required, with certain
exceptions, to notify IHS and, subject to certain limitations, to include in
such registration all of the shares of Common Stock requested to be included by
IHS. The Company is generally required to pay all of the expenses of such
registrations other than the underwriting discounts and commissions. See "Risk
Factors -- Shares Eligible for Future Sale; Registration Rights."
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
Number of Directors. The Restated Certificate of Incorporation (the "Restated
Certificate") and By-laws of the Company provide that the Board of Directors
shall consist of not less than five nor more than nine members, the exact number
to be fixed from time to time by the Company's Board of Direc-
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<PAGE>
tors. This number may be increased whenever the holders of any other series of
Preferred Stock which may be issued by the Company have the right, voting as a
separate class or series, to elect directors of the Company for so long as such
right to elect directors exists.
Classification of Board of Directors. The Restated Certificate and By-laws of
the Company divide the Board of Directors into three classes, designated Class
I, Class II and Class III, respectively, each class to be as nearly equal in
number as possible. The term of Class I, Class II and Class III directors will
expire at the 1997, 1998 and 1999 annual meetings of stockholders, respectively,
and in all cases directors elected will serve until their respective successors
are elected and qualified. At each annual meeting of stockholders, directors
will be elected to succeed those in the class whose terms then expire, each
elected director to serve for a term expiring at the third succeeding annual
meeting of stockholders after such director's election, and until the director's
successor is elected and qualified. Thus, directors elected stand for election
only once in three years.
Additional Directorships, Vacancies and Removal of Directors. Under the
Delaware General Corporation Law (the "DGCL"), the Restated Certificate and
By-laws, the Board of Directors is authorized to create additional directorships
(up to the maximum number permitted by the Restated Certificate), elect such
additional directors and fill vacancies which may arise in the Board.
Newly-created directorships and vacancies may be filled by a majority of
directors then in office to hold office until the next election of the class for
which such directors have been chosen, and until their successors shall be
elected and qualified. In addition, in accordance with the DGCL pertaining to a
company whose Board of Directors is classified, the Company's Restated
Certificate and By-laws provide that directors may be removed only for cause by
vote of the holders of 75% of the shares entitled to vote at an election of
directors, except that directors elected by holders of Preferred Stock may only
be removed as provided in the Company's Restated Certificate or the Certificate
of Designation of such Preferred Stock.
Stockholder Action and Special Meetings. The Restated Certificate and By-laws
provide that any action of stockholders must be effected at a duly called
meeting and not by written consent in lieu of a meeting unless there are fewer
than two stockholders. The By-laws do not permit stockholders of the Company to
call special meetings of stockholders. A special meeting of stockholders may
only be called by the Chairman of the Board, the President or the Board of
Directors of the Company and are to be held only for the purposes set forth in
the notice of meeting. The affirmative vote of the holders of at least 80% of
the Company's then outstanding capital stock entitled to vote in the election of
directors (considered for this purpose as one class) is required to amend, alter
or repeal, or to adopt any provision inconsistent with, the provisions of the
Restated Certificate and By-laws described herein or to change such required
vote.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The By-laws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors (the "Nomination
Procedure") as well as for other stockholder proposals to be considered at
annual stockholders' meetings. Notice to the Company from a stockholder who
proposes to nominate a person at a meeting for election as a director generally
must be given not less than 120 nor more than 150 days prior to the anniversary
of the date notice of the annual meeting of stockholders was given in the
preceding year and contain: (i) the name and record address of the stockholder
who intends to make the nomination; (ii) the name, age and residence address of
the nominee; (iii) the principal occupation or employment of the nominee; (iv)
the class, series and number of shares held of record, beneficially and by
proxy, by the stockholder and the nominee as of the record date of such meeting
(if such record date is publicly available) and as of the date of such notice;
and (v) such other information relating to the nominee proposed by such
stockholder as is required to be included in a proxy statement or otherwise
required pursuant to Regulation 14A under the Securities Exchange Act of 1934,
including the written consent of each nominee to being named in the proxy
statement and to serve as a director of the Company if so elected. The presiding
officer of the meeting may refuse to acknowledge the nomination of any person
not made in compliance with the Nomination Procedure. Similar advance notice
must be given of any other proposed business which a stockholder proposes to
bring before an annual meeting of stockholders. Such notice must contain (i) a
brief description of the business desired to be brought before the meeting and
the reasons
59
<PAGE>
for conducting such business at the meeting, (ii) the name and record address of
the stockholder proposing such business, (iii) the class, series and number of
shares of the Company's stock which are held of record, beneficially and by
proxy by the stockholder as of the record date of such meeting (if such record
date is publicly available) and as of the date of such notice, (iv) a
description of all arrangements or understandings between the stockholder and
any other person or persons (naming such person or persons) in connection with
the proposing of such business by the stockholder, and (v) any material interest
of the stockholder in such business. The purpose of requiring advance notice is
to afford the Board of Directors an opportunity to consider the qualifications
of the proposed nominees or the merits of other stockholder proposals and, to
the extent deemed necessary or desirable by the Board of Directors, to inform
stockholders about those matters. Although the advance notice provisions do not
give the Board of Directors any power to approve or disapprove of stockholder
nominations or proposals for action by the Company, they may have the effect of
precluding a contest for the election of directors or the consideration of
stockholder proposals if the procedures established by the By-laws are not
followed and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposals, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to the Company and its stockholders.
Anti-Takeover Effects. The foregoing provisions of the Restated Certificate
and By-laws could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company. These provisions are intended to
enhance the continuity and stability of the Board of Directors and the policies
formulated by the Board of Directors and to discourage certain types of
transactions that may involve an actual or threatened change in control of the
Company. These provisions are also designed to reduce the vulnerability of the
Company to an unsolicited acquisition proposal and to discourage certain tactics
that may be used in proxy fights. However, such provisions may discourage third
parties from making tender offers for the Company's shares. As a result, the
market price of the Common Stock may not benefit from any premium that might
occur in anticipation of a threatened or actual change in control. Such
provisions also may have the effect of preventing changes in the management of
the Company. See "Risk Factors -- Effect of Certain Anti-Takeover Provisons."
DELAWARE ANTI-TAKEOVER LAW
Under Section 203 of the DGCL (the "Delaware anti-takeover law"), certain
"business combinations" between a Delaware corporation whose stock generally is
publicly traded or held of record by more than 2,000 stockholders and an
"interested stockholder" are prohibited for a three-year period following the
date that such stockholder became an interested stockholder, unless (i) the
corporation has elected in its certificate of incorporation or bylaws not to be
governed by the Delaware anti-takeover law (the Company has not made such an
election), (ii) either the business combination or the transaction which
resulted in the stockholder becoming an "interested stockholder" was approved by
the board of directors of the corporation before the other party to the business
combination became an interested stockholder, (iii) upon consummation of the
transaction that made it an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
commencement of the transaction (excluding voting stock owned by directors who
are also officers and stock held in employee stock plans in which the employees
do not have a right to determine confidentially whether to tender or vote stock
held by the plan), or (iv) the business combination was approved by the board of
directors of the corporation and ratified by 66 2/3% of the voting stock which
the interested stockholder did not own. The three-year prohibition does not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors. The
term "business combination" is defined generally to include mergers or
consolidations between a Delaware corporation and an interested stockholder,
transactions with an interested stockholder involving the assets or stock of the
corporation or its majority-owned subsidiaries and transactions which increase
an interested stockholder's percentage ownership of stock. The term "interested
stockholder" is defined generally as a stockholder who becomes the beneficial
owner of 15% or more of a Delaware corporation's voting stock. Section 203 could
have the effect of delaying, deferring or preventing a change in control of the
Company.
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LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate provides that directors of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for the unlawful payment of
dividends or unlawful stock repurchases under Section 174 of the DGCL, as the
same exists or hereinafter may be amended, or (iv) for any transaction from
which the director derives an improper personal benefit. The provision does not
apply to claims against a director for violations of certain laws, including
federal securities laws. If the DGCL is amended to authorize the further
elimination or limitation of directors' liability, then the liability of
directors of the Company shall automatically be limited to the fullest extent
provided by law. The Company's Restated Certificate and By-laws also contain
provisions requiring the Company to indemnify the directors, officers, employees
or other agents to the fullest extent permitted by the DGCL. In addition, the
Company has entered into indemnification agreements with its current directors
and executive officers. These provisions and agreements may have the practical
effect in certain cases of eliminating the ability of stockholders to collect
monetary damages from directors. The Company believes that these contractual
agreements and the provisions in its Restated Certificate and By-laws are
necessary to attract and retain qualified persons as directors and officers.
TRANSFER AGENT
The Transfer Agent for the Common Stock is American Stock Transfer & Trust
Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares or the availability of such shares for sale will have on
the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect the prevailing market price of the Common Stock
and the ability of the Company to raise capital through a sale of its
securities.
Upon completion of this offering, the Company will have 8,061,000 shares of
Common Stock outstanding (9,040,500 shares if the Underwriters' over-allotment
option is exercised in full). Of those shares, the 6,530,000 shares sold in this
offering (7,509,500 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction (except as to
affiliates of the Company) or further registration under the Securities Act.
In general, under Rule 144 under the Securities Act as currently in effect, a
person (or persons whose shares are aggregated) who has beneficially owned
restricted securities within the meaning of Rule 144 ("Restricted Securities")
for at least two years, and including the holding period of any prior owner
except an affiliate, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of one percent of the then
outstanding shares of Common Stock or the average weekly trading volume of the
Common Stock on the National Association of Securities Dealers Automated
Quotation System during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. Any person (or persons whose shares are aggregated) who is not deemed
to have been an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned shares for at least three years
(including any period of ownership of preceding non-affiliated holders), would
be entitled to sell such shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements. An "affiliate" is a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or under
common control with, such issuer.
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<PAGE>
Rule 144A under the Securities Act as currently in effect generally permits
unlimited resales of certain Restricted Securities of any issuer provided that
the purchaser is a qualified institution that owns and invests on a
discretionary basis at least $100 million in securities (and in the case of a
bank or savings and loan association, has a net worth of at least $25 million)
or is a registered broker-dealer that owns and invests on a discretionary basis
at least $10 million in securities. Rule 144A allows IHS to sell its shares of
Common Stock held prior to this offering to such institutions and registered
broker-dealers without regard to any volume or other restrictions. There can be
no assurance that the availability of such resale exemption will not have an
adverse effect on the trading price of the Common Stock.
The Company, its directors and officers and IHS have agreed not to offer to
sell, sell, distribute, grant any option to purchase, pledge, hypothecate or
otherwise dispose of, directly or indirectly, any shares of Common Stock or
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock owned by them prior to the expiration of 180 days from the date of
this Prospectus, except (i) with the prior written consent of the Smith Barney
Inc., (ii) in the case of the Company, for the issuance of shares of Common
Stock upon the exercise of outstanding options, or the grant of options to
purchase shares of Common Stock under the Company's stock option plans, (iii) in
the case of the directors and executive officers of the Company, for the
exercise by such individuals of outstanding options and (iv) for the sale of
shares in this offering. Beginning in January 1998, IHS may sell all 1,531,000
of its shares of Common Stock subject to the volume and other limitations of
Rule 144. The Commission has proposed an amendment to Rule 144 under the
Securities Act which, if adopted as currently proposed, would permit the sale of
such 1,531,000 shares of Common Stock held by IHS beginning 181 days after the
date of this Prospectus, rather than January 1998 (i.e., after the expiration of
the "lock-up" period), subject to the volume and other limitations of Rule 144.
IHS has the right to include its shares in any future registration of
securities effected by the Company under the Securities Act. If the Company is
required to include in a Company-initiated registration shares held by IHS
pursuant to the exercise of its piggyback registration rights, such sales may
have an adverse effect on the Company's ability to raise needed capital. See
"Risk Factors -- Shares Eligible for Future Sale; Registration Rights,"
"Principal and Selling Stockholders" and "Description of Capital Stock --
Registration Rights."
The Company intends to file registration statements under the Securities Act
registering the shares of Common Stock reserved for issuance upon the exercise
of options granted under the Stock Incentive Plan and the Non-Employee Director
Stock Option Plan and the options granted to the non-employee directors. See
"Management -- Stock Options." These registration statements are expected to be
filed soon after the date of this Prospectus and will become effective
automatically upon filing. Accordingly, shares registered under such
registration statements will be available for sale in the open market, unless
such shares are subject to vesting restrictions with the Company.
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UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and IHS have each agreed to sell to such
Underwriter, shares of Common Stock which equal the number of shares set forth
opposite the name of such Underwriter below.
NUMBER OF
UNDERWRITER SHARES
- ----------- ------
Smith Barney Inc...................................
Alex. Brown & Sons Incorporated....................
Donaldson, Lufkin & Jenrette Securities
Corporation........................................
------------
Total........................................... 6,530,000
============
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by their counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., Alex. Brown & Sons Incorporated
and Donaldson, Lufkin & Jenrette Securities Corporation are acting as the
representatives (the "Representatives"), propose initially to offer part of the
shares of Common Stock directly to the public at the public offering price set
forth on the cover page hereof and part to certain dealers at a price that
represents a concession not in excess of $ per share under the public offering
price. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to other Underwriters and to certain other dealers.
After the initial public offering, the public offering price and such
concessions may be changed by the Underwriters. The Representatives have
informed the Company that the Underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 979,500
additional shares of Common Stock at the public offering price set forth on the
cover page hereof less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares in such table.
The Company and IHS have agreed to indemnify the Underwriters against certain
liabilities under the Securities Act.
The Company, its directors and officers and IHS have agreed that, for a
period of 180 days after the date of this Prospectus, they will not, without the
prior written consent of Smith Barney Inc., sell, offer to sell, contract to
sell or otherwise dispose of any shares of Common Stock or any securities
convertible into, or exercisable or exchangeable for, any shares of Common
Stock, other than, in the case of the Company, grants of options pursuant to the
Company's stock option plans. Smith Barney Inc. may, in its sole discretion and
at any time without prior notice, release all or any portion of the shares of
Common Stock subject to the "lock-up" agreements.
Prior to this offering, there has not been any public market for the Common
Stock. Consequently, the initial public offering price for the shares of Common
Stock will be determined by negotiations among the Company, IHS and the
Representatives. Among the factors to be considered in determining such price
will be the history of and prospects for the Company's business and the industry
in which it competes, an assessment of the Company's management, its past and
present operations, its past and present earnings and the trend of such
earnings, the prospects for earnings of the Company, the present
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state of the Company's development, the general condition of the securities
market at the time of this offering and the market prices and earnings of
similar securities of comparable companies at the time of the offering. The
estimated initial public offering price range set forth on the cover page of
this Prospectus is subject to change as a result of market conditions and other
factors. See "Risk Factors -- No Prior Public Market; Possible Volatility of
Stock Price."
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
shares of Common Stock offered hereby will be passed upon for the Company by
Fulbright & Jaworski L.L.P., New York, New York. Certain legal matters will be
passed upon for the Underwriters by Dewey Ballantine, New York, New York.
EXPERTS
The consolidated financial statements of Integrated Living Communities, Inc.
and Subsidiaries; the financial statements of Lakehouse East (a partnership) for
the month ended November 30, 1993; the financial statements of Carrington
Pointe, Vintage Health Care Center Retirement Division and Terrace Gardens
Tenants in Common, all of which are included in this Prospectus and elsewhere in
the Registration Statement, have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Lakehouse East (a partnership) for the year ended
October 31, 1993, included in this Prospectus, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein,
and are included here in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington, D.C. a Registration
Statement on Form S-1 (together with all amendments thereto, the "Registration
Statement"), under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all the information set forth in the Registration Statement and
the exhibits and schedules filed therewith, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference hereby is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement and exhibits and schedules thereto. The Registration
Statement filed by the Company, including exhibits and schedules thereto, may be
inspected without charge 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 Midwest Regional Office of the Commission located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material,
when filed, may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of
certain fees prescribed by the Commission. The Commission maintains a World Wide
Web site on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES PAGE
Independent Auditors' Report F-3
Consolidated Balance Sheets -- December 31, 1994 and 1995 and June 30, 1996
(unaudited) F-4
Consolidated Statements of Operations -- Years ended December 31, 1993, 1994
and 1995 and six months ended June 30, 1995 (unaudited) and 1996 (unaudited) F-5
Consolidated Statements of Changes in Stockholder's Equity -- Years ended
December 31, 1993, 1994 and 1995 and six months ended June 30, 1996
(unaudited) F-6
Consolidated Statements of Cash Flows -- Years ended December 31, 1993, 1994
and 1995 and six months ended June 30, 1995 (unaudited) and 1996 (unaudited) F-7
Notes to Consolidated Financial Statements F-8
ACQUIRED COMPANIES -- PRE-ACQUISITION FINANCIAL STATEMENTS
LAKEHOUSE EAST (A PARTNERSHIP) NOW D/B/A WATERSIDE RETIREMENT ESTATES
Year ended October 31, 1993
Independent Auditors' Report F-20
Statement of Operations F-21
Statement of Cash Flows F-22
Notes to Financial Statements F-23
One Month Period ended November 30, 1993
Independent Auditors' Report F-25
Statement of Operations F-26
Statement of Cash Flows F-27
Notes to Financial Statements F-28
CARRINGTON POINTE
Independent Auditors' Report F-30
Statements of Operations -- Years ended December 31, 1993, 1994 and 1995 F-31
Statements of Cash Flows -- Years ended December 31, 1993, 1994 and 1995 F-32
Notes to Financial Statements F-33
VINTAGE HEALTH CARE CENTER RETIREMENT DIVISION
Independent Auditors' Report F-35
Balance Sheets -- December 31, 1994 and 1995 F-36
Statements of Operations -- Years ended December 31, 1994 and 1995 F-37
Statements of Changes in Division Equity -- Years ended December 31, 1994
and 1995 F-38
Statements of Cash Flows -- Years ended December 31, 1994 and 1995 F-39
Notes to Financial Statements F-40
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PROBABLE ACQUISITIONS
<S> <C>
TERRACE GARDENS TENANTS IN COMMON PAGE
Independent Auditors' Report F-43
Balance Sheets -- December 31, 1994 and 1995 F-44
Statements of Operations -- Years ended December 31, 1993, 1994 and 1995 F-45
Statements of Changes in Owner's Deficit -- Years ended December 31, 1993,
1994 and 1995 F-46
Statements of Cash Flows -- Years ended December 31, 1993, 1994 and 1995 F-47
Notes to Financial Statements F-48
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Integrated Living Communities, Inc.:
We have audited the accompanying consolidated balance sheets of Integrated
Living Communities, Inc. and subsidiaries (wholly-owned by Integrated Health
Services, Inc.) (the Company) as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholder's equity and cash flows for
each of the years in the three-year period ended December 31, 1995. 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Integrated Living
Communities, Inc. and subsidiaries (wholly-owned by Integrated Health Services,
Inc.) as of December 31, 1994 and 1995 and the results of their operations and
their cash flows for each of the years in the three-year period ended December
31, 1995, in conformity with generally accepted accounting principles.
As discussed in notes 1 and 12 to the financial statements, in 1995 the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
KPMG Peat Marwick LLP
Baltimore, Maryland
June 5, 1996
F-3
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Wholly-Owned by Integrated Health Services, Inc.)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------
1994 1995 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................ $ 786,552 $ 413,362 $ 119,995
Accounts receivable.................................. 177,849 525,555 354,314
Prepaid expenses and other current assets............ 205,494 187,294 406,845
------------- ------------- -------------
Total current assets............................... 1,169,895 1,126,211 881,154
Assets limited as to use (note 3)..................... 735,318 658,726 704,735
Property, plant and equipment, net (note 4) .......... 14,773,241 23,751,175 50,626,382
Goodwill, less accumulated amortization of $43,805 ... 1,573,586 -- --
Other assets.......................................... 47,514 237,650 3,252,310
------------- ------------- -------------
$18,299,554 $25,773,762 55,464,581
============= ============= =============
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable .................................... $ 356,188 510,353 828,438
Accrued expenses (note 8) ........................... 605,318 930,941 1,308,782
------------- ------------- -------------
Total current liabilities.......................... 961,506 1,441,294 2,137,220
Note payable to parent company (note 14).............. -- -- 3,362,870
Refundable deposits (note 11)......................... 4,311,490 5,243,332 5,398,096
Deferred income taxes (note 6)........................ 620,435 -- 324,106
Unearned entrance fees (note 1)....................... 3,687,707 4,316,391 3,911,229
------------- ------------- -------------
Total liabilities.................................. 9,581,138 11,001,017 15,133,521
------------- ------------- -------------
Commitments and contingencies (notes 5, 9, 11, 13,
and 14)
Stockholder's equity:
Preferred stock, $.01 par value. Authorized 5,000,000
shares; none issued and outstanding................. -- -- --
Common stock, $.01 par value. Authorized 100,000,000
shares; issued and outstanding 4,961,000 shares..... 49,610 49,610 49,610
Additional paid-in capital .......................... 8,443,995 17,818,772 42,337,698
Retained earnings (deficit).......................... 224,811 (3,095,637) (2,056,248)
------------- ------------- -------------
Net stockholder's equity........................... 8,718,416 14,772,745 40,331,060
------------- ------------- -------------
$18,299,554 $25,773,762 $55,464,581
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Wholly-Owned by Integrated Health Services, Inc.)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------ --------------------------
1993 1994 1995 1995 1996
------------ ------------- --------------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Monthly service and entrance fees..... $5,009,512 $10,905,925 $15,123,557 $7,471,081 $10,567,605
Management services and other......... 230,516 738,558 1,145,734 547,499 727,394
------------ ------------- --------------- ------------ -------------
Total revenues...................... 5,240,028 11,644,483 16,269,291 8,018,580 11,294,999
------------ ------------- --------------- ------------ -------------
Expenses:
Facility operations................... 3,455,602 8,253,851 11,242,938 5,576,065 7,137,967
Facility rents - parent company (note
5)................................... 855,963 1,466,243 2,430,397 1,215,199 1,309,088
Corporate administrative and general
(note 7)............................. 314,541 725,497 1,005,372 498,702 677,700
Depreciation and amortization......... 23,530 368,657 414,401 206,019 480,181
Loss on impairment of long-lived
assets
(note 12)............................ -- -- 5,125,838 -- --
------------ ------------- --------------- ------------ -------------
Total expenses...................... 4,649,636 10,814,248 20,218,946 7,495,985 9,604,936
------------ ------------- --------------- ------------ -------------
Earnings (loss) before income taxes. 590,392 830,235 (3,949,655) 522,595 1,690,063
Federal and state income taxes (note
6).................................... 230,253 311,338 (629,207) 201,199 650,674
------------ ------------- --------------- ------------ -------------
Net earnings (loss)................. $ 360,139 $ 518,897 $(3,320,448) $ 321,396 $ 1,039,389
============ ============= =============== ============ =============
Earnings (loss) per common share ...... $ .07 $ .10 $ (.67) $ .06 $ .21
============ ============= =============== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Wholly-Owned by Integrated Health Services, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
--------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992............. $49,610 $ 630,530 $ (654,225) $ 25,915
Net earnings............................. -- -- 360,139 360,139
Net capital contributions from parent
company.................................. -- 6,900,082 -- 6,900,082
--------- ------------- -------------- -------------
Balance at December 31, 1993............. 49,610 7,530,612 (294,086) 7,286,136
Net earnings............................. -- -- 518,897 518,897
Net capital contributions from parent
company.................................. -- 913,383 -- 913,383
--------- ------------- -------------- -------------
Balance at December 31, 1994............. 49,610 8,443,995 224,811 8,718,416
Net loss................................. -- -- (3,320,448) (3,320,448)
Net capital contributions from parent
company.................................. -- 9,374,777 -- 9,374,777
--------- ------------- -------------- -------------
Balance at December 31, 1995............. 49,610 17,818,772 (3,095,637) 14,772,745
Net earnings (unaudited)................. -- -- 1,039,389 1,039,389
Net capital contributions from parent
company (unaudited)...................... -- 24,518,926 -- 24,518,926
--------- ------------- -------------- -------------
Balance at June 30, 1996 (unaudited) .... $49,610 $42,337,698 $(2,056,248) $40,331,060
========= ============= ============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Wholly-Owned by Integrated Health Services, Inc.)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ --------------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)............................ $ 360,139 $ 518,897 $(3,320,448) $ 321,396 $ 1,039,389
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating
activities:
Deferred income taxes......................... 54,127 162,871 (620,435) (139,136) 324,106
Loss on impairment of long-lived assets....... -- -- 5,125,838 -- --
Depreciation and amortization................. 23,530 368,657 414,401 206,019 480,181
Decrease (increase) in accounts receivable ... (80,272) 102,777 (335,601) (337,242) 171,241
Decrease (increase) in prepaid expenses and
other current assets......................... 4,992 (170,051) 31,720 37,649 (219,551)
Earned entrance fees.......................... (87,675) (679,319) (680,409) (285,632) (495,432)
Entrance fees received........................ 80,550 768,798 1,491,593 864,926 383,250
Increase (decrease) in accounts payable and
accrued expenses............................. (165,781) 532,662 264,869 (201,199) 695,926
------------ ------------ --------------- ------------ -------------
Net cash provided by operating activities ...... 189,610 1,605,292 2,371,528 466,781 2,379,110
------------ ------------ --------------- ------------ -------------
Cash flows from financing activities:
Net capital distributions to parent company ... (168,472) (427,127) (2,536,614) (87,509) (2,651,074)
Refundable deposits received................... 57,750 505,865 1,456,709 895,760 242,250
Refunds of deposits and entrance fees.......... (62,275) (370,769) (707,367) (201,966) (380,466)
------------ ------------ --------------- ------------ -------------
Net cash (used) by financing activities......... (172,997) (292,031) (1,787,272) 606,285 (2,789,290)
------------ ------------ --------------- ------------ -------------
Cash flows from investing activities:
Property, plant and equipment additions........ (11,627) (358,375) (843,902) (232,279) (185,388)
Decrease (increase) in other assets............ -- -- (190,136) 16,864 348,210
Decrease (increase) in assets limited as to
use........................................... (3,817) (169,503) 76,592 92,136 (46,009)
------------ ------------ --------------- ------------ -------------
Net cash (used) by investing activities......... (15,444) (527,878) (957,446) (123,279) 116,813
------------ ------------ --------------- ------------ -------------
Increase (decrease) in cash..................... 1,169 785,383 (373,190) 949,787 (293,367)
Cash, beginning of period....................... -- 1,169 786,552 786,552 413,362
------------ ------------ --------------- ------------ -------------
Cash, end of period............................. $ 1,169 $ 786,552 $ 413,362 $1,736,339 $ 119,995
============ ============ =============== ============ =============
Noncash investing and financing activities --
acquisitions of facilities: (note 2)
Assets of businesses acquired, net............. $7,068,554 $1,340,510 $11,911,391 -- $27,170,000
Capital contributed by parent company.......... $7,068,554 $1,340,510 $11,911,391 -- $27,170,000
============ ============ =============== ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC AND SUBSIDIARIES
(Wholly-Owned by Integrated Health Services, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
AND JUNE 30, 1995 AND 1996
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Basis of Presentation
In November 1995, Integrated Living Communities, Inc. (ILC or the Company)
was formed through a corporate reorganization whereby the assets and liabilities
of the Integrated Living Communities Division (the Division) of Integrated
Health Services, Inc. (IHS or the Parent Company) were transferred or leased
from IHS subsidiaries to ILC and its subsidiaries. ILC was formerly Kingsley
Place Retirement, Inc. until its present name was adopted in January 1996. The
consolidated financial statements of the Company represent the accounts of the
assisted living and other senior living facilities comprising the Division and
operating within the following wholly-owned subsidiaries of IHS:
<TABLE>
<CAPTION>
OWNER/LESSEE
DATE OF ACQUISITION AND IHS OWNED OR
FACILITY AND LOCATION OPERATING ENTITY LEASED
- ------------------------------------ ------------------------------- ------------------------------- ------------
<S> <C> <C> <C>
West Palm Beach December 1, 1993 Central Park Lodges, Inc. Leased
Retirement, West Palm Beach, Florida
a 34-unit assisted living
facility
Waterside Retirement Estates December 1, 1993 F.L.C. Lakehouse, Inc. Owned
(formerly Lakehouse East), Sarasota, Florida
a 164-unit continuing care
retirement community
The Homestead, March 18, 1994 I.H.S. of Denton, Inc. Owned
a 50-unit assisted living Denton, Maryland
and adult day care facility
Treemont Retirement February 9, 1989 Cambridge Group of
Community, a 231-unit Dallas, Texas Texas, Inc. Leased
continuing care retirement
community, Alzheimer's
and adult day care facility
The Shores, a 260-unit assisted September 1, 1994 Integrated Health Services
living, continuing care Bradenton, Florida of Lester, Inc. Leased
retirement community and
Alzheimer's care facility
Cheyenne Place Retirement, September 1, 1994 Integrated Health Services
a 95-unit congregate care Colorado Springs, Colorado of Lester, Inc. Leased
facility
Carrington Pointe, a December 15,1995 Integrated Management -
172-unit congregate Fresno, California Carrington Pointe, Inc. Owned
care and assisted living
facility
</TABLE>
Also, the statements include accounts of Integrated Living Communities
Retirement Management, Inc., ("ILCRM"), which manages eight facilities, two of
which are scheduled to open in 1996.
F-8
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC AND SUBSIDIARIES -
(Wholly-Owned by Integrated Health Services, Inc.) (Continued)
Two of the Company's facilities are located on campuses containing both
assisted-living facilities and skilled-nursing facilities which share certain
operating expenses. The facilities are owned by subsidiaries of IHS and have
been leased to the Company (see note 5). Effective June 1, 1996, the Company and
an IHS subsidiary entered into separate condominium agreements and shared
services agreements for these facilities as discussed in note 14. Allocations of
various operating expenses have been made by IHS on a monthly basis in order to
present the separate operating expenses of the assisted-living facilities and
skilled-nursing facilities. The accompanying financial statements reflect the
revenues and expenses (including such allocations) related to the
assisted-living facilities only.
The consolidated financial statements reflect the historical accounts of the
assisted living and other senior living facilities, including allocations of
general and administrative expenses from the IHS corporate office to the
individual facilities. Such corporate office allocations, calculated as a
percentage of revenue, are based on determinations that management believes to
be reasonable. However, IHS has operated certain other businesses and has
provided certain services to the Company, including financial, legal,
accounting, human resources and information systems services. Accordingly,
expense allocations to the Company may not be representative of costs of such
services to be incurred in the future (see note 7). Also, the consolidated
financial statements reflect adjustments made by IHS to establish a new basis of
accounting for the assets and liabilities of businesses acquired, using the
"push down" approach to accounting for business combinations under the purchase
method. The effect of these adjustments was to increase the cost of goodwill,
property, plant and equipment by approximately $6.2 million at December 31, 1995
(before the loss on impairment of long-lived assets (note 12) and to increase
depreciation and amortization expense by $13,000 in 1993 and $140,000 in each of
1994 and 1995.
Revenue Recognition
Resident units are rented on a month to month basis and monthly service fee
revenue is recognized in the months the units are occupied. Service fees paid by
residents for assisted-living and other related services are recognized in the
period such services are rendered as other revenue. In some cases, residents of
the Waterside Retirement Estates facility have entered into life-care contracts
whereby the resident pays an entrance fee as well as a monthly rental payment.
Under most life-care contracts (membership agreements), entrance fees are
partially refundable to the resident. The minimum refund amount pursuant to the
resident's membership agreement (generally 50% of the total entrance fee) is
payable to the resident or the resident's estate within 120 days of termination
of the agreement, which may occur at any time after 30 days notice. In addition,
a portion of the remainder of the entrance fee is payable if the contract is
terminated within 24 months of move-in, determined on a declining pro rata
basis. The minimum refund amount and the estimated amount of the remainder which
is expected to be refunded based on past experience of the facility are
accounted for as refundable deposit liabilities. The remaining amount of the
entrance fees is accounted for as deferred revenue under the caption "unearned
entrance fees." Such deferred revenue is amortized to operations of future
periods based on the estimated life of the resident, adjusted annually based on
the actuarially determined estimated remaining life expectancy of each resident,
on the straight-line method. Unamortized deferred revenue is recorded as revenue
upon the resident's death or contract termination. Earned entrance fees on
life-care contracts were $87,675 in 1993, $679,319 in 1994, and $680,409 in
1995.
F-9
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC AND SUBSIDIARIES -
(Wholly-Owned by Integrated Health Services, Inc.) (Continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment are computed using the straight-line method over the
estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Building and improvements ... 40 years
Land improvements............ 25 years
Equipment.................... 10 years
Leasehold improvements....... Term of the lease
</TABLE>
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109). The Company was not a
separate taxable entity during the three years ended December 31, 1995; however,
under SFAS 109 the current and deferred tax expense has been allocated among the
members of the IHS controlled corporate group including the Company and its
subsidiaries.
Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are recorded for deferred tax
assets when it is more likely than not that such deferred tax assets will not be
realized.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid instruments with an
original maturity of three months or less. Under a cash management facility
provided by the Parent Company, the Company's operating cash balances of the
facilities are generally transferred to a centralized account and applied to
reduce additional paid-in capital. The Company's cash needs for operating and
other purposes are similarly provided through an increase to additional paid-in
capital. However, in 1994 and 1995 the Waterside Retirement Estates facility
transferred cash to the Parent Company only to the extent needed to satisfy cash
needs for operating expenses. The excess of cash receipts over cash
disbursements of this facility is reflected in the cash and cash equivalents
account as of December 31, 1994 and 1995.
Obligation to Provide Future Services
For life-care contracts, the Company annually calculates the present value of
the net cost of future service and use of facilities to be provided to current
residents and compares that amount with the balance of deferred revenue from
entrance fees. If the present value of the net cost of future service and use of
facilities exceeds the deferred revenue from entrance fees, a liability is
recorded (obligation to provide future service and use of facilities) with a
corresponding charge to income.
Earnings per Common Share
Earnings per share is computed based on the weighted average number of common
and common equivalent shares outstanding during the periods. Common stock
equivalents include options to purchase common stock, assumed to be exercised
using the treasury stock method. Outstanding shares retroactively reflect the
stock split referred to in note 10.
F-10
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC AND SUBSIDIARIES -
(Wholly-Owned by Integrated Health Services, Inc.) (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 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.
Disclosures about Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, prepaid expenses and other
current assets, other assets, assets limited as to use funds, accounts payable,
and accrued expenses approximate fair value because of the short-term maturity
of these instruments.
The carrying amounts of refundable deposits may not approximate fair value
since these liabilities are not short-term in nature. However, since these
liabilities do not have specified maturity dates, management believes it is not
practicable to determine their fair value.
Impairment of Long-Lived Assets
Management regularly evaluates whether events or changes in circumstances
have occurred that could indicate an impairment in the value of long-lived
assets. In December 1995, as part of a company wide adoption by IHS, the Company
adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." In accordance with the provisions of
SFAS No. 121, if there is an indication that the carrying value of an asset is
not recoverable, the Company determines the amount of impairment loss by
comparing the carrying amount of the assets to their estimated fair value. If an
asset tested for recoverability was acquired in a business combination accounted
for using the purchase method, the related goodwill is included as part of the
carrying value in determining recoverability of that asset. Goodwill also is
evaluated for recoverability by estimating the projected undiscounted cash
flows, excluding interest, of the related business activities, and any excess of
carrying value over such estimates is written off.
In addition to consideration of impairment upon the events or changes in
circumstances described above, management regularly evaluates the remaining
lives of its long-lived assets. If estimates are changed, the carrying value of
affected assets is allocated over the remaining lives. Estimation of value and
future benefits of intangible assets is made based upon the related projected
undiscounted future cash flows, excluding interest payments.
Interim Financial Information
The unaudited consolidated financial information as of June 30, 1996 and for
the six months ended June 30, 1996 and 1995 has been prepared in conformity with
the accounting principles and practices reflected in the audited financial
statements included herein. In the opinion of the Company, the unaudited
consolidated financial information contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the Company's
financial position, results of operations and cash flows for the periods
indicated.
(2) BUSINESS ACQUISITIONS
During the three-year period ended December 31, 1995, IHS acquired six of the
seven assisted-living and other senior living facilities which are included in
the consolidated financial statements at December 31, 1995. Each acquisition was
accounted for by the purchase method; accordingly, the assets and liabilities of
the acquired facilities were recorded at their estimated fair values. The
results of operations of the facilities acquired have been included in the
consolidated financial statements from the respective dates of the acquisitions.
F-11
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC AND SUBSIDIARIES -
(Wholly-Owned by Integrated Health Services, Inc.) (Continued)
The total costs, by acquisition, have been allocated to the specific assets
and liabilities as follows:
<TABLE>
<CAPTION>
WATERSIDE
WEST PALM (LAKEHOUSE THE CARRINGTON
BEACH EAST) HOMESTEAD THE SHORES POINTE
----------- ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Accounts receivable, net................... $1,086 $ 136,597 $ 36,756 $ -- $ 12,105
Assets limited as to use................... -- 561,998 -- -- --
Property, plant and equipment.............. -- 13,382,609 1,369,012 -- 12,100,685
Goodwill (40 year useful life)............. -- 1,617,391 -- -- --
Other assets............................... -- 40,435 -- 47,514 13,520
Accounts payable and accrued expenses ..... (481,853) (65,258) (47,514) (214,919)
Refundable deposits........................ -- (3,966,688) -- -- --
Deferred income taxes...................... -- (403,437) -- -- --
Unearned entrance fees..................... -- (3,819,584) -- -- --
----------- ------------- ------------ ------------ ------------
Total, representing capital contributed by
Parent Company............................. $1,086 $ 7,067,468 $1,340,510 $ -- $11,911,391
=========== ============= ============ ============ ============
</TABLE>
On December 1, 1993, IHS acquired 100% of the common stock of Central Park
Lodges, Inc. (CPL). Among the facilities acquired in this transaction was West
Palm Beach, a 120-bed skilled nursing facility and 34 unit assisted-living
facility. The Company leases the assisted-living portion of the facility from
IHS (see notes 5 and 14).
In connection with the December 1, 1993 acquisition of CPL, IHS originally
obtained the 60.5% controlling interests in two partnerships, Lakehouse East,
which owns and operates a retirement facility including an assisted care wing,
21 garden apartments and 18 villas, and Lakehouse West, which owns and operates
an adjacent retirement facility consisting of a single building. The 39.5%
minority partners subsequently filed a suit against IHS and CPL alleging that
the CPL acquisition triggered a provision in the partnership agreements
requiring the sale of the minority interests in the partnership. Settlement of
the suit was subsequently reached pursuant to a Partition Agreement between the
parties. Under this agreement, an IHS subsidiary became the sole owner of
Lakehouse East and the former minority partners became the sole partners of the
partnership which is the sole owner of Lakehouse West. These events have been
accounted for as if the settlement had occurred effective as of the December 1,
1993 acquisition date. Accordingly, the financial statements include the
operations of Lakehouse East and exclude the operations of Lakehouse West from
December 1, 1993.
On March 18, 1994 IHS acquired The Homestead, a 50 unit assisted-living and
adult daycare facility for a total cost of approximately $1.3 million adjusted
for certain accrued liabilities, prepayments and deposits assumed by IHS. Prior
to the purchase IHS had managed the facility under a management agreement with
the prior owner.
On August 31, 1994 Integrated Health Services of Lester, Inc., an IHS
subsidiary, entered into separate facility operating leases for the 260-unit The
Shores and 95-unit Cheyenne Place facilities. Integrated Health Services of
Lester, Inc. leases these facilities, including the related equipment, furniture
and fixtures, and subleases them to the Company (see note 5.)
On December 15, 1995, IHS acquired Carrington Pointe, a 172 unit congregate
care and assisted-living facility for a total cost of approximately $11,900,000.
Prior to the acquisition, IHS had managed the facility under a management
agreement with the prior owner. The acquisition was recorded effective as of
December 31, 1995; accordingly, results of operations for the period December
15, 1995 to December 31, 1995 are not included in the financial statements. The
effect of not including this period is not material to the results of operations
of the Company. The assets acquired and liabilities assumed have been adjusted
to reflect the new basis of accounting and are included in the December 31, 1995
balance sheet of the Company.
F-12
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC AND SUBSIDIARIES -
(Wholly-Owned by Integrated Health Services, Inc.) (Continued)
The following summary, prepared on a pro forma basis, combines the results of
operations as if the acquisitions described above, certain acquisitions
consumated subsequent to December 31, 1995 and certain probable acquisitions
(see note 14) had been consummated as of January 1, 1994, after including the
effect of certain adjustments such as depreciation on the new basis of assets
acquired. The pro forma amounts also include adjustments to corporate
administrative and general expenses to reflect management's estimate of the
increase in such costs as if the Company had operated on a stand-alone basis
during these years.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1995
------------- --------------
<S> <C> <C>
Revenues................. $22,514,216 $27,452,000
Net loss................. $ (221,000) $(3,064,000)
Net loss per common
share.................... $ (.04) $ (.53)
</TABLE>
The unaudited pro forma results are not necessarily indicative of what
actually might have occurred if the acquisitions had been completed as of the
beginning of the periods presented. In addition, they are not intended to be a
projection of future results of operations and do not reflect any of the
business management changes that might be achieved from combined operations.
(3) ASSETS LIMITED AS TO USE
A portion of the entrance fee deposits on life-care contracts is held in
escrow pursuant to Section 651.035 of the statutes of the state of Florida. Such
minimum liquid reserve funds consist of cash equivalents that are required to be
maintained by continuing care facilities. Balances in such reserve funds of
$626,618 and $657,126 at December 31, 1994 and 1995, respectively, exceed the
required minimum liquid reserves at such dates. The remainder represents
entrance fee deposits held by a trustee pursuant to Florida law.
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995 JUNE 30, 1996
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Land and improvements......................... $ 5,166,862 $ 4,010,343 $ 4,012,717
Building and improvements..................... 9,332,822 18,828,646 46,120,290
Equipment..................................... 592,027 1,312,103 1,340,742
Construction in progress...................... 5,574 214,332 227,539
Leasehold improvements........................ 18,570 102,331 121,855
----------- ----------- -----------
15,115,855 24,467,755 51,823,143
Less accumulated depreciation and
amortization................................. 342,614 716,580 1,196,761
----------- ----------- -----------
Total......................................... $14,773,241 $23,751,175 $50,626,382
=========== =========== ===========
</TABLE>
(5) LEASES
The Company has leased four assisted-living facilities from IHS. With respect
to the West Palm Beach and Treemont facilities, IHS subsidiaries own the
premises of both skilled nursing and assisted living facilities, operate the
respective skilled nursing facilities, and lease the assisted living facilities
to the Company. Rent expense included in the financial statements under these
intercompany leases was $855,963 in 1993, $999,152 in 1994 and $1,029,126 in
1995. The Company has obtained condominium interests in these facilities
effective June 1, 1996 (see note 14).
F-13
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC AND SUBSIDIARIES -
(Wholly-Owned by Integrated Health Services, Inc.) (Continued)
Cheyenne Place and The Shores are leased from Litchfield Asset Management
Corporation by Integrated Health Services of Lester, Inc. (a subsidiary of IHS)
under separate leases. The Company entered into separate subleases for these
facilities with an IHS subsidiary effective June 1, 1996. The initial term of
the subleases is seven years and provide for various renewal terms at the option
of ILC at fair market rentals. Prior to June 1, 1996, the Company was allocated
rentals based on the lease between Litchfield Asset Management Corporation and
IHS. Rent expense included in the financial statements under these leases was
none in 1993, $467,091 in 1994 and $1,401,271 in 1995. Minimum rent payments
under these noncancellable subleases are summarized as follows for the years
ended December 31:
<TABLE>
<CAPTION>
<S> <C>
1996........ $ 1,588,769
1997........ 1,722,696
1998........ 1,722,696
1999........ 1,722,696
2000........ 1,722,696
Thereafter . 4,163,182
-------------
$12,642,735
=============
</TABLE>
(6) INCOME TAXES
The Company is included in IHS's consolidated federal income tax return. The
allocated provision for income taxes on earnings before income taxes is
summarized below:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------------- -----------------------
1993 1994 1995 1995 1996
---------- ---------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current... $176,126 $148,467 $ (8,772) $ 340,335 $326,568
Deferred . 54,127 162,871 (620,435) (139,136) 324,106
---------- ---------- ------------ ----------- -----------
$230,253 $311,338 $(629,207) $ 201,199 $650,674
========== ========== ============ =========== ===========
</TABLE>
The amount computed by applying the Federal corporate tax rate of 34% to
earnings before income taxes is reconciled to the provision for income taxes as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------ ---------------------
1993 1994 1995 1995 1996
---------- ---------- -------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income tax computed at statutory rates ....... $200,733 $282,280 $(1,342,883) $177,682 $574,621
State income taxes, net of Federal tax
benefit....................................... 29,287 31,053 (175,233) 24,491 75,854
Other......................................... 233 (1,995) (2,501) (974) 199
Valuation allowance adjustment................ -- -- 891,410 -- --
---------- ---------- -------------- ---------- ----------
$230,253 $311,338 $ (629,207) $201,199 $650,674
========== ========== ============== ========== ==========
</TABLE>
F-14
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC AND SUBSIDIARIES -
(Wholly-Owned by Integrated Health Services, Inc.) (Continued)
Deferred income tax liabilities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------- -------------
1993 1994 1995 1996
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Excess of book over tax basis of
assets................................. $ 1,981,232 $ 2,032,363 $ 798,083 $ 966,201
Unearned entrance fees................. (1,416,228) (1,382,890) (1,661,811) (1,505,823)
Accrued expenses....................... (77,999) (29,038) (27,682) (27,682)
Other.................................. (29,441) -- -- --
------------- ------------- ------------- -------------
457,564 620,435 (891,410) (567,304)
Valuation allowance.................... -- -- 891,410 891,410
------------- ------------- ------------- -------------
Deferred income tax liability.......... $ 457,564 $ 620,435 $ -- $ 324,106
============= ============= ============= =============
</TABLE>
The provision for Federal and state income taxes is recorded using the
overall effective tax rate of the consolidated group applied to the Company's
pre-tax earnings before adjustment for permanent differences. Deferred income
tax (assets) liabilities are recorded for the Company's temporary difference
using the same effective tax rate. The difference between the total provision
for income tax and the deferred income tax provision, both determined as
discussed above, represents income taxes currently payable to the parent company
and has been accounted for as additional paid-in capital. The provision for
income taxes, deferred income taxes and income taxes currently payable may vary
from such amounts that would have been computed on a stand-alone basis.
(7) OTHER RELATED PARTY TRANSACTIONS
Corporate administrative and general expenses represent management fees for
certain services, including financial, legal, accounting, human resources and
information systems services, provided by IHS pursuant to a management services
agreement. Management fees have been provided at 6% of total revenues of each
facility, except for the Lakehouse East partnership facility which has provided
management fees at 9% of monthly service fees revenue pursuant to the
partnership agreement in effect for the period from December 1, 1993 to October
31, 1995 (of which approximately $224,000 was paid to an IHS subsidiary and
approximately $224,000 was paid to the other partner).
Management fees charged by IHS at 6% of total revenues have been determined
based on an allocation of IHS's corporate general and administrative expenses,
which apply to all IHS divisions, including the Integrated Living Communities
Division. Such allocation has been made because specific identification of
expenses is not practicable. Management believes that this allocation method is
reasonable. However, management estimates that the Company's corporate
administrative and general expenses on a stand alone basis (i.e. expenses that
would have been incurred if the Company had operated as an unaffiliated entity)
would have been approximately $3.9 million in 1995.
F-15
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC AND SUBSIDIARIES -
(Wholly-Owned by Integrated Health Services, Inc.) (Continued)
(8) ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995 JUNE 30, 1996
--------- --------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued salaries and wages . $188,382 $307,327 $ 392,849
Refundable security
deposits.................... 291,807 370,331 409,583
Other accrued expenses ..... 125,129 253,283 506,350
-------- -------- -----------
$605,318 $930,941 $1,308,782
======== ======== ===========
</TABLE>
(9) NOTE RECEIVABLE
Integrated Living Communities Retirement Management, Inc. (ILCRM), a
subsidiary of the Company, entered into loan and security agreements dated
August 7, 1995 and amended on February 29, 1996 and July 9, 1996 with an
individual, the president of Elderly Development Company, Inc. Under the
agreements, ILCRM has agreed to loan up to $1,000,000 to the individual at an
annual interest rate of 11.75%. The balance of the loan at December 31, 1995 of
$130,000 is included in other assets. The loan is for the pre-development
activities of five assisted living facilities in California. The loan and
security agreement provide that ILCRM is entitled to the exclusive right to
manage the facilities upon the completion of construction. Also, the individual
has assigned the rights related to real estate purchase agreements to ILCRM. The
loan and security agreements provide ILCRM a security interest in the borrower's
pre-development plans, land contracts, and all licenses, permits and
governmental approvals. The principal balance of the loan, and all accrued and
unpaid interest thereon, is payable on demand.
(10) CAPITAL STOCK
As of December 31, 1995 and 1994, the Company was authorized to issue up to
1,000 shares of common stock, $.01 par value, of which 100 shares were issued
and outstanding. In June 1996, the Company's certificate of incorporation was
restated to increase the authorized shares to 100,000,000 shares of common
stock, $.01 par value and 5,000,000 shares of preferred stock, $.01 par value.
Also, the Company effected a 49,610-for-one common stock split (in the form of a
stock dividend). Share and per share data for all periods presented in the
financial statements give retroactive effect to the revised shares and the
common stock split referred to above. Accordingly, 4,961,000 shares of common
stock are reflected as issued and outstanding during the three years ended
December 31, 1995.
The preferred stock may be issued from time to time in one or more series as
determined by the Board of Directors. The Board of Directors is authorized to
issue the shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders. The preferred stock could be issued by the Board of Directors
with voting and conversion rights that could adversely affect the voting power
and other rights of the holders of the common Stock. In addition, because the
terms of the preferred stock may be fixed by the Board of Directors of the
Company without stockholder action, the preferred stock could be issued quickly
with terms calculated to defeat or delay a proposed takeover of the Company, or
to make the removal of the management of the Company more difficult.
The Company has adopted two stock option plans. The Stock Incentive Plan
provides for options to be granted to certain employees and consultants at an
exercise price per share not less than 100% of fair market value at the date of
grant (110% in certain cases). In addition, the Company adopted a Stock
F-16
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC AND SUBSIDIARIES -
(Wholly-Owned by Integrated Health Services, Inc.) (Continued)
Option Plan for Non-Employee Directors which provides for the grant of options
at an exercise price per share equal to the fair market value on the date of
grant. The Board of Directors has authorized the issuance of 694,150 shares of
common stock under the plans. Stock options to purchase an aggregate of 565,500
shares of common stock under the Stock Incentive Plan have been granted through
June 30, 1996. On June 10, 1996, stock options to purchase an aggregate of
515,000 shares of Common Stock in three equal installments, commencing June 10,
1997, were granted to five directors of the Company.
(11) LIFE-CARE CONTRACTS
The obligation under life-care contracts to provide future service and use of
facilities is calculated as the present value of the net future service and use
costs. Unamortized deferred revenue exceeded the net present value of such net
costs at December 31, 1994 and 1995; accordingly, there was no future service
liability recorded in connection with the life-care contracts at December 31,
1994 and 1995.
In accordance with the contractual arrangements under certain life-care
contracts, a minimum amount (generally 50%) of the entrance fee is refundable
and a portion of the entrance fee is refundable if the contract is terminated
within a specified time period (potentially refundable entrance fees).
Refundable deposits represent the minimum refunds under the membership
agreements and the estimated amount expected to be refunded of the potentially
refundable entrance fees, based on past experience with contract terminations.
Potentially refundable entrance fees were $871,270 and $882,779 at December 31,
1994 and 1995, respectively, of which $187,281 and $215,627, respectively, is
included in refundable deposits; the remainder is included in unearned entrance
fees. Refunds paid were $62,275 for the period from December 1, 1993 to December
31, 1993, $370,769 in 1994, and $707,367 in 1995, including minimum refunds of
$62,275 in 1993, $343,819 in 1994 and $553,213 in 1995.
(12) LOSS ON IMPAIRMENT OF LONG-LIVED ASSETS
The Company implemented Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 121 in connection with the Parent Company's
implementation in 1995. Through evaluation of the recent financial performance
and a recent appraisal of one of its facilities, the Company estimated the fair
value of this facility and determined that the carrying value of certain
long-lived assets, including goodwill, land, buildings and improvements,
exceeded their fair value. The excess carrying value of $5,125,838 (of which
$1,533,152 represented goodwill and $3,592,686 represented property, buildings
and improvements) was written off and is included in the statement of operations
for 1995 as a loss on impairment of long-lived assets.
(13) LEGAL PROCEEDINGS
The Company is involved in various legal proceedings that are incidental to
the conduct of its business. Management believes that pending or threatened
legal proceedings will have no material adverse effect on the Company's
financial condition or results of operations.
(14) EVENTS SUBSEQUENT TO DECEMBER 31, 1995
Acquisitions
On January 29, 1996, an IHS subsidiary purchased the Vintage Health Care
Center, a 110-unit skilled nursing, 43-unit assisted-living and a 62-unit
congregate care facility located in Denton, Texas and leased the assisted living
and Congregate care portion to the Company. The Company and the IHS subsidiary
subsequently entered into a condominium agreement (discussed more fully below)
for the Vintage Facility whereby the Company owns and operates the
assisted-living and congregate care portion and IHS owns and operates the
skilled-nursing portion. Between January 29, 1996 and the effective date of the
condominium agreement (June 1, 1996), ILC leased the assisted living and
congregate care portion from IHS at a monthly rental of $35,000.
F-17
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC AND SUBSIDIARIES -
(Wholly-Owned by Integrated Health Services, Inc.) (Continued)
Effective June 1, 1996, the Company and an IHS subsidiary entered into
separate condominium agreements and shared services agreements for the West Palm
Beach, Treemont and Vintage facilities whereby the Company owns and operates the
assisted living and congregate care portions and IHS owns and operates the
skilled-nursing portion of the facilities. Previously, these facilities were
leased from IHS. In connection with the condominium agreements, IHS made capital
contributions of approximately $27.2 million, representing the lesser of IHS's
carryover basis in the assisted living and congregate care assets contributed or
the estimated fair market value of such assets based on independent appraisals.
The capital contributions were $2,260,000 for West Palm Beach, $21,450,000 for
Treemont and $3,460,000 for Vintage. The Company cannot transfer its condominium
interest without the prior consent of IHS. The IHS facility in which the
Treemont facility is located is subject to a mortgage. Should IHS default on its
obligations under the mortgage, the lender could foreclose on the mortgage which
could materially adversely affect the Company's business, results of operations
and financial condition.
Shared services agreements require that IHS provide laundry, housekeeping,
building maintenance, landscaping, emergency call services and common area
maintenance for a combined total of $61,482 per month. In addition, IHS will
provide dietary services to the Company for between $8 and $10 per resident per
day. Utilities and real estate costs will be allocated among the condominium
units according to pre-defined percentages. Finally, at the Vintage, IHS and the
Company will share the services of the executive director; the Company will
reimburse IHS for 30% of the executive director's salary, benefits and other
expenses.
Effective July 1, 1996, the Company entered into a lease agreement for
Homestead of Garden City, a 35 unit assisted living facility in Garden City,
Kansas. Effective July 17, 1996, the Company entered into a lease agreement for
Homestead of Wichita, a 35 unit assisted living facility located in Wichita,
Kansas. The initial term of each lease is 15 years with three five-year renewal
options. Annual rent under each lease is $287,500, subject to increases based on
the consumer price index.
The Company has entered into agreements to purchase two assisted-living and
other senior living facilities for an aggregate purchase price of approximately
$14.9 million. The Cabot Pointe asset purchase is scheduled to close in August
1996, with funds provided by IHS. The Company expects to sell Cabot Pointe and
lease it back from a real estate investment trust immediately following the
acquisition. The Terrace Gardens asset purchase acquisition is scheduled to
close simultaneously with the initial public offering of ILC common stock. There
can be no assurance that these acquisitions and/or the sale/leaseback financing
will close as scheduled or at all. A summary of the acquisitions is as follows:
<TABLE>
<CAPTION>
FACILITIES TYPE OF PURCHASE NUMBER ANNUAL
ACQUIRED ACQUISITION LOCATION PRICE OF UNITS RENT
- ------------------- ---------------- ------------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Terrace Gardens ... Purchase Wichita, Kansas $12,200,000 258 $ --
Cabot Pointe....... Purchase/ Bradenton,
Sale Leaseback Florida 2,700,000 35 271,000
Note Receivable
</TABLE>
Integrated Living Communities Retirement Management, Inc. (ILCRM), a
subsidiary of IHS and on behalf of the Division, entered into a Revolving Credit
and Security Agreement and a Revolving Credit Note dated March 18, 1996 and
amended on July 12, 1996 with an assisted living facility development company,
The Homestead Company, L.C., a Kansas limited liability company. Under such
agreement, ILCRM has agreed to loan up to $1,000,000, on a revolving basis, to
be used for the sole purpose of developing four assisted living facilities in
Kansas and six facilities in Nebraska. The note shall bear interest at an annual
rate of 11.75%. The Revolving Credit and Security Agreement provides ILCRM a
security interest in the borrower's interest in all development plans,
assignments of land contracts, and all licenses, permits and governmental
approvals. The note is also secured by a $250,000 personal guar-
F-18
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC AND SUBSIDIARIES -
(Wholly-Owned by Integrated Health Services, Inc.) (Continued)
anty by the president of The Homestead Company, L.C. The entire outstanding
principal balance of the loan, and all accrued and unpaid interest thereon, is
payable on demand. Also, the individual has assigned the rights related to real
estate purchase agreements to ILCRM.
Employment Agreements
The Company has employment agreements with four of its officers which provide
annual base salaries aggregating $765,000. In addition, the officers will
receive bonuses, if the Company attains certain performance goals, as well as
health, life, disability, and personal unbrella insurance and an annual
automobile allowance. The agreements provide the officers the right to
participate in any executive retirement and equity-based compensation programs
established by the Company in the discretion of the Compensation Committee of
the Board of Directors.
Revolving Credit Note
Effective June 30, 1996, IHS has made available to the Company a $75 million
revolving credit facility. Borrowings under the facility bear interest at the
rate of 14% per annum. All outstanding borrowings, together with all accrued but
unpaid interest, are due at the earlier of (i) the closing of an initial public
offering by ILC or (ii) June 30, 1998. At June 30, 1996, $3.4 million was
outstanding under this facility. Borrowings under this facility have been used
to finance the Company's development activities.
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
F.L.C. Lakehouse, Inc.,
Don Blivas, Janice Blivas, Fred Fiala
and John Rowe
d/b/a Lakehouse East
Sarasota, Florida:
We have audited the accompanying statements of operations and cash flows for the
year ended October 31, 1993 of F.L.C. Lakehouse Inc., Don Blivas, Janice Blivas,
Fred Fiala, and John Rowe d/b/a Lakehouse East (a Partnership). These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these 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 results of operations and cash flows of Lakehouse
East for the year ended October 31, 1993, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Tampa, Florida
May 15, 1995
F-20
<PAGE>
LAKEHOUSE EAST
(A PARTNERSHIP)
STATEMENT OF OPERATIONS
Year ended
October 31, 1993
----------------
Revenues
Maintenance fees.............................. $2,308,710
Earned entrance fees.......................... 864,941
Interest...................................... 13,053
Other......................................... 60,715
----------
Total revenues................................. 3,247,419
----------
Expenses
Resident care................................. 1,555,138
Selling, general and administrative........... 1,153,555
Utilities..................................... 231,033
Depreciation.................................. 443,352
Interest...................................... 143,091
----------
Total expenses................................. 3,526,169
----------
Net loss....................................... $ (278,750)
==========
See notes to financial statements.
F-21
<PAGE>
LAKEHOUSE EAST
(A PARTNERSHIP)
STATEMENT OF CASH FLOWS
Year ended
October 31, 1993
Operating Activities
Net loss.......................................................... $ (278,750)
Adjustments to reconcile net loss to net cash provided by
operating
activities:
Depreciation..................................................... 443,352
Earned entrance fees............................................. (864,941)
Entrance fees received........................................... 1,009,948
Changes in operating assets and liabilities:
Increase in accounts receivable................................. (10,595)
Decrease in prepaid expenses and other assets................... 4,084
Increase in accounts payable and accrued expenses............... 133,210
Increase in accrued employees' compensation and benefits........ 65,644
Decrease in accrued interest.................................... (23)
----------
Net cash provided by operating activities.......................... 501,929
----------
Investing Activities
Purchases of property and equipment............................... (155,637)
Increase in assets whose use is limited........................... (20,548)
----------
Net cash used in investing activities.............................. (176,185)
----------
Financing Activities
Advances to Partners.............................................. (60,409)
Advances from affiliate........................................... 112,505
Principal payments on long-term debt.............................. (500,000)
Refundable deposits received...................................... 576,303
Refundable deposits paid.......................................... (492,700)
----------
Net cash used in financing activities.............................. (364,301)
----------
Decrease in cash................................................... (38,557)
Cash, beginning of year............................................ 181,744
----------
Cash, end of year.................................................. $ 143,187
==========
See notes to financial statements.
F-22
<PAGE>
LAKEHOUSE EAST
(A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
F.L.C. Lakehouse, Inc., Don Blivas, Janice Blivas, Fred Fiala, and John Rowe
d/b/a Lakehouse East (the "Partnership") is a partnership organized and existing
under the laws of Florida. The principal business is the management and
maintenance of a life care facility. The financial statements include only those
assets, liabilities and results of operations which relate to the business of
the Partnership. The statements do not include any assets, liabilities, revenues
or expenses attributable to the partners' individual activities.
Ownership Interests
Partners October 31, 1993
-------- ----------------
F.L.C. Lakehouse, Inc................... 60.50%
Donald Blivas........................... 16.50
Janice Blivas........................... 9.00
John Rowe............................... 7.50
Fred Fiala.............................. 6.50
-----
100.00%
------
On December 1, 1993, 100% of the common stock of Central Park Lodges,
Inc., parent company of F.L.C. Lakehouse, Inc., was purchased by Integrated
Health Services, Inc. ("IHS"). This transaction did not have any effect on the
accounts of the Partnership.
The acquisition by IHS is subject to approval of the Florida Department of
Insurance ("DOI"). IHS has applied to the DOI for approval, however, the DOI has
not acted on the application. IHS expects the application to be approved,
however, if it is disapproved, the DOI could take action that would be adverse
to IHS and the Partnership including revocation of the certificate of authority
for operation of the facility or require IHS to divest its ownership interest.
The minority shareholders have filed suit against FLC Lakehouse, Inc. IHS and
others alleging among other matters that the acquisition of FLC Lakehouse, Inc.
by IHS required the consent of the minority partners or that arrangements should
have been made to have the minority partners' interests also purchased. The case
is in the preliminary stages of discovery, however, as it represents litigation
among the partners, it is not expected to have any impact on the financial
position of the partnership.
2. SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment: Property and equipment are stated at historical cost.
Additions and betterments that extend the life of an asset are capitalized.
Maintenance and repair expenditures are expensed as incurred. Depreciation is
computed on the straight-line method based on the following estimated useful
lives:
Building and improvements ... 20-40 years
Furniture and equipment ..... 5-10 years
Unearned Entrance Fees and Refundable Deposits: The Partnership accounts for
the nonrefundable portion of entrance fees related to the sale of certain
residency and care agreements as "unearned entrance fees" and recognizes income
from these fees over the estimated remaining life expectancy of each resident,
with the life expectancy reevaluated annually. The refundable portion is
accounted for as "refundable deposits" and is not amortized. Residency and care
agreements may be terminated by residents at any time for any reason with 30
days notice. Within 120 days of termination, the minimum
F-23
<PAGE>
LAKEHOUSE EAST
(A Partnership)
Notes to Financial Statements--(Continued)
refund amount per contract of the total entrance fee will be refunded to the
resident or the resident's estate. If the contract is terminated within 24
months of move-in, the refunds may be higher. Payments of such refunds are
charged against the resident's unamortized entrance fee and refundable deposit
and any gain or loss is included in revenue or expense.
Income Taxes: The Partnership is not considered a taxable entity for Federal
and State income tax purposes. Any taxable income or losses, investment credits
and certain other items, therefore, are the responsibility of the partners on
their income tax returns in accordance with the partnership agreement. The
Partnership uses a fiscal year ending December 31, for reporting income tax
items to the partners.
3. ASSETS WHOSE USE IS LIMITED
Assets whose use is limited for entrance fee deposits held in escrow are
restricted by the statutes of the State of Florida.
Assets whose use is limited for minimum liquid reserve funds consists of cash
and cash equivalents that are required to be maintained by continuing care
facilities in accordance with Section 651.035, Florida Statutes. The Partnership
has met its required minimum liquid reserves at October 31, 1993.
4. RELATED PARTY TRANSACTIONS
The following transactions between the Partnership and related organizations
have been reflected in the financial statements:
The Partnership records expenses payable to a partner for management fees as
well as payroll costs, data processing fees and miscellaneous other charges paid
on behalf of the Partnership. Through December 1993, these advances from the
partner were charged interest at 2% above the prime rate (which was 6% at
October 31, 1993). The Partnership recognized $116,665 of interest expense in
the year ended October 31, 1993 related to these advances.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
F.L.C. Lakehouse, Inc.,
Don Blivas, Janice Blivas, Fred Fiala
and John Rowe
d/b/a Lakehouse East:
We have audited the accompanying statements of operations and cash flows of
F.L.C. Lakehouse, Inc., Don Blivas, Janice Blivas, Fred Fiala and John Rowe
d/b/a Lakehouse East (a Partnership) for the month ended November 30, 1993.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these 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 results of operations and cash flows of Lakehouse
East for the month ended November 30, 1993 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Baltimore, Maryland
June 5, 1996
F-25
<PAGE>
LAKEHOUSE EAST (A PARTNERSHIP)
STATEMENT OF OPERATIONS
Month ended
November 30, 1993
-----------------
Revenues:
Monthly service fees........... $ 194,661
Earned entrance fees .......... 109,709
Other.......................... 6,797
---------
Total revenues.................. 311,167
---------
Operating expenses:.
Community operations........... 228,267
Management fees (note 3)....... 17,519
Depreciation .................. 37,068
Interest (note 3) ............. 10,846
---------
Total operating expenses........ 293,700
---------
Net earnings................... $ 17,467
=========
See accompanying notes to financial statements.
F-26
<PAGE>
LAKEHOUSE EAST (A PARTNERSHIP)
STATEMENT OF CASH FLOWS
Month ended
November 30, 1993
-----------------
Cash flows from operating activities:
Net earnings...................................................... $ 17,467
Adjustments to reconcile net earnings to net cash used by
operating activities:
Depreciation..................................................... 37,068
Earned entrance fees............................................. (109,709)
Entrance fees received........................................... 20,875
Decrease in accounts receivable ................................. 140,341
Decrease in prepaid expenses and other assets.................... 2,047
Decrease in accounts payable and accrued expenses................ (109,632)
---------
Net cash used by operating activities.............................. (1,543)
---------
Cash flows from financing activities:
Advances from Partners............................................ 27,088
Advances from affiliate........................................... 73,037
Principal payments on long-term debt.............................. (125,000)
Refunds of deposits and entrance fees............................. (112,725)
---------
Net cash used by financing activities.............................. (137,600)
---------
Cash flows from investing activities:
Purchases of property and equipment............................... (9,965)
Decrease in assets limited as to use.............................. 6,671
---------
Net cash used by investing activities ............................ (3,294)
---------
Decrease in cash................................................... (142,437)
Cash, beginning of period.......................................... 143,187
---------
Cash, end of period................................................ $ 750
=========
See accompanying notes to financial statements.
F-27
<PAGE>
LAKEHOUSE EAST (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MONTHS ENDED NOVEMBER 30, 1993
(1) ORGANIZATION
F.L.C. Lakehouse, Inc., Don Blivas, Janice Blivas, Fred Fiala and John Rowe
d/b/a Lakehouse East (the "Partnership") is a partnership organized and existing
under the laws of the state of Florida. The principal business is the management
and maintenance of a 164-unit life care facility. The financial statements
include only the results of operations which relate to the business of the
Partnership. The ownership interests of the partners at November 30, 1993 are as
follows:
F.L.C. Lakehouse, Inc................... 60.50%
Donald Blivas........................... 16.50%
Janice Blivas .......................... 9.00%
John Rowe............................... 7.50%
Fred Fiala.............................. 6.50%
------
100.00%
======
On December 1, 1993, 100% of the common stock of Central Park Lodges, Inc.,
parent company of F.L.C. Lakehouse, Inc., was purchased by Integrated Health
Services, Inc. ("IHS"). In connection with the December 1, 1993 acquisition of
CPL, IHS originally obtained the controlling interests in two partnerships,
Lakehouse East, which owns and operates a retirement facility including an
assisted care wing, 21 garden apartments and 18 villas, and Lakehouse West,
which owns and operates an adjacent retirement facility consisting of a single
building. The 39.5% minority partners subsequently filed a suit against IHS and
CPL alleging that the CPL acquisition triggered a provision in the partnership
agreements requiring the sale of the minority interests in the partnership.
Settlement of the suit was subsequently reached pursuant to a Partition
Agreement between the parties. Under this agreement, an IHS subsidiary became
the sole owner of Lakehouse East and the former minority partners became the
sole partners of the partnership which is the sole owner of Lakehouse West.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
In some cases, residents of the Lakehouse East facility have entered into
life-care contracts whereby the resident pays an entrance fee as well as a
monthly rental payment. Additionally, residents pay a monthly service fee that
is recognized as revenue in the period in which it is earned. Other revenue
represents charges for additional services.
Under most life-care contracts (membership agreements), entrance fees are
partially refundable to the resident. The minimum refund amount pursuant to the
resident's membership agreement (generally 50% of the total entrance fee) is
payable to the resident or the resident's estate within 120 days of termination
of the agreement, which may occur at any time after 30 days notice. In addition,
a portion of the remainder of the entrance fee is payable if the contract is
terminated within 24 months of move-in, determined on a declining pro rata
basis. The minimum refund amount and the estimated amount of the remainder which
is expected to be refunded based on past experience of the facility are
accounted for as refundable deposit liabilities. The remaining amount of the
entrance fee is accounted for as deferred revenue under the caption "unearned
entrance fees." Such deferred revenue is amortized to operations of future
periods based on the estimated life of the resident, adjusted annually based on
the actuarially determined estimated remaining life expectancy of each resident,
on the straight-line method. Unamortized deferred revenue is recorded as revenue
upon the resident's death or contract termination.
F-28
<PAGE>
LAKEHOUSE EAST (A PARTNERSHIP)
Notes to Financial Statements (Continued)
Property and Equipment
Property and equipment are recorded at historical cost. Depreciation of
property and equipment are computed using the straight-line method over the
estimated useful lives of the assets as follows:
Buildings and improvements ... 20-40 years
Furniture and equipment....... 5-10 years
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 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.
Income Taxes
The Partnership is not considered a taxable entity for Federal and state
income tax purposes. Any taxable income or losses, investment credits and
certain other items, therefore, are the responsibility of the partners on their
income tax returns in accordance with the partnership agreement. The Partnership
uses a fiscal year ending December 31 for reporting income tax items to the
partners.
(3) RELATED PARTY TRANSACTIONS
The following transactions between the Partnership and related organizations
have been reflected in the financial statements.
The Partnership records expenses payable to a partner for management fees of
$17,519, as well as payroll costs, data processing fees and miscellaneous other
charges paid on behalf of the Partnership. During November 1993, these advances
from the partner were charged interest at 2% above the prime rate (which was 6%
at November 30, 1993). The Partnership recognized approximately $11,000 of
interest expense for the one month period ended November 30, 1993 related to
these advances.
The Partnership shares a centralized cash account with an affiliated
partnership, Lakehouse West, which results in intercompany balances between
Lakehouse East and Lakehouse West.
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Liberty/Carrington Pointe Limited Partnership:
We have audited the accompanying statements of operations and cash flows of
Carrington Pointe (a facility owned by Liberty/Carrington Pointe Limited
Partnership) for each of the years in the three-year period ended December 31,
1995. These financial statements are the responsibility of the facility'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 results of operations, and cash flows of Carrington
Pointe (a facility owned by Liberty/Carrington Pointe Limited Partnership) for
each of the years in the three-year period ended December 31, 1995 in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Baltimore, Maryland
June 5, 1996
F-30
<PAGE>
CARRINGTON POINTE
(A FACILITY OWNED BY LIBERTY/CARRINGTON POINTE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
Years ended December 31,
--------------------------------------
1993 1994 1995
---- ---- ----
Revenues:
Monthly service fees........ $3,191,293 $3,368,346 $3,485,989
Other ...................... 89,848 81,551 102,412
---------- ---------- ----------
Total revenues............... 3,281,141 3,449,897 3,588,401
---------- ---------- ----------
Facility operating expenses:
Salaries, wages and benefit 1,012,499 1,062,616 1,074,229
Other operating expenses ... 909,755 942,577 862,676
Management fees (note 2) .... 230,895 240,938 249,470
Depreciation ................ 406,166 416,074 425,153
--------- --------- ---------
Total expenses............... 2,559,315 2,662,205 2,611,528
---------- --------- ---------
Net earnings................. $ 721,826 $ 787,692 $ 976,873
========== ========== ==========
See accompanying notes to financial statements.
F-31
<PAGE>
CARRINGTON POINTE
(A FACILITY OWNED BY LIBERTY/CARRINGTON POINTE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings................................................ $ 721,826 $ 787,692 $ 976,873
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation .............................................. 406,166 416,074 425,153
Decrease (increase) in prepaid expenses and other assets... 2,345 4,810 (3,272)
Increase in accounts receivable ........................... (10,490) (5,033) (84)
Increase (decrease) in accounts payable and other
liabilities .............................................. (15,906) (60,595) 125,535
---------- ---------- ---------
Net cash provided by operating activities.................... 1,103,941 1,142,948 1,524,205
Cash flows from financing activities--decrease in amounts
due to affiliates .......................................... (1,045,931) (1,090,218) (1,508,281)
Cash flows from investing activities--purchases of property,
plant and equipment ........................................ (18,268) (99,040) (4,200)
---------- --------- --------
Increase (decrease) in cash.................................. 39,742 (46,310) 11,724
Cash, beginning of period.................................... 13,577 53,319 7,009
---------- --------- ---------
Cash, end of period.......................................... $ 53,319 $ 7,009 $ 18,733
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
CARRINGTON POINTE
(A FACILITY OWNED BY LIBERTY/CARRINGTON POINTE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Basis of Presentation
Carrington Pointe (the facility) is a 172-unit assisted-living facility
located in Fresno, California. The facility provides various services to its
residents, including meals, social activities and other personal services.
Liberty/Carrington Pointe Limited Partnership (the "Partnership") is a
partnership organized and existing under the laws of Massachusetts which owns
and operates the Carrington Pointe facility.
The partners' interest in the Partnership are as follows:
Partnership Ownership
Partners Interest Interests
-------- -------- ---------
Liberty Real Estate Properties, Inc. ... General 1%
Atlantic Real Estate L.P................ Limited 99%
---
100%
===
On December 15, 1995, a subsidiary of Integrated Health Services, Inc. (IHS)
acquired the facility from Liberty/Carrington Pointe Limited Partnership. The
purchase price was approximately $11,900,000 adjusted for certain accrued
liabilities, prepayments and deposits assumed by IHS. These financial statements
include no adjustments to establish a new basis of accounting for the facility
related to the change in ownership.
IHS recorded the acquisition of Carrington Pointe as of December 31, 1995. In
connection with a corporate reorganization in 1996, Carrington Pointe is now
owned by a subsidiary of Integrated Living Communities, Inc. which is also
wholly-owned by IHS.
Monthly Service Fees
Resident units are rented on a month to month basis and rent is recognized in
the months the units are occupied. Service fees paid by residents for
assisted-living and other related services are recognized in the period such
services are rendered as other revenue.
F-33
<PAGE>
CARRINGTON POINTE
(A Facility Owned by Liberty/Carrington Pointe Limited Partnership)--(Continued)
Property and Equipment
Depreciation and amortization of property and equipment are computed using
the straight-line method over the estimated useful lives of the assets as
follows:
Buildings and improvements ... 40 years
Land improvements............. 25 years
Furniture and equipment....... 10 years
Vehicles ..................... 5 years
Income Taxes
Neither the partnership nor the facility are considered taxable entities for
Federal and state income tax purposes. Accordingly, no provision for income
taxes is reflected in the financial statements. Any taxable income or losses,
investment credits and certain other items, therefore, are reported by the
partners in their income tax returns.
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 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.
(2) MANAGEMENT FEES
Integrated Health Services, Inc. (IHS) performed management services for the
facility until the date of acquisition by IHS. Pursuant to the management
agreement, the management fee is 6.5% of gross receipts plus a monthly charge of
$15 per employee.
F-34
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
C.S. Denton Partners, Ltd.:
We have audited the accompanying balance sheets of Vintage Health Care Center
Retirement Division (the Company) (wholly-owned by C.S. Denton Partners, Ltd., a
Partnership) as of December 31, 1994 and 1995, and the related statements of
operations, changes in division equity and cash flows for the years ended
December 31, 1994 and 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 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 Vintage Health Care Center
Retirement Division as of December 31, 1994 and 1995, and the results of its
operations and cash flows for the years ended December 31, 1994 and 1995 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Baltimore, Maryland
June 5, 1996
F-35
<PAGE>
VINTAGE HEALTH CARE CENTER RETIREMENT DIVISION
(WHOLLY-OWNED BY C.S. DENTON PARTNERS, LTD., A PARTNERSHIP)
BALANCE SHEETS
December 31,
-------------------------
1994 1995
---- ----
Assets
Current assets:
Cash..................................... $ 132,046 $ 168,738
Accounts receivable...................... 4,661 4,828
---------- ----------
Total current assets...................... 136,707 173,566
Property, plant and equipment, net (note
4)....................................... 4,134,082 4,015,263
---------- ----------
$4,270,789 $4,188,829
---------- ----------
Liabilities and Division Equity
Rent collected in advance................. $ 6,959 $ 3,673
Security deposits......................... 132,046 168,738
Note payable (note 5)..................... 4,352,000 4,692,000
---------- ----------
Total current liabilities................. 4,491,005 4,864,411
Division equity........................... (220,216) (675,582)
--------- ---------
$4,270,789 $4,188,829
=========== ==========
See accompanying notes to financial statements.
F-36
<PAGE>
VINTAGE HEALTH CARE CENTER RETIREMENT DIVISION
(WHOLLY-OWNED BY C.S. DENTON PARTNERS, LTD., A PARTNERSHIP)
STATEMENTS OF OPERATIONS
Years ended December 31,
-----------------------
1994 1995
---- ----
Revenues
Monthly service fees.............. $1,514,305 $1,598,439
Other revenue..................... 43,341 22,946
---------- -----------
Total revenues..................... 1,557,646 1,621,385
---------- -----------
Expenses:
Facility Operations............... 1,202,861 1,208,570
Management fees................... 77,882 81,069
Depreciation...................... 192,082 199,687
Interest.......................... 234,491 428,629
--------- ---------
Total expenses..................... 1,707,316 1,917,955
---------- ---------
Net loss........................... $ (149,670) $ (296,570)
========== ==========
See accompanying notes to financial statements.
F-37
<PAGE>
VINTAGE HEALTH CARE CENTER RETIREMENT DIVISION
(WHOLLY-OWNED BY C.S. DENTON PARTNERS, LTD., A PARTNERSHIP)
STATEMENTS OF CHANGES IN DIVISION EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1, 1994................................................. $(143,221)
Net earnings.............................................................. (149,670)
Net increase in division equity arising from transactions with Parent
Company.................................................................. 72,675
--------
Balance at December 31, 1994............................................... (220,216)
Net earnings.............................................................. (296,570)
Net decrease in division equity arising from transactions with Parent
Company.................................................................. (158,796)
--------
Balance at December 31, 1995............................................... $(675,582)
=========
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE>
VINTAGE HEALTH CARE CENTER RETIREMENT DIVISION
(WHOLLY-OWNED BY C.S. DENTON PARTNERS, LTD., A PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
Years ended December 31,
------------------------
1994 1995
----- -----
Cash flows from operating activities:
Net loss......................................................... $(149,670) $(296,570)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation................................................... 192,082 199,687
Decrease (increase) in accounts receivable and rent collected
in advance.................................................... 1,735 (3,453)
Increase in security deposits.................................. 2,486 36,692
-------- ---------
Net cash provided (used) by operating activities.................. 46,633 (63,644)
-------- ---------
Cash flows from financing activities:
Increase (decrease) in division equity representing net, advances
from (distributions to) Parent Company ......................... 72,675 (158,796)
Increase in note payable......................................... -- 340,000
--------- ---------
Net cash flows from financing activities:........................ 72,675 181,204
--------- ---------
Cash flows from investing activities--property, plant and
equipment additions.............................................. (116,822) (80,868)
--------- ---------
Increase in cash................................................. 2,486 36,692
Cash, beginning of period......................................... 129,560 132,046
--------- ---------
Cash, end of period............................................... $ 132,046 $ 168,738
========= =========
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE>
VINTAGE HEALTH CARE CENTER RETIREMENT DIVISION
(WHOLLY-OWNED BY C.S. DENTON PARTNERS, LTD., A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Basis of Presentation
The Vintage Health Care Center Retirement Division (the Retirement Division)
consists of a 43 unit assisted living and a 62 unit congregate care facility
also. The Retirement Division represents an operating Division of the Vintage
Health Care Center, (the Parent Company) )which includes a skilled nursing
facility. Vintage Health Care Center represents substantially all of the assets
of C.S. Denton Partners, Ltd. (the Partnership). The financial statements of the
Retirement Division include the activity of the assisted living and congregate
care facility only and do not include the activity of the skilled nursing
facility. The Partnership was organized under the laws of the State of Texas and
its principal business is to own and operate the Vintage Health Care Center.
The Vintage Health Care Center is located on a campus containing an
assisted-living and congregate care living facility and a skilled-nursing
facility which share certain operating expenses. Allocations of various
operating expenses have been made by management on a monthly basis in order to
present the separate operating expenses of the Retirement Division and the
skilled-nursing facility.
Revenue Recognition
Rent is recognized in the month the units are occupied and service fees paid
by residents are recognized in the period the services are provided.
Income Taxes
Neither the Partnership nor the Vintage Health Care Center Retirement
Division are considered taxable for Federal and State income tax purposes. Any
taxable income or losses, investment credits and certain other items, therefore,
are the reponsibility of the Partners on their income tax returns in accordance
with the Partnership agreement. The Partnership uses a fiscal year ended
December 31 for reporting income tax items to the partners.
Statements of Cash Flow
Under a cash management facility provided by the Partnership, the Retirement
Division's cash balances are transferred to a centralized account and applied to
reduce division equity. The facility's cash needs for operating and other
purposes are similarly provided through an increase in division equity.
Division Equity
Division equity represents net advances from the Partnership to the
Retirement Division less the cumulative deficit (annual losses in excess of
earnings in prior years) of the Retirement Division. Advances from the
Partnership represent the cash paid by the Partnership on behalf of the
Retirement Division in excess of cash received by the Partnership on behalf of
the Retirement division.
F-40
<PAGE>
VINTAGE HEALTH CARE CENTER RETIREMENT DIVISION
-
(Wholly-Owned by C.S. Denton Partners, Ltd., a Partnership) (Continued)
Property and Equipment
Depreciation and amortization of property and equipment are computed using
the straight-line method over the estimated useful lives of the assets as
follows:
Building and improvements ... 20-30 years
Equipment.................... 5-10 years
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 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.
Disclosures about Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, rent collected in advance,
security deposits and notes payables approximate fair value because of the
short-term maturity of these instruments.
(2) MANAGEMENT FEES
Autumn America Retirement, Ltd., wholly-owned by Robert Chilton, performed
management services for the Retirement Division until the date of acquisition by
Integrated Health Services, Inc. (IHS). Pursuant to the management agreement,
the managment fee is 5% of gross receipts. Management fees paid to Autumn
America Retirement, Ltd. were approximately $77,882 and $81,069 for the years
ended December 31, 1994 and 1995, respectively.
(3) OWNERSHIP
The partners' interests in the Partnership during 1994 and 1995 were as
follows:
<TABLE>
<CAPTION>
Ownership Interests
---------------------------------------
Partnership January 1, 1994 April 1, 1995 to
Partners Interest to April 1, 1995 December 31, 1995
-------- --------- ---------------- -----------------
<S> <C> <C> <C>
Pinnacle Properties IX, Inc.
(wholly-owned by Thomas Scott)................. Limited 49.5% 99.0%
Robert Chilton................................... Limited 49.5% --
Denton NH, Inc. (50% owned by Pinnacle
Properties IX, Inc., and 50% owned by Robert
Chilton)....................................... General 1.0% 1.0%
----- -----
100.0% 100.0%
===== =====
</TABLE>
On April 1, 1995, Pinnacle Properties IX, Inc. purchased the 49.5%
partnership interest in C.S. Denton Partners, Ltd. held by Robert Chilton and
the 50.0% interest in Denton NH, Inc., held by Robert Chilton. This transaction
effectively gave Thomas Scott a 100% interest in C.S. Denton Partners, Ltd.
F-41
<PAGE>
VINTAGE HEALTH CARE CENTER RETIREMENT DIVISION
(Wholly-Owned by C.S. Denton Partners, Ltd., a Partnership)--(Continued)
On January 29, 1996, an IHS subsidiary purchased the Vintage Health Care
Center. On June 1, 1996 the IHS subsidiary contributed a condominium interest in
the assisted living and congregate care portion of the Vintage Health Care
Center to Integrated Living Communities, Inc. (ILC). Between January 29, 1996
and June 1, 1996 ILC will lease the assisted and independent living communities
from IHS at a monthly rental of $35,000.
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31:
December 31,
------------------------
1994 1995
---- ----
Land $ 458,620 $ 458,620
Building and improvements .... 3,652,735 3,674,637
Equipment..................... 525,788 584,754
--------- ----------
4,637,143 4,718,011
Less accumulated depreciation.. 503,061 702,748
--------- ----------
Total........................ $4,134,082 $4,015,263
========== ==========
(5) NOTE PAYABLE
On March 31, 1995, CS Denton Partners Ltd. entered into a $6.9 million
promissory note with Nationsbank, of which approximately $4.7 million is
allocated to the retirement division. Proceeds of the note were used to pay off
a $6.4 million note between Chemical Bank and CS Denton Partner Ltd, of which
approximately $4.4 million was allocated to the retirement division. The March
31, 1995 note bears interest at the prime rate plus one percent (9.5% at
December 31, 1995), payable monthly. Interest paid on the note approximates
interest expense included in the financial statements. The March 31, 1995 note
was paid off in connection with the January, 1996 sale of Vintage Health Care
Center.
F-42
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Tenants In Common
Terrace Gardens Tenants In Common:
We have audited the accompanying balance sheets of Terrace Gardens Tenants In
Common (d/b/a Terrace Gardens Healthcare and Retirement Center) (the "Company"),
a facility owned by seven tenants in common (see note 1) as of December 31, 1994
and 1995, and the related statements of operations, owners' deficit and cash
flows for each of the years in the three-year period ended December 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 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 Terrace Gardens Tenants In
Common (d/b/a Terrace Gardens Healthcare and Retirement Center) as of December
31, 1994 and 1995, and the results of their operations and cash flows for each
of the years in the three-year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Baltimore, Maryland
June 5, 1996
F-43
<PAGE>
TERRACE GARDENS TENANTS IN COMMON
(D/B/A TERRACE GARDENS HEALTHCARE AND RETIREMENT CENTER)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1994 1995
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................................... $ 205,187 $ 319,481
Accounts receivable, less allowance for doubtful accounts of $19,084
in 1995 ........................................................... 498,417 449,025
Other current assets................................................ 54,282 51,597
---------- ----------
Total current assets................................................. 757,886 820,103
Property, plant and equipment, net (note 2).......................... 8,362,121 8,044,779
Deferred financing costs, net of accumulated amortization of
$116,482 at December 31, 1994 and $131,446 in 1995 ................. 154,549 139,585
------- -------
$9,274,556 $9,004,467
========== ==========
Liabilities and Partners' Equity
Current liabilities:
Accounts payable and accrued expenses (note 6)...................... $ 332,719 $ 342,084
Refundable security deposits........................................ 340,802 342,837
Current portion of long-term debt (notes 3 and 4)................... 309,203 314,086
---------- ----------
Total current liabilities............................................ 982,724 999,007
---------- ----------
Long-term debt:
Mortgage payable, less current portion (note 3)..................... 8,197,556 7,977,558
Note payable, less current portion (note 4)......................... 188,000 116,000
---------- ----------
Total liabilities.................................................... 9,368,280 9,092,565
Owner's deficit...................................................... (93,724) (88,098)
---------- ----------
$9,274,556 $9,004,467
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE>
TERRACE GARDENS TENANTS IN COMMON
(D/B/A TERRACE GARDENS HEALTHCARE AND RETIREMENT CENTER)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1993 1994 1995
----- ---- -----
<S> <C> <C> <C>
Revenues:
Nursing facility:
Basic medical services, net.................... $1,819,752 $1,821,085 $1,828,533
Specialty medical services..................... 158,412 165,379 189,793
---------- ---------- ----------
1,978,164 1,986,464 2,018,326
Assisted living and congregate living facilities:
Monthly service fees........................... 3,672,034 3,780,651 3,813,841
Other.......................................... 67,801 79,937 94,150
---------- ---------- ----------
3,739,835 3,860,588 3,907,991
Other .......................................... 16,317 15,138 16,747
---------- ---------- ----------
Total revenues................................... 5,734,316 5,862,190 5,943,064
---------- ---------- ----------
Facility operating expenses:
Salaries, wages and benefits.................... 2,780,287 2,800,350 2,871,205
Other operating expenses........................ 1,031,840 1,177,705 1,196,466
Administrative ................................. 509,349 503,182 545,941
---------- --------- ---------
4,321,476 4,481,237 4,613,612
Interest......................................... 586,376 626,946 738,870
Depreciation and amortization.................... 361,292 367,223 344,956
---------- ---------- ----------
Total expenses................................... 5,269,144 5,475,406 5,697,438
---------- ---------- ----------
Net earnings..................................... $ 465,172 $ 386,784 $ 245,626
========== ========== ===========
</TABLE>
F-45
<PAGE>
TERRACE GARDENS TENANTS IN COMMON
(D/B/A TERRACE GARDENS HEALTHCARE AND RETIREMENT CENTER)
STATEMENTS OF CHANGES IN OWNERS' DEFICIT
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Owners' deficit at December 31, 1992................................ $(325,680)
Net earnings....................................................... 465,172
Distribution to tenants in common.................................. (270,000)
---------
Owners' deficit at December 31, 1993................................ (130,508)
Net earnings....................................................... 386,784
Distribution to tenants in common.................................. (350,000)
---------
Owners' deficit at December 31, 1994................................ (93,724)
Net earnings....................................................... 245,626
Distribution to tenants in common.................................. (240,000)
---------
Owners' deficit at December 31, 1995................................ $ (88,098)
=========
See accompanying notes to financial statements.
F-46
<PAGE>
TERRACE GARDENS TENANTS IN COMMON
(D/B/A TERRACE GARDENS HEALTHCARE AND RETIREMENT CENTER)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................................. $ 465,172 $ 386,784 $ 245,626
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization........................... 361,292 367,223 344,956
Decrease (increase) in other assets..................... 24,698 (15,940) 2,685
Decrease (increase) in accounts receivable.............. (22,528) (72,538) 49,392
Increase in accounts payable and accrued expenses....... 13,580 11,024 9,365
Increase (decrease) in security deposits ............... (27,477) (22,876) 2,035
--------- -------- ---------
Net cash provided by operating activities................. 814,737 653,677 654,059
--------- -------- ---------
Cash flows from financing activities:
Payments on mortgages payable............................ (229,505) (237,203) (215,115)
Payments on note payable................................. (72,000) (72,000) (72,000)
Distributions to tenants in common....................... (270,000) (350,000) (240,000)
--------- ------- -------
Net cash used by financing activities..................... (571,505) (659,203) (527,115)
--------- -------- --------
Cash flows from investing activities--
purchase of property, plant and equipment ............... (76,912) (150,179) (12,650)
--------- -------- -------
Increase (decrease) in cash............................... 166,320 (155,705) 114,294
Cash, beginning of period................................. 194,572 360,892 205,187
--------- --------- --------
Cash, end of period....................................... $ 360,892 $ 205,187 $ 319,481
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE>
TERRACE GARDENS TENANTS IN COMMON
(D/B/A TERRACE GARDENS HEALTHCARE AND RETIREMENT CENTER)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Basis of Presentation
Terrace Gardens Tenants In Common (a Kansas tenancy in common), hereinafter
referred to as the Company, owns and operates Terrace Gardens Healthcare and
Retirement Center (the Facility) which consists of a 120-unit congregate living
facility, a 122 bed assisted living facility and a 100 bed nursing facility
located in Wichita, Kansas. The Facility provides various services to its
residents, including intermediate nursing care, meals, social activities and
other personal services.
The Facility is owned by seven tenants in common. Ownership interests in the
facility are as follows:
Ownership
Tenants in Common Interest
----------------- --------
Herb Krumsick........................ 33%
Nestor Weigand, Jr................... 17%
Ross Tidemann, Managing co-owner .... 19%
Chester West, Administrator.......... 10%
Dr. Jon Kardatzke, Medical Doctor ... 5%
Terrace Gardens L.P.................. 6%
Louis Weiss.......................... 10%
---
100%
===
In February, 1996, Integrated Living Communities, Inc. (ILC) entered into an
agreement to acquire the facility from the tenants in common above. The purchase
price is approximately $12.20 million adjusted for certain accrued liabilities,
prepayments and deposits to be assumed by ILC. The purchase is scheduled to
close simultaneous with the initial public offering of common stock of ILC.
Basis of Accounting
The accompanying financial statements have been prepared on the accrual basis
of accounting.
Revenue Recognition
Nursing facility revenues include revenues from two nursing units at the
Facility. Basic medical services revenues represent routine service (room and
board) charges of the nursing units. Specialty medical services revenues
represent ancillary service charges of the nursing units.
Assisted living revenues include revenues from a congregate living apartment
building as well as revenues from three assisted living units. Service fees
represent monthly rental charges to residents of the apartment units and daily
room and board charges in the assisted living units.
Revenues are recorded at established rates and adjusted for differences
between such rates and estimated amounts reimbursable by third party payors when
applicable. Revenues are recognized in the period the units are occupied and
service fees paid by residents are recognized in the period that such services
are provided.
F-48
<PAGE>
TERRACE GARDENS TENANTS IN COMMON
(D/B/A Terrace Gardens Healthcare and Retirement Center) (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 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.
Disclosures about Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, other current assets,
other assets, accounts payable, and accrued expenses approximate fair value
because of the short-term maturity of these instruments. The carrying amount of
the mortgage payable approximates its fair value because the interest rate is
adjusted quarterly.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization of
property and equipment are computed using the straight-line method over the
estimated useful lives of the assets as follows:
Buildings............ 40 years
Land improvements ... 25 years
Equipment............ 10 years
Income Taxes
The Facility is not considered taxable for Federal and state income tax
purposes and, accordingly, the Company does not record a provision for income
taxes. Any taxable income or loss, investment tax credits and certain other
items are the responsibility of the tenants in common on their tax returns in
accordance with their ownership interests.
Deferred Financing Costs
Long-term debt financing costs are deferred and amortized over the term of
the financing using the straight-line method.
(2) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
1994 1995
---- ----
Land and improvements......... $ 458,558 $ 458,558
Building and improvements..... 9,856,692 9,856,692
Furniture and equipment ...... 1,097,723 1,110,373
----------- -----------
11,412,973 11,425,623
Less accumulated depreciation. 3,050,852 3,380,844
----------- ----------
Total........................ $ 8,362,121 $ 8,044,779
=========== ===========
F-49
<PAGE>
TERRACE GARDENS TENANTS IN COMMON
(D/B/A Terrace Gardens Healthcare and Retirement Center)--(Continued)
(3) MORTGAGES PAYABLE
As tenants in common, Herb Krumsick, Ross Tidemann, Chester West, Jon
Kardatzke and Weigand Properties, Inc., borrowed $4,800,000 from Eureka Federal
Savings and Loan Association (Eureka) with a promissory note dated July 21,
1987. The interest rate on the Eureka note is adjusted quarterly to equal the
90-day U.S. Treasury bill rate plus 3%, rounded up to the nearest 1/8 %. The
borrowers are to make monthly payments of principal and interest, adjusted
quarterly, based upon a 25 year fully amortizing schedule of equal monthly
payments. All remaining principal and unpaid interest is due on August 1, 2007.
The promissory note is secured by a mortgage and security interest in the
premises. Any default in the terms and provisions of the Eureka promissory note
shall be construed as an event of default under the Mid-Kansas note described
below.
Also as tenants in common, Herb Krumsick, Ross Tidemann, Chester West, Jon
Kardatzke and Weigand Properties, Inc., borrowed $4,800,000 from Mid-Kansas
Federal Savings and Loan Association of Wichita (Mid-Kansas) with a promissory
note dated July 21, 1987. The interest rate on the Mid-Kansas note is adjusted
quarterly to equal the 90-day U.S. Treasury bill rate plus 3 1/8 %, rounded up
to the nearest 1/8 %. Monthly payments of principal and interest, adjusted
quarterly, are based upon a 25 year fully amortizing schedule of equal monthly
payments. All remaining principal and unpaid interest shall be due on August 1,
2007. The promissory note is secured by a mortgage on and security interest in
the premises. Any default of the borrowers in the terms and provisions of the
Mid-Kansas note shall be construed as an event of default under the Eureka
mortgage note described above.
At December 31, 1995, the annual maturities of the mortgages for the five
years ending December 31, 2000 and thereafter are as follows:
1996........ $ 242,086
1997........ 262,828
1998........ 285,347
1999........ 309,797
2000........ 336,341
Thereafter . 6,783,245
----------
$8,219,644
==========
(4) NOTE PAYABLE
As tenants in common, Ross Tidemann, Herb Krumsick, Chester West, Jon
Kardatzke and Weigand Properties, Inc. entered into a note with E. Stanley
Kardatzke, Jon Kardatzke, E. E. Kardatzke, and Vera L. Kardatzke on December 31,
1986 in the original amount of $2,480,000. This note was subsequently assigned
to Jon Kardatzke as the only payee. This note is secured by a second mortgage
and security agreement covering the property located in Wichita, Kansas. A
default under the promissory notes mentioned in note 3 shall constitute a
default under this note. The note as amended bears interest at a rate of 9.75%.
The principal balance of the note is payable in monthly principal payments of
$6,000 plus accrued interest. Annual maturities are as follows:
1996......... $ 72,000
1997......... 72,000
1998......... 44,000
--------
$188,000
========
Interest paid on the mortgages and note approximated the amount of interest
expense during the three-year period ended December 31, 1995.
F-50
<PAGE>
TERRACE GARDENS TENANTS IN COMMON
(D/B/A Terrace Gardens Healthcare and Retirement Center)-- (Continued)
(5) CONCENTRATIONS OF CREDIT RISK
Receivables from patients and third-party payors at December 31, 1994 and
1995 by payor class are as follows:
1994 1995
---- ----
Medicaid............... 15% 19%
Private and other...... 85% 81%
(6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1994 and December 31,
1995 are summarized as follows:
1994 1995
---- ----
Accounts payable.............. $170,320 $174,713
Accrued salaries and wages.... 105,556 114,963
Other accrued expenses........ 56,843 52,408
-------- --------
$332,719 $342,084
======== ========
(7) RELATED PARTY TRANSACTIONS
The Facility has recorded a receivable at December 31, 1995 from Chester
West, administrator and a tenant in common, in the amount of $14,000, which is
included in other current assets. In addition, the Facility has recorded
compensation to Mr. West of $106,000 in 1993, $119,943 in 1994 and $116,800 in
1995. Ross Tidemann, the managing co-owner, has been paid management fees of
$24,000 in 1993, $24,000 in 1994 and $24,000 in 1995. Jon Kardatzke, Medical
Director and a Tenant In Common, has been paid compensation of $21,600 in 1993,
$21,600 in 1994 and $21,600 in 1995.
F-51
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any Underwriter.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any 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 date subsequent to the date hereof. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby by anyone 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 anyone to whom it is unlawful to
make such offer or solicitation.
--------------------
TABLE OF CONTENTS
PAGE
------
Prospectus Summary................................ 3
Risk Factors...................................... 6
Company History................................... 17
Use of Proceeds................................... 18
Dividend Policy................................... 18
Capitalization.................................... 19
Dilution.......................................... 20
Pro Forma Financial Information................... 21
Selected Consolidated Financial Data.............. 25
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 26
Business.......................................... 33
Management........................................ 48
Certain Transactions.............................. 55
Principal and Selling Stockholders................ 57
Description of Capital Stock...................... 58
Shares Eligible for Future Sale................... 61
Underwriting...................................... 63
Legal Matters..................................... 64
Experts........................................... 64
Additional Information............................ 64
Index to Financial Statements..................... F-1
-------------------
Until , 1996 (25 days after the date of this Prospectus), 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.
<PAGE>
6,530,000 SHARES
INTEGRATED LIVING COMMUNITIES, INC.
COMMON STOCK
----------------
PROSPECTUS
, 1996
----------------
SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
Donaldson, Lufkin & Jenrette
Securities Corporation
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the Company's estimates (other than the SEC
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee) of the expenses in connection with the issuance and distribution of the
shares of Common Stock being registered, other than underwriting discounts and
commissions and the Representatives non-accountable expense allowance:
SEC registration fee.............. $ 46,610.69
NASD filing fee .................. 14,017.10
Nasdaq National Market listing
fee............................... 43,124.13
Printing and engraving expenses .. 150,000.00*
Legal fees and expenses........... 250,000.00*
Accounting fees and expenses ..... 750,000.00*
Blue sky fees and expenses........ 30,000.00*
Transfer agent and registrar
fees.............................. 10,000.00*
Miscellaneous expenses ........... 56,248.08*
----------------
Total:......................... $1,350,000.00*
================
- -------------------
*Estimated
The Selling Stockholder will not pay any of the foregoing expenses, all of
which the Company has agreed to pay.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the General Corporation Law of the State of Delaware
("GCL") provides that a Delaware corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was unlawful.
Section 145(b) of the GCL provides that a Delaware corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation unless and
only to the extent that the court in which such action or suit was brought shall
determine that despite the adjudication of liability, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 of the GCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of an action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith, that
indemnification provided for by Section 145 of the GCL shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the
II-1
<PAGE>
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
such Section 145.
The Company's Restated Certificate of Incorporation provides that the Company
shall indemnify certain persons, including officers, directors, employees and
agents, to the fullest extent permitted by Section 145 of the GCL of the State
of Delaware. Reference is made to the Restated Certificate of Incorporation
filed as Exhibit 3.1. The Company's directors and officers are insured against
losses arising from any claim against them as such for wrongful acts or
omission, subject to certain limitations.
Under Section 9 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify officers, directors and
controlling persons of the Company against certain liabilities, including
liabilities under the Securities Act. Reference is made to the form of
Underwriting Agreement filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In January 1996 the Company issued 100 shares of Common Stock to Integrated
Health Services, Inc. ("IHS") in consideration of IHS' contribution to it of
certain assets. In June 1996 the Company issued to IHS 4,960,900 shares of
Common Stock as a dividend to effect a 49,610-for-1 stock split of the Common
Stock on June 10, 1996. The foregoing transaction was exempt from registration
under the Securities Act pursuant to Section 4(2) thereunder.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
No. Description
- --- -----------
1. Form of Underwriting Agreement.*
2.1 Asset Purchase Agreement, dated as of , 1996, by and among Terrace
Gardens, L.P., Herbert L. Krumsick, Jon Kardatzke, Louis Weiss,
Chester West, Ross G. Tidemann, Nestor R. Weigand, Jr., and
Integrated Living Communities at Terrace Gardens, Inc.
2.2 Asset Purchase Agreement, dated as of June 1, 1996, between Cabot
Pointe I, Inc. and Integrated Living Communities at Cabot Pointe,
Inc. and Certain Shareholders of Cabot Pointe I, Inc.
3.1 Restated Certificate of Incorporation.*
3.2 Bylaws.*
4.1 Specimen Common Stock Certificate (Description).
5. Opinion of Fulbright & Jaworski L.L.P.*
10.1 Declaration of Condominium of West Palm Beach, a Condominium, dated
as of June 3, 1996, by Central Park Lodges of West Palm Beach and
Integrated Living Communities of West Palm Beach, Inc.
10.2 Services Agreement, dated as of June 1, 1996, between Integrated
Living Communities of West Palm Beach, Inc. and Central Park Lodges
of West Palm Beach, Inc.+
10.3 Amendment to Services Agreement, dated as of June 1, 1996, between
Integrated Living Communities of West Palm Beach, Inc. and Central
Park Lodges of West Palm Beach, Inc.+
10.4 Declaration of Condominium of Treemont, a Condominium, dated as of
June 1, 1996, by Cambridge Group of Texas, Inc. and Integrated
Living Communities of Dallas, Inc.+
10.5 Services Agreement, dated as of June 1, 1996, between Integrated
Living Communities of Dallas, Inc. and Cambridge Group of Texas,
Inc.+
10.6 Amendment to Services Agreement, dated as of June 1, 1996, between
Integrated Living Communities of Dallas, Inc. and Cambridge Group
of Texas, Inc.+
II-2
<PAGE>
10.7 Declaration of Condominium of Vintage, a Condominium, dated as of
June 1, 1996, by Integrated Health Services at Great Bend, Inc. and
Integrated Living Communities of Denton (Texas), Inc.+
10.8 Services Agreement, dated as of June 1, 1996, between Integrated
Living Communities of Denton (Texas), Inc. and Integrated Health
Services at Great Bend, Inc.+
10.9 Amendment to Services Agreement, dated as of June 1, 1996, between
Integrated Living Communities of Denton (Texas), Inc. and
Integrated Health Services at Great Bend, Inc.+
10.10 Administrative Services Agreement, effective June 1, 1996, by and
between Integrated Living Communities, Inc. and Integrated Health
Services, Inc.+
10.11 Lease Agreement, dated as of June 18, 1996, between The Hartmoor
Homestead, L.C., as Landlord, and Integrated Living Communities at
Wichita, Inc., as Tenant.
10.12 Purchase Option Agreement, dated as of June 18, 1996, by and
between The Hartmoor Homestead, L.C., as Owner, and Integrated
Living Communities at Wichita, Inc., as Optionee.
10.13 Right of First Refusal Agreement, dated as of June 18, 1996, by and
between The Hartmoor Homestead, L.C. and Integrated Living
Communities at Wichita, Inc.
10.14 Lease Agreement, dated as of June 18, 1996, between The Homestead
of Garden City, L.C., as Landlord, and Integrated Living
Communities at Garden City, Inc., as Tenant.
10.15 Purchase Option Agreement, dated as of June 18, 1996, by and
between The Homestead of Garden City, L.C., as Owner, and
Integrated Living Communities at Garden City, Inc., as Optionee.
10.16 Right of First Refusal Agreement, dated as of June 18, 1996, by and
between The Homestead of Garden City, L.C. and Integrated Living
Communities at Garden City, Inc.
10.17 Sublease, dated as of June 1, 1996, between Integrated Living
Communities of Bradenton, Inc. and Integrated Health Services of
Lester, Inc. (relating to "The Shores").
10.18 Guaranty, dated as of June 1, 1996, by Integrated Living
Communities, Inc. for the benefit of Integrated Health Services of
Lester, Inc. and Litchfield Asset Management Corp.
10.19 Sublease, dated as of June 1, 1996, between Integrated Living
Communities of Bradenton, Inc. and Integrated Health Services of
Lester, Inc. (relating to "Cheyenne").
10.20 Registration Rights Agreement, dated as of June 1, 1996, between
Integrated Living Communities, Inc. and Integrated Health Services,
Inc.
10.21 Purchase and Sale Agreement, dated as of October 4, 1995, between
Liberty Carrington Pointe Limited Partnership, as Seller, and
Integrated Management-Carrington Pointe, Inc., as Buyer.
10.22 First Amendment to Purchase and Sale Agreement, dated as of
December 15, 1995, between Liberty/Carrington Pointe Limited
Partnership, as Seller, and Integrated Management-Carrington
Pointe, Inc., as Buyer.
10.23 Employment Agreement, dated as of May 1, 1996, between the Company
and Edward J. Komp.+
10.24 Employment Agreement, dated as of May 1, 1996, between the Company
and Kayda Johnson.+
10.25 Employment Agreement, dated as of May 1, 1996, between the Company
and John Poole.+
10.26 Employment Agreement, dated as of May 1, 1996, between the Company
and Kyle Shatterly.+
10.27 Form of Indemnification Agreement for officers and directors.+
10.28 Stock Incentive Plan.*
10.29 Form of Option Agreement under Stock Incentive Plan.*
10.30 Non-Employee Director Stock Option Plan.*
II-3
<PAGE>
10.31 Form of Option Agreement under Non-Employee Director Stock Option
Plan.*
10.32 Form of Non-Plan Director Option.*
10.33 Integrated Living Communities, Inc. Supplemental Deferred
Compensation Plan.*
10.34 Revolving Credit Demand Note, dated February 29, 1996, in the
principal amount of $750,000, between Lori Zito d/b/a Elderly
Development Company, as Borrower, and Integrated Health Services
Retirement Management, Inc., as Lender, as amended by Allonge and
Amendment of Revolving Credit Demand Note dated as of July 9, 1996.
10.35 Revolving Credit and Security Agreement, dated as of February 29,
1996, between Lori Zito d/b/a Elderly Development Company, as
Borrower, and Integrated Health Services Retirement Management,
Inc., as Lender, as amended by Amendment No. 1 to Revolving Credit
and Security Agreement dated as of July 9, 1996.
10.36 Development Services Agreement, dated as of June 26, 1996, by and
among Integrated Living Communities, Inc., Integrated Health
Services, Inc. and Aguirre, Inc.*
10.37 Letter of Intent Agreement, dated as of June 26, 1996, among
Integrated Living Communities, Inc. and Capstone Capital
Corporation.
10.38 Loan Commitment letter, dated June 11, 1996, from Health Care
Property Investors, Inc. to the Company.
10.39 Asset Purchase Agreement, dated as of January , among C.S. Denton
Partners, Ltd., Thomas Scott and Integrated Health Services at
Great Bend, Inc.
10.40 Letter Agreement Re: Options to Receive Assignments of Various Land
Contracts dated March 27, 1996 between Integrated Living
Communities, Inc. and The Homestead Company, L.C.
10.41 Letter Agreement Re: Options to Receive Assignments of Various Land
Contracts dated March 21, 1996 between Integrated Living
Communities, Inc. and Lori Zito d/b/a Elderly Development Company.
10.42 Revolving Credit Note, dated June 30, 1996, in the principal amount
of $75,000,000, between Integrated Living Communities, Inc., as
Maker, and Integrated Health Services, Inc., as Lender.
10.43 Letter of Intent Agreement, dated as of March 18, 1996, among
Integrated Living Communities, Inc. and The Homestead Company,
L.C.*
10.44 Revolving Credit Note, dated March 18, 1996, in the principal
amount of $800,000, between The Homestead Company, L.C., as
Borrower, and Integrated Health Services Retirement Management,
Inc., as Lender, as amended by Allonge and Amendment of Revolving
Credit Note dated as of July 12, 1996.*
10.45 Revolving Credit and Security Agreement, dated as of March 18,
1996, between The Homestead Company, L.C., as Borrower, and
Integrated Health Services Retirement Management, Inc., as Lender,
as amended by Amendment No. 1 to Revolving Credit and Security
Agreement dated as of July 12, 1996.*
10.46 Indemnification Agreement dated , 1996 by and between Integrated
Health Services, Inc. and Integrated Living Communities, Inc.*
21. Subsidiaries of the Registrant.+
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Fulbright & Jaworski L.L.P. (contained in Exhibit 5).*
24.1 Power of Attorney (included on signature page).+
24.2 Certified Resolution.
27. Financial Data Schedule
- ------------------
* To be filed by amendment.
+ Previously filed.
II-4
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
ITEM 17. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
B. 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
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
C. 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 the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Owings Mills and State of Maryland on the 1st day of August, 1996.
By: /s/ Edward J. Komp
------------------------------------------
Edward J. Komp
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Edward J. Komp
- ----------------------------- President, Chief Executive
Edward J. Komp Officer and Director
(principal executive officer) August 1, 1996
/s/ John B. Poole*
- ----------------------------- Senior Vice President--
John B. Poole Chief Financial Officer
(principal financial and accounting officer) August 1, 1996
/s/ Robert N. Elkins*
- ----------------------------- Chairman of the Board of Directors August 1, 1996
Robert N. Elkins, M.D.
- ----------------------------- Director
Luis Bared
/s/ Lawrence P. Cirka*
- ----------------------------- Director August 1, 1996
Lawrence P. Cirka
/s/ Charles A. Laverty*
- ----------------------------- Director August 1, 1996
Charles A. Laverty
/s/ Lisa Merritt*
- ----------------------------- Director August 1, 1996
Lisa Merritt
By: /s/ Edward J. Komp
--------------------------
Edward J. Komp
(as attorney-in-fact for
each of the persons indicated)
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No Description Page
<S> <C>
1. Form of Underwriting Agreement.*
2.1 Asset Purchase Agreement, dated as of , 1996, by and among Terrace
Gardens, L.P., Herbert L. Krumsick, Jon Kardatzke, Louis Weiss,
Chester West, Ross G. Tidemann, Nestor R. Weigand, Jr., and
Integrated Living Communities at Terrace Gardens, Inc.
2.2 Asset Purchase Agreement, dated as of June 1, 1996, between Cabot
Pointe I, Inc. and Integrated Living Communities at Cabot Pointe,
Inc. and Certain Shareholders of Cabot Pointe I, Inc.
3.1 Restated Certificate of Incorporation.*
3.2 Bylaws.*
4.1 Specimen Common Stock Certificate (Description).
5. Opinion of Fulbright & Jaworski L.L.P.*
10.1 Declaration of Condominium of West Palm Beach, a Condominium, dated
as of June 3, 1996, by Central Park Lodges of West Palm Beach and
Integrated Living Communities of West Palm Beach, Inc.
10.2 Services Agreement, dated as of June 1, 1996, between Integrated
Living Communities of West Palm Beach, Inc. and Central Park Lodges
of West Palm Beach, Inc.+
10.3 Amendment to Services Agreement, dated as of June 1, 1996, between
Integrated Living Communities of West Palm Beach, Inc. and Central
Park Lodges of West Palm Beach, Inc.+
10.4 Declaration of Condominium of Treemont, a Condominium, dated as of
June 1, 1996, by Cambridge Group of Texas, Inc. and Integrated
Living Communities of Dallas, Inc.+
10.5 Services Agreement, dated as of June 1, 1996, between Integrated
Living Communities of Dallas, Inc. and Cambridge Group of Texas,
Inc.+
10.6 Amendment to Services Agreement, dated as of June 1, 1996, between
Integrated Living Communities of Dallas, Inc. and Cambridge Group
of Texas, Inc.+
<PAGE>
10.7 Declaration of Condominium of Vintage, a Condominium, dated as of
June 1, 1996, by Integrated Health Services at Great Bend, Inc. and
Integrated Living Communities of Denton (Texas), Inc.+
10.8 Services Agreement, dated as of June 1, 1996, between Integrated
Living Communities of Denton (Texas), Inc. and Integrated Health
Services at Great Bend, Inc.+
10.9 Amendment to Services Agreement, dated as of June 1, 1996, between
Integrated Living Communities of Denton (Texas), Inc. and
Integrated Health Services at Great Bend, Inc.+
10.10 Administrative Services Agreement, effective June 1, 1996, by and
between Integrated Living Communities, Inc. and Integrated Health
Services, Inc.+
10.11 Lease Agreement, dated as of June 18, 1996, between The Hartmoor
Homestead, L.C., as Landlord, and Integrated Living Communities at
Wichita, Inc., as Tenant.
10.12 Purchase Option Agreement, dated as of June 18, 1996, by and
between The Hartmoor Homestead, L.C., as Owner, and Integrated
Living Communities at Wichita, Inc., as Optionee.
10.13 Right of First Refusal Agreement, dated as of June 18, 1996, by and
between The Hartmoor Homestead, L.C. and Integrated Living
Communities at Wichita, Inc.
10.14 Lease Agreement, dated as of June 18, 1996, between The Homestead
of Garden City, L.C., as Landlord, and Integrated Living
Communities at Garden City, Inc., as Tenant.
10.15 Purchase Option Agreement, dated as of June 18, 1996, by and
between The Homestead of Garden City, L.C., as Owner, and
Integrated Living Communities at Garden City, Inc., as Optionee.
10.16 Right of First Refusal Agreement, dated as of June 18, 1996, by and
between The Homestead of Garden City, L.C. and Integrated Living
Communities at Garden City, Inc.
10.17 Sublease, dated as of June 1, 1996, between Integrated Living
Communities of Bradenton, Inc. and Integrated Health Services of
Lester, Inc. (relating to "The Shores").
10.18 Guaranty, dated as of June 1, 1996, by Integrated Living
Communities, Inc. for the benefit of Integrated Health Services of
Lester, Inc. and Litchfield Asset Management Corp.
10.19 Sublease, dated as of June 1, 1996, between Integrated Living
Communities of Bradenton, Inc. and Integrated Health Services of
Lester, Inc. (relating to "Cheyenne").
10.20 Registration Rights Agreement, dated as of June 1, 1996, between
Integrated Living Communities, Inc. and Integrated Health Services,
Inc.
10.21 Purchase and Sale Agreement, dated as of October 4, 1995, between
Liberty Carrington Pointe Limited Partnership, as Seller, and
Integrated Management-Carrington Pointe, Inc., as Buyer.
10.22 First Amendment to Purchase and Sale Agreement, dated as of
December 15, 1995, between Liberty/Carrington Pointe Limited
Partnership, as Seller, and Integrated Management-Carrington
Pointe, Inc., as Buyer.
10.23 Employment Agreement, dated as of May 1, 1996, between the Company
and Edward J. Komp.+
10.24 Employment Agreement, dated as of May 1, 1996, between the Company
and Kayda Johnson.+
10.25 Employment Agreement, dated as of May 1, 1996, between the Company
and John Poole.+
10.26 Employment Agreement, dated as of May 1, 1996, between the Company
and Kyle Shatterly.+
10.27 Form of Indemnification Agreement for officers and directors.+
10.28 Stock Incentive Plan.*
10.29 Form of Option Agreement under Stock Incentive Plan.*
10.30 Non-Employee Director Stock Option Plan.*
<PAGE>
10.31 Form of Option Agreement under Non-Employee Director Stock Option
Plan.*
10.32 Form of Non-Plan Director Option.*
10.33 Integrated Living Communities, Inc. Supplemental Deferred
Compensation Plan.*
10.34 Revolving Credit Demand Note, dated February 29, 1996, in the
principal amount of $750,000, between Lori Zito d/b/a Elderly
Development Company, as Borrower, and Integrated Health Services
Retirement Management, Inc., as Lender, as amended by Allonge and
Amendment of Revolving Credit Demand Note dated as of July 9, 1996.
10.35 Revolving Credit and Security Agreement, dated as of February 29,
1996, between Lori Zito d/b/a Elderly Development Company, as
Borrower, and Integrated Health Services Retirement Management,
Inc., as Lender, as amended by Amendment No. 1 to Revolving Credit
and Security Agreement dated as of July 9, 1996.
10.36 Development Services Agreement, dated as of June 26, 1996, by and
among Integrated Living Communities, Inc., Integrated Health
Services, Inc. and Aguirre, Inc.*
10.37 Letter of Intent Agreement, dated as of June 26, 1996, among
Integrated Living Communities, Inc. and Capstone Capital
Corporation.
10.38 Loan Commitment letter, dated June 11, 1996, from Health Care
Property Investors, Inc. to the Company.
10.39 Asset Purchase Agreement, dated as of January , among C.S. Denton
Partners, Ltd., Thomas Scott and Integrated Health Services at
Great Bend, Inc.
10.40 Letter Agreement Re: Options to Receive Assignments of Various Land
Contracts dated March 27, 1996 between Integrated Living
Communities, Inc. and The Homestead Company, L.C.
10.41 Letter Agreement Re: Options to Receive Assignments of Various Land
Contracts dated March 21, 1996 between Integrated Living
Communities, Inc. and Lori Zito d/b/a Elderly Development Company.
10.42 Revolving Credit Note, dated June 30, 1996, in the principal amount
of $75,000,000, between Integrated Living Communities, Inc., as
Maker, and Integrated Health Services, Inc., as Lender.
10.43 Letter of Intent Agreement, dated as of March 18, 1996, among
Integrated Living Communities, Inc. and The Homestead Company,
L.C.*
10.44 Revolving Credit Note, dated March 18, 1996, in the principal
amount of $800,000, between The Homestead Company, L.C., as
Borrower, and Integrated Health Services Retirement Management,
Inc., as Lender, as amended by Allonge and Amendment of Revolving
Credit Note dated as of July 12, 1996.*
10.45 Revolving Credit and Security Agreement, dated as of March 18,
1996, between The Homestead Company, L.C., as Borrower, and
Integrated Health Services Retirement Management, Inc., as Lender,
as amended by Amendment No. 1 to Revolving Credit and Security
Agreement dated as of July 12, 1996.*
10.46 Indemnification Agreement dated , 1996 by and between Integrated
Health Services, Inc. and Integrated Living Communities, Inc.*
21. Subsidiaries of the Registrant.+
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Fulbright & Jaworski L.L.P. (contained in Exhibit 5).*
24.1 Power of Attorney (included on signature page).+
24.2 Certified Resolution.
27. Financial Data Schedule
- ------------------
* To be filed by amendment.
+ Previously filed.
</TABLE>
-----------------------------
ASSET PURCHASE AGREEMENT
Dated as of , 1996
by and among
TERRACE GARDENS, L.P.,
HERBERT L. KRUMSICK,
JON KARDATZKE,
LOUIS WEISS,
CHESTER WEST,
ROSS G. TIDEMANN,
NESTOR R. WEIGAND, JR.,
and
INTEGRATED LIVING COMMUNITIES AT
TERRACE GARDENS, INC.
-----------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
ARTICLE I: SALE AND PURCHASE OF ASSETS.......................................1
1.1 Acquired Assets.............................................1
1.2 Assumption of Liability.....................................2
1.3 Designated Contracts........................................3
1.4 Inventory...................................................3
ARTICLE II: PURCHASE PRICE...................................................4
2.1 Determination and Payment of Purchase Price.................4
2.2 Certain Adjustments to the Purchase Price...................4
2.3 Transfer Taxes; Prorated Items..............................5
2.4 Other Prorations............................................6
2.5 Resident Trust Funds........................................6
ARTICLE III: THE CLOSING.....................................................6
3.1 Time and Place of Closing...................................6
3.2 Deliveries..................................................7
ARTICLE IV: SELLERS' REPRESENTATIONS AND WARRANTIES..........................8
4.1 Organization and Standing of Seller.........................8
4.2 Authority...................................................8
4.3 Binding Effect..............................................9
4.4 Absence of Conflicting Agreements...........................9
4.5 Consents....................................................9
4.6 Schedule of Assets and Properties...........................9
4.7 Contracts..................................................10
4.8 Financial Statements.......................................11
4.9 Material Changes...........................................11
4.10 Medicare and Medicaid Cost Reports.........................11
4.11 Licenses; Permits..........................................11
4.12 Title, Condition of Personal Property......................12
4.13 Title, Condition of the Real Property......................13
4.14 Legal Proceedings..........................................14
4.15 Employees..................................................15
4.16 Collective Bargaining, Labor Contracts, Employment
Practices, etc..........................................15
4.17 ERISA......................................................15
4.18 Insurance..................................................16
4.19 Relationships..............................................16
4.20 Absence of Certain Events..................................16
(ii)
<PAGE>
4.21 Compliance with Laws.......................................17
4.22 Environmental Compliance...................................17
4.23 Tax Returns................................................19
4.24 Encumbrances Created by this Agreement.....................19
4.25 Residents..................................................19
4.26 Zoning.....................................................19
4.27 Leases.....................................................19
4.28 No Broker..................................................19
4.29 Governmental Standards; Operating Changes..................19
4.30 Care of Residents; Deficiencies; Licensed Beds;
and Patient Care Agreements.............................20
4.31 Books and Records..........................................21
4.32 Patient Trust Funds........................................21
4.33 Intellectual Property......................................21
4.34 No Misstatements or Omissions..............................21
4.35 Bankruptcy.................................................21
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE BUYER......................21
5.1 Organization and Standing..................................22
5.2 Power and Authority........................................22
5.3 Binding Agreement..........................................22
5.4 Finders....................................................22
ARTICLE VI: INFORMATION AND RECORDS CONCERNING THE FACILITY.................22
6.1 Access to Information and Records before Closing...........22
6.2 Maps, Plans, Surveys, etc..................................23
ARTICLE VII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING.......................24
7.1 Conduct of Business Pending Closing........................24
7.2 Negative Covenants of Seller...............................24
7.3 Affirmative Covenants of Seller............................24
7.4 Affirmative Covenants of Buyer.............................25
7.5 Pursuit of Consents and Approvals..........................25
7.6 Supplementary Financial Information........................26
ARTICLE VIII: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS...................26
8.1 Representations and Warranties.............................26
8.2 Performance of Covenants...................................26
8.3 Delivery of Closing Certificate............................26
8.4 Opinion of Counsel.........................................26
8.5 Legal Matters..............................................26
8.6 Approvals..................................................27
8.7 Material Change............................................27
(iii)
<PAGE>
8.8 Title Insurance...........................................27
8.9 Deed......................................................28
8.10 Assets Transferred at Closing.............................28
8.11 Possession................................................28
8.12 COBRA.....................................................28
8.13 Authorization Documents...................................28
8.14 Payoff Letters............................................28
8.15 Initial Public Offering...................................28
8.16 Other Documents...........................................28
ARTICLE IX: CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS...................29
9.1 Representations and Warranties............................29
9.2 Performance of Covenants..................................29
9.3 Delivery of Closing Certificate...........................29
9.4 Opinion of Counsel........................................29
9.5 Legal Matters.............................................29
9.6 Authorization Documents...................................29
9.7 Other Documents...........................................29
ARTICLE X: OBLIGATIONS OF PARTIES AFTER CLOSING............................29
10.1 Discharge of Liabilities..................................30
10.2 Indemnification...........................................30
10.3 Records...................................................31
10.4 Collection of Accounts Receivable.........................31
10.5 Employment of Existing Employees..........................31
10.6 Restrictions..............................................31
10.7 Audited Financial Statements..............................32
ARTICLE XI: TERMINATION....................................................33
11.1 Termination Before the Filing Date........................33
11.2 Termination After the Non-Refund Date.....................33
11.3 Effect of Termination.....................................33
ARTICLE XII: CASUALTY, RISK OF LOSS........................................34
12.1 Casualty, Risk of Loss....................................34
ARTICLE XIII: MISCELLANEOUS PROVISIONS.....................................34
13.1 Survival of Representations and Warranties................34
13.2 Public Announcements......................................34
13.3 Costs and Expenses........................................35
13.4 Performance...............................................35
13.5 Benefit and Assignment....................................35
13.6 Effect and Construction of this Agreement.................35
(iv)
<PAGE>
13.7 Cooperation - Further Assistance..........................35
13.8 Notices...................................................35
13.9 Waiver, Discharge, etc....................................36
13.10 Rights of Persons Not Parties.............................36
13.11 Exchange..................................................36
13.12 Governing Law.............................................37
13.13 Counterparts..............................................37
13.14 Severability..............................................37
(v)
<PAGE>
SCHEDULES
---------
Schedule 1.1 - Description of Real Property
Schedule 1.2 - Mortgages
Schedule 1.3 - Designated Contracts
Schedule 1.4 - Inventory
Schedule 2.2(a) - Accrued Vacation Pay
Schedule 2.2(b) - Prepayments
Schedule 2.2(c) - Prepaid Rent
Schedule 2.2(d) - Security Deposits
Schedule 2.5 - Resident Trust Funds
Schedule 4.5 - Consent List of Seller
Schedule 4.6 - Schedule of Assets
Schedule 4.7 - Contracts
Schedule 4.8 - Financial Statements
Schedule 4.9 - Material Changes
Schedule 4.11 - Licenses, Permits
Schedule 4.12(a) - Liens on Personal Property
Schedule 4.12(b) - Leases of Personal Property
Schedule 4.13(a) - Permitted Exceptions
Schedule 4.13(g) - Public Improvement Proceedings
Schedule 4.13(j) - Certificates of Occupancy
Schedule 4.14 - Legal Proceedings
Schedule 4.15 - Employees
Schedule 4.16 - Collective Bargaining Agreements
Schedule 4.18 - Insurance
Schedule 4.19 - Relationships
Schedule 4.20 - Certain Events
Schedule 4.22 - Environmental Matters
Schedule 4.25 - Residents
Schedule 4.26 - Zoning
Schedule 4.27 - Leases
Schedule 4.29 - Government Standards, Operating Changes
Schedule 4.30(a) - Care of Residents
Schedule 4.30(b) - Violations and Deficiencies
Schedule 4.30(c) - Resident Care Information
Schedule 4.30(d) - Patient Care Agreements and Resident Leases
Schedule 4.33 - Intellectual Property
Schedule 10.4 - Accounts Receivables
Schedule 10.5 - Designated Employees
Schedule 10.6(b) - Permitted Business Activities
(vi)
<PAGE>
EXHIBITS
--------
Exhibit 2.1 - Purchase Price Escrow Agreement
Exhibit 3.2 - Closing Escrow Agreement
Exhibit 8.4 - Opinion of Seller's Counsel
Exhibit 8.10 - Bill of Sale, Assignment of Contracts
Exhibit 9.4 - Opinion of Buyer's Counsel
(vii)
<PAGE>
--------------------------
ASSET PURCHASE AGREEMENT
--------------------------
This Asset Purchase Agreement (the "Agreement") is made as of
the day of , 1996, by and among INTEGRATED LIVING COMMUNITIES AT
TERRACE GARDENS, INC., a Delaware corporation having its principal office at
10065 Red Run Boulevard, Owings Mills, MD 21117 (the "Buyer") and HERBERT L.
KRUMSICK, JON KARDATZKE, LOUIS WEISS, CHESTER WEST, ROSS G. TIDEMANN, NESTOR R.
WEIGAND, JR., and TERRACE GARDENS, L.P., a Kansas limited partnership, having a
notice address of 1318 N. West Street, Wichita, KS 67203 (collectively, the
"Sellers").
BACKGROUND
----------
WHEREAS, Sellers are the owners of that certain Continuous
Care Retirement Center comprising 222 nursing beds and 120 apartments named
"Terrace Gardens" located in Wichita, Kansas (the "Facility"), together with the
Assets described in Section 1.1 below; and
WHEREAS, Buyer wishes to acquire, and Sellers wish to sell,
the Facility, in accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants, agreements and representations and warranties herein
contained, Sellers and Buyer, intending to be legally bound, agree as follows:
ARTICLE I: SALE AND PURCHASE OF ASSETS
--------------------------------------
1.1 Acquired Assets. Subject to the terms and conditions of
this Agreement, at the Closing (as hereinafter defined), Buyer will acquire from
Sellers, and Sellers will sell, assign, transfer and convey to Buyer, all of the
assets, properties and business of Sellers that comprise the Facility including,
without limitation, the real property upon which the Facility is located and all
improvements thereon, together with all rights, easements, privileges, and
hereditaments belonging or appertaining thereto or any additions thereto, free
and clear of all liens, mortgages and encumbrances, except for the First
Mortgage (hereafter defined in Section 1.2), all as more particularly described
on Schedule 1.1 attached hereto (the "Property"), and such other property owned
by Sellers, located on and used in connection with the Facility, including
without limitation, all tangible, intangible, real, personal or mixed property,
the Inventory (defined herein), claims and rights under contracts, Designated
Contracts (defined herein), patient lists and records, telephone numbers,
furniture, fixtures, equipment, supplies, prepaid items, surveys, building
plans, good will, and, to the extent permitted by law, all permits, licenses and
certificates of need and other rights held by Sellers with respect to the
ownership or operation of the Facility as the same shall exist on the Closing
Date, and all of Sellers' books and records
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pertaining to the foregoing all as more fully set forth on the Schedules
attached hereto, but excluding all cash, cash equivalents, bank accounts,
deposits held by utility companies or other utility providers, and accounts
receivable, (together all such properties, assets or business to be conveyed to
Buyer from Sellers at the Closing which are hereafter referred to as the
"Assets").
1.2 Assumption of Liability. Except as expressly provided
herein, Buyer shall not assume, nor in any way be liable or responsible for any
claims, lawsuits, liabilities, obligations or debts of Sellers, including
without limitation (i) malpractice claims asserted by patients of the Facility
or any other tort claims asserted against Sellers, claims for breach of
contract, or any claims of any kind asserted by patients, former patients,
employees of Sellers or any other party that are based on acts or omissions
occurring before the Closing Date; (ii) amounts due or that may become due to
Medicare or Medicaid or any other health care reimbursement or payment
intermediary on account of Medicare cost report adjustments or other payment
adjustments attributable to any period prior to the Closing Date, or any other
form of Medicare or other health care reimbursement recapture, adjustment or
overpayment whatsoever with respect to any period prior to the Closing Date
("Excess Reimbursement Liabilities"); (iii) except as otherwise provided herein,
any accounts payable, employment or other taxes, and any other obligation or
liability of Sellers to pay money whatsoever; and (iv) any depreciation
recapture occurring on or before the Closing Date.
Notwithstanding the provisions of the immediately preceding
paragraph, on the Closing Date, contingent upon the consummation of the
transactions contemplated hereby, Buyer shall assume and thereafter in due
course fully satisfy those obligations arising under the Designated Contracts
(defined herein) specified pursuant to Section 1.3 below and assigned by Sellers
to Buyer (to the extent the same are assignable), with respect to, and only with
respect to, performance and payments owed that become due thereunder on or
subsequent to the Closing Date. Liabilities and obligations under such
Designated Contracts that have accrued, or the performance of which is due,
prior to the Closing Date, and all liabilities and obligations under all other
Contracts shall remain the sole responsibility of Sellers and shall be paid or
performed on or prior to the Closing Date. In addition, on the Closing Date, if
requested by Buyer, the parties shall use their best efforts to assign Sellers'
rights and obligations to Buyer, at Buyer's sole cost, under the outstanding
first lien mortgage (herein the "First Mortgage") on the Facility, which, as of
April 1, 1996 (after applying the payment due April 1, 1996) will have an
aggregate principal balance of $8,159,876. The First Mortgage is more fully
described on Schedule 1.2 attached hereto. If the First Mortgage is so assigned,
the outstanding principal amount of the First Mortgage, together with all
accrued and unpaid interest thereon, shall be credited against the Purchase
Price payable by Buyer at the Closing. Sellers shall indemnify and hold Buyer
harmless from and against all liabilities and obligations associated with the
First Mortgage for periods prior to the Closing Date. If the First Mortgage is
assigned to Buyer, Buyer shall be solely responsible for the payment of all
fees, costs and/or expenses in connection with obtaining said consent of such
holders. In addition, Buyer shall be responsible for its own costs associated
with the assumption of the First Mortgage, if applicable. Should Buyer elect to
assume the First Mortgage, Buyer shall be obligated to deliver to Sellers, on
or before Closing, the written agreement of the
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holders of the First Mortgage fully releasing and discharging Sellers from any
and all further liabilities or obligations associated with the First Mortgage or
created pursuant to any instrument executed in connection with the debt
evidenced by the First Mortgage.
1.3 Designated Contracts.
(a) The Contracts (defined herein in Section
4.7) which will be assigned to and assumed by Buyer (the "Designated
Contracts") are set forth on Schedule 1.3 to be prepared by Buyer and
attached hereto at the time of execution of this Agreement by Buyer.
Sellers shall at Closing, and to the extent the same are assignable, be
obligated to assign all of its right, title and interest under such
Designated Contracts to Buyer and Buyer shall assume the obligations
accruing on and after Closing under such Designated Contracts.
(b) Notwithstanding anything to the contrary
contained herein, Buyer is not assuming and will not be responsible for
any liabilities or obligations under the Designated Contracts which are
to be performed before the Closing Date; all such liabilities and
obligations remaining the sole and exclusive responsibility of Sellers
pursuant to Section 1.2 herein and shall be paid or performed prior to
the Closing Date.
(c) Immediately after notice of the designation
by Buyer of the Contracts to be assigned by Sellers, Sellers will use
their best efforts (but without any obligation to expend money) and
shall diligently proceed to obtain any consents of any parties
necessary to permit the assignment of the Designated Contracts. In the
event that any of the Designated Contracts are not assignable, or the
parties to such Designated Contract fail or refuse to consent to any
assignment on or before the Closing Date, Buyer shall have no liability
to assume and will not assume any such Designated Contracts. In the
case of those certain Bank IV equipment leases, Buyer shall be
responsible for obtaining the consent for the transfer thereof.
1.4 Inventory. Sellers shall, at their own expense, make (or
cause to be made) an inventory of the complete contents of the Facility, and
promptly (but no later than ten (10) days from the date hereof) deliver the
tally to Buyer, which shall be attached hereto as Schedule 1.4. From the date
hereof until the Closing Date, Sellers shall maintain inventory at levels
substantially consistent with those set forth on Schedule 1.4. Buyer may review
and verify the inventory submitted by Sellers, and, if the inventory after the
Closing is not at substantially the levels set forth on Schedule 1.4, Buyer will
notify Sellers within ten (10) business days after the Closing, and Sellers will
refund a portion of the Purchase Price equal to the dollar value of the
inventory deficit. The inventory as agreed to by the parties shall be referred
to as the "Inventory."
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ARTICLE II: PURCHASE PRICE
--------------------------
2.1 Determination and Payment of Purchase Price. The purchase
price of the Assets shall be TWELVE MILLION ONE HUNDRED FIFTY THOUSAND AND
00/100 ($12,150,000.00) DOLLARS, subject to a credit for the outstanding balance
of the First Mortgage, as of the Closing Date(if the First Mortgage is assumed
by Buyer), and the adjustments as provided in this Article II (the "Purchase
Price"). Such amount shall be payable in cash by wire transfer of immediately
available funds as follows:
(a) the sum of $250,000.00 shall be deposited on
the date hereof (the "Deposit") with First American Title Insurance Company of
New York as escrow agent (the "Escrow Agent") under that certain Purchase Price
Escrow Agreement of even date herewith, a copy of which is attached hereto as
Exhibit 2.1, which deposit shall be refundable to Buyer at any time before the
earlier of June 12, 1996, or the filing date with the Securities and Exchange
Commission of the registration statement for the initial public offering of the
capital stock of the Buyer (the "Filing Date"). The Escrow Agent will release
the Deposit to Sellers on the earlier of the Filing Date or June 12, 1996, if
this Agreement is not terminated on or before such date (the "Non-Refund Date").
In the event Buyer fails to make such filing by June 12, 1996, Sellers shall
have the right to terminate this Agreement at anytime thereafter unless on or
before the Non- Refund Date, (i) Buyer notifies Sellers of its waiver of the
condition set forth in Section 8.15 hereof, and (ii) Buyer delivers an
additional sum of $250,000.00 to the Sellers on the date it notifies Sellers of
the waiver of Section 8.15; and
(b) the balance shall be payable by Buyer to
Sellers at the Closing.
2.2 Certain Adjustments to the Purchase Price. In
addition, at the Closing hereunder:
(a) Attached hereto is Schedule 2.2 (a), which
shall be updated, and effective as of the Closing Date, and delivered within
five (5) days prior to the Closing Date, showing the amount of accrued holiday
and vacation pay, accrued sick pay and personal leave and any other similar
benefits, for each of its employees who Buyer desires to employ and who accepts
such employment with Buyer, as set forth on Schedule 10.5 hereto. The payroll
taxes and workers' compensation insurance premiums shall be fully discharges at
Closing. The amount applicable for any accrued holiday and vacation pay and
accrued sick pay and personal leave shall be estimated prior to Closing and
shall be settled as an adjustment to the Purchase Price within ninety (90) days
after Closing pursuant to Section 2.4 below.
(b) Attached hereto is Schedule 2.2(b), which
shall be updated and effective as of the Closing Date, listing the amount of any
prepayments received by Sellers prior to Closing on account of any goods or
services to be rendered or supplied by Buyer on or after the Closing Date, and
such prepayments shall reduce the Purchase Price at Closing on a
dollar-for-dollar basis.
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(c) Attached hereto is Schedule 2.2(c), which
shall be updated and effective as of the Closing Date, listing the amount of any
prepaid rent received from residents of the Facility, and such prepaid rent
which is applicable to periods commencing on or after the Closing Date, shall
reduce the Purchase Price at Closing on a dollar-for-dollar basis.
(d) Attached hereto is Schedule 2.2(d), which
shall be updated and effective as of the Closing Date, listing the amount of any
security deposits received from residents of the Facility, and such security
deposits shall reduce the Purchase Price at Closing on a dollar-for-dollar
basis.
2.3 Transfer Taxes; Prorated Items. On the Closing Date, the
following adjustments and prorations shall be computed as of the Closing Date
with respect to the following taxes (unless otherwise stated herein) and the
cash portion of the Purchase Price shall be adjusted, upward or downward as
appropriate, to reflect such prorations:
(a) Transfer Taxes and Escrow Fees. All state
and local real estate transfer and recording taxes or fees and escrow fees shall
be borne equally between the Seller and the Buyer; provided, however, Buyer
shall be responsible for any mortgage registration taxes which may be payable
because of any financing obtained by Buyer.
(b) Real Estate Taxes, etc. Real property taxes,
the installments of special assessments and all other public or governmental
charges against the Assets (including charges for sewer, water, drainage or
other services) for the fiscal year in which the Closing Date occurs shall be
adjusted and apportioned as of the Closing Date.
(c) Personal Property Taxes. Personal property
taxes attributable to the personal property comprising the Assets for the fiscal
year in which the Closing Date occurs shall be adjusted and apportioned as of
the Closing Date and paid thereafter by Buyer. Buyer agrees to indemnify and
hold Sellers harmless with respect to such taxes which accrue on or after the
Closing Date and for any such taxes which accrued prior to the Closing Date if
Buyer is given a credit therefor at Closing. Sellers agree to indemnify and hold
Buyer harmless with respect to such taxes which accrued prior to the Closing
Date if there is no tax credit for periods prior to the Closing Date is given to
Buyer at Closing. The respective indemnification and payment obligations of the
parties shall survive the Closing and continue to be enforceable.
(d) Service Contracts, Leases and Utilities.
Except as otherwise provided in Section 1.3, all prepayments made or payments
due under any continuing service contracts and leases affecting the Assets,
including without limitation water, sewer, electric, gas and utility bills,
parking, garbage removal, and maintenance agreements shall be adjusted and
apportioned as of the Closing Date with Buyer responsible for such obligations
incurred on or after the Closing Date.
(e) Sales Taxes. Any applicable sales taxes
payable in connection with the transfer of the Assets shall be shared equally by
Sellers and Buyer.
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(f) Reserves. If Buyer assumes the First
Mortgage, Sellers shall assign to Buyer all tax, insurance and other reserves
held by any holder of the First Mortgage. Buyer shall pay to Sellers, at
Closing, a sum of money equal to such reserves.
2.4 Other Prorations. All other charges and fees customarily
prorated and adjusted in similar transactions in the locale in which the Assets
are situated (including without limitation any and all employee benefits not
otherwise governed by Section 2.2) shall be prorated as of the Closing Date in
accordance with such custom and thereafter be assumed by Buyer, with the Buyer
being charged with such items which accrue on and after the Closing Date.
In the event that accurate prorations and other adjustments
cannot be made as of the Closing Date because current bills or statements are
not obtainable (as, for example, utility bills), the parties shall prorate such
items upon receipt of the final bill of statement, but in no event later than
ninety (90) days after Closing; provided, that any bill received by Sellers
after the Closing Date shall be paid by Sellers to the extent it relates to
charges accruing prior to the Closing Date. The Seller shall use its best
efforts to have all utility meters read on the Closing Date so as to accurately
determine the proration of current utility bills.
2.5 Resident Trust Funds. Sellers shall deliver to Buyer
before Closing Schedule 2.5 listing the amount of escrow monies of residents of
the Facility held in trust by Sellers ("Resident Trust Funds") and, if such
monies are held in separate accounts, specifying the name of the bank at which
such account is maintained and identifying patient account numbers. At Closing,
Sellers shall assign, transfer and deliver to Buyer, as trustee and subject to
the same term of trust, all such amount held in Resident Trust Funds and all
passbooks and other books and records pertaining thereto. Buyer shall assume all
liability with respect to such Resident Trust Funds arising on and after the
Closing Date. Sellers agree to indemnify, defend and hold Buyer harmless from
any and all liabilities, claims, losses, costs or expenses asserted against or
suffered by Buyer in connection with the Resident Trust Funds with respect to
matters arising prior to the Closing Date. Buyer agrees to indemnify, defend and
hold Sellers harmless from any and all liabilities, claims, losses, costs or
expenses asserted against or suffered by Sellers in connection with the Resident
Trust Funds with respect to matters arising on or after the Closing Date. The
respective indemnification obligations of the parties shall survive the Closing
and shall continue to be enforceable. Any liability with respect to such
Resident Trust Funds arising or accruing before the Closing Date, and any
liability arising on or after the Closing Date (other than the obligation to
return such funds to the applicable resident), in the event the amount of the
Resident Trust Funds delivered by Sellers to Buyer is demonstrated to be less
than the funds delivered to Sellers to hold in trust prior to the Closing Date,
shall remain the sole responsibility of the Sellers.
ARTICLE III: THE CLOSING
------------------------
3.1 Time and Place of Closing.
(a) Subject to Section 3.2 hereof, except as set
forth in paragraph (b) of this Section and subject to the fulfillment of the
conditions set forth in Article VIII hereof, the closing (the "Closing") of the
purchase and sale of the Assets contemplated by this Agreement
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shall take place on the day (herein the "Closing Date") which is the earlier of
the closing date of the Initial Public Offering or August 7, 1996, through
escrow pursuant to the Closing Escrow Agreement, or at such other time on the
Closing Date and place upon which the parties may mutually agree. Sellers shall
deliver possession of the Assets to Buyer, and Buyer shall accept the same on
said date.
(b) Buyer will file all necessary applications
for licensure within ten (10) days of the date hereof, and will use its best
efforts to obtain all necessary approvals in connection therewith by the Closing
Date. If prior to or by the Closing Date, the state agency or agencies with
jurisdiction over the licensing of the Facility notifies Buyer that there exist
impediments to such agency or agencies issuing to the Buyer a license to operate
the Facility immediately upon the Buyer's acquisition of the Assets, then, in
such event, Buyer shall be entitled to extend the Closing Date for a period
sufficient to meet such requirements, but in no event for more than thirty (30)
days.
3.2 Deliveries.
(a) On the day immediately preceding the
reasonably anticipated effective date of Buyer's registration statement relating
to the Initial Public Offering ("the Escrow Closing Date"), the parties hereto
shall, if the Closing is expected to occur on the closing date of the Initial
Public Offering, enter into the Closing Escrow Agreement attached hereto as
Exhibit 3.2, and shall deliver the following documents to the escrow agent
thereunder to be held in accordance therewith:
(i) Sellers shall deliver such deed,
bill of sale, endorsements, assignments (other than related to the Bank IV
equipment leases) and other instruments of sale, conveyance, transfer and
assignment, mutually satisfactory in form and substance to Buyer, Sellers and
their respective counsels (including, without limitation, the Bill of Sale and
Assignment of Contracts described in Section 8.10 hereof), as may be reasonably
requested by Buyer, in order to convey to Buyer good and marketable title to the
Assets (other than the Real Property), free and clear of all claims, charges,
equities, liens, security interests and encumbrances except for the Permitted
Exceptions (as defined in Section 4.13 hereof).
(ii) Sellers shall deliver to Buyer all
written consents which are required under any Designated Contract hereunder;
provided, however, that as to any Designated Contract the assignment of which by
its terms requires prior consent of the parties thereto, if such consent is not
obtained prior to or on the Escrow Closing Date, Sellers shall deliver written
documentation setting forth arrangements for the transfer of the economic
benefit of such Designated Contracts to Buyer as of the Escrow Closing Date
under terms and conditions reasonably acceptable to the Buyer, in accordance
with the terms of Section 1.3 hereof.
(iii) Sellers shall deliver a special
warranty deed with warranty against grantor's acts in accordance with the law of
the State of Kansas to each parcel of the Real Property and all Improvements
thereof, in form mutually acceptable to Buyer, Sellers and their respective
counsels, with good and marketable title, free and clear of all mortgages,
liens, charges or other encumbrances except (i) the Permitted Exceptions; and
(ii) the standard exceptions
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normally contained in Schedule B to Owner Policy of Title Insurance and any
exceptions that are standard in the State of Kansas for all properties similarly
used; provided, however, the Sellers, at Buyer's request, shall provide such
affidavits to the title company or take such other actions (other than the
expenditure of money or providing of a survey) as may be reasonably requested
that would enable the title company to remove any of such standard exceptions.
Each of Buyer and Sellers shall deliver a check in payment of one-half of all
transfer taxes and recording fees payable by reason of the delivery or recording
of the special warranty deed to the Real Property.
(iv) Buyer shall deliver all
documentation reasonably necessary to assume the Assets and the Real Property in
form and content mutually acceptable to Buyer and Sellers.
(v) Each of Sellers and Buyer shall
deliver all certificates, opinions and other documents required to be delivered
pursuant to Articles IX and X hereof.
(vi) Buyer shall deliver the Employment
Agreement, defined in Section 9.7 hereof.
(b) All documents delivered into escrow on the
Escrow Closing Date shall be undated, and shall be dated the Closing Date at the
time such documents are released from escrow in accordance with the terms of the
Closing Escrow Agreement.
(c) If the Closing is to occur on a date other
than the closing date of the Initial Public Offering, the parties shall, on the
Closing Date, deliver the documents required to be delivered pursuant to Section
3.2 (a) to each other rather than the Escrow Agent, and Buyer shall pay the
Purchase Price by wire transfer of immediately available funds to accounts
specified by the Sellers.
ARTICLE IV: SELLERS' REPRESENTATIONS AND WARRANTIES
---------------------------------------------------
Sellers represent and warrant to Buyer as follows:
4.1 Organization and Standing of Seller. Sellers own the
Facility as Tenants in Common. All of the Sellers are individuals except Terrace
Gardens, L.P., which is a duly organized limited partnership, validly existing
and in good standing under the laws of the State of Kansas. Sellers have the
power and authority to own property and assets now owned by them and conduct the
business presently being conducted by them.
4.2 Authority. Sellers have the full power and authority to
make, execute, deliver and perform this Agreement including all Schedules and
Exhibits hereto, and the other instruments and documents required or
contemplated hereby and thereby ("Seller's Transaction
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Documents"). Such execution, delivery, performance and consummation have been
duly authorized by all necessary action, on the part of Sellers.
4.3 Binding Effect. This Agreement and all related
transaction documents executed by Sellers constitute the valid and binding
obligation of Sellers, enforceable against Sellers in accordance with their
respective terms.
4.4 Absence of Conflicting Agreements. Provided Buyer obtains
the necessary consents and approvals from the applicable governmental
authorities having jurisdiction over the Facility and from the holders of the
First Mortgage and as required under the Designated Contracts, neither the
execution or delivery of this Agreement or any of the Seller's Transaction
Documents by Sellers nor the performance by Sellers of the transactions
contemplated hereby and thereby, conflicts with, or constitutes a breach of or a
default under (i) any applicable law, rule, judgment, order, writ, injunction,
or decree of any court, currently in effect; or (ii) any applicable rule or
regulation of any administrative agency or other governmental authority
currently in effect; or (iii) any written or oral agreement, indenture, contract
or instrument to which Sellers are now a party or by which any of them or any of
the Assets is bound.
4.5 Consents. Except for the necessary consents and approvals
from the applicable government authorities having jurisdiction over the Facility
and from the holders of the First Mortgage, any consents required under the
Designated Contracts, and as set forth on Schedule 4.5, no authorization,
consent, approval, license, exemption by filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary in connection with
Sellers' entry into, execution, delivery and performance of this Agreement, any
of the transaction documents related hereto, or for the Sellers' consummation of
the transactions contemplated hereby and thereby.
4.6 Schedule of Assets and Properties.
(a) Set forth in Schedule 4.6 are complete and
accurate lists of all of the material items comprising Sellers' Assets as it
relates to this Facility (other than the Property) and the Inventory as of the
date of this Agreement as follows:
(i) All machinery, vehicles and
equipment, office equipment, furniture and supplies owned or leased by Sellers
and used in connection with the Facility and any other items of personal
property that is located at the Facility and comprise or are otherwise used by
Sellers in connection with the Facility.
(ii) All franchises, licenses, permits,
rights and other authorizations, if any, and any other item of intangible or
intellectual property (other than trade names, trademarks and service marks and
all proprietary information) that are owned, possessed or used by Sellers in the
operation of the Facility.
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4.7 Contracts.
(a) Except for the First Mortgage, employment
contracts, and (to the extent they appear on Schedule 4.30) patient care
agreements, Schedule 4.7 sets forth a complete and correct list of all
agreements, contracts and commitments whether written or oral, relating to the
Facility or its operation by which Seller or the Facility is bound, together
with copies of all such agreements, contracts and commitments and a brief
description setting forth their assignability (the "Contracts"). Sellers are not
in default under any Contract and there has not been asserted, either by or
against Sellers under any Contract, any notice of default, set-off or claim of
default. Sellers, after due inquiry, have no knowledge that the parties to the
Contracts, other than the Sellers, are not in default of any of their respective
obligations under the Contracts, or that there has occurred any event which with
the passage of time or the giving of notice (or both) would constitute a default
or breach under any Contract. Except as set forth on Schedule 4.7, all amounts
payable under the Contracts are, or will at the Closing Date, be on a current
basis. Except as set forth on Schedule 4.7, the Contracts are assignable to
Buyer without the consent of the remaining parties thereto.
(b) Except as listed on Schedule 4.7 or with
respect to employment agreements, Sellers are not party to or liable in
connection with and have not granted any written or express, oral or implied:
(i) contract, agreement or commitment for
the employment or retention of, or collective bargaining,
severance or termination agreement with, any employee,
consultant or agent or group of employees at the Facility;
(ii) profit sharing, thrift, bonus,
incentive, deferred compensation, stock option, stock
purchase, severance pay, pension, retirement, hospitalization,
insurance or other similar plan, agreement or arrangement
covering employees at the Facility;
(iii) agreement or arrangement for the
sale of any of the Facility's assets, properties or rights
outside the ordinary course of business (by sale of assets,
sale of stock, merger or otherwise) which is currently in
effect;
(iv) agreement restricting the Sellers
from conducting business anywhere in the world imposed by any
government or public agency;
(v) partnership or joint venture
contract or similar arrangement or agreement which is likely
to involve a sharing of profits or future payments with
respect to the Sellers' interest in the Facility;
(vi) licensing, distributor, dealer,
franchise, sales or manufacturer's representative, agency or
other similar contract, arrangement or
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commitment for the Facility which involves consideration of
more than $10,000; or
(vii) agreement not made in the ordinary and
normal course of business of the Facility which involves
consideration of more than $10,000.
4.8 Financial Statements. Attached hereto are Sellers'
financial statements for the Facility for the two (2) calendar years ended
December 31, 1994 and December 31, 1995, certified as true and correct by
Sellers (the "Financial Statements"). The Financial Statements (including any
related notes thereto), and the financial statements Sellers are covenanting to
deliver to Buyer pursuant to Section 7.3(j) hereof, are true and correct in all
material respects and present fairly the financial condition and results of
operations of the Facility as, at and for the periods therein specified and were
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with prior periods, except as disclosed as an addendum to the
Financial Statements relative to capitalization policies and vacation and sick
leave.
4.9 Material Changes. Except as listed on Schedule 4.9 hereto
or as disclosed on the financial statements provided under Section 7.3 (j),
since December 31, 1995, there has not been any material adverse change in the
condition (financial or otherwise), of the assets, properties or operations of
the Facility, or any damage or destruction of the Facility by fire or other
casualty, whether or not covered by insurance, and Sellers have, and as of the
Closing, will have, operated the Facility only in the normal course. No notice
relating specifically to the Facility has been issued, written or oral, and to
the best of Sellers' knowledge, Sellers have disclosed on Schedule 4.9 all
information with respect to any fact or condition that might cause a material
adverse effect on the future prospects (financial, licensure status or
otherwise) of the Facility.
4.10 Medicare and Medicaid Cost Reports. Sellers have
delivered to the Buyer true and correct copies of all Medicaid cost reports
relating to the Facility for the last two (2) fiscal years. Seller will prepare
or have prepared terminating cost reports or other documentation required by
Medicaid. To the best of Sellers' knowledge, there are no outstanding Medicare
claims or settlements of the Facility for the period of time during which the
Facility participated in the Medicare program.
4.11 Licenses; Permits. Schedule 4.11 sets forth a description
of (a) each license and all other governmental or other regulatory permits and
approvals relating to the operation of the Facility heretofore obtained and that
is now in effect; and (b) where notice has been issued to Sellers, each other
license, permit, right or other authorization that is necessary for the
operation of the Facility, including the Life Safety Code, zoning laws and
building codes (collectively, the "Licenses"). Sellers have delivered to Buyer
copies of all of the Licenses listed on Schedule 4.11. Sellers shall use their
best efforts to deliver to Buyer within ten (10) days from execution hereof
copies of each application for each of the Licenses. Schedule 4.11 also sets
forth a description of each accreditation of the Facility, copies of which
Seller has delivered to the
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Buyer. The Facility is licensed and certified by the Kansas State Department of
Health or Environment for 222 Medicaid beds. Sellers own, possess or have the
legal right to use the Licenses, free and clear of all liens, pledges, claims or
other encumbrances of any nature whatsoever. Except as set forth in Schedule
4.11, Sellers are not in default under, nor have they received any notice of any
claim or default or any other claim or proceeding relating to, any such License.
The Facility is fully and completely licensed by all appropriate authorities for
Sellers to carry on the business presently conducted at the Facility. Except for
Sellers, no shareholder, director or officer, employee or former employee, or
immediate family member of any such person, or any other person, firm or
corporation owns or has any proprietary, financial or other interest, direct or
indirect, in whole or in part in any such License owned, possessed or used in
the operation of the Facility as now operated.
4.12 Title, Condition of Personal Property.
(a) Except for the security interests listed and
described on Schedule 4.12(a), Sellers have good and marketable title to all
such tangible and intangible personal property located at or used by Sellers in
connection with the ownership or operation of the Facility, subject to no
mortgage, security interest, pledge, lien, conditional sales agreement, lease,
claim, encumbrance or charge, or restraint on transfer whatsoever. No other
person has any right to the use or possession of any of such property and,
except as set forth on Schedule 4.12(a), no currently effective financing
statement with respect to such property has been filed in any jurisdiction, and
Sellers have not signed any such financing statement or any security agreement
authorizing any secured party thereunder to file any such financing statement.
During the five (5) year period preceding the date hereof, Sellers have
conducted its business activities only under the corporate and/or trade name
"Terrace Gardens." To the best of Sellers' knowledge after due inquiry, all of
the personal property is in good operating condition and repair and is
functioning in the manner and for the purpose for which it was intended and is
in compliance with (and the operation thereof is in compliance with) all
applicable Federal, state and local laws, rules and regulations, and is
sufficient and suitable to enable the Buyer to operate the Facility in a normal
and efficient manner.
(b) Except as set forth on Schedule 4.12(b),
none of the personal property used by Sellers in connection with the operation
of the Facility is subject to a conditional sale, security interest or similar
arrangement. Schedule 4.12(b) sets forth a complete and correct copy of each of
the personal property leases relating to the Facility as to which Sellers are
parties (together with all modifications or amendments thereto), the annual
rental and unexpired lease term thereby and all the information set forth
thereon is complete, correct and accurate. All of said personal property leases
are valid, binding and enforceable in accordance with their respective terms and
are in full force and effect. Sellers are not in default under any of such
leases and there has not been asserted, either by or against Sellers under any
of such leases, any notice of default, set-off, or claim of default. To the best
of Sellers' knowledge, the parties to such leases, other than the Sellers, are
not in default of their respective obligations under any of such leases, and
there has not occurred any event which with the passage of time or giving of
notice (or both)
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would constitute such a default or breach under any of such leases. Except as
otherwise set forth on Schedule 4.12(b), each of said personal property leases
is assignable to Buyer without the consent of the lessor of such Facility.
4.13 Title, Condition of the Real Property.
(a) Sellers have good and marketable title to
the real property comprising Facility (the "Real Property"), insurable by any
reputable, licensed title company selected by Buyer at regular rates, free and
clear of all liens, claims, charges, easements, encumbrances and title
exceptions of any kind whatsoever, except those matters set forth on Schedule
4.13(a) (the "Permitted Exceptions").
(b) There are no leases or other agreements of
Sellers as lessors, granting any third party the right to use or occupy any part
of the Real Property (except the rights of the patients of the Facility) and no
person, firm or entity has any ownership interest or option or right of first
refusal to acquire any ownership interest in the Real Property or any building
or improvements thereon.
(c) To the best of Sellers' knowledge after due
inquiry, all buildings and other improvements comprising the Facility (including
all roads, parking areas, curbs, sidewalks, sewers and other utilities) have
been completed and installed in accordance with such plans and specifications as
were approved by the governmental authorities having jurisdiction thereof. Such
permanent statements of occupancy and all other licenses, permits,
authorizations and approvals required by all governmental authorities having
jurisdiction and the requisite annual fire safety and life safety inspections as
were issued or conducted for the buildings and other improvements, if any,
comprising the Real Property, have been issued, paid for and are in full force
and effect.
(d) To the best of Sellers' knowledge after due
inquiry, the maintenance, operations and use of the buildings and other
improvements comprising the Real Property will comply with and do not violate
any zoning, building or similar law, ordinance, order or regulation or any
statement of occupancy issued for the Facility. To the best of Sellers'
knowledge, there will have been no violation of any Federal, state, county or
municipal law, ordinance, order, regulation or requirement affecting the
Facility and no written notice of any such violation shall have been issued by
any governmental authority. To the best of Sellers' knowledge, since the
construction of the Facility was completed Sellers have received no notice of
any changes to building, health or fire codes that would be applicable to the
Facility nor any change in the use of the Facility that would have caused any
modifications to have been made to the Facility pursuant to any such building,
health or fire codes.
(e) No notice has been issued to Sellers that
there is a plan, study or effort by any governmental authority or agency which
in any way affects or would affect the present use or zoning of the Real
Property or any part thereof. To the best of Sellers' knowledge there is no
plan, study or effort by any governmental authority or agency which in any way
affects or would affect the present use or zoning of the Real Property or any
part thereof. Except as set
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forth on Schedule 4.13(g), to the best of Sellers' knowledge, and no notice has
been issued to the contrary, there are no assessments or proposed assessments
and there is no existing, proposed or contemplated plan to widen, modify or
realign any street or highway or any existing, proposed or contemplated eminent
domain proceedings that would affect the Real Property in any way whatsoever.
The Real Property is not located in areas designated by the Secretary of Housing
and Urban Development or any other governmental authority or agency as having
special flood or mud slide hazards.
(f) To the best of Sellers' knowledge after due
inquiry, during the Sellers' ownership thereof, the buildings and other
improvements comprising the Real Property and all of their systems, including
without limitation, the heating, ventilating and air condition systems, and the
plumbing, electrical, mechanical and drainage systems, and roof are in good
operating condition, repair and working order, and have passed all previous
safety and/or licensing inspections. The last inspection under the Life Safety
Code occurred on the second day of June, 1995 and the last licensing inspection
occurred on the third day of May, 1995.
(g) Except as set forth on Schedule 4.13(g),
there is no proceeding pending to which Sellers are a party relating to the
assessed valuation of any portion of the Facility and no assessment for public
improvements have been made against the Facility that remain unpaid. All
installments of special assessments due and payable for the tax year preceding
the year of Closing for all public improvements ordered, commenced or completed
prior to the Closing Date shall be paid for in full by the Sellers prior to the
Closing.
(h) All public utilities required for the
operation of the Facility either enter the Facility through adjoining public
streets, or if they pass through adjoining private land, do so in accordance
with valid recorded easements held by Sellers. The Real Property is adjacent to
and has direct access to an abutting street. All streets adjoining or traversing
the Real Property have been dedicated to and accepted by the local municipal
authorities.
(i) Except as disclosed on Schedule 4.13(i),
there are no easements traversing the Real Property which are not disclosed on
any schedule hereto or on any title report delivered, or to be delivered, to the
Buyer or which interfere with the intended use and operation of the Facility.
(j) All certificates of occupancy and other
authorizations issued for the Real Property have been set forth on Schedule
4.13(j) hereto. Sellers have not received any notice of noncompliance from any
governmental authority regarding any of the improvements constructed on the Real
Property or the use or occupancy thereof.
4.14 Legal Proceedings. Other than as set forth on Schedule
4.14, there are no disputes, claims, actions, suits or proceedings, arbitrations
or investigations, either administrative or judicial, pending, or, to the best
of Sellers' knowledge, threatened or contemplated, nor, to the best of Sellers'
knowledge, is there any basis therefor, against or affecting the Facility or the
Assets or Sellers' rights therein or Sellers' ability to consummate the
transactions contemplated
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herein, at law or in equity or otherwise, before or by any court or governmental
agency or body, domestic or foreign, or before an arbitrator of any kind.
Sellers have received no requests for information with respect to the
transactions contemplated hereby from any governmental agency.
4.15 Employees. Schedule 4.15 contains a complete and correct
list of the name, position, current rate of compensation and any earned or
accrued vacation or holiday pay, sick pay, personal leave and any other
compensation arrangements or fringe benefits, of each current employee,
consultant and agent of the Sellers (together with a description of any specific
arrangements or rights concerning such persons) that are not reflected in any
agreement or document referred to in Schedule 4.15. Sellers currently have no,
and have never had any, pension, profit sharing, bonus, incentive, welfare
benefit, sick leave or sick pay or other plan applicable to any of the employees
of the Facility other than disclosed on Schedule 4.15. No such employee,
consultant or commission agent has any vested or unvested retirement benefits or
other termination benefits, except as described on Schedule 4.15.
4.16 Collective Bargaining, Labor Contracts, Employment
Practices, etc.
(a) During the two (2) years prior to the
Closing Date, there has been no material or adverse change in the relationship
between Sellers and their employees nor any strike or labor disturbance by such
employees affecting Sellers' business and there is no indication that such a
change, strike or labor disturbance is likely. Sellers' employees are not
represented by any labor union or similar organization and Sellers have no
reason to believe that there are pending or threatened any activities the
purpose of which is to achieve such representation of all or some of Sellers'
employees. There are no pending suits, actions or proceedings against Sellers
relating to employees of Sellers, and Sellers do not know of any threats of
strikes, work stoppages or pending grievances by any such employees. Except as
set forth on Schedule 4.16, the Sellers have no collective bargaining or other
labor contracts, employment contracts, pension, profit-sharing, retirement,
insurance, bonus, deferred compensation or other employee benefit plans,
agreements or arrangements with respect to such employees. To the best of
Sellers' knowledge, no notices have been issued that Sellers are not in
compliance with the requirements prescribed by all Federal, state and local
statutes, orders and governmental rules and regulations applicable to any of the
employee benefit plans, agreements and arrangements identified on Schedule 4.16,
including, without limitation, the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
(b) Between the date hereof and the Closing
Date, Sellers shall not enter into any contract or agreement (or negotiations in
connection therewith) with any union or other collective bargaining
representative representing any employees at the Facility without the prior
written consent of Buyer.
4.17 ERISA. Sellers do not maintain or make contributions
to and has not at any time in the past maintained or made contributions to any
employee benefit plan which is subject to the minimum funding standards of
ERISA. Sellers do not now maintain or make contributions
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to and has not at any time in the past maintained or made contributions to any
multi-employer plan subject to the terms of the Multi-employer Pension Plan
Amendment Act of 1980 (the "Multi-employer Act").
4.18 Insurance. Schedule 4.18 contains a true and correct list
of: (a) all policies of fire, liability and other forms of insurance held or
owned by Sellers or otherwise in force and providing coverage for the Facility
(including but not limited to medical malpractice insurance, and any state
sponsored plan or program for worker's compensation); and (b) all bonds,
indemnity agreements and other agreements of suretyship made for or held by the
Sellers or otherwise in force and relating to the Facility, including a brief
description of the character of the bond or agreement, the name of the surety or
indemnifying party. Schedule 4.18 sets forth for each such insurance policy the
name of the insurer, the amount of coverage, the type of insurance, the policy
number, the annual premium and a brief description of the nature of insurance
included under each such policy and of any claims made thereunder during the
past two years. Except as set forth on Schedule 4.18, such policies are owned by
and payable solely to Sellers, and said policies or renewals or replacements
thereof will be outstanding and duly in force at the Closing Date. All insurance
policies listed on Schedule 4.18 are in full force and effect, all premiums due
on or before the Closing Date have been or will be paid on or before the Closing
Date, Sellers have not been advised by any of its insurance carriers of an
intention to terminate or modify any such policies, nor have Sellers failed to
comply with any of the material conditions contained in any such policies.
4.19 Relationships. Except as disclosed on Schedule 4.19
hereto, neither Sellers nor (if a corporation) any shareholder, director or
officer thereof or (if an individual) any member of such person's immediate
family has, or at any time within the last two (2) years has had, a material
ownership interest or claim in any business, corporate or otherwise, or any
business relationships or arrangements of any kind relating to the operation of
the Facility by which Buyer will be bound after the Closing.
4.20 Absence of Certain Events. Except as set forth on
Schedule 4.20, since the date of the Financial Statements, Sellers have not and
from the date of the Financial Statements to the Closing Date, Sellers will not
have (except for transactions directly with Buyer) other than in the ordinary
course of business:
(a) sold, assigned or transferred any of its
assets or properties, except in the ordinary course of business consistent with
past practice;
(b) mortgaged, pledged or subjected to any lien,
pledge, mortgage, security interest, conditional sales contract or other
encumbrance of any nature whatsoever any of the Assets other than the liens, if
any, of current taxes not yet due and payable and the existing mortgages and
related liens filed of public record in Sedgwick County, Kansas;
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(c) made or suffered any amendment or
termination of any contract, commitment, instrument or agreement materially
relating to the Facility;
(d) except in the ordinary course of business,
consistent with past practice, or otherwise to comply with any applicable
minimum wage law, increased the salaries or other compensation of any of its
employees at the Facility, or made any increase in, or any additions to, other
benefits to which any of such employees may be entitled;
(e) discharged or satisfied any lien or
encumbrance, or paid any material liabilities, other than in the ordinary course
of business consistent with past practice, or failed to pay or discharge when
due any liabilities, the failure to pay or discharge of which has caused or will
cause any actual damage or risk of loss to Sellers or the Facility;
(f) changed any of the accounting principles
followed by it or the methods of applying such principles;
(g) made or suffered any amendment or
termination of any material contract, commitment or agreement to which it is a
party or by which it is bound, or canceled, modified or waived any debts or
claims held by it, other than in the ordinary course of business consistent with
past practice, or waived any rights of substantial value, whether or not in the
ordinary course of business; or
(h) entered into any material transaction other
than in the ordinary course of business consistent with past practice.
4.21 Compliance with Laws. Sellers have not received any claim
or notice that the Facility is not in compliance with any applicable Federal,
state, local or other governmental laws or ordinances, or any applicable order,
rule or regulation of Federal, state, local or other governmental agency, except
for those notices of non-compliance which relate to matters which have been
corrected or are in the process of correction, both of which are described on
Schedule 4.21. No notice has been issued to Sellers that the Facility is not in
compliance with all existing applicable federal, state and local laws and
regulations, including the Life Safety Code, governmental regulations, zoning
laws, building codes and local ordinances. To the best of Sellers' knowledge,
the Facility is in compliance with all existing applicable federal, state and
local laws and regulations, including the Life Safety Code, governmental
regulations, zoning laws, building codes and local ordinances. All deficiencies
on all state and federal inspections have been corrected, or are in the process
of being corrected.
4.22 Environmental Compliance.
(a) At any time during Sellers' ownership of
the Facility:
(i) The Facility has not been used for the
disposal of any industrial refuse or waste, including but not
limited to potentially infectious waste, blood-contaminated
materials, or other wastes generated in the course of patient
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treatment (collectively "Medical Waste"), or for the
processing, manufacture, storage, handling, treatment or
disposal of any hazardous or toxic substance, material or
waste other than as permitted by applicable law.
(ii) No asbestos-containing materials
have been used or disposed of on the Facility or used in the
construction of the Facility.
(iii) No machinery, equipment or fixtures
containing polychlorinated biphenyls ("PCBs") have been
located on the Facility.
(iv) No storage tanks for gasoline,
petroleum, or any other substance have been located on the
Facility.
(v) No toxic or hazardous substances or
materials have been located on the Facility, which substances
or materials, if found on the Facility, would subject the
owner or occupant of the Facility to damages, penalties,
liabilities or an obligation to remove such substances or
materials under any applicable Federal, state or local law,
regulation or ordinance.
(vi) No notice from any governmental body
has ever been served upon Sellers, their agents or
representatives, claiming any violation of any Federal, state
or local law, regulation or ordinance concerning the
generation, handling, storage, or disposal of Medical Waste,
or the environmental state, condition, or quality of the
Facility, or requiring or calling attention to the need for
any work, repairs, or demolition, on or in connection with the
Facility in order to comply with any law, regulation or
ordinance concerning the environmental or healthful state,
condition or quality of the Facility.
(vii) Schedule 4.22 lists all reports of
healthcare and environmental agencies received by Sellers
during the last five (5) years from any supervisory
governmental authority with respect to the operations of the
Facility. Sellers have delivered copies of each such report to
Buyer.
(b) At all times, Sellers have complied, and are
complying in all respects with all environmental and related laws, ordinances
and governmental rules and regulations applicable to it and the Facility,
including, but not limited to, the Resource Conservation and Recovery Act of
1976, as amended, the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended, the Federal Water Pollution Control Act, as
amended by the Clean Water Act, and subsequent amendments, the Federal Toxic
Substances Control Act, as amended, and all other Federal, state and local laws,
regulations and ordinances with respect to the protection of the environment
(collectively "Environmental Laws"). The foregoing representation and warranty
applies to all aspects of the operation of the Facility and the Leased Equipment
including, but not limited to, the use, handling, treatment, storage,
transportation and
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disposal of any hazardous, toxic or infectious waste, material or substance
(including Medical Waste) and petroleum products, material or waste whether
performed on Sellers' properties or at any other location.
4.23 Tax Returns. With respect to the Facility, Sellers have
filed all Federal, state, county and local income, excise, property and other
tax returns to date that are due and required to be filed by it, all such
returns and reports are in material compliance with applicable law, and there
are no claims, liens, or judgments for taxes due from the Sellers affecting the
Facility or any of the Assets, and no basis for any such claim, lien, or
judgment exists.
4.24 Encumbrances Created by this Agreement. The execution and
delivery of this Agreement or any of the Sellers' Transaction Documents does
not, and the consummation of the transactions contemplated hereby or thereby
will not, create any liens or other encumbrances on any of the Assets in favor
of third parties.
4.25 Residents. Attached hereto as Schedule 4.25 is a listing,
as of the date hereof, of the names of all residents of the Facility, and a
summary of the principal provisions of all contracts and agreements of the
Facility with each of such residents, including the rental amounts payable
thereunder and the length of the term of such resident contracts or agreements
and whether such patients are private pay patients, or payments are made to
Sellers by Medicaid for or on behalf of such patients.
4.26 Zoning. To the best of Sellers' knowledge, and no notice
has been issued to the contrary, except as set forth in Schedule 4.26 hereto,
there exists no judicial, quasi-judicial, administrative or other proceeding
which might adversely affect the validity of the current zoning of the Real
Property and Improvements, nor is there any threatened action or proceeding
which could result in the modification and termination of any such zoning.
4.27 Leases. Schedule 4.27 hereto contains an accurate and
complete list of each lease of Personal Property to which Sellers or the
Facility are a party or by which Sellers or Facility are bound or which were
assigned or transferred to Sellers, in connection with the Facility, and a list
of all Contracts providing for the installation or maintenance of equipment
purchased or leased by Sellers.
4.28 No Broker. Sellers have not incurred any liability
for broker's or finder's fees or commissions to any broker, financial advisor or
other intermediary in connection with the transactions contemplated by this
Agreement other than by J.P. Weigand & Sons, Inc. Buyer shall not be responsible
for the payment of any broker's or finder's fees to J.P. Weigand & Sons, Inc.
4.29 Governmental Standards; Operating Changes. The
Facility currently satisfies in all respects all requirements under applicable
laws to permit the nursing facility portion of the Facility to be operated as a
nursing facility and the apartments to be operated as apartments. Sellers have
filed all required cost reports with respect to Medicaid. Sellers have provided
to
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Buyer its audited and unaudited cost reports for Medicaid and all other rate
compensation and reimbursement reports, audits and schedules prepared or issued
by, or filed with, any governmental or regulatory authority with respect to the
operation of the Facility for the last three (3) years, and each such report is
complete and accurate in all material respects. Schedule 4.29 hereto sets forth
the status of any open cost reporting periods, pending reimbursement appeals,
and reimbursement payment rates for the most recent three (3) years. Sellers
have obtained, and Schedule 4.29 hereto lists and sets forth copies of, all
licenses, permits, approvals, qualifications, registrations, certifications and
other authorizations of any Governmental Authority (the "Operating Licenses and
Certifications") which are required for Sellers to own and operate the Facility
as presently owned and operated. Except as set forth in Schedule 4.29 hereto,
all of the Operating Licenses and Certificates are valid and in good standing,
do not contain any restrictions and are non-provisional, non-probationary and in
full force and effect. There is not pending or threatened action by any
Governmental Authority or other party to suspend, revoke or terminate or
challenge any of the Operating Licenses and Certifications and, to the best of
Sellers' knowledge, Sellers are in compliance in all material respect with all
such Operating Licenses and Certifications.
4.30 Care of Residents; Deficiencies; Licensed Beds; and
Patient Care Agreements.
(a) Sellers have cared for the residents located
at any time at the Facility in accordance with recognized standards pertaining
to, as applicable, nursing facilities and apartments. Sellers do not have any
agreement with any of its residents which have been prepaid for more than one
month, except as indicated on Schedule 4.30(a).
(b) Schedule 4.30(b) hereto set forth a true and
complete list of all violations and deficiencies found or alleged by any
Governmental Authority with respect to the Facility or Sellers within the past
three (3) years. All such violations and deficiencies have been fully remedied
by Sellers or withdrawn by the applicable Governmental Authority. No current
violations or deficiencies found or alleged by any Governmental Authority with
respect to the Facility or Seller (whether or not listed in Schedule 4.30 (b))
will result in any adverse effect upon Buyer in its operation of the Facility
after the Effective Date or upon any of the transactions contemplated herein
(including, without limitation, any adverse effect upon any application for
Buyer's operation of the Facility).
(c) Schedule 4.30(c) hereto sets forth (i) the
number of licensed assisted living care beds at the Facility, (ii) the current
rates charged by the Facility to its residents and (iii) the number of beds or
units presently occupied in, and the occupancy percentage at, the Facility,
including the current rates charged by the Facility for each such occupied bed
or unit. Schedule 4.30(c) hereto further sets forth the name and number of
patients or residents at the Facility which are Private Pay (as defined below)
patients or receive reimbursement from, or are participants in, any federal or
state Medicaid program (whether pending or otherwise) or any other third party
payor arrangement. As used herein, the term "Private Pay" shall mean a patient
or resident for whom payment is not made by Medicaid (and not including any
"pending" patient).
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(d) Schedule 4.30(d) contains a list of all
patient care agreements and resident leases, together with copies, which list
shall be true and correct as of the date hereof and the Closing Date. Other than
as disclosed on Schedule 4.30(d), none of the parties to any such agreements or
leases is in default thereof. All such leases and agreements may be assumed by
Buyer at the Closing.
4.31 Books and Records. The books and records of the Facility
set forth in all material respects all transactions affecting the Facility, and
such books and records have been properly kept and maintained in a manner
consistent with sound business practice and are complete and correct in all
material respects.
4.32 Patient Trust Funds. Any and all patient trust funds
held, maintained or administered by or on behalf of Sellers or the Facility have
been, and presently are, held, maintained or administered in full compliance
with all applicable laws, rules and regulations.
4.33 Intellectual Property. To the best of Sellers' knowledge
after due inquiry, Schedule 4.33 hereto sets forth a list of all patents,
copyrights, trademarks, software and computer programs, corporate names and
other intellectual property rights, including the name "Terrace Gardens" and all
derivations and variations thereof and any other tradenames used in connection
with the operation of the Facility (collectively, the "Intellectual Property")
used by Sellers in connection with the Facility. To the best knowledge of
Sellers, neither Sellers nor any of their affiliates are infringing upon any
intellectual property rights of any other person nor is any other person
infringing on any Sellers' rights in respect of the Intellectual Property.
4.34 No Misstatements or Omissions. None of the documents,
certificates, instruments or information furnished or to be furnished by Sellers
to Buyer or any of Buyer's representatives is or will be false or misleading as
to any material fact or omits or will omit to state a material fact necessary to
make any of the statements contained therein not misleading.
4.35 Bankruptcy. No insolvency proceeding of any character
including, without limitation, bankruptcy, receivership, reorganization,
composition or arrangement with creditors, voluntary or involuntary, affecting
Sellers (other than as a creditor) or the Facility or any of the Assets are
pending or are being contemplated by Sellers, or are to the best of Sellers'
knowledge being threatened against Sellers by any other person, and Sellers have
not made any assignment for the benefit of creditors or taken any action in
contemplation of or which would constitute the basis for the institution of such
insolvency proceedings.
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE BUYER
------------------------------------------------------
Buyer represents and warrants to Sellers as follows:
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5.1 Organization and Standing. Buyer has been duly
incorporated and is validly existing in good standing under the laws of the
State of Delaware, and is or prior to the Closing will be duly qualified to do
business in the State of Kansas.
5.2 Power and Authority. Buyer has the corporate power and
authority to execute, deliver and perform this Agreement, and as of the Closing
the Buyer will have the corporate power and authority to execute and deliver the
instruments and agreements required to be delivered by it to Sellers at the
Closing (collectively the "Buyer's Transaction Documents").
5.3 Binding Agreement. This Agreement has been duly executed
and delivered by Buyer. This Agreement is, and when executed and delivered by
Buyer at the Closing each of the related transaction documents executed by Buyer
will be, the legal, valid and binding obligation of Buyer, enforceable against
Buyer in accordance with their respective terms, as such enforceability may be
limited by applicable creditors rights laws and the availability of equitable
remedies.
5.4 Finders. No broker or finder is entitled to any broker's
or finder's fee or other commission in connection with the transactions
contemplated by this Agreement based in any way on agreements, understandings or
arrangements with Buyer other than Holiday Associates. Sellers shall not be
responsible for the payment of any broker's or finder's fees to Holiday
Associates.
ARTICLE VI: INFORMATION AND RECORDS CONCERNING THE FACILITY
-----------------------------------------------------------
6.1 Access to Information and Records before Closing.
(a) Prior to the Closing Date, Buyer may make,
or cause to be made, such investigation of the Facility's financial and legal
conditions as Buyer deems necessary or advisable to familiarize itself with the
Facility and/or matters relating to its history or operation. Sellers shall
permit Buyer and its authorized representatives (including legal counsel and
accountants), to have full access to the Facility and Sellers' books and records
kept in connection therewith and Sellers will furnish, or cause to be furnished,
to Buyer such reasonable financial and operating data and other information and
copies of documents with respect to the products, services, operations and
Assets, the Real Property and the Facility as Buyer shall from time to time
reasonably request. The documents to which the Buyer shall have access shall
include, but not be limited to, the information tax returns prepared by Sellers
in connection with the Facility and related work papers since their inception
and printouts of patient or resident account information maintained by or on
behalf of any person with respect to the Facility; and Buyer may make, or cause
to be made, extracts thereof as Buyer or its representatives may desire from
time to time, to enable the Buyer and its representatives to investigate the
affairs of Sellers (as they relate to the Facility) and the Facility and the
accuracy of the representations and warranties made in this Agreement. Sellers
shall cause their accountants to cooperate with Buyer and to disclose
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the results of audits relating to the Facility and to produce the working papers
relating thereto. No such investigation by Buyer or its representatives shall
affect any of the Sellers' representations and warranties in this Agreement or
Buyer's right to rely thereon. Buyer shall conduct its investigation hereunder
in such manner as will not cause any unreasonable disruption to the business of
the Facility. If during the course of its due diligence Buyer uncovers
information about the Sellers or the Facility which would cause any of the
representations and warranties of Sellers contained in Article IV to be untrue
or incomplete, the breach created thereby shall be deemed to be waived by Buyer
unless Buyer has notified Seller prior to the date hereof.
(b) In the event of the termination of this
Agreement, Buyer will deliver to Sellers all documents, work papers and other
materials hereunder obtained from Sellers and relating to Sellers or the
transactions herein contemplated (herein the "Confidential Materials"). Buyer
shall keep the Confidential Materials confidential and shall use the
Confidential Materials solely for the purposes of evaluating the suitability of
the Facility for purchase and operating the Facility after the Closing; provided
that Buyer may make any disclosures of Confidential Materials required by
regulatory authorities. Buyer shall not disclose the Confidential Materials to
any person other than directors, officers, accountants and attorneys of Buyer
(collectively "Representatives") and may only disclose the Confidential
Materials to Representatives on a "need to know" basis. Prior to receipt of any
Confidential Materials, Buyer shall require its Representatives to agree to be
bound by the terms of this Section 6.1(b). Buyer shall be responsible for any
breach of this Agreement by and of its Representatives or by any other party
receiving Confidential Materials from or through Buyer. Buyer shall defend,
indemnify and hold harmless the Sellers and each of them from and against any
and all claims, demand, causes of action, losses, damages, liabilities,
judgments, costs and expenses (including attorneys' fees) (collectively
"Claims") asserted against or suffered by Sellers or any of them as a result of
any violation of, or failure to comply with, the provisions of this Section
6.1(b) by Buyer or any of its Representatives. Seller shall not be deemed to
have waived any of their rights or remedies on account of their failure, delay
or forbearance in exercising any such right or remedy in a particular instance.
The restrictions in this Section 6.1(b) shall terminate upon the purchase of the
Facility by Buyer. Regardless of any purchase, however, any claim by Sellers
based on a breach of or default under any provision of this Section 6.1(b) or
the indemnification set forth above in this Section 6.1(b), which claim arose
from events occurring prior to such purchase shall not be extinguished unless
waived by Sellers in writing. The terms and conditions of this Section 6.1(b)
shall remain in full force and effect indefinitely with respect to any Assets
not acquired by Buyer and shall survive the termination of this Agreement. Upon
a termination of this Agreement, Buyer will deliver the audited financial
statements of the Facility to Sellers to the extent permitted by Buyer's
auditors.
6.2 Maps, Plans, Surveys, etc. Sellers shall deliver, or cause
to be delivered, to the Buyer, without charge, all plans, maps, surveys,
descriptions, and title reports respecting the Real Property and the use and
occupancy thereof in Sellers' possession that exist as of the date of this
Agreement, which materials shall be returned to Sellers if this Agreement is
terminated.
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ARTICLE VII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING
-----------------------------------------------------
7.1 Conduct of Business Pending Closing. Between the date of
this Agreement and the Closing Sellers shall conduct their business relating to
the operation of the Facility solely in the ordinary course of business
consistent with past practices.
7.2 Negative Covenants of Seller. Without the prior written
approval of Buyer which shall not be unreasonably withheld, Sellers shall not,
between the date hereof and the Closing: (i) dissolve, merge or enter into a
share exchange with or into any other entity; or (ii) enter into any Contract or
modify or terminate any existing Contract that would have a material adverse
effect on the business of the Facility, other than in the ordinary course of
business, without the prior consent of Buyer; or (iii) cause or permit to occur
any of the events or occurrences described in Section 4.20 (Absence of Certain
Events) of this Agreement.
7.3 Affirmative Covenants of Sellers. Between the date
hereof and the Closing, Sellers shall, with respect to the Facility:
(a) maintain the Facility in substantially the
state of repair, order and condition as on the date hereof, reasonable wear and
tear or loss by casualty excepted;
(b) maintain in full force and effect all
Licenses, currently in effect with respect to the Facility;
(c) maintain in full force and effect the
insurance policies and binders currently in effect with respect to the Facility,
including without limitation those listed on Schedule 4.18;
(d) utilize its best efforts to preserve intact
the present business organization of the Facility; keep available the services
of Sellers' present employees and agents, and any other employees and agents
employed in connection with the Facility; and maintain Sellers' relations and
goodwill with the suppliers, patients and residents, employees, affiliated
medical personnel and anyone having business relating to the Facility;
(e) maintain all of the books and records
relating to the Facility in accordance with its past practices;
(f) comply with all provisions of the Contracts
listed in Schedule 4.7 and with any other agreements that Sellers have entered
into with respect to the Facility in the ordinary course of business since the
date of this Agreement and with the provisions of all laws, rules and
regulations applicable to the Facility;
(g) cause to be paid when due, all taxes,
assessments and charges or levies imposed upon it or on any of its properties or
which it is required to withhold and pay over;
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(h) promptly advise Buyer in writing of the
threat or commencement against Sellers of any dispute, claim, action, suit or
proceeding, arbitration or investigation that would materially adversely affect
the operations, properties, assets or prospects of the Facility;
(i) maintain material compliance with all
federal, state and local standards; and
(j) deliver to Buyer monthly financial
statements of the Facility, certified by Sellers, and prepared in accordance
with generally accepted accounting principles consistently applied, except as
otherwise noted in Section 4.8 of this Agreement.
7.4 Affirmative Covenants of Buyer. Buyer will proceed with
all due diligence to conduct such investigations with respect to the Facility as
it deems to be reasonably necessary in connection with its purchase thereof,
including, but not limited to, zoning investigations, soil studies,
environmental assessments, seismic assessments, wetlands reports, investigations
of the Facility's books and records and structural inspections, provided no
investigations will be physically intrusive on the Facility unless Sellers
consent thereto, which consent shall not be reasonably withheld (the "Due
Diligence Review"); provided, however, nothing herein shall be construed as
amending or modifying in any manner the representations or warranties of Sellers
set forth in this Agreement, which representations and warranties shall be
separate from and unaffected by Buyer's Due Diligence Review except as provided
in Section 6.1(a) of this Agreement; and provided, further, that Buyer shall
maintain the confidentiality of any documents or information obtained by it
during the course of its Due Diligence Review and shall return the same to
Sellers in the event the transaction provided for herein fails to close for any
reason whatsoever. In the event the transaction contemplated by this Agreement
is not consummated, Buyer agrees to promptly deliver to Sellers copies of all
reports, studies, audits, investigations and all other materials and information
provided by Sellers to Buyer with respect to the Facility or its financial
condition; provided that Buyer shall only return to Sellers the audited
financial statements of the Facility to the extent permitted by Buyer's
auditors. Buyer shall indemnify and hold Sellers harmless with respect to any
damage to the Facility or injury to any person caused by Buyer or Buyer's
agents, employees or contractors while exercising any of Buyer's rights with
respect to the Due Diligence Review. Buyer's obligations set forth in this
Section 7.4 shall survive the Closing and the termination of this Agreement, if
so terminated, and shall continue to be enforceable.
7.5 Pursuit of Consents and Approvals. Prior to the Closing
Buyer shall undertake a good faith effort, at Buyer's sole cost and expense, to
obtain all consents and approvals of governmental agencies and all other parties
necessary for the lawful consummation of the transactions contemplated hereby
and the lawful use, occupancy and enjoyment of the Facility by Buyer in
accordance herewith (the "Required Approvals"). Buyer shall submit to the Kansas
State Department of Heath and Environment (the "Agency") a written application
setting forth its intent to purchase the Facility and requesting the Agency's
approval thereof.
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7.6 Supplementary Financial Information. Within fifteen (15)
days after the end of each calendar month between the date of this Agreement and
the Closing Date, Sellers shall provide, or cause to be provided, to the Buyer
unaudited financial statements (including at a minimum income statements and a
balance sheet) for the month that shall present fairly the results of the
operations of the Facility at such date and for the period covered thereby, all
on accordance with generally accepted accounting principles applied on a basis
consistent with prior periods, except as otherwise noted in Section 4.8 of this
Agreement.
ARTICLE VIII: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
---------------------------------------------------------
Unless waived by Buyer, its obligations to consummate the
purchase of the Assets is subject to the fulfillment, prior to or at the
Closing, of each of the following conditions. Upon failure of any of the
following conditions Buyer may terminate this Agreement pursuant to and in
accordance with Article XI herein.
8.1 Representations and Warranties. The representations and
warranties of Sellers contained in this Agreement or on any Schedule, list,
certificate or other document delivered pursuant to the provisions hereof shall
be true and correct in all material respects at and as of the Closing Date as
though such representations and warranties were made at and as of such time,
except to the extent affected by the transactions herein contemplated. Sellers
shall have provided to Buyer any updates to the Schedules attached hereto,
including amendments, additions and revisions, so as to cause the
representations and warranties to be true and correct as of the Closing Date.
8.2 Performance of Covenants. Sellers shall have performed or
complied in all material respects with each of its agreements and covenants
required by this Agreement to be performed or complied with by it prior to or at
the Closing.
8.3 Delivery of Closing Certificate. Sellers shall have
executed and delivered to the Buyer a certificate of the Sellers dated the
Closing Date upon which Buyer may rely, certifying that the statements made in
Sections 8.1 and 8.2, are true, correct and complete as of the Closing Date.
8.4 Opinion of Counsel. Sellers shall have delivered to the
Buyer an opinion, dated the Closing Date, of counsel for Sellers, in the form
attached hereto as Exhibit 8.4.
8.5 Legal Matters. No suit, action, investigation, or legal or
administrative proceeding shall have been brought or shall have been threatened
by any person that questions the validity or legality of this Agreement or the
transactions contemplated hereby.
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8.6 Approvals.
(a) The consent or approval of all persons
necessary for the consummation of the transactions contemplated hereby (except
Buyer's assumption of the First Mortgage and the Bank IV equipment leases) shall
have been granted, including without limitation, the Required Approvals and any
tax clearance or similar approval. All approvals of Buyer and Sellers required
hereunder, shall have been obtained prior to the date hereof. If an approval or
an additional approval of Sellers is required hereunder such approval will
remain a condition to Closing.
(b) None of the foregoing consents or approvals
(i) shall have been conditioned upon the modification, cancellation or
termination of any material lease, contract, commitment, agreement, license,
easement, right or other authorization with respect to the Facility, or (ii)
shall impose on the Buyer any material condition or provision or requirement
with respect to the Facility or its operation that is more restrictive than or
different from the conditions imposed upon such operation prior to Closing.
8.7 Material Change. Since the date of this Agreement
there shall not have been any material adverse change in the condition
(financial or otherwise) of the Assets, Properties or operations of the Facility
or the Sellers.
8.8 Title Insurance. Buyer shall have obtained, at normal
rates, a title commitment from a reputable title insurance company selected by
Buyer (the "Title Company") for an owner's title policy insuring that title to
the Property and improvements to the Facility shall be good and marketable and
free and clear of all liens, assessments, restrictions, encumbrances, easements,
leases, tenancies, claims or rights of use or possession and other title
objections (including any lien or future claim from materials or labor supplied
for improvement of such property), except for (a) utility and other easements
that do not materially adversely affect the intended use of the Facility or the
value of the Facility; (b) matters listed in Schedule 4.13 hereto; and (c) the
standard exceptions normally contained in Schedule B to Owner Policy of Title
Insurance and schedules thereto and any exceptions that are standard in the
State of Kansas for all properties similarly used; provided, however, that, at
the request of Buyer, Sellers shall use their best efforts to provide such
affidavits to the Title Company or take such other actions (other than the
expenditure of money or the providing of a survey) that would enable the Title
Company to remove any of such standard exceptions. With respect to the standard
survey exceptions, Buyer may obtain prior to the Filing Date any survey (or
engineering study), at Buyer's expense, but if such survey (or study) discloses
any material discrepancy or exception to title not included within the Permitted
Exceptions, Buyer may consider such a defect in title and may, at its option,
elect to cancel this Agreement pursuant to Section 11.1 hereof.
8.9 Deed. Sellers shall have delivered a special warranty deed
for the Property with warranty against grantor's acts; a no-flood-plain
certificate; and a copy of the then valid Certification of Occupancy for the
Facility.
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8.10 Assets Transferred at Closing. Sellers shall have
delivered or caused to be delivered to Buyer possession of the Assets (or the
right to obtain possession on demand) together with such instruments of sale and
transfer, including without limitation, a Bill of Sale and Assignment of
Contracts, in the form of Exhibit 8.10 attached hereto and made a part hereof,
sufficient to vest in Buyer good and marketable title to the Assets, free and
clear of all liens, security interests, encumbrances, claims and other
exceptions of any kind whatsoever except the Permitted Exceptions.
8.11 Possession. Possession of the Facility shall be or shall
have been delivered to Buyer as provided in this Agreement, free and clear of
any leases, claims to or rights of possession, other than the rights of any
patient to use or occupy the Facility.
8.12 COBRA. Sellers shall have, and shall have caused all
concerned benefits plan administrators to have, given all notices, made all
offers, paid and collected all premiums, obtained all group health plan
coverage, and performed all other actions mandated by Title X of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), and which is
required to be given, made, paid, obtained, and performed as a result of the
Closing under this Agreement. Any amounts under COBRA or similar state or
federal law or regulation which becomes a liability to the Buyer after Closing
but which relates to any period of time in which the Sellers owned the Real
Property shall be paid by the Sellers either by a dollar for dollar reduction of
the Purchase Price at the Closing or upon demand after the Closing.
8.13 Authorization Documents. Buyer shall have received a
certificate of the general partner of Terrace Gardens, L.P., certifying a copy
of resolutions of the partners of Terrace Gardens, L.P. authorizing Terrace
Garden, L.P.'s execution and full performance of Sellers' Transaction Documents.
8.14 Payoff Letters. If Buyer does not assume the First
Mortgage, Sellers shall have received payoff letters in connection with the
satisfaction of all mortgages and liens affecting the Facility. Sellers agree
that Buyer may fund such payoff amounts directly to the mortgage and lien
holders out of the Purchase Price.
8.15 Initial Public Offering. Buyer shall have completed
the Initial Public Offering of its common stock.
8.16 Other Documents. Sellers shall have furnished Buyer
with all other documents, certificates and other instruments required to be
furnished to Buyer by Seller pursuant to the terms hereof.
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ARTICLE IX: CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS
--------------------------------------------------------
Unless waived by Sellers, their obligation to consummate the
sale of the Assets is subject to the fulfillment, prior to or at the Closing, of
each of the following conditions:
9.1 Representations and Warranties. The representations and
warranties of the Buyer in this Agreement or on any Schedule, list, certificate
or document delivered pursuant to the provisions hereof shall be true at and as
of the Closing Date as though such representations and warranties were made at
and as of such time, except to the extent affected by the transactions herein
contemplated.
9.2 Performance of Covenants. Buyer shall have performed or
complied with each of its agreements and conditions required by this Agreement
to be performed or complied with by it prior to or at the Closing.
9.3 Delivery of Closing Certificate. Buyer shall have
delivered to Sellers a certificate of the executive vice president of Buyer
dated the Closing Date upon which Sellers can rely, certifying that the
statements made in Sections 9.1 and 9.2 are true, correct and complete as of the
Closing Date.
9.4 Opinion of Counsel. Buyer shall have delivered to Sellers
an opinion, dated the Closing Date, of Blass & Driggs, Esqs., Counsel for Buyer,
in the form attached as Exhibit 9.4.
9.5 Legal Matters. No suit, actions, investigation or legal or
administrative proceeding shall have been brought or shall have been threatened
by any person that questions the validity or legality of this Agreement or the
transactions contemplated hereby.
9.6 Authorization Documents. Sellers shall have received a
certificate of the Secretary or other officer of the Buyer certifying a copy of
Resolutions of the Board of Directors of Sellers authorizing the Buyer's
execution and full performance of Buyer's Transaction Documents and the
incumbency of the officers of the Buyer.
9.7 Other Documents. Buyer shall have furnished Sellers with
all documents, certificates and other instruments required to be furnished to
Sellers by Buyer pursuant to the terms hereof.
ARTICLE X: OBLIGATIONS OF PARTIES AFTER CLOSING
-----------------------------------------------
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10.1 Discharge of Liabilities. Sellers shall pay all of its
liabilities and obligations with respect to the Facility that are not expressly
assumed by Buyer at Closing, as and when the same shall become due and payable.
10.2 Indemnification.
(a) The Sellers covenant and shall defend and
indemnify Buyer and hold it harmless against and with respect to any and all
damage, loss, liability, deficiency, cost and expense (including without
limitation reasonable attorney's fees) (all of the foregoing hereinafter
collectively referred to as "Loss"), related to the operation of the Facility
prior to the Closing Date, resulting from (i) any misrepresentation, breach of
warranty, or failure to fulfill any agreement or covenant on the part of Sellers
under this Agreement; (ii) any taxes, interest, penalties and additions to tax
that are required to be paid to the United States Government or any state or
local taxing authority resulting from the operation of the Facility for any
period ending midnight on the day preceding the Closing Date; (iii) if
applicable, all amounts that are due or that may become due to Medicaid
intermediaries, or to other public or private third party payors, if any, on
account of adjustments to any private third party payor cost reimbursement
claims made with respect to the Facility for any period ending on or before the
Closing Date or any reductions in future rates due to adjustments to Medicare or
any other public or private third party payor cost reimbursement claims made
with respect to the Facility for any period ending on or before the Closing Date
or any reductions in future rates due to adjustments in Sellers' historical
costs by Medicare or any other public or private third party payors; (iv) any
claim relating to any liability of the Facility or the Sellers that are not
expressly assumed by the Buyer pursuant to the terms of this Agreement
("Unassumed Liability"); (v) any liability arising out of any bulk transfer act
(provided that Buyer acknowledges that the Sellers have not agreed to undertake
any bulk sales compliance); (vi) any liability arising out of Sellers'
noncompliance with COBRA or any like statute; (vii) any liability arising out of
any environmental hazard or condition with respect to the Real Property or to
the Facility existing as of the Closing Date and any law, regulation or decree
on action of any government entity in connection therewith; (viii) any other
claims, liability or cost of any nature whatsoever, known or unknown, whether
accrued, absolute contingent or otherwise, presently existing or arising in the
future which such liability arose out of Sellers' conduct prior to Closing; and
(ix) any and all actions, suits, proceedings, demands, assessments, judgments,
costs and legal and other expenses incident to any of the foregoing.
Notwithstanding any of the foregoing to the contrary, Seller's obligations set
forth in this Section 10.2(a) shall expire, terminate and be of no further force
or effect three (3) years from and after the Closing Date except that
indemnification of tax liabilities and Excess Reimbursement Liability shall
survive the Closing for up to the applicable statute of limitations or audit
periods.
(b) Buyer covenants and shall indemnify Sellers
and hold them harmless against and with respect to any and all Loss resulting
from any misrepresentation, breach of warranty, or failure to fulfill any
agreement or covenant on the part of Buyer under this Agreement or Buyer's
operation of the Facility after the Closing Date. Buyer's indemnification
agreement set forth herein shall survive the Closing.
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<PAGE>
10.3 Records. On the Closing Date Sellers shall deliver, or
cause to be delivered, to Buyer all patient lists and records and all other
records and files not then in Buyer's possession relating to the operations of
the Facility. For five (5) years following the Closing, Sellers shall have
access to any such records for periods prior to the Closing upon forty eight
(48) hours notice to Buyer. The provisions of the immediately preceding sentence
shall survive the Closing and shall continue to be enforceable for the time
period set forth therein.
10.4 Collection of Accounts Receivable. Buyer shall make
reasonable efforts consistent with the collection of its own accounts receivable
to assist Sellers in collecting all accounts receivable resulting from
activities occurring or services rendered to patients or residents prior to the
Closing as set forth on Schedule 10.4. In addition, Buyer shall assist Sellers
by allowing examination by Sellers' authorized representatives of relevant
documentation in Buyer's possession after the Closing Date, and by transferring
to Sellers any payments Buyer may receive from any source whatsoever concerning
Sellers' recovery of accounts receivable as provided below. Any payments
received by Buyer from third party payors or private pay patients or residents
which clearly indicate they are for services rendered prior to the Closing Date
will be transferred to Sellers within thirty (30) days after receipt thereof by
Buyer. Any payments made by such payors or patients or residents and earmarked
or itemized to services rendered after the Closing Date shall be retained by
Buyer.
Any payments received by Buyer from or on behalf of any
private pay patients or residents after the Closing Date will be attributed
first to any outstanding balance for services rendered or activities occurring
prior to the Closing Date for and on behalf of such patient or resident, and
shall be transferred to Sellers within thirty (30) days after receipt by Buyer.
One hundred eighty (180) days following the Closing Date,
Buyer shall provide to Sellers an accounting setting forth the accounts
receivable at the Closing Date, and, as to such accounts, the payments received
thereafter, the source thereof, and the application of such payments.
10.5 Employment of Existing Employees. On the Closing Date,
Buyer shall have the option of offering to employ those of Sellers' employees
set forth on Schedule 4.15, except those listed on Schedule 10.5 attached
hereto. Sellers shall compensate all employees for all services performed up to
the Closing Date. On and as of the Closing Date, Buyer shall assume the duty to
compensate any employees who are hired by it, subject to any other terms
contained in this Agreement relating to compensation of employees.
10.6 Restrictions.
(a) From and after the Closing Date, the Sellers
shall not disclose, directly or indirectly, to any person outside of Buyer's
employ, other than Sellers' accountants, or attorneys, without the express
authorization of the Buyer, any pricing strategies or records of
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the Sellers relating to the Facility, any proprietary data or trade secrets
owned by the Sellers relating to the Facility or any financial or other
information about the Sellers relating to the Facility not then in the public
domain; provided, however, that the Sellers shall be permitted to make such
disclosures as may be required by law or by a court or governmental authority.
(b) The Sellers (except for Chester West) shall
not engage or participate in any effort or act to induce, and Chester West shall
not directly solicit, any of the suppliers, associates, employees, independent
contractors, customers, vendors, residents, patients, or families of residents
or patients of the Facility to cease doing business, or their association or
employment, with the Facility. Notwithstanding the foregoing to the contrary,
each Seller may continue to participate in the any other business activities not
related to the Facility or as set forth on Schedule 10.6(b) in the same manner
they have in the past.
(c) For a period of three (3) years after the
Closing Date, each Seller shall not, directly or indirectly, for or on behalf of
itself or any other person, firm, entity or other enterprises, be employed by,
be a director or manager of, act as a consultant for, be a partner in, have a
proprietary interest in, give advice to, loan money to or otherwise associate
with, any person, enterprise, partnership, association, corporation, joint
venture or other entity which is directly or indirectly in the business of
owning, operating or managing any entity of any type, licensed or unlicensed,
which is engaged in or provides assisted living care, nursing home care, home
health care, senior housing, adult day care, retirement housing, or adult
congregate living care anywhere within a twenty five (25) mile radius of the
Facility. Chester West shall be relieved of his obligations under this Section
10.6(c) only in the event of the Buyer's termination of his employment or the
failure of Buyer and Chester West to enter into an employment relationship.
(d) The Sellers acknowledge that the
restrictions contained in this Section 10.6 are reasonable and necessary to
protect the legitimate business interests of Buyer and that any violation
thereof by it would result in irreparable harm to Buyer. Accordingly, the
Sellers agree that upon the violation by them of any of the restrictions
contained in this Section 10.6, Buyer shall be entitled to obtain from any court
of competent jurisdiction a preliminary and permanent injunction as well as any
other relief provided at law or equity, under this Agreement or otherwise. In
the event any of the foregoing restrictions are adjudged unreasonable in any
proceeding, then the parties agree that the period of time or the scope of such
restrictions (or both) shall be adjusted in such a manner or for such a time (or
both) as is adjudged to be reasonable.
10.7 Audited Financial Statements. Notwithstanding the level
of review of the Facility's financial statements, Sellers shall cooperate with
Buyer and its certified public accountants, if Buyer deems it necessary or
desirable, to assist in the audit of the balance sheets and statements of income
and changes in financial position of the Facility for each of the three (3)
calendar years ended prior to Closing. Such audits shall be conducted at Buyer's
expense.
At Buyer's request, Sellers shall cooperate with all
reasonable requests of Buyer and its auditors necessary to audit all previously
unaudited periods for the purposes of enabling Buyer to make a public offering
of its securities under the Securities Act of 1933, as amended (the
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"Securities Act"), and shall permit such financial statements to be included in
Buyer's registration statement filed with the Securities Exchange Commission
under the Securities Act and Buyer's prospectus used in connection with such
offering. All fees and expenses incurred in compiling the foregoing shall be
borne by Buyer.
ARTICLE XI: TERMINATION
-----------------------
11.1 Termination Before the Filing Date. This Agreement
may be terminated at any time on or prior to the Non-Refund Date by:
(a) The Buyer for any reason whatsoever;
(b) Sellers, if the Filing Date does not occur
by June 12, 1996, unless on or before June 12, 1996 (i) Buyer waives the
condition under Section 8.15 hereof, and (ii) Buyer deposits an additional
$250,000 with the Sellers under Section 2.1 hereof, which sum shall become part
of the Deposit;
(c) the mutual consent of the Buyer and the
Sellers.
11.2 Termination After the Non-Refund Date. This Agreement
may be terminated after the Non-Refund Date at any time at or prior to the time
of Closing by:
(a) The Buyer, if any condition precedent to
Buyer's obligations hereunder, including without limitation those conditions set
forth in Article VIII hereof, have not been satisfied by the Closing Date, or
pursuant to Section 12.1, if the Assets have been damaged or destroyed as a
result of fire, other casualty or otherwise damaged or destroyed for any reason
whatsoever;
(b) Sellers, if any condition precedent to
Sellers' obligations hereunder, including without limitation those conditions
set forth in Article IX hereof, have not been satisfied by the Closing Date;
(c) The mutual consent of the Buyer and the
Sellers.
11.3 Effect of Termination. If a party terminates this
Agreement pursuant to this Article XI, this Agreement shall become null and void
without any liability of any party to the other; provided, however, that if such
termination is by Buyer pursuant to Section 11.2(a) or if such termination is by
the Sellers pursuant to Section 11.2(b) nothing herein shall affect the
non-breaching party's right to damages on account of such other party's breach.
Furthermore, nothing in this Section 11.3 shall affect the Buyer's right to
specific performance of the Sellers' obligations at Closing hereunder. If this
Agreement is terminated under Section 11.1, the Deposit shall refunded to Buyer.
If this Agreement is terminated by Sellers pursuant to Section 11.2(b) the
Deposit shall become the sole and absolute property of Sellers. In the event
that this Agreement is terminated for any other reason under this Article XI,
except for the failure of a condition under
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Section 8.6 (as such Section relates to approvals or consents which Sellers are
required to obtain), inability of Sellers to deliver title to the Facility
subject only to the Permitted Exceptions, the occurrence of a casualty or loss
as described in Section 12.1, or the suspension or revocation of the Adult Care
Home License issued by the Department of Health and Environment of the State of
Kansas necessary to operate the Facility, the Deposit shall become the sole and
absolute property of Sellers. Sellers shall have the right to cure any of the
occurrences or conditions set forth in the prior sentence for a period of sixty
(60) days following the Closing Date
ARTICLE XII: CASUALTY, RISK OF LOSS
-----------------------------------
12.1 Casualty, Risk of Loss. Sellers shall bear the risk of
all loss or damage to the Assets from all causes, until the Closing. If at any
time prior to the Closing any portion of the Assets is materially damaged or
destroyed as a result of fire, casualty or for any reason whatsoever, Sellers
shall immediately give notice thereof to Buyer. Buyer shall have the right, in
its sole and absolute discretion, within ten (10) days of receipt of such
notice, to (i) elect not to proceed with the Closing and terminate this
Agreement, or (ii) proceed to Closing and consummate the transactions
contemplated hereby and receive any and all insurance proceeds received or
receivable by Sellers on account of any such casualty.
ARTICLE XIII: MISCELLANEOUS PROVISIONS
--------------------------------------
13.1 Survival of Representations and Warranties. Subject to
the provisions of Section 10.2 hereof, all representations, warranties,
covenants and agreements made by each party in this Agreement or in any
Schedule, certificate, document or list delivered by any such party pursuant
hereto shall survive the Closing Date Subject to the provisions of Section
6.1(a) hereof, notwithstanding any investigation conducted before or after the
Closing or the decision of any party to consummate the Closing, each party
hereto shall be entitled to rely and is hereby declared to have reasonably
relied upon the representations and warranties of the other party.
13.2 Public Announcements. Any general public announcements or
similar media publicity with respect to this Agreement or the transactions
contemplated herein (other than contained in or with respect to the Initial
Public Offering) shall be at such time and in such manner as shall be mutually
agreed upon by the parties; provided that nothing herein shall prevent either
party, upon notice to the other, from making such written notices as such
party's counsel may consider advisable in order to satisfy the party's legal and
contractual obligations in such regard.
13.3 Costs and Expenses. Except as expressly otherwise
provided in this Agreement, each party hereto shall bear its own costs and
expenses in connection with this Agreement and the transactions contemplated
hereby.
34
<PAGE>
13.4 Performance. In the event of a breach by any party of its
obligations hereunder, the other party shall have the right, in addition to any
other remedies which may be available, to obtain specific performance of the
terms of this Agreement, and the breaching party hereby waives the defense that
there may be an adequate remedy at law. Should any party default in its
performance, or other remedy, the prevailing party shall be entitled to its
reasonable attorneys' fees.
13.5 Benefit and Assignment. This Agreement binds and inures
to the benefit of each party hereto and its successors and proper assigns. The
Buyer may not assign its interest under this Agreement to any other person on
entity without the prior written consent of the Sellers; provided, however, that
Buyer may assign its rights, duties and obligations hereunder to one or more
subsidiaries or affiliates of Buyer, or to one or more limited or general
partnerships of which either Buyer or one of its subsidiaries is the controlling
general partner, without such consent; and further provided that in the instance
of such assignment Buyer shall remain liable for consummating the Closing and
performing all of its other obligations as provided in this Agreement. Buyer
shall give Sellers prompt written notice of any permitted assignment of its
interest under this Agreement. An assignment which is not permitted in
accordance with the provisions of this Section 13.5 shall be null, void and of
no force and effect.
13.6 Effect and Construction of this Agreement. This Agreement
and the Exhibits and Schedules hereto embody the entire agreement and
understanding of the parties and supersede any and all prior agreements,
arrangements and understandings relating to matters provided for herein,
including without limitations the Letter Agreement. The captions used herein are
for convenience only and shall not control or affect the meaning or construction
of the provisions of this Agreement. This Agreement may be executed in one or
more counterparts, and all such counterparts shall constitute one and the same
instrument.
13.7 Cooperation - Further Assistance. Subject to the terms
and conditions herein provided, each of the parties hereto shall use its best
efforts to take, or cause to be taken, such action, to execute and deliver, or
cause to be executed and delivered, such additional documents and instruments,
and to do, or cause to be done, all things necessary, proper and advisable under
the provisions of this Agreement and under applicable law to consummate and make
effective the transactions contemplated by this Agreement.
13.8 Notices. All notices required or permitted hereunder
shall be in writing and shall be deemed to be properly given when personally
delivered to the party entitled to receive the notice or when sent by certified
or registered mail, postage prepaid, properly addressed to the party entitled to
receive such notice at the address stated below:
If to the Buyer: Integrated Living Communities at Terrace Gardens, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attention: Edward J. Komp
35
<PAGE>
With a copies to: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attention: Marshall A. Elkins, Esq.
Blass & Driggs
461 Fifth Avenue
New York, NY 10017
Attention: Michael S. Blass, Esq.
If to the Sellers: Terrace Gardens
1318 N. West Street
Wichita, KS 67203
Attention: Ross G. Tidemann
With a copy to: Hinkle, Eberhart & Elkouri, L.L.C.
2000 Epic Center
301 North Main Street
Wichita, KS 67202
Attention: John R. Stallings, Esq.
13.9 Waiver, Discharge, etc. This Agreement shall not be
released, discharged, abandoned, changed or modified in any manner, except by an
instrument in writing executed by or on behalf of each of the parties hereto by
their duly authorized officer or representative. The failure of any party to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of any party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to be a waiver of any other or subsequent breach.
13.10 Rights of Persons Not Parties. Nothing contained in this
Agreement shall be deemed to create rights in persons not parties hereto, other
than the successors and proper assigns of the parties hereto.
13.11 Exchange. It is the intent of each of the Sellers, but
not a condition to the Closing, to receive other "like-kind" property in
exchange for its or his undivided interest in and to the Facility instead of
cash. Buyer agrees to fully cooperate with each of the Sellers in achieving such
exchange. Buyer agrees that each Seller may assign its or his undivided interest
in this Agreement to a "qualified intermediary" for the purpose of facilitating
the exchange. It is understood and agreed between the parties that: (i) the
undivided interest held by each Seller in and to the Facility is independent and
separate from the undivided interest in and to the Facility held by each of the
other Sellers; (ii) this Agreement, as it relates to the undivided interest in
and to the Facility held by each of the Sellers, is a separate transaction; and
(iii) the aggregate Purchase Price being paid for the Facility is to allocated
between the Sellers in the same proportion as their individual interest in and
to the Facility, as follows:
36
<PAGE>
Name Undivided Interest
Herbert L. Krumsick 33%
Ross G. Tidemann 19%
Nestor R. Weigand, Jr. 17%
Louis Weiss 10%
Chester West 10%
Terrace Gardens, L.P. 6%
Jon Kardatzke 5%
Notwithstanding that this Agreement constitutes a separate transaction between
Buyer and each of the Sellers, the obligations of the parties hereunder are
contingent upon Buyer acquiring all of the undivided interests of Sellers in and
to the Facility.
13.12 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Kansas, disregarding any
rules relating to the choice or conflict of laws.
13.13 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
13.14 Severability. Any provision, or distinguishable portion
of any provision, of the Agreement which is determined in any judicial or
administrative proceeding to be prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. It
is the intention of the parties that if any provision of Section 10.6 shall be
determined to be overly broad in any respect, then it should be enforceable to
the maximum extent permissible under the law. To the extent permitted by
applicable law, the parties waive any provision of law which renders a provision
hereof prohibited or unenforceable in any respect.
37
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto and in the
capacity indicated below has executed this Agreement as of the day and year
first above written.
BUYER: SELLERS:
INTEGRATED LIVING COMMUNITIES, TERRACE GARDENS, L.P.
AT TERRACE GARDENS
By: /s/ Edward I. Komp By: /s/
-------------------------------- -------------------------------------
Its: Its:
CEO
Herbert L. Krumsick
Jon Kardatzke
Louis Weiss
Chester West
Ross G. Tidemann
Nestor R. Weigand, Jr.
38
<PAGE>
-----------------------------
ASSET PURCHASE AGREEMENT
Dated as of June 7, 1996
between
CABOT POINTE I, INC.
and
INTEGRATED LIVING COMMUNITIES AT CABOT POINTE, INC.
and
CERTAIN SHAREHOLDERS OF CABOT POINTE I, INC.
-----------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I: SALE AND PURCHASE OF ASSETS.......................................1
1.1 Acquired Assets.............................................1
1.2 Assumption of Liability.....................................2
1.3 Designated Contracts........................................2
ARTICLE II: PURCHASE PRICE...................................................3
2.1 Determination and Payment of Purchase Price.................3
2.2 Certain Adjustments to the Purchase Price...................3
2.3 Transfer Taxes; Prorated Items..............................3
2.4 Other Prorations............................................4
2.5 Operating and Debt Service Payments.........................4
2.6 Furniture...................................................4
ARTICLE III: THE CLOSING.....................................................4
3.1 Time and Place of Closing...................................4
3.2 Deliveries..................................................5
3.3 Pre-Opening Expenses........................................6
ARTICLE IV: SELLER'S AND SHAREHOLDERS' REPRESENTATIONS AND
WARRANTIES...........................................................6
4.1 Organization and Standing of Seller.........................7
4.2 Authority...................................................7
4.3 Binding Effect..............................................7
4.4 Absence of Conflicting Agreements...........................7
4.5 Consents....................................................7
4.6 Schedule of Assets and Properties...........................7
4.7 Contracts...................................................8
4.8 Licenses; Permits...........................................9
4.9 Title, Condition of Personal Property.......................9
4.10 Title, Condition of the Real Property......................10
4.11 Legal Proceedings..........................................12
4.12 ERISA......................................................12
4.13 Insurance..................................................12
4.14 Relationships..............................................12
4.15 Absence of Certain Events..................................13
4.16 Compliance with Laws.......................................13
4.17 Environmental Compliance...................................13
4.18 Tax Returns................................................15
4.19 Encumbrances Created by this Agreement.....................15
(ii)
<PAGE>
4.20 Zoning.....................................................15
4.21 Leases.....................................................15
4.22 No Broker..................................................15
4.23 Intellectual Property......................................15
4.24 No Misstatements or Omissions..............................16
4.25 Bankruptcy.................................................16
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS...............16
5.1 Authority..................................................16
5.2 Binding Effect.............................................16
5.3 Absence of Conflicting Agreements..........................16
5.4 Consents...................................................16
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF THE BUYER.....................17
6.1 Organization and Standing..................................17
6.2 Power and Authority........................................17
6.3 Binding Agreement..........................................17
6.4 Finders....................................................17
ARTICLE VII: INFORMATION AND RECORDS CONCERNING THE FACILITY................17
7.1 Access to Information and Records before Closing...........17
7.2 Maps, Plans, Surveys, etc..................................18
ARTICLE VIII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING......................18
8.1 Conduct of Business Pending Closing........................18
8.2 Negative Covenants of Seller...............................18
8.3 Affirmative Covenants of Seller............................18
8.4 Affirmative Covenants of Buyer.............................19
8.5 Pursuit of Consents and Approvals..........................20
ARTICLE IX: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.....................20
9.1 Representations and Warranties.............................20
9.2 Performance of Covenants...................................20
9.3 Delivery of Closing Certificate............................20
9.4 Opinion of Counsel.........................................20
9.5 Legal Matters..............................................20
9.6 Approvals..................................................21
9.7 Material Change............................................21
9.8 Title Insurance............................................21
9.9 Deed.......................................................21
9.10 Assets Transferred at Closing..............................21
(iii)
<PAGE>
9.11 Possession.................................................22
9.12 Engineering Report.........................................22
9.13 Termite Inspection.........................................22
9.14 Authorization Documents....................................22
9.15 Due Diligence..............................................22
9.16 Payoff Letters.............................................22
9.17 Construction of Facility...................................22
9.18 Initial Public Offering....................................22
9.19 Certificates of Occupancy..................................23
9.20 Other Documents............................................23
ARTICLE X: CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS.....................23
10.1 Representations and Warranties.............................23
10.2 Performance of Covenants...................................23
10.3 Delivery of Closing Certificate............................23
10.4 Opinion of Counsel.........................................23
10.5 Legal Matters..............................................23
10.6 Authorization Documents....................................23
10.7 Other Documents............................................23
ARTICLE XI: OBLIGATIONS OF PARTIES AFTER CLOSING............................24
11.1 Discharge of Liabilities...................................24
11.2 Indemnification............................................24
11.3 Records....................................................24
11.4 Restrictions...............................................25
ARTICLE XII: TERMINATION....................................................25
12.1 Termination................................................25
12.2 Effect of Termination......................................26
ARTICLE XIII: CASUALTY, RISK OF LOSS........................................26
13.1 Casualty, Risk of Loss.....................................26
ARTICLE XIV: MISCELLANEOUS PROVISIONS.......................................26
14.1 Survival of Representations and Warranties.................26
14.2 Public Announcements.......................................27
14.3 Costs and Expenses.........................................27
14.4 Performance................................................27
14.5 Benefit and Assignment.....................................27
14.6 Effect and Construction of this Agreement..................27
14.7 Cooperation - Further Assistance...........................27
14.8 Notices....................................................28
14.9 Waiver, Discharge, etc.....................................28
14.10 Rights of Persons Not Parties..............................28
14.11 Governing Law..............................................29
14.12 Severability...............................................29
(iv)
<PAGE>
SCHEDULES
Schedule 1.1 - Description of Real Property
Schedule 1.3 - Designated Contracts
Schedule 2.2 - Prepayments
Schedule 4.5 - Consent List of Seller
Schedule 4.6 - Schedule of Assets
Schedule 4.7 - Contracts
Schedule 4.8 - Licenses, Permits
Schedule 4.9(a) - Liens on Personal Property
Schedule 4.9(b) - Leases of Personal Property
Schedule 4.10 - Certificates of Occupancy
Schedule 4.11 - Legal Proceedings
Schedule 4.13 - Insurance
Schedule 4.14 - Relationships
Schedule 4.15 - Certain Events
Schedule 4.17 - Environmental Matters
Schedule 4.20 - Zoning
Schedule 4.21 - Leases
Schedule 4.23 - Intellectual Property
Schedule 9.8 - Permitted Encumbrances
EXHIBITS
Exhibit 2.1 - Purchase Price Escrow Agreement
Exhibit 3.2 - Closing Escrow Agreement
Exhibit 3.3 - Pre-Opening Budget
Exhibit 9.4 - Opinion of Seller's Counsel
Exhibit 9.10 - Bill of Sale, Assignment of Contracts
Exhibit 10.4 - Opinion of Buyer's Counsel
(v)
<PAGE>
-------------------------
ASSET PURCHASE AGREEMENT
--------------------------
This Asset Purchase Agreement (the "Agreement") is made as of
the 7 day of June , 1996, between INTEGRATED LIVING COMMUNITIES AT CABOT POINTE,
INC., a Delaware corporation having its principal office at 10065 Red Run
Boulevard, Owings Mills, MD 21117 (the "Buyer"), CABOT POINTE I, INC., a Florida
corporation having its principal office at 406 Sarasota Quay, Sarasota, FL 34236
(the "Seller"), and certain shareholders of Seller ("Shareholders").
BACKGROUND
----------
WHEREAS, Seller is the owner of that certain 76- bed
Alzheimer's unit to be built in Bradenton, FL (the "Facility"), together with
the Assets described in Section 1.1 below; and
WHEREAS, Buyer wishes to acquire, and Seller wishes to sell,
the Facility, in accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants, agreements and representations and warranties herein
contained, Seller and Buyer, intending to be legally bound, agree as follows:
ARTICLE I: SALE AND PURCHASE OF ASSETS
--------------------------------------
1.1 Acquired Assets. Subject to the terms and conditions of
this Agreement, at the Closing (as hereinafter defined), Buyer will acquire from
Seller, and Seller will sell, assign, transfer and convey to Buyer, all of the
assets, properties and business of Seller that comprise the Facility including,
without limitation, the real property and all improvements thereon (the
"Improvements"), together with all rights, easements, privileges, and
hereditaments belonging or appertaining thereto or any additions thereto, free
and clear of all liens, mortgages and encumbrances, all as more particularly
described on Schedule 1.1 attached hereto (the "Property"), and such other
property owned by Seller that comprises, including without limitation, all
tangible, intangible, real, personal or mixed property, the Inventory (defined
herein), claims and rights under contracts, Designated Contracts (defined
herein), telephone numbers, furniture, fixtures, equipment, supplies, prepaid
items, surveys, building plans, good will, and, to the extent permitted by law,
all permits, licenses and certificates of need and other rights held by Seller
with respect to the ownership or operation of the Facility as the same shall
exist on the Closing Date, as the case may be, and all of Seller's books and
records pertaining to the foregoing all as more fully set forth on the Schedules
attached hereto, but excluding all cash, cash equivalents and accounts
receivable, (together all such
1
<PAGE>
properties, assets or business to be conveyed to Buyer from Seller at the
Closing are hereafter referred to as the "Assets").
1.2 Assumption of Liability. Except as expressly provided
herein, Buyer shall not assume, nor in any way be liable or responsible for any
claims, lawsuits, liabilities, obligations or debts of Seller, including without
limitation any accounts payable, employment or other taxes, and any other
obligation or liability of Seller to pay money whatsoever.
Notwithstanding the provisions of the immediately preceding
paragraph, on the Closing Date, contingent upon the consummation of the
transactions contemplated hereby, Buyer shall assume and thereafter in due
course fully satisfy those obligations arising under the Designated Contracts
(defined herein) specified pursuant to Section 1.3 below and assigned by Seller
to Buyer, with respect to, and only with respect to, performance and payments
owed that become due thereunder subsequent to the Closing Date. Liabilities and
obligations under such Designated Contracts that have accrued, or the
performance of which is due, on or prior to the Closing Date, and all
liabilities and obligations under all other Contracts shall remain the sole
responsibility of Seller and shall be paid or performed on or prior to the
Closing Date.
1.3 Designated Contracts.
(a) As soon as practicable after the date hereof
but in no event later than the day immediately preceding the Escrow Closing Date
(as defined in Section 3.2 hereof), Buyer shall deliver notice in writing to
Seller designating which, if any, of the Contracts (defined herein) set forth on
Schedule 4.7 will be assigned to and assumed by Buyer (the "Designated
Contracts"). Such notice of designation will be set forth on Schedule 1.3 to be
attached hereto. If within said period of time Buyer fails to so deliver notice
to Seller, Buyer will be deemed to have designated none of the Contracts and
Seller will remain fully liable thereunder. To the extent Buyer makes any such
designation, Seller shall at Closing be obligated to assign all of its right,
title and interest under such Contracts to Buyer and Buyer shall assume the
obligations accruing after Closing under such Designated Contracts.
(b) Notwithstanding anything to the contrary
contained herein other than as disclosed on Schedule 4.7, Buyer is not assuming
and will not be responsible for any liabilities or obligations under the
Designated Contracts incurred on or occurring before the Closing Date; all such
liabilities and obligations remaining the sole and exclusive responsibility of
Seller pursuant to Section 1.2 herein and shall be paid or performed on or prior
to the Closing Date.
(c) Immediately after notice of the designation
by Buyer of the Contracts to be assigned by Seller, Seller will use its best
efforts and shall diligently proceed to obtain any consents of any parties
necessary to permit the assignment of the Designated Contracts. In the event
that any of the Designated Contracts are not assignable, or the parties to such
Designated Contract fail or refuse to consent to any assignment on or before the
Closing Date, Buyer shall have no liability to assume and will not assume any
such Designated Contracts.
2
<PAGE>
ARTICLE II: PURCHASE PRICE
--------------------------
2.1 Determination and Payment of Purchase Price. The purchase
price of the Assets shall be TWO MILLION SEVEN HUNDRED THOUSAND AND 00/100
($2,700,000.00) DOLLARS, subject to adjustment as provided in Sections 2.2 and
2.3 below (the "Purchase Price"). Such amount shall be payable in cash by wire
transfer of immediately available funds as follows:
(a) on the date hereof, Buyer will place the sum
of Sixty Thousand ($60,000.00) Dollars in an escrow account with First American
Title Insurance Company of New York as escrow agent (the "Escrow Agent"),
pursuant to that certain Purchase Price Escrow Agreement of even date herewith
between Buyer, Seller and the Escrow Agent, a copy of which is attached hereto
as Exhibit 2.1, which amount will be applied to the Purchase Price at the
Closing; provided that the escrow amount will be released to Buyer if this
Agreement is terminated for any reason under Article IX other than Sections
9.6(b) and 9.18 hereof; and
(b) the balance of the Purchase Price will be
payable on the Closing Date pursuant to Sections 3.1 and 3.2 hereof.
2.2 Certain Adjustments to the Purchase Price. In addition, at
the Closing hereunder, Seller shall deliver to Buyer Schedule 2.2 listing the
amount of any prepayments received by Seller prior to Closing on account of any
goods or services to be rendered or supplied by Seller. and such prepayments
shall adjust the Purchase Price at Closing.
2.3 Transfer Taxes; Prorated Items. On the Closing Date, the
following adjustments and prorations shall be computed as of the Closing Date
with respect to the following taxes (unless otherwise stated herein) and the
cash portion of the Purchase Price shall be adjusted, upward or downward as
appropriate, to reflect such prorations:
(a) Transfer Taxes and Escrow Fees. All state
and local real estate transfer and recording taxes or fees and escrow fees shall
be borne solely by the Buyer.
(b) Real Estate Taxes, etc. Real property taxes
and all other public or governmental charges against the Assets (including
charges for sewer, water, drainage or other services) assessed for the fiscal
year in which the Closing Date occurs shall be adjusted and apportioned as of
the Closing Date.
(c) Personal Property Taxes. Personal property
taxes attributable to the personal property comprising the Assets for the fiscal
year in which the Closing Date occurs shall be adjusted and apportioned as of
the Closing Date and paid thereafter by Buyer.
(d) Service Contracts, Leases and Utilities.
Except as otherwise provided in Section 1.3, all prepayments made or payments
due under any continuing service contracts and leases affecting the Assets,
including without limitation water, sewer, electric, gas and
3
<PAGE>
utility bills, parking, garbage removal, and maintenance agreements shall be
adjusted and apportioned as of the Closing Date and such obligations thereafter
shall be assumed by Buyer.
(e) Sales Taxes. Any applicable sales taxes
payable in connection with the transfer of the Assets shall be borne solely by
the Buyer.
2.4 Other Prorations. All other charges and fees customarily
prorated and adjusted in similar transactions in the locale in which the Assets
are situated (including without limitation any and all employee benefits not
otherwise governed by Section 2.2) shall be prorated as of the Closing Date in
accordance with such custom and thereafter be assumed by Buyer.
In the event that accurate prorations and other adjustments
cannot be made as of the Closing Date because current bills or statements are
not obtainable (as, for example, utility bills), the parties shall prorate such
items upon receipt of the final bill of statement, but in no event later than
ninety (90) days after Closing; provided, that any bill received by Buyer for
expenses incurred prior to the Closing Date shall be paid by Seller. Without
limiting the foregoing, in the event the Closing Date is not the first business
day of a month, any items set forth in Sections 2.2, 2.3 and 2.4 accruing after
the Calculation Date but prior to the Closing Date shall be estimated, subject
to adjustment aforesaid, and such estimates shall reduce the Purchase Price
pursuant to Sections 2.2, 2.3 and 2.4. The Seller shall use its best efforts to
have all utility meters read on the Closing Date so as to accurately determine
the proration of current utility bills.
2.5 Operating and Debt Service Payments. Commencing on April
1, 1996, Buyer shall pay the sum of Twenty Thousand ($20,000.00) Dollars to
Seller on the first day of each month until the Closing Date to cover debt
service and operating expenses for the Facility; provided, however, that if the
condition contained in Section 9.19 has not been satisfied by June 15, 1996,
Buyer shall have no obligation to make such payments until such condition is
satisfied. If the Closing does not occur, Buyer shall pay an additional Forty
Thousand ($40,000.00) Dollars to Seller.
2.6 Furniture. Pursuant to the attached description and budget
for the furniture set forth on Schedule 2.6, Seller shall coordinate the
ordering and furnishing of the Facility. Any amount paid for such furniture over
$60,000 shall increase the Purchase Price.
ARTICLE III: THE CLOSING
------------------------
3.1 Time and Place of Closing.
(a) Subject to Section 3.2 hereof, except as set
forth in paragraph (b) of this Section, the closing (the "Closing") of the
purchase and sale of the Assets contemplated by this Agreement shall take place
on the later of the closing date of the initial public offering of Buyer's
common stock (the "Initial Public Offering") or the date of receipt of all
certificates of occupancy for the Facility required by any governmental agency
with authority over the Facility (the "Closing Date"); but in no event shall the
Closing take place later than August 1, 1996 if all of the conditions set forth
in Article IX have been satisfied. Seller shall deliver possession of the Assets
to Buyer, which shall accept the same on said date.
4
<PAGE>
(b) If prior to or by the Closing Date, the
state agency or agencies with jurisdiction over the licensing of the Facility
notifies Buyer that there exist impediments to such agency or agencies issuing
to the Buyer a license to operate the Facility immediately upon the Buyer's
acquisition of the Assets, then, in such event, Buyer shall be entitled to
extend the Closing Date for a period sufficient to meet such requirements.
(c) If the Initial Public Offering does not
close by August 1, 1996, then Buyer shall forfeit the deposit under Section
2.1(a) hereof unless Buyer elects to waive such condition to Closing.
3.2 Deliveries.
(a) On the day immediately preceding the
reasonably anticipated effective date of Buyer's registration statement relating
to the Initial Public Offering ("the Escrow Closing Date"), the parties hereto
shall, if the Closing is expected to occur on the closing date of the Initial
Public Offering, enter into the Closing Escrow Agreement attached hereto as
Exhibit 3.2, and shall deliver the following documents to the escrow agent
thereunder to be held in accordance therewith:
(i) Seller shall deliver such deeds,
bills of sale, endorsements, assignments and other instruments of sale,
conveyance, transfer and assignment, satisfactory in form and substance to Buyer
and its counsel (including, without limitation, the Bill of Sale and Assignment
of Contracts described in Section 9.10 hereof), as may be reasonably requested
by Buyer, in order to convey to Buyer good and marketable title to the Assets
(other than the Real Property), free and clear of all claims, charges, equities,
liens, security interests and encumbrances except for the Permitted Encumbrances
(as defined in Section 9.8 hereof).
(ii) Seller shall deliver to Buyer all
written consents which are required under any Designated Contract hereunder;
provided, however, that as to any Designated Contract the assignment of which by
its terms requires prior consent of the parties thereto, if such consent is not
obtained prior to or on the Escrow Closing Date, Seller shall deliver written
documentation setting forth arrangements for the transfer of the economic
benefit of such Designated Contracts to Buyer as of the Escrow Closing Date
under terms and conditions reasonably acceptable to the Buyer, in accordance
with the terms of Section 1.3 hereof.
(iii) Seller shall deliver a warranty deed
with warranty against grantor's acts in accordance with the law of the State of
Florida to each parcel of the Real Property and all Improvements thereof, in
form reasonably acceptable to Buyer and its counsel, with good and marketable
title, free and clear of all mortgages, liens, charges or other encumbrances
except (i) the Permitted Encumbrances; and (ii) the standard exceptions normally
contained in Schedule B-1 to a T-1 Owners Policy and any exceptions that are
standard in the State of Florida for all properties similarly used; provided,
however, the Seller, at Buyer's request, shall provide such affidavits to the
5
<PAGE>
title company or take such other actions as may be reasonably requested that
would enable the title company to remove any of such standard exceptions. Buyer
shall deliver a check in payment of all transfer taxes and recording fees
payable by reason of the delivery or recording of the grant deeds to the Real
Property.
(iv) Buyer shall deliver all
documentation reasonably necessary to assume the Assets and the Real Property.
(v) Each of Seller, the Shareholders and
Buyer shall deliver all certificates, opinions and other documents required to
be delivered pursuant to Articles IX and X hereof.
(b) All documents delivered into escrow on the
Escrow Closing Date shall be undated, and shall be dated the Closing Date at the
time such documents are released from escrow in accordance with the terms of the
Closing Escrow Agreement.
(c) If the Closing is to occur on a date other
than the closing date of the Initial Public Offering, the parties shall, on the
Closing Date, deliver the documents required to be delivered pursuant to Section
3.2 (a) to each other rather than the Escrow Agent, and Buyer shall pay the
Purchase Price by wire transfer of immediately available funds to accounts
specified by the Seller at least five (5) business days prior to the Closing
Date or by certified check.
3.3 Pre-Opening Expenses. Commencing on the date hereof
through the opening of the Facility, Buyer will manage the pre-opening,
marketing, and Facility staff hiring duties of the Facility on behalf of Seller.
The budget for such activities, which runs through June 30, 1996, is attached
hereto as Exhibit 3.3 (the "Budget"). Subject to the Budget, at the end of each
month prior to the Closing, Buyer will submit to Seller a pre-closing bill for
the expenses of Seller for such month (the "Bills"). Seller will pay to Buyer
the amount of such Bill within ten (10) days of receipt thereof. If the Closing
occurs, Buyer will refund to Seller the aggregate amount of all Bills paid. If
the Closing does not occur for any reason, Buyer will retain the aggregate
amount of all Bills paid by Seller.
ARTICLE IV: SELLER'S AND SHAREHOLDERS' REPRESENTATIONS AND
----------------------------------------------------------
WARRANTIES
----------
Seller and Shareholders represent and warrant to Buyer as
follows:
4.1 Organization and Standing of Seller. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida. Copies of its Articles of Incorporation and By-laws and
all amendments hereof to date, have been delivered to Buyer, and are complete
and correct. Seller has the power and authority to own property and assets now
owned by it and to conduct the business presently being conducted by it.
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4.2 Authority. Seller has the full corporate power and
authority to make, execute, deliver and perform this Agreement including all
Schedules and Exhibits hereto, and the other instruments and documents required
or contemplated hereby and thereby ("Seller's Transaction Documents"). Such
execution, delivery, performance and consummation have been duly authorized by
all necessary action, corporate or otherwise, on the part of Seller, its
directors and shareholders and all consents of holders of indebtedness of Seller
have been obtained.
4.3 Binding Effect. This Agreement and all related transaction
documents executed by Seller constitute the valid and binding obligation of
Seller and Shareholders, enforceable against Seller and Shareholders in
accordance with their respective terms.
4.4 Absence of Conflicting Agreements. Neither the execution
or delivery of this Agreement or any of the Seller's Transaction Documents by
Seller and Shareholders nor the performance by Seller and Shareholders of the
transactions contemplated hereby and thereby, conflicts with, or constitutes a
breach of or a default under (i) Seller's Articles of Incorporation or By-Laws;
or (ii) any applicable law, rule, judgment, order, writ, injunction, or decree
of any court, currently in effect; or (iii) any applicable rule or regulation of
any administrative agency or other governmental authority currently in effect;
or (iv) any written or oral agreement, indenture, contract or instrument to
which Seller or any Shareholder is now a party or by which any of them or any of
the Assets is bound, including the Contracts.
4.5 Consents. Except as set forth on Schedule 4.5, no
authorization, consent, approval, license, exemption by filing or registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary in connection with
Seller's and Shareholders' entry into, execution, delivery and performance of
this Agreement, any of the transaction documents related hereto, or for the
Seller's consummation of the transactions contemplated hereby and thereby.
4.6 Schedule of Assets and Properties.
(a) Set forth in Schedule 4.6 are complete and
accurate lists of all of the material items comprising Seller's Assets as it
relates to this Facility (other than the Property) and the Inventory as of the
date of this Agreement as follows:
(i) All machinery, vehicles and
equipment, office equipment, furniture and supplies owned or leased by Seller
and used in connection with the Facility and any other items of personal
property that comprise or are otherwise used by Seller in connection with the
Facility.
(ii) All franchises, licenses, permits,
easements, rights and other authorizations, if any, and any other item of
intangible or intellectual property ( other than tradenames, trademarks and
service marks and all proprietary information) that are owned, possessed or used
by Seller or any person in the operation of the Facility.
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4.7 Contracts.
(a) Schedule 4.7 sets forth a complete and
correct list of all agreements, contracts and commitments whether written or
oral, relating to the Facility or its operation by which Seller or the Facility
is bound, together with copies of all such agreements, contracts and commitments
(the "Contracts"). Seller is not in default under any Contract and there has not
been asserted, either by or against Seller under any Contract, any notice of
default, set-off or claim of default. To the best of Seller's knowledge, the
parties to the Contracts other than the Seller are not in default of any of
their respective obligations under the Contracts, and there has not occurred any
event which with the passage of time or the giving of notice (or both) would
constitute a default or breach under any Contract. All amounts payable under the
Contracts are, or will at the Closing Date, be on a current basis. Except as set
forth on Schedule 4.7, the Contracts are assignable to Buyer without the consent
of the remaining parties thereto.
(b) Except as listed on Schedule 4.7, Seller is
not a party to or liable in connection with and has not granted any written or
express, oral or implied:
(i) contract, agreement or commitment
for the employment or retention of, or collective bargaining, severance or
termination agreement with, any employee, consultant or agent or group of
employees at the Facility;
(ii) profit sharing, thrift, bonus,
incentive, deferred compensation, stock option, stock purchase, severance pay,
pension, retirement, hospitalization, insurance or other similar plan, agreement
or arrangement covering employees at the Facility;
(iii) agreement or arrangement for the
sale of any of the Seller's and the Facility's assets, properties or rights
outside the ordinary course of business (by sale of assets, sale of stock,
merger or otherwise) which is currently in effect;
(iv) contract currently in effect which
contains any provisions requiring the Seller to indemnify or act for, or
guarantee the obligation of, any other person or entity;
(v) agreement restricting the Seller
from conducting business anywhere in the world;
(vi) partnership or joint venture
contract or similar arrangement or agreement which is likely to involve a
sharing of profits or future payments with respect to the Seller's business or
any portion thereof;
(vii) licensing, distributor, dealer,
franchise, sales or manufacturer's representative, agency or other similar
contract, arrangement or commitment for the Facility which involves
consideration of more than $10,000; or
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(viii) agreement not made in the ordinary
and normal course of business of the Facility which involves consideration of
more than $10,000.
4.8 Licenses; Permits. Schedule 4.8 sets forth a description
of (a) each license and all other governmental or other regulatory permits and
approvals relating to the operation of the Facility heretofore obtained and that
is now in effect; and (b) each other license, permit, easement, right or other
authorization that is necessary for the operation of the Facility, including the
Southern Building Code, zoning laws and building codes (collectively, the
"Licenses"). Seller has delivered to Buyer copies of all of the Licenses listed
on Schedule 4.8. Seller shall use its best efforts to deliver to Buyer within
ten (10) days from execution hereof copies of each application for each of the
Licenses. Schedule 4.8 also sets forth a description of each accreditation of
the Facility, copies of which Seller has delivered to the Buyer. Seller owns,
possesses or has the legal right to use the Licenses, free and clear of all
liens, pledges, claims or other encumbrances of any nature whatsoever. Seller is
not in default under, nor has it received any notice of any claim or default or
any other claim or proceeding relating to, any such License. The Facility is
fully and completely licensed by all appropriate authorities for Seller to carry
on the business presently conducted at the Facility. No shareholder, director or
officer, employee or former employee, or immediate family member of any such
person, or any other person, firm or corporation owns or has any proprietary,
financial or other interest, direct or indirect, in whole or in part in any such
License owned, possessed or used in the operation of the Facility as now
operated.
4.9 Title, Condition of Personal Property.
(a) Except for the security interests listed and
described on Schedule 4.9(a), Seller has good and marketable title to all such
tangible and intangible personal property located at or used by Seller in
connection with the ownership or operation of the Facility, subject to no
mortgage, security interest, pledge, lien, conditional sales agreement, lease,
claim, encumbrance or charge, or restraint on transfer whatsoever. No other
person has any right to the use or possession of any of such property and,
except as set forth on Schedule 4.9(a), no currently effective financing
statement with respect to such property has been filed in any jurisdiction, and
Seller has not signed any such financing statement or any security agreement
authorizing any secured party thereunder to file any such financing statement.
During the five (5) year period preceding the date hereof, Seller has conducted
its business activities only under the corporate and/or trade names "Cabot
Pointe, Inc." and "Assisted Care Facilities, Inc." All of the personal property
is in good operating condition and repair and is functioning in the manner and
for the purpose for which it was intended and is in compliance with (and the
operation thereof is in compliance with) all applicable Federal, state and local
laws, rules and regulations, and is sufficient and suitable to enable the Buyer
to operate the Facility in a normal and efficient manner.
(b) Except as set forth on Schedule 4.9(b), none
of the personal property used by Seller in connection with the operation of the
Facility is subject to a conditional sale, security interest or similar
arrangement. Schedule 4.9(b) sets forth a complete and correct copy of each of
the personal property leases relating to the Facility as to which Seller is a
party (together with all
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modifications or amendments thereto), the annual rental and unexpired lease term
thereby and all the information set forth thereon is complete, correct and
accurate. All of said personal property leases are valid, binding and
enforceable in accordance with their respective terms and are in full force and
effect. Seller is not in default under any of such leases and there has not been
asserted, either by or against Seller under any of such leases, any notice of
default, set-off, or claim of default. To the best of Seller's knowledge, the
parties to such leases other than the Seller are not in default of their
respective obligations under any of such leases, and there has not occurred any
event which with the passage of time or giving of notice (or both) would
constitute such a default or breach under any of such leases. Except as
otherwise set forth on Schedule 4.9(b), each of said personal property leases is
assignable to Buyer without the consent of the lessor of such Facility.
4.10 Title, Condition of the Real Property.
(a) Seller has good and marketable title to the
real property comprising Facility (the "Real Property"), insurable by any
reputable, licensed title company selected by Buyer at regular rates, free and
clear of all liens, claims, charges, easements, encumbrances and title
exceptions of any kind whatsoever.
(b) There are no leases or other agreements of
Seller as lessor, granting any third party the right to use or occupy any part
of the Real Property and no person, firm or entity has any ownership interest or
option or right of first refusal to acquire any ownership interest in the Real
Property or any building or improvements thereon.
(c) All buildings and other improvements
comprising the Facility (including all roads, parking areas, curbs, sidewalks,
sewers and other utilities) have been completed and installed in accordance with
such plans and specifications as were approved by the governmental authorities
having jurisdiction thereof. Such permanent statements of occupancy and all
other licenses, permits, authorizations and approvals required by all
governmental authorities having jurisdiction and the requisite annual fire
safety and life safety inspections as were issued or conducted for the buildings
and other improvements comprising the Real Property, have been issued, paid for
and are in full force and effect.
(d) As of the Closing Date the maintenance,
operations and use of the buildings and other improvements comprising the Real
Property will comply with and do not violate any zoning, building or similar
law, ordinance, order or regulation or any statement of occupancy issued for the
Facility. As of the Closing Date there will have been no violation of
anyFederal, state, county or municipal law, ordinance, order, regulation or
requirement affecting the Facility and no written notice of any such violation
shall have been issued by any governmental authority. Since the construction of
the Facility was completed there have been no changes to building, health or
fire codes that would be applicable to the Facility and there has been no change
in the use of the Facility that would have caused any modifications to have been
made to the Facility pursuant to any such building, health or fire codes.
(e) There is no plan, study or effort by any
governmental authority or agency which in any way affects or would affect the
present use or zoning of the Real Property or
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any part thereof. There are no assessments or proposed assessments and there is
no existing, proposed or contemplated plan to widen, modify or realign any
street or highway or any existing, proposed or contemplated eminent domain
proceedings that would affect the Real Property in any way whatsoever. No
subdivision plan or plans (preliminary or otherwise) have been or will be filed
with respect to the Real Property. The Real Property is not located in areas
designated by the Secretary of Housing and Urban Development or any other
governmental authority or agency as having special flood or mud slide hazards.
(f) The buildings and other improvements
comprising the Real Property and all of their systems, including without
limitation, the heating, ventilating and air condition systems, and the
plumbing, electrical, mechanical and drainage systems, and roof are in good
operating condition, repair and working order, and have passed all previous
safety and/or licensing inspections, the last such inspection being on the
______ day of ________________, 19____ and that such systems are adequate and
sufficient for use in connection with an assisted living facility, ordinary wear
and tear expected.
(g) There is no proceeding pending to which
Seller is a party relating to the assessed valuation of any portion of the
Facility and no assessment for public improvements have been made against the
Facility that remain unpaid. All public improvements ordered, commenced or
completed prior to the date of this Agreement or prior to the Closing Date shall
be paid for in full by the Seller prior to the Closing.
(h) All public utilities required for the
operation of the Facility either enter the Facility through adjoining public
streets, or if they pass through adjoining private land, do so in accordance
with valid recorded easements held by Seller. The Real Property is adjacent to
and has direct access to each abutting street. All streets adjoining or
traversing the Real Property have been dedicated to and accepted by the local
municipal authorities.
(i) There are no easements traversing or
contiguous to the Real Property which are not disclosed on any schedule hereto
on any title report delivered to the Buyer or which interfere with the intended
use and operation of the Facility.
(j) All certificates of occupancy and other
authorizations issued for the Real Property have been set forth on Schedule 4.10
hereto. Seller has not received any notice of noncompliance from any
governmental authority regarding any of the improvements constructed on the Real
Property or the use or occupancy thereof.
4.11 Legal Proceedings. Other than as set forth on Schedule
4.11, there are no disputes, claims, actions, suits or proceedings, arbitrations
or investigations, either administrative or judicial, pending, or, to the best
of Seller's knowledge, threatened or contemplated, nor, to the best of Seller's
knowledge, is there any basis therefor, against or affecting the Facility or the
Assets or Seller's rights therein or Seller's ability to consummate the
transactions contemplated herein, at law
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or in equity or otherwise, before or by any court or governmental agency or
body, domestic or foreign, or before an arbitrator of any kind. Seller has
received no requests for information with respect to the transactions
contemplated hereby from any governmental agency.
4.12 ERISA. Seller does not maintain or make contributions to
and has not at any time in the past maintained or made contributions to any
employee benefit plan which is subject to the minimum funding standards of
ERISA. Seller does not now maintain or make contributions to and has not at any
time in the past maintained or made contributions to any multi-employer plan
subject to the terms of the Multi-employer Pension Plan Amendment Act of 1980
(the "Multi-employer Act").
4.13 Insurance. Schedule 4.13 contains a true and correct list
of: (a) all policies of fire, liability and other forms of insurance held or
owned by Seller or otherwise in force and providing coverage for the Facility
(including but not limited to medical malpractice insurance, and any state
sponsored plan or program for worker's compensation); and (b) all bonds,
indemnity agreements and other agreements of suretyship made for or held by the
Seller or otherwise in force and relating to the Facility, including a brief
description of the character of the bond or agreement, the name of the surety or
indemnifying party. Schedule 4.13 sets forth for each such insurance policy the
name of the insurer, the amount of coverage, the type of insurance, the policy
number, the annual premium and a brief description of the nature of insurance
included under each such policy and of any claims made thereunder during the
past two years. Such policies are owned by and payable solely to Seller, and
said policies or renewals or replacements thereof will be outstanding and duly
in force at the Closing Date. All insurance policies listed on Schedule 4.13 are
in full force and effect, all premiums due on or before the Closing Date have
been or will be paid on or before the Closing Date, Seller has not been advised
by any of its insurance carriers of an intention to terminate or modify any such
policies, nor has Seller failed to comply with any of the material conditions
contained in any such policies.
4.14 Relationships. Except as disclosed on Schedule 4.14
hereto, neither Seller nor any shareholder, director or officer thereof or any
member of such person's immediate family has, or at any time within the last two
(2) years has had, a material ownership interest or claim in any business,
corporate or otherwise, that is a party to, or in any Facility that is the
subject of, business relationships or arrangements of any kind relating to the
operation of the Facility by which Buyer will be bound after the Closing.
4.15 Absence of Certain Events. Except as set forth on
Schedule 4.15, since the date of this Agreement, Seller will not have (except
for transactions directly with Buyer):
(a) sold, assigned or transferred any of its
assets or properties, except in the ordinary course of business consistent with
past practice;
(b) mortgaged, pledged or subjected to any lien,
pledge, mortgage, security interest, conditional sales contract or other
encumbrance of any nature whatsoever any of the Assets other than the liens, if
any, of current taxes not yet due and payable;
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(c) made or suffered any amendment or
termination of any contract, commitment, instrument or agreement materially
relating to the Facility;
(d) except in the ordinary course of business,
consistent with past practice, or otherwise to comply with any applicable
minimum wage law, increased the salaries or other compensation of any of its
employees at the Facility, or made any increase in, or any additions to, other
benefits to which any of such employees may be entitled;
(e) discharged or satisfied any lien or
encumbrance, or paid any material liabilities, other than in the ordinary course
of business consistent with past practice, or failed to pay or discharge when
due any liabilities, the failure to pay or discharge of which has caused or will
cause any actual damage or risk of loss to Seller or the Facility;
(f) made or suffered any amendment or
termination of any material contract, commitment or agreement to which it is a
party or by which it is bound, or canceled, modified or waived any debts or
claims held by it, other than in the ordinary course of business consistent with
past practice, or waived any rights of substantial value, whether or not in the
ordinary course of business; or
(g) entered into any material transaction other
than in the ordinary course of business consistent with past practice.
4.16 Compliance with Laws. Seller has not received any claim
or notice that the Facility is not in compliance with any applicable Federal,
state, local or other governmental laws or ordinances, or any applicable order,
rule or regulation of Federal, state, local or other governmental agency. The
Facility is in material compliance with all existing applicable federal, state
and local laws and regulations, including the Southern Building Code,
governmental regulations, zoning laws, building codes and local ordinances. All
deficiencies on all state and federal inspections have been corrected, or are in
the process of being corrected.
4.17 Environmental Compliance.
(a) At any time during Seller's ownership of the
Real Property and prior to Seller's ownership thereof:
(i) The Real Property has not been used
for the disposal of any industrial refuse or waste, including but not limited to
potentially infectious waste, blood- contaminated materials, or other wastes
generated in the course of patient treatment (collectively "Medical Waste"), or
for the processing, manufacture, storage, handling, treatment or disposal of any
hazardous or toxic substance, material or waste.
(ii) No asbestos-containing materials
have been used or disposed of on the Real Property or used in the construction
of the Facility.
(iii) No machinery, equipment or fixtures
containing polychlorinated biphenyls ("PCBs") have been located on the Real
Property.
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(iv) No storage tanks for gasoline,
petroleum, or any other substance have been located on the Real Property.
(v) No toxic or hazardous substances or
materials have been located on the Real Property, which substances or materials,
if found on the Real Property, would subject the owner or occupant of the Real
Property to damages, penalties, liabilities or an obligation to remove such
substances or materials under any applicable Federal, state or local law,
regulation or ordinance.
(vi) No notice from any governmental body
has ever been served upon Seller, its agents or representatives, or upon any
prior owner of the Real Property, claiming any violation of any Federal, state
or local law, regulation or ordinance concerning the generation, handling,
storage, or disposal of Medical Waste, or the environmental state, condition, or
quality of the Real Property, or requiring or calling attention to the need for
any work, repairs, or demolition, on or in connection with the Real Property in
order to comply with any law, regulation or ordinance concerning the
environmental or healthful state, condition or quality of the Real Property.
(vii) Schedule 4.17 lists all reports of
healthcare and environmental agencies received by Seller, if any, during the
last five (5) years from any supervisory governmental authority with respect to
the operations of the Real Property. Seller has delivered copies of each such
report to Buyer.
(b) At all times, Seller has complied, and is
complying in all respects with all environmental and related laws, ordinances
and governmental rules and regulations applicable to it and the Real Property,
including, but not limited to, the Resource Conservation and Recovery Act of
1976, as amended, the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended, the Federal Water Pollution Control Act, as
amended by the Clean Water Act, and subsequent amendments, the Federal Toxic
Substances Control Act, as amended, and all other Federal, state and local laws,
regulations and ordinances with respect to the protection of the environment
(collectively "Environmental Laws"). The foregoing representation and warranty
applies to all aspects of the operation of the Real Property including, but not
limited to, the use, handling, treatment, storage, transportation and disposal
of any hazardous, toxic or infectious waste, material or substance (including
Medical Waste) and petroleum products, material or waste whether performed on
Seller's properties or at any other location.
4.18 Tax Returns. Seller has filed all Federal, state, county
and local income, excise, property and other tax returns and abandoned property
reports (if any) to date that are due and required to be filed by it, all such
returns and reports are in material compliance with applicable law, and there
are no claims, liens, or judgments for taxes due from the Seller affecting the
Real Property or any of the Assets, and no basis for any such claim, lien, or
judgment exists.
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4.19 Encumbrances Created by this Agreement. The execution and
delivery of this Agreement or any of the Seller's Transaction Documents does
not, and the consummation of the transactions contemplated hereby or thereby
will not, create any liens or other encumbrances on any of the Assets in favor
of third parties.
4.20 Zoning. Except as set forth in Schedule 4.20 hereto,
there exists no judicial, quasi-judicial, administrative or other proceeding
which might adversely affect the validity of the current zoning of the Real
Property and Improvements, nor is there any threatened action or proceeding
which could result in the modification and termination of any such zoning.
4.21 Leases. Schedule 4.21 hereto contains an accurate and
complete list of each lease of Personal Property to which Seller or the Facility
is a party or by which Seller or Facility is bound or which were assigned or
transferred to Seller, in connection with the Facility, and a list of all
Contracts providing for the installation or maintenance of equipment purchased
or leased by Seller.
4.22 No Broker. Seller has not incurred any liability for
broker's or finder's fees or commissions to any broker, financial advisor or
other intermediary in connection with the transactions contemplated by this
Agreement other than its obligations to pay commissions to its authorized
broker, David Wieteska, at the Closing. Buyer is under no obligation to pay any
broker fees.
4.23 Intellectual Property. Schedule 4.23 hereto sets forth a
list of all patents, copyrights, trademarks, software and computer programs,
corporate names and other intellectual property rights, including the names
"Cabot Pointe," and "Assisted Living Facilities, Inc." and all derivations and
variations thereof and any other tradenames used in connection with the
operation of the Facility (collectively, the "Intellectual Property") used by
Seller in connection with the Facility. To the best knowledge of Seller, neither
Seller nor any of its affiliates is infringing upon any intellectual property
rights of any other person nor is any other person infringing on any Seller's
rights in respect of the Intellectual Property.
4.24 No Misstatements or Omissions. None of the documents,
certificates, instruments or information furnished or to be furnished by Seller
to Buyer or any of Buyer's representatives is or will be false or misleading as
to any material fact or omits or will omit to state a material fact necessary to
make any of the statement contained therein not misleading. Seller has provided
to Buyer all material information related to the Assets and the Facility.
4.25 Bankruptcy. No insolvency proceeding of any character
including, without limitation, bankruptcy, receivership, reorganization,
composition or arrangement with creditors, voluntary or involuntary, affecting
Seller (other than as a creditor) or of the Facility or any of the Assets are
pending or are being contemplated by Seller, or are the best knowledge of Seller
being threatened against Seller by any other Person, and Seller has not made any
assignment for the benefit of creditors or taken any action in contemplation of
or which would constitute the basis for the institution of such insolvency
proceedings.
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ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
-------------------------------------------------------------
Each of the Shareholders, each as to himself, herself, or
itself, hereby severally represent and warrant to Buyer as follows:
5.1 Authority. Such party has the full legal power and
authority to make, execute, deliver and perform this Agreement and the
Transaction Documents. Such execution, delivery, performance and consummation
have been duly authorized by all necessary action, corporate or otherwise, on
the part of such party, and any necessary consents of holders of indebtedness of
such party have been obtained.
5.2 Binding Effect. This Agreement and all Transaction
Documents executed by such party constitute the valid and binding obligations of
such party, enforceable against such party in accordance with their respective
terms.
5.3 Absence of Conflicting Agreements. Neither the execution
or delivery of this Agreement or any of the Transaction Documents by such party
nor the performance by such party of the transactions contemplated hereby and
thereby conflicts with, or constitutes a breach of or a default under (i) the
formation documents of such Seller, or (ii) any law, rule, judgment, order,
writ, injunction, or decree of any court currently in effect applicable to such
party, or (iii) any rule or regulation of any administrative agency or other
governmental authority currently in effect applicable to such party, or (iv) any
agreement, indenture, contract or instrument to which such party is now a party
or by which any of the assets of such party is bound.
5.4 Consents. No authorization, consent, approval, license,
exemption by, filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, is or
will be necessary in connection with the execution, delivery and performance of
this Agreement or any of the Transaction Documents by such party.
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF THE BUYER
-------------------------------------------------------
Buyer represents and warrants to Seller as follows:
6.1 Organization and Standing. Buyer has been duly
incorporated and is validly existing in good standing under the laws of the
State of Delaware, and is or prior to the Closing will be duly qualified to do
business in the State of Florida.
6.2 Power and Authority. Buyer has the corporate power and
authority to execute, deliver and perform this Agreement, and as of the Closing
the Buyer will have the corporate power and authority to execute and deliver the
instruments and agreements required to be delivered by it to Seller at the
Closing (collectively the "Buyer's Transaction Documents").
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6.3 Binding Agreement. This Agreement has been duly executed
and delivered by Buyer. This Agreement is, and when executed and delivered by
Buyer at the Closing each of the related transaction documents executed by Buyer
will be, the legal, valid and binding obligation of Buyer, enforceable against
Buyer in accordance with their respective terms, as such enforceability may be
limited by applicable creditors rights laws and the availability of equitable
remedies.
6.4 Finders. No broker or finder is entitled to any broker's
or finder's fee or other commission in connection with the transactions
contemplated by this Agreement based in any way on agreements, understandings or
arrangements with Buyer, other than Joseph Marcassiano whose commission shall be
paid by Seller out of the fee paid to Seller's authorized broker, as described
in Section 4.22 hereof.
ARTICLE VII: INFORMATION AND RECORDS CONCERNING THE FACILITY
------------------------------------------------------------
7.1 Access to Information and Records before Closing.
(a) Prior to the Closing Date, Buyer may make,
or cause to be made, such investigation of the Facility's and Seller's financial
and legal conditions as Buyer deems necessary or advisable to familiarize itself
with the Facility and/or matters relating to its history or operation. Seller
shall permit Buyer and its authorized representatives (including legal counsel
and accountants), to have full access to the Facility and Seller's books and
records and Seller will furnish, or cause to be furnished, to Buyer such
financial and operating data and other information and copies of documents with
respect to the products, services, operations and Assets, the Real Property and
the Facility as Buyer shall from time to time request. The documents to which
the Buyer shall have access shall include, but not be limited to, Seller's tax
returns and related work papers since their inception; and Seller shall make, or
cause to be made, extracts thereof as Buyer or its representatives may request
from time to time, to enable the Buyer and its representatives to investigate
the affairs of Seller and the Facility and the accuracy of the representations
and warranties made in this Agreement. Seller shall cause its accountants to
cooperate with Buyer and to disclose the results of audits relating to Seller
and/or to the Facility and to produce the working papers relating thereto. No
such investigation by Buyer or its representatives shall affect any of the
Seller's representations and warranties in this Agreement or Buyer's right to
rely thereon. Buyer shall conduct its investigation hereunder in such manner as
will not cause any unreasonable disruption to the business of the Facility.
(b) In the event of the termination of this
Agreement prior to Closing, Buyer will deliver to Seller all documents, work
papers and other materials hereunder obtained from Seller and relating to Seller
or the transactions herein contemplated.
7.2 Maps, Plans, Surveys, etc. Seller shall deliver, has
delivered, or shall cause to be delivered, to the Buyer, without charge, all
plans, maps, surveys, descriptions, and title reports respecting the Real
Property and the use and occupancy thereof in Seller's possession that exist as
of the date of this Agreement, which materials shall be returned to Seller if
this Agreement is terminated.
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ARTICLE VIII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING
------------------------------------------------------
8.1 Conduct of Business Pending Closing. Between the date of
this Agreement and the Closing Seller shall conduct its business relating to the
operation of the Facility solely in the ordinary course of business consistent
with past practice, and maintain its existence.
8.2 Negative Covenants of Seller. Without the prior written
approval of Buyer, Seller shall not, between the date hereof and the Closing:
(i) dissolve, merge or enter into a share exchange with or into any other
entity; or (ii) enter into any Contract or modify or terminate any existing
Contract without the prior consent of Buyer; or (iii) cause or permit to occur
any of the events or occurrences described in Section 4.15 (Absence of Certain
Events) of this Agreement.
8.3 Affirmative Covenants of Seller. Between the date
hereof and the Closing, Seller shall:
(a) maintain the Real Property, Improvements and
the Facility in substantially the state of repair, order and condition as on the
date hereof, reasonable wear and tear or loss by casualty excepted;
(b) maintain in full force and effect all
Licenses, currently in effect with respect to the Real Property, Improvements
and the Facility;
(c) maintain in full force and effect the
insurance policies and binders currently in effect with respect to the Real
Property, Improvements and the Facility, including without limitation those
listed on Schedule 4.13;
(d) utilize its best efforts to preserve intact
the present business organization of the Real Property, Improvements and the
Facility; and maintain Seller's relations and goodwill with the suppliers,
affiliated medical personnel and anyone having business relating to the Real
Property, Improvements and the Facility;
(e) maintain all of the books and records
relating to the Real Property, Improvements and the Facility in accordance with
its past practices;
(f) comply with all provisions of the Contracts
listed in Schedule 4.7 and with any other agreements that Seller has entered
into with respect to the Real Property, Improvements and the Facility in the
ordinary course of business since the date of this Agreement and with the
provisions of all laws, rules and regulations applicable to the Seller's
business or the Real Property, Improvements and the Facility;
(g) cause to be paid when due, all taxes,
assessments and charges or levies imposed upon it or on any of its properties or
which it is required to withhold and pay over;
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(h) promptly advise Buyer in writing of the
threat or commencement against Seller of any dispute, claim, action, suit or
proceeding, arbitration or investigation that would materially adversely affect
the operations, properties, assets or prospects of the Real Property,
Improvements and the Facility;
(i) maintain material compliance with all
federal, state and local standards; and
(j) complete construction of the Facility
consistent with the plans and specifications approved by Buyer.
8.4 Affirmative Covenants of Buyer. Buyer will proceed with
all due diligence to conduct such investigations with respect to the Facility as
it deems to be reasonably necessary in connection with its purchase thereof,
including, but not limited to, zoning investigations, soil studies,
environmental assessments, seismic assessments, wetlands reports, investigations
of Seller's and the Facility's books and records and structural inspections,
provided no investigations will be physically intrusive on the Facility unless
Seller consents thereto, which consent shall not be reasonably withheld (the
"Due Diligence Review"); provided, however, nothing herein shall be construed as
amending or modifying in any manner the representations or warranties of Seller
set forth in this Agreement, which representations and warranties shall be
separate from and unaffected by Buyer's Due Diligence Review; and provided,
further, that Buyer shall maintain the confidentiality of any documents or
information obtained by it during the course of its Due Diligence Review and
shall return the same to Seller in the event the transaction provided for herein
fails to close for any reason whatsoever. The Due Diligence Review shall be
completed by Buyer prior to the Closing, except that the final engineering study
shall be conducted and completed approximately one (1) week after the issuance
of a certificate of occupancy for the Facility.
8.5 Pursuit of Consents and Approvals. Prior to the Closing
Buyer shall undertake to obtain all consents and approvals of governmental
agencies and all other parties necessary for the lawful consummation of the
transactions contemplated hereby and the lawful use, occupancy and enjoyment of
the Facility by Buyer in accordance herewith (the "Required Approvals"). Within
five (5) days from the execution hereof, Buyer shall submit to the Florida
Agency for Health Care Administration (the "Agency") a written notice setting
forth its intent to purchase the Facility and requesting a written confirmation
from such Agency that the proposed acquisition of the Facility by the Buyer
shall not be subject to the approval of or review by such Agency.
ARTICLE IX: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
-------------------------------------------------------
Unless waived by Buyer, its obligations to consummate the
purchase of the Assets is subject to the fulfillment, prior to or at the
Closing, of each of the following conditions. Upon failure of any of the
following conditions Buyer may terminate this Agreement pursuant to and in
accordance with Article XII herein.
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9.1 Representations and Warranties. The representations and
warranties of Seller contained in this Agreement or on any Schedule, list,
certificate or other document delivered pursuant to the provisions hereof shall
be true and correct in all material respects at and as of the Closing Date as
though such representations and warranties were made at and as of such time,
except to the extent affected by the transactions herein contemplated. Seller
shall have provided to Buyer any updates to the Schedules attached hereto,
including amendments, additions and revisions, so as to cause the
representations and warranties to be true and correct as of the Closing Date.
9.2 Performance of Covenants. Seller shall have performed or
complied in all material respects with each of its agreements and covenants
required by this Agreement to be performed or complied with by it prior to or at
the Closing.
9.3 Delivery of Closing Certificate. Seller shall have
executed and delivered to the Buyer a certificate of the chief executive officer
of the Seller dated the Closing Date upon which Buyer may rely, certifying that
the statements made in Sections 9.1 and 9.2, are true, correct and complete as
of the Closing Date.
9.4 Opinion of Counsel. Seller shall have delivered to the
Buyer an opinion, dated the Closing Date, of counsel for Seller, in the form
attached hereto as Exhibit 9.4.
9.5 Legal Matters. Other than as set forth on Schedule 4.11,
no suit, action, investigation, or legal or administrative proceeding shall have
been brought or shall have been threatened by any person that questions the
validity or legality of this Agreement or the transactions contemplated hereby.
9.6 Approvals.
(a) The consent or approval of all persons
necessary for the consummation of the transactions contemplated hereby shall
have been granted, including without limitation, the Required Approvals and any
tax clearance or similar approval;
(b) None of the foregoing consents or approvals
(i) shall have been conditioned upon the modification, cancellation or
termination of any material lease, contract, commitment, agreement, license,
easement, right or other authorization with respect to the Facility, or (ii)
shall impose on the Buyer any material condition or provision or requirement
with respect to the Facility or its operation that is more restrictive than or
different from the conditions imposed upon such operation prior to Closing.
9.7 Material Change. Since the date of this Agreement there
shall not have been any material adverse change in the condition (financial or
otherwise) of the Assets, Properties or operations of the Facility or the
Seller.
9.8 Title Insurance. Buyer shall have obtained, at normal
rates, a title commitment from a reputable title insurance company selected by
Buyer (the "Title Company") for
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an owner's title policy insuring that title to the Property and improvements to
the Facility shall be good and marketable and free and clear of all liens,
assessments, restrictions, encumbrances, easements, leases, tenancies, claims or
rights of use or possession and other title objections (including any lien or
future claim from materials or labor supplied for improvement of such property),
except for (a) utility and other easements that do not materially adversely
affect the intended use of the Facility or the value of the Facility; (b)
matters listed in Schedule 9.8 hereto (the "Permitted Encumbrances"); and (c)
the standard exceptions normally contained in Schedule B to a T-1 Owner Policy
of Title Insurance Title Policy and schedules thereto and any exceptions that
are standard in the State of Florida for all properties similarly used;
provided, however, that, at the request of Buyer, Seller, shall use its best
efforts to provide such affidavits to the Title Company or take such other
actions that would enable the Title Company to remove any of such standard
exceptions. With respect to the standard survey exceptions, Buyer may obtain
prior to the Closing any survey (or engineering study), at Buyer's expense, but
if such survey (or study) discloses any material discrepancy or exception to
title not included within the restrictions permitted hereunder, Buyer may
consider such a defect in title and may, at its option, elect to cancel this
Agreement pursuant to Section 12.1 hereof.
9.9 Deed. Seller shall have delivered a warranty deed for the
Property with warranty against grantor's acts; a no-flood-plain certificate; and
a copy of the then valid Certification of Occupancy for the Facility.
9.10 Assets Transferred at Closing. Seller shall have
delivered or caused to be delivered to Buyer possession of the Assets (or the
right to obtain possession on demand) together with such instruments of sale and
transfer, including without limitation, a Bill of Sale and Assignment of
Contracts, in the form of Exhibit 9.10 attached hereto and made a part hereof,
sufficient to vest in Buyer good and marketable title to the Assets, free and
clear of all liens, security interests, encumbrances, claims and other
exceptions of any kind whatsoever.
9.11 Possession. Possession of the Facility shall be or shall
have been delivered to Buyer as provided in this Agreement, free and clear of
any leases, claims to or rights of possession.
9.12 Engineering Report. Buyer shall have received, at its own
expense, an engineering survey and report in form and substance satisfactory to
Buyer, from a qualified engineering or other firm of Buyer's choice concerning a
full and complete inspection of the Facility, the physical soundness and
structural integrity of the buildings, and the condition (including freedom from
material defect) of the heating, air conditioning, plumbing and electrical
systems, the appliances of or in the buildings, and other material components.
9.13 Termite Inspection. Buyer shall have received, at
Seller's expense, a report from a qualified inspector approved by Buyer and
Buyer's Lenders stating that the Facility is free from termite, wood boring
insect or other pest infestation, and/or resultant damage that has not been
corrected.
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9.14 Authorization Documents. Buyer shall have received a
certificate of the Secretary or other officer of the Seller certifying a copy of
Resolutions of the Board of Directors of Seller and consent of its shareholders
authorizing the Seller's execution and full performance of Seller's Transaction
Documents, the Articles or Certificate of Incorporation and By-Laws of Seller
and the incumbency of the officers of the Seller.
9.15 Due Diligence. Buyer shall be satisfied with the results
of its Due Diligence Review, including, but not limited to the results of an EPA
Phase I Assessment of the Facility; provided, however, nothing herein shall be
construed as amending or modifying in any manner the representations and
warranties of Seller set forth in this Agreement, which representations and
warranties shall be separate from and unaffected by Buyer's Due Diligence Review
except as to any representations or warranties which, during the course of
Buyer's Due Diligence Review, Buyer obtains knowledge of falsity or inaccuracy
and advises Seller in writing thereof.
9.16 Payoff Letters. Seller shall have received payoff letters
in connection with the satisfaction of all mortgages and liens reflected on
Schedule 4.6. Seller agrees that Buyers may fund such payoff amounts directly to
the mortgage and lien holders out of the Purchase Price.
9.17 Construction of Facility. The Facility shall have been
constructed in accordance with the plans and specifications approved by Buyer.
9.18 Initial Public Offering. Buyer shall have completed
the Initial Public Offering of its common stock.
9.19 Certificates of Occupancy. Seller shall have received
all certificates of occupancy issued by all government agencies with
jurisdiction over the Facility, free and clear of all conditions and waivers.
9.20 Other Documents. Seller shall have furnished Buyer
with all other documents, certificates and other instruments required to be
furnished to Buyer by Seller pursuant to the terms hereof.
ARTICLE X: CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
-------------------------------------------------------
Unless waived by Seller, its obligation to consummate the sale
of the Assets is subject to the fulfillment, prior to or at the Closing, of each
of the following conditions:
10.1 Representations and Warranties. The representations and
warranties of the Buyer in this Agreement or on any Schedule, list, certificate
or document delivered pursuant to the provisions hereof shall be true at and as
of the Closing Date as though such representations and warranties were made at
and as of such time, except to the extent affected by the transactions herein
contemplated.
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10.2 Performance of Covenants. Buyer shall have performed or
complied with each of its agreements and conditions required by this Agreement
to be performed or complied with by it prior to or at the Closing.
10.3 Delivery of Closing Certificate. Buyer shall have
delivered to Seller a certificate of the executive vice president of Buyer dated
the Closing Date upon which Seller can rely, certifying that the statements made
in Sections 10.1 and 10.2 are true, correct and complete as of the Closing Date.
10.4 Opinion of Counsel. Buyer shall have delivered to Seller
an opinion, dated the Closing Date, of Blass & Driggs, Esqs., Counsel for Buyer,
in the form attached as Exhibit 10.4.
10.5 Legal Matters. No suit, actions, investigation or legal
or administrative proceeding shall have been brought or shall have been
threatened by any person that questions the validity or legality of this
Agreement or the transactions contemplated hereby.
10.6 Authorization Documents. Seller shall have received a
certificate of the Secretary or other officer of the Buyer certifying a copy of
Resolutions of the Board of Directors of Seller authorizing the Buyer's
execution and full performance of Buyer's Transaction Documents and the
incumbency of the officers of the Buyer.
10.7 Other Documents. Buyer shall have furnished Seller
with all documents, certificates and other instruments required to be furnished
to Seller by Buyer pursuant to the terms hereof.
ARTICLE XI: OBLIGATIONS OF PARTIES AFTER CLOSING
------------------------------------------------
11.1 Discharge of Liabilities. Seller shall pay all of its
liabilities and obligations with respect to the Facility that are not expressly
assumed by Buyer at Closing, as and when the same shall become due and payable.
11.2 Indemnification.
(a) The Seller and Shareholders covenant and shall defend and
indemnify Buyer and hold it harmless against and with respect to any and all
damage, loss, liability, deficiency, cost and expense (including without
limitation reasonable attorney's fees) (all of the foregoing hereinafter
collectively referred to as "Loss") resulting from (i) any misrepresentation,
breach of warranty, or failure to fulfill any agreement or covenant on the part
of Seller under this Agreement; (ii) any taxes, interest, penalties and
additions to tax that are required to be paid to the United States Government or
any state or local taxing authority resulting from the operation of the Facility
for any period ending on or before the Closing Date; (iii) if applicable, all
amounts that are due or that may become due to any private third party payors on
account of adjustments to any private third party payor cost reimbursement
claims made with respect to the Facility for any period ending on or before the
Closing Date or any reductions in future rates due to adjustments in Seller's
historical costs by any other private third party payors; (iv) any claim
relating to any liability of the Facility or the Seller that are not expressly
assumed by the Buyer pursuant to the terms of this Agreement ("Unassumed
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Liability"); (v) any liability arising out of any bulk transfer act (provided
that Buyer acknowledges that the Seller has not agreed to undertake any bulk
sales compliance); (vi) any liability arising out of Seller's noncompliance with
COBRA or any like statute; (vii) any liability arising out of any environmental
hazard or condition with respect to the Real Property or to the Facility
existing as of the Closing Date and any law, regulation or decree on action of
any government entity in connection therewith; (viii) any other claims,
liability or cost of any nature whatsoever, known or unknown, whether accrued,
absolute contingent or otherwise, presently existing or arising in the future
which such liability arose out of Seller's conduct prior to Closing; and (ix)
any and all actions, suits, proceedings, demands, assessments, judgments, costs
and legal and other expenses incident to any of the foregoing.
(b) Buyer covenants and shall indemnify Seller
and hold it harmless against and with respect to any and all Loss resulting from
any misrepresentation, breach of warranty, or failure to fulfill any agreement
or covenant on the part of Buyer under this Agreement or Buyer's operation of
the Facility after the Closing Date.
11.3 Records. On the Closing Date Seller shall deliver, or
cause to be delivered, to Buyer all records and files not then in Buyer's
possession relating to the operations of the Facility.
11.4 Restrictions.
(a) From and after the Closing Date, the Seller
shall not disclose, directly or indirectly, to any person outside of Buyer's
employ without the express authorization of the Buyer, any pricing strategies or
records of the Seller, any proprietary data or trade secrets owned by the Seller
or any financial or other information about the Seller not then in the public
domain; provided, however, that the Seller shall be permitted to make such
disclosures as may be required by law or by a court or governmental authority.
(b) The Seller shall not engage or participate
in any effort or act to induce any of the suppliers, associates, employees,
independent contractors, customers, vendors, residents, patients, or families of
residents or patients of the Facility to cease doing business, or their
association or employment, with the Facility.
(c) For a period of five (5) years after the
Closing Date, the Seller shall not, directly or indirectly, for or on behalf of
itself or any other person, firm, entity or other enterprises, be employed by,
be a director or manager of, act as a consultant for, be a partner in, have a
proprietary interest in, give advice to, loan money to or otherwise associate
with, any person, enterprise, partnership, association, corporation, joint
venture or other entity which is directly or indirectly in the business of
owning, operating or managing any entity of any type, licensed or unlicensed,
which is engaged in or provides assisted living care, nursing home care, home
health care, senior housing, adult day care, retirement housing, primary care
clinic services or adult congregate
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living care anywhere within a twenty five (25) mile radius of the Facility;
provided, however, that the foregoing shall not apply to any properties mutually
agreed upon under that certain Development Agreement which grants Buyer a right
of first refusal on Seller's future development projects.
(d) The Seller acknowledges that the
restrictions contained in this Section 10.4 are reasonable and necessary to
protect the legitimate business interests of Buyer and that any violation
thereof by it would result in irreparable harm to Buyer. Accordingly, the Seller
agrees that upon the violation by it of any of the restrictions contained in
this Section 10.4, Buyer shall be entitled to obtain from any court of competent
jurisdiction a preliminary and permanent injunction as well as any other relief
provided at law or equity, under this Agreement or otherwise. In the event any
of the foregoing restrictions are adjudged unreasonable in any proceeding, then
the parties agree that the period of time or the scope of such restrictions (or
both) shall be adjusted in such a manner or for such a time (or both) as is
adjudged to be reasonable.
ARTICLE XII: TERMINATION
12.1 Termination. This Agreement may be terminated at any
time at or prior to the time of Closing by:
(a) The Buyer, if any condition precedent to
Buyer's obligations hereunder, including without limitation those conditions set
forth in Article IX hereof, have not been satisfied by the Closing Date or
pursuant to Section 13.1 if any portion of the Assets is damaged or destroyed as
a result of fire, other casualty or otherwise damaged or destroyed for any
reason whatsoever;
(b) Seller, if any condition precedent to
Seller's obligations hereunder, including without limitation those conditions
set forth in Article X hereof, have not been satisfied by the Closing Date;
(c) the mutual consent of the Buyer and the
Seller.
12.2 Effect of Termination. If a party terminates this
Agreement because one of its conditions precedent has not been fulfilled, or if
this Agreement is terminated by mutual consent, this Agreement shall become null
and void without any liability of any party to the other; provided, however,
that if such termination is by Buyer pursuant to Section 12.1(a) as a result of
a breach by the Seller of any of its representations, warranties or covenants in
this Agreement, or if such termination is by the Seller pursuant to Section
12.1(b) as a result of a breach by the Buyer of any of its representations,
warranties or covenants in this Agreement, nothing herein shall affect the
non-breaching party's right to damages on account of such other party's breach.
Furthermore, nothing in this Section 12.2 shall affect the Buyer's right to
specific performance of the Seller's obligations at Closing hereunder.
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ARTICLE XIII: CASUALTY, RISK OF LOSS
------------------------------------
13.1 Casualty, Risk of Loss. Seller shall bear the risk of all
loss or damage to the Assets from all causes, until the Closing. If at any time
prior to the Closing any portion of the Assets is damaged or destroyed as a
result of fire, casualty or for any reason whatsoever, Seller shall immediately
give notice thereof to Buyer. Buyer shall have the right, in its sole and
absolute discretion, within ten (10) days of receipt of such notice, to (i)
elect not to proceed with the Closing and terminate this Agreement, or (ii)
proceed to Closing and consummate the transactions contemplated hereby and
receive any and all insurance proceeds received or receivable by Seller on
account of any such casualty.
ARTICLE XIV: MISCELLANEOUS PROVISIONS
-------------------------------------
14.1 Survival of Representations and Warranties. All
representations, warranties, covenants and agreements made by each party in this
Agreement or in any Schedule, certificate, document or list delivered by any
such party pursuant hereto shall survive the Closing Date. Notwithstanding any
investigation conducted before or after the Closing or the decision of any party
to consummate the Closing, each party hereto shall be entitled to rely and is
hereby declared to have reasonably relied upon the representations and
warranties of the other party.
14.2 Public Announcements. Any general public announcements or
similar media publicity with respect to this Agreement or the transactions
contemplated herein shall be at such time and in such manner as Buyer shall
determine; provided that nothing herein shall prevent either party, upon notice
to the other, from making such written notices as such party's counsel may
consider advisable in order to satisfy the party's legal and contractual
obligations in such regard.
14.3 Costs and Expenses. Except as expressly otherwise
provided in this Agreement, each party hereto shall bear its own costs and
expenses in connection with this Agreement and the transactions contemplated
hereby.
14.4 Performance. In the event of a breach by any party of its
obligations hereunder, the other party shall have the right, in addition to any
other remedies which may be available, to obtain specific performance of the
terms of this Agreement, and the breaching party hereby waives the defense that
there may be an adequate remedy at law. Should any party default in its
performance, or other remedy, the prevailing party shall be entitled to its
reasonable attorneys' fees.
14.5 Benefit and Assignment. This Agreement binds and inures
to the benefit of each party hereto and its successors and proper assigns. The
Buyer may not assign its interest under this Agreement to any other person on
entity without the prior written consent of the Seller; provided, however, that
Buyer may assign its rights, duties and obligations hereunder to one or more
subsidiaries or affiliates of Buyer, or to one or more limited or general
partnerships of which either Buyer or one of its subsidiaries is a general
partner, or to a Real Estate Investment Trust or as part of any Sale Leaseback,
Asset Backed Security Financing, 501(c)(3) arrangement, Commercial Paper
arrangement or as part of any other financing vehicle, without such consent; and
further provided that
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in the instance of such assignment Buyer shall remain responsible for
consummating the Closing and performing all of its other obligations as provided
in this Agreement.
14.6 Effect and Construction of this Agreement. This Agreement
and the Exhibits and Schedules hereto embody the entire agreement and
understanding of the parties and supersede any and all prior agreements,
arrangements and understandings relating to matters provided for herein,
including without limitations the Letter Agreement. The captions used herein are
for convenience only and shall not control or affect the meaning or construction
of the provisions of this Agreement. This Agreement may be executed in one or
more counterparts, and all such counterparts shall constitute one and the same
instrument.
14.7 Cooperation - Further Assistance. Subject to the terms
and conditions herein provided, each of the parties hereto shall use its best
efforts to take, or cause to be taken, such action, to execute and deliver, or
cause to be executed and delivered, such additional documents and instruments,
and to do, or cause to be done, all things necessary, proper and advisable under
the provisions of this Agreement and under applicable law to consummate and make
effective the transactions contemplated by this Agreement.
14.8 Notices. All notices required or permitted hereunder
shall be in writing and shall be deemed to be properly given when personally
delivered to the party entitled to receive the notice or when sent by certified
or registered mail, postage prepaid, properly addressed to the party entitled to
receive such notice at the address stated below:
If to the Buyer: Integrated Living Communities at Cabot Pointe, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attention: Ed Komp
with a copies to: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attention: Marshall A. Elkins, Esq.
Blass & Driggs
461 Fifth Avenue
New York, NY 10017
Attention: Michael S. Blass, Esq.
If to the Seller: Cabot Pointe I, Inc.
406 Sarasota Quay
Sarasota, FL 34236
Attention: William D. Niven
With copies to: Edwin L. Ford
Ruden McClosky Smith Schuster & Russell, P.A.
1549 Ringling Boulevard
Sarasota, FL 34236
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14.9 Waiver, Discharge, etc. This Agreement shall not be
released, discharged, abandoned, changed or modified in any manner, except by an
instrument in writing executed by or on behalf of each of the parties hereto by
their duly authorized officer or representative. The failure of any party to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of any party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to be a waiver of any other or subsequent breach.
14.10 Rights of Persons Not Parties. Nothing contained in this
Agreement shall be deemed to create rights in persons not parties hereto, other
than the successors and proper assigns of the parties hereto.
14.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, disregarding any
rules relating to the choice or conflict of laws.
14.12 Severability. Any provision, or distinguishable portion
of any provision, of the Agreement which is determined in any judicial or
administrative proceeding to be prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. It
is the intention of the parties that if any provision of Section 11.6 shall be
determined to be overly broad in any respect, then it should be enforceable to
the maximum extent permissible under the law. To the extent permitted by
applicable law, the parties waive any provision of law which renders a provision
hereof prohibited or unenforceable in any respect.
[SIGNATURES ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, each of the parties hereto and in the
capacity indicated below has executed this Agreement as of the day and year
first above written.
BUYER: SELLER:
INTEGRATED LIVING COMMUNITIES CABOT POINTE I, INC.
AT CABOT POINTE, INC.
By: /s/ Edward J. Komp By: /s/ William D. Niven
----------------------------------- -------------------------------
William D. Niven,
Executive Vice President
Its: President & CEO
----------------------------------
SHAREHOLDERS:
------------------
Dr. Thomas Reutter
------------------
Dr. James Schutze
------------------
William Niven
------------------
Eric Carder
------------------
Mark Nardone
29
NUMBER [LOGO] Integrated Living SHARES
ILC Communities, Inc.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
This Certifies that
is the owner of
CERTIFICATE OF STOCK
fully paid and non-assessable shares of Common Stock, par value $.01
per share of Integrated Living Communities, Inc. transferable on the books of
the Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this certificate property endorsed.
This certificate not valid until countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized of Officers.
Dated:
Edward J. Komp Integrated Living Communites, Inc. Kyda A. Johnson
President CORPORATE SEAL Secretary
1995
Delaware
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests a statement of the designations, powers, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof of the Corporation and the qualifications, limitations or restrictions
of such preferences and/or rights. Such request may be made to the Corporation
or the Transfer Agent.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
----- -------
(Cust) (Minor)
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act
in common -----------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------
| |
| |
- --------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OR ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock representated by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated__________________________________
_____________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERA-
TION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
______________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLON PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
DECLARATION OF CONDOMINIUM
-of-
WEST PALM BEACH, A CONDOMINIUM
Prepared by the Office of:
HOLLAND & KNIGHT
200 South Orange Avenue
Suite 2600
Orlando, Florida 32801 June 3, 1996
<PAGE>
INDEX
TO
DECLARATION OF CONDOMINIUM
WEST PALM BEACH, A CONDOMINIUM
------------------------------
<TABLE>
<CAPTION>
ARTICLE Page
<S> <C>
INDEX........................................................................................................... i
I. DEFINITIONS............................................................................................ 1
II. CONDOMINIUM NAME, CONDOMINIUM PARCELS, APPURTENANCES,
POSSESSION AND ENJOYMENT............................................................................... 3
III. RESTRAINT UPON SEPARATION AND PARTITION OF COMMON ELEMENTS............................................. 4
IV. DESCRIPTION OF PROPERTY SUBMITTED TO CONDOMINIUM OWNERSHIP............................................. 4
V. COMMON ELEMENTS........................................................................................ 4
VI. LIMITED COMMON ELEMENTS................................................................................ 5
VII. ALTERATIONS OF AND IMPROVEMENTS TO UNITS AND COMMON
ELEMENTS............................................................................................... 5
IX. THE ASSOCIATION, ITS POWERS AND RESPONSIBILITIES....................................................... 7
X. BY-LAWS................................................................................................ 8
XI. MAINTENANCE............................................................................................ 9
XII. COMMON EXPENSES AND COMMON SURPLUS..................................................................... 9
XIII. ASSESSMENTS: LIABILITY, LIENS, PRIORITY, INTEREST AND COLLECTIONS..................................... 10
XIV. TERMINATION OF CONDOMINIUM............................................................................. 11
XV. EQUITABLE RELIEF....................................................................................... 11
XVI. LIMITATION OF LIABILITY................................................................................ 12
XVII. LIENS.................................................................................................. 12
XVIII. EASEMENTS.............................................................................................. 12
XIX. USE AND TRANSFER RESTRICTIONS.......................................................................... 13
XX. INSURANCE.............................................................................................. 15
i
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XXI. RECONSTRUCTION OR REPAIR AFTER CASUALTY................................................................ 20
XXII. EMINENT DOMAIN OR CONDEMNATION PROCEEDING.............................................................. 21
XXIII. LIABILITY - GENERALLY.................................................................................. 21
XXIV. GENERAL PROVISIONS..................................................................................... 22
</TABLE>
ii
<PAGE>
EXHIBITS TO DECLARATION
-----------------------
A. Legal Description
B. Percentage Share of Common Elements, Common Expenses and Common Surplus
C. Plot Plan and Survey
D. Articles of Incorporation
E. By-Laws
F Services Agreement
iii
<PAGE>
DECLARATION OF CONDOMINIUM
-of-
WEST PALM BEACH, A CONDOMINIUM
------------------------------
CENTRAL PARK LODGES OF WEST PALM BEACH, INC, a Florida corporation,
being the owner of the fee simple title to the property described in Exhibit "A"
attached hereto and made a part hereof, and INTEGRATED LIVING COMMUNITIES OF
WEST PALM BEACH, INC., a Delaware corporation, (collectively referred to as
"Developer"), for themselves, their successors, grantees and assigns, hereby
submit said property, improvements thereon and appurtenances thereto to
condominium ownership pursuant to Chapter 718 of the Florida Statutes
("Condominium Act"), as enacted upon date of recordation hereof. It is the
intent of Developer that the Condominium be a Commercial Condominium as defined
in Condominium Act.
All the restrictions, reservations, covenants, conditions, easements
and limitations of record contained herein shall constitute covenants running
with the land or equitable servitudes upon the land, as the case may be, shall
run perpetually unless terminated as provided herein, and shall be binding upon
all Unit Owners as hereinafter defined. In consideration of receiving and by
acceptance of a grant, devise or mortgage, all grantees, devisees or mortgagees,
their heirs, personal representatives, successors and assigns, and all parties
claiming by, through or under such persons, agree to be bound by the provisions
hereof, the Articles of Incorporation and the By-Laws of the Association
hereinafter defined. Both the benefits provided and the burdens imposed shall
run with each Unit and the interests in Common Elements as defined herein.
I. DEFINITIONS.
As used in this Declaration, in the Articles of Incorporation and in
the By-Laws attached hereto, and in all amendments thereto, unless the context
requires otherwise:
A. "Articles" and "By-Laws" means the Articles of Incorporation and the
By-Laws of the Association as they exist from time to time.
B. "Assessment" means a share of the funds required for the payment of
Common Expenses which from time to time are assessed against each Unit Owner.
C. "Association" means West Palm Beach Condominium Association, Inc.,
the nonprofit Florida corporation responsible for the operation of the
Condominium.
D. "Association Property" means that property, real and personal, which
is owned or leased by, or is dedicated by a recorded plat to the Association for
the use and benefit of its members and such other persons to whom the
Association or Developer may grant use rights.
E. "Board of Directors" means the board of directors or other
representative body responsible for the administration of the Association.
F. "Common Elements" means that portion of the Condominium Property not
included in the Units. Common Elements shall also include all wiring and other
equipment regarding cable television.
G. "Common Expenses" means the expenses of administration, maintenance,
operation, repair and replacement of the Condominium Property to the extent
herein provided, as well as any Association Property and any other properties
owned by the Association, other expenses declared by the Association or this
Declaration to be
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Common Expenses, and any other valid expenses or debts of the Condominium as a
whole or the Association which are assessed against the Unit Owners.
H. "Common Surplus" means the excess of all receipts of the
Association, including but not limited to Assessments, rents, profits and
revenues on account of the Common Elements and Association Property, over the
amount of the Common Expenses.
I. "Condominium Building" means any structure which comprises that part
of the Condominium Property within which the Units are located.
J. "Condominium Parcel" means a Unit together with the undivided share
in the Common Elements which is appurtenant to the Unit.
K. "Condominium Property" means and includes all lands that are
subjected hereunder to condominium ownership, whether or not contiguous, and all
improvements thereon and all easements and rights appurtenant thereto intended
for use in connection with the Condominium.
L. "County" means Palm Beach County, Florida.
M. "Declaration" or "Declaration of Condominium" means this instrument
as it may from time to time be amended.
N. "Developer" means Central Park Lodges of West Palm Beach, Inc., a
Florida corporation and Integrated Living Communities of West Palm Beach, Inc.,
a Delaware corporation, and their successors and assigns.
O. "Limited Common Elements" means and includes those Common Elements
which are reserved for the use of a certain Unit or Units to the exclusion of
other Units.
P. "Mortgagee" means a bank, the Developer, savings and loan
association, insurance company, mortgage company, real estate investment trust,
recognized institutional type lender or its loan correspondent, or agency of the
United States Government, which owns, holds or insures a mortgage encumbering a
Condominium Parcel.
Q. "Operation" or "Operation of the Condominium" means and includes the
operation, administration and management of the Condominium Property.
R. "Unit" means a part of the Condominium Property which is to be
subject to private ownership, as designated in this Declaration.
S. "Unit Owner" or "Owner of a Unit" or "Owner" means the owner of a
Condominium Parcel as shown by the real estate records in the office of the
Clerk of Palm Beach County, Florida whether such Owner be the Developer, one or
more persons, firms, associations, corporations or other legal entities. "Owner"
shall not mean or refer to the holder of a mortgage or security deed, its
successors or assigns, unless and until such holder has acquired title pursuant
to foreclosure or a proceeding or deed in lieu of foreclosure; nor shall the
term "Owner" mean or refer to any lessee or tenant of an Owner.
T. "Utility Service" as used in the Condominium Act, construed with
reference to this Condominium, and as used in this Declaration, the Articles and
the By-Laws shall include, but not be limited to, electric power, gas, water,
trash and sewage disposal, telephone, and cable television.
U. "The Condominium" or "this Condominium" means West Palm Beach, a
Condominium.
2
<PAGE>
II. CONDOMINIUM NAME, CONDOMINIUM PARCELS, APPURTENANCES, POSSESSION AND
ENJOYMENT.
A. The name of this Condominium is WEST PALM BEACH, A CONDOMINIUM.
B. There shall pass with each Unit as appurtenances thereto:
(1) An undivided share in the Common Elements, Common Expenses and
Common Surplus, as more fully described in Exhibit "B"
attached hereto and made a part hereof.
(2) An exclusive easement for the use of the air space occupied by
the Unit as it exists at any particular time and as the Unit
may lawfully be altered or reconstructed from time to time,
which easement shall be terminated automatically in any air
space which is vacated from time to time.
(3) Membership of the Unit Owner in the Association, and the right
to use the Common Elements and Association Property and to
access properties owned by the Association, subject to the
rules and regulations as adopted from time to time by the
Association.
(4) A perpetual, non-exclusive easement for ingress and egress by
the Owners, their agents and invitees over streets, walks, and
other rights-of-way serving the Units of the Condominium,
necessary to provide reasonable access to the public ways.
(5) An exclusive easement for the use of such Limited Common
Elements as may be designated in this Declaration or in the
deed conveying the Unit.
C. Each Unit Owner is entitled to the exclusive possession of its Unit
subject to the provisions of this Declaration. Each Owner shall be entitled to
the use of the Common Elements and Association Property, in accordance with the
provisions of this Declaration and the purposes for which they are intended, but
no such use shall hinder or encroach upon the lawful rights of other Unit
Owners. There shall be a joint use of the Common Elements and Association
Property, and a mutual easement for that purpose is hereby created.
D. Each Unit is identified by a specific numerical or
numerical/alphabetical designation as set forth in Exhibit "C" attached hereto.
In horizontal dimension, each Unit consists of the area bounded by the
unfinished interior surfaces of the perimeter walls of each such Unit. In
vertical dimension, each Unit consists of the space between the top of the
unfinished concrete floor and the bottom of the unfinished ceiling of each such
Unit. Provided, however, with respect to those Units which include first and
second floor improvements, one on top of the other, the portion of the Common
Elements which lie between the bottom and top floors of such Unit shall be a
Limited Common Element of the Unit. Each Unit Owner shall not own the
undecorated or unfinished surfaces of the perimeter walls, floors, and ceilings
surrounding his Unit, nor shall he own pipes, wires, conduits or other utility
lines running through his Unit which are utilized for or serve more than one
Unit, which items are hereby made a part of the Common Elements. Said Owner,
however, shall own the walls and partitions which are contained within his Unit
and inner decorated or finished surfaces of the perimeter walls, floors and
ceilings, including plaster, paint and wallpaper.
E. All air conditioning equipment, water heaters, heat pumps, elevators
and other mechanical equipment serving only one Unit shall be deemed to be a
part of the Unit.
F. "Time share estates" may not be created in any Unit by any person or
entity. Provided, however, the Units may be owned by a partnership or other
joint ownership arrangement and all partners or joint owners shall have the
right to use the Unit on such basis as the partners or joint owners may agree.
III. RESTRAINT UPON SEPARATION AND PARTITION OF COMMON ELEMENTS.
3
<PAGE>
A. The undivided share in the Common Elements which is appurtenant to a
Unit shall not be separated therefrom and shall pass with the title to the Unit,
whether or not separately described.
B. A share in the Common Elements appurtenant to a Unit cannot be
conveyed or encumbered except together with the Unit.
C. The shares in the Common Elements appurtenant to Units shall remain
undivided, and no action for partition of the Common Elements shall lie.
IV. DESCRIPTION OF PROPERTY SUBMITTED TO CONDOMINIUM OWNERSHIP.
A. The legal description of the Condominium hereby submitted to
condominium ownership is set forth in Exhibit "A".
B. Exhibit "C" attached hereto and made a part hereof includes a survey
of the Condominium, and a graphic description of the Condominium Building in
which Units are located in the Condominium, and a plot plan thereof.
C. The identification, location, dimensions and a graphic depiction of
each Unit and the Common Elements of the Condominium Property appear on Exhibit
"C", attached hereto and made a part hereof. Together with this Declaration,
Exhibits "A", "B" and "C" include sufficient detail to identify the Common
Elements and each Unit on the Condominium and provide accurate representations
of their locations and dimensions.
V. COMMON ELEMENTS.
A. Common Elements include the following:
(1) The land on which the improvements are located and any other
land included in the Condominium Property, whether or not
contiguous.
(2) Any portion of the Condominium Property, including all
improvements thereto, which are not included within the Units,
including, without limitation, all landscaping, walks, drives,
parking spaces constructed thereon.
(3) Easements through Units for conduits, ducts, pipes, plumbing,
wiring, cable television services and other facilities for the
furnishing of Utility Services to the Units and the Common
Elements.
(4) Easements of support which are hereby created in every portion
of a Unit which contributes to the support of a Condominium
Building.
(5) The property and installations required for the furnishing of
Utility Services and other services to more than one Unit, the
Common Elements or a Unit other than the Unit containing the
installation.
(6) Fixtures owned or held for the common use, benefit and
enjoyment of all owners of Units in the Condominium.
(7) Easements for ingress and egress serving the Condominium
Property.
(8) Riparian and littoral rights appertaining to the Condominium
Property.
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<PAGE>
(9) All glass and other transparent or translucent material,
insect screens in windows and doors, door frames and jambs,
and the material covering other openings in the exterior or
interior walls of Units, where applicable.
VI. LIMITED COMMON ELEMENTS.
There are Limited Common Elements appurtenant to Units in this
Condominium, as reflected by the plot plan and survey attached as Exhibit "C",
which shall include, but not be limited to, pool areas, awnings and fenced-in
areas which are specifically designated and delineated and accessible only from
the Unit to which they are appurtenant. These Limited Common Elements are
reserved for the use of the Unit to which they are appurtenant or assigned to
the exclusion of other Units, and there shall pass with a Unit as an
appurtenance thereto the exclusive right to use the Limited Common Elements so
appurtenant or assigned.
VII. ALTERATIONS OF AND IMPROVEMENTS TO UNITS AND COMMON ELEMENTS.
A. Except in accordance with this Article, no Unit Owner shall make any
addition, alteration or improvement in or to his Unit, the Common Elements or
Limited Common Elements to the extent that any such addition, alteration or
improvement (i) is visible outside of the Units or (ii) affects any
load-bearing, mechanical, electrical, plumbing or roof portions of a Condominium
Building that contains more than one Unit. Any addition, alteration or
improvement as contemplated by the preceding sentence is referred to as a
Restricted Improvement. No Restricted Improvement may be erected, installed,
maintained or removed on the Condominium Property, until an application for the
Restricted Improvement setting forth the design, construction, specifications
and a plan showing the location of the structure has been approved in writing by
the Board of Directors (or an architectural review committee appointed by it) as
to quality, design and materials, harmony with existing structures, and location
with respect to topography and finished grade elevation. Such approval of the
Board of Directors (or its designee) shall not be required in the event that the
Board of Directors (or its designee) fails to respond to the application within
seven (7) business days after receipt of a written request for same. Nothing
contained in this paragraph shall be construed to lessen the obligation of any
Owner to make prompt application for and obtain all necessary governmental
permits and other approvals with respect to any such structure. In no event
shall a Unit Owner make any alterations in the portions of the improvements of
the Condominium which are to be maintained by the Association, remove any
portion thereof, make any additions thereto, do any work which would jeopardize
the safety or soundness of the Condominium Building containing his Unit, or
impair any easement. Notwithstanding the foregoing, the Board of Directors (or
its designee) shall approve the application as it relates to improvements
required by law, although any aspect of the improvements which are discretionary
including but not limited to construction methods, materials and/or aesthetic
considerations shall be subject to reasonable approval of the Board of Directors
(or its designee). Further, the seven (7) business day prior notice requirement
described above shall be shortened and/or eliminated as needed to accommodate
emergency situations as determined in good faith by the Unit Owner desiring to
make the addition, alteration or improvement; provided, however, where the prior
notice requirement is eliminated entirely, such Unit Owner shall nonetheless
submit the required application to the Board of Directors (or its designee) as
soon as reasonably practicable.
B. A Unit Owner making or causing to be made any such additions,
alterations or improvements agrees, and shall be deemed to have agreed, for such
Owner, and his heirs, personal representatives, successors and assigns, as
appropriate, to hold the Association, any manager of the Condominium, together
with all their officers, directors, and partners, and all other Unit Owners
harmless from any liability or damage to the Condominium Property and expenses
arising therefrom, and shall be solely responsible for the maintenance, repair
and insurance thereof from and after the date of installation or construction
thereof, as may be required by the Association.
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VIII. AMENDMENT OF DECLARATION.
A. This Declaration may be amended at any regular or special meeting of
Unit Owners called or convened in accordance with the By-Laws by the affirmative
vote of Owners holding a majority of the total votes. All amendments shall be
evidenced by a certificate executed as required by the Condominium Act and
recorded among the public records of the County, and shall be effective upon
recording. Notwithstanding the foregoing, no such amendment shall be effective
unless approved by at least the majority of the Mortgagees (based upon one vote
for each first mortgage owned).
B. Invalidation of any part of this Declaration or of any provision
contained in any plat of the Condominium Property or in a conveyance of a Unit
in the Condominium by judgment, court order or law shall not affect any of the
other provisions hereof, which shall remain in full force and effect.
IX. THE ASSOCIATION, ITS POWERS AND RESPONSIBILITIES.
A. Subject to rights vested herein to the Unit Owners, the operation of
the Condominium shall be vested in the Association; provided, however, that the
Association may, to the extent permitted by the Condominium Act, by contract,
delegate its maintenance, management and operational duties and obligations. The
Association has been organized as a nonprofit Florida corporation and a copy of
its Articles of Incorporation is attached hereto and made a part hereof as
Exhibit "D".
B. No Unit Owner, except a duly elected officer of the Association,
shall have any authority to act for the Association.
C. All Unit Owners shall automatically be members of the Association
upon delivery of a deed of conveyance of fee simple title to a Unit and a Unit
Owner's membership shall terminate when he or she no longer owns his or her
Unit.
D. Unit Owners shall be entitled to one (1) vote for each Unit owned in
accordance with the voting privileges set forth in the Articles and By-Laws.
Multiple owners of a Unit shall collectively be entitled to one (1) vote for
said Unit in accordance with voting privileges set forth in the Articles and
By-Laws. There shall be no cumulative voting.
E. The powers and duties of the Association shall include those set
forth in the Articles, the By-Laws, the Condominium Act, and this Declaration
and shall include, but not be limited to, the following:
(1) The irrevocable right of access to each Unit at reasonable
hours as may be necessary for the maintenance, repair or
replacement of any Common Elements therein or accessible
therefrom or another Unit, or at any hour for making emergency
repairs necessary to prevent damage to the Common Elements or
to another Unit.
(2) The power to levy and collect Assessments from Unit Owners and
to maintain, repair and replace the Common Elements where such
maintenance, repair and/or replacement is not reserved unto
the Unit Owners.
(3) The keeping of accounting records in accordance with good
accounting practices and the Condominium Act, which records
shall be open to inspection by Unit Owners or their authorized
representatives at reasonable times, and written summaries of
which shall be supplied at least annually to Unit Owners or
their authorized representatives.
(4) The power to enter into contracts with others for the
maintenance, management, operation, repair and servicing of
the Condominium Property for which the Association is
responsible. The service
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and maintenance contracts referred to herein may delegate the
Association's duty to maintain, preserve, repair and replace
the Common Elements and other property owned by the
Association, but shall not relieve each Unit Owner from his
personal responsibility to maintain and preserve the interior
surfaces of his Unit and to paint, clean, decorate, maintain
and repair said Unit.
(6) The power to purchase Units in the Condominium and to acquire,
hold, lease, mortgage and convey the same.
(7) The power to obtain and maintain adequate insurance to protect
the Association and the Common Elements and Association
Property.
(8) The power to acquire title to property or otherwise hold,
convey, lease and mortgage Association Property for the use
and benefit of the Unit Owners.
(9) The power to adopt and amend reasonable rules and regulations
governing use of the Common Elements and Association Property.
F. Except as provided by statute in case of condemnation or substantial
loss to the Units or Common Elements, unless at least the majority of the
Mortgagees (based upon one vote for each first mortgage owned), and the Owners
holding a majority of the votes have given their prior written approval, such
approval not to be unreasonably withheld, the Association shall not be entitled
to:
(1) By act or omission seek to abandon or terminate the
Condominium;
(2) Change the pro rata interest or obligations of any individual
Unit for the purpose of (i) levying Assessments or charges or
allocating distributions of hazard insurance proceeds or
condemnation awards, or (ii) determining the pro rata share of
ownership of each Unit in the Common Elements;
(3) Partition or subdivide any Unit;
(4) By act or omission, seek to abandon, partition, subdivide,
encumber, sell or transfer the Common Elements or Association
Property; provided that the granting of easements for
Utilities or for other purposes consistent with the intended
use of the Common Elements and Association Property by the
Owners shall not be deemed a transfer within the meaning of
this clause; or
(5) Use hazard insurance proceeds for losses to any portion of the
Condominium for other than the repair, replacement or
reconstruction of such portion.
X. BY-LAWS.
The administration of the Association and the operation of the
Condominium Property shall be governed by the By-Laws of the Association, a copy
of which is attached hereto and made a part hereof as Exhibit "E". No
modification of or amendment to the By-Laws shall be deemed valid unless duly
adopted as provided in the By-Laws and set forth in or annexed to a duly
recorded amendment to this Declaration executed in accordance with the
provisions of the Condominium Act. No amendment to said By-Laws shall be adopted
which would affect or impair the validity or priority of any mortgage covering
any Condominium Parcel.
XI. MAINTENANCE.
A. Each Unit, and the furniture, furnishings, fixtures, equipment and
appliances comprising a part thereof, located therein, or exclusively serving
the same shall be maintained, kept in good repair and replaced by and
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at the expense of the Owner(s) thereof. All maintenance, repairs or replacements
for which Unit Owners are responsible and obligated to perform shall be
performed promptly as the need arises. Each Unit Owner shall provide for pest
control within his or her Unit. Provided, however, the Board of Directors may
determine that it is in the best interest of the Condominium to provide for pest
control on a building-by-building basis and in such event may so provide.
B. The Association shall be responsible for (i) maintaining, repairing
and replacing, as needed, all portions of the Common Elements and Association
Property other than the Condominium Buildings and (ii) performing maintenance,
repairs and replacements, as needed, of the Condominium Buildings where such
maintenance, repairs and replacement primarily benefit both Unit Owners. The
Association shall, at the expense of all Unit Owners, repair all incidental
damage to Units resulting from the Association's maintenance, repairs or
replacement of or to Common Elements and Association Property. The Association's
expenses of maintenance, repairs and replacement with respect to a Condominium
Building shall be assessed against each Unit Owner in accordance with the
percentages of benefit realized by each Unit on account of same, as reasonably
determined by the Association. The Association's expenses of maintenance,
repairs and replacement with respect to the Common Elements other than
Condominium Buildings shall be assessed against each Unit Owner in accordance
with the ratio between the square footage of its Unit and the total square
footage of both Units.
C. Where any maintenance, repair and/or replacement of a Condominium
Building is needed, and such maintenance, repairs and/or replacement will
primarily benefit only one Unit, the Owner of that Unit will be responsible for
performing and paying for such maintenance, repair and/or replacement.
Notwithstanding the preceding sentence, if such maintenance, repairs and/or
replacement will confer any benefit on the Owner of the other Unit, the
Association shall assess the other Unit Owner for the value of such benefit as
determined by the Association in its reasonable discretion and remit such
assessment to the Unit Owner who performed such maintenance, repair and/or
replacement.
D. In the event a Unit Owner fails to maintain his Unit and Common
Elements or Limited Common Elements as required herein, or makes any alteration
or additions without the required consent, or otherwise violates or threatens to
violate the provisions of this Declaration relevant to maintenance, alteration
and repair, the Association shall have the right to perform such maintenance,
remove any unauthorized addition or alteration, and restore the property to good
repair and condition and charge the Unit Owner therefor.
E. All maintenance, repairs and/or replacement by Unit Owners shall be
subject to the provisions of Article VII above regarding alterations of and
improvements to Units and Common Elements.
XII. COMMON EXPENSES AND COMMON SURPLUS.
A. Common Expenses shall include the Association's expenses of the
operation, maintenance, repair or replacement of the Common Elements and
Association Property, costs of carrying out the powers and duties of the
Association, costs of maintaining any facilities and property owned by the
Association, and any other expense designated as Common Expenses by the
Condominium Act, this Declaration or the By-Laws. The cost of a master antenna
television system or duly franchised cable television service obtained pursuant
to a bulk contract shall be deemed a Common Expense if so approved by the Board
of Directors. Common Expenses, to the extent so approved by the Board of
Directors, will also include reasonable transportation services, insurance for
directors and officers, road maintenance and operation expenses and restricted
access or roving patrol services, all of which are reasonably related to the
general benefit of the Unit Owners, even if such expenses do not attach to the
Common Elements or Condominium Property.
B. Common Expenses shall be assessed against Unit Owners in accordance
with the fraction set forth for such Unit in Exhibit "B" attached hereto and
made a part hereof.
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C. The Common Surplus, if any, shall be owned by Unit Owners in a
proportion equal to those proportions of ownership in the Common Elements as
provided in this Declaration.
XIII. ASSESSMENTS: LIABILITY, LIENS, PRIORITY, INTEREST AND COLLECTIONS.
A. The Association, through its Board of Directors, shall have the
power to determine and fix the sums necessary to provide for the Common
Expenses, including the expense allocable to services being rendered by a
management company with whom the Association may contract. The annual Assessment
shall initially be payable monthly in advance; however, the Board of Directors
shall have the power to establish other collection procedures. The Board of
Directors may include sums to establish reasonable reserves against future
contingencies in each annual Assessment, which reserves may be waived from time
to time by the required percentage of votes of the Owners.
B. A Unit Owner, regardless of the manner in which he acquired title to
his Unit including, without limitation, a purchaser at a judicial sale, shall be
liable for all Assessments while he is the Owner of a Unit. A grantee of a Unit
shall be jointly and severally liable with the grantor for all unpaid
Assessments against the latter for his share of the Common Expenses up to the
time of the conveyance, except that the liability for prior Assessments of first
Mortgagees acquiring title through foreclosure or deed in lieu of foreclosure
shall be limited to the lesser of: (i) the Unit's unpaid Common Expenses and
regular periodic assessments which accrued or came due during the six (6) months
immediately preceding the acquisition of title and for which payment in full has
not been received by the Association, or (ii) one percent (1%) of the original
mortgage debt. The liability for Assessments may not be avoided by waiver of the
use or enjoyment of any Common Elements, services or recreation facilities, or
by abandonment of the Unit against which the Assessment was made. The
Association may charge an administrative late fee, in addition to interest, on
any late Assessment payments not to exceed the maximum amount permitted under
the Condominium Act.
C. Assessments and installments thereof not paid when due shall bear
interest from the due date until paid at the maximum rate allowed under Florida
law. The Association may charge, in addition to the interest, an administrative
late charge for Assessments not paid when due in an amount established by the
Board of Directors from time to time, but not to exceed the greater of
Twenty-Five Dollars ($25.00) or five percent (5%) of each installment. If the
delinquent installment(s) of Assessments and any charges thereon are not paid in
full when due, the Association at its option may, in accordance with the
requirements of the Condominium Act, declare all of the unpaid balance of the
annual Assessment to be immediately due and payable without further demand and
may enforce the collection thereof and all charges thereon in the manner
authorized by law and this Declaration.
Any payment received by the Association shall be applied first to any
interest accrued by the Association, then to any administrative late fee, then
to any costs and reasonable attorney's fees incurred in collection, and then to
the delinquent Assessment. The foregoing shall be applicable notwithstanding any
restrictive endorsement, designation or instruction in or accompanying by the
payment.
D. The Association shall have a lien upon each Condominium Parcel to
secure the personal obligation of each Unit Owner thereof for any unpaid
Assessment and interest thereon. Such lien shall also secure reasonable
attorney's fees incurred by the Association incident to the collection of such
Assessment or enforcement of such lien. The lien shall be evidenced by a claim
recorded among the public records of Palm Beach County, Florida in the manner
provided by the Condominium Act. As to other than first mortgages of record, the
lien shall relate back to the recording of the original Declaration of
Condominium creating the Unit. As to first mortgages of record, the lien shall
be effective from and as of the time of such recording. The Board of Directors
may take such action as it deems necessary to collect Assessments by either an
in personam action or lien foreclosure, or both, and may settle and compromise
the same if in the best interest of the Association. Said liens shall have the
priorities established by the Condominium Act.
E. Liens for Assessments may be foreclosed by suit brought in the name
of the Association in like manner as a foreclosure of a mortgage on real
property. In any such foreclosure, the court, in its discretion, may
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require the Unit Owner to pay a reasonable rental for the Condominium Parcel and
the court may appoint a receiver to collect the Assessments which are the
subject of said proceeding. The Association may bid for the Condominium Parcel
at foreclosure sale and apply as a cash credit against its bid all sums due the
Association secured by the lien being enforced, and the Association may acquire
and hold, lease, mortgage and convey any Condominium Parcel so acquired.
F. Any unpaid share of Common Expenses or Assessments for which a first
mortgage Mortgagee is relieved from liability under the provisions of this
Declaration shall be deemed to be a Common Expense, collectible from all Unit
Owners, including the acquirer of the Condominium Parcel, his successors and
assigns. A first mortgage Mortgagee may not, during the period of its ownership
of such Parcel, whether or not such Parcel is unoccupied, be excused from the
payment of some or all of the Common Expenses coming due during the period of
such ownership.
XIV. TERMINATION OF CONDOMINIUM.
A. If all Unit Owners and Mortgagees of Condominium Parcels execute and
duly record an instrument terminating the Condominium Property, or if "major
damage" occurs as defined hereinafter, the Condominium Property shall be removed
from the provisions of the Condominium Act and thereafter owned in common by the
Unit Owners. The undivided interest in the Property owned in common by each Unit
Owner shall then be the fractional share of the undivided interest previously
owned by such Owner in the Common Elements, and any liens which encumber any
Condominium Parcel shall be transferred to said undivided interest of the Unit
Owner in the Property.
B. If the Owners of at least eighty five percent (85%) of the Common
Elements elect to terminate, they shall have the option to buy the Units of the
other Unit Owners for a period of sixty (60) days from the date of the meeting
wherein the election to terminate was taken. The purchase price shall be the
fair market value of the Units as of the date of said meeting as determined by
arbitration under the rules of the American Arbitration Association. The price
shall be paid in cash within thirty (30) days of the determination of the same.
Notwithstanding the foregoing, no termination shall be effective unless approved
by at least the majority of the Mortgagees (based upon one vote for each first
mortgage owned).
XV. EQUITABLE RELIEF.
In the event of "major damage" to or destruction of all or a
substantial part of the Condominium Property and if the Property is not
repaired, reconstructed or rebuilt within a reasonable period of time, any Unit
Owner shall have the right to petition a court of competent jurisdiction for
equitable relief which may, but need not, include termination of the Condominium
and partition.
XVI. LIMITATION OF LIABILITY.
A. The liability of each Unit Owner for Common Expenses shall be
limited to the amounts assessed against him from time to time in accordance with
the Condominium Act, this Declaration, the Articles and the ByLaws.
B. A Unit Owner may be personally liable for any damages caused by the
Association in connection with the use of the Common Elements, but only to the
extent of his or her pro rata share of that liability in the same fractional
share as his interest in the Common Elements, and in no event shall said
liability exceed the value of his Unit. Each Unit Owner shall be liable for
injuries or damages resulting from an accident in his own Unit to the same
extent and degree that the owner of a house or any other property owner would be
liable for such an occurrence.
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C. In any legal action in which the Association may be exposed to
liability in excess of insurance coverage protecting it and the Unit Owners, the
Association shall give notice of the exposure within a reasonable time to all
Unit Owners, and they shall have a right to intervene in and defend any action
arising therefrom.
XVII. LIENS.
A. No liens of any nature shall arise or be created subsequent to the
recording of this Declaration against the Condominium Property (as distinguished
from individual Units) without the unanimous consent of the Unit Owners.
B. Unless a Unit Owner has expressly requested or consented to work
being performed or materials being furnished to his Unit, such labor or
materials may not be the basis for the filing of a lien against same. No labor
performed or materials furnished to the Common Elements and Association Property
shall be the basis for a lien thereon unless authorized by the Association, in
which event, the same may be the basis for the filing of a lien against all
Condominium Parcels in the proportions for which the Owners thereof are liable
for Common Expenses.
C. In the event a lien against two or more Condominium Parcels becomes
effective, each Owner thereof may release his Condominium Parcel from the lien
by paying the proportionate amount attributable to his Condominium Parcel. Upon
such payment, it shall be the duty of the lienor to release the lien of record
from such Condominium Parcel.
XVIII. EASEMENTS.
A. An easement shall exist for pedestrian traffic over, through and
across sidewalks, hallways, paths, walks, and stairs, and for vehicular and
pedestrian traffic over, through and across such portions of the Common Elements
as may from time to time be intended for such purposes. All of such easements
shall be for the use and benefit of the Unit Owners and their invitees and
licensees; provided, however, nothing herein shall be construed to give or
create in any person the right to park upon any portion of the Condominium
Property except to the extent that space may be specifically designated and
assigned for parking purposes or otherwise approved by the Association for such
parking.
B. The Condominium Property shall be subject to perpetual easements for
encroachments presently existing or which may hereafter be caused by settlement
or movement of the Condominium Building or minor inaccuracies in construction,
which easements shall continue until such encroachments no longer exist. If the
Condominium Property is destroyed and then rebuilt, encroachments due to
reconstruction shall be permitted and a valid easement for said encroachments
shall exist. If any portion of the Common Elements encroaches upon any Unit, or
any Unit encroaches upon the Common Elements, as a result of the construction,
reconstruction, repair, shifting, settlement or movement of any portion of the
improvements contained in the Condominium Property, a valid easement for the
encroachment and for the maintenance of the same shall exist so long as the
encroachment exists.
C. The Condominium Property shall be subject to such easements for
utilities as may be determined by the Association or required to properly and
adequately serve the Condominium Property as it exists from time to time. Each
of said easements, whether heretofore or hereafter created, shall constitute
covenants running with the land of the Condominium and, notwithstanding any
other provisions of this Declaration, may not be substantially amended or
revoked in such a way as to unreasonably interfere with its proper and intended
use and purpose and shall survive the termination of the Condominium. To the
extent that the creation of any such utility easements require the joinder of
Unit Owners, the Association by its duly authorized officers may, as the agent
or the attorney-in-fact for the Unit Owners, execute, acknowledge and deliver
such instruments; and the Unit Owners, by the acceptance of deeds to their
Units, irrevocably nominate, constitute and appoint the Association, through its
duly authorized officers, as their proper and legal attorney-in-fact for such
purpose. Said appointment is coupled with
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an interest and is therefore irrevocable. Any such instrument executed pursuant
to this Article shall recite that it is made pursuant to this Article.
XIX. USE AND TRANSFER RESTRICTIONS.
In order to provide for congenial occupancy of the Condominium Property
and for the protection of the value of the Units, the use of the Condominium
Property shall be in accordance with the following provisions, so long as the
Condominium exists:
A. No use shall be made of any Unit or of the Common Elements or
Limited Common Elements which will increase the rate of insurance upon the
Condominium Property without the prior written consent of the Association. No
Unit Owner shall permit anything to be done or kept in his Unit or in the Common
Elements which will result in a cancellation or insurance on any Unit or any
part of the Common Elements, or which will be in violation of any law, including
without limitation any law, rule or regulation governing the storage, use,
generation, or disposal of hazardous or toxic materials. No waste shall be
committed in the Common Elements.
B. No sign of any kind shall be displayed to public view on or from any
Unit or the Common Elements without the prior written consent of the Board of
Directors, which may be withheld in their sole discretion.
C. The Common Elements and Limited Common Elements shall be used only
for the purposes for which they are intended in the furnishing of services and
facilities for enjoyment of the Units. There shall be no obstruction or
alteration of, nor shall anything be stored, altered or constructed in, or
removed from, the Common Elements of Limited Common Elements without the written
consent of the Association.
D. No obnoxious or offensive activities shall be permitted upon the
Condominium Property nor any use or practice which is a nuisance to any Unit
Owner or its invitees or licensees, or which interferes with the peaceful
possession and proper use of the Condominium Property by each Unit Owner. All
parts of the Condominium Property shall be kept in a clean and sanitary
condition and no rubbish, refuse, or garbage shall be allowed to accumulate, nor
shall any fire hazard be allowed to exist.
E. No immoral, improper, offensive or unlawful use shall be made of the
Condominium Property or of any part thereof and all valid laws, zoning
ordinances and regulations of all governmental bodies having jurisdiction
thereof shall be observed. The responsibility of meeting the requirements of
governmental bodies pertaining to maintenance, replacement, modification or
repair of the Condominium Property shall be the same as is elsewhere herein
specified.
F. No Unit Owner shall cause anything to be affixed or attached to,
hung, displayed or placed on the exterior walls, doors, balconies or windows of
the Building (including but not limited to awnings, signs, storm shutters,
screens, furniture, fixtures and equipment), nor plant or grow any type of
shrubbery, flower, tree, vine, grass or other plant life outside its Unit,
without the prior written consent of the Association, subject always to the
provisions hereof.
G. No parking of boats, trailers, motor homes or recreational vehicles
shall be permitted on any part of the Condominium Property.
H. Reasonable regulations and rules concerning the use of the
Condominium Property may be promulgated, modified or amended from time to time
by the Board. Copies of such rules and regulations and amendments thereto shall
be furnished by the Association to all Unit Owners and residents of the
Condominium upon request. The Association shall have the right to enforce all
restrictions set forth in this Article and in the Declaration in any manner it
deems necessary including, without limitation, suits for injunctions, actions
for damages, or fines.
I. The Unit Owners shall be bound by and perform under the Services
Agreement attached hereto as Exhibit "F".
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J. Each Unit Owner shall continuously operate in its Unit the business
operated in such Unit as of the recording date of this Declaration (the "Main
Business") in accordance with legal requirements including licensure applicable
to such Main Business. Specifically, Unit A is and shall continue to be operated
as a skilled nursing facility, and Unit B is and shall continue to be operated
as an Assisted Life Care Facility. The services operated in each Unit may be
supplemented as follows:
(1) Unit A can add services whose acuity/skill level is higher
than services it currently provides under its Main Business.
(2) Unit B can add services whose acuity/skill level is lower
than services it currently provides under its Main Business.
(3) Each Unit shall be entitled to add services that are
permitted under the applicable license, if any, that specifically governs the
Main Business conducted in the Unit. Notwithstanding the preceding sentence,
Unit B shall not be permitted to include a segregated and secured Alzheimers
ward.
(4) Each Unit shall be entitled to add other health related
services that are not part of its Main Business and non-health related services
so long as such services as described in this sentence are complementary to the
Main Business.
(5) If any change and/or supplement of use materially
increases that Unit's usage of utilities which are not separately metered, the
Association shall assess the Owner of such Unit for the charges attributable to
such increased usage as reasonably determined by the Association.
(6) No Unit shall add services not described above without the
prior written consent of the Owner of the other Unit, which consent can be
arbitrarily withheld in the sole and absolute discretion of such Owner. The
decision of an Owner as contemplated by the preceding sentence shall not be
subject to arbitration, mediation, litigation or other challenge on any basis
including without limitation a claim that the Owner's decision is unreasonable.
K. Neither Unit Owner shall sell, lease or enter into any management
agreement in respect of the Unit owned by it at anytime after the date hereof
without the prior written consent of the other Unit owner, which consent shall
not be unreasonably withheld; provided, however, that nothing herein shall be
construed as (A) requiring any non-affiliated bona fide lender of either Unit
owner to secure the consent of the other Unit owner prior to exercising its
remedies in the event of a default under any applicable loan documents,
including, but not limited, to (i) the appointment of a temporary manager or
receiver, (ii) the conducting of a foreclosure sale with respect to the affected
Unit or (iii) the transfer of title to either Unit by deed in lieu of
foreclosure or (B) binding a purchaser at such a foreclosure sale or party
taking title by deed in lieu of foreclosure to the consent provisions of this
Section, it being understood and agreed that such a lender or purchaser
including any Mortgagee shall take title to the Unit free and clear of any such
consent requirement and thereafter the consent requirements of this Section
shall be deemed to be null and void with respect to the Unit so conveyed;
provided, further, that nothing herein shall be construed as requiring the
consent of either Unit Owner to the execution by the other party of a management
agreement or lease with an entity under the same or common control with the
contracting party.
XX. INSURANCE.
A. Purchase of Insurance by Association. The Association shall use its
best efforts to obtain and maintain adequate insurance to protect the
Association and the Common Elements and Association Property. The premiums for
such coverage and other expenses in connection with said insurance shall be
assessed against the Unit Owners as part of the Common Expenses. The named
insured shall be the Association, individually and as agent for the Unit Owners,
without naming them, and as agent for their Mortgagees. The Association shall
not maintain insurance
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coverage specifically required by this Declaration to be maintained by the Unit
Owners. Specific insurance to be maintained by the Association is as follows:
(1) comprehensive general public liability and property damage
insurance with respect to the Common Elements and Association
Property in which the limits of public liability shall
initially be not less than $1,000,000.00 per person and
$5,000,000.00 per accident and in which the property damage
liability shall be not less than $1,000,000.00. Such policy
limits shall be increased consistent with commercially
reasonable practices on a periodic basis.
(2) comprehensive coverage on boiler and machinery equipment
comprising part of the Common Elements and Association
Property, including electrical apparatus, if applicable.
(3) hazard insurance against perils customarily included within
all-risk and fire and extended coverage, including earthquake,
flood and hurricane, on improvements comprising part of the
Common Elements and Association Property in an amount equal to
the full replacement value thereof at the time of loss.
(4) Worker's compensation insurance meeting all the requirements
of the laws of Florida to the extent the Association hires
employees.
(5) Directors and officers liability insurance, if available.
(6) Such other insurance as the Board of Directors shall determine
from time to time to be desirable, including, without
limitation, such insurance as may be required by any agency of
the United States government which holds a first mortgage
encumbering a Unit or insures to the holder thereof the
payment of the same.
B. Additional Requirements: Additional requirements of
Association insurance are as follows:
(1) Every hazard policy which is issued to protect a Condominium
Building shall provide that the word "building" wherever used
in the policy includes, but is not necessarily limited to,
fixtures, installations or additions comprising that part of
the building within the unfurnished interior surfaces of the
perimeter walls, floors and ceilings of the individual Units
initially installed, or replacements thereof of like kind or
quality, in accordance with the original plans and
specifications. Provided, however, the word "building" does
not include Unit floor coverings, wall coverings or ceiling
coverings, or any of the following: electrical fixtures,
appliances, water heaters or built-in cabinets within the
Units, and heating and air conditioning equipment, whether
located within or without the Unit.
(2) All policies required to be maintained by the Association
shall be written and underwritten by solvent and responsible
insurance companies licensed to do business in the state of
Florida, which shall have a financial rating as is
commercially reasonable under the circumstances as determined
by the Association in its reasonable discretion. Deductibles
under the Association's policies of insurance shall not exceed
commercially reasonable amounts as reasonably determined by
the Association.
(3) Premiums upon insurance policies purchased by the Association
shall be assessed by the Association against the Unit Owners
as part of the Common Expenses. If, at any time, the cost of
the insurance premiums may be deemed too high, the Board may
adjust such insurance coverage as it deems prudent and
reasonable.
C. Purchase of Insurance by Unit Owners: Each Unit Owner shall
maintain the following:
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(1) a policy of comprehensive general public liability and
property damage insurance with respect to its Unit in which
the limits of public liability shall initially be not less
than $1,000,000.00 per person and $5,000,000.00 per accident
and in which the property damage liability shall be not less
than $1,000,000.00. Such policy limits shall be increased
consistent with commercially reasonable practices on a
periodic basis.
(2) insurance against perils customarily included within all-risk
and fire and extended coverage, including earthquake, flood
and hurricane, on improvements, furniture, furnishings, trade
fixtures, equipment, and floor and wall coverings installed or
located in or made to its Unit in an amount equal to the full
replacement value thereof at the time of the loss.
(3) All policies required to be maintained by each Unit Owner
shall be written and underwritten by solvent and responsible
insurance companies licensed to do business in the state of
Florida, which have a financial rating as is commercially
reasonable under the circumstances as determined by the
Association in its reasonable discretion. Deductibles under a
Unit Owner's policies of insurance shall not exceed
commercially reasonable amounts as reasonably determined by
the Association. Policies carried by each Unit Owner may
contain be in one or more blanket, umbrella or excess
liability covering other improvements of the Unit Owner.
D. Insurance Held in Trust by Association; Shares of Proceeds. All
hazard insurance policies purchased by the Association shall be for the benefit
of the Association, the Unit Owners and their Mortgagees, as their interests may
appear, and shall provide that all proceeds covering property losses shall be
paid to the Association. The duty of the Association with respect to insurance
proceeds shall be to receive such proceeds as are paid and to hold the same in
trust for the purposes stated herein and for the benefit of the Unit Owners and
their Mortgagees in the following shares, which shares:
(1) Common Elements. Proceeds on account of damage to Common
Elements: Proceeds on account of damage to improvements
comprising part of the Common Elements shall be held in the
following undivided shares:
(a) When a Condominium Building is to be restored,
for the Unit Owner so damaged in proportion to the cost of
repairing the damage suffered by each Unit Owner, which cost
shall be determined by the Association.
(b) When a Condominium Building is not to be restored
and such Condominium Building contains more than one Unit, an
undivided share for each Unit Owner, such share being the
ratio between the appraised value of its Unit to the appraised
value of both Units, such appraisals to determine the
respective values as they existed immediately prior to the
casualty. A Unit Owner's undivided share described in this
subparagraph is sometimes referred to in this Declaration as
the "Appraised Share."
(c) When a Condominium Building is not to be restored
and contains only one Unit, a share for the Owner of the Unit
equal to all of the insurance proceeds less (i) Association
expenses as described below, (ii) the cost of restoring any
mandatory facilities to their condition as existed immediately
prior to the casualty, (iii) the cost of repairing any damage
to the other Unit, (iv) the cost of demolishing the damaged
property or performing such other work as determined necessary
by the Association to create a harmonious balance with any
remaining improvements in the Condominium which are either
undamaged or will be repaired and (v) the cost of any
improvements needed in order to assure that use, occupancy and
operation of the other Unit will not be in violation of
applicable governmental requirements including without
limitation zoning regulations and requirements of applicable
license(s). As used herein, "mandatory facilities" means any
of the following that service both Units: kitchen facilities,
boiler
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room(s) and mechanical room(s). As used in this Article XX and
Article XXI below, a Condominium Building is deemed to contain
only one Unit where the damage is confined to one portion of
the Building, and such damage primarily affects only one Unit
with negligible effect on the other Unit other than with
respect to mandatory facilities.
(3) Mortgages. In the event a Mortgagee endorsement has been
issued as to a Unit, the share of that Unit Owner shall be
held in trust for the Mortgagee and the Unit Owner, as their
interests may appear; provided, however, that no Mortgagee
shall have any right to determine or participate in the
determination as to whether or not any damaged property shall
be reconstructed or repaired, and no Mortgagee shall have any
right to apply or have applied to the reduction of a mortgage
debt any insurance proceeds except those proceeds paid to the
Unit Owner and Mortgagee pursuant to the provisions of this
Declaration. Notwithstanding the foregoing, if (i) an Owner
has assigned to its Mortgagee the Owner's right to receive
insurance proceeds from the Association as such right is set
forth in this Declaration and (ii) the Owner and its Mortgagee
have so instructed the Association in writing signed by the
Owner and its Mortgagee (the "Assignment Instruction"), then
the Association shall recognize such assignment and,
regardless of any subsequent conflicting instruction of the
Owner, the Association shall disburse to the Owner's Mortgagee
any insurance proceeds that Association would otherwise be
required to disburse to the Owner. Each Mortgagee is an
intended third party beneficiary of and may enforce the
provisions of this paragraph.
E. Distribution of Proceeds. Proceeds of insurance policies received by
the Association shall be distributed in the following manner:
(1) Expenses of the Association. All expenses of the Association,
including without limitation the cost of appraisals which
shall be performed by a MAI appraiser, shall be paid first or
provision made therefor.
(2) Reconstruction or repair. If the damage for which the proceeds
are paid is to be repaired or reconstructed, the remaining
proceeds shall be disbursed as provided below to defray the
cost thereof. Any proceeds remaining after defraying such
costs shall be distributed to the beneficial owners thereof,
remittances to Unit Owners and their Mortgagees being payable
jointly to them, in accordance with the Appraised Shares;
provided, however, if the Association is in receipt of an
Assignment Instruction duly signed by an Unit Owner and its
Mortgagee, such remaining proceeds that would otherwise be
paid jointly to the Unit Owner and its Mortgagee shall instead
be paid directly to the Mortgagee. This is a covenant for the
benefit of any Mortgagee of any Unit and may be enforced by
such Mortgagee.
(3) Failure to reconstruct or repair. If it is determined in the
manner elsewhere provided that the damage for which the
proceeds are paid shall not be reconstructed or repaired, the
remaining proceeds shall be distributed to the beneficial
owners thereof, remittance to Unit Owners and their Mortgagees
being payable jointly to them. This is a covenant for the
benefit of any Mortgagee of any Unit and may be enforced by
such Mortgagee.
F. Association as Agent. The Association is hereby irrevocably
appointed agent for each Unit Owner, for Mortgagee and for each owner of any
other interest in the Condominium Property, with power to adjust all claims
arising under insurance policies purchased by the Association and to execute and
deliver releases upon the payment of claims.
G. The following conditions and procedures shall apply to
reconstruction work (the "Work") and disbursement of remaining insurance
proceeds on account of same:
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(1) Performance of Work. The Association shall enter into a
construction contract (the "Construction Contract") with a general contractor
("Contractor"), and a Schedule of Values that allocates values to various
portions of the Work will be included in the Construction Contract. The Work
shall be constructed in a good and workmanlike manner. Only new, first class
materials shall be used in the performance of the Work.
(2) Notice of Commencement. The Association will not cause or
permit the Contractor to commence construction and shall not disburse any funds
to Contractor, any subcontractors, sub-subcontractors, materialmen and laborers
until a Notice of Commencement is recorded pursuant to Chapter 713.13 of the
Florida Statutes and a certified copy of such Notice of Commencement has been
posted on the construction site
(3) Progress Payments.
(a) Based upon Applications for Payment submitted to
the Association's architect (the "Architect") by the Contractor and Certificates
for Payment issued by the Architect, the Association shall make progress
payments ("Association's Progress Payments") from the remaining insurance
proceeds, payable as hereinafter specified.
(b) Prior to processing a Progress Payment,
Association shall require that the Contractor (i) make all Applications for
Payment on, and strictly in compliance with the requirements of, AIA Documents
G702-1983 and G703-1983 and (ii) attach to each Application for Payment:
(1) an itemized, sworn statement showing in
complete detail all monies paid out or costs incurred by the Contractor
(including Change Orders) on account of the Work and Construction Contract, on a
trade-by-trade basis, through the last day of the calendar month for which the
Contractor is to be paid; and
(2) a duly and properly executed partial
release of lien from each and every subcontractor, sub-subcontractor,
materialman, supplier and laborer, in the amount of at least the amount of the
last preceding progress payment made to each subcontractor, sub-subcontractor,
materialman, supplier and laborer; and
(3) a duly and properly executed partial
release of lien from the Contractor in the amount of no less than the amount of
the last preceding progress payment made by Association and Tenant to the
Contractor; and
(4) a Schedule of Values (shown by dollar
amounts) showing the respective percentage of completion of the various
divisions of the Work.
(5) Evidence that construction is proceeding
on schedule and that all construction prior to the date of the Application for
Payment has been completed in a good and workmanlike manner in accordance with
the Plans and Specifications and as required by all inspecting governmental
authorities having jurisdiction over the Premises.
(c) In addition to the foregoing, each Application
for Payment shall include all of the information required to be furnished by the
aforesaid AIA Documents. Each statement, partial release of lien and Schedule of
Values referred to hereinabove shall be in such form and have such content as is
satisfactory to Association in its sole and absolute discretion.
(d) Applications for Payment shall indicate the
percentage of completion of each portion of the Work as of the end of the period
covered by the Application for Payment.
(e) The amount of each of Association's Progress
Payments shall be computed as follows:
17
<PAGE>
|The Progress Payment |
|payable to the Contractor |
|under the Construction | X the total (LESS) Retainage
|Contract | remaining under
|Construction Contract | proceeds Contract
|Sum
(4) Final Payment. Final payment, constituting the entire
unpaid balance of the remaining insurance proceeds as well as any amounts
assessed by the Association pursuant to Article XXI.E. below, including the
Retainage ("Final Payment"), shall be made by Association only after
satisfaction of the following conditions:
(a) the Construction Contract has been fully
performed by the Contractor; and
(b) a final Certificate for Payment has been issued
by the Architect and approved by Association; and
(c) the Association has approved and accepted one
hundred percent (100%) of the Work; and
(d) the Contractor has furnished to both the
Association and the Architect, a duly and properly executed Contractor's Final
Affidavit complying in all respects to the provisions of Chapter 713 of Florida
Statutes (the "Construction Lien Law"), a duly and properly executed
Contractor's Final Release of Lien, both in such form and having such content as
is satisfactory to Association in its sole and absolute discretion, duly and
properly executed Final Releases of Lien from each and every subcontractor,
sub-subcontractor, materialman, supplier and laborer and such other documents as
Association shall be entitled to under the Mechanic's Lien Law, all in such form
and having such content as is satisfactory to Association in its sole and
absolute discretion. In the event Contractor does not furnish to Association all
of the aforesaid final releases of lien, then Association shall be entitled to
subtract from the amount that Association determines is necessary to transfer to
bond or to pay in full any subcontractor, sub-subcontractor, materialman,
laborer who has not furnished a Final Release of Lien (but no reduction in the
Final Payment shall be made if the Contractor posts a cash bond or other surety
accessible to Association covering such amounts); and
(e) Receipt by Association of two (2) sets of
detailed and complete As-Built Plans and Specifications of the Work, including
all architectural, structural, mechanical, plumbing and electrical work; and
(f) Receipt by Association of a Certificate of
Occupancy for the Condominium Building(s) or applicable portion thereof.
XXI. RECONSTRUCTION OR REPAIR AFTER CASUALTY.
A. Determination to Reconstruct or Repair. If any part of the
Condominium Property is damaged by casualty, whether it shall be reconstructed
or repaired shall be determined in the following manner:
(1) Condominium Building:
(a) Minor damage. If less than 75% of the square
footage of a Unit is damaged or destroyed, the damaged
property shall be reconstructed or repaired unless, within
sixty (60) days after the casualty, the Unit Owners agree in
writing to forego such reconstruction or repair and such
decision is approved by at least the majority of the
Mortgagees (based upon one vote for each first mortgage
owned). Notwithstanding the foregoing, if the actual cost of
restoring the affected Unit in accordance with then existing
applicable laws exceeds 110% of the actual insurance
18
<PAGE>
proceeds available under required policies of insurance plus
deductible amounts, then the damage shall be deemed Major
damage as addressed below.
(b) Major damage. If more than 75% of the square
footage of a Unit is damaged or destroyed, or if the actual
cost of restoring the affected Unit in accordance with then
existing applicable laws exceeds 110% of the actual insurance
proceeds available under required policies of insurance plus
deductible amounts, the damaged property shall neither be
reconstructed nor repaired unless, within sixty (60) days
after the casualty, the Owner of the affected Unit directs the
Association to effect such reconstruction or repair.
B. Plans and Specifications. Any reconstruction or repair must be
substantially in accordance with the plans and specifications for the original
Condominium Property; or, if not, then in accordance with plans and
specifications approved by the Board of Directors. Any reconstruction that
materially and substantially deviates from the configuration and quality of the
original Condominium Property as it existed prior to the reconstruction or
repair must be approved by at least the majority of the Mortgagees (based upon
one vote for each first mortgage owned).
C. Responsibility. If the damage is only to those portions of a Unit or
Units for which the responsibility of maintenance and repair is that of the Unit
Owner(s), then the Unit Owner(s) shall be responsible for reconstruction and
repair after casualty. In all other instances, it shall be the Association's
responsibility to reconstruct and repair after casualty.
D. Estimate of Costs. Immediately after a determination is made to
rebuild or repair damage to property for which the Association has the
responsibility for reconstruction and repair, the Association shall obtain
reliable and detailed estimates of the cost to rebuild or repair.
E. Assessments. If the proceeds of insurance are not sufficient to
defray the estimated costs of reconstruction and repair by the Association, or
if at any time during reconstruction and repair, or upon completion of
reconstruction or repair, the funds for the payment of the costs thereof are
insufficient, Assessments shall be made against all Unit Owners in sufficient
amounts to provide funds for the payment of such costs.
XXII. EMINENT DOMAIN OR CONDEMNATION PROCEEDING.
If eminent domain or condemnation proceedings are successfully
litigated against all or any part of the Condominium Property, the entire
eminent domain or condemnation award shall be held by the Association for the
benefit of itself, the Unit Owners and their Mortgagees in shares equal to
shares of insurance proceeds payable on account of casualty.
XXIII. LIABILITY - GENERALLY.
A. General Provisions. Notwithstanding anything contained in this
Declaration, the Articles, Bylaws or rules and regulations of the Association or
any other document governing or binding the Association ("Property Documents"),
neither the Developer nor the Association will be liable or responsible for, or
in any manner a guarantor or insurer of, the health, safety or welfare of any
Owner, occupant or user of any portion of the Property, including without
limitation, residents, their families, guests, invitees, licensees, agents,
servants, contractors or subcontractors, nor for any property of such persons.
19
<PAGE>
B. Specific Provisions. Without limiting the generality of the
foregoing:
(1) It is the express intent of the Property Documents that the
various provisions of the Property Documents which are
enforceable by the Association and which govern or regulate
the use of Property have been written and are to be
interpreted and enforced for the sole purpose of enhancing and
maintaining the enjoyment of the Property and the value
thereof.
(2) The Association is not empowered to enforce or ensure
compliance with the laws of the United States, the State of
Florida or the County or any other jurisdiction or to prevent
tortious activities by Owners or third parties.
(3) The provisions of the Property Documents setting forth the
uses of Assessments which relate to health, safety or welfare
will be interpreted and applied only as limitations on the
uses of such funds and not as creating a duty of the
Association to protect or further the safety or welfare of the
persons even if such funds are used for such purposes.
C. Owner Covenant. Each Owner, his heirs, successors and assigns, by
virtue of his or her acceptance of title, and each other person or entity having
an interest or lien upon, or making the use of, any portion of the Property, by
virtue of accepting such interest or lien or by making use thereof, will be
bound by this Article and will be deemed to have automatically waived any and
all rights, claims, demands or causes of action against the Association arising
from or connected with any matter for which the liability of the Association has
been disclaimed in this Paragraph.
XXIV. GENERAL PROVISIONS.
A. If any provision of this Declaration, the Articles, the By-Laws or
the Condominium Act, or any section, sentence, clause, phrase or word, or the
application thereof, in any circumstances is held invalid, the validity of the
remainder of this Declaration, the Articles, the By-Laws, or the Condominium
Act, and the application of any such invalid provision, section, sentence,
clause, phrase, or word in other circumstances shall not be affected thereby.
B. Notices to a Unit Owner shall be sent to the address of its Unit,
unless the Unit Owner has, by written notice to the Association, specified a
different address. Notices to the Association shall be delivered by certified
mail to 2939 South Haverhill Road, West Palm Beach, Florida. All notices shall
be deemed sent when mailed. Any party may change his or its mailing address by
written notice to the other party.
C. All remedies for violation provided by the Condominium Act shall be
in full force and effect. In addition thereto, should the Association find it
necessary to institute legal action upon a finding by a court in favor of the
Association, the defendant Unit Owner shall reimburse the Association for its
costs of suit, including reasonable attorney's fees at both trial and appellate
levels, in bankruptcy or in post-judgment collection, incurred by it in bringing
such action.
D. Whenever the context so requires, the use of any gender shall be
deemed to include all genders, the use of the plural shall include the singular,
and the singular shall include the plural.
20
<PAGE>
E. The provisions of this Declaration shall be liberally construed to
effectuate its purpose of creating a uniform plan for the operation of the
Condominium.
CENTRAL PARK LODGES OF WEST PALM BEACH, INC.,
a Florida corporation
- -----------------------------
Printed Name:
---------------
- ----------------------------- By: /s/ Elanor C. Harding
Printed Name: ---------------------------------------
--------------- Name:
--------------------------------------
Title:
INTEGRATED LIVING COMMUNITIES OF WEST PALM
BEACH, INC., a Delaware corporation
- -----------------------------
Printed Name:
---------------
- ----------------------------- By: /s/ Edward J. Komp
Printed Name: ---------------------------------------
--------------- Name:
--------------------------------------
Title:
STATE OF MARYLAND
COUNTY OF ____________
The foregoing instrument was acknowledged before me this ___ day of
___________, 1996 by ________________________________ as ______________ of
CENTRAL PARK LODGES OF WEST PALM BEACH, INC., a Florida corporation. He/She is
___personally known to me or ___produced a valid, current driver's license as
identification.
----------------------------------
Print Name:
-----------------------
Notary Public
STATE OF MARYLAND
COUNTY OF ____________
The foregoing instrument was acknowledged before me this ___ day of
___________, 1996 by ________________________________ as ______________ of
INTEGRATED LIVING COMMUNITIES OF WEST PALM BEACH, Inc., a Delaware corporation.
He/She is ___personally known to me or ___produced a valid, current driver's
license as identification.
----------------------------------
Print Name:
-----------------------
Notary Public
July 31, 1996
21
<PAGE>
Exhibit "A"
LEGAL DESCRIPTION
Tract 8, Model Land Subdivision of Section 14, Township 44 South, range 42 East,
Palm Beach County, Florida, according to the Plat thereof on file in the Office
of the Clerk of the Circuit Court in and for Palm Beach County, Florida,
recorded in Plat Book 5, Page 78; said lands situate, lying and being in Palm
Beach County, Florida;
Less, however, the following described parcel of land:
A parcel of land in the Southeast 1/4 of Section 14, Township 44 South, Range 42
East, Palm Beach County, State of Florida, being the East 15 feet of Tract 8 of
Model Land Company Subdivision of Section 14, recorded in Plat Book 5, Page 78,
Public Records of said County, more particularly described as follows:
Being the Point of Beginning the Southeast corner of said Tract 8; thence North
01(degree)47'55" East along the East line of said Tract and the West line of a
road right-of-way, a distance of 660.18 feet, more or less, to the North line of
said Tract; thence North 88(degree)04'19" West along said North line, a distance
of 15 feet to a line 40 feet West of, as measured at right angles to, and
parallel with the East line of said Southeast 1/4; thence South 01(degree)47'55"
West along said parallel line, a distance of 660.17 feet, more or less, to the
South line of said Tract 8; thence South 88(degree)02'50" East along said South
line, a distance of 15 feet to the Point of Beginning.
Property Address: 2939 S. Haverhill Road, West Palm Beach, FL
<PAGE>
Exhibit "B"
PERCENTAGE SHARE OF COMMON ELEMENTS,
COMMON EXPENSES AND COMMON SURPLUS
The Percentage Share of Common Elements, Common Expenses and Common
Surplus shall be for Fifty Percent (50%) for each Unit.
<PAGE>
Exhibit "C"
PLOT PLAN AND SURVEY
<PAGE>
Exhibit "D"
ARTICLES OF INCORPORATION
WEST PALM BEACH CONDOMINIUM ASSOCIATION, INC.
<PAGE>
Exhibit "E"
BY-LAWS
WEST PALM BEACH CONDOMINIUM ASSOCIATION, INC.
<PAGE>
Exhibit "F"
SERVICES AGREEMENT
LEASE AGREEMENT
Between
THE HARTMOOR HOMESTEAD, L.C., as LANDLORD,
And
INTEGRATED LIVING COMMUNITIES AT WICHITA, INC., as TENANT
as of June 18, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE / SECTION Page
- ----------------- ----
ARTICLE I
DEMISED PREMISES......................................................1
1.1 Demise of Premises..................................2
1.2 Other Assets........................................3
1.3 Assumed Name........................................3
1.4 Delivery of Possession..............................3
ARTICLE II
TERM .............................................................3
2.1 Term................................................3
2.2 Renewal Term........................................3
2.3 Lease Term..........................................3
2.4 Lease Year..........................................4
ARTICLE III
RENTAL .............................................................4
3.1 Annual Rent.........................................4
3.2 Certain Adjustments to the Annual Rent..............5
3.3 Transfer Taxes; Prorated Items......................5
3.4 Other Prorations....................................6
ARTICLE IV
TITLE AND POSSESSION..................................................7
4.1 Title and Authority.................................7
4.2 Leased Equipment....................................7
4.3 Surrender of Possession.............................7
4.4 Holding Over........................................7
ARTICLE V
TAXES, ASSESSMENTS AND UTILITIES......................................8
5.1 Real Estate Taxes...................................8
5.2 Personal Property Taxes............................10
5.3 Sewer Use Fees.....................................10
5.4 Utilities..........................................10
ARTICLE VI
USE OF DEMISED PREMISES..............................................10
6.1 Use by Tenant......................................10
6.2 Compliance with Laws...............................10
(i)
<PAGE>
ARTICLE / SECTION Page
6.3 Waste..............................................11
6.4 License and Permits................................11
6.5 Landlord's Repairs.................................11
6.6 Conflict with Insurance Policies...................11
ARTICLE VII
EMINENT DOMAIN.......................................................11
7.1 Permanent or Temporary Taking......................11
7.2 Compensation.......................................12
7.3 Effect on this Lease of Permanent Taking...........12
7.4 Effect on this Lease of Temporary Taking...........13
7.5 Restoration........................................13
ARTICLE VIII
ALTERATIONS, REPAIRS and TRADE FIXTURES..............................13
8.1 Repairs by Tenant Generally........................13
8.2 Quality and Promptness of Repairs and
Replacements; Ownership of Replacements
and Warranties..................................17
8.3 Liability of Landlord..............................18
8.4 Removal of Personal Property.......................18
ARTICLE IX
SIGNS ............................................................18
ARTICLE X
ASSIGNMENT, SUBLETTING AND SUBORDINATION.............................19
10.1 Assignment or Subletting by Tenant.................19
10.2 Leasehold Mortgages................................19
10.3 Subordination and Attornment.......................22
10.4 Sale by Landlord...................................23
10.5 Estoppel Certificates..............................24
ARTICLE XI
DEFAULT ............................................................24
11.1 Default by Tenant..................................24
11.2 Landlord's Rights and Remedies.....................25
11.3 Default by Landlord................................28
11.4 Delays.............................................29
(ii)
<PAGE>
ARTICLE / SECTION Page
- ----------------- ----
ARTICLE XII
DAMAGE TO DEMISED PREMISES...........................................29
12.1 Major Damage.......................................29
12.2 Nonmajor Damage....................................30
ARTICLE XIII
LANDLORD'S REPRESENTATIONS AND WARRANTIES............................31
13.1 Organization and Standing of Landlord..............31
13.2 Authority..........................................31
13.3 Binding Effect.....................................32
13.4 Absence of Conflicting Agreements..................32
13.5 Consents...........................................32
13.6 Contracts..........................................32
13.7 Financial Statements...............................33
13.8 Material Changes...................................33
13.9 Licenses; Permits..................................34
13.10 Title, Condition of Personal Property..............34
13.11 Title, Condition of the Demised Premises...........35
13.12 Legal Proceedings..................................37
13.13 Employees..........................................37
13.14 Collective Bargaining, Labor Contracts,
Employment Practices, etc.......................37
13.15 ERISA..............................................38
13.16 Insurance..........................................38
13.17 Relationships......................................39
13.18 Assets Comprising the Demised Premises.............39
13.19 Absence of Certain Events..........................39
13.20 Compliance with Laws...............................40
13.21 Environmental Compliance...........................40
13.22 Tax Returns........................................41
13.23 Encumbrances Created by this Agreement.............41
13.24 Residents..........................................41
13.25 Zoning.............................................42
13.26 Leases.............................................42
13.27 Care of Residents; Deficiencies; Licensed
Bed and Rate Schedule.......................... 42
13.28 Books and Records..................................43
13.29 Intellectual Property..............................43
13.30 No Misstatements or Omissions......................43
13.31 Bankruptcy.........................................43
(iii)
<PAGE>
ARTICLE / SECTION Page
- ----------------- ----
ARTICLE XIV
TENANT'S REPRESENTATIONS, WARRANTIES AND COVENANTS...................44
14.1 Organization and Standing of Tenant................44
14.2 Authority..........................................44
14.3 Binding Effect.....................................44
14.4 Absence of Conflicting Agreements..................44
14.5 Statement of Operations............................44
ARTICLE XV
INSURANCE, SUBROGATION AND INDEMNIFICATION...........................45
15.1 Comprehensive General Liability and
Professional Insurance to be Carried by
Tenant.........................................45
15.2 Certificate of Insurance...........................45
15.3 Other Coverage.....................................45
15.4 Indemnification of Landlord........................46
15.5 Indemnification of Tenant..........................46
15.6 Fire, Extended Coverage and Additional Perils
Insurance......................................46
15.7 Waiver of Subrogation..............................47
ARTICLE XVI
ARBITRATION..........................................................47
ARTICLE XVII
CERTAIN COVENANTS OF LANDLORD........................................48
17.1 Covenant Not-To-Compete............................48
17.2 Pre-Commencement Date Financial Statements.........49
ARTICLE XVIII
MISCELLANEOUS PROVISIONS.............................................49
18.1 Notices............................................49
18.2 Understanding and Agreements.......................50
18.3 Amendment..........................................50
18.4 Construction.......................................51
18.5 Specific Performance...............................51
18.6 Binding Effect on Successors.......................51
18.7 Lease (Short Form).................................51
18.8 Reading and Receipt of this Lease..................51
18.9 Prohibition of Mechanics Liens.....................51
18.10 Brokerage or Agents Fees...........................51
18.11 Captions and Indexes...............................52
18.12 Pronouns...........................................52
(iv)
<PAGE>
ARTICLE / SECTION Page
- ----------------- ----
18.13 Drafting of this Lease.............................52
18.14 Counterparts.......................................52
18.15 Quiet Enjoyment....................................52
ARTICLE XIX
CONDITIONS PRECEDENT TO LEASE COMMENCEMENT...........................52
19.1 Representations and Warranties.....................52
19.2 Performance of Covenants; No Default...............53
19.3 Delivery of Certificate............................53
19.4 Legal Matters......................................53
19.5 Approvals..........................................53
19.6 Material Adverse Change............................53
19.7 Authorization Documents............................54
19.8 COBRA..............................................54
19.9 Environmental Compliance...........................54
19.10 Facility Purchase Option...........................54
19.11 Non-Disturbance Agreement..........................55
ARTICLE XX
CERTAIN ADDITIONAL OBLIGATIONS OF LANDLORD...........................55
20.1 Discharge of Liabilities...........................55
20.2 Accounts Receivable................................55
20.3 Employment of Existing Employees...................55
20.4 Audited Financial Statements.......................55
20.5 Licenses...........................................55
20.6 Collective Bargaining, Labor Contracts, etc........56
20.7 Contracts and Personal Property Leases.............56
20.8 Demised Premises...................................56
20.9 Delivery of Notices................................56
ARTICLE XXI
EXTENSION OF COMMENCEMENT DATE AND TERMINATION.......................56
21.1 Termination........................................56
21.2 Tenant's Remedies..................................57
ARTICLE XXII
CONSTRUCTION AND DELIVERY OF POSSESSION..............................58
22.1 Construction, Delivery of Possession and
Commencement Date.............................58
(v)
<PAGE>
ARTICLE / SECTION Page
- ----------------- ----
ARTICLE XXIII
GLOSSARY AND ADDITIONAL DEFINED TERMS................................60
SIGNATURE PAGE................................................................63
ACKNOWLEDGMENTS...............................................................65
GUARANTY OF LEASE.............................................................66
ACKNOWLEDGMENTS...............................................................67
(vi)
<PAGE>
EXHIBITS/SCHEDULES
- ------------------
EXHIBIT A
DESCRIPTION OF THE LAND
EXHIBIT A-1
LOCATION OF LEASED IMPROVEMENTS
EXHIBIT B
LIST OF CERTAIN PERSONAL PROPERTY & FIXTURES
EXHIBIT C
LANDLORD'S CONSTRUCTION WORK
EXHIBIT D
OPTION AGREEMENT
EXHIBIT E
FORM OF SUBORDINATION, NON-DISTURBANCE
AND RECOGNITION AGREEMENT
SCHEDULE 3.2(a)
SCHEDULE 3.2(b)
SCHEDULE 13.4
SCHEDULE 13.5
SCHEDULE 13.6
SCHEDULE 13.8
SCHEDULE 13.9
SCHEDULE 13.10(a)
SCHEDULE 13.10(b)
SCHEDULE 13.11(a)
SCHEDULE 13.11(e)
(vii)
<PAGE>
SCHEDULES
- ---------
SCHEDULE 13.11(j)
SCHEDULE 13.12
SCHEDULE 13.13
SCHEDULE 13.16
SCHEDULE 13.17
SCHEDULE 13.19
SCHEDULE 13.21
SCHEDULE 13.24
SCHEDULE 13.25
SCHEDULE 13.26
SCHEDULE 13.27(b)
SCHEDULE 13.27(c)
SCHEDULE 13.29
SCHEDULE 14.4
(viii)
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (this "Lease") is made and entered into as of the
18th day of June, 1996, by and between THE HARTMOOR HOMESTEAD, L.C., a Kansas
limited liability company having an address c/o The Homestead Company, L.C., 155
North Market, Suite 910, Wichita, Kansas 67202, Attention: Mr. Jack West, as
landlord ("Landlord"), and INTEGRATED LIVING COMMUNITIES AT WICHITA, INC., a
Delaware corporation having an office at 10065 Red Run Boulevard, Owings Mills,
Maryland 21117, as tenant ("Tenant").
W I T N E S S E T H:
--------------------
WHEREAS, Landlord is the owner of the real property, improvements
currently under construction thereon, and personal property constituting the
46-bed and 35-unit assisted living facility known as "The Hartmoor Homestead"
(said real property and all improvements that may from time to time be situated
thereon and all Personal Property (as hereinafter defined), are hereinafter
called the "Facility"), situated at Wichita, Kansas; and
WHEREAS, Tenant or affiliates of Tenant are engaged in the management,
leasing and ownership of similar facilities and are experienced in various
phases of management, leasing and ownership thereof; and
WHEREAS, Landlord desires to lease the Facility to Tenant for the term
hereinafter provided, and Tenant desires to accept such lease upon the terms and
subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the rents, mutual covenants and
agreements set forth in this Lease, the parties agree as follows:
ARTICLE I
DEMISED PREMISES
----------------
1.1 Demise of Premises. Landlord hereby demises and leases to
Tenant for the term and upon the conditions provided in this Lease, and Tenant
hereby leases from Landlord, the following real and personal property
(collectively, the "Demised Premises"):
(a) the real property described in Exhibit A
attached hereto and made a part hereof (the "Land"), and
(b) all buildings, structures, fixtures and
other improvements of every kind, now or hereafter situated upon the Land,
including, but not limited to, the Facility, alleyways and connecting tunnels,
sidewalks, utility pipes, conduits and lines (on-site), and
<PAGE>
parking areas and roadways appurtenant to such buildings and structures,
specifically excluding utility pipes, conduits and lines owned by utility
providers, if any, as to which, however, all of Landlord's right, title and
interest thereto is hereby leased and included (collectively, the "Leased
Improvements"), and
(c) all easements, licenses, rights, privileges
and appurtenances now or hereafter relating to the Land and/or the Leased
Improvements (collectively, the "Related Rights"), and
(d) all equipment, machinery, fixtures, and
other items of real and/or personal property, including all components thereof,
now or hereafter located in, on or used in connection with, and permanently
affixed to or incorporated into the Land or the Leased Improvements, including,
without limitation, if any, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting, ventilation, refrigeration,
incineration, air and water pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus, sprinkler systems and fire and theft
protection equipment, and built-in oxygen and vacuum systems, all of which, to
the greatest extent permitted by law, are hereby deemed by the parties hereto to
constitute real property, together with all replacements, modifications,
alterations and additions thereto, specifically excluding utility pipes,
conduits and lines owned by utility providers, if any, as to which, however, all
of Landlord's right, title and interest thereto is hereby leased and included
(collectively, the "Fixtures"), and
(e) all equipment, machinery, furniture,
furnishings, movable walls or partitions, computers, trade fixtures, office
equipment, operating supplies, or other tangible real or personal property now
located, installed, stored, used or usable in connection with the operation of
the Facility and removable without causing material damage to the Land or the
Leased Improvements, including, without limitation, all items of furniture,
furnishings, equipment, appliances, apparatus, and vehicles, together with all
replacements, modifications, alterations and additions thereto, specifically
excluding utility pipes, conduits and lines owned by utility providers, if any,
as to which, however, all of Landlord's right, title and interest thereto is
hereby leased and included, and also specifically excluding any personal
property owned by patients or residents, as to which, however, all of Landlord's
right, title and interest thereto is hereby leased and included (collectively,
the "Personal Property").
1.2 Other Assets. Effective on the Commencement Date (as
hereinafter defined) Landlord hereby transfers, assigns and conveys to Tenant
for the term hereinafter set forth and upon the conditions provided in this
Lease, all of the following assets (collectively, hereinafter called the "Other
Assets"):
(a) all intangible property, assets and rights
appurtenant or relating to the ownership and/or operation of the Facility,
including but not limited to, licenses, permits and other governmental approvals
from the applicable licensing and certification agencies, to the extent
assignable (collectively, the "Intangibles"), and
- 2 -
<PAGE>
(b) all patents, copyrights, trademarks, trade
names, brand names, service marks, logos, symbols, trade dress, designs or
representations or expressions of any thereof, or registrations or applications
for registration thereof, or any other inventions, trade secrets, technical
information, know-how, proprietary right or intellectual property appurtenant or
relating to the ownership and/or operation of the Facility (collectively, the
"Trade Rights").
1.3 Assumed Name. Tenant shall have the exclusive right (but
not the obligation) to use and to register as the assumed business name for the
Facility the name "The Homestead at Wichita" effective as of the Commencement
Date of this Lease and thereafter while this Lease is in effect.
1.4 Delivery of Possession. Landlord shall deliver exclusive
possession of the Demised Premises and the Other Assets to Tenant on the
Commencement Date. Notwithstanding anything to the contrary contained in this
Lease, Tenant shall have no obligations or liabilities under this Lease or as
tenant of the Demised Premises or with respect to the Other Assets, prior to
such delivery of possession and the Commencement Date.
ARTICLE II
TERM
----
2.1 Term. Subject to Section 21.1 hereof, the term of this
Lease shall commence on the Commencement Date (as hereinafter defined), as such
date may be extended pursuant to the express provisions hereof. The term of this
Lease shall run from the Commencement Date and terminate at 12:00 midnight, on
the last day of the fifteenth (15) Lease Year (as hereinafter defined) (the
"Initial Term"), unless extended as provided in Section 2.2 below.
2.2 Renewal Term. If this Lease is still in effect and if no
Event of Default (as hereinafter defined) shall have occurred and be continuing
Tenant shall have the right to extend this Lease for three (3) additional
consecutive terms of five (5) years each (each a "Renewal Term"). A renewal
option shall be deemed exercised upon Tenant giving Landlord one hundred twenty
(120) days written notice prior to the expiration of the then current Lease
Term. If Tenant shall give notice of the exercise of an election in the manner
and within the time provided herein, the Lease Term shall be extended upon the
giving of the notice without the requirement of any action on the part of
Landlord.
2.3 Lease Term. As used herein, "Lease Term" shall mean, prior
to the exercise by Tenant of any of its rights under Section 2.2 to extend the
term of this Lease, the Initial Term, and after the exercise by Tenant of any
one or more of such extension rights, "Lease Term" shall mean the Initial Term
and each Renewal Term as to which such right has been exercised. Except as
otherwise expressly provided in this Lease, all the agreements and conditions
contained in this Lease shall apply to each Renewal Term as to which such right
has been exercised.
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2.4 Lease Year. As used herein, "Lease Year" means any
12-month period that commences on the Commencement Date, or any anniversary of
the Commencement Date, provided, however, if the Commencement Date occurs on a
day other than the first day of a month, then a Lease Year shall commence on the
first day of the first month following the Commencement Date except that the
first Lease Year shall include the period from the Commencement Date through the
last day of the month in which the Commencement Date occurs.
ARTICLE III
RENTAL
3.1 Annual Rent. Beginning on the Commencement Date of this
Lease, Tenant agrees to pay to Landlord rent at the annual rates set forth
below, in each case in monthly installments of one-twelfth thereof. The monthly
rent payments provided for herein shall be paid by Tenant in advance, without
notice or demand, on the first day of each month, and the rent for the calendar
month during which rent shall begin to accrue and for the last calendar month of
the Lease Term, shall be apportioned, if necessary. All rental payments to be
made to Landlord under this Lease shall be made to Landlord at the address
stated in Section 18.1 hereof or to such other person, firm, corporation or
other entity or at such other address as Landlord may designate by notice in
writing to Tenant.
3.1.1 Annual rent ("Annual Rent") shall be payable as
follows: during the first Lease Year at the annual
rate of Two Hundred Eighty-Seven Thousand Five
Hundred ($287,500) Dollars; and during each Lease
Year thereafter at the annual rate equal to the
product resulting from multiplying the Annual Rent
for the first Lease Year by a fraction the numerator
of which is the Price Index (as defined in Article
VIII) published for the first calendar month of the
Lease Year with respect to which the adjustment is
being made, and the denominator of which is the Base
Price Index (as defined in Article VIII); provided
that the Annual Rent for the Lease Year in question
shall not be lower than the Annual Rent for the
immediately preceding Lease Year.
3.1.2 Annual Rent shall be paid in equal monthly
installments and shall be payable in advance, without
demand, on the first day of each calendar month
during any Lease Year. All payments of Annual Rent
and all other payments to be made by Tenant to
Landlord pursuant to this Lease shall be paid in
lawful money of the United States of America and,
except as otherwise provided in this Lease, without
discount, setoff or abatement.
3.1.3 The obligations to pay Annual Rent and all other
items of rent under this Lease are separate and
independent of each and every other covenant and
agreement contained in this Lease, except as
otherwise provided in this Lease to the contrary
including (but not limited to) provisions relating to
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Tenant's right to an abatement of, or setoff or
reduction against, any such items of rent.
3.1.4 In the event that any monthly installment of Annual
Rent is not paid within fifteen (15) days after the
date due, then, in addition to any other rights or
remedies available to Landlord, interest shall accrue
on such overdue payment at a rate per annum equal to
the lesser of (a) the maximum rate of interest
permitted by law or (b) two percent (2%) above the
"Prime Rate" of interest quoted in The Wall Street
Journal "Money Rates Column" from the date originally
due to the date of payment of the same.
3.2 Certain Adjustments to the Annual Rent.
(a) Schedule 3.2(a) sets forth Landlord's
estimated amount as of the day immediately preceding the Commencement Date of
unpaid, accrued and earned holiday, vacation, sick and personal leave pay,
accrued bonuses, payroll taxes and workers' compensation insurance premiums with
respect thereto for each of Landlord's employees. Said Schedule 3.2(a) shall be
updated to the extent necessary on and as of the day preceding the Commencement
Date. Landlord will terminate all such employees as of the day immediately
preceding the Commencement Date. Tenant shall have the right, but not the
obligation, to hire any or all of such employees as of the Commencement Date.
Landlord will pay any and all unpaid, accrued and earned holiday, vacation,
sick, and personal leave pay, accrued bonuses, and all applicable payroll taxes
and workers' compensation insurance premiums accrued and earned and not paid as
of the Commencement Date for such employees not hired by, or who decline
employment with, Tenant, and Tenant shall have no liability whatsoever for any
such pay, bonus, taxes, premiums or other compensation unpaid, accrued and
earned by such employees. Tenant shall assume as of the Commencement Date the
liability for any and all unpaid, accrued and earned holiday, vacation, sick and
personal leave pay, accrued bonuses, and all applicable payroll taxes and
workers' compensation insurance premiums accrued and earned and not paid as of
the Commencement Date for such employees hired by Tenant, and the aggregate
amount of such pay, bonuses, taxes, premiums and other compensation unpaid,
accrued and earned by such hired employees shall be paid by Landlord to Tenant
on the Commencement Date.
(b) Schedule 3.2(b) sets forth Landlord's
estimated amount of any prepaid goods or services to be supplied or rendered by
the operator of the Facility subsequent to the Commencement Date (e.g., resident
advance payments), and such prepayments to the extent allocable to the period on
or after the Commencement Date ("Prepayments") shall be paid by Landlord to
Tenant on the Commencement Date or, at Landlord's option, shall reduce the
amount of the first, and to the extent necessary, all succeeding monthly
installments of Annual Rent payable by Tenant, until the Prepayments shall be
fully applied in lieu of such payment of such Prepayments by Landlord to Tenant
on the Commencement Date. Said Schedule 3.2(b) shall be updated to the extent
necessary on and as of the day preceding the Commencement Date.
3.3 Transfer Taxes; Prorated Items. On the Commencement
Date, the following adjustments and prorations shall be computed as of the
Commencement Date with
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respect to the following taxes (unless otherwise stated herein) and the initial
monthly installments of Annual Rent payable for the first Lease Year shall be
adjusted, upward or downward as appropriate, to reflect such prorations:
(a) Transfer Taxes. All state and local real
estate transfer taxes and fees payable in connection with this Lease or any of
the transaction documents (including, without limitation, the short form lease)
relating hereto or the recording thereof shall be borne by Landlord.
(b) Real Estate Taxes, etc. Real property taxes
and all other ad valorem public or governmental charges against the Demised
Premises (including charges for sewer, water, drainage or other services)
assessed for a period in which the Commencement Date occurs shall be adjusted
and apportioned as of the Commencement Date and paid thereafter by Tenant in
accordance with Article V hereof.
(c) Personal Property Taxes. Personal property
taxes attributable to the value of the Personal Property and, if applicable, to
the extent taxable, the Other Assets for the period in which the Commencement
Date occurs shall be adjusted and apportioned as of the Commencement Date and
paid thereafter by Tenant in accordance with Article V hereof.
(d) Licenses, Service Contracts and Personal
Property Leases. All prepayments made or payments due under any continuing
Licenses (as defined in Section 13.9), Contracts (as defined in Section 13.6),
and Personal Property Leases (as defined in Section 13.26) affecting the Demised
Premises or Other Assets, including, without limitation, parking, garbage
removal, laundry and maintenance agreements, shall be adjusted and apportioned
as of the Commencement Date. Tenant shall assume all such obligations under such
continuing Licenses, Contracts and Personal Property Leases which arise (and
relate to the period) on and after the Commencement Date. Notwithstanding
anything to the contrary contained in this Lease, Landlord shall terminate any
and all service contracts, leases and/or other agreements affecting or related
to the Demised Premises which are with any person or entity that is affiliated
with Landlord, including without limitation, any and all Contracts and/or
Personal Property Leases other than those designated by Tenant pursuant to
Article XX hereof and Tenant shall have no obligations or liabilities with
respect thereto.
(e) Utilities. All prepayments made or payments
due with respect to utilities servicing the Demised Premises, including, without
limitation, water, sewer, electric, gas and utility bills, shall be adjusted and
apportioned as of the Commencement Date. Landlord shall use its best efforts to
have all utility meters read on the Commencement Date so as to accurately
determine the proration of current utility bills.
3.4 Other Prorations. All other charges and fees customarily
prorated and adjusted in similar transactions in the locale in which the Demised
Premises are situated shall be prorated as of the Commencement Date in
accordance with such custom. However, nothing contained herein shall operate to
subject Tenant to any liability of Landlord, and Tenant does not assume any
liability of Landlord, except as specifically set forth in this Lease.
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In the event that accurate prorations and other adjustments
cannot be made as of the Commencement Date because current bills or statements
are not obtainable (as, for example, utility bills), the parties shall prorate
such items upon receipt of the final bill or statement.
ARTICLE IV
TITLE AND POSSESSION
--------------------
4.1 Title and Authority. Landlord represents and warrants to
Tenant that Landlord owns the fee simple title to the Land, Leased Improvements,
Related Rights and Fixtures and Landlord owns marketable title to the Personal
Property and Other Assets, free and clear of all Liens (as defined in Section
13.10) other than as set forth on Schedules 13.10(a), 13.10(b) and 13.11(a) and
other than as described in Section 13.11(b), and Landlord has the right and
complete authority to enter into this Lease on the terms and conditions and for
the use and purposes herein stated. Said Schedules 13.10(a), 13.10(b), 13.11(a)
and 13.11(b) shall each be updated to the extent necessary on and as of the day
preceding the Commencement Date.
4.2 Leased Equipment. As of the Commencement Date, Landlord
shall furnish the Facility with the Personal Property and Fixtures
(collectively, the "Leased Equipment"), including, without limitation, those
items of the Personal Property and Fixtures set forth on Exhibit B hereto.
Landlord shall have no obligation to furnish the Facility with any Leased
Equipment after the Commencement Date. The Leased Equipment shall include all
the personal property, fixtures, equipment and furnishings necessary and
appropriate for the operation of the Facility by Tenant in accordance with the
standards for operations contemplated for the facility leased pursuant to that
certain Lease Agreement, dated of even date herewith, between The Homestead of
Garden City, L.C., as landlord, and Integrated Living Communities at Garden
City, Inc., as tenant; all of such Leased Equipment being leased to Tenant
pursuant to the terms of this Lease. No additional rent, beyond Annual Rent
provided for in Article III hereof, shall be paid by Tenant for the Leased
Equipment.
4.3 Surrender of Possession. At the end of the Lease Term, or
upon the earlier termination of this Lease, Tenant, at its sole cost and
expense, shall surrender the Demised Premises to Landlord in the same good
condition and state of repair as they were in at the Commencement Date, ordinary
wear and tear and, except as otherwise provided in this Lease, damage by fire or
other casualty excepted, and shall convey and transfer to Landlord such portion
of the Other Assets as shall not have been used, depleted or consumed in the
ordinary course of the operation of the Facility and, subject to Section 8.2
hereof, shall also convey and transfer to Landlord any replacements and
accessories thereto acquired by Tenant during the Lease Term, to the extent the
same continue in existence at the end of the Lease Term.
4.4 Holding Over. If Tenant remains in possession of the
Demised Premises after the expiration of the Lease Term, except as otherwise
provided in the Option Agreement (as hereinafter defined), such possession shall
be as a tenant at sufferance. During such occupancy, rent shall be payable equal
to 150% times the monthly amount of Annual Rent payable during the
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last month of the Lease Term, and the provisions of this Lease shall be
applicable and continue in full force and effect. However, Landlord's acceptance
of any rent payments and the terms of this Section 4.4 shall not constitute a
renewal of this Lease or give Tenant any right to continue to occupy the Land on
a month-to-month basis or otherwise. Notwithstanding the foregoing, if Tenant is
unable to surrender the Demised Premises because Landlord fails to provide a
qualified and duly licensed operator (a "Proper Successor") for the Facility at
the end of the Lease Term to take over the operation and management of the
Facility, Tenant shall have the right, but shall not be obligated to, remain in
possession of the Demised Premises and continue to operate and manage the same
if Tenant would be legally prohibited from abandoning the Demised Premises or in
Tenant's judgment, abandoning the Demised Premises without a Proper Successor in
place to continue the operations of the Facility would jeopardize its (or its
affiliates') reputation as a provider of residential congregant, nursing and/or
assisted living facility care or could otherwise subject it (or its affiliates)
to liability. In the event Tenant remains in possession of the Demised Premises
pursuant to the immediately preceding sentence, Tenant shall (a) pay to Landlord
as gross rent during such occupancy 90% the Annual Rent payable by Tenant in the
last Lease Year of the Lease Term and (b) surrender possession of the Demised
Premises within ten (10) days after Landlord provides a Proper Successor to take
over the operation and management of the Facility.
ARTICLE V
TAXES, ASSESSMENTS AND UTILITIES
--------------------------------
5.1 Real Estate Taxes. Tenant, at its sole cost and expense,
shall pay when due all ad valorem general real estate taxes, betterment or other
assessments and transit taxes (collectively, "Impositions") which are assessed
against, levied, imposed upon, become a lien or become due and payable with
respect to or upon the Demised Premises, and no other property, and which first
become due and payable, or any installments thereof which become due and
payable, on and after the Commencement Date and during the Lease Term. Tenant
shall provide Landlord with copies of all receipts received in connection with
the payment of such taxes and assessments within twenty (20) days after
Landlord's request prior to the date interest or penalties on such taxes and
assessments would be imposed. Tenant shall have the right, at its sole cost and
expense and in good faith, to contest the amount or validity of any such
Imposition payable by Tenant under the terms of this Lease, provided, however,
that if at any time payment of any such Imposition shall become necessary to
prevent the tax sale of the Demised Premises or any portion thereof because of
nonpayment, then Tenant shall pay the same in sufficient time to prevent such
sale. Landlord shall join, at Tenant's sole cost and expense, in any proceedings
referred to above, and hereby agrees that the same may be brought in its name,
if the provisions of any law, rule or regulations at the time, in effect shall
require that such proceedings be brought by and/or in the name of Landlord or
any owner of the Demised Premises. Tenant shall be entitled to any refund of any
Impositions, and all penalties or interest thereon, received by Landlord which
shall have been paid by Tenant, or which shall have been paid by Landlord but
previously reimbursed in full by Tenant. Provided that no Event of Default shall
have occurred and be continuing, Landlord shall not, without Tenant's prior
approval, make or agree to any settlement, compromise or other disposition of
any such proceedings or discontinue or withdraw any such proceedings or accept
any refund or other adjustment of or credit for any Imposition as a result of
any such
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proceedings. Landlord hereby appoints Tenant the attorney-in-fact of Landlord
for the purpose of making all payments to be made by Tenant pursuant to any of
the provisions of this Lease to persons or entities other than Landlord.
Notwithstanding anything to the contrary contained in this Lease, if, by not
later than thirty (30) days prior to the final date for contesting the validity
or amount of any real estate taxes and assessments with respect to the last
Lease Year of the Lease Term, Tenant shall not have advised Landlord that Tenant
intends to conduct such contest, Landlord will have the right (but not the
obligation) to contest the validity and/or amount of such Impositions for the
last Lease Year of the Lease Term without the consent of Tenant, but at
Landlord's sole cost and expense.
5.1.1 If at any time during the Lease Term the methods of
taxation of Impositions prevailing at the
commencement of the Initial Term hereof shall be
altered so that in lieu of, or as a supplement to, or
a substitute for, the whole or any part of the
Impositions then levied, assessed or imposed on the
Demised Premises, any of the following are levied,
assessed or imposed:
(a) a tax, assessment, levy, imposition or
charge, wholly or partially as a capital levy or otherwise, on the rents
received therefrom; or
(b) a tax, assessment, levy (including but not
limited to any municipal, state or federal levy), imposition or charge measured
by or based in whole or in part upon the Demised Premises and imposed upon
Landlord; or
(c) a license fee measured by the rent payable
under this Lease;
then, in such event, all such taxes, assessments, levies, impositions, and
charges, or the part thereof so measured or based, shall be deemed to be
included in the Impositions payable by Tenant pursuant to this Section 5.1, to
the extent that such taxes, assessments, levies, impositions and charges would
be payable if the Demised Premises were the only property of Landlord subject
thereto, and Tenant shall pay and discharge the same as herein provided in
respect of the payment of general real estate taxes and assessments.
5.1.2 Impositions shall not include any income, excess
profit, estate, inheritance, succession, transfer,
franchise, capital or other tax or assessment upon
Landlord or (unless in substitution, as herein
provided) upon the rentals payable under this Lease,
all of which shall be the sole obligation of
Landlord. The real estate taxes on the Demised
Premises during any year shall mean such amounts as
shall be finally determined, after deducting
abatements, discounts, refunds or rebates, if any, to
the Impositions payable with respect to the Demised
Premises during said year.
5.1.3 Any Impositions which become due for the year in
which possession is given to Tenant but which are
payable with respect to a period prior to the
Commencement Date shall be prorated for the calendar
year between Landlord and Tenant as provided in
Section 3.3 hereof and such proration
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shall also occur at the end of the Lease Term for the
calendar year of termination.
5.1.4 If Landlord shall have the right to elect the period
over which any Impositions are payable, Landlord
agrees to elect and Tenant may make such payments
over the longest period of time available.
5.2 Personal Property Taxes. Beginning on the Commencement
Date, Tenant, at its sole cost and expense, shall pay when due all personal
property taxes and assessments (if any) assessed against, levied, imposed upon,
or which would become a lien or become due and payable with respect to, or upon
any of Tenant's tangible or intangible personal property or the Leased Equipment
or the Other Assets, during the Lease Term. Tenant shall provide Landlord with
copies of all receipts received in connection with the payment of such taxes and
assessments not less than ten (10) days prior to the date interest or penalties
on such taxes and assessments would be imposed. Any personal property taxes and
assessments which become due for the year in which possession is given to Tenant
but which are payable with respect to a period prior to the Commencement Date
shall be prorated for the calendar year between Landlord and Tenant as provided
in Section 3.3 hereof and such proration shall also occur at the end of the
Lease Term for the calendar year of termination.
5.3 Sewer Use Fees. Beginning on the Commencement Date,
Tenant, at its sole cost and expense, shall pay when due all sewer use fees,
rents, charges and deposits assessed against, levied, imposed upon, or which
would become a lien or become due and payable with respect to, or upon the
Demised Premises, during the Lease Term. Tenant shall provide Landlord with
copies of all receipts received in connection with the payment of such fees,
rents, charges and deposits not less than ten (10) days prior to the date
interest or penalties on such fees or deposits would be imposed.
5.4 Utilities. Beginning on the Commencement Date, Tenant, at
its sole cost and expense, shall obtain in its name and pay when due all charges
and deposits for gas, water, electricity, cable television, trash, telephone,
communication services, and all other utilities used on or supplied to the
Demised Premises, during the Lease Term.
ARTICLE VI
USE OF DEMISED PREMISES
-----------------------
6.1 Use by Tenant. Tenant shall use the Demised Premises for
the business purpose of a residential congregant, nursing care and/or assisted
living facility and all related and ancillary medical and therapeutic services,
and for no other purpose without Landlord's consent, which consent shall not be
unreasonably withheld or delayed.
6.2 Compliance with Laws. Except as otherwise provided in this
Section 6.2, and in Sections 8.1.4, 8.1.5, and 8.1.6, Tenant, in operating the
Demised Premises, at its sole cost and expense, shall comply with all applicable
city, county, state and federal building codes,
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ordinances, rules, regulations and laws applicable to the Demised Premises,
notices from the issuer of the Facility's fire hazard or casualty policy, and
each covenant, condition or restriction of record which is a Permitted Exception
(as hereinafter defined).
Without limiting the generality of the foregoing provisions of
this Section 6.2, except as otherwise provided in this Lease, Tenant, at its
cost and expense, shall comply with all Environmental Laws (as hereinafter
defined) that are applicable to its operation of the Demised Premises,
including, but not limited to, the use, handling, treatment, storage,
transportation and disposal of any hazardous, toxic or infectious waste,
material or substance (including Medical Waste) and petroleum products, material
or waste. Landlord, at its cost and expense, shall comply with all Environmental
Laws in connection with the previous, present and/or future use, handling,
treatment, storage, transportation and disposal of any such waste, material,
substance and products at or on the Demised Premises by anyone other than
Tenant, or its employees, agents, contractors, invitees, residents, patients or
clients.
6.3 Waste. Tenant shall neither commit, nor permit the
commission of waste upon or against the Demised Premises, ordinary wear and tear
excepted.
6.4 License and Permits. Tenant at its sole cost and expense,
shall acquire and maintain all licenses and permits needed to operate the
Demised Premises for the then applicable use permitted herein. Tenant, as a
provider of residential care services, shall comply with all applicable rules,
regulations, laws, statutes, orders, ordinances and requirements, and will
maintain its certifications for reimbursement and licensure, and its
accreditation, if compliance with accreditation standards is required to
maintain the operations of the Facility.
6.5 Landlord's Repairs. Landlord shall have no obligation
to make improvements, alterations, replacements or repairs to the Demised
Premises, except as may be expressly provided herein.
6.6 Conflict with Insurance Policies. Tenant shall not permit
any use of the Demised Premises which would invalidate any policy of insurance
or which would increase the premiums for any insurance policy carried by or for
the benefit of Landlord unless Tenant pays any such increase in premiums.
ARTICLE VII
EMINENT DOMAIN
--------------
7.1 Permanent or Temporary Taking. If after the execution of
this Lease all or any part of the Demised Premises is acquired on a permanent or
temporary basis by any federal, state or local governmental agency, by means of
condemnation or threat of condemnation, or by reason of mutual agreement between
Landlord, Tenant, and said governmental agency, this Article VII shall control.
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7.2 Compensation. All compensation awarded for any taking
(including, but not limited to, loss of leasehold) shall belong to and be the
property of Landlord; provided, however, that Tenant shall be entitled to any
portion of the award made to Tenant for its loss of business, depreciation to or
for the cost of removal of stock, fixtures, equipment (other than the Leased
Equipment) or signs, moving expenses, relocation costs or any other allowances
to which Tenant may be legally entitled. This Lease shall not preclude the right
of Tenant to pursue an independent action for damages against any governmental
agency for said taking, provided, however that in no event shall any resulting
award to Tenant reduce the amount of the award to which Landlord may be
entitled. In any event, Landlord shall not be liable to Tenant for any damages.
7.3 Effect on this Lease of Permanent Taking. In the event
that the whole of the Demised Premises is taken permanently by any method, then
this Lease shall terminate as of the date title to the Demised Premises vests in
the governmental agency. Such date of vesting shall operate as though it were
the date originally intended by the parties for expiration of this Lease and
Tenant shall pay Annual Rent and Landlord shall refund to Tenant any
overpayments of Annual Rent or other charges within five (5) days after the date
of such vesting and all other obligations hereunder accrued (prorated as
appropriate) to the date of such vesting.
In the event a substantial and material portion (as
hereinafter defined) of the Demised Premises are taken permanently, then Tenant
shall have the option to terminate this Lease by giving Landlord at least ninety
(90) days' written notice. If Tenant does not elect to terminate this Lease or
if less than a substantial and material portion of the Demised Premises are
taken, then this Lease shall terminate only as to the part of the Demised
Premises taken and Annual Rent shall be reduced for the remainder of the Lease
Term by a just, fair and equitable proportion of Annual Rent payable according
to the size, nature and extent of the property that is taken. Any adjustments or
reductions in Annual Rent, as contemplated by this Section shall take into
account the practical and economic effect of the taking in question on the
operation of the Demised Premises. In the event that a substantial and material
part of the Demised Premises is temporarily taken in excess of three hundred
sixty-five (365) consecutive days, then such taking shall be deemed a permanent
taking for purposes of this Lease. It shall be presumed that the taking is
"substantial and material" if (a) the Kansas Department of Health and
Environment permanently closes the Demised Premises whether in whole or in part
because of such taking for use as a nursing care and/or assisted living
facility, or (b) if in Tenant's reasonable business judgment the portion of the
Demised Premises not so taken is inadequate to continue to operate the Facility
in a commercially profitable manner as a nursing care and/or assisted living
facility, as the case may be according to the then actual use by Tenant.
In the event that the Demised Premises become landlocked by
such taking for a period in excess of three (3) consecutive days and reasonable
alternative access cannot be provided within five (5) days after such
occurrence, then Annual Rent shall abate until access or reasonable alternative
access is provided to the Demised Premises; provided that if such access or
reasonable alternative access cannot be provided within thirty (30) days after
such occurrence, then Tenant shall have the right to terminate this Lease by
written notice to Landlord, which shall terminate this Lease sixty (60) days
after such notice.
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7.4 Effect on this Lease of Temporary Taking. In the event
that all or part of the Demised Premises are taken for a temporary use, Annual
Rent shall be reduced and abated by a just, fair and equitable proportion of
Annual Rent payable according to the size, nature and extent of the property
that is taken. Any adjustments or reductions in Annual Rent, as contemplated by
this Section shall take into account the practical and economic effect of the
taking in question on the operation of the Demised Premises. Tenant shall
continue to perform all other conditions of this Lease as though the taking or
condemnation had not occurred, except to the extent that Tenant shall be
prevented from doing so by reason of the taking or condemnation and except for
the abatement of Annual Rent as provided herein. Neither party to this Lease
shall have any right to terminate this Lease by reason of a temporary taking of
all or part of the Demised Premises, except as stated in Section 7.3 above.
7.5 Restoration. If any building or improvement on the Demised
Premises or any replacement thereof shall be damaged or partially destroyed by
any such taking of less than all or substantially all thereof and this Lease
shall not be terminated by reason thereof, Tenant shall be entitled to receive
such portion of any award to which Landlord may be entitled, as will be
sufficient to pay for the costs of restoring and rebuilding such building(s) and
improvement(s) and within ninety (90) days after receipt by Tenant of such sum,
Tenant shall proceed with reasonable diligence to conduct any necessary
demolition and to repair, replace or rebuild, any remaining part of said
building(s) and improvement(s), or of any replacement thereof not so taken, so
as to constitute such remaining part thereof a complete, useable building in
substantially the same condition and repair as the building(s) and improvements
were in prior to any such taking; and Tenant shall hold that portion of any
award received by Tenant pursuant to this Section in trust to apply the same to
the cost and expense of such demolition, repairing, replacing and rebuilding. If
the cost of any work necessary to repair, replace or rebuild (including any
necessary demolition work) any damage to or destruction of the building(s) and
improvement(s) or any replacement or replacements thereof shall equal or exceed
an aggregate cost of One Hundred Thousand ($100,000) Dollars, the same shall be
conducted under the supervision of an architect or engineer selected by Tenant
and approved in writing by Landlord, which approval Landlord agrees shall not be
unreasonably withheld or delayed. Whenever pursuant to this Section Tenant is
entitled to receive the proceeds of an award in excess of $100,000 in amount for
the purpose of applying the same to the cost of demolishing, repairing,
replacing or rebuilding, such proceeds shall be paid to the Insurance Trustee
provided for in Article XV, to be disposed of by such Insurance Trustee in the
manner provided in Article XII.
ARTICLE VIII
ALTERATIONS, REPAIRS and TRADE FIXTURES
---------------------------------------
8.1 Repairs by Tenant Generally.
8.1.1 Except as otherwise expressly provided in this Lease,
including without limitation, in this Article VIII
and in Articles VII, XII and XXII, Tenant shall be
responsible for the performance, at its sole cost and
expense, of all necessary repairs, replacements,
alterations and improvements, whether or
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not in order to comply with all applicable laws,
regulations and municipal ordinances, (collectively,
"Repairs") to the Demised Premises. This obligation
to perform Repairs shall include, at its sole cost
and expense, inspecting, keeping, maintaining,
repairing and replacing the interior, exterior,
structural and nonstructural improvements,
alterations and other components on the Demised
Premises so as to keep the improvements and interior
decorations in substantially the same condition as
they were in on the Commencement Date, subject to
depreciation and ordinary wear and tear, and in a
safe condition, free from dirt, water, snow, ice,
refuse, trash and obstruction and shall also include,
but not be limited to, signs, glass, landscaping, any
air conditioning, heating, electrical, ventilating,
parking areas and driveways, plumbing systems, roof,
walls and all interior and exterior cleaning,
painting, repairs and replacements on or at the
Demised Premises. Tenant shall not voluntarily alter
any structural part of the Leased Improvements or
demolish, remove, or materially and permanently alter
any permanent improvement in or on the Land or make
permanent additions thereto the cost of which, in the
case of any single alteration or addition, exceeds
$50,000 or, in the case of all such alterations or
additions in any Lease Year, exceeds in the aggregate
$250,000, without the prior written consent of
Landlord, which consent shall not be unreasonably
withheld or delayed; provided, however, that
Landlord's consent shall not be required with respect
to any such Repairs which are required in order to
comply with applicable laws, regulations or municipal
ordinances or in the case of an emergency or any
other situation where bodily harm is threatened or
Tenant is exposed to liability if such Repairs are
not made. In addition, Tenant may perform any other
non-structural alterations and additions to the
Demised Premises without Landlord's consent so long
as Tenant gives a copy of the plans and
specifications, if any, to Landlord within ten (10)
days prior to making such alterations and/or
additions; provided further that cosmetic
modifications and decorations that are substantially
consistent with the quality of the original materials
and decorations that were used in the Facility may be
made by Tenant without any notification to Landlord.
8.1.1.1 The dollar amounts set forth in this paragraph 8.1.1
shall be adjusted and increased each Lease Year by an amount equal to the
product resulting from multiplying each of said dollar amounts by a fraction the
numerator of which is the Price Index published for the first calendar month of
the Lease Year with respect to which the adjustment is being made, and the
denominator of which is the Base Price Index.
8.1.1.2 As used in this Lease the following terms shall have
the following respective meanings:
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(i) "Price Index" shall mean the
"Revised Consumer Price Index for All Urban Consumers (the CPI-U) published by
the Bureau of Labor Statistics of the United States Department of Labor, for All
Cities area, All Items, (1982-84=100)"; and
(ii) "Base Price Index" shall mean the
Price Index published for the calendar month in which the Commencement Date
occurs or if not published for such month, then the closest preceding month for
which a Price Index is available.
8.1.1.3 In the event the Price Index shall hereafter be
converted to a different standard reference base or otherwise revised, the
determination of the adjusted dollar amounts hereunder shall be made with the
use of such conversion factor, formula or table for converting the Price Index
as may be published by the Bureau of Labor Statistics, or Prentice Hall, Inc. or
any other nationally recognized publisher of similar statistical information. If
at any time during the Lease Term the Price Index shall no longer be published
by said Bureau, then any comparable index issued by said Bureau or similar
agency of the United States issuing similar indices shall be used for the
purposes of making the adjustments under Article III and under this Article
VIII, the same, however, to be appropriately adjusted in order to give effect to
the intent of the foregoing provisions of this Lease. In the event that the U.S.
Department of Labor, Bureau of Labor Statistics, changes the publication
frequency of the Price Index so that a Price Index is not available to make a
cost-of-living adjustment as herein provided in Article III or this Article VIII
for the month specified, the cost-of-living adjustment to be made thereunder
shall be based on the percentage difference between the Price Index for the
closest preceding month for which a Price Index is available and the Base Price
Index.
8.1.2 Tenant shall keep the Demised Premises free from any
mechanic's, materialman's, or similar liens and
encumbrances and any claims therefor in connection
with any Repairs and Tenant shall remove any such
lien or encumbrance, by bond or otherwise, within
thirty (30) days after notice from Landlord of the
same. If Tenant fails to do so, Landlord may pay the
amount of such claim or take such other action as
Landlord deems reasonably necessary to remove such
claim, lien, or encumbrance after investigating the
validity thereof. The amount so paid and costs
incurred by Landlord shall be deemed additional rent
under this Lease, payable on demand, when accompanied
by detailed information and invoices regarding such
amount. Nothing in this Lease shall be deemed a
consent by Landlord to the filing of any lien on
Landlord's interest in the Demised Premises and any
such liens shall attach solely to Tenant's interest
in the Demised Premises and shall in all respects be
subordinate to Landlord's interest in the Demised
Premises. Tenant shall not do anything or permit
anything to be done upon the Demised Premises which
will materially and adversely affect the safety or
security of the Demised Premises, which will increase
the rate of fire or casualty insurance upon the
building or its contents, without Landlord's written
consent, which consent shall not be unreasonably
withheld or delayed, or which will cause structural
damage to the Demised Premises or any Leased
Improvements. Except for trade
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fixtures, any improvements made to the Demised
Premises shall become the property of Landlord, free
of charge, if affixed to the realty.
8.1.3 Tenant's obligation to perform Repairs shall also
include without limitation the repair and maintenance
of Leased Equipment and the replacement from time to
time of obsolete, damaged or unsightly Leased
Equipment, so as to keep the same in good operating
condition consistent with a nursing care or assisted
living facility, whichever is being operated at the
Demised Premises at the time in question.
Notwithstanding anything to the contrary contained in
this Lease, any Leased Equipment which is leased or
the subject of a conditional sales agreement or other
finance arrangement at the commencement of the
Initial Term and any replacement(s) of such Leased
Equipment may be encumbered similarly during the
Lease Term.
8.1.4 Notwithstanding anything to the contrary contained in
this Lease, if Tenant is required to make any
expenditures for Repairs (whether or not in order to
comply with all applicable laws, regulations and
municipal ordinances) to the Demised Premises during
the last two Lease Years of the Lease Term (excluding
Repairs that are required to be made as a result of
Tenant's, or Tenant's agents', employees' or
contractors' negligence or wilful misconduct), which
expenditures according to generally accepted
accounting principles ("GAAP") should be capitalized
(such expenditures being hereinafter collectively
called "Capital Expenditures") and if any such
Capital Expenditure is a Major Capital Expenditure
(as hereinafter defined), Tenant shall send to
Landlord a notice of such circumstance, which notice
shall specify the nature of the repair, replacement,
alteration or improvement for which the Major Capital
Expenditure is being incurred (hereinafter called a
"Capital Improvement") and the estimated cost of such
Capital Improvement. Tenant shall only be obligated
to pay that portion ("Tenant's Share") of the cost of
such Capital Improvement as shall be equitably
apportioned to it taking into consideration the
reasonable useful life (according to GAAP) of such
Capital Improvement and the unexpired Lease Term and
the cost of such Capital Improvement in excess of
Tenant's Share (such excess cost being hereinafter
called "Landlord's Share") shall be borne by
Landlord. Tenant shall only be obligated to make the
Capital Improvement if, within ten (10) business days
after Landlord receives Tenant's above-described
notice, Tenant and Landlord agree on the
determination of Tenant's Share and Landlord's Share
of such Major Capital Expenditure and the manner in
which Landlord will pay and/or reimburse Landlord's
Share to Tenant. If the parties cannot agree on an
equitable sharing of any such Major Capital
Expenditure or the manner of payment and/or
reimbursement, Tenant may (i) seek to have the matter
resolved by arbitration as elsewhere provided in this
Lease prior to undertaking to perform any such
Capital Improvement, (ii) perform any such Capital
Improvement and during and/or after the performance
thereof
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seek to have the matter resolved by arbitration as
elsewhere provided in this Lease, in which case
immediately upon resolution of such matter Landlord
shall pay to Tenant and/or reimburse Tenant for
Landlord's Share of the cost thereof, or (iii)
terminate this Lease upon not less than thirty (30)
days prior written notice to Landlord. In the event
that after allocating Landlord's and Tenant's
respective Shares of the cost of a Capital
Improvement, Tenant exercises a renewal option,
Tenant shall reimburse Landlord for the unamortized
amount of Landlord's Share of any such cost
theretofore paid by Landlord with interest thereon at
the rate per annum set forth in Article III hereof.
As used herein, a "Major Capital Expenditure" means any
Capital Expenditure which is required to be made during the last two Lease Years
of the Lease Term and which exceeds $25,000 individually, or which, when added
to all other Capital Expenditures theretofore incurred by Tenant during such
period, exceeds $100,000.
8.1.5 Notwithstanding anything to the contrary contained in
this Lease, Tenant shall not be obligated to make or
to pay for any Repairs that are required as a result
of the negligence or wilful misconduct of Landlord,
or any of its or its affiliates' (which shall include
an affiliate of The Homestead Company, L.C. or of
Jack West), employees, agents or contractors or as
provided in paragraph 8.1.6 below.
8.1.6 Landlord agrees that if at any time or times any
governmental authorities or insurance rating bureaus
having jurisdiction shall complain that the Demised
Premises, or any portion thereof, were not
constructed in compliance with any law, ordinance or
regulation of any governmental authority or insurance
rating bureau having jurisdiction and shall request
compliance, then Landlord shall, upon receipt of
notice of such complaint, cause such repairs,
alterations or other work to be done so as to bring
about the compliance requested.
8.2 Quality and Promptness of Repairs and Replacements;
Ownership of Replacements and Warranties. All repairs and replacements made by
Tenant shall be made when reasonably necessary and within a reasonably prompt
period of time; shall be with new or like-new materials of at least equal or
better value, utility and condition to that which the same was in at the
commencement of the Initial Term, taking into consideration the quality of
materials and workmanship of the same, and shall be done in compliance with all
applicable laws, codes, ordinances, rules, regulations and statutes of the city,
county, state and federal governments.
Any such replaced Leased Equipment shall be and remain the
property of Landlord; provided, however, that if any item of Leased Equipment is
replaced by Tenant during the Lease Term at Tenant's sole cost and expense with
an upgraded item of Leased Equipment, then Tenant shall have the right prior to
the end of the Lease Term to either remove such upgraded item and
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replace the same with a like item of Leased Equipment of equal or better
quality, design and function as existed on the Commencement Date.
Landlord agrees that it will give to Tenant the benefit of all
warranties and guarantees they may have received or be entitled to from any of
their contractors or materialmen with respect to the Demised Premises and that
Tenant may enforce the same either in Tenant's name or in Landlord's name.
8.3 Liability of Landlord. Except if caused by Landlord's
breach of this Lease or by the negligence or willful misconduct of Landlord or
of any of its affiliates' (which shall include an affiliate of The Homestead
Company, L.C. or of Jack West), employees, agents or contractors, all property
belonging to Tenant or any occupant of the Demised Premises shall be there at
the risk of Tenant or such other occupant only, and Landlord shall not be liable
for theft or misappropriation thereof, or loss or damage to any such property
due to vandalism, water, rain, snow, frost, fire, storm or accident, or by
breakage, stoppage or leakage of water, gas, heating or sewer pipes or plumbing,
upon, about or adjacent to the Demised Premises or by any other cause.
8.4 Removal of Personal Property. Provided that Tenant has not
accepted an offer to purchase the Demised Premises and Other Assets pursuant to
the Right of First Refusal Agreement, dated of even date herewith, between
Landlord and Tenant (the "Right of First Refusal"), or has not exercised its
option to purchase the Demised Premises and Other Assets pursuant to a separate
Purchase Option Agreement by and among the parties hereto, executed of even date
herewith (the "Option Agreement"), upon the expiration or termination of this
Lease, Tenant, at its sole cost and expense, shall remove from the Demised
Premises all of Tenant's personal property and equipment. If any disfigurement
or damage results from such removal, repairs shall be made by Tenant at its
expense to restore the Demised Premises to its original condition, ordinary wear
and tear excepted.
If upon surrender to Landlord of possession of the Demised
Premises, Tenant, at its sole cost and expense, does not within ten (10) days
after Landlord's demand remove Tenant's personal property and equipment,
Landlord, at Landlord's election, shall have the right to treat Tenant's
property as having been abandoned by Tenant to Landlord without any payment or
offset.
ARTICLE IX
SIGNS
-----
Tenant shall have the right to place upon the Demised Premises such
sign or signs as it may desire, at Tenant's sole cost and expense. All signs
shall comply with all applicable federal, state and local statutes, rules,
regulations and ordinances. Tenant shall maintain such signs in a good state of
repair and shall repair any damage to the Demised Premises caused by the
erection, maintenance or removal at the termination of this Lease of such signs.
Upon the termination of this Lease, all signs of Tenant shall be removed in
accordance with Section 8.4.
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ARTICLE X
ASSIGNMENT, SUBLETTING AND SUBORDINATION
----------------------------------------
10.1 Assignment or Subletting by Tenant. Except as hereinafter
provided, Tenant shall not assign, transfer, pledge, hypothecate or encumber
this Lease or any interest herein, or sublet the Demised Premises or any part
thereof or any right or privilege appurtenant thereto, or allow any person other
than Tenant and its agents, managers, concessionaires, licensees, employees,
residents, patients and medical staff to occupy or use the Demises Premises or
any part thereof without Landlord's prior written consent, which consent shall
not be unreasonably withheld or delayed. Notwithstanding the foregoing,
Landlord's consent shall not be required for, and this Section 10.1 shall not
prohibit, (i) an assignment to a corporate parent, affiliate or subsidiary of
Tenant, or any joint venture, partnership or other entity, provided such
assignee is either Integrated Living Communities, Inc. ("ILCI") or is
"controlled" directly or indirectly by ILCI (the term "control" as used herein
shall be deemed to mean ownership of at least 50% of the outstanding voting
stock of a corporation, or other majority equity and voting interest if not a
corporation); (ii) an assignment in connection with the sale of ten percent
(10%) or more of ILCI's assets and (iii) an assignment in connection with a
merger or consolidation. Any unauthorized assignment or sublease shall be
voidable and shall constitute a breach of this Lease at Landlord's option. No
assignment of this Lease shall be binding on Landlord until (a) a duplicate
original of such assignment, duly executed by the assignor shall be delivered to
Landlord, and (b) the assignee shall execute and deliver to Landlord an
instrument in and by which the assignee shall assume and agree to perform, from
and after the effective date of the assignment, all of the terms, covenants and
conditions of this Lease on Tenant's part to be performed. At least thirty (30)
days prior to the effectiveness of any assignment as to which Landlord's consent
is required, Tenant shall deliver to Landlord a package of relevant information
concerning the assignee. For purposes of this Lease, any sale or transfer of a
controlling interest in Tenant shall be deemed an assignment of this Lease. No
assignment, sale, transfer, pledge, hypothecation or encumbrance shall relieve
Tenant of any obligation contained in this Lease. Tenant shall pay all of
Landlord's reasonable costs and expenses (not in excess of $2,500), including
reasonable attorney's fees, incurred in connection with any assignment, sale,
transfer, pledge, hypothecation, encumbrance or sublease, for which Landlord's
consent is required.
10.2 Leasehold Mortgages. Tenant shall have the right from
time to time to pledge, hypothecate, encumber or mortgage this Lease (each
herein referred to as a "leasehold mortgage"). Landlord hereby expressly agrees
that the holder of such leasehold mortgage shall be entitled to all of the
rights, privileges and powers afforded to the holder or holders of leasehold
mortgages under this and other Articles of this Lease.
10.2.1 Notwithstanding anything to the contrary contained in
this Lease, if so requested by the holder of any
leasehold mortgage, any notice from Landlord to
Tenant shall be simultaneously delivered to such
leasehold mortgagee at his or its address, and no
notice of default or termination of this Lease given
by Landlord to Tenant shall be deemed legally
effective until and unless notice of such default and
notice of such termination shall
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have been given by Landlord to such leasehold
mortgagee. Such leasehold mortgagee entitled to such
notice shall have and be subrogated to any and all
rights of Tenant with respect to any default
hereunder by Tenant. Without impairing the generality
of the foregoing right of subrogation, it is
specifically agreed that any such leasehold mortgagee
shall have the right to appoint an arbitrator, in
case Tenant shall fail to make such appointment after
written notice from Landlord as provided in Article
XVI hereof (a copy of which notice shall have been
simultaneously given to such leasehold mortgagee),
and, for this purpose, shall have an additional
period of fifteen (15) days to make such appointment,
and the arbitrator so appointed shall thereupon be
recognized in all respects as if he or she had been
appointed by Tenant.
10.2.2 Landlord will not accept any surrender, cancellation
or enter into any modification of this Lease without
the prior written consent thereto of the holder of
any leasehold mortgage who shall become entitled to
notice as provided above.
10.2.3 If, by reason of any default by Tenant, this Lease
shall be terminated at the election of Landlord prior
to the stated expiration thereof, Landlord will enter
into a new lease of the Demised Premises and the
Other Assets with such leasehold mortgagee (i.e. the
holder of a mortgage on this Lease who shall become
entitled to notice, as provided above) or its nominee
for the remainder of the term effective as of the
date of such termination, at the same Annual Rent and
upon the same terms, provisions, covenants and
agreements herein contained, subject, however, to the
rights, if any, of any parties then in possession of
any part of the Demised Premises, provided (a) said
leasehold mortgagee shall make written request upon
Landlord for such new lease within forty-five (45)
days after the date of such termination and such
written request is accompanied by payment to Landlord
of all sums which would then be due to Landlord under
this Lease but for the termination thereof, the
amount of which Landlord agrees to advise such
leasehold mortgagee of in writing upon request; (b)
said leasehold mortgagee pays to Landlord, at the
time of the execution and delivery of said new lease,
any and all sums and reasonable expenses, including
reasonable attorneys' fees, to which Landlord shall
have been subjected or paid by reason of such
default, the amount of which sums and expenses
Landlord agrees to advise such leasehold mortgagee of
in writing upon request, and (c) said leasehold
mortgagee shall, on or before execution and delivery
of said new lease, perform and observe all the other
covenants and conditions herein contained on Tenant's
part to be performed and observed but for such
termination to the extent that Tenant shall have
failed to perform and observe the same, Landlord
hereby agreeing to advise such leasehold mortgagee in
writing, upon request, of the covenants and
conditions which Tenant shall have failed to perform
and the extent of such
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failure. If during such period of forty-five (45)
days requests for such new lease shall be made by
more than one leasehold mortgagee, then provided the
provisions of this Section are complied with,
Landlord shall be required to execute and deliver
such new lease to that leasehold mortgagee (or the
nominee thereof) lowest in order of priority of lien
who (i) cures all defaults under all prior leasehold
mortgages, (ii) delivers to Landlord certificates or
letters from the holders of all prior leasehold
mortgages which certify or state that no default then
exists under such prior leasehold mortgages and (iii)
executes and delivers, at the time of the execution
of such new lease, new mortgages to the holders of
all prior leasehold mortgages on this Lease having
the same terms and conditions, and securing the same
amounts, as such prior leasehold mortgages. Upon the
execution and delivery of such new lease, any
subleases which may have theretofore been assigned
and transferred to Landlord shall thereupon be
assigned and transferred, without recourse, by
Landlord to the new tenant. Such new lease shall have
the same rights and priorities as this Lease.
10.2.4 If Landlord shall elect to terminate this Lease by
reason of any default other than a default in the
payment of money, the then holder of any leasehold
mortgage on this Lease who shall have become entitled
to notice, as provided in this Article, shall not
only have and be subrogated to any and all rights of
Tenant with respect to curing of any default and have
the right to obtain a new lease as above provided,
but shall also have the right to postpone and extend
the specified date for the termination of this Lease,
as fixed by Landlord in a notice of termination, for
a period of not more than six (6) months (subject to
extension as provided below), provided such leasehold
mortgagee shall thereafter promptly cure all defaults
which may be cured by the payment of a sum of money
and undertake to cure any other then existing default
of Tenant and shall forthwith initiate steps to
acquire Tenant's interest in this Lease by
foreclosure of its mortgage or otherwise. Such right
shall be exercised by such leasehold-mortgagee's
giving Landlord notice of the exercise of the same
prior to the termination date fixed in Landlord's
notice of termination. If, before the date specified
for the termination of this Lease as extended by such
leasehold-mortgagee, Tenant shall be duly removed
from possession, and if an assumption of performances
and observance of the covenants and conditions herein
contained on Tenant's part to be performed or
observed shall be delivered to Landlord by the
leasehold mortgagee, or its nominee, then and in such
event the default under this Lease shall be deemed
cured and removed; and provided, further, that if at
the end of said six (6) month period such leasehold
mortgagee shall be actively engaged in steps to
acquire Tenant's interest herein, the time of such
leasehold mortgagee to comply with the provisions of
this Article shall be extended for such additional
period or periods as shall be necessary to complete
such steps with diligence, provided that during such
extension no further default shall occur
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hereunder. Any payment to be made or action to be
taken by a leasehold mortgagee under this Article as
a prerequisite in obtaining a new lease or keeping
this Lease in effect shall be deemed properly to have
been made or taken by a leasehold mortgagee if such
payment is made or action taken by a nominee or agent
of such leasehold mortgagee.
10.3 Subordination and Attornment. Landlord covenants,
represents and agrees that this Lease, as the same may be modified, amended or
renewed, shall not be subject or subordinate to any mortgage or mortgages now or
hereafter placed upon, or any other liens or encumbrances hereafter affecting,
the fee title of the Demised Premises except as otherwise expressly provided in
this Section 10.3, and that Landlord will promptly and fully pay when due all
indebtedness, and perform when required all obligations, secured by any such
mortgages or liens, and shall not commit or permit any default to occur
thereunder. In the event that for any reason whatsoever Landlord shall fail or
refuse to pay, satisfy and discharge any lien or mortgage encumbering the
Demised Premises not later than the date the same becomes due and payable,
Tenant shall have the right, but not the obligation, itself to pay, satisfy and
discharge the same, in which event (i) Tenant shall have the right to receive an
assignment of such mortgage (and the note secured thereby) and promptly
thereafter to institute foreclosure or other proceedings to enforce the same
(and the note secured thereby), it being agreed that if Tenant so acquires such
mortgage (and the note secured thereby) the same shall be deemed to be in
default by virtue of Landlord's failure to comply with the provisions of this
Section, which provisions shall be deemed for such purpose to be an agreement of
modification of such mortgage (and the note secured thereby); and (ii) any
amounts expended and expenses incurred by Tenant in paying, satisfying and
discharging such mortgage, and in bringing proceedings to foreclose or
otherwise, to enforce the same, including, without limitation, reasonable
attorneys' fees, to the extent not paid by Landlord to Tenant, together with
interest thereon at the rate per annum set forth in Section 3.1.4 hereof, shall
be deductible by Tenant, together with interest thereon at the rate aforesaid,
from the installments of Annual Rent thereafter falling due hereunder. The
rights and remedies provided for in subdivisions (i) and (ii) above shall be
cumulative and not mutually exclusive. Tenant agrees that upon request of
Landlord in writing, it will subordinate the lien of this Lease to the lien of
any mortgage on the Demised Premises, and to all renewals, modifications,
amendments, consolidations, replacements and extensions thereof, provided that
Tenant shall be granted a subordination non-disturbance and recognition
agreement in substantially the form of Exhibit E attached hereto (a
"Subordination Agreement") from the holder(s) of such mortgage. The receipt of a
Subordination Agreement from the holder(s) of any mortgage on the Demised
Premises to which this Lease is subordinate is a condition to the commencement
of the Lease Term. Further, Tenant, as a part of any Subordination Agreement, if
requested, shall agree to attorn to the holder(s) of such mortgage or to a
purchaser at foreclosure or deed in lieu of foreclosure, in a manner reasonably
acceptable to the holder(s) of such mortgage and Tenant. Landlord may not place
any mortgage on the Demised Premises when the aggregate annual debt service on
such mortgage and all other mortgages on the Demised Premises would exceed 90%
of the Annual Rent which is then in effect or will be in effect during the term
of such mortgage, or when the aggregate principal debt secured by said mortgage
and all other mortgages on the Demised Premises would exceed 80% of the fair
market value of the Demised Premises.
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Landlord shall give Tenant ten (10) days prior notice of the closing of any loan
to be secured by a mortgage on the Demised Premises.
10.3.1 If Tenant shall give Landlord any notice of a default
or breach by Landlord, Tenant agrees to give a
similar written notice to the holder(s) of record of
any fee mortgage(s) (provided Tenant has received
written notice of said mortgage(s), including the
name(s) and address(es) of the then holder(s) of such
mortgage(s), in the manner provided for in Article
XVIII hereof for the giving of notices to Tenant), by
registered or certified mail, to such holders'
respective addresses specified in the aforementioned
notice to Tenant, or to any different address which
they may designate for the purpose by notice given to
Tenant in the aforesaid manner; and such holder(s)
shall be permitted to correct or remedy such breach
or default within the same time within which Landlord
may do so, and with like effect as if Landlord had
done so. Tenant's failure to give to such holder(s)
the notice provided in this Section shall not be
deemed a default by Tenant under this Lease, but no
notice given by Tenant to Landlord of any default or
breach by Landlord shall be deemed legally effective
until Tenant shall have given such notice to the
holder(s) of the first fee mortgage at the time on
the Demised Premises (provided Tenant has received
notice of said holder(s) as provided above). In no
event shall Tenant be required to give more than one
notice, to be sent to one address, in respect of any
one mortgage pursuant to this Section.
10.3.2 In the event that any fee mortgagee comes into
possession or ownership of the title to the Demised
Premises, or acquires the interest of Landlord by
foreclosure of its mortgage) or by proceedings on the
bond or debt secured thereby, or otherwise, Tenant
agrees to attorn to such fee mortgagee as its new
landlord.
10.4 Sale by Landlord. Landlord covenants that it will not
sell or convey any right, title or interest in the Demised Premises prior to the
first anniversary of the Commencement Date, without Tenant's prior written
consent. In any event, any sale or conveyance of the Demised Premises or any
part thereof, shall be subject to the Option Agreement and the Right of First
Refusal and shall be made subject to this Lease.
10.4.1 In the event of a sale or transfer of the Demised
Premises by Landlord, with respect to either of which
either Tenant's consent has been obtained or is not
required, the grantor or transferor shall thereafter
be entirely relieved of all obligations thereafter to
be performed by Landlord under this Lease, provided
that the purchaser or transferee on any such sale or
transfer has assumed and agreed pursuant to a written
instrument satisfactory to Tenant to perform, observe
and be bound by any and all covenants, conditions and
obligations of Landlord hereunder and under the
Option Agreement and the Right of First Refusal
arising from and after such sale
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or transfer and to be subject to all of the rights of
Tenant under this Lease and the Option Agreement and
the Right of First Refusal whether arising prior to
or after such sale or transfer, including without
limitation all setoff rights, and provided further
that (i) any amount then due and payable to Tenant or
for which Landlord or the then grantor or transferor
would otherwise then be liable to Tenant shall be
paid to Tenant; (ii) the interest of the grantor or
transferor in any funds then in the hands of Landlord
or the then grantor or transferor in which Tenant has
an interest shall be turned over, subject to Tenant's
interest, to the then grantee or transferee; and
(iii) notice of such sale or transfer signed by
Landlord or the then grantor or transferor and by the
then grantee or transferee shall be delivered to
Tenant together with a true copy of the transfer
document and a true copy of the written assumption
agreement.
10.5 Estoppel Certificates. Tenant, upon request by Landlord
or any prospective or actual mortgagee or purchaser of the Facility, shall
execute and deliver to Landlord within ten (10) business days, after such
request, an estoppel certificate addressed to Landlord, and if requested by
Landlord also to such mortgagee or purchaser as is identified in Landlord's
request, which estoppel certificate shall state, to the extent true, the
following facts: (a) that a Lease, as attached to the estoppel certificate, is a
true and correct copy of this Lease and that this Lease has not been modified
except as set forth in such attachment or terminated; (b) that the Annual Rent
in this Lease as so modified has not been modified; (c) that there are no
outside agreements that would affect such mortgagee or purchaser or any of their
rights under this Lease or to the Demised Premises except as otherwise noted in
the estoppel certificate; (d) that to Tenant's knowledge there are no disputes
existing as to this Lease; (e) that to Tenant's knowledge Landlord has complied
with the terms of this Lease (as so amended) to the date of the estoppel
certificate and is not in default under any of its obligations contained in this
Lease (as so amended) (or if such is not the case, specifying the nature
thereof) and Landlord has not given Tenant notice of any default which remains
uncured (or if such is not the case, specifying the nature thereof); (f) that no
Annual Rent has been paid more than thirty (30) days in advance; (g) that Tenant
has accepted possession of the Demised Premises; (h) the dates through which
Annual Rent has been paid; and (i) any other terms reasonably acceptable to
Tenant or reasonably required by any actual or prospective mortgagee or
purchaser. Notwithstanding the foregoing, Tenant shall not be obligated to
furnish any such estoppel certificate more often than two times during any Lease
Year unless the request for the same is being made in contemplation of the sale
or mortgaging of the Demised Premises and the prospective purchaser or mortgagee
is requiring the same.
ARTICLE XI
DEFAULT
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11.1 Default by Tenant. The occurrence of any one or more
of the following events shall constitute a "default" or "Event of Default" for
the purposes of this Lease:
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(a) The failure of Tenant to pay any part of an
Annual Rent payment due under this Lease on or before its due date, which
failure continues for ten (10) days after the receipt of written notice from
Landlord.
(b) Any assignment, transfer or sublease of this
Lease or the Demised Premises in violation of Article X hereof.
(c) The failure to occupy the Demised Premises
on the Commencement Date or the abandonment of the Demised Premises by Tenant.
(d) The failure of Tenant to perform any
material covenant or obligation contained herein other than the payment of
Annual Rent, which failure has not been corrected by Tenant within thirty (30)
days following written notice from Landlord specifying the covenant or
obligation to be remedied, or if the correction of same reasonably requires
longer than thirty (30) days, if Tenant shall not have commenced to correct the
same within such thirty (30) day period and thereafter proceed to cure the same
in good faith, with diligence, and within a reasonable period of time.
(e) If any representation or warranty made by
Tenant under this Lease shall prove to have been false in any material respect
when made and the same has not been corrected by Tenant within thirty (30) days
following written notice from Landlord specifying the representation or warranty
in question, or if the correction of same reasonably requires longer than thirty
(30) days, if Tenant shall not have commenced to correct the same within such
thirty (30) day period and thereafter be proceeding with reasonable diligence to
correct the same.
11.2 Landlord's Rights and Remedies. Upon the happening of any
Event of Default and during the continuance thereof, Landlord, at its option,
and without further demand or notice, shall have the following rights and
remedies in addition to any rights provided by law, all of which shall be
cumulative:
(a) Perform any covenant or obligation of Tenant
and charge the reasonable cost of the cure to the next installment or
installments of Annual Rent due.
(b) Retake possession of the Demised Premises
without terminating this Lease and relet the Demised Premises or any part
thereof to a third party. If Landlord relets the Demised Premises (either for a
term greater than, less than or equal to the unexpired portion of the Lease
Term) for an aggregate rent during the portion of such new lease which is less
than Annual Rent and other charges which Tenant would pay hereunder for such
period, Landlord may immediately upon the making of such new lease, sue for and
recover the difference between the aggregate rental provided for in said new
lease for the balance of the term coextensive with the Lease Term, and the
Annual Rent which Tenant would pay hereunder for such period, together with any
reasonable expenses to which Landlord may be put for brokerage commissions,
placing the Demised Premises in tenantable condition, and other related charges
or expenses accrued prior to the new lease or otherwise. In the event Landlord
does not collect the entire amount of the aggregate rental provided for in such
new lease, Landlord may sue for and recover the difference
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between the amount of such aggregate rental actually collected and the Annual
Rent which Tenant would pay hereunder. If such new lease or tenancy is made for
a shorter term than the balance of the Lease Term, or for a greater rental, any
such action brought by Landlord to collect the deficit for that period shall not
bar Landlord from thereafter suing for any loss accruing during the balance of
the unexpired Lease Term whether or not due to expiration or termination of the
new lease.
(c) Give a thirty (30) day's notice of
termination of this Lease (regardless of whether Landlord prior to the giving of
such notice shall have accepted rent or any other payment, however designated,
for the use and occupancy of the Demised Premises from or on behalf of Tenant or
from any other person) to Tenant specifying such Event or Events of Default and
stating that this Lease and the Lease Term shall expire and terminate on the
date specified in such notice, which date shall be at least ten (10) days after
the giving of such notice. In the event such notice is given, this Lease and the
Lease Term and all rights of Tenant under this Lease shall expire and terminate
upon the date specified in such notice with the same effect as if the date
specified in such notice were the date originally set forth in this Lease for
the expiration of the term, but Tenant shall remain liable as provided below.
Upon any such expiration or termination of this
Lease, Tenant shall quit and peacefully surrender the Demised Premises to
Landlord, and Landlord, upon or at any time after any such expiration or
termination, may, without further notice, enter upon and re-enter the Demised
Premises and possess and repossess itself thereof, by summary proceedings,
ejectment or otherwise, and may dispossess Tenant and remove Tenant and all
other persons and property from the Demised Premises and may have, hold and
enjoy the Demised Premises and the right to receive all rental income of and
from the same.
No such expiration or termination of this Lease,
including the re-entry of Landlord, shall relieve Tenant of its liability and
obligations to pay the Annual Rent theretofore accrued or thereafter accruing,
as more particularly set forth in paragraph (g) below, and such liability and
obligations shall survive any such expiration or termination.
(d) Tenant knowingly and voluntarily waives any
and all rights of redemption which Tenant may now have or hereafter acquire
pursuant to statute or court decision, except for notice as provided in this
Article.
(e) The rights and remedies given to Landlord in
this Lease are distinct, separate and cumulative, and no one of them, whether or
not exercised by Landlord, shall be deemed to be in exclusion of any of the
others herein or by law or in equity provided and the exercise by Landlord of
any one or more of the rights or remedies provided for in this Lease shall not
preclude the simultaneous or later exercise by Landlord of any or all other
rights or remedies.
(f) No receipt of monies by Landlord from
Tenant, after the cancellation or termination of this Lease in any lawful
manner, shall reinstate, continue or extend the Lease Term, or affect any notice
theretofore given to Tenant or operate as a waiver of the right of Landlord to
enforce the payment of Annual Rent then due or thereafter falling due, or
operate as
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a waiver of the right of Landlord to recover possession of the Demised Premises
by proper suit, action, proceeding or other remedy; it being agreed that, after
the service of notice to cancel or terminate as herein provided and the
expiration of the time therein specified, after the commencement of any suit,
action, proceeding or other remedy or after a final order or judgment for
possession of the Demised Premises, Landlord may demand, receive and collect any
monies due, or thereafter falling due, without in any manner affecting such
notice, suit, action, proceeding, order or judgment; and any and all such monies
so collected shall be deemed to be payments on account of the use and occupation
of the Demised Premises, or at the election of Landlord, on account of Tenant's
liability hereunder.
(g) In the event of the termination of this
Lease as provided in this Article or by operation of law or issuance of a
dispossessory warrant or otherwise, Tenant shall remain liable under this Lease
for the payment of Annual Rent and the observance and performance of all other
covenants on its part to be performed; and Landlord shall have the right to
alter, change or remodel the improvements on the Demised Premises and to lease
or let the same, or portions thereof, or not to lease or let the same, for such
periods of time and at such rentals and for such use and upon such covenants and
conditions as Landlord may elect, applying the net rentals or avails of such
letting, if any, first to the payment of Landlord's expenses in dispossessing
Tenant and the costs or expenses of making such improvements in the Demised
Premises as may be necessary in order to enable Landlord to relet the same, and
then to the payment of any brokerage commissions or other expenses of Landlord
in connection with such reletting; and the balance, if any, shall be applied by
Landlord at least once a month, on account of the payments due or payable by
Tenant hereunder, if any, with the right reserved to Landlord to bring such
action(s) or proceeding(s) for the recovery of any deficits remaining unpaid
without being obliged to await the end of the Lease Term for a final
determination of Tenant's account, and the commencement or maintenance of any
one or more actions shall not bar Landlord from bringing other or subsequent
actions for further accruals pursuant to the provisions of this Section. Any
balance remaining, however, after full payment and liquidation of Landlord's
accounts for the remainder of the Lease Term as aforesaid, shall be paid to
Tenant with the right reserved to Landlord at any time, if it has not
theretofore terminated this Lease, to give notice to Tenant of Landlord's
election to cancel this Lease and discharge all the obligations thereunder of
either party to the other, and the giving of such notice and the simultaneous
payment by Landlord to Tenant of any credit balance in Tenant's favor that may
at such time be owing, shall constitute a final and effective cancellation of
this Lease and a discharge of the obligations thereof on the part of either
party to the other. Tenant agrees to pay, in addition to the rent and other sums
required to be paid hereunder, such additional sums as the court may adjudge
reasonable as attorneys' fees in any successful suit or action instituted by
Landlord to enforce the provisions of this Lease or the collections of the
amounts due Landlord hereunder. Should any rent collected by Landlord be
insufficient to fully pay to Landlord a sum equal to all Annual Rent reserved
herein and other charges payable hereunder for the remainder of the Lease Term
originally demised, the balance or deficiency shall be paid by Tenant on the
rent days herein specified, that is, upon each of such rent days Tenant shall
pay to Landlord the amount of the deficiency then existing; and Tenant shall be
and remain liable for any such deficiency, and the right of Landlord to recover
from Tenant the amount thereof, or a sum equal to all such Annual Rent and
Additional Rent and other charges payable hereunder, if there shall be no
reletting, shall survive the issuance of any
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dispossessory warrant or other cancellation or termination hereof, and Landlord
shall be entitled to retain any surplus; and Tenant hereby expressly waives any
defense that might be predicated upon the issuance of such dispossessory warrant
or other cancellation or termination hereof.
(h) In any of the circumstances mentioned in
paragraph (g) of this Section in which Landlord shall have the right to hold
Tenant liable upon the several rent days as therein provided, Landlord shall
have the right to election, in place and instead of holding Tenant so liable,
forthwith to recover against Tenant as damages for loss of the bargain and not
as a penalty, in addition to any other damages becoming due, an aggregate sum
which, at the time of the termination of this Lease or of the recovery of
possession of the Demised Premises by Landlord, as the case may be, represents
the then present worth of the excess (computed by discounting such excess at the
simple rate of six (6%) percent per annum), if any, of the aggregate of Annual
Rent and all other charges payable by Tenant hereunder that would have accrued
for the balance of the Lease Term over the aggregate rental value of the Demised
Premises (such rental value to be computed on the basis of a tenant paying not
only a rent to Landlord for the use and occupation of the Demised Premises, but
also such additional rent and other charges as are required to be paid by Tenant
under the terms of this Lease) for the balance of such Lease Term.
(i) Suit or suits for the recovery of the
deficiency or damages referred to above in paragraphs (g) and (h) of this
Section, or for any installment or installments of Annual Rent hereunder, or for
a sum equal to any such installment or installments may be brought by Landlord,
from time to time at Landlord's election, and nothing in this Lease contained
shall be deemed to require Landlord to await the date whereon this Lease or the
Lease Term would have expired by limitation had there been no such default by
Tenant or no such cancellation or termination.
(j) Landlord's failure to insist on the strict
performance of and compliance with each condition in this Lease shall neither
constitute nor be construed as constituting a waiver by Landlord of Landlord's
rights under this Article or by law, nor constitute nor be construed as
consisting of a waiver by Landlord of a second or subsequent default by Tenant
of the same condition. In the event litigation is commenced, it shall not be
necessary for Landlord to notify Tenant of any additional occurrences of default
prior to proceeding as permitted.
(k) In the event of the termination or
expiration of this Lease, Tenant shall cooperate with Landlord in the transfer
to the subsequent operator of the Facility of all licenses and permits required
to continue to operate the Facility as an assisted living facility or a nursing
care facility, whichever was being operated at the Facility by Tenant at the
time of such termination or expiration.
11.3 Default by Landlord. If Landlord defaults in the
observance or performance of any covenant, condition or obligation in this Lease
on its part to be observed or performed, Landlord shall have thirty (30) days
after receiving written notice from Tenant stating the default complained of and
referring to the Article and Section in this Lease relied on by Tenant, to cure
or cause to be cured any such default, or if such default is not capable of
being
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cured within such thirty (30) days to commence to cure the same during such
thirty (30) days and thereafter proceed to cure the same in good faith, with
diligence, and within a reasonable period of time.
If Landlord fails to cure any such default or to diligently
and in good faith pursue the cure as provided for herein, or if any
representation or warranty made by or on behalf of Landlord in this Lease or in
any document or agreement delivered in connection with the transactions
contemplated by this Lease shall prove to have been false or incorrect or
breached in any material respect on the date as of which made, then Tenant may
sue Landlord for its damages, including, without limitation, such additional
sums as the court may adjudge reasonable as attorneys' fees in any successful
suit or action instituted by Tenant to enforce the provisions of this Lease, and
may further obtain injunctive relief if necessary to maintain operation of the
Demised Premises or comply with applicable legal requirements of any
governmental authority. In addition, Tenant may at its option, without waiving
any claim for damages for breach of agreement, at any time thereafter cure such
default for the account of Landlord, and any amount paid or any contractual
liability incurred by Tenant in so doing shall be deemed paid or incurred for
the account of Landlord, and Landlord agrees to reimburse Tenant therefor or
save Tenant harmless therefrom; provided that Tenant may cure any such default
as aforesaid prior to the expiration of said thirty (30) day period if
reasonably necessary to cure a default under any mortgage or encumbrance which
is a lien on the Demised Premises, or to protect the Demised Premises or
Tenant's interest therein, or to prevent injury or damage to persons or
property, or to enable Tenant to conduct its business in the Demised Premises.
If Landlord shall fail to reimburse Tenant upon demand for any amount paid for
the account of Landlord hereunder or for any other sum payable to Tenant
pursuant to this Lease, said amount plus interest thereon at the rate per annum
set forth in Section 3.1.4 hereof from the date of demand upon Landlord for
payment, may be deducted by Tenant from the next or any succeeding payments of
Annual Rent due hereunder.
11.4 Delays. Whenever this Lease requires any act (other than
the payment of a liquidated sum of money, e.g., rental payments, taxes,
utilities, or any obligation that may be satisfied by the payment of a
liquidated sum of money) by Landlord or Tenant within a certain period of time
or by a certain time, the time for the performance of such act shall be extended
by the period of any delay caused by war, strikes, lockouts, civil commotion,
storms, weather, electrical blackouts, unpreventable material shortages,
casualties, acts of God or other conditions or events beyond the reasonable
control of the obligated party; provided, however, that written notice of such
delay and the cause and circumstances thereof shall be given to the other party
promptly after the commencement of such delay and such delay becoming known by
the obligated party.
ARTICLE XII
DAMAGE TO DEMISED PREMISES
--------------------------
12.1 Major Damage. In the event that the Demised Premises
are damaged by fire or other casualty, and the damage or loss exceeds $50,000,
then Tenant shall promptly notify
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Landlord in writing of such an event. If the damage is to an extent that there
is Major Damage, as hereinafter defined, it shall be the option of Tenant to
cancel this Lease by written notice to Landlord within sixty (60) days from the
date of such Major Damage.
The term "Major Damage" shall mean any damage wherein: (a) the
estimated cost of fully repairing the damage exceeds fifty percent (50%) of the
then full replacement value or (b) 25% or more of the improvements are rendered
unsuitable for occupancy or (c) the damage is caused by an event which is not
covered by the insurance policy which Tenant is required to carry pursuant to
Article XV hereof, and the estimated cost of fully repairing the damage exceeds
the net amount of insurance proceeds received by Tenant with respect thereto by
$50,000 or more. Annual Rent shall abate in accordance with Section 12.2 if
Tenant is unable to use all or any part of the Demised Premises while repairs
are being made; provided, however, that any abatement so granted shall not
exceed the amount of the proceeds actually received by Landlord under any policy
of rent insurance carried for the benefit of Landlord.
If Tenant elects to terminate this Lease pursuant to this
Section 12.1, this Lease shall terminate fifteen (15) days after the date of
notice, Tenant shall surrender possession to Landlord, and all accrued rights
under this Lease shall survive termination.
12.2 Nonmajor Damage. Any other damage to the Facility from
any casualty or risk which does not qualify as Major Damage, shall be deemed to
be nonmajor. If Tenant does not elect to terminate this Lease under the Major
Damage provision in Section 12.1, or if the damage is nonmajor, then Tenant
shall, at its sole cost and expense, repair or rebuild the Facility to
substantially the same condition as existed immediately prior to the damage, in
accordance with applicable federal, state and local statutes, laws, ordinances
and codes and sufficient to meet licensure requirements of the State of Kansas
for assisted living facilities or nursing care facilities, as the case may be
according to the actual use by Tenant. The restoration shall be commenced within
ninety (90) days after settlement shall have been made with the insurance
companies and the insurance monies shall have been turned over to the Insurance
Trustee (as hereinafter defined) or Tenant, as the case may be, as provided in
Article XV hereof and the necessary governmental approvals shall have been
obtained, and such work shall be completed as promptly as reasonably possible.
Tenant shall also restore any damaged Leased Equipment.
The Insurance Trustee shall, provided this Lease shall then be
in full force and effect, apply the net proceeds of any insurance to the payment
of the cost of such repairing or rebuilding as the same progresses, payments to
be made against properly certified vouchers of a competent architect in charge
of the work who is selected by Tenant and approved by Landlord, which approval
shall not be unreasonably withheld or delayed. The Insurance Trustee shall
advance out of such insurance proceeds toward each payment, to be made by or on
behalf of Tenant, an amount which shall bear the same proportion to such payment
as the whole amount received by the Insurance Trustee shall bear to the total
estimated cost of the repairing or rebuilding except, however, that the
Insurance Trustee shall withhold from each amount so to be paid by it ten
percent (10%) thereof until the work of repairing or rebuilding shall have been
substantially completed, and proof furnished that no lien has attached or will
attach to the Demised Premises in connection with such repairs or rebuilding. If
the total estimated cost of the repairs
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or rebuilding shall exceed the amount of the net proceeds of such insurance
received by the Insurance Trustee, the Insurance Trustee shall be entitled to
require of Tenant that, before such repairing or rebuilding be commenced, the
Insurance Trustee be secured by a surety bond or cash equal to the amount of the
excess of such estimated cost over the net insurance proceeds as security for
the due completion, within a reasonable time, of such repairs or rebuilding; and
if Tenant makes a cash deposit as aforesaid, such cash deposit shall be deemed
to be part of the net insurance proceeds for the purpose of this paragraph. The
contract price fixed in Tenant's contract with the contractor who or which will
perform such repairing or rebuilding shall be deemed to be the total estimated
cost of such repairs or rebuilding for the purposes of this paragraph. If the
insurance proceeds shall exceed the cost of such repairs or rebuilding, the
balance remaining after payment of the cost of such repairs or rebuilding shall
be paid over and belong to Tenant.
In the event Tenant is unable to use all or any part of the
Facility while Tenant repairs or rebuilds same, then the Annual Rent shall be
reduced and abated by a just, fair and equitable proportion of the Annual Rent
payable according to the size, nature and extent of the property that is
damaged, taking into account the practical and economic effect of the damage in
question on the operation of the Demised Premises; provided, however, that there
shall be no such abatement in the event Tenant has not maintained insurance in
accordance with the provisions of Section 15.3. The abatement of the Annual Rent
shall commence with the date of the damage and continue until the repairs are
substantially completed. Other obligations of Tenant under this Lease shall not
abate in any manner.
ARTICLE XIII
LANDLORD'S REPRESENTATIONS AND WARRANTIES
-----------------------------------------
Landlord and Jack West each hereby represents and warrants to Tenant as
follows:
13.1 Organization and Standing of Landlord. Landlord is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Kansas. Copies of its articles of organization,
operating agreement and all amendments thereto to date (collectively, the
"Organizational Documents") have been delivered to Tenant, and are true,
complete and correct. Landlord has the power and authority to own the property
and assets now owned by it and to conduct the business presently being conducted
by it and as currently proposed to be conducted.
13.2 Authority. Landlord has the full, absolute and
unrestricted right, power and authority to make, execute, deliver and perform
this Lease, including all Schedules and Exhibits hereto, and the other
instruments and documents required or contemplated hereby and thereby
("Landlord's Transaction Documents"). Such execution, delivery, performance and
consummation have been duly authorized by all necessary action (partnership,
corporate, limited liability company, trust or otherwise, as the case may be) on
the part of Landlord, its managing member (as hereinafter defined) and members,
and all consents of holders of indebtedness of Landlord have been obtained.
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13.3 Binding Effect. This Lease constitutes the legal, valid
and binding obligation of Landlord, enforceable against Landlord in accordance
with its terms and each of Landlord's Transaction Documents executed by Landlord
constitute the legal, valid and binding obligation of Landlord, enforceable
against Landlord in accordance with their respective terms.
13.4 Absence of Conflicting Agreements. None of the execution
or delivery of this Lease or any of Landlord Transaction Documents, the
performance by Landlord of its obligations hereunder or thereunder or the
consummation of the transactions contemplated hereby or thereby, conflicts with,
or constitutes a breach of or a default under (i) Landlord's Organizational
Documents; or (ii) any applicable law, rule, judgment, order, writ, injunction,
or decree of any court currently in effect; or (iii) any applicable rule or
regulation of any administrative agency or other governmental authority
currently in effect; or (iv) except as set forth on Schedule 13.4, any written
or oral agreement, indenture, contract or instrument to which Landlord or any
managing member thereof is now a party or by which any of them or the Demised
Premises or Other Assets are bound. Said Schedule 13.4 shall be updated to the
extent necessary on and as of the day preceding the Commencement Date.
13.5 Consents. Except as set forth on Schedule 13.5, no
authorization, consent, approval, license, exemption by filing or registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any other Person is or will be
necessary in connection with Landlord's execution, delivery and performance of
this Lease or any of Landlord Transaction Documents, or for the consummation of
the transactions contemplated hereby or thereby. Said Schedule 13.5 shall be
updated to the extent necessary on and as of the day preceding the Commencement
Date.
13.6 Contracts.
(a) Schedule 13.6 sets forth a complete and
correct list of all agreements, contracts and commitments, whether written or
oral, relating to the Facility, its operation or the Other Assets by which
Landlord or the Demised Premises is bound (the "Contracts"). Landlord is not in
default under any Contract, except any such default that, either individually or
in the aggregate, would not have a Material Adverse Effect (as hereinafter
defined), and there has not been asserted, either by or against Landlord under
any Contract, any notice of default, set-off or claim of default which has not
been cured. To the best knowledge of Landlord, after due inquiry, none of the
other parties to the Contracts are affiliated with Landlord or are in default of
any of their respective obligations under the Contracts, and there has not
occurred any event which with the passage of time or the giving of notice (or
both) would constitute a default or breach under any Contract. All amounts
payable by Landlord under the Contracts are, or will at the Commencement Date,
be on a current basis. Except as set forth on Schedule 13.6, the Contracts are
assignable to Tenant without the consent of the remaining parties thereto and
each of the Contracts can be terminated without penalty by Landlord upon sixty
(60) or less days notice. Said Schedule 13.6 shall be updated to the extent
necessary on and as of the day preceding the Commencement Date.
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(b) Except as listed on Schedule 13.6, Landlord
is not a party to or liable in connection with and has not granted any written
or express, oral or implied:
(i) contract, agreement or commitment
for the employment or retention of, or collective bargaining, severance or
termination agreement with, any employee, consultant or agent or group of
employees at the Demised Premises; or
(ii) profit sharing, thrift, bonus,
incentive, deferred compensation, stock option, stock purchase, severance pay,
pension, retirement, hospitalization, insurance or other similar plan, agreement
or arrangement covering employees at the Demised Premises.
(iii) contract, agreement or commitment
currently in effect for the sale of any of Landlord's assets, properties or
rights outside its ordinary course of business (by sale of assets, sale of
stock, merger or otherwise) or any part of the Demised Premises;
(iv) contract, agreement or arrangement
currently in effect which contains any provisions requiring Landlord to
indemnify or act for, or guarantee the obligation of, any other person or
entity;
(v) agreement restricting Landlord from
conducting business anywhere in the world;
(vi) partnership or joint venture
agreement or similar arrangement or agreement which is likely to involve a
sharing of profits or future payments with respect to Landlord's business at the
Facility or any portion thereof;
(vii) licensing, distributor, dealer,
franchise, sales or manufacturer's representative, agency or other similar
contract, agreement, arrangement or commitment for the Facility which involves
consideration of more than $10,000; or
(viii) agreement not made in the ordinary
and normal course of business of the Facility which involves consideration of
more than $10,000.
13.7 Financial Statements. Intentionally Deleted.
13.8 Material Changes. Except as listed on Schedule 13.8,
since December 31, 1995, there has not been any material adverse change in the
condition (financial or otherwise), of the assets, properties or operations of
the Demised Premises, or any damage or destruction of the Demised Premises by
fire or other casualty, whether or not covered by insurance, and Landlord has
operated the Demised Premises only in the ordinary course of business. Landlord
has identified and communicated to Tenant all material information with respect
to any fact or condition that might have a Material Adverse Effect. Said
Schedule 13.8 shall be updated to the extent necessary on and as of the day
preceding the Commencement Date.
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13.9 Licenses; Permits. Schedule 13.9 sets forth a description
of each license and all other governmental or other regulatory permits and
approvals relating to the operation of the Demised Premises heretofore obtained
and which is presently in effect (collectively, the "Licenses"). The Licenses
constitute all of the licenses, permits, easements, rights or other
authorizations of any Governmental Body or any other Person that are necessary
for the current operation of the Demised Premises. Each License is final (the
effectiveness of each not being subject to the satisfaction of any conditions
precedent), not subject to lapse, termination, revocation or expiration for
failure to meet any conditions or requirements or otherwise, including without
limitation the delivery of an unqualified certificate of need or similar
certificate or document. Landlord has delivered to Tenant copies of all of the
Licenses. Landlord owns, possesses or has the legal right to use the Licenses,
free and clear of all liens, pledges, claims or other encumbrances of any nature
whatsoever. Except as disclosed on Schedule 13.9, Landlord has not received any
notice of any claim or default or any other claim or proceeding relating to any
such License which has not been cured or any notice of any threatened
termination, lapse or revocation of any License. Landlord is not in default
under any License except any such default that, either individually or in the
aggregate, would not have a Material Adverse Effect. The Demised Premises are
fully and completely licensed by all appropriate authorities for Landlord to
carry on the business presently conducted at the Demised Premises. No managing
member, member, employee or former employee of Landlord, or immediate family
member of any managing member or member, of Landlord, or any other person, firm
or corporation owns or has any proprietary, financial or other interest, direct
or indirect, in whole or in part in any such License owned, possessed or used in
the operation of the Demised Premises as now operated. Said Schedule 13.9 shall
be updated to the extent necessary on and as of the day preceding the
Commencement Date.
13.10 Title, Condition of Personal Property.
(a) Except for the security interests listed and
described on Schedule 13.10(a), Landlord has good title to all of the Leased
Equipment, subject to no mortgage, security interest, pledge, lien, conditional
sales agreement, lease, claim, encumbrance, easement, title exception or charge,
or restraint on transfer whatsoever (collectively, "Lien"). No other person has
any right to the use or possession of any of the Leased Equipment and, except as
set forth on Schedule 13.10(a), no currently effective financing statement with
respect to the Leased Equipment has been filed in any jurisdiction, and Landlord
has not signed any such financing statement or any security agreement
authorizing any secured party thereunder to file any such financing statement.
During the five (5) year period preceding the date hereof, Landlord has
conducted its business activities only under the corporate and/or trade name
"The Hartmoor Homestead." All of the Leased Equipment is in good operating
condition and repair and is functioning in the manner and for the purpose for
which it was intended and, to the best knowledge of Landlord, after due inquiry,
is in compliance with (and the operation thereof is in compliance with) all
applicable federal, state and local laws, rules and regulations, and is
sufficient and suitable to enable Tenant to operate the Demised Premises in a
normal and efficient manner. Said Schedule 13.10(a) shall be updated to the
extent necessary on and as of the day preceding the Commencement Date.
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(b) Except as set forth on Schedule 13.10(b),
none of the property used by Landlord in connection with the operation of the
Demised Premises is subject to a conditional sale, security interest or similar
arrangement. Schedule 13.10(b) sets forth a complete and correct description of
each of the Personal Property Leases relating to the Demised Premises as to
which Landlord is a party (together with all modifications or amendments
thereto), the annual rental and unexpired lease term thereby and all the
information set forth thereon is complete, correct and accurate. True, correct
and complete copies of each of said Personal Property Leases (together with all
modifications or amendments thereto) have been delivered to Tenant. All of said
Personal Property Leases are valid, binding and enforceable in accordance with
their respective terms and are in full force and effect. Landlord is not in
default under any such lease, the consequences of which, either in an individual
case or in the aggregate, would have a Material Adverse Effect, and there has
not been asserted, either by or against Landlord under any such lease, any
notice of default, set-off, or claim of default. The parties to such leases
other than Landlord are not in default of their respective obligations under any
such lease, and there has not occurred any event which with the passage of time
or giving of notice (or both) would constitute such a default or breach under
any such lease. Except as otherwise set forth on Schedule 13.10(b), each of said
Personal Property Leases is assignable to Tenant without the consent of the
lessor of such property. Said Schedule 13.10(b) shall be updated to the extent
necessary on and as of the day preceding the Commencement Date.
13.11 Title, Condition of the Demised Premises.
(a) Landlord has good and marketable title to
the Demised Premises, insurable by any reputable, licensed title company
selected by Tenant at regular rates, free and clear of all Liens of any kind
whatsoever, other than those set forth on 13.11(a) (the "Permitted Exceptions").
Said Schedule 13.11(a) shall be updated to the extent necessary on and as of the
day preceding the Commencement Date.
(b) There are no leases or other agreements of
Landlord, as lessor, granting any third party the right to use or occupy any
part of the Demised Premises (except the rights of the residents and patients of
the Demised Premises) and no person, firm or entity other than Tenant has any
ownership interest or option or right of first refusal to acquire any ownership
interest in the Demised Premises or any building or improvements thereon.
(c) All buildings and other improvements
comprising the Demised Premises (including all roads, parking areas, curbs,
sidewalks, sewers and other utilities) have been completed and installed in
accordance with applicable requirements of all governmental authorities having
jurisdiction thereof. Such permanent certificates of occupancy and all other
licenses, permits, authorizations and approvals required by all governmental
authorities having jurisdiction and the requisite annual fire safety and life
safety inspections as were required to be issued or conducted for the buildings
and other improvements comprising the Demised Premises, have been issued, paid
for and are in full force and effect.
(d) The maintenance, operations and use of the
buildings and other improvements comprising the Demised Premises comply with and
do not violate any zoning,
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building or similar law, ordinance, order or regulation or any certificate of
occupancy issued for the Demised Premises; and no written notice of any failure
to comply with or violation of any federal, state, county or municipal law,
ordinance, order, regulation or requirement affecting the Demised Premises shall
have been issued by any governmental authority or agency. There have been no
changes to building, health or fire codes that would be applicable to the
Demised Premises; and there has been no change in the use of the Demised
Premises that would have caused any modifications to have been made to the
Demised Premises pursuant to any such building, health or fire codes.
(e) There is no plan, study or effort by any
governmental authority or agency which in any way affects or would affect the
present use or zoning of the Demised Premises or any part thereof. There are no
assessments, except as set forth on Schedule 13.11(e), or, to the best of
Landlord's knowledge, proposed or contemplated assessments, and there is no
existing, or, to the best of Landlord's knowledge, proposed or contemplated plan
to widen, modify or realign any street or highway, and there is no or existing,
or, to the best of Landlord's knowledge, proposed or contemplated eminent domain
proceedings that would affect the Demised Premises in any way whatsoever. Said
Schedule 13.11(e) shall be updated to the extent necessary on and as of the day
preceding the Commencement Date. No subdivision plan or plans (preliminary or
otherwise) have been, or will be filed by Landlord, with respect to the Demised
Premises. The Demised Premises are not located in areas designated by the
Secretary of Housing and Urban Development or any other governmental authority
or agency as having special flood or mud slide hazards.
(f) The buildings and other improvements
comprising the Demised Premises and all of their systems, including without
limitation, the heating, ventilation and air condition systems, and the
plumbing, electrical, mechanical and drainage systems, and roof are in good
operating condition, repair and working order, and have passed all previous
safety and/or licensing inspections, and such systems are adequate and
sufficient for use in connection with an assisted living facility, ordinary wear
and tear expected.
(g) There is no proceeding pending to which
Landlord is a party relating to the assessed valuation of any portion of the
Demised Premises and, except as set forth on Schedule 13.11(e), no assessment
for public improvements has been made against the Demised Premises that remains
unpaid.
(h) All public utilities required for the
operation of the Demised Premises either enter the Demised Premises through
adjoining public streets, or if they pass through adjoining private land, do so
in accordance with valid recorded easements held by Landlord which run for the
benefit of the Land. The Demised Premises are adjacent to and have direct access
to each abutting street located or identified on that certain survey of the
Land, dated May 28, 1996, prepared by Baughman Company P.A. as job no.
96-05-G209. All streets adjoining or traversing the Demised Premises have been
dedicated to and accepted by the local municipal authorities.
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(i) There are no easements traversing or
contiguous to the Demised Premises which are not disclosed on any schedule to
this Lease or on any title report delivered to Tenant, or which interfere with
the intended use and operation of the Demised Premises.
(j) All certificates of occupancy and other
authorizations issued for the Demised Premises have been set forth on Schedule
13.11(j). Landlord has not received any notice of noncompliance from any
governmental authority regarding any of the improvements constructed at the
Demised Premises or the use or occupancy thereof. Said Schedule 13.11(j) shall
be updated to the extent necessary on and as of the day preceding the
Commencement Date.
13.12 Legal Proceedings. Other than as set forth on Schedule
13.12, there are no disputes, claims, actions, suits or proceedings,
arbitrations or investigations, either administrative or judicial, pending, or,
to the best knowledge of Landlord, after due inquiry, threatened or
contemplated, and, to the best knowledge of Landlord, after due inquiry, there
is no basis therefor, against or affecting the Demised Premises or Landlord's
rights therein or ability to consummate the transactions contemplated hereby, at
law or in equity or otherwise, before or by any court or governmental agency or
body, domestic or foreign, or before an arbitrator of any kind. Landlord has not
received any requests for information with respect to the transactions
contemplated hereby from any governmental agency. Said Schedule 13.12 shall be
updated to the extent necessary on and as of the day preceding the Commencement
Date.
13.13 Employees. Schedule 13.13 contains a complete and
correct list of the name, position, current rate of compensation and any
vacation or holiday pay, sick pay, personal leave and any other compensation
arrangements or fringe benefits, of each current employee, consultant and agent
of Landlord (together with a description of any specific arrangements or rights
concerning such persons) which are not reflected in any agreement or document
referred to in Schedule 13.6. Except as disclosed in Schedule 13.13, Landlord
currently has no, and has never had any, pension, profit sharing, bonus,
incentive, welfare benefit, sick leave or sick pay or other plan applicable to
any of the employees of the Demised Premises. Except as disclosed in Schedule
13.13, no such employee, consultant or commission agent has any vested or
unvested retirement benefits or other termination benefits. Said Schedule 13.13
shall be updated to the extent necessary on and as of the day preceding the
Commencement Date.
13.14 Collective Bargaining, Labor Contracts, Employment
Practices, etc.
During the two (2) years prior to the Commencement Date, there
has been no material adverse change in the relationship between Landlord and its
employees nor any strike or labor disturbance by such employees affecting
Landlord's business and there is no indication that such a change, strike or
labor disturbance is likely. Landlord's employees are not represented by any
labor union or similar organization and Landlord has no reason to believe that
there are pending or threatened any activities the purpose of which is to
achieve such representation of all or some of Landlord's employees. There are no
pending suits, actions or proceedings against Landlord relating to employees of
Landlord, and Landlord does not know of any threats of strikes, work stoppages
or pending grievances by any such employees. Except as set forth on Schedule
13.6, Landlord has no collective bargaining or other labor contracts, employment
contracts,
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pension, profit-sharing, retirement, insurance, bonus, deferred compensation or
other employee benefit plans, agreements or arrangements with respect to such
employees. Landlord is in compliance with the requirements prescribed by all
federal, state and local statutes, orders and governmental rules and regulations
applicable to any of the employee benefit plans, agreements and arrangements
identified on Schedule 13.13, including, without limitation, the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
13.15 ERISA. Landlord does not maintain or make contributions
to and has not at any time in the past maintained or made contributions to any
employee benefit plan which is subject to the minimum funding standards of
ERISA. Landlord does not maintain or make contributions to and has not at any
time in the past maintained or made contributions to any multi-employer plan
subject to the terms of the Multi-employer Pension Plan Amendment Act of 1980
(the "Multi-employer Act"). For the purposes of this Lease, "Company Group
Member" shall mean Landlord, each Subsidiary of Landlord, and each of their
respective predecessors and (a) each corporation that is or was at any time a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as Landlord or any Subsidiary of Landlord or any of
their respective predecessors, (b) each trade or business, whether or not
incorporated, that is or was at any time under common control (within the
meaning of Section 414(c) of the Code) with Landlord or any Subsidiary of
Landlord or any of their respective predecessors, and (c) each trade or
business, whether or not incorporated, that is or was at any time a member of
the same affiliated service group (within the meaning of Sections 414(m) and (o)
of the Code) as Landlord or any Subsidiary of Landlord or any of their
respective predecessors; provided, however, that the term "Company Group Member"
shall not include any corporation or trade or business for any period during
which the termination or withdrawal from any employee pension benefit plan (as
defined in Section 3(2) of ERISA) by such person or trade or business could not
subject Landlord or any Subsidiary of Landlord to any liability under the Code
or ERISA. (For the purposes of this Lease, "Subsidiary" shall, with respect to
any Person, mean any corporation in which the holders of more than 50% of the
capital stock are ordinarily, in the absence of contingencies, entitled to elect
a majority of the corporate directors (or persons performing similar functions)
of such corporation and where such capital stock is at the time owned by such
Person and/or one or more of its other Subsidiaries.
13.16 Insurance. Schedule 13.16 contains a true and correct
list of: (a) all policies of fire, liability and other forms of insurance held
or owned by Landlord or otherwise in force and providing coverage for the
Demised Premises (including but not limited to medical malpractice insurance,
and any state sponsored plan or program for worker's compensation); (b) all
bonds, indemnity agreements and other agreements of suretyship made for or held
by Landlord or otherwise in force and relating to the Demised Premises,
including a brief description of the character of the bond or agreement and the
name of the surety or indemnifying party. Schedule 13.16 sets forth for each
such insurance policy the name of the insurer, the amount of coverage, the type
of insurance, the policy number, the annual premium and a brief description of
the nature of insurance included under each such policy and of any claims made
thereunder during the past two years. Such policies are owned by and payable
solely to Landlord and such policies or renewals or replacements thereof will be
outstanding and in full force and effect at the Commencement Date. All insurance
policies listed on Schedule 13.16 are in full force and effect,
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all premiums due on or before the Commencement Date have been or will be paid on
or before the Commencement Date, Landlord has not been advised by any of its
insurance carriers of an intention to terminate or modify any such policies, nor
has Landlord failed to comply with any of the material conditions contained in
any such policies. Said Schedule 13.16 shall be updated to the extent necessary
on and as of the day preceding the Commencement Date.
13.17 Relationships. Except as disclosed on Schedule 13.17,
Landlord has not and no managing member or member thereof or any member of such
Person's immediate family has, or at any time within the last two (2) years has
had, a material ownership interest or claim in any business, corporate or
otherwise, that is a party to, or in any property that is the subject of,
business relationships or arrangements of any kind relating to the operation of
the Demised Premises or the operation of the Facility, by which Tenant or the
Demised Premises will be bound after the Commencement Date. Said Schedule 13.17
shall be updated to the extent necessary on and as of the day preceding the
Commencement Date.
13.18 Assets Comprising the Demised Premises. The Land, Leased
Equipment, Contracts, Licenses and Other Assets (collectively, the "Assets")
listed on the Schedules to this Lease as owned by Landlord, represent all of the
real and personal property, licenses, permits and authorizations, contracts,
leases and other agreements that are necessary and material to the use and
operation of the Demised Premises as now used or operated or the operation of
the Facility.
13.19 Absence of Certain Events. Except as set forth on
Schedule 13.19, from the date of this Lease to the Commencement Date Landlord
will not have (except for transactions directly with Tenant):
(a) sold, assigned or transferred any of its
assets or properties, except in the ordinary course of business consistent with
past practice;
(b) mortgaged, pledged or subjected to any lien,
pledge, mortgage, security interest, conditional sales contract or other
encumbrance of any nature whatsoever any of the Assets other than the liens, if
any, of current taxes not yet due and payable;
(c) made or suffered any amendment or
termination of any contract, commitment, instrument or agreement materially
relating to the Demised Premises;
(d) except in the ordinary course of business,
consistent with past practice, or otherwise to comply with any applicable
minimum wage law, increased the salaries or other compensation of any of its
employees at the Demised Premises, or made any increase in, or any additions to,
other benefits to which any of such employees may be entitled;
(e) discharged or satisfied any lien or
encumbrance, or paid any material liabilities, other than in the ordinary course
of business consistent with past practice, or failed to pay or discharge when
due any liabilities, the failure to pay or discharge which has caused or will
cause any actual damage or risk of loss to Landlord or the Demised Premises;
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(f) changed any of the accounting principles
followed by it or the methods of applying such principles in any material
respect;
(g) made or suffered any amendment or
termination of any material contract, commitment or agreement to which it is a
party or by which it is bound, or cancelled, modified or waived any debts or
claims held by it, other than in the ordinary course of business consistent with
past practice, or waived any rights of substantial value, whether or not in the
ordinary course of business; or
(h) entered into any material transaction other
than in the ordinary course of business consistent with past practice.
Said Schedule 13.19 shall be updated to the extent necessary on and as of the
day preceding the Commencement Date.
13.20 Compliance with Laws. Landlord has not received any
claim or notice that the Demised Premises are not in compliance with any
applicable federal, state, local or other governmental laws or ordinances, or
any applicable order, rule or regulation of any federal, state, local or other
governmental agency.
13.21 Environmental Compliance.
(a) At any time during Landlord's ownership of
the Demised Premises and, to the best of Landlord's knowledge, after due
inquiry, prior to Landlord's ownership thereof:
(i) the Demised Premises has not been
used for the disposal of any industrial refuse or waste, including but not
limited to potentially infectious waste, blood- contaminated materials, or other
wastes generated in the course of resident treatment (collectively, "Medical
Waste"), or for the processing, manufacture, storage, handling, treatment or
disposal of any hazardous or toxic substance, material or waste;
(ii) no asbestos-containing materials
have been used or disposed of in or on the Demised Premises or used in the
construction of the Demised Premises;
(iii) no machinery, equipment or fixtures
containing poly- chlorinated biphenyls ("PCBs") have been located on the Demised
Premises;
(iv) no storage tanks for gasoline,
petroleum, or any other substance have been located on the Demised Premises;
(v) no toxic or hazardous substances or
materials have been located on the Demised Premises, which substances or
materials, if found in or on the Demised Premises, would subject the owner or
occupant of the Demised Premises to damages, penalties,
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liabilities or an obligation to remove such substances or materials under any
applicable federal, state or local law, regulation or ordinance; and
(vi) no written notice from any
governmental body has ever been served upon Landlord, or any of its agents or
representatives, or upon any prior owner of the Demised Premises, claiming any
violation of any federal, state or local law, regulation or ordinance concerning
the generation, handling, storage, or disposal of Medical Waste, or the
environmental state, condition, or quality of the Demised Premises, or requiring
or calling attention to the need for any work, repairs, or demolition, on or in
connection with the Demised Premises in order to comply with any law, regulation
or ordinance concerning the environmental or healthful state, condition or
quality of the Demised Premises.
Schedule 13.21 lists all reports of healthcare and
environmental agencies received by Landlord during the last five (5) years from
any supervisory governmental authority with respect to the operations of the
Demised Premises. Said Schedule 13.21 shall be updated to the extent necessary
on and as of the day preceding the Commencement Date. Landlord has delivered
copies of each such report to Tenant.
(b) To the best knowledge of Landlord, after due
inquiry, at all times Landlord has complied, and is complying in all respects
with all environmental and related laws, ordinances and governmental rules and
regulations applicable to Landlord or to the Demised Premises, including, but
not limited to, the Resource Conservation and Recovery Act of 1976, as amended,
the Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended, the Federal Water Pollution Control Act, as amended by the Clean
Water Act, and subsequent amendments, the Federal Toxic Substances Control Act,
as amended, and all other federal, state and local laws, regulations and
ordinances with respect to the protection of the environment (collectively,
"Environmental Laws"). The foregoing representation and warranty applies to all
aspects of the operation of the Demised Premises, including, but not limited to,
the use, handling, treatment, storage, transportation and disposal of any
hazardous, toxic or infectious waste, material or substance (including Medical
Waste) and petroleum products, material or waste whether performed on any of
Landlord's properties or at any other location.
13.22 Tax Returns. Landlord has filed all federal, state,
county and local income, excise, real property and other tax returns and
abandoned facility reports (if any) to date that are due and required to be
filed by it, and there are no claims, liens, or judgments for taxes due from
Landlord affecting the Demised Premises or any of the Leased Equipment, and no
basis for any such claim, lien, or judgment exists.
13.23 Encumbrances Created by this Agreement. Neither the
execution and delivery of this Lease or the performance of any of the
transaction documents contemplated hereby, nor the consummation of the
transactions contemplated hereby or thereby, will create any Lien on any of the
Leased Equipment or Other Assets in favor of any Person.
13.24 Residents. The rent roll attached hereto as Schedule
13.24 is a true and complete listing, as of the date hereof, of the names of all
residents of the Demised Premises, and
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the information set forth thereon, including without limitation the rental
amounts payable by said residents under their respective contracts or agreements
with Landlord regarding their residency at the Demised Premises and the length
of the term of such resident contracts or agreements, is true, correct and
complete. Said Schedule 13.24 shall be updated to the extent necessary on and as
of the day preceding the Commencement Date.
13.25 Zoning. Except as set forth in Schedule 13.25, there
exists no judicial, quasi-judicial, administrative or other proceeding which
might adversely affect the validity of the current zoning of the Land and Leased
Improvements, nor to the best of Landlord's knowledge, after due inquiry, is
there any threatened action or proceeding which could result in the modification
and termination of any such zoning. Said Schedule 13.25 shall be updated to the
extent necessary on and as of the day preceding the Commencement Date.
13.26 Leases. Schedule 13.26 contains an (a) accurate and
complete list of each lease, and all Amendments thereto, of Personal Property
(collectively, the "Personal Property Leases") to which Landlord or the Demised
Premises is a party or by which Landlord or the Demised Premises is bound or
which were assigned or transferred to Landlord in connection with the Demised
Premises and (b) a list of all contracts providing for the installation or
maintenance of equipment purchased or leased by Landlord relating to the Demised
Premises or the operation of the Facility. Said Schedule 13.26 shall be updated
to the extent necessary on and as of the day preceding the Commencement Date.
13.27 Care of Residents; Deficiencies; Licensed
Bed and Rate Schedule.
(a) Landlord has cared for the residents located
at any time at the Demised Premises in accordance with recognized standards
pertaining to assisted living facilities. Landlord does not have any agreements
with any of the residents at the Demised Premises which have been prepaid for
more than one month.
(b) Schedule 13.27(b) sets forth a true and
complete list of all violations and deficiencies found or alleged by any
governmental authority with respect to the Facility or Landlord within the past
three (3) years. All such violations and deficiencies have been fully remedied
by Landlord or withdrawn by the applicable governmental authority. No violations
or deficiencies found or alleged by any governmental authority with respect to
the Facility or Landlord (whether or not listed in Schedule 13.27 (b)) will,
individually or in the aggregate, result in any Adverse Effect or adversely
effect Tenant, or its operation of the Demised Premises after the Commencement
Date or any of the transactions contemplated hereby (including, without
limitation, any adverse effect upon any application for Tenant's operation of
the Demised Premises). Said Schedule 13.27(b) shall be updated to the extent
necessary on and as of the day preceding the Commencement Date.
(c) Schedule 13.27(c) sets forth (i) the number
of licensed assisted living beds at the Demised Premises, (ii) the current rates
charged by the Demised Premises to its residents and (iii) the number of beds or
units presently occupied in, and the occupancy percentage at, the Demised
Premises, including the current rates charged by the Demised Premises for each
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such occupied bed or unit, and the information set forth thereon is complete and
correct in all material respects. Said Schedule 13.27(c) shall be updated to the
extent necessary on and as of the day preceding the Commencement Date.
13.28 Books and Records. The books and records of the Demised
Premises set forth in all material respects all transactions affecting the
Demised Premises, and such books and records have been properly kept and
maintained in a manner consistent with sound business practice and are complete
and correct in all material respects.
13.29 Intellectual Property. Schedule 13.29 sets forth a list
of all patents, copyrights, trademarks, software and computer programs,
corporate names and other intellectual property rights, including the names
"Hartmoor Homestead" and all derivations and variations thereof and any other
tradenames used in connection with the operation of the Demised Premises
(collectively, the "Intellectual Property") used by Landlord in connection with
the Demised Premises. Said Schedule 13.29 shall be updated to the extent
necessary on and as of the day preceding the Commencement Date.
13.30 No Misstatements or Omissions. None of the documents,
certificates, instruments or information furnished or to be furnished by
Landlord to Tenant or any of Tenant's representatives is or will be false or
misleading as to any material fact or omits or will omit to state a material
fact necessary to make any of the statements contained therein not misleading.
Landlord has provided to Tenant all material information related to the Leased
Equipment, the Other Assets and the Demised Premises.
13.31 Bankruptcy. No insolvency proceeding of any character,
including, without limitation, bankruptcy, receivership, reorganization,
composition or arrangement with creditors, voluntary or involuntary, affecting
Landlord (other than as a creditor) or the Demised Premises or any of the Leased
Equipment or Other Assets are pending or are being contemplated by Landlord, or
are, to the best knowledge of Landlord, after due inquiry, being threatened
against Landlord by any other person, and Landlord has not made any assignment
for the benefit of creditors or taken any action in contemplation of or which
would constitute the basis for the institution of such insolvency proceedings.
Tenant acknowledges that the Demised Premises are under
construction as of the date of this Lease and that the Demised Premises have not
been operated by Landlord as an assisted living facility. Tenant further
acknowledges that certain of the representations and warranties made by Landlord
and Jack West herein assume by their nature that the construction of the Demised
Premises has been completed (the "Completion Warranties") and/or that Landlord
has operated the Demised Premises as an assisted living facility (the
"Operational Warranties"). Tenant agrees that the Completion Warranties shall
not be effective until such time as construction of the Demised Premises has
been completed. Upon completion of construction of the Demised Premises, the
Completion Warranties shall automatically become effective except to the extent
of any matters disclosed in the Schedules to this Lease. Tenant further agrees
that the Operational Warranties shall not be deemed to be effective unless
Landlord operates the Demised Premises as an assisted living facility prior to
the Commencement Date, and in such event the Operational
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Warranties shall automatically become effective as of the Commencement Date
except to the extent of any matters disclosed in the Schedules to this Lease.
ARTICLE XIV
TENANT'S REPRESENTATIONS, WARRANTIES AND COVENANTS
--------------------------------------------------
Tenant represents and warrants to Landlord, and covenants, as follows:
14.1 Organization and Standing of Tenant. Tenant is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Copies of its Articles of Incorporation and By-laws
and all amendments thereof to date, have been delivered to Landlord, and are
complete and correct. Tenant has the power and authority to own the property and
assets now owned by it and to conduct the business presently being conducted by
it.
14.2 Authority. Tenant has the full, absolute and unrestricted
right, power and authority to make, execute, deliver and perform this Lease
including all Schedules and Exhibits hereto, and the other instruments and
documents required or contemplated hereby and thereby. Upon obtaining the
consents and approvals described in Section 19.5, such execution, delivery,
performance and consummation shall have been duly authorized by all necessary
action, corporate or otherwise, on the part of Tenant, its directors and
shareholders and all consents of holders of indebtedness of Tenant shall have
been obtained.
14.3 Binding Effect. This Lease and all related transaction
documents executed by Tenant constitute the legal, valid and binding obligation
of Tenant, enforceable against Tenant in accordance with their respective terms.
14.4 Absence of Conflicting Agreements. Neither the execution
or delivery of this Lease or any of the transaction documents related hereto by
Tenant nor the performance by Tenant of the transactions contemplated hereby and
thereby, conflicts with, or constitutes a breach of or a default under (i)
Tenant's articles of incorporation or by-laws; or (ii) any applicable law, rule,
judgment, order, writ, injunction, or decree of any court, currently in effect;
or (iii) any applicable rule or regulation of any administrative agency or other
governmental authority currently in effect; or (iv) except as set forth on 14.4,
any written or oral agreement, indenture, contract or instrument to which Tenant
or any shareholder thereof is now a party. Said Schedule 14.4 shall be updated
to the extent necessary on and as of the day preceding the Commencement Date.
14.5 Statement of Operations. Tenant shall furnish to Landlord
a statement of operations for the Demised Premises within ninety (90) days after
the end of each fiscal year for the Demised Premises. The statement of
operations shall include occupancy statistics and a statement of income and
expenses for the Demised Premises for the period which it covers, and shall be
certified by an officer of Tenant.
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ARTICLE XV
INSURANCE, SUBROGATION AND INDEMNIFICATION
------------------------------------------
15.1 Comprehensive General Liability and Professional
Insurance to be Carried by Tenant. Tenant before occupying the Demised Premises,
at its sole cost and expense, shall cause to be issued and kept in force during
the Lease Term, a policy or policies of comprehensive general liability and
professional liability insurance, including general liability and property
damage and including contractual liability under Tenant's indemnification
obligations in this Article, by the terms of which Tenant shall be insured
against claims for bodily injury, death and property damage as a result of an
occurrence on the Demised Premises, with minimum combined single limits of One
Million Dollars ($1,000,000) per occurrence and Three Million Dollars
($3,000,000) per property, with a Two Million Dollar ($2,000,000) umbrella
policy. Landlord shall be named as an additional insured or a loss payee, as
applicable, under such policy or policies of insurance. Tenant shall remain
liable to Landlord for any deficiency should such insurance under this Section
15.1 be insufficient to satisfy the liability of Tenant under Section 15.4.
15.2 Certificate of Insurance. Tenant, at its sole cost and
expense, shall carry all insurance required by this Article XV with a
financially sound and reputable insurer qualified to do business in the State of
Kansas, and Tenant shall cause each policy of insurance procured by it and
required by this Article to be endorsed to provide that each insurer shall have
the right to change or cancel the policy only after giving every insured party
thereunder thirty (30) days prior written notice by certified mail, return
receipt requested, of the insurer's intention to cancel or change the policy.
All insurance required to be carried by Tenant pursuant to the terms of this
Lease shall be effected under valid and enforceable policies issued by insurers
rated in Best's Insurance Guide, or any successor thereto (or if there be none,
an organization having a national reputation) as having a general policyholder
rating of not less than "B+".
At Landlord's request, Tenant, at its sole cost and expense,
before commencement of the Lease Term and upon each renewal of such insurance,
shall deliver to and deposit with Landlord certificates of insurance evidencing
each policy required by this Article. Upon request of Landlord, Tenant will
furnish or cause to be furnished to Landlord from time to time, a summary of the
insurance covering required by this Article XV in form and substance reasonably
acceptable to Landlord.
A party's obligation to carry the insurance provided herein
may be brought within the coverage of a so-called "blanket policy" or policies
of the insurance carrier maintained by such party or its affiliated business
organizations. However, the other party to this Lease must be named as an
additional insured thereunder as its interest may appear; and the requirements
set forth herein must be otherwise satisfied.
15.3 Other Coverage. Tenant, at its sole cost and expense,
shall carry and maintain throughout the Lease Term insurance for the benefit of
Landlord and Landlord's first fee mortgagee in such amount as shall be necessary
to provide coverage for loss of Annual Rent during the first twelve (12) months
during reconstruction following any damage or destruction of
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the Demised Premises. Tenant, at its sole cost and expense, shall also carry and
maintain throughout the Lease Term insurance in a reasonable amount to provide
coverage for loss or damage to or from explosion of steam boilers, pressure
vessels or similar apparatus; and workers compensation and employer's liability
insurance with a limit of not less than the amount required by applicable state
statute.
15.4 Indemnification of Landlord. Tenant assumes all risk and
responsibility for injury or death to persons and damage to property (damages to
the Demised Premises being waived to the extent of insurance proceeds paid to or
on behalf of Landlord) arising out of or in any way connected with or related to
Tenant's use and control of the Demised Premises (including matters relating to
Tenant's repair and/or alteration of the Demised Premises) and Tenant shall
defend, indemnify and hold harmless Landlord, its partners, officers, directors,
managing member, members and shareholders (collectively, the "Indemnified
Parties"), from and against any and all claims, losses, liabilities, actions,
proceedings and expenses (including reasonable attorneys' fees) imposed upon,
incurred by or asserted against any of the Indemnified Parties by reason of,
arising out of or in any way connected with Tenant's use or operation of the
Demised Premises or Other Assets, except to the extent such claims, losses,
liabilities, actions, proceedings and expenses (including attorneys' fees) arise
out of Landlord's negligence, willful misconduct or breach of this Lease. Tenant
shall at all times indemnify and hold harmless Landlord, its officers,
directors, managing member, members and shareholders, from and against any and
all claims, losses, liabilities, actions, proceedings and expenses (including
reasonable attorneys' fees) arising out of any inaccuracy in any representation
or breach of any warranty set forth in Article XIV hereof. The provisions of
this Section 15.4 shall survive the termination or expiration of this Lease.
15.5 Indemnification of Tenant. Landlord and Jack West shall
at all times jointly and severally defend, indemnify and hold harmless Tenant,
its officers, directors and shareholders (collectively, the "Tenant Indemnified
Parties"), from and against any and all claims, losses, liabilities, actions,
proceedings and expenses (including reasonable attorneys' fees) imposed upon,
incurred by or asserted against any of the Tenant Indemnified Parties by reason
of, arising out of or in any way connected with Landlord's use, ownership or
operation of the Demised Premises prior to the Commencement Date, except to the
extent such claims, losses, liabilities, actions, proceedings and expenses
(including reasonable attorney's fees) arise out of Tenants' negligence, willful
misconduct or breach of this Lease. Landlord and Jack West shall at all times
jointly and severally defend, indemnify and hold harmless the Tenant Indemnified
Parties from and against any and all claims, losses, liabilities, actions,
proceedings and expenses (including reasonable attorneys' fees) arising out of
any inaccuracy in any representation or breach of any warranty set forth in
Article XIII hereof. The provisions of this Section 15.5 shall survive the
termination or expiration of this Lease.
15.6 Fire, Extended Coverage and Additional Perils Insurance.
Tenant, at its sole cost and expense, shall cause to be issued and kept in force
during the Lease Term, a policy or policies of fire, extended coverage and all
risks insurance by which Landlord and Tenant shall be insured against loss and
damage by fire, lightning, windstorm, hail and sprinkler damage, resulting from
damage to or destruction of the improvements, including equipment, fixtures,
furnishings and other personal property used in connection with the Demised
Premises and the
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Leased Equipment, if any, for its full replacement value (exclusive of Land),
less cost of excavation, foundation and footings, by policies containing an
agreed amount endorsement, demolition coverage (XCU coverage) and ordinance or
law coverage, such policy or policies to be written on a replacement cost basis.
Notwithstanding anything to the contrary, Landlord shall at all times be
entitled to insurance in an amount sufficient to avoid being a coinsurer. All
such insurance shall be carried in favor of Landlord and Landlord's first fee
mortgagee as their interest(s) may appear. Such insurance may also be carried in
favor of Tenant and the holder(s) of any leasehold mortgages on this Lease, as
their interests may appear; provided, however, that any such policy shall
effectively provide, if such provision be obtainable, that Landlord's interest
therein shall not be subject to cancellation by reason of any act or omission of
Tenant or any leasehold mortgagee. Notwithstanding anything in this Lease to the
contrary, all such fire and extended coverage and other insurance policies
covering damage to or destruction of buildings and improvements on the Demised
Premises shall effectively provide that any loss payable thereunder shall be
adjusted solely by Tenant and the leasehold mortgagee(s), and that the proceeds
of such insurance shall be payable to Tenant, however, if in excess of One
Hundred Thousand Dollars ($100,000), shall be paid to and deposited with
Landlord's first fee mortgagee, provided such mortgagee is a bank, savings bank
or trust company whose deposits are insured by the FDIC, or insurance company,
pension fund, credit company or real estate investment trust, and such mortgagee
has resources in excess of $100,000,000 (an "Institutional Lender"), and if not
then said proceeds shall be paid to and deposited with any Institutional Lender
of Tenant's selection, as insurance trustee (the "Insurance Trustee"), which
shall hold, apply and make available the proceeds of such insurance as
hereinafter provided in this Lease.
15.7 Waiver of Subrogation. Each party to this Lease releases
the other party (which term as used in this Section includes the employees,
agents, officers, managing member, members and directors of the other party)
from all liability, whether for negligence or otherwise, in connection with loss
covered by any fire and/or extended coverage insurance policies, which the
releasor carries with respect to the Demised Premises, or any interest or
property therein or thereon (whether or not such insurance is required to be
carried under this Lease), but only to the extent that such loss is collected
under said fire and/or extended coverage insurance policies. Such release is
also conditioned upon the inclusion in the policy or policies of a provision
whereby any such release shall not adversely affect said policies, or prejudice
any right of the releasor to recover thereunder. Each party agrees that its
insurance policies aforesaid will include such a provision so long as the same
shall be obtainable without extra cost, or if extra cost shall be charged
therefor, so long as the party for whose benefit the clause or endorsement is
obtained shall pay such extra cost. If extra cost shall be chargeable therefor,
each party shall advise the other of the amount of the extra cost, and the other
party at its election, may pay the same, but shall not be obligated to do so.
ARTICLE XVI
ARBITRATION
-----------
If any controversy should arise between the parties in the performance,
interpretation or application of this Lease involving any matter, either party
may serve upon the other a written
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notice stating that such party desires to have the controversy resolved by an
arbitrator. If the parties cannot agree within fifteen (15) days from the
service of such notice upon the selection of such arbitrator, an arbitrator
shall be selected or designated by the American Arbitration Association upon
written request of either party hereto. Arbitration of such controversy,
disagreement, or dispute shall be conducted in accordance with the Commercial
Arbitration Rules then in force of the American Arbitration Association and the
decision and award of the arbitrator so selected shall be binding upon Landlord
and Tenant. The arbitration will be held in Dallas, Texas.
As a condition precedent to the appointment of any arbitrator, in any
non-monetary dispute, both parties shall be required to make a good faith effort
to resolve the controversy, which effort shall continue for a period of thirty
(30) days prior to any demand for arbitration. The cost of any such arbitration
shall be shared equally by the parties. Each party shall pay its own costs
incurred as a result of its participation in any such arbitration.
If the issue to be arbitrated is Landlord's or Tenant's alleged breach
of this Lease and as a result thereof, Landlord or Tenant has the right to
terminate this Lease, Tenant shall continue to lease the Demised Premises
pending the outcome of such arbitration, provided Landlord or Tenant may elect
to proceed without arbitration under its other remedies in this Lease.
ARTICLE XVII
CERTAIN COVENANTS OF LANDLORD
-----------------------------]
17.1 Covenant Not-To-Compete.
---- ------------------------
(a) For a period of five (5) years from and
after the Commencement Date neither Landlord nor any corporation, partnership or
other business entity or person controlling, controlled by or under common
control with Landlord ("Restricted Party"), shall, directly or indirectly,
operate, manage, own, control, finance or provide financing for, be a consultant
for or enter into a service contract with, any nursing home, hospital or
licensed health care facility or other person or entity of any type, licensed or
unlicensed, existing or to be constructed that provides assisted living care,
nursing home care or any other senior housing, or any entity existing or to be
formed that competes in any way with the Demised Premises (any such person or
entity being herein referred to as an "Operator"), that provides nursing home
care, assisted living care or senior housing, and which facility is located
within twenty-five (25) miles from the exterior boundaries of the Land.
(b) From and after the Commencement Date, no
Restricted Party shall disclose, directly or indirectly, to any person outside
of Tenant's employ without the express authorization of Tenant, any resident
lists, pricing strategies, resident files and records, proprietary data or trade
secrets relating to the Demised Premises or any financial or other information
about the Demised Premises not then in the public domain.
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(c) For a period of five (5) years from and
after the Commencement Date, no Restricted Party shall solicit any of the
physicians, customers, vendors, suppliers, associates, employees, independent
contractors, residents or families of residents admitted to, or employed at the
Demised Premises prior to the Commencement Date, or by the Facility or by
Tenant, to take any action or to refrain from taking any action or inaction that
would be disadvantageous to Tenant or the Facility, including (but not limited
to) the solicitation of their respective physicians, suppliers, customers,
vendors, associates, employees, independent contractors, residents or families
of residents to cease doing business, or their association or employment with
the Facility or Tenant.
(d) The Restricted Parties acknowledge that the
restrictions contained in this Section 17.1 are reasonable and necessary to
protect the legitimate business interests of Tenant and that any violation
thereof by any of them would result in irreparable harm to Tenant. Accordingly,
the Restricted Parties agree that upon the violation by any of them of any of
the restrictions contained in this Section 17.1, Tenant shall be entitled to
obtain from any court of competent jurisdiction a preliminary and permanent
injunction as well as any other relief provided at law, equity, under this Lease
or otherwise. In the event any of the foregoing restrictions are adjudged
unreasonable in any proceeding, then the parties agree that the period of time
or the scope of such restrictions (or both) shall be adjusted to such a manner
or for such a time (or both) as is adjudged to be reasonable.
Notwithstanding the foregoing, for purposes of this
Section 17.1, any advertisement prepared for and disseminated to the public in
general, which advertises the services of any facility of Landlord not otherwise
in violation of this Section 17.1 or advertises the need for services to be
supplied to such a Demised Premises, shall not be deemed to be an inducement or
solicitation with respect to any such residents, physicians, suppliers or
independent contractors.
17.2 Pre-Commencement Date Financial Statements.
Intentionally Deleted.
ARTICLE XVIII
MISCELLANEOUS PROVISIONS
------------------------
18.1 Notices. All notices, requests, demand or other
communications required or permitted under this Lease shall be in writing and
shall be either personally delivered evidenced by a signed receipt, transmitted
by United States certified mail, return receipt requested, postage prepaid, or
by a nationally recognized overnight delivery service, addressed as follows:
If to Landlord: c/o The Homestead Company, L.C.
155 North Market, Suite 910
Wichita, Kansas 67202
Attention: Mr. Jack West
Copy to: Foulston & Siefkin, L.L.P.
700 Fourth Financial Center
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Wichita, Kansas 67202
Attention: Gary E. Knight, Esq.
If to Tenant: c/o Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Mr. Ed Komp
Copies to: Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Marshall A. Elkins, Esq.
and
Blass & Driggs
461 Fifth Avenue
New York, New York 10017
Attention: Michael S. Blass, Esq.
All notices, requests, demands and other communications shall
be effective (i) upon personal delivery evidenced by a signed receipt, (ii) upon
five (5) calendar days after being deposited in the United States mail or (iii)
on the next business day following timely deposit with a nationally recognized
overnight delivery service, whichever occurs first. The time period in which a
response to any such notice, request, demand or other communication must be
given, however, shall commence to run from (i) the date of personal delivery
evidenced by a signed receipt, (ii) the date of receipt on the return receipt of
the notice, request, demand or other communication; provided, however, that if a
party refuses delivery of any such notice, request, demand or other
communication sent by certified mail, or fails or neglects, without reasonable
cause, to accept delivery after three (3) attempts to so deliver by postal
authorities, it shall be deemed received on the date of its last being deposited
in the United States mail, or (iii) the date of delivery by a nationally
recognized overnight delivery service. The parties hereto shall have the right,
at any time and from time to time during the Lease Term to change their
respective addresses for notices by giving the other party hereto written notice
thereof.
18.2 Understanding and Agreements. This Lease constitutes the
entire understanding and agreements of whatsoever nature or kind existing
between the parties with respect to Tenant's lease of the Demised Premises and
Other Assets from Landlord.
18.3 Amendment. This Lease may be amended at any time and from
time to time; provided, however, that no amendment to this Lease shall be
legally enforceable against Landlord or Tenant unless it is in writing, executed
and acknowledged by both Landlord and Tenant.
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18.4 Construction. This Lease shall be construed in
accordance with the laws of the State of Kansas.
18.5 Specific Performance. Landlord and Tenant for themselves
and for each person, business organization, association and corporation claiming
by, under or through either Landlord or Tenant, stipulate that both Landlord and
Tenant shall have the remedy of specific performance against the other.
Landlord and Tenant, for themselves and for each person,
business organization, association and corporation claiming by, under or through
either Landlord or Tenant, knowingly and voluntarily waive their rights to
allege or assert in or in any and all claims or counts for specific performance
arising out of or in any way connected with this Lease the defense that the
other party has an adequate remedy at law.
18.6 Binding Effect on Successors. Except as otherwise
provided for herein, Landlord and Tenant expressly agree that, subject to the
terms of this Lease, all terms and conditions of this Lease shall extend to and
be binding upon or inure to the benefit of the heirs, executors, administrators,
personal representative, assigns and successors in interest of both the
respective parties hereto.
18.7 Lease (Short Form). Landlord and Tenant shall execute and
deliver to each other an instrument, recordable in form setting forth the term
and such other information (other than rent) as may be necessary to constitute a
"short form lease" for recording purposes immediately upon execution of this
Lease. Any party, at its expense, shall have the right to record such short form
lease for the purpose of giving notice of Tenant's interest in the Demised
Premises. This Lease shall not be recorded.
18.8 Reading and Receipt of this Lease. Landlord and Tenant
stipulate that each has read and understands the conditions in this Lease and by
their respective signatures below acknowledge the receipt of an executed copy of
this Lease.
18.9 Prohibition of Mechanics Liens. Nothing in this Lease
shall be deemed or construed in any way as constituting the consent or request
of Landlord, expressed or implied, by inference or otherwise, to any contractor,
subcontractor, laborer, or materialman for the performance of any labor or the
furnishing of any materials for any specific improvements, alteration to, or
repair of the Demised Premises or any part thereof, nor as giving Tenant any
right, power, or authority to contract for or permit the rendering of any
services or the furnishing of any materials that would give rise to the filing
of any lien against the Demised Premises or any part thereof.
18.10 Brokerage or Agents Fees. Landlord and Tenant represent
to each other that it has dealt with no broker in connection with this Lease or
the transactions contemplated hereby other than Southwest Retirement Properties
(the "Broker"), and Tenant shall pay any compensation, commissions or fees
earned by the Broker. Except for the fees payable to the Broker in connection
with this transaction, which fees are the sole responsibility of Tenant, each
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party agrees to indemnify and hold the other harmless, including reasonable
attorney's fees, from all claims or actions brought by any broker or agent
claiming to represent the indemnifying party in this transaction for fees or
commissions.
18.11 Captions and Indexes. Article or Section titles,
captions or indexes, contained in this Lease are inserted only as a matter of
convenience and reference, and in no way define, limit, extend or describe the
scope of this Lease, or the intent of any provision hereof.
18.12 Pronouns. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or persons may require.
18.13 Drafting of this Lease. Landlord and Tenant have been
represented by attorneys in the negotiation and drafting of this Lease and all
of the parties to this Lease have influenced the language of this Lease.
Therefore, this Lease shall not be construed against any party to this Lease by
reason of drafting authorship.
18.14 Counterparts. This Lease may be executed in several
counterparts, each of which shall be deemed an original, and all of which shall
together constitute one and the same instrument.
18.15 Quiet Enjoyment. Landlord covenants that Tenant, paying
the said rental and performing the covenants and conditions in this Lease
contained, shall and may peaceably and quietly have, hold and enjoy the Demised
Premises and all rights of Tenant hereunder for the Lease Term, without any
manner of hindrance or molestation whatsoever from anyone claiming by, through
or under Landlord.
ARTICLE XIX
CONDITIONS PRECEDENT TO LEASE COMMENCEMENT
------------------------------------------
Unless waived by Tenant in writing, neither the Lease Term nor Tenant's
obligations under this Lease shall commence unless and until each and every one
of the following conditions has been satisfied or fulfilled.
19.1 Representations and Warranties.
---- -------------------------------
Each of the representations and warranties contained
in this Lease and on any Schedule (as originally annexed to this Lease), list,
certificate or other document delivered pursuant to the provisions hereto or in
any other document or instrument delivered in connection herewith made by or on
behalf of Landlord and/or Jack West shall be true and correct in all material
respects at and as of the time made and on and as of the Commencement Date as
though such representations and warranties were made at and as of such time,
except to the extent affected by the transactions herein contemplated.
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19.2 Performance of Covenants; No Default.
Landlord shall have performed or complied in all
material respects with each of its agreements and covenants under this Lease
(including, without limitation, all of its obligations under Article XXII
hereof) and under all documents and instruments delivered in connection herewith
required to be performed or complied with by it prior to or at the Commencement
Date of the Lease Term. No default shall exist nor any condition or event that,
constitutes a "default" (as defined in Article XI of this Lease), or, with
notice or lapse of time or both, would constitute a default on the part of
Landlord.
19.3 Delivery of Certificate.
Landlord shall have executed and delivered to Tenant
a certificate signed by a duly authorized managing member of Landlord dated the
Commencement Date upon which Tenant may rely, certifying that the statements
made in Sections 19.1 and 19.2, are true, correct and complete as of the
Commencement Date.
19.4 Legal Matters. No suit, action, investigation, or legal
or administrative proceeding shall have been brought or shall have been
threatened by any person that questions the validity or legality of this Lease
or the transactions contemplated hereby.
19.5 Approvals.
(a) The consent or approval of all persons
necessary for the consummation of the transactions contemplated hereby
including, without limitation, all governmental, regulatory and other such
agencies, shall have been granted, including without limitation, the consents
and approvals set forth on Schedule 13.5 and any tax clearance or similar
approval and all licenses, certificates of need and other permits (including
without limitation the "Licenses") necessary for Tenant to lease and operate the
Facility shall have been issued, in Tenant's name, and the effectiveness of each
of the same shall not be subject to the satisfaction of any conditions
precedent;
(b) The consent of the Board of Directors of
Tenant; and
(c) None of the foregoing consents or approvals
(i) shall have been conditioned upon the modification, cancellation or
termination of any material lease, contract, commitment, agreement, license,
easement, right or other authorization with respect to the Facility, or (ii)
shall impose on Tenant any material condition or provision or requirement with
respect to the Facility or its operation that is more restrictive than or
different from the conditions imposed upon such operation prior to the
commencement of this Lease.
19.6 Material Adverse Change. Since the date of this Lease
there shall not have been any material adverse change to (a) the assets,
business, operations, properties, condition (financial or otherwise) or
reasonably foreseeable prospects of Landlord, (b) the ability of Landlord to
perform all or any part of its obligations under this Lease or any document or
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agreement contemplated hereby, (c) the Demised Premises or Other Assets or (d)
the operation of the Facility.
19.7 Authorization Documents. Tenant shall have received
appropriate authorizing documents and the Organizational Documents with respect
to Landlord, certified in a manner reasonably acceptable to Tenant including
without limitation, a certificate of the "managing member" (as defined in the
Organizational Documents) of Landlord certifying the authorization of Landlord's
execution and full performance of each of this Lease and all documents and
agreements executed by Landlord in connection herewith, the Organizational
Documents of Landlord and the incumbency of the managing member of Landlord.
19.8 COBRA. Landlord shall have, and shall have caused all
concerned benefits plan administrators to have, given all notices, made all
offers, paid and collected all premiums, obtained all group health plan
coverage, and performed all other actions mandated by Title X of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), and which is
required to be given, made, paid, obtained, and performed as a result of the
commencement of the Term under this Lease. Any amounts under COBRA or similar
state or federal law or regulation which becomes a liability to Tenant after
commencement of this Lease but which relates to any period of time in which
Landlord had possession of the Facility shall be paid by Landlord upon demand
after the commencement of this Lease.
19.9 Environmental Compliance. Tenant shall have received, at
its own expense, a written report in form and substance acceptable to Tenant,
from a qualified geotechnical or engineering firm of Tenant's choice, concerning
the presence of hazardous substances, asbestos or asbestos-containing products,
radon and/or ureaformaldehyde insulation on or in the Facility. Such report
shall disclose at a minimum: (1) the results of a review of prior uses of the
Land disclosed by local public records; (2) contacts with local officials to
determine whether any records exist with respect to the disposal of hazardous
substances at the Land; (3) if deemed necessary by such engineering or
geotechnical firm, or by Tenant, soil samples and groundwater samples consistent
with good engineering practice; and (4) evaluation of the surrounding areas for
sensitive environmental receptors, such as drinking water wells or aquifers,
hospitals and schools.
"Hazardous Substance" shall include (a) any material that may
be dangerous to health or the environment, either separately or in combination
with any other substance, when improperly stored, treated, disposed, or
otherwise managed, including without limitation "hazardous waste," "hazardous
substances" or "toxic substances," or any other contamination, emission,
discharge, spill, or release having an adverse effect on the environment (as
such concepts or terms are used and/or defined in any of the Environmental
Laws); and (b) crude or refined oil, including but not limited to waste oil.
19.10 Facility Purchase Option. Landlord shall have
executed and delivered the Option Agreement in substantially the form of Exhibit
D attached hereto.
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19.11 Non-Disturbance Agreement. Tenant shall be granted a
Subordination Agreement with respect to this Lease from the holder(s) of each
mortgage which is a lien on the Demised Premises on the date of this Lease.
ARTICLE XX
CERTAIN ADDITIONAL OBLIGATIONS OF LANDLORD
------------------------------------------
20.1 Discharge of Liabilities. Landlord shall pay all of its
liabilities and obligations which arise or accrue on or before the Commencement
Date with respect to the Facility, as and when the same shall become due and
payable.
20.2 Accounts Receivable. Any payments received by Tenant from
third party payors or private pay patients which clearly indicate they are for
services rendered prior to the Commencement Date will be transferred to Landlord
promptly after receipt thereof by Tenant. Any payments made by such payors or
patients and earmarked or itemized to or which otherwise indicate that they are
for services rendered after the Commencement Date shall be retained by Tenant.
20.3 Employment of Existing Employees. Landlord will terminate
all of its employees as of the day immediately preceding the Commencement Date.
Tenant shall have the right, but not the obligation, to hire any or all of such
employees as of or at any time after the Commencement Date. In accordance with
Sections 3.2(a) and 20.1 hereof, Landlord shall compensate each of its employees
at the Facility for all services performed up to the Commencement Date,
including, without limitation, all fringe benefits and any severance payments.
20.4 Audited Financial Statements. Notwithstanding the level
of review of the Facility's financial statements, Landlord shall cooperate with
Tenant and its certified public accountants, if Tenant deems it necessary or
desirable, to assist in the audit of the balance sheets and statements of income
and changes in financial position of the Facility from the date that the
Facility was first occupied and opened for business. Such audits shall be
conducted at Tenant's expense.
At Tenant's request, Landlord shall cooperate with all
reasonable requests of Tenant and its auditors necessary to audit all previously
unaudited periods for the purposes of enabling Tenant or its affiliate to make a
public offering of its securities under the Securities Act of 1933, as amended
(the "Securities Act"), and shall permit such financial statements to be
included in Tenant's and/or its affiliate's registration statement filed with
the Securities Exchange Commission under the Securities Act and Tenant's and/or
its affiliates' prospectus used in connection with such offering. All fees and
expenses incurred in compiling the foregoing shall be borne by Tenant.
20.5 Licenses. Landlord shall use its best efforts to deliver
to Tenant not later than ten (10) days from execution hereof copies of each of
the Licenses and of each of the applications therefor.
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<PAGE>
20.6 Collective Bargaining, Labor Contracts, etc. Between the
date hereof and the Commencement Date, Landlord shall not enter into any
contract or agreement (or negotiations in connection therewith) with any union
or other collective bargaining representative representing any employees at the
Demised Premises without the prior written consent of Tenant.
20.7 Contracts and Personal Property Leases. Landlord shall
deliver to Tenant true, correct and complete copies of all of the Contracts and
Personal Property Leases no later than ten (10) days from execution hereof.
Landlord shall terminate as of the Commencement Date any and all of such
Contracts and/or Personal Property Leases, other than Contracts and/or Personal
Property Lease, if any, as shall be designated by Tenant in writing, as the
Contracts and/or Personal Property Leases which Tenant wants assigned to it as
of the Commencement Date.
20.8 Demised Premises. All public improvements ordered,
commenced or completed prior to the date of this Lease or prior to the
Commencement Date shall be paid for in full by Landlord prior to the
Commencement Date; provided, that if the same are payable in installments,
Landlord shall pay all installments that are due and payable prior to the
Commencement Date and Tenant shall pay all installments that are due and payable
on or after the Commencement Date.
20.9 Delivery of Notices. Between the date hereof and the
Commencement Date, and during the Lease Term, Landlord shall, within five (5)
days after its receipt of any of the following, deliver to Tenant copies of (a)
all notices of any claim or default or any other claim or proceeding relating to
any License and all notices of any threatened termination, lapse or revocation
of any License, (b) all claims or notices that the Demised Premises, or any part
thereof, are not in compliance with any applicable federal, state, local or
other governmental laws or ordinances, or any applicable order, rule or
regulation of any federal, state, local or other governmental agency, and (c)
all notices or claims of any violation of any federal, state or local law,
regulation or ordinance concerning the generation, handling, storage, or
disposal of Medical Waste, or the environmental state, condition, or quality of
the Demised Premises, or requiring or calling attention to the need for any
work, repairs, or demolition, on or in connection with the Demised Premises in
order to comply with any law, regulation or ordinance concerning the
environmental or healthful state, condition or quality of the Demised Premises.
ARTICLE XXI
EXTENSION OF COMMENCEMENT DATE AND TERMINATION
----------------------------------------------
21.1 Termination. Without limiting any of the rights of Tenant
in this Lease or as it may be otherwise lawfully entitled, it is agreed that the
commencement of the Lease Term is conditioned upon, and shall be subject to, the
satisfaction of all conditions precedent to Tenant's obligations hereunder,
including, without limitation, those conditions set forth in Article XIX hereof,
the verification by Tenant of the accuracy of all of Landlord's and Jack West's
warranties and representations made herein and the due compliance by Landlord of
all of its agreements set forth herein and elsewhere in this Lease which are to
be performed prior to the Commencement Date. If, on or before the Commencement
Date, Tenant, in its sole judgment, shall determine that any of said conditions
precedent have not been satisfied, or that Landlord's or any of Jack West's
representations or warranties are untrue or that Landlord has not complied with
any of said
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<PAGE>
agreements, then the Tenant may elect to either (i) extend the Commencement Date
for a period or periods not in excess of ninety (90) days in the aggregate,
during which time Landlord shall use its best efforts to satisfy the condition,
complete its required performance and otherwise cure the defect or
non-compliance; or (ii) terminate this Lease, by notice to Landlord. If at the
end of any extended period or periods for the Commencement Date said defect or
non-compliance has not been cured to Tenant's reasonable satisfaction, Tenant
may terminate this Lease by notice to Landlord. If this Lease is terminated, as
aforesaid, Landlord shall cause any deposits, pre-payments or other sums
theretofore delivered or paid by Tenant hereunder to be refunded to Tenant, with
all interest earned thereon, and Landlord shall pay up to $15,000 of the cost of
any survey obtained, any title search made, any insurance commitment issued by
Tenant's title insurance company, and any other expenses, including but not
limited to legal fees, incurred by Tenant, in connection with this Lease.
21.2 Tenant's Remedies. If Landlord fails to comply with any
of the provisions of this Lease then, in addition to all other legal remedies
available to Tenant by reason of Landlord's default, Tenant shall have the right
to obtain specific performance of Landlord's obligations hereunder. Each and
every covenant, representation and warranty of Landlord and Jack West made
herein shall survive and continue after the Commencement Date. Nothing contained
herein shall be deemed to restrict or limit Tenant in any way from offsetting
against or deducting from any Annual Rent or other payments to be made to
Landlord herein, the amount of any costs or damages incurred by Tenant as a
result of or arising out of the breach by Landlord of any covenant, agreement,
representation or warranty made by Landlord or Jack West in this Lease; provided
that the amount to be offset against or deducted from any particular payment
shall not exceed ten (10%) percent of such payment, with the balance of any such
amount to be offset against or deducted from subsequent payments subject to such
cap and carry forward provisions.
ARTICLE XXII
CONSTRUCTION AND DELIVERY OF POSSESSION
---------------------------------------
22.1 Construction, Delivery of Possession And Commencement
Date.
(a) Landlord agrees to improve, construct and
install upon the Demised Premises in the location designated on Exhibit A-1
annexed hereto, the Leased Improvements containing not less than 22,458 square
feet of interior floor space, and consisting of 35 units and 46 beds, which
Leased Improvements shall be part of the Demised Premises that shall be provided
to Tenant by Landlord as a "turnkey" operation, as hereinafter provided in this
Lease. Landlord agrees that the work described as "Landlord's Construction Work"
in Exhibit C annexed hereto will be completed at its own cost and expense.
(b) All work required to be performed by
Landlord pursuant to this Lease shall be performed in a good and workmanlike
manner, with new materials of good quality. The Demised Premises shall be left
at the completion of such work in a safe, clean and tenantable condition and in
reasonably good order and repair. Landlord shall perform all work provided for
in this Lease in compliance and conformity with all applicable construction and
building codes and with every applicable requirement of (i) any statute, law,
ordinance, regulation or order, now or
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<PAGE>
hereafter made by any governmental authorities; (ii) any board of fire
underwriters, rating bureau or similar organizations having jurisdiction; and
(iii) all carriers of insurance on the Demised Premises and on the work provided
for in this Lease. For a period of fifteen (15) months following the
Commencement Date, Landlord, at its expense, shall remedy any defect or make any
repairs or replacements made necessary by its failure to perform the work
required to be performed by it pursuant to this Lease, including any failure to
perform such work in a good and workmanlike manner and with new materials of
good quality. During the eleventh (11th) month after the Commencement Date,
Landlord and Tenant shall create a written list of such defects, repairs or
replacements that Landlord can present to its contractors for remedial action
within the twelve (12) month warranty period provided by such contractors to
Landlord; provided that nothing in this sentence derogates the fifteen (15)
month warranty provided by Landlord to Tenant in the immediately preceding
sentence. Landlord shall obtain all necessary building permits so as to allow
Landlord to perform Landlord's Construction Work and ready the Demised Premises
for Tenant's use and occupancy.
(c) Landlord agrees that as part of Landlord's
Construction Work the Demised Premises shall be connected to the electric and
gas lines serving the municipality wherein the Demised Premises are located and
to the water and sewer system of said municipality.
(d) Landlord agrees that Landlord's Construction
Work shall be completed and possession of the Demised Premises shall be
delivered to Tenant (the term "delivery of possession of the Demises Premises"
being hereinafter defined) on or before July 1, 1996, subject to extension of
not more than one hundred eighty (180) days in the aggregate for periods of time
that are deemed excusable delays pursuant to Section 11.4 of this Lease (herein
referred to as "Excusable Delays").
(e) Further, should Landlord fail to diligently
pursue such work and to complete Landlord's Construction Work in accordance with
the provisions of this Article, Tenant may, without prejudice to the exercise of
any other remedy, at its election, either (i) extend further time to Landlord
within which to properly complete Landlord's Construction Work, or (ii) commence
and/or complete Landlord's Construction Work or correct such work, as the case
may be, and deduct and offset Tenant's entire cost of so doing, together with
interest thereon from the date of expenditure thereof at the annual rate set
forth in Section 3.1.4 hereof, from any Annual Rent or other amounts payable
under this Lease. At the expiration of any extended period or periods granted by
Tenant as aforesaid, Tenant shall have the same rights of extension or self
help.
Landlord and Jack West shall at all times jointly and
severally defend, indemnify and hold harmless the Tenant Indemnified Parties
from and against all actions, claims, demands, costs, damages, penalties and
expense of any kind which may be brought, made or incurred by reason of any work
performed on or about the Demised Premises by or on behalf of or at the
direction of Landlord, including, without limitation any loss of business or
profits from the Demised Premises or any costs and expenses incurred in the
operation of Tenant's business at the Demised Premises by reason of or resulting
from interference with Tenant's business operations by the performance of
Landlord's Construction Work. Landlord shall carry a policy of insurance,
insuring Landlord and Tenant against public liability on an occurrence basis
with
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<PAGE>
limits not less than Three Million ($3,000,000) Dollars combined coverage for
personal injury and against property damage with a limit of at least Five
Hundred Thousand ($500,000) Dollars, which insurance shall be in effect at all
times when any work is being performed by or on behalf of Landlord on or about
the Demised Premises; provided, however, that Landlord may cause its contractor
to carry such insurance. On or before the date of this Lease with respect to
Landlord's Construction Work, and before commencing any such work at other
times, Landlord shall furnish Tenant with a certificate of insurance evidencing
compliance with the foregoing insurance requirements.
(f) Provided (x) Landlord's Construction Work
has been completed and all equipment and facilities required to be furnished by
Landlord are in good working order, and (y) all utilities and sewer facilities
have been connected to the Demised Premises and are operable, Landlord shall be
deemed to have "delivered possession of the Demised Premises" to Tenant on the
fifth day following Tenant's receipt of written notice from Landlord of the
completion of the items set forth in clauses (x) and (y) in this paragraph (f),
provided that said notice is accompanied by:
(i) a final, non-conditional Certificate
of Occupancy, or its equivalent, and all necessary licenses and permits, issued
by the appropriate governmental authorities, permitting Tenant's use and
occupancy of the Demised Premises for the purposes herein described, including,
without limitation, any necessary licenses or permits for the operation of the
Demised Premises as a resident congregant, nursing care and/or assisted living
facility; and
(ii) a board of fire underwriter's
certificate with respect to the electrical installations in the Demised Premises
and such other certificates as are customarily obtained for similar types of
buildings and improvements.
For purposes of this Lease, the "Commencement Date" shall be deemed to be the
date upon which Tenant officially opens the Demised Premises for business, or
five (5) days after Landlord's delivery of possession of the Demised Premises to
Tenant as aforesaid, whichever first occurs. Landlord and Tenant agree that
delivery of possession of the Demised Premises shall not be deemed to have
occurred until exclusive possession of the Demised Premises shall have been
delivered to Tenant with the completion of Landlord's Construction Work (except
such non-substantial and non-material portions thereof as Landlord shall have by
reason of Excusable Delays been unable to complete, provided the failure to
complete said items does not interfere with Tenant's full use and enjoyment of
the Demised Premises and further provided that said incomplete items are
thereafter completed within thirty (30) days, said Demised Premises to be in
broom clean condition.
(g) Tenant's acceptance of possession of the
Demised Premises shall not be deemed a waiver by Tenant of any failure by
Landlord to complete and perform Landlord's Construction Work in compliance with
the provisions of this Lease.
(h) If Tenant submits to Landlord a written list
of items which Landlord is obligated to complete or correct pursuant to the
final plans and specifications (as described in
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<PAGE>
Exhibit C) for Landlord's Construction Work, Landlord shall have a period of
thirty (30) days from the date of said notice to complete such work, failing
which Tenant shall have the right to complete such work at Landlord's cost and
expense, and Tenant may deduct and offset from any Annual Rent or other sums
thereafter due Landlord an amount equal to Tenant's cost and expense in
performing such work, together with interest thereon from the date of
expenditure at the annual rate set forth in Section 3.1.4 hereof, if Landlord
does not reimburse Tenant on demand therefor. It is expressly understood and
agreed, however, that Tenant's failure to submit such list to Landlord or its
failure to include any item of incomplete or incorrect work on any such list
shall not be deemed a waiver of any of Tenant's rights with respect to such
incomplete or incorrect work, Landlord hereby agreeing that it shall be
Landlord's obligation to complete or correct the same in any event. The
foregoing provisions of this subsection shall also be applicable to any
supplementary list submitted by Tenant to Landlord after the initial list, which
supplementary list may include, without limitation, latent or other defects not
readily ascertainable in the course of Tenant's initial inspection of the
Demised Premises. Tenant agrees to use its best efforts to furnish the initial
list to Landlord prior to the expiration of ninety (90) days after the opening
of the Demised Premises for the conduct of business.
ARTICLE XXIII
GLOSSARY AND ADDITIONAL DEFINED TERMS
-------------------------------------
Whenever used in this Lease the following terms shall have the
respective meanings ascribed to them below:
"Annual Rent" shall have the meaning set forth in Section
3.1.1.
"Assets" shall have the meaning set forth in Section 13.18.
"Broker" shall have the meaning set forth in Section 18.10.
"Capital Expenditures" shall have the meaning set forth in
Section 8.1.4.
"Capital Improvement" shall have the meaning set forth in
Section 8.1.4.
"Commencement Date" shall have the meaning set forth in
Section 22.1(f).
"Company Group Member" shall have the meaning set forth in
Section 13.15.
"Contracts" shall have the meaning set forth in Section 13.6.
"default" shall have the meaning set forth in Section 11.1.
"Demised Premises" shall have the meaning set forth in Section
1.1.
"ERISA" shall have the meaning set forth in Section 13.14.
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<PAGE>
"Event of Default" shall have the meaning set forth in Section
11.1.
"Environmental Laws" shall have the meaning set forth in
Section 13.21(b).
"Excusable Delays" shall have the meaning set forth in Section
22.1(d).
"Facility" - first page
"Fixtures" shall have the meaning set forth in Section 1.1(d).
"GAP" shall have the meaning set forth in Section 8.1.4.
"ILCI" shall have the meaning set forth in Section 10.1.
"Impositions" shall have the meaning set forth in Section 5.1.
"Indemnified Parties" shall have the meaning set forth in
Section 15.4.
"Initial Term" shall have the meaning set forth in Section
2.1.
"Institutional Lender" shall have the meaning set forth in
Section 15.6.
"Insurance Trustee" shall have the meaning set forth in
Section 15.6.
"Intangibles" shall have the meaning set forth in Section
1.2(a).
"Intellectual Property" shall have the meaning set forth in
Section 13.29.
"Land" shall have the meaning set forth in Section 1.1(a).
"Landlord's Construction Work" shall have the meaning set
forth in Section 22.1(a).
"Landlord's Share" shall have the meaning set forth in Section
8.1.4.
"Landlord's Transaction Documents" shall have the meaning set
forth in Section 13.2.
"Leased Equipment" shall have the meaning set forth in Section
4.2.
"Leased Improvements" shall have the meaning set forth in
Section 1.1(b).
"Lease Term" shall have the meaning set forth in Section 2.3.
"Lease Year" shall have the meaning set forth in Section 2.4.
"leasehold mortgage" shall have the meaning set forth in
Section 10.2.
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<PAGE>
"Licenses" shall have the meaning set forth in Section 13.9.
"Lien" shall have the meaning set forth in Section 13.10(a).
"Major Capital Expenditure" shall have the meaning set forth
in paragraph after Section 8.1.4.
"Major Damage" shall have the meaning set forth in paragraph
after Section 12.1.
"Material Adverse Effect" shall mean, with respect to any
Person, any material adverse effect upon, as the case may be, (a) the assets,
business, operations, properties, condition (financial or otherwise) or
reasonably foreseeable prospects of Landlord, (b) the ability of Landlord to
perform all or any part of its obligations under this Lease or any document or
agreement contemplated hereby, (c) the Demised Premises or Other Assets, or (d)
the operation of the Facility.
"Medical Waste" shall have the meaning set forth in Section
13.21(a)(i)
"Money Rates Column" shall have the meaning set forth in
Section 3.1.4.
"Multi-employer Act" shall have the meaning set forth in
Section 13.15.
"Operator" shall have the meaning set forth in Section
17.1(a).
"Option Agreement" shall have the meaning set forth in Section
8.4.
"Other Assets" shall have the meaning set forth in Section
1.2.
"PCBs" shall have the meaning set forth in Section
13.21(a)(iii).
"Permitted Exceptions" shall have the meaning set forth in
Section 13.11(a).
"Person" or "person" shall include (without limitation) any
manner of association, business trust, company, corporation, limited liability
company, estate, governmental or other authority, joint venture, natural person,
partnership, limited liability partnership, trust or other entity.
"Personal Property" shall have the meaning set forth in
Section 1.1(e).
"Personal Property Leases" shall have the meaning set forth in
Section 13.26.
"Price Index" shall have the meaning set forth in Section
8.1.1.2(i).
"Prepayments" shall have the meaning set forth in Section
3.2(b).
"Prime Rate" shall have the meaning set forth in Section
3.1.4.
"Proper Successor" shall have the meaning set forth in Section
4.4.
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<PAGE>
"Related Rights" shall have the meaning set forth in Section
1.1(c).
"Renewal Term" shall have the meaning set forth in Section
2.2.
"Repairs" shall have the meaning set forth in Section 8.1.1.
"Restricted Party" shall have the meaning set forth in Section
17.1(a).
"Right of First Refusal" shall have the meaning set forth in
Section 8.4.
"Securities Act" shall have the meaning set forth in Section
20.4.
"Subordination Agreement" shall have the meaning set forth in
Section 10.3.
"Subsidiary" shall have the meaning set forth in Section
13.15.
"Tenant Indemnified Parties" shall have the meaning set forth
in Section 15.5.
"Tenant's Share" shall have the meaning set forth in Section
8.1.4.
"Trade Rights" shall have the meaning set forth in Section
1.2(b).
IN WITNESS WHEREOF, the parties hereto have caused this Lease
to be duly executed as a sealed instrument on the day and year first above
written.
LANDLORD:
THE HARTMOOR HOMESTEAD, L.C.
Attest: By:
--------------------------- ----------------------------------
Name: Name:
Title: Title:
TENANT:
INTEGRATED LIVING COMMUNITIES
AT WICHITA, INC.
Attest: By:
--------------------------- -----------------------------------
Name: Name:
Title: Title:
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<PAGE>
AS TO SECTIONS AND PROVISIONS
SPECIFICALLY IDENTIFYING JACK WEST:
- --------------------------
JACK WEST
- 64 -
<PAGE>
ACKNOWLEDGMENTS
---------------
STATE OF KANSAS )
) SS:
COUNTY OF
--------------------------)
This Lease was acknowledged before me on June , 1996, by
---
, as of The Hartmoor
- ------------------ --------------------------------------
Homestead, L.C., a Kansas limited liability company.
----------------------------------
Notary Public
My appointment expires:
-----------------------
STATE OF MARYLAND )
) SS:
COUNTY OF
--------------------------)
This Lease was acknowledged before me on June , 1996, by
---
, as of Integrated Living
- ------------------ ------------------------------------
Communities at Wichita, Inc., a Delaware corporation.
----------------------------------
Notary Public
My appointment expires:
-----------------------
STATE OF KANSAS )
) SS:
COUNTY OF
--------------------------)
This Lease was acknowledged before me on June , 1996, by
---
Jack West.
----------------------------------
Notary Public
My appointment expires:
-----------------------
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<PAGE>
GUARANTY OF LEASE
-----------------
FOR VALUE RECEIVED, and in consideration for THE HARTMOOR HOMESTEAD,
L.C., a Kansas limited liability company having an address c/o The Homestead
Company, L.C., 155 North Market, Suite 910, Wichita, Kansas 67202, Attention:
Mr. Jack West ("Landlord") entering into the foregoing lease agreement (the
"Lease") with INTEGRATED LIVING COMMUNITIES AT WICHITA, INC., a Delaware
corporation having an office at 10065 Red Run Boulevard, Owings Mills, Maryland
21117 ("Tenant"), the undersigned, INTEGRATED HEALTH SERVICES, INC. ("IHS") and
INTEGRATED LIVING COMMUNITIES, INC. ("ILC"), each a Delaware corporation having
an office at 10065 Red Run Boulevard, Owings Mills, Maryland 21117 (jointly and
severally "Guarantor"), jointly and severally guarantee to Landlord, the payment
in full of all Annual Rent and Impositions (as such capitalized terms are
defined in the Lease) which accrues under the Lease during the Initial Term
and/or the Renewal Term (each as defined in the Lease) and remains due and owing
after the giving of any requisite notice to Tenant and the expiration of all
applicable grace periods under the Lease. Notwithstanding the foregoing, IHS
shall have no further liability under this guaranty at such time as ILC, the
sole shareholder of Tenant, has a net worth of not less than Seventy-five
Million Dollars ($75,000,000), determined in accordance with generally accepted
accounting principles, as shown on ILC's most recent financial statement, which
shall be prepared and certified to by the chief financial officer of ILC.
Guarantor shall furnish to Landlord a copy of its Quarterly Report on
Form 10-Q within thirty (30) days after the end of each fiscal quarter of
Guarantor, and a copy of its Annual Report on Form 10-K within ninety (90) days
after the close of each fiscal year of Guarantor.
INTEGRATED HEALTH SERVICES, INC.
By:________________________________
Name:
Title:
INTEGRATED LIVING COMMUNITIES, INC.
By:________________________________
Name:
Title:
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<PAGE>
STATE OF MARYLAND )
) SS:
COUNTY OF
---------------------------)
This Guaranty of Lease was acknowledged before me on June ,
--
1996, by , as
-------------------------- -----------------------------------------
of Integrated Health Services, Inc., a Delaware corporation.
----------------------------------
Notary Public
My appointment expires:
-----------------------
STATE OF MARYLAND )
) SS:
COUNTY OF
--------------------------)
This Guaranty of Lease was acknowledged before me on June ,
---
1996, by , as of
-------------------------------- -------------------------------
Integrated Living Communities, Inc., a Delaware corporation.
----------------------------------
Notary Public
My appointment expires:
-----------------------
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<PAGE>
EXHIBIT A
DESCRIPTION OF THE LAND
-----------------------
- 68 -
<PAGE>
EXHIBIT A-1
LOCATION OF LEASED IMPROVEMENTS
-------------------------------
- 69 -
<PAGE>
EXHIBIT B
[List of selected Personal
Property & Fixtures]
- 70 -
<PAGE>
EXHIBIT C
(LANDLORD'S CONSTRUCTION WORK)
See references in Article XXII
The description of the final plans and specifications are annexed to
this Exhibit C.
All labor and materials necessary to complete the Leased Improvements and other
improvements to be constructed or being constructed on the Land in accordance
with said final plans and specifications and the provisions of this Lease, shall
be known as "Landlord's Construction Work".
Unless Tenant shall expressly agree in writing that any requirements of
said final plans and specifications shall be waived or altered, every
requirement of said final plans and specifications shall be complied with by
Landlord. No employee or agent of Tenant, other than an officer of Tenant, has
any authority to waive or alter any requirements of said final plans and
specifications. If there shall be any inconsistency or conflict among the
requirements of the within Lease, this Exhibit C and said final plans and
specifications, Landlord shall notify Tenant thereof as soon as Landlord shall
discover such inconsistency or conflict. In any event, unless Tenant shall
notify Landlord in writing to the contrary, the most stringent requirement shall
control in the case of any such inconsistency or conflict.
Landlord at all times assumes and accepts sole responsibility for the
structural and engineering design of the Demised Premises and all appurtenances
thereto and the quality and fitness of all materials or fixtures used therein.
The review by Tenant of said final plans and the specifications or the approval
of any suggestions with respect thereto shall not constitute an opinion or
representation by Tenant with respect to the sufficiency of the structural or
engineering design of the Demised Premises or the quality or fitness of any
materials or fixtures used therein or impose any present or future liability or
responsibility upon Tenant therefor.
Prior to the date of this Lease, Landlord shall furnish Tenant with a
detailed timetable setting forth Landlord's schedule therefor. Landlord agrees
to furnish Tenant with revisions of said timetable whenever reasonably required
during the course of construction.
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<PAGE>
OFF-SITE IMPROVEMENTS BY LANDLORD
Landlord's Construction Work includes road improvements and the other
off-site improvements listed below. This is in addition to any off-site
improvements elsewhere referred to in the Lease and in said final plans and
specifications.
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<PAGE>
EXHIBIT D
OPTION AGREEMENT
----------------
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<PAGE>
EXHIBIT E
FORM OF SUBORDINATION, NON-DISTURBANCE
--------------------------------------
AND RECOGNITION AGREEMENT
-------------------------
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<PAGE>
SCHEDULE ____
-------------
[ATTACH SCHEDULES]
- 75 -
PURCHASE OPTION AGREEMENT
-------------------------
BY AND BETWEEN
THE HARTMOOR HOMESTEAD, L.C., as OWNER,
AND
INTEGRATED LIVING COMMUNITIES AT WICHITA, INC., as OPTIONEE
as of June 18, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
1. Grant of Option...................................................... 1
---------------
2. Option Period........................................................ 1
-------------
3. Exercise of the Option............................................... 2
----------------------
4. Sale and Purchase of the Facility.................................... 3
---------------------------------
5. Purchase Price....................................................... 3
--------------
6. Intentionally Deleted
7. Survey and Engineering............................................... 4
----------------------
8. Examination of Title................................................. 4
--------------------
9. Closing and Closing Date............................................. 5
------------------------
10. Owner's Representations and Warranties............................... 6
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11. Additional Settlement Requirements................................... 8
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12. Covenants and Agreements of Owner.................................... 8
---------------------------------
13. Intentionally Deleted
14. Defaults............................................................. 9
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15. Arbitration.......................................................... 9
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16. Notices.............................................................. 9
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17. Assignment and Binding Effect........................................11
-----------------------------
18. Evidence of Title....................................................11
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19. General Provisions...................................................11
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20. Severability.........................................................11
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(i)
<PAGE>
21. Understanding and Agreements.........................................11
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22. Governing Law........................................................11
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23. Broker...............................................................11
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24. Condemnation.........................................................12
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25. Expense of Litigation................................................12
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26. Memorandum of Option Agreement.......................................12
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27. Glossary of Defined Terms............................................12
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EXHIBIT A DESCRIPTION OF THE LAND
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EXHIBIT B SECTION 8 TITLE ITEMS
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(ii)
<PAGE>
PURCHASE OPTION AGREEMENT
-------------------------
THIS PURCHASE OPTION AGREEMENT ("Option Agreement") is made and entered
into as of the 18th day of June, 1996 by and THE HARTMOOR HOMESTEAD, L.C., a
Kansas limited liability company having an address c/o The Homestead Company,
L.C., 155 North Market, Suite 910, Wichita, Kansas 67202, Attention: Mr. Jack
West ("Owner"), and INTEGRATED LIVING COMMUNITIES AT WICHITA, INC., a Delaware
corporation having an office at 10065 Red Run Boulevard, Owing Mills, Maryland
21117 ("Optionee").
W I T N E S S E T H:
WHEREAS, Owner is the owner of certain parcels of land and real
property (the "Land") as indicated and more fully described on Exhibit A hereto
and all of the "Leased Improvements", "Related Rights" and "Fixtures" (as said
terms are defined in the hereinafter described Lease) situated thereon and
appurtenant thereto, and Owner is the owner of the "Personal Property" and
"Other Assets" (as said terms are defined in the Lease) situate on, appurtenant
to and/or related to the Land and Leased Improvements (the Land, Leased
Improvements, Related Rights, Fixtures, Personal Property and Other Assets are
herein collectively referred to as the "Facility"); and
WHEREAS, Owner and Optionee have entered into a certain Lease Agreement
of even date herewith ("Lease") pursuant to which Owner has agreed to demise and
Optionee has agreed to lease the Facility; and
WHEREAS, Owner and Optionee have entered into a certain Right of First
Refusal Agreement of even date herewith (the "Right of First Refusal") with
respect to third party offers to purchase the Facility; and
WHEREAS, Owner has agreed to grant to Optionee an option to purchase
all of the Facility.
NOW, THEREFORE, for and in consideration of the promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by the parties, Owner and Optionee agree
as follows:
1. Grant of Option. Effective as of the date hereof and subject to the
terms and conditions as set forth below, Owner hereby grants and conveys to
Optionee the irrevocable and exclusive right and option (the "Option") to
purchase all, but not less than all, of the Facility from Owner, upon the terms
and conditions of this Option Agreement. If the Lease is terminated prior to the
Commencement Date (as defined in the Lease), then this Option Agreement shall be
deemed to be terminated simultaneously with such termination of the Lease.
2. Option Period. The Option may be exercised by Optionee in the manner
specified in Section 4 hereof at any time during the Initial Term after the
fifth anniversary of the date of the Lease and, if the Lease is extended as
provided therein, at any time during each Renewal Term of the
<PAGE>
Lease (the terms "Initial Term" and "Renewal Term" being defined in the Lease;
said periods, each individually referred to herein as an "Option Period").
Notwithstanding the foregoing, there shall be an abeyance of Optionee's right to
exercise the Option during any (a) ninety (90) day period provided in Section 3
of the Right of First Refusal during which Owner can accept an Offer (as defined
in the Right of First Refusal) and (b) period that a contract of sale between
Owner and a third party with respect to an Offer is in full force and effect.
The abeyance of Optionee's right to exercise the Option shall automatically be
lifted if Owner does not accept the Offer within such ninety (90) day period or
any such contract of sale is terminated.
If the Option has not been exercised by Optionee, as provided in
Section 3 hereof, prior to the expiration of the last Option Period, or such
later date as is provided in Section 3 hereof, the Option shall automatically
expire and be of no further force or effect.
3. Exercise of the Option. Optionee shall exercise the Option by giving
written notice thereof (the "Exercise Notice") to Owner in the manner provided
in Section 16 hereof, at least one hundred twenty (120) days prior to the date
specified in such notice for the Closing (as hereinafter defined) of the
purchase of the Facility by Optionee (as the same may be extended pursuant to
the terms hereof, the "Closing Date"), provided that in no event shall the
Closing Date specified in the Exercise Notice be later than the date originally
set forth in the Lease for the expiration of the Lease Term (as defined in the
Lease). Notwithstanding the general notice period under Section 16 hereof, the
Exercise Notice, if mailed in accordance with Section 16 hereof, shall be
effective upon deposit with the United States mail. From and after the date on
which the Exercise Notice is given, this Option Agreement shall be deemed for
all purposes to be a legally enforceable contract between Optionee and Owner for
the sale and purchase of the Facility upon the terms and conditions herein
provided. If Optionee fails to exercise the Option in the manner provided in
this Option Agreement prior to the expiration of the last Option Period, subject
to the following sentence, the Option shall expire, and no party hereto shall
thereafter have any rights, liabilities or obligations whatsoever under this
Option Agreement. Notwithstanding the foregoing and anything herein to the
contrary, in the event that the Lease is terminated for any reason prior to the
date originally set forth therein for the expiration of the term thereof, the
Option shall continue and Optionee shall have the right to exercise the Option
by giving the Exercise Notice to Owner not later than the ten (10) business days
after the date on which the notice of termination under the Lease has been
given, provided that the Closing Date in such event shall be not later than the
date which is one hundred twenty (120) days following the date the termination
of the Lease became effective. If the Lease is terminated or the Lease Term
expires prior to the Closing Date, then Optionee shall be permitted to remain in
possession of the Facility until the Closing Date, or such earlier date as this
Option Agreement may be terminated as herein provided, such possession to be
upon all of the same terms and provisions of the Lease (including the provisions
for payment of Annual Rent) in effect during the Lease Year (the terms "Annual
Rent" and "Lease Year" being defined in the Lease) in effect immediately prior
to the date of the termination of the Lease or expiration of the Lease Term.
-2-
<PAGE>
4. Sale and Purchase of the Facility.
----------------------------------
(a) Upon the giving of the Exercise Notice, Owner shall sell
the Facility to Optionee and Optionee shall purchase the Facility from Owner in
the manner and upon the terms and conditions set forth in this Option Agreement.
(b) Optionee's decision to exercise the Option shall not be
deemed a waiver of any breach of representation, warranty or covenant given by
Owner or Jack West in this Option Agreement, the Lease or in the Deed or Bill of
Sale referred to in Section 9 hereof, and Optionee shall retain all rights and
remedies with respect thereto.
5. Purchase Price. (a) Optionee shall pay to Owner, in consideration of
the sale and conveyance of the Facility to Optionee, a purchase price (the
"Purchase Price") equal to the fair market value of the Facility as determined
pursuant to the appraisal process hereinafter described, provided, however, the
Purchase Price shall not be less than $2,800,000. The entire Purchase Price will
be payable at the Closing by Optionee's certified check or an official bank
check, (either such check being hereinafter referred to as an "Acceptable
Check") payable to the order of Owner, or at Owner's option, by wire transfer of
immediately available federal funds to Owner's account in a commercial bank in
accordance with wire transfer instructions to be furnished by Owner not later
than ten (10) days prior to the Closing, or by (at Owner's option) a combination
of both.
(b) Any appraisal of fair market value to be made under the
provisions of this Section shall be made as follows:
At any time after Owner's receipt of Optionee's Exercise
Notice, Owner and Optionee may, by notice to the other, appoint a disinterested
person of recognized competence in the field as one of the appraisers, and
within twenty (20) days thereafter the other party shall, by notice to the party
appointing the first appraiser, appoint another disinterested person of
recognized competence in such field as a second appraiser. The appraisers thus
appointed shall appoint a third disinterested person of recognized competence in
such field, and such three appraisers shall as promptly as possible determine
such value, provided, however, that:
(i) if the second appraiser shall not have been
appointed as aforesaid, the first appraiser shall proceed to determine such
value; and
(ii) if, within ten (10) days after the
appointment of the second appraiser, the two appraisers appointed by the parties
shall be unable to agree upon the appointment of a third appraiser, they shall
give notice of such failure to agree to the parties, and, if the parties fail to
agree upon the selection of such third appraiser within five (5) days after the
appraisers appointed by the parties gave notice, as aforesaid, then within five
(5) days thereafter either of the parties upon notice to the other party hereto
may apply for such appointment to a court of the State of Kansas having a situs
in Sedgwick County.
-3-
<PAGE>
All appraisers, in addition to being persons of recognized
competence in the field of appraisal, shall be MAI appraisers with at least ten
years prior experience. Each of the parties shall each be entitled to present
evidence and argument to the appraisers. The determination of the majority of
the appraisers or of the sole appraiser, as the case may be, or, if there is no
majority, the average of said appraisers appraisals (provided, however, if any
single appraisal deviates from the average of the other two appraisals by more
than twenty (20%) percent, then such appraisal shall be disregarded in such
determination), shall be conclusive upon the parties and judgment upon the same
may be entered in any court having jurisdiction thereof. The appraisers shall
give notice to the parties stating their determination, and shall furnish to
each party a copy of such determination signed by them. Each party shall pay the
costs, fees and expenses of the appraiser selected by that party and costs, fees
and the expenses of the third appraiser and all other aspects of this appraisal
process shall be borne equally by the parties. Each party shall pay its own
costs and expenses incurred as a result of its participation in any such
appraisal process. In the event of the failure, refusal or inability of any
appraiser to act, a new appraiser shall be appointed in his stead within ten
(10) days, which appointment shall be made in the same manner as hereinbefore
provided for the appointment of the appraiser so failing, refusing or unable to
act. The appraisers shall base their determination on the highest and best
legally permissible use of the Facility, as-is at the time of the Closing Date,
and unencumbered by the Lease, and shall not have the power to add to, modify or
change any of the provisions of this Option Agreement.
6. Intentionally Deleted.
7. Survey and Engineering. Optionee shall at all times during the
Option Period and before the Closing have the privilege of going upon the
Facility with its agents or engineers as needed to inspect, examine, survey and
otherwise do what Optionee deems necessary in the engineering and planning for
development of the Facility. Said privilege shall include the right to make soil
tests, borings, percolation tests and tests to obtain other information
necessary to determine surface, subsurface and topographic conditions; provided,
however, that Optionee shall hold Owner harmless from any damages incurred
through the exercise of such privilege. Optionee and Owner agree that in the
event of the exercise of the Option, Optionee may obtain surveys of the Facility
(hereinbelow referred to as the "Surveys") to be made by surveyors duly licensed
within the state where the Facility is located to determine the true and
accurate legal description of the properties comprising the Facility, which
Surveys shall be at Optionee's sole cost and expense.
8. Examination of Title. Optionee shall on or about the date of the
exercise of the Option order a title insurance search and commitment for an
Owner's title insurance policy from any reputable title insurance company, and
not later than thirty (30) days before the Closing Date Optionee shall cause a
copy of such title company's report to be sent to Owner and Optionee shall
advise Owner of any defects or objections affecting the marketability of title
for the Facility disclosed by such report (a "Defect"), other than the following
items: (herein referred to collectively as the "Permitted Exceptions") real
property and personal property taxes and assessments applicable to the Facility
that are not yet due and payable, recorded general utility service easements
affecting the Facility which are acceptable to Optionee, defects arising from
acts or omissions (or with the written
-4-
<PAGE>
consent) of Optionee and the items listed on Exhibit B hereto. Owner shall then
have a reasonable time, not less than thirty (30) days from the date of notice
of such Defect from Optionee, to cure or remove such Defect, or if such Defect
may be removed or satisfied by the payment of a liquidated sum, Owner may, in
lieu of curing or removing such Defect, deposit with Optionee's title insurance
company such amount of money as may be determined by said company as being
sufficient to induce it to omit such Defect from its policy and to insure
Optionee against collection of the same. Owner shall, in good faith, exercise
reasonable diligence to cure all Defects. If Owner fails or refuses to cure,
remove or (if herein permitted) so insure against any Defect prior to the
Closing Date or the thirty (30) day cure period, whichever is less, in addition
to the other rights and remedies that Optionee may have in law or in equity,
Optionee may, at its option: (a) cure, remove or so insure against any such
Defect, in which event the Purchase Price shall be reduced by the amount equal
to the actual costs and expenses incurred by Optionee in curing, removing or
insuring against such Defect; (b) accept title to the Facility subject to such
Defect or Defects with an abatement of the Purchase Price in an amount equal to
the then ascertainable cost of removing or curing said Defect; or (c) cancel
this Option Agreement. If Optionee elects to cure or remove such Defect,
Optionee at its option, upon giving notice to Owner, may extend the Closing Date
for the purchase of the Facility (and if necessary, the Option Period shall also
be extended) for ninety (90) days. If any Defect shall not have been cured
within such period, Optionee may again exercise any of its rights under
subsections (a), (b), or (c) hereof.
9. Closing and Closing Date.
------------------------
(a) The consummation of the sale by Owner and purchase by
Optionee of the Facility (the "Closing") shall occur at the offices of the
attorney for Optionee in Wichita, Kansas, on the Closing Date as designated by
Optionee in the Exercise Notice. At the Closing, Owner shall execute and deliver
to Optionee a general warranty deed (the "Deed") conveying fee simple marketable
record title to the Facility to Optionee free and clear of all liens, special
assessments and other Impositions (as defined in the Lease), or installments
thereof, as the case may be, which were due and payable prior to the date of
this Option Agreement, easements, reservations, restrictions and encumbrances
whatsoever, excepting only the Permitted Exceptions. At the Closing, Owner shall
deliver a bill of sale (the "Bill of Sale") to Optionee conveying good and
marketable title to the Fixtures, Personal Property and Other Assets. The Bill
of Sale shall contain a warranty that such property is free and clear of all
liens, encumbrances, security interests and adverse claims except for the
lien(s) of the Permitted Exceptions, if any. It is agreed that Optionee shall
prepare any required sales tax return; that said return shall be executed by
Owner at the Closing; and that Owner shall file same and pay any sales tax due
thereon promptly after the Closing.
(b) No prorations or apportionments shall be required at the
Closing, except that Optionee shall pay, or cause to be paid, to Owner at or
before the Closing all Annual Rent and other sums then due and payable pursuant
to the Lease and, if applicable, accrued from the date of termination of the
Lease or expiration of the Lease Term through the Closing Date, as herein
provided. Owner shall, at the Closing, pay for the preparation of the Deed and
for all transfer taxes as required by law.
-5-
<PAGE>
(c) The Deed shall be in recordable form and duly executed and
acknowledged. The Deed shall have affixed thereto any requisite surtax and
documentary tax stamps, in proper amount, affixed by Owner, at Owner's sole cost
and expense. At the Closing, Owner shall deliver to Optionee its Acceptable
Check(s), to the order of the appropriate tax collecting agency or official, in
the amount of all transfer taxes and other taxes and charges in connection with
the sale and transfer of the Facility by Owner to Optionee and the recording of
the Deed, or allow Optionee a credit against the Purchase Price due at Closing
in the amount thereof.
(d) A draft of the Deed and the Bill of Sale, and a proposed
schedule of apportionments shall be delivered by Owner to Optionee's attorneys
for review and approval at least ten (10) business days prior to the Closing
Date.
(e) If Owner or any managing member or member of Owner is a
corporation, Owner shall deliver, or cause to be delivered, to Optionee at the
Closing a sworn certificate by the secretary of such corporation certifying that
the Board of Directors and Shareholders of such corporation have adopted
resolutions authorizing the sale of the Facility pursuant to this Option
Agreement and delivery of the Deed and all other documents delivered to
Optionee, and setting forth such additional facts, if any, needed to show that
the conveyance is in conformity with applicable law.
(f) At the Closing, Owner shall deliver to Optionee copies of
any required transfer tax returns executed by Owner.
(g) At the Closing, Owner shall deliver to Optionee, such
affidavits as Optionee's title insurance company shall require in order to omit
from its title insurance policy all mechanics' liens arising from the acts or
omissions of Owner and rights of parties in possession (other than parties in
possession under the Lease) and exceptions for judgments, bankruptcies or other
returns against persons or entities whose names are the same as or similar to
Owner's name.
(h) At the Closing, Owner shall deliver to Optionee an
affidavit stating, under penalty of perjury, Owner's United States taxpayer
identification number and that Owner is not a "foreign person" as defined in
Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended, and
otherwise in the form prescribed by the Internal Revenue Service.
(i) At the Closing, Owner shall deliver any affidavits,
statements, certifications or other documents which are required by the laws and
regulations of the state and local governmental authorities in which the
Facility is located, to be delivered by sellers of real estate, and shall also
deliver all other documents it is required to deliver pursuant to the provisions
of this Option Agreement.
10. Owner's Representations and Warranties.
(a) To induce Optionee to enter into this Option Agreement,
Owner and Jack West each hereby represents and warrants, to Optionee as follows:
-6-
<PAGE>
(i) Owner is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Kansas. Copies of its articles of organization, operating agreement and all
amendments thereto to date (collectively, the "Organizational Documents") have
been delivered to Optionee, and are true, complete and correct. Owner has the
power and authority to own the property and assets now owned by it and to
conduct the business presently being conducted by it and as currently proposed
to be conducted.
(ii) Owner has the full, absolute and unrestricted
right, power and authority to make, execute, deliver and perform this Option
Agreement, including all Schedules and Exhibits hereto, and the other
instruments and documents required or contemplated hereby and thereby ("Owner's
Transaction Documents"). Such execution, delivery, performance and consummation
have been duly authorized by all necessary action (partnership, corporate, trust
or otherwise, as the case may be) on the part of Owner, its managing member and
members, and all consents of holders of indebtedness of Owner have been
obtained.
(iii) This Option Agreement constitutes the legal,
valid and binding obligation of Owner, enforceable against Owner in accordance
with its terms and each of Owner's Transaction Documents executed by Owner
constitute the valid and binding obligation of Owner, enforceable against Owner
in accordance with their respective terms.
(iv) None of the execution or delivery of this Option
Agreement or any of Owner's Transaction Documents, the performance by Owner of
its obligations hereunder or thereunder nor the consummation of the transactions
contemplated hereby or thereby, conflicts with, or constitutes a breach of or a
default under (1) Owner's Organizational Documents; or (2) any applicable law,
rule, judgment, order, writ, injunction, or decree of any court currently in
effect; or (3) any applicable rule or regulation of any administrative agency or
other governmental authority currently in effect; or (4) any written or oral
agreement, indenture, contract or instrument to which Owner or any member
thereof is now a party or by which any of them or the Facility is bound.
(v) No authorization, consent, approval, license,
exemption by filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
any other Person (as defined in the Lease) is or will be necessary in connection
with any Owner's execution, delivery and performance of this Option Agreement or
any of Owner's Transaction Documents, or for the consummation of the
transactions contemplated hereby and thereby.
(b) All of the representations, warranties and agreements set
forth herein and elsewhere in this Option Agreement, shall be true in all
material respects upon the execution of this Option Agreement, shall be deemed
to be repeated on the Commencement Date of the Lease and at and as of the
Closing Date and shall survive the delivery of the Deed. No such representation
or warranty shall omit to state a material fact necessary to make the statements
contained herein or therein not misleading. Except as herein expressly provided,
neither Owner nor Jack West makes any representations or warranties with respect
to the Facility.
-7-
<PAGE>
(c) Without limiting any of the rights of Optionee elsewhere
provided for in this Option Agreement, it is agreed that the obligation of
Optionee to close title under this Option Agreement is conditioned upon, and
shall be subject to, the verification by Optionee of the accuracy of all of
Owner's and Jack West's warranties and representations and the due compliance by
Owner with all of its agreements set forth herein and elsewhere in this Option
Agreement. If, on or before the Closing Date, Optionee, in its reasonable
judgment, shall determine that any of Owner's or any of Jack West's
representations or warranties are untrue in any material respect or that Owner
has not complied with any of said agreements, then Optionee may elect to
terminate this Option Agreement by notice given to Owner. If this Option
Agreement is terminated, as aforesaid, Owner shall pay the cost of any survey
obtained and the cost of any title search made, any insurance commitment issued,
by Optionee's title insurance company and any other expenses, including, but not
limited to, reasonable attorneys' fees and disbursements, incurred by Optionee,
in connection with this Option Agreement.
11. Additional Settlement Requirements.
(a) Optionee's obligation to accept title to the Facility
shall be subject to each of the following conditions being in effect at the
Closing Date:
(i) the satisfaction of all title requirements
and conditions set forth under this Option Agreement; and
(ii) each and every one of the representations
and warranties described in Section 10 hereof being true and correct as
of the Closing Date in all material respects.
(b) At the Closing, Owner shall:
(i) duly execute and deliver to Optionee the
Deed in recordable form and the Bill of Sale conveying the Facility to
Optionee in accordance with the terms hereof;
(ii) deliver possession of the Facility to
Optionee, free and clear of any indebtedness and security liens
relating thereto (excluding those created by Optionee).
(c) At the Closing, Optionee shall deliver, as herein
provided, the balance of the Purchase Price for the Facility and all other sums
due pursuant to the terms of this Option Agreement.
12. Covenants and Agreements of Owner. Owner hereby further covenants
and agrees that from and after the date hereof until the Closing Date, unless
permitted pursuant to the Lease, Owner shall not grant or otherwise create or
consent to or permit the creation of any easement, restriction, lien or
encumbrance affecting the Facility or any portion or portions thereof without
the prior written consent of Optionee. From and after the date hereof until the
Closing Date, unless permitted pursuant to the Lease or the Right of First
Refusal, Owner shall not, without the prior written consent of Optionee, sell,
convey or transfer the Facility or any portion or portions thereof,
-8-
<PAGE>
to anyone other than Optionee; provided, however, that any such sale, conveyance
or transfer shall be subject to all rights of Optionee under this Option
Agreement, the Right of First Refusal and the Lease.
13. Intentionally Deleted.
---------------------
14. Defaults. In the event Owner or Jack West breach, in any material
respect, any warranty or representation as contained in this Option Agreement,
or Owner fails to comply with or perform any of the covenants, agreements or
obligations to be performed by Owner under the terms and provisions of this
Option Agreement, Optionee shall be entitled to exercise any and all rights and
remedies available to Optionee at law or in equity, including, without
limitation, the enforcement by specific performance of Owner's obligations under
this Option Agreement. If Owner shall be in compliance with all its obligations
hereunder and shall tender the Deed, the Bill of Sale and all other instruments
required by this Option Agreement in full compliance with its obligations
hereunder and Optionee shall fail or refuse to close title as required by the
terms of this Option Agreement, or if Optionee otherwise defaults hereunder so
that Owner has the right to refuse to close title, then Owner shall be entitled
to exercise any and all rights and remedies available to Owner at law or in
equity, including, without limitation, the enforcement by specific performance
of Optionee's obligations under this Option Agreement.
15. Arbitration. If any controversy should arise between the parties in
the performance, interpretation or application of this Option Agreement,
involving any matter, either party may serve upon the other a written notice
stating that such party desires to have the controversy reviewed by an
arbitrator. If the parties cannot agree within fifteen (15) days from the
service of such notice upon the selection of such arbitrator, an arbitrator
shall be selected or designated by the American Arbitration Association upon
written request of either party hereto. Arbitration of such controversy,
disagreement, or dispute shall be conducted in accordance with the Commercial
Arbitration Rules then in force of the American Arbitration Association and the
decision and award of the arbitrator so selected shall be binding upon Owner and
Optionee. The arbitration will be held in Dallas, Texas.
As a condition precedent to the appointment of any arbitrator
both parties shall be required to make a good faith effort to resolve the
controversy which effort shall continue for a period of thirty (30) days prior
to any demand for arbitration. The cost and expense of any such arbitration
shall be shared equally by the parties. Each party shall pay its own costs and
expenses incurred as a result of its participation in any such arbitration.
16. Notices. All notices, requests, demand or other communications
required or permitted under this Option Agreement shall be in writing and shall
be either personally delivered evidenced by a signed receipt or transmitted by
United States mail, certified, return receipt requested or by a nationally
recognized overnight delivery service, postage prepaid, addressed as follows:
-9-
<PAGE>
If to Owner: c/o The Homestead Company, L.C.
155 North Market, Suite 910
Wichita, Kansas 67202
Attention: Mr. Jack West
Copy to: Foulston & Siefkin, L.L.P.
700 Fourth Financial Center
Wichita, Kansas 67202
Attention: Gary E. Knight, Esq.
If to Optionee: c/o Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings, Mills, Maryland 21117
Attention: Mr. Ed Komp
Copies to: Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Marshall A. Elkins, Esq.
and
Blass & Driggs
461 Fifth Avenue
New York, New York 10017
Attention: Michael S. Blass, Esq.
All notices, requests, demands and other communications shall
be effective (i) upon personal delivery evidenced by a signed receipt, (ii) upon
five (5) calendar days after being deposited in the United States mail or (iii)
on the next business day following timely deposit with a nationally recognized
overnight delivery service, whichever occurs first. The time period in which a
response to any such notice, request, demand or other communication must be
given, however, shall commence to run from (i) the date of personal delivery
evidenced by a signed receipt, (ii) the date of receipt on the return receipt of
the notice, request, demand or other communication; provided, however, that if a
party refuses delivery of any such notice, request, demand or other
communication sent by mail, or fails or neglects, without reasonable cause, to
accept delivery after three (3) attempts to so deliver by postal authorities, it
shall be deemed received on the date of its last being deposited in the United
States mail, or (iii) the date of delivery by a nationally recognized overnight
delivery service. The parties hereto shall have the right, at any time and from
time to time during the term of this Option Agreement to change their respective
addresses for notices by giving the other party hereto written notice thereof.
-10-
<PAGE>
17. Assignment and Binding Effect. The rights and obligations of
Optionee hereunder shall be assignable. The parties to this Option Agreement
mutually agree that it shall be binding upon and enure to the benefit of the
parties hereto, their successors and assigns.
18. Evidence of Title. Owner agrees to deliver to Optionee, or
Optionee's counsel, as soon as reasonably possible after the date hereof, copies
of all title information in possession of or available to Owner, including, but
not limited to: title insurance policies, attorney's opinions on title, boundary
surveys, covenants, leases, easements and deeds relating to the Facility.
19. General Provisions. No failure of any party to exercise any power
given hereunder or to insist upon strict compliance with any obligation
specified herein, and no custom or practice at variance with the terms hereof,
shall constitute a waiver of either party's right to demand exact compliance
with the terms hereof. This Option Agreement contains the entire agreement of
the parties hereto, and no representations, inducements, promises or agreements,
oral or otherwise, among the parties not embodied herein shall be of any force
or effect. Any amendment to this Option Agreement shall not be binding upon any
of the parties hereto unless such amendment is in writing and executed by all
parties hereto. This Option Agreement may be executed in multiple counterparts,
each of which shall constitute an original, but all of which taken together
shall constitute one and the same agreement. Owner and Optionee agree that such
documents as may be legally necessary or otherwise appropriate to carry out the
terms of this Option Agreement shall be executed and delivered by each party at
the Closing.
20. Severability. This Option Agreement is intended to be performed in
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations. If any provision of this Option Agreement or
the application thereof to any person or circumstance shall, for any reason and
to any extent, be invalid or unenforceable, the remainder of this Option
Agreement and the application of such provision to other persons or
circumstances shall not be affected thereby but rather shall be enforced to the
greatest extent permitted by law.
21. Understanding and Agreements. This Option Agreement
constitutes the entire understanding and agreements of whatsoever nature or kind
existing among the parties with respect to the Option.
22. Governing Law. This Option Agreement shall be construed and
interpreted in accordance with the laws of the State of Kansas.
23. Broker. Each of the parties hereto agrees that it has not dealt
with any broker in connection with this transaction other than Southwest
Retirement Properties (the "Broker") and Optionee agrees to pay any commissions
earned by the Broker, whether pursuant to a separate agreement between it and
the Broker, or otherwise. If no broker is specified in this Section, the parties
acknowledge that this Option Agreement was brought about by direct negotiation
between Owner and Optionee and that neither Owner nor Optionee know of anyone
entitled to a commission in connection with this transaction. Owner and Optionee
shall indemnify and defend each other
-11-
<PAGE>
against any and all claims, demands, costs, expenses or causes of actions
arising out of a breach of the agreements contained in this Section 23. The
representations, warranties and indemnities contained in this Section 23 shall
survive the Closing, or if the Closing does not occur, the termination of this
Option Agreement.
24. Condemnation. If, after the exercise of the Option and prior to the
Closing Date, all or any portion of the Facility is taken by eminent domain or
condemnation (or is the subject of a pending or contemplated taking which has
not been consummated), Owner shall notify Optionee of such fact, and Optionee
shall have, in the event that the whole Facility or a "substantial and material
portion" (as defined in Section 7.3 of the Lease) of the Facility is taken (or
is the subject of a pending or contemplated taking which has not been
consummated), the option to terminate this Option Agreement upon notice to
Owner given not later than fifteen (15) days after receipt of Owner's notice.
Upon such termination by Optionee neither party shall have any further rights or
obligations hereunder. If Optionee does not exercise this option to terminate
this Option Agreement or the taking (or pending or contemplated taking) is not
of the whole or a substantial and material portion of the Facility, there shall
be a fair and equitable adjustment of the Purchase Price or, at the option of
Optionee, in lieu of such adjustment, Owner shall assign and turn over, and
Optionee shall be entitled to receive and keep, all awards or other proceeds for
such taking by eminent domain or condemnation.
25. Expense of Litigation. If either party incurs any expense,
including reasonable attorneys' fees, in connection with any action or
proceeding instituted by either party by reason of any default or alleged
default of the other party hereunder, the court or tribunal before which such
proceeding is pending may award to the party prevailing in such action or
proceeding the reasonable attorneys' fees of such prevailing party from the
other party.
26. Memorandum of Option Agreement. Owner and Optionee shall execute
and deliver to each other an instrument, recordable in form setting forth such
information as may be necessary to constitute a "memorandum of agreement" for
recording purposes immediately upon execution of this Option Agreement. Any
party, at its expense, shall have the right to record such memorandum of
agreement for the purpose of giving notice of Optionee's rights pursuant to this
Option Agreement. This Option Agreement shall not be recorded.
27. Glossary of Defined Terms. The following is a list of words or
phrases defined herein and the Section in which such definition is located:
"Option Agreement" located on page 1.
"Owner" located on page 1.
"Optionee" located on page 1.
"Land" located on page 1.
-12-
<PAGE>
"Leased Improvements" located on page 1.
"Related Rights" located on page 1.
"Fixtures" located on page 1.
"Personal Property" located on page 1.
"Other Assets" located on page 1.
"Facility" located on page 1.
"Lease" located on page 1.
"Option" located in Section 1.
"Commencement Date" located in Section 1.
"Initial Term" located in Section 2.
"Renewal Term" located in Section 2.
"Option Period" located in Section 2.
"Exercise Notice" located in Section 3.
"Closing Date" located in Section 3.
"Lease Term" located in Section 3.
"Lease Year" located in Section 3.
"Purchase Price" located in Section 5.
"Acceptable Check" located in Section 5.
"Surveys" located in Section 7.
"Defect" located in Section 8.
"Permitted Exceptions" located in Section 8.
"Closing" located in Section 9.
"Deed" located in Section 9.
-13-
<PAGE>
"Bill of Sale" located in Section 9.
"Organizational Documents" located in Section 10.
"Owner's Transaction Documents" located in Section 10.
"Broker" located in Section 23.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be duly executed as a sealed instrument on the day and year first
above written.
OWNER:
THE HARTMOOR HOMESTEAD, L.C.
Attest: By:
----------------------------- -----------------------------------
Name: Name:
Title: Title:
OPTIONEE:
INTEGRATED LIVING COMMUNITIES
AT WICHITA, INC.
Attest: By:
---------------------------- ------------------------------------
Name: Name:
Title: Title:
AS TO SECTIONS AND PROVISIONS
SPECIFICALLY IDENTIFYING JACK WEST:
- --------------------------
JACK WEST
-14-
<PAGE>
ACKNOWLEDGMENTS
---------------
STATE OF KANSAS )
) SS:
COUNTY OF
------------------------------)
This Option Agreement was acknowledged before me on June ,
---
1996, by , as of The Hartmoor
---------------------------- -----------------------
Homestead, L.C., a Kansas limited liability company.
-----------------------------------
Notary Public
My appointment expires:
-----------------------
STATE OF MARYLAND )
) SS:
COUNTY OF
-------------------------------)
This Option Agreement was acknowledged before me on June ,
---
1996, by , as of Integrated
--------------------------- -----------------------
Living Communities at Wichita, Inc., a Delaware corporation.
-----------------------------------
Notary Public
My appointment expires:
-----------------------
STATE OF KANSAS )
) SS:
COUNTY OF
------------------------------)
This Option Agreement was acknowledged before me on June , 1996, by Jack
---
West.
-----------------------------------
Notary Public
My appointment expires:
-----------------------
-15-
<PAGE>
EXHIBIT A
---------
DESCRIPTION OF THE LAND
-----------------------
-16-
<PAGE>
EXHIBIT B
---------
SECTION 8 TITLE ITEMS
---------------------
1. Restrictions as to noise pollution recorded on Film 776 at
page 14 and Film 1366, page 0017.
2. Navigational easement for "Navigable Airspace" recorded on
Film 776 at page 13, and Film 1366, page 19.
3. Easement across the east 30 feet for construction and
maintenance of utilities as shown and granted on the recorded
plat.
4. Easement across the south 10 feet granted to City of Wichita
(for sewer) as recorded on Film 1556, page 0261.
5. Building setbacks shall be in accordance with C.U.P. (DP-146)
as shown on the recorded plat.
6. Drainage easement over the south 30 feet of referenced land
(the owners of the abutting parcel to the west pursuant to a
drainage plan on file with the City of Wichita) on Film 1556,
page 0263, incorporated by reference.
7. Agreement by and between Thirteenth and Rock Land Partnership
and the City of Wichita dated April 30, 1985 and recorded May
15, 1985 on Film 725, page 1465.
8. Environmental inspection easement recorded October 3, 1995 on
Film 1556, page 271.
9. Easement over a portion of NE corner of referenced land
granted to the City of Wichita for water service as recorded
on Film 1562, page 1538.
10. "Lot Split" recorded 11/6/95 on Film 1563, page 0025.
11. Described property may be and/or is subject to special
assessments as disclosed by the following:
Certificate on Film 0776, page 0016 (All)
Resolution on Film 0785, page 1250 (Street)
Resolution on Film 0785, page 1252 (Street)
Resolution on Film 0785, page 1254 (Street)
Resolution on Film 0785, page 1260 (Street)
Resolution on Film 1262, page 0785 1262
Resolution on Film 0785, page 1270 (Street)
Resolution on Film 0785, page 1272 (Street)
Resolution on Film 0792, page 0907 (Street)
Certificate on Film 1368, page 0016 (Sewer)
Resolution on Film 1524, page 1744 (Storm Sewer)
-17-
<PAGE>
RIGHT OF FIRST REFUSAL AGREEMENT
THIS RIGHT OF FIRST REFUSAL AGREEMENT (this "Agreement"), made
and entered into as of the 18th day of June, 1996, by and between THE HARTMOOR
HOMESTEAD, L.C., a Kansas limited liability company having an address c/o The
Homestead Company, L.C., 155 North Market, Suite 910, Wichita, Kansas 67202,
Attention: Mr. Jack West, as landlord ("Landlord"), and INTEGRATED LIVING
COMMUNITIES AT WICHITA, INC., a Delaware corporation having an office at 10065
Red Run Boulevard, Owings Mills, Maryland 21117, as tenant ("Tenant").
W I T N E S S E T H: That;
WHEREAS, Landlord and Tenant are parties to a certain Lease
Agreement dated of even date herewith (the "Lease") covering the Facility known
as "The Hartmoor Homestead;" and
WHEREAS, in consideration for Tenant's agreement to lease the
Demised Premises under the Lease, Landlord has agreed to grant Tenant a right of
first refusal to purchase the Demised Premises described in the Lease, which
includes the Land described on Exhibit A hereto.
NOW, THEREFORE, for good and valuable consideration including,
without limitation, the rents and mutual covenants and agreements contained in
the Lease, the parties agree as follows:
1 Grant of Right of First Refusal. Landlord hereby grants to
Tenant a right of first refusal to purchase the Demised Premises under the terms
and conditions hereinafter set forth.
2. Notice of Offers. If at any time during the Lease Term
Landlord receives a bona fide written Offer (as hereinafter defined) for the
sale of the Demised Premises from any third person or entity which Landlord
desires to accept, Landlord shall notify Tenant of such Offer in writing, which
notification (the "Notice") shall contain a copy of the bona fide written Offer.
For purposes of this Agreement, an "Offer" shall mean any written instrument
setting forth the terms pursuant to which such third party proposes to purchase
the Demised Premises, including, without limitation, non-binding letters of
intent.
3. Exercise of Right of First Refusal. Tenant shall have
twenty (20) days after receipt of the Notice in which to elect to purchase the
Demised Premises on the same terms and conditions as those contained in the
Offer; provided, however, that the purchase price payable by Tenant or its
designee shall be the purchase price set forth in the Offer or the purchase
price that Tenant is required to pay under the Option Agreement, whichever is
less. Such election shall be made by written notice to Landlord, accompanied by
a check in the amount of the deposit set forth in the Offer, if any, and within
thirty (30) days thereafter the parties shall enter into a formal contract for
the sale of the Demised Premises containing all terms of the Offer made to
Landlord, except as hereinabove set forth and except as the parties may
otherwise mutually agree. If Tenant fails to give the notice or tender the
payment, or if Tenant fails to enter into the contract of sale as provided
-1-
<PAGE>
herein, Landlord shall have the right to accept the Offer, but shall not accept
any other offer at a lower price, or on terms materially more favorable to the
third party purchaser than that contained in the Offer, without first again
granting Tenant the right to purchase the Demised Premises as aforesaid. In the
event Landlord does not accept the Offer within ninety (90) days after Tenant
fails to exercise its right of first refusal with respect to the Demised
Premises as granted herein, or within ninety (90) days after Tenant notifies
Landlord that it declines to exercise its right of first refusal, or if the
contract with the third party is thereafter terminated for any reason, Landlord
shall again give Tenant the right to purchase the Demised Premises as set forth
herein before accepting the Offer or any other bona fide written offer of any
third party.
4. Transfer of Ownership Interests by Landlord. The right of
first refusal contained herein shall not be applicable to transfers of ownership
interests in Landlord provided that a majority interest in Landlord continues to
be held in the aggregate by the members of Landlord which or who were members on
the Commencement Date of the Lease.
5. Notices. All notices, requests, demands or other
communications required or permitted under this Agreement shall be in writing
and shall be either personally delivered evidenced by a signed receipt,
transmitted by United States certified mail, return receipt requested, postage
prepaid, or by a nationally recognized overnight delivery service, addressed as
follows:
If to Landlord: c/o The Homestead Company, L.C.
155 North Market, Suite 910
Wichita, Kansas 67202
Attention: Mr. Jack West
Copy to: Foulston & Siefkin L.L.P.
700 Fourth Financial Center
Wichita, Kansas 67202
Attention: Gary E. Knight, Esq.
If to Tenant: c/o Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Mr. Ed Komp
Copies to: Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Marshall A. Elkins, Esq.
and
-2-
<PAGE>
Blass & Driggs
461 Fifth Avenue
New York, New York 10017
Attention: Michael S. Blass, Esq.
All notices, requests, demands and other communications shall
be effective (a) upon personal delivery evidenced by a signed receipt, (b) upon
five (5) calendar days after being deposited in the United States mail or (c) on
the next business day following timely deposit with a nationally recognized
overnight delivery service, whichever occurs first. The time period in which a
response to any such notice, request, demand or other communication must be
given, however, shall commence to run from (i) the date of personal delivery
evidenced by a signed receipt, (ii) the date of receipt on the return receipt of
the notice, request, demand or other communication; provided, however, that if a
party refuses delivery of any such notice, request, demand or other
communication sent by certified mail, or fails or neglects, without reasonable
cause, to accept delivery after three (3) attempts to so delivery by postal
authorities, it shall be deemed received on the date of its last being deposited
in the United States mail, or (iii) the date of delivery by a nationally
recognized overnight delivery service. The parties hereto shall have the right,
at any time to change their respective addresses for notices by giving the other
party hereto written notice thereof.
6. Understanding and Agreements. This Agreement
constitutes the entire understanding and agreements of whatsoever nature or kind
existing between the parties with respect to Tenant's right of first refusal to
purchase the Demised Premises from Landlord.
7. Amendment. This Agreement may be amended at any time
and from time to time; provided, however, that no amendment to this Agreement
shall be legally enforceable against Landlord or Tenant unless it is in writing,
executed and acknowledged by both Landlord and Tenant.
8. Construction. This Agreement shall be construed in
accordance with the laws of the State of Kansas.
9. Defined Terms. All capitalized terms used herein and
not otherwise defined shall have the same meaning as is ascribed to such terms
in the Lease.
10. Binding Effect on Successors. Except as otherwise
provided for herein, Landlord and Tenant expressly agree that, subject to the
terms of this Agreement, all terms and conditions of this Agreement shall extend
to and be binding upon or inure to the benefit of the heirs, executors,
administrators, personal representative, assigns and successors in interest of
both the respective parties hereto.
11. Memorandum of Right of First Refusal. Landlord and
Tenant shall execute and deliver to each other an instrument, recordable in form
setting forth such information as may be necessary to constitute a "memorandum
of right of first refusal" for recording purposes immediately
-3-
<PAGE>
upon execution of this Agreement. Any party, at its expense, shall have the
right to record such memorandum of right of first refusal for the purpose of
giving notice of Tenant's rights pursuant to this Agreement. This Agreement
shall not be recorded.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
LANDLORD:
THE HARTMOOR HOMESTEAD, L.C.
Attest: _____________________ By:____________________________________
Name: _____________________ Name:__________________________________
Title: _____________________ Title:___________________________________
TENANT:
INTEGRATED LIVING COMMUNITIES
AT WICHITA, INC.
Attest: _____________________ By:____________________________________
Name: _____________________ Name:__________________________________
Title: _____________________ Title:___________________________________
-4-
<PAGE>
ACKNOWLEDGMENTS
---------------
STATE OF KANSAS )
) SS:
COUNTY OF
------------------------------)
This Option Agreement was acknowledged before me on June ,
--
1996, by , as of The Hartmoor
--------------------------- ----------------------
Homestead, L.C., a Kansas limited liability company.
-----------------------------------
Notary Public
My appointment expires:
-----------------------
STATE OF MARYLAND )
) SS:
COUNTY OF
------------------------------)
This Option Agreement was acknowledged before me on June ,
--
1996, by , as of Integrated
-------------------------- -------------------------
Living Communities at Wichita, Inc., a Delaware corporation.
-----------------------------------
Notary Public
My appointment expires:
-----------------------
-5-
<PAGE>
EXHIBIT A
---------
DESCRIPTION OF THE LAND
-----------------------
-6-
LEASE AGREEMENT
Between
THE HOMESTEAD OF GARDEN CITY, L.C., as LANDLORD,
And
INTEGRATED LIVING COMMUNITIES AT GARDEN CITY, INC., as TENANT
as of June 18, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE / SECTION Page
- ----------------- ----
ARTICLE I
DEMISED PREMISES..................................................1
1.1 Demise of Premises..............................1
1.2 Other Assets....................................2
1.3 Assumed Name....................................3
1.4 Delivery of Possession..........................3
ARTICLE II
TERM .........................................................3
2.1 Term............................................3
2.2 Renewal Term....................................3
2.3 Lease Term......................................3
2.4 Lease Year......................................4
ARTICLE III
RENTAL .........................................................4
3.1 Annual Rent.....................................4
3.2 Certain Adjustments to the Annual Rent..........5
3.3 Transfer Taxes; Prorated Items..................6
3.4 Other Prorations................................7
ARTICLE IV
TITLE AND POSSESSION..............................................7
4.1 Title and Authority.............................7
4.2 Leased Equipment................................7
4.3 Surrender of Possession.........................7
4.4 Holding Over....................................8
ARTICLE V
TAXES, ASSESSMENTS AND UTILITIES..................................8
5.1 Real Estate Taxes...............................8
5.2 Personal Property Taxes........................10
5.3 Sewer Use Fees.................................10
5.4 Utilities......................................10
ARTICLE VI
USE OF DEMISED PREMISES..........................................11
6.1 Use by Tenant..................................11
6.2 Compliance with Laws...........................11
(i)
<PAGE>
ARTICLE / SECTION Page
- ----------------- ----
6.3 Waste..........................................11
6.4 License and Permits............................11
6.5 Landlord's Repairs.............................11
6.6 Conflict with Insurance Policies...............11
ARTICLE VII
EMINENT DOMAIN...................................................12
7.1 Permanent or Temporary Taking..................12
7.2 Compensation...................................12
7.3 Effect on this Lease of Permanent Taking.......12
7.4 Effect on this Lease of Temporary Taking.......13
7.5 Restoration....................................13
ARTICLE VIII
ALTERATIONS, REPAIRS and TRADE FIXTURES..........................14
8.1 Repairs by Tenant Generally....................14
8.2 Quality and Promptness of Repairs and
Replacements; Ownership of Replacements
and Warranties..............................18
8.3 Liability of Landlord..........................18
8.4 Removal of Personal Property...................18
ARTICLE IX
SIGNS ........................................................19
ARTICLE X
ASSIGNMENT, SUBLETTING AND SUBORDINATION.........................19
10.1 Assignment or Subletting by Tenant.............19
10.2 Leasehold Mortgages............................20
10.3 Subordination and Attornment...................22
10.4 Sale by Landlord...............................24
10.5 Estoppel Certificates..........................24
ARTICLE XI
DEFAULT ........................................................25
11.1 Default by Tenant..............................25
11.2 Landlord's Rights and Remedies.................25
11.3 Default by Landlord............................29
11.4 Delays.........................................29
(ii)
<PAGE>
ARTICLE / SECTION Page
- ----------------- ----
ARTICLE XII
DAMAGE TO DEMISED PREMISES.......................................30
12.1 Major Damage...................................30
12.2 Nonmajor Damage................................30
ARTICLE XIII
LANDLORD'S REPRESENTATIONS AND WARRANTIES........................32
13.1 Organization and Standing of Landlord..........32
13.2 Authority......................................32
13.3 Binding Effect.................................32
13.4 Absence of Conflicting Agreements..............32
13.5 Consents.......................................32
13.6 Contracts......................................33
13.7 Financial Statements...........................34
13.8 Material Changes...............................34
13.9 Licenses; Permits..............................34
13.10 Title, Condition of Personal Property..........35
13.11 Title, Condition of the Demised Premises.......36
13.12 Legal Proceedings..............................37
13.13 Employees......................................38
13.14 Collective Bargaining, Labor Contracts,
Employment Practices, etc...................38
13.15 ERISA..........................................38
13.16 Insurance......................................39
13.17 Relationships..................................39
13.18 Assets Comprising the Demised Premises.........40
13.19 Absence of Certain Events......................40
13.20 Compliance with Laws...........................41
13.21 Environmental Compliance.......................41
13.22 Tax Returns....................................42
13.23 Encumbrances Created by this Agreement.........42
13.24 Residents......................................42
13.25 Zoning.........................................42
13.26 Leases.........................................43
13.27 Care of Residents; Deficiencies; Licensed
Bed and Rate Schedule.......................43
13.28 Books and Records..............................43
13.29 Intellectual Property..........................44
13.30 No Misstatements or Omissions..................44
13.31 Bankruptcy.....................................44
(iii)
<PAGE>
ARTICLE / SECTION Page
- ----------------- ----
ARTICLE XIV
TENANT'S REPRESENTATIONS, WARRANTIES AND COVENANTS.................44
14.1 Organization and Standing of Tenant..............44
14.2 Authority........................................44
14.3 Binding Effect...................................45
14.4 Absence of Conflicting Agreements................45
14.5 Statement of Operations..........................45
ARTICLE XV
INSURANCE, SUBROGATION AND INDEMNIFICATION.........................45
15.1 Comprehensive General Liability and
Professional Insurance to be Carried
by Tenant....................................45
15.2 Certificate of Insurance.........................45
15.3 Other Coverage...................................46
15.4 Indemnification of Landlord......................46
15.5 Indemnification of Tenant........................47
15.6 Fire, Extended Coverage and Additional
Perils Insurance..............................47
15.7 Waiver of Subrogation............................48
ARTICLE XVI
ARBITRATION........................................................48
ARTICLE XVII
CERTAIN COVENANTS OF LANDLORD......................................49
17.1 Covenant Not-To-Compete..........................49
17.2 Pre-Commencement Date Financial Statements.......50
ARTICLE XVIII
MISCELLANEOUS PROVISIONS...........................................50
18.1 Notices..........................................50
18.2 Understanding and Agreements.....................51
18.3 Amendment........................................51
18.4 Construction.....................................51
18.5 Specific Performance.............................51
18.6 Binding Effect on Successors.....................51
18.7 Lease (Short Form)...............................52
18.8 Reading and Receipt of this Lease................52
18.9 Prohibition of Mechanics Liens...................52
18.10 Brokerage or Agents Fees.........................52
(iv)
<PAGE>
ARTICLE / SECTION Page
- ----------------- ----
18.11 Captions and Indexes.............................52
18.12 Pronouns.........................................52
18.13 Drafting of this Lease...........................52
18.14 Counterparts.....................................53
18.15 Quiet Enjoyment..................................53
ARTICLE XIX
CONDITIONS PRECEDENT TO LEASE COMMENCEMENT.........................53
19.1 Representations and Warranties...................53
19.2 Performance of Covenants; No Default.............53
19.3 Delivery of Certificate..........................53
19.4 Legal Matters....................................54
19.5 Approvals........................................54
19.6 Material Adverse Change..........................54
19.7 Authorization Documents..........................54
19.8 COBRA............................................54
19.9 Environmental Compliance.........................55
19.10 Facility Purchase Option.........................55
19.11 Non-Disturbance Agreement........................55
ARTICLE XX
CERTAIN ADDITIONAL OBLIGATIONS OF LANDLORD.........................55
20.1 Discharge of Liabilities.........................55
20.2 Accounts Receivable..............................55
20.3 Employment of Existing Employees.................56
20.4 Audited Financial Statements.....................56
20.5 Licenses.........................................56
20.6 Collective Bargaining, Labor Contracts, etc......56
20.7 Contracts and Personal Property Leases...........56
20.8 Demised Premises.................................56
20.9 Delivery of Notices..............................56
ARTICLE XXI
EXTENSION OF COMMENCEMENT DATE AND TERMINATION.....................57
21.1 Termination......................................57
21.2 Tenant's Remedies................................57
(v)
<PAGE>
ARTICLE / SECTION Page
- ----------------- ----
ARTICLE XXII
GLOSSARY AND ADDITIONAL DEFINED TERMS..............................58
SIGNATURE PAGE..............................................................61
ACKNOWLEDGMENTS.............................................................62
GUARANTY OF LEASE...........................................................63
ACKNOWLEDGMENTS.............................................................64
(vi)
<PAGE>
EXHIBITS/SCHEDULES
- ------------------
EXHIBIT A
DESCRIPTION OF THE LAND
EXHIBIT B
LIST OF CERTAIN PERSONAL PROPERTY & FIXTURES
EXHIBIT C
OPTION AGREEMENT
EXHIBIT D
FORM OF SUBORDINATION, NON-DISTURBANCE
AND RECOGNITION AGREEMENT
SCHEDULE 3.2(a)
SCHEDULE 3.2(b)
SCHEDULE 13.4
SCHEDULE 13.5
SCHEDULE 13.6
SCHEDULE 13.8
SCHEDULE 13.9
SCHEDULE 13.10(a)
SCHEDULE 13.10(b)
SCHEDULE 13.11(a)
SCHEDULE 13.11(e)
SCHEDULE 13.11(j)
SCHEDULE 13.12
SCHEDULE 13.13
(vii)
<PAGE>
SCHEDULES
- ---------
SCHEDULE 13.16
SCHEDULE 13.17
SCHEDULE 13.19
SCHEDULE 13.21
SCHEDULE 13.24
SCHEDULE 13.25
SCHEDULE 13.26
SCHEDULE 13.27(b)
SCHEDULE 13.27(c)
SCHEDULE 13.29
SCHEDULE 14.4
(viii)
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (this "Lease") is made and entered into as of the
18th day of June, 1996, by and between THE HOMESTEAD OF GARDEN CITY, L.C., a
Kansas limited liability company having an address c/o The Homestead Company,
L.C., 155 North Market, Suite 910, Wichita, Kansas 67202, Attention: Mr. Jack
West, as landlord ("Landlord"), and INTEGRATED LIVING COMMUNITIES AT GARDEN
CITY, INC., a Delaware corporation having an office at 10065 Red Run Boulevard,
Owings Mills, Maryland 21117, as tenant ("Tenant").
W I T N E S S E T H:
--------------------
WHEREAS, Landlord is the owner and operator of the real property,
improvements and personal property constituting the 46-bed and 35-unit assisted
living facility known as "The Homestead at Garden City" (said real property and
all improvements that may from time to time be situated thereon and all Personal
Property (as hereinafter defined), are hereinafter called the "Facility"),
situated at Garden City, Kansas; and
WHEREAS, Tenant or affiliates of Tenant are engaged in the management,
leasing and ownership of similar facilities and are experienced in various
phases of management, leasing and ownership thereof; and
WHEREAS, Landlord desires to lease the Facility to Tenant for the term
hereinafter provided, and Tenant desires to accept such lease upon the terms and
subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the rents, mutual covenants and
agreements set forth in this Lease, the parties agree as follows:
ARTICLE I
DEMISED PREMISES
----------------
1.1 Demise of Premises. Landlord hereby demises and leases to
Tenant for the term and upon the conditions provided in this Lease, and Tenant
hereby leases from Landlord, the following real and personal property
(collectively, the "Demised Premises"):
(a) the real property described in Exhibit A
attached hereto and made a part hereof (the "Land"), and
(b) all buildings, structures, fixtures and
other improvements of every kind, now or hereafter situated upon the Land,
including, but not limited to, the Facility, alleyways and connecting tunnels,
sidewalks, utility pipes, conduits and lines (on-site), and
<PAGE>
parking areas and roadways appurtenant to such buildings and structures,
specifically excluding utility pipes, conduits and lines owned by utility
providers, if any, as to which, however, all of Landlord's right, title and
interest thereto is hereby leased and included (collectively, the "Leased
Improvements"), and
(c) all easements, licenses, rights, privileges
and appurtenances now or hereafter relating to the Land and/or the Leased
Improvements (collectively, the "Related Rights"), and
(d) all equipment, machinery, fixtures, and
other items of real and/or personal property, including all components thereof,
now or hereafter located in, on or used in connection with, and permanently
affixed to or incorporated into the Land or the Leased Improvements, including,
without limitation, if any, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting, ventilation, refrigeration,
incineration, air and water pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus, sprinkler systems and fire and theft
protection equipment, and built-in oxygen and vacuum systems, all of which, to
the greatest extent permitted by law, are hereby deemed by the parties hereto to
constitute real property, together with all replacements, modifications,
alterations and additions thereto, specifically excluding utility pipes,
conduits and lines owned by utility providers, if any, as to which, however, all
of Landlord's right, title and interest thereto is hereby leased and included
(collectively, the "Fixtures"), and
(e) all equipment, machinery, furniture,
furnishings, movable walls or partitions, computers, trade fixtures, office
equipment, operating supplies, or other tangible real or personal property now
located, installed, stored, used or usable in connection with the operation of
the Facility and removable without causing material damage to the Land or the
Leased Improvements, including, without limitation, all items of furniture,
furnishings, equipment, appliances, apparatus, and vehicles, together with all
replacements, modifications, alterations and additions thereto, specifically
excluding utility pipes, conduits and lines owned by utility providers, if any,
as to which, however, all of Landlord's right, title and interest thereto is
hereby leased and included, and also specifically excluding any personal
property owned by patients or residents, as to which, however, all of Landlord's
right, title and interest thereto is hereby leased and included (collectively,
the "Personal Property").
1.2 Other Assets. Effective on the Commencement Date (as
hereinafter defined) Landlord hereby transfers, assigns and conveys to Tenant
for the term hereinafter set forth and upon the conditions provided in this
Lease, all of the following assets (collectively, hereinafter called the "Other
Assets"):
(a) all inventory, supplies and consumables
necessary for the operation of the Demised Premises used or usable in the
ordinary course of business in connection with the operation of the Facility for
a period of ten (10) business days after the Commencement Date (collectively,
the "Inventory"), and
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(b) all intangible property, assets and rights
appurtenant or relating to the ownership and/or operation of the Facility,
including but not limited to, licenses, permits and other governmental approvals
from the applicable licensing and certification agencies, to the extent
assignable (collectively, the "Intangibles"), and
(c) all patents, copyrights, trademarks, trade
names, brand names, service marks, logos, symbols, trade dress, designs or
representations or expressions of any thereof, or registrations or applications
for registration thereof, or any other inventions, trade secrets, technical
information, know-how, proprietary right or intellectual property appurtenant or
relating to the ownership and/or operation of the Facility (collectively, the
"Trade Rights").
1.3 Assumed Name. Tenant shall have the exclusive right (but
not the obligation) to use and to register as the assumed business name for the
Facility the name "The Homestead at Garden City" effective as of the
Commencement Date of this Lease and thereafter while this Lease is in effect.
1.4 Delivery of Possession. Landlord shall deliver exclusive
possession of the Demised Premises and the Other Assets to Tenant on the
Commencement Date. Notwithstanding anything to the contrary contained in this
Lease, Tenant shall have no obligations or liabilities under this Lease or as
tenant of the Demised Premises or with respect to the Other Assets, prior to
such delivery of possession and the Commencement Date.
ARTICLE II
TERM
----
2.1 Term. Subject to Section 21.1 hereof, the term of this
Lease shall commence on June 18, 1996, as such date may be extended pursuant to
the express provisions hereof (the "Commencement Date"). The term of this Lease
shall run from the Commencement Date and terminate at 12:00 midnight, on the
last day of the fifteenth (15) Lease Year (as hereinafter defined) (the "Initial
Term"), unless extended as provided in Section 2.2 below.
2.2 Renewal Term. If this Lease is still in effect and if no
Event of Default (as hereinafter defined) shall have occurred and be continuing
Tenant shall have the right to extend this Lease for three (3) additional
consecutive terms of five (5) years each (each a "Renewal Term"). A renewal
option shall be deemed exercised upon Tenant giving Landlord one hundred twenty
(120) days written notice prior to the expiration of the then current Lease
Term. If Tenant shall give notice of the exercise of an election in the manner
and within the time provided herein, the Lease Term shall be extended upon the
giving of the notice without the requirement of any action on the part of
Landlord.
2.3 Lease Term. As used herein, "Lease Term" shall mean, prior
to the exercise by Tenant of any of its rights under Section 2.2 to extend the
term of this Lease, the Initial Term, and after the exercise by Tenant of any
one or more of such extension rights, "Lease
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Term" shall mean the Initial Term and each Renewal Term as to which such right
has been exercised. Except as otherwise expressly provided in this Lease, all
the agreements and conditions contained in this Lease shall apply to each
Renewal Term as to which such right has been exercised.
2.4 Lease Year. As used herein, "Lease Year" means any
12-month period that commences on the Commencement Date, or any anniversary of
the Commencement Date, provided, however, if the Commencement Date occurs on a
day other than the first day of a month, then a Lease Year shall commence on the
first day of the first month following the Commencement Date except that the
first Lease Year shall include the period from the Commencement Date through the
last day of the month in which the Commencement Date occurs.
ARTICLE III
RENTAL
------
3.1 Annual Rent. Beginning on the Commencement Date of this
Lease, Tenant agrees to pay to Landlord rent at the annual rates set forth
below, in each case in monthly installments of one-twelfth thereof. The monthly
rent payments provided for herein shall be paid by Tenant in advance, without
notice or demand, on the first day of each month, and the rent for the calendar
month during which rent shall begin to accrue and for the last calendar month of
the Lease Term, shall be apportioned, if necessary. All rental payments to be
made to Landlord under this Lease shall be made to Landlord at the address
stated in Section 18.1 hereof or to such other person, firm, corporation or
other entity or at such other address as Landlord may designate by notice in
writing to Tenant.
3.1.1 Annual rent ("Annual Rent") shall be payable as
follows: during the first Lease Year at the annual
rate of Two Hundred Eighty-Seven Thousand Five
Hundred ($287,500) Dollars; and during each Lease
Year thereafter at the annual rate equal to the
product resulting from multiplying the Annual Rent
for the first Lease Year by a fraction the numerator
of which is the Price Index (as defined in Article
VIII) published for the first calendar month of the
Lease Year with respect to which the adjustment is
being made, and the denominator of which is the Base
Price Index (as defined in Article VIII); provided
that the Annual Rent for the Lease Year in question
shall not be lower than the Annual Rent for the
immediately preceding Lease Year.
3.1.2 Annual Rent shall be paid in equal monthly
installments and shall be payable in advance, without
demand, on the first day of each calendar month
during any Lease Year. All payments of Annual Rent
and all other payments to be made by Tenant to
Landlord pursuant to this Lease shall be paid in
lawful money of the United States of America and,
except as otherwise provided in this Lease, without
discount, setoff or abatement.
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3.1.3 The obligations to pay Annual Rent and all other
items of rent under this Lease are separate and
independent of each and every other covenant and
agreement contained in this Lease, except as
otherwise provided in this Lease to the contrary
including (but not limited to) provisions relating to
Tenant's right to an abatement of, or setoff or
reduction against, any such items of rent.
3.1.4 In the event that any monthly installment of Annual
Rent is not paid within fifteen (15) days after the
date due, then, in addition to any other rights or
remedies available to Landlord, interest shall accrue
on such overdue payment at a rate per annum equal to
the lesser of (a) the maximum rate of interest
permitted by law or (b) two percent (2%) above the
"Prime Rate" of interest quoted in The Wall Street
Journal "Money Rates Column" from the date originally
due to the date of payment of the same.
3.2 Certain Adjustments to the Annual Rent.
(a) Schedule 3.2(a) sets forth Landlord's
estimated amount as of the day immediately preceding the Commencement Date of
unpaid, accrued and earned holiday, vacation, sick and personal leave pay,
accrued bonuses, payroll taxes and workers' compensation insurance premiums with
respect thereto for each of Landlord's employees. Said Schedule 3.2(a) shall be
updated to the extent necessary on and as of the day preceding the Commencement
Date. Landlord will terminate all such employees as of the day immediately
preceding the Commencement Date. Tenant shall have the right, but not the
obligation, to hire any or all of such employees as of the Commencement Date.
Landlord will pay any and all unpaid, accrued and earned holiday, vacation,
sick, and personal leave pay, accrued bonuses, and all applicable payroll taxes
and workers' compensation insurance premiums accrued and earned and not paid as
of the Commencement Date for such employees not hired by, or who decline
employment with, Tenant, and Tenant shall have no liability whatsoever for any
such pay, bonus, taxes, premiums or other compensation unpaid, accrued and
earned by such employees. Tenant shall assume as of the Commencement Date the
liability for any and all unpaid, accrued and earned holiday, vacation, sick and
personal leave pay, accrued bonuses, and all applicable payroll taxes and
workers' compensation insurance premiums accrued and earned and not paid as of
the Commencement Date for such employees hired by Tenant, and the aggregate
amount of such pay, bonuses, taxes, premiums and other compensation unpaid,
accrued and earned by such hired employees shall be paid by Landlord to Tenant
on the Commencement Date.
(b) Schedule 3.2(b) sets forth Landlord's
estimated amount of any prepaid goods or services to be supplied or rendered by
the operator of the Facility subsequent to the Commencement Date (e.g., resident
advance payments), and such prepayments to the extent allocable to the period on
or after the Commencement Date ("Prepayments") shall be paid by Landlord to
Tenant on the Commencement Date or, at Landlord's option, shall reduce the
amount of the first, and to the extent necessary, all succeeding monthly
installments of Annual Rent payable by Tenant, until the Prepayments shall be
fully applied in lieu of such payment of such
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Prepayments by Landlord to Tenant on the Commencement Date. Said Schedule 3.2(b)
shall be updated to the extent necessary on and as of the day preceding the
Commencement Date.
3.3 Transfer Taxes; Prorated Items. On the Commencement Date,
the following adjustments and prorations shall be computed as of the
Commencement Date with respect to the following taxes (unless otherwise stated
herein) and the initial monthly installments of Annual Rent payable for the
first Lease Year shall be adjusted, upward or downward as appropriate, to
reflect such prorations:
(a) Transfer Taxes. All state and local real
estate transfer taxes and fees payable in connection with this Lease or any of
the transaction documents (including, without limitation, the short form lease)
relating hereto or the recording thereof shall be borne by Landlord.
(b) Real Estate Taxes, etc. Real property taxes
and all other ad valorem public or governmental charges against the Demised
Premises (including charges for sewer, water, drainage or other services)
assessed for a period in which the Commencement Date occurs shall be adjusted
and apportioned as of the Commencement Date and paid thereafter by Tenant in
accordance with Article V hereof.
(c) Personal Property Taxes. Personal property
taxes attributable to the value of the Personal Property and, if applicable, to
the extent taxable, the Other Assets for the period in which the Commencement
Date occurs shall be adjusted and apportioned as of the Commencement Date and
paid thereafter by Tenant in accordance with Article V hereof.
(d) Licenses, Service Contracts and Personal
Property Leases. All prepayments made or payments due under any continuing
Licenses (as defined in Section 13.9), Contracts (as defined in Section 13.6),
and Personal Property Leases (as defined in Section 13.26) affecting the Demised
Premises or Other Assets, including, without limitation, parking, garbage
removal, laundry and maintenance agreements, shall be adjusted and apportioned
as of the Commencement Date. Tenant shall assume all such obligations under such
continuing Licenses, Contracts and Personal Property Leases which arise (and
relate to the period) on and after the Commencement Date. Notwithstanding
anything to the contrary contained in this Lease, Landlord shall terminate any
and all service contracts, leases and/or other agreements affecting or related
to the Demised Premises which are with any person or entity that is affiliated
with Landlord, including without limitation, any and all Contracts and/or
Personal Property Leases other than those designated by Tenant pursuant to
Article XX hereof and Tenant shall have no obligations or liabilities with
respect thereto.
(e) Utilities. All prepayments made or payments
due with respect to utilities servicing the Demised Premises, including, without
limitation, water, sewer, electric, gas and utility bills, shall be adjusted and
apportioned as of the Commencement Date. Landlord shall use its best efforts to
have all utility meters read on the Commencement Date so as to accurately
determine the proration of current utility bills.
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<PAGE>
3.4 Other Prorations. All other charges and fees customarily
prorated and adjusted in similar transactions in the locale in which the Demised
Premises are situated shall be prorated as of the Commencement Date in
accordance with such custom. However, nothing contained herein shall operate to
subject Tenant to any liability of Landlord, and Tenant does not assume any
liability of Landlord, except as specifically set forth in this Lease.
In the event that accurate prorations and other adjustments
cannot be made as of the Commencement Date because current bills or statements
are not obtainable (as, for example, utility bills), the parties shall prorate
such items upon receipt of the final bill or statement.
ARTICLE IV
TITLE AND POSSESSION
--------------------
4.1 Title and Authority. Landlord represents and warrants to
Tenant that Landlord owns the fee simple title to the Land, Leased Improvements,
Related Rights and Fixtures and Landlord owns marketable title to the Personal
Property and Other Assets, free and clear of all Liens (as defined in Section
13.10) other than as set forth on Schedules 13.10(a), 13.10(b) and 13.11(a) and
other than as described in Section 13.11(b), and Landlord has the right and
complete authority to enter into this Lease on the terms and conditions and for
the use and purposes herein stated. Said Schedules 13.10(a), 13.10(b), 13.11(a)
and 13.11(b) shall each be updated to the extent necessary on and as of the day
preceding the Commencement Date.
4.2 Leased Equipment. As of the Commencement Date, Landlord
shall furnish the Facility with the Personal Property and Fixtures
(collectively, the "Leased Equipment"), including, without limitation, those
items of the Personal Property and Fixtures set forth on Exhibit B hereto.
Landlord shall have no obligation to furnish the Facility with any Leased
Equipment after the Commencement Date. The Leased Equipment shall include all
the personal property, fixtures, equipment and furnishings located at the
Demised Premises on the date of this Lease and all the personal property,
fixtures, equipment and furnishings necessary and appropriate for the continued
current operation of the Facility (in the same manner and scope as its operation
on the date of this Lease) by Tenant, as of the Commencement Date; all of such
Leased Equipment being leased to Tenant pursuant to the terms of this Lease. No
additional rent, beyond Annual Rent provided for in Article III hereof, shall be
paid by Tenant for the Leased Equipment.
4.3 Surrender of Possession. At the end of the Lease Term, or
upon the earlier termination of this Lease, Tenant, at its sole cost and
expense, shall surrender the Demised Premises to Landlord in the same good
condition and state of repair as they were in at the Commencement Date, ordinary
wear and tear and, except as otherwise provided in this Lease, damage by fire or
other casualty excepted, and shall convey and transfer to Landlord such portion
of the Other Assets as shall not have been used, depleted or consumed in the
ordinary course of the operation of the Facility and, subject to Section 8.2
hereof, shall also convey and transfer to Landlord any replacements and
accessories thereto acquired by Tenant during the Lease Term, to the extent the
same continue in existence at the end of the Lease Term, as well as sufficient
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Inventory necessary for the operation of the Facility for a period of ten (10)
business days following the end of the Lease Term or such earlier termination of
this Lease.
4.4 Holding Over. If Tenant remains in possession of the
Demised Premises after the expiration of the Lease Term, except as otherwise
provided in the Option Agreement (as hereinafter defined), such possession shall
be as a tenant at sufferance. During such occupancy, rent shall be payable equal
to 150% times the monthly amount of Annual Rent payable during the last month of
the Lease Term, and the provisions of this Lease shall be applicable and
continue in full force and effect. However, Landlord's acceptance of any rent
payments and the terms of this Section 4.4 shall not constitute a renewal of
this Lease or give Tenant any right to continue to occupy the Land on a
month-to-month basis or otherwise. Notwithstanding the foregoing, if Tenant is
unable to surrender the Demised Premises because Landlord fails to provide a
qualified and duly licensed operator (a "Proper Successor") for the Facility at
the end of the Lease Term to take over the operation and management of the
Facility, Tenant shall have the right, but shall not be obligated to, remain in
possession of the Demised Premises and continue to operate and manage the same
if Tenant would be legally prohibited from abandoning the Demised Premises or in
Tenant's judgment, abandoning the Demised Premises without a Proper Successor in
place to continue the operations of the Facility would jeopardize its (or its
affiliates') reputation as a provider of residential congregant, nursing and/or
assisted living facility care or could otherwise subject it (or its affiliates)
to liability. In the event Tenant remains in possession of the Demised Premises
pursuant to the immediately preceding sentence, Tenant shall (a) pay to Landlord
as gross rent during such occupancy 90% the Annual Rent payable by Tenant in the
last Lease Year of the Lease Term and (b) surrender possession of the Demised
Premises within ten (10) days after Landlord provides a Proper Successor to take
over the operation and management of the Facility.
ARTICLE V
TAXES, ASSESSMENTS AND UTILITIES
--------------------------------
5.1 Real Estate Taxes. Tenant, at its sole cost and expense,
shall pay when due all ad valorem general real estate taxes, betterment or other
assessments and transit taxes (collectively, "Impositions") which are assessed
against, levied, imposed upon, become a lien or become due and payable with
respect to or upon the Demised Premises, and no other property, and which first
become due and payable, or any installments thereof which become due and
payable, on and after the Commencement Date and during the Lease Term. Tenant
shall provide Landlord with copies of all receipts received in connection with
the payment of such taxes and assessments within twenty (20) days after
Landlord's request prior to the date interest or penalties on such taxes and
assessments would be imposed. Tenant shall have the right, at its sole cost and
expense and in good faith, to contest the amount or validity of any such
Imposition payable by Tenant under the terms of this Lease, provided, however,
that if at any time payment of any such Imposition shall become necessary to
prevent the tax sale of the Demised Premises or any portion thereof because of
nonpayment, then Tenant shall pay the same in sufficient time to prevent such
sale. Landlord shall join, at Tenant's sole cost and expense, in any proceedings
referred to above, and hereby agrees that the same may be brought in its name,
if the provisions of any law, rule or regulations at the time, in effect shall
require that such proceedings be brought by and/or in the
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name of Landlord or any owner of the Demised Premises. Tenant shall be entitled
to any refund of any Impositions, and all penalties or interest thereon,
received by Landlord which shall have been paid by Tenant, or which shall have
been paid by Landlord but previously reimbursed in full by Tenant. Provided that
no Event of Default shall have occurred and be continuing, Landlord shall not,
without Tenant's prior approval, make or agree to any settlement, compromise or
other disposition of any such proceedings or discontinue or withdraw any such
proceedings or accept any refund or other adjustment of or credit for any
Imposition as a result of any such proceedings. Landlord hereby appoints Tenant
the attorney-in-fact of Landlord for the purpose of making all payments to be
made by Tenant pursuant to any of the provisions of this Lease to persons or
entities other than Landlord. Notwithstanding anything to the contrary contained
in this Lease, if, by not later than thirty (30) days prior to the final date
for contesting the validity or amount of any real estate taxes and assessments
with respect to the last Lease Year of the Lease Term, Tenant shall not have
advised Landlord that Tenant intends to conduct such contest, Landlord will have
the right (but not the obligation) to contest the validity and/or amount of such
Impositions for the last Lease Year of the Lease Term without the consent of
Tenant, but at Landlord's sole cost and expense.
5.1.1 If at any time during the Lease Term the methods of
taxation of Impositions prevailing at the
commencement of the Initial Term hereof shall be
altered so that in lieu of, or as a supplement to, or
a substitute for, the whole or any part of the
Impositions then levied, assessed or imposed on the
Demised Premises, any of the following are levied,
assessed or imposed:
(a) a tax, assessment, levy, imposition or
charge, wholly or partially as a capital levy or otherwise, on the rents
received therefrom; or
(b) a tax, assessment, levy (including but not
limited to any municipal, state or federal levy), imposition or charge measured
by or based in whole or in part upon the Demised Premises and imposed upon
Landlord; or
(c) a license fee measured by the rent payable
under this Lease;
then, in such event, all such taxes, assessments, levies, impositions, and
charges, or the part thereof so measured or based, shall be deemed to be
included in the Impositions payable by Tenant pursuant to this Section 5.1, to
the extent that such taxes, assessments, levies, impositions and charges would
be payable if the Demised Premises were the only property of Landlord subject
thereto, and Tenant shall pay and discharge the same as herein provided in
respect of the payment of general real estate taxes and assessments.
5.1.2 Impositions shall not include any income, excess
profit, estate, inheritance, succession, transfer,
franchise, capital or other tax or assessment upon
Landlord or (unless in substitution, as herein
provided) upon the rentals payable under this Lease,
all of which shall be the sole obligation of
Landlord. The real estate taxes on the Demised
Premises during any year shall mean such amounts as
shall be finally determined, after deducting
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abatements, discounts, refunds or rebates, if any, to
the Impositions payable with respect to the Demised
Premises during said year.
5.1.3 Any Impositions which become due for the year in
which possession is given to Tenant but which are
payable with respect to a period prior to the
Commencement Date shall be prorated for the calendar
year between Landlord and Tenant as provided in
Section 3.3 hereof and such proration shall also
occur at the end of the Lease Term for the calendar
year of termination.
5.1.4 If Landlord shall have the right to elect the period
over which any Impositions are payable, Landlord
agrees to elect and Tenant may make such payments
over the longest period of time available.
5.2 Personal Property Taxes. Beginning on the Commencement
Date, Tenant, at its sole cost and expense, shall pay when due all personal
property taxes and assessments (if any) assessed against, levied, imposed upon,
or which would become a lien or become due and payable with respect to, or upon
any of Tenant's tangible or intangible personal property or the Leased Equipment
or the Other Assets, during the Lease Term. Tenant shall provide Landlord with
copies of all receipts received in connection with the payment of such taxes and
assessments not less than ten (10) days prior to the date interest or penalties
on such taxes and assessments would be imposed. Any personal property taxes and
assessments which become due for the year in which possession is given to Tenant
but which are payable with respect to a period prior to the Commencement Date
shall be prorated for the calendar year between Landlord and Tenant as provided
in Section 3.3 hereof and such proration shall also occur at the end of the
Lease Term for the calendar year of termination.
5.3 Sewer Use Fees. Beginning on the Commencement Date,
Tenant, at its sole cost and expense, shall pay when due all sewer use fees,
rents, charges and deposits assessed against, levied, imposed upon, or which
would become a lien or become due and payable with respect to, or upon the
Demised Premises, during the Lease Term. Tenant shall provide Landlord with
copies of all receipts received in connection with the payment of such fees,
rents, charges and deposits not less than ten (10) days prior to the date
interest or penalties on such fees or deposits would be imposed.
5.4 Utilities. Beginning on the Commencement Date, Tenant, at
its sole cost and expense, shall obtain in its name and pay when due all charges
and deposits for gas, water, electricity, cable television, trash, telephone,
communication services, and all other utilities used on or supplied to the
Demised Premises, during the Lease Term.
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ARTICLE VI
USE OF DEMISED PREMISES
-----------------------
6.1 Use by Tenant. Tenant shall use the Demised Premises for
the business purpose of a residential congregant, nursing care and/or assisted
living facility and all related and ancillary medical and therapeutic services,
and for no other purpose without Landlord's consent, which consent shall not be
unreasonably withheld or delayed.
6.2 Compliance with Laws. Except as otherwise provided in this
Section 6.2, and in Sections 8.1.4, 8.1.5, and 8.1.6, Tenant, in operating the
Demised Premises, at its sole cost and expense, shall comply with all applicable
city, county, state and federal building codes, ordinances, rules, regulations
and laws applicable to the Demised Premises, notices from the issuer of the
Facility's fire hazard or casualty policy, and each covenant, condition or
restriction of record which is a Permitted Exception (as hereinafter defined).
Without limiting the generality of the foregoing provisions of
this Section 6.2, except as otherwise provided in this Lease, Tenant, at its
cost and expense, shall comply with all Environmental Laws (as hereinafter
defined) that are applicable to its operation of the Demised Premises,
including, but not limited to, the use, handling, treatment, storage,
transportation and disposal of any hazardous, toxic or infectious waste,
material or substance (including Medical Waste) and petroleum products, material
or waste. Landlord, at its cost and expense, shall comply with all Environmental
Laws in connection with the previous, present and/or future use, handling,
treatment, storage, transportation and disposal of any such waste, material,
substance and products at or on the Demised Premises by anyone other than
Tenant, or its employees, agents, contractors, invitees, residents, patients or
clients.
6.3 Waste. Tenant shall neither commit, nor permit the
commission of waste upon or against the Demised Premises, ordinary wear and tear
excepted.
6.4 License and Permits. Tenant at its sole cost and expense,
shall acquire and maintain all licenses and permits needed to operate the
Demised Premises for the then applicable use permitted herein. Tenant, as a
provider of residential care services, shall comply with all applicable rules,
regulations, laws, statutes, orders, ordinances and requirements, and will
maintain its certifications for reimbursement and licensure, and its
accreditation, if compliance with accreditation standards is required to
maintain the operations of the Facility.
6.5 Landlord's Repairs. Landlord shall have no obligation
to make improvements, alterations, replacements or repairs to the Demised
Premises, except as may be expressly provided herein.
6.6 Conflict with Insurance Policies. Tenant shall not
permit any use of the Demised Premises which would invalidate any policy of
insurance or which would increase the
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premiums for any insurance policy carried by or for the benefit of Landlord
unless Tenant pays any such increase in premiums.
ARTICLE VII
EMINENT DOMAIN
--------------
7.1 Permanent or Temporary Taking. If after the execution of
this Lease all or any part of the Demised Premises is acquired on a permanent or
temporary basis by any federal, state or local governmental agency, by means of
condemnation or threat of condemnation, or by reason of mutual agreement between
Landlord, Tenant, and said governmental agency, this Article VII shall control.
7.2 Compensation. All compensation awarded for any taking
(including, but not limited to, loss of leasehold) shall belong to and be the
property of Landlord; provided, however, that Tenant shall be entitled to any
portion of the award made to Tenant for its loss of business, depreciation to or
for the cost of removal of stock, fixtures, equipment (other than the Leased
Equipment) or signs, moving expenses, relocation costs or any other allowances
to which Tenant may be legally entitled. This Lease shall not preclude the right
of Tenant to pursue an independent action for damages against any governmental
agency for said taking, provided, however that in no event shall any resulting
award to Tenant reduce the amount of the award to which Landlord may be
entitled. In any event, Landlord shall not be liable to Tenant for any damages.
7.3 Effect on this Lease of Permanent Taking. In the event
that the whole of the Demised Premises is taken permanently by any method, then
this Lease shall terminate as of the date title to the Demised Premises vests in
the governmental agency. Such date of vesting shall operate as though it were
the date originally intended by the parties for expiration of this Lease and
Tenant shall pay Annual Rent and Landlord shall refund to Tenant any
overpayments of Annual Rent or other charges within five (5) days after the date
of such vesting and all other obligations hereunder accrued (prorated as
appropriate) to the date of such vesting.
In the event a substantial and material portion (as
hereinafter defined) of the Demised Premises are taken permanently, then Tenant
shall have the option to terminate this Lease by giving Landlord at least ninety
(90) days' written notice. If Tenant does not elect to terminate this Lease or
if less than a substantial and material portion of the Demised Premises are
taken, then this Lease shall terminate only as to the part of the Demised
Premises taken and Annual Rent shall be reduced for the remainder of the Lease
Term by a just, fair and equitable proportion of Annual Rent payable according
to the size, nature and extent of the property that is taken. Any adjustments or
reductions in Annual Rent, as contemplated by this Section shall take into
account the practical and economic effect of the taking in question on the
operation of the Demised Premises. In the event that a substantial and material
part of the Demised Premises is temporarily taken in excess of three hundred
sixty-five (365) consecutive days, then such taking shall be deemed a permanent
taking for purposes of this Lease. It shall be presumed that the taking is
"substantial and material" if (a) the Kansas Department of Health and
Environment
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permanently closes the Demised Premises whether in whole or in part because of
such taking for use as a nursing care and/or assisted living facility, or (b) if
in Tenant's reasonable business judgment the portion of the Demised Premises not
so taken is inadequate to continue to operate the Facility in a commercially
profitable manner as a nursing care and/or assisted living facility, as the case
may be according to the then actual use by Tenant.
In the event that the Demised Premises become landlocked by
such taking for a period in excess of three (3) consecutive days and reasonable
alternative access cannot be provided within five (5) days after such
occurrence, then Annual Rent shall abate until access or reasonable alternative
access is provided to the Demised Premises; provided that if such access or
reasonable alternative access cannot be provided within thirty (30) days after
such occurrence, then Tenant shall have the right to terminate this Lease by
written notice to Landlord, which shall terminate this Lease sixty (60) days
after such notice.
7.4 Effect on this Lease of Temporary Taking. In the event
that all or part of the Demised Premises are taken for a temporary use, Annual
Rent shall be reduced and abated by a just, fair and equitable proportion of
Annual Rent payable according to the size, nature and extent of the property
that is taken. Any adjustments or reductions in Annual Rent, as contemplated by
this Section shall take into account the practical and economic effect of the
taking in question on the operation of the Demised Premises. Tenant shall
continue to perform all other conditions of this Lease as though the taking or
condemnation had not occurred, except to the extent that Tenant shall be
prevented from doing so by reason of the taking or condemnation and except for
the abatement of Annual Rent as provided herein. Neither party to this Lease
shall have any right to terminate this Lease by reason of a temporary taking of
all or part of the Demised Premises, except as stated in Section 7.3 above.
7.5 Restoration. If any building or improvement on the Demised
Premises or any replacement thereof shall be damaged or partially destroyed by
any such taking of less than all or substantially all thereof and this Lease
shall not be terminated by reason thereof, Tenant shall be entitled to receive
such portion of any award to which Landlord may be entitled, as will be
sufficient to pay for the costs of restoring and rebuilding such building(s) and
improvement(s) and within ninety (90) days after receipt by Tenant of such sum,
Tenant shall proceed with reasonable diligence to conduct any necessary
demolition and to repair, replace or rebuild, any remaining part of said
building(s) and improvement(s), or of any replacement thereof not so taken, so
as to constitute such remaining part thereof a complete, useable building in
substantially the same condition and repair as the building(s) and improvements
were in prior to any such taking; and Tenant shall hold that portion of any
award received by Tenant pursuant to this Section in trust to apply the same to
the cost and expense of such demolition, repairing, replacing and rebuilding. If
the cost of any work necessary to repair, replace or rebuild (including any
necessary demolition work) any damage to or destruction of the building(s) and
improvement(s) or any replacement or replacements thereof shall equal or exceed
an aggregate cost of One Hundred Thousand ($100,000) Dollars, the same shall be
conducted under the supervision of an architect or engineer selected by Tenant
and approved in writing by Landlord, which approval Landlord agrees shall not be
unreasonably withheld or delayed. Whenever pursuant to this Section Tenant is
entitled to receive the proceeds of an award in excess of $100,000 in amount for
the
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purpose of applying the same to the cost of demolishing, repairing, replacing or
rebuilding, such proceeds shall be paid to the Insurance Trustee provided for in
Article XV, to be disposed of by such Insurance Trustee in the manner provided
in Article XII.
ARTICLE VIII
ALTERATIONS, REPAIRS and TRADE FIXTURES
---------------------------------------
8.1 Repairs by Tenant Generally.
8.1.1 Except as otherwise expressly provided in this Lease,
including without limitation, in this Article VIII
and in Articles VII and XII, Tenant shall be
responsible for the performance, at its sole cost and
expense, of all necessary repairs, replacements,
alterations and improvements, whether or not in order
to comply with all applicable laws, regulations and
municipal ordinances, (collectively, "Repairs") to
the Demised Premises. This obligation to perform
Repairs shall include, at its sole cost and expense,
inspecting, keeping, maintaining, repairing and
replacing the interior, exterior, structural and
nonstructural improvements, alterations and other
components on the Demised Premises so as to keep the
improvements and interior decorations in
substantially the same condition as they were in on
the Commencement Date, subject to depreciation and
ordinary wear and tear, and in a safe condition, free
from dirt, water, snow, ice, refuse, trash and
obstruction and shall also include, but not be
limited to, signs, glass, landscaping, any air
conditioning, heating, electrical, ventilating,
parking areas and driveways, plumbing systems, roof,
walls and all interior and exterior cleaning,
painting, repairs and replacements on or at the
Demised Premises. Tenant shall not voluntarily alter
any structural part of the Leased Improvements or
demolish, remove, or materially and permanently alter
any permanent improvement in or on the Land or make
permanent additions thereto the cost of which, in the
case of any single alteration or addition, exceeds
$50,000 or, in the case of all such alterations or
additions in any Lease Year, exceeds in the aggregate
$250,000, without the prior written consent of
Landlord, which consent shall not be unreasonably
withheld or delayed; provided, however, that
Landlord's consent shall not be required with respect
to any such Repairs which are required in order to
comply with applicable laws, regulations or municipal
ordinances or in the case of an emergency or any
other situation where bodily harm is threatened or
Tenant is exposed to liability if such Repairs are
not made. In addition, Tenant may perform any other
non-structural alterations and additions to the
Demised Premises without Landlord's consent so long
as Tenant gives a copy of the plans and
specifications, if any, to Landlord within ten (10)
days prior to making such alterations and/or
additions; provided further that cosmetic
modifications and decorations that are substantially
consistent with the quality of the original materials
and
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decorations that were used in the Facility may be
made by Tenant without any notification to Landlord.
8.1.1.1 The dollar amounts set forth in this paragraph 8.1.1
shall be adjusted and increased each Lease Year by an amount equal to the
product resulting from multiplying each of said dollar amounts by a fraction the
numerator of which is the Price Index published for the first calendar month of
the Lease Year with respect to which the adjustment is being made, and the
denominator of which is the Base Price Index.
8.1.1.2 As used in this Lease the following terms
shall have the following respective meanings:
(i) "Price Index" shall mean the
"Revised Consumer Price Index for All Urban Consumers (the CPI-U) published by
the Bureau of Labor Statistics of the United States Department of Labor, for All
Cities area, All Items, (1982-84=100)"; and
(ii) "Base Price Index" shall mean the
Price Index published for the calendar month in which the Commencement Date
occurs or if not published for such month, then the closest preceding month for
which a Price Index is available.
8.1.1.3 In the event the Price Index shall hereafter be
converted to a different standard reference base or otherwise revised, the
determination of the adjusted dollar amounts hereunder shall be made with the
use of such conversion factor, formula or table for converting the Price Index
as may be published by the Bureau of Labor Statistics, or Prentice Hall, Inc. or
any other nationally recognized publisher of similar statistical information. If
at any time during the Lease Term the Price Index shall no longer be published
by said Bureau, then any comparable index issued by said Bureau or similar
agency of the United States issuing similar indices shall be used for the
purposes of making the adjustments under Article III and under this Article
VIII, the same, however, to be appropriately adjusted in order to give effect to
the intent of the foregoing provisions of this Lease. In the event that the U.S.
Department of Labor, Bureau of Labor Statistics, changes the publication
frequency of the Price Index so that a Price Index is not available to make a
cost-of-living adjustment as herein provided in Article III or this Article VIII
for the month specified, the cost-of-living adjustment to be made thereunder
shall be based on the percentage difference between the Price Index for the
closest preceding month for which a Price Index is available and the Base Price
Index.
8.1.2 Tenant shall keep the Demised Premises free from any
mechanic's, materialman's, or similar liens and
encumbrances and any claims therefor in connection
with any Repairs and Tenant shall remove any such
lien or encumbrance, by bond or otherwise, within
thirty (30) days after notice from Landlord of the
same. If Tenant fails to do so, Landlord may pay the
amount of such claim or take such other action as
Landlord deems reasonably necessary to remove such
claim, lien, or encumbrance after investigating the
validity thereof. The amount so paid and costs
incurred by Landlord shall be deemed additional rent
under this Lease, payable on
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demand, when accompanied by detailed information and
invoices regarding such amount. Nothing in this Lease
shall be deemed a consent by Landlord to the filing
of any lien on Landlord's interest in the Demised
Premises and any such liens shall attach solely to
Tenant's interest in the Demised Premises and shall
in all respects be subordinate to Landlord's interest
in the Demised Premises. Tenant shall not do anything
or permit anything to be done upon the Demised
Premises which will materially and adversely affect
the safety or security of the Demised Premises, which
will increase the rate of fire or casualty insurance
upon the building or its contents, without Landlord's
written consent, which consent shall not be
unreasonably withheld or delayed, or which will cause
structural damage to the Demised Premises or any
Leased Improvements. Except for trade fixtures, any
improvements made to the Demised Premises shall
become the property of Landlord, free of charge, if
affixed to the realty.
8.1.3 Tenant's obligation to perform Repairs shall also
include without limitation the repair and maintenance
of Leased Equipment and the replacement from time to
time of obsolete, damaged or unsightly Leased
Equipment, so as to keep the same in good operating
condition consistent with a nursing care or assisted
living facility, whichever is being operated at the
Demised Premises at the time in question.
Notwithstanding anything to the contrary contained in
this Lease, any Leased Equipment which is leased or
the subject of a conditional sales agreement or other
finance arrangement at the commencement of the
Initial Term and any replacement(s) of such Leased
Equipment may be encumbered similarly during the
Lease Term.
8.1.4 Notwithstanding anything to the contrary contained in
this Lease, if Tenant is required to make any
expenditures for Repairs (whether or not in order to
comply with all applicable laws, regulations and
municipal ordinances) to the Demised Premises during
the last two Lease Years of the Lease Term (excluding
Repairs that are required to be made as a result of
Tenant's, or Tenant's agents', employees' or
contractors' negligence or wilful misconduct), which
expenditures according to generally accepted
accounting principles ("GAAP") should be capitalized
(such expenditures being hereinafter collectively
called "Capital Expenditures") and if any such
Capital Expenditure is a Major Capital Expenditure
(as hereinafter defined), Tenant shall send to
Landlord a notice of such circumstance, which notice
shall specify the nature of the repair, replacement,
alteration or improvement for which the Major Capital
Expenditure is being incurred (hereinafter called a
"Capital Improvement") and the estimated cost of such
Capital Improvement. Tenant shall only be obligated
to pay that portion ("Tenant's Share") of the cost of
such Capital Improvement as shall be equitably
apportioned to it taking into consideration the
reasonable useful life (according to GAAP) of such
Capital Improvement and the unexpired Lease Term and
the cost of such Capital Improvement in excess of
Tenant's
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Share (such excess cost being hereinafter called
"Landlord's Share") shall be borne by Landlord.
Tenant shall only be obligated to make the Capital
Improvement if, within ten (10) business days after
Landlord receives Tenant's above-described notice,
Tenant and Landlord agree on the determination of
Tenant's Share and Landlord's Share of such Major
Capital Expenditure and the manner in which Landlord
will pay and/or reimburse Landlord's Share to Tenant.
If the parties cannot agree on an equitable sharing
of any such Major Capital Expenditure or the manner
of payment and/or reimbursement, Tenant may (i) seek
to have the matter resolved by arbitration as
elsewhere provided in this Lease prior to undertaking
to perform any such Capital Improvement, (ii) perform
any such Capital Improvement and during and/or after
the performance thereof seek to have the matter
resolved by arbitration as elsewhere provided in this
Lease, in which case immediately upon resolution of
such matter Landlord shall pay to Tenant and/or
reimburse Tenant for Landlord's Share of the cost
thereof, or (iii) terminate this Lease upon not less
than thirty (30) days prior written notice to
Landlord. In the event that after allocating
Landlord's and Tenant's respective Shares of the cost
of a Capital Improvement, Tenant exercises a renewal
option, Tenant shall reimburse Landlord for the
unamortized amount of Landlord's Share of any such
cost theretofore paid by Landlord with interest
thereon at the rate per annum set forth in Article
III hereof.
As used herein, a "Major Capital Expenditure" means any
Capital Expenditure which is required to be made during the last two Lease Years
of the Lease Term and which exceeds $25,000 individually, or which, when added
to all other Capital Expenditures theretofore incurred by Tenant during such
period, exceeds $100,000.
8.1.5 Notwithstanding anything to the contrary contained in
this Lease, Tenant shall not be obligated to make or
to pay for any Repairs that are required as a result
of the negligence or wilful misconduct of Landlord,
or any of its or its affiliates' (which shall include
an affiliate of The Homestead Company, L.C. or of
Jack West), employees, agents or contractors or as
provided in paragraph 8.1.6 below.
8.1.6 Landlord agrees that if at any time or times any
governmental authorities or insurance rating bureaus
having jurisdiction shall complain that the Demised
Premises, or any portion thereof, were not
constructed in compliance with any law, ordinance or
regulation of any governmental authority or insurance
rating bureau having jurisdiction and shall request
compliance, then Landlord shall, upon receipt of
notice of such complaint, cause such repairs,
alterations or other work to be done so as to bring
about the compliance requested.
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8.2 Quality and Promptness of Repairs and Replacements;
Ownership of Replacements and Warranties. All repairs and replacements made by
Tenant shall be made when reasonably necessary and within a reasonably prompt
period of time; shall be with new or like-new materials of at least equal or
better value, utility and condition to that which the same was in at the
commencement of the Initial Term, taking into consideration the quality of
materials and workmanship of the same, and shall be done in compliance with all
applicable laws, codes, ordinances, rules, regulations and statutes of the city,
county, state and federal governments.
Any such replaced Leased Equipment shall be and remain the
property of Landlord; provided, however, that if any item of Leased Equipment is
replaced by Tenant during the Lease Term at Tenant's sole cost and expense with
an upgraded item of Leased Equipment, then Tenant shall have the right prior to
the end of the Lease Term to either remove such upgraded item and replace the
same with a like item of Leased Equipment of equal or better quality, design and
function as existed on the Commencement Date.
Landlord agrees that it will give to Tenant the benefit of all
warranties and guarantees they may have received or be entitled to from any of
their contractors or materialmen with respect to the Demised Premises and that
Tenant may enforce the same either in Tenant's name or in Landlord's name.
8.3 Liability of Landlord. Except if caused by Landlord's
breach of this Lease or by the negligence or willful misconduct of Landlord or
of any of its affiliates' (which shall include an affiliate of The Homestead
Company, L.C. or of Jack West), employees, agents or contractors, all property
belonging to Tenant or any occupant of the Demised Premises shall be there at
the risk of Tenant or such other occupant only, and Landlord shall not be liable
for theft or misappropriation thereof, or loss or damage to any such property
due to vandalism, water, rain, snow, frost, fire, storm or accident, or by
breakage, stoppage or leakage of water, gas, heating or sewer pipes or plumbing,
upon, about or adjacent to the Demised Premises or by any other cause.
8.4 Removal of Personal Property. Provided that Tenant has not
accepted an offer to purchase the Demised Premises and Other Assets pursuant to
the Right of First Refusal Agreement, dated of even date herewith, between
Landlord and Tenant (the "Right of First Refusal"), or has not exercised its
option to purchase the Demised Premises and Other Assets pursuant to a separate
Purchase Option Agreement by and among the parties hereto, executed of even date
herewith (the "Option Agreement"), upon the expiration or termination of this
Lease, Tenant, at its sole cost and expense, shall remove from the Demised
Premises all of Tenant's personal property and equipment. If any disfigurement
or damage results from such removal, repairs shall be made by Tenant at its
expense to restore the Demised Premises to its original condition, ordinary wear
and tear excepted.
If upon surrender to Landlord of possession of the Demised
Premises, Tenant, at its sole cost and expense, does not within ten (10) days
after Landlord's demand remove Tenant's personal property and equipment,
Landlord, at Landlord's election, shall have the right to treat
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Tenant's property as having been abandoned by Tenant to Landlord without any
payment or offset.
ARTICLE IX
SIGNS
-----
Tenant shall have the right to place upon the Demised Premises such
sign or signs as it may desire, at Tenant's sole cost and expense. All signs
shall comply with all applicable federal, state and local statutes, rules,
regulations and ordinances. Tenant shall maintain such signs in a good state of
repair and shall repair any damage to the Demised Premises caused by the
erection, maintenance or removal at the termination of this Lease of such signs.
Upon the termination of this Lease, all signs of Tenant shall be removed in
accordance with Section 8.4.
ARTICLE X
ASSIGNMENT, SUBLETTING AND SUBORDINATION
----------------------------------------
10.1 Assignment or Subletting by Tenant. Except as hereinafter
provided, Tenant shall not assign, transfer, pledge, hypothecate or encumber
this Lease or any interest herein, or sublet the Demised Premises or any part
thereof or any right or privilege appurtenant thereto, or allow any person other
than Tenant and its agents, managers, concessionaires, licensees, employees,
residents, patients and medical staff to occupy or use the Demises Premises or
any part thereof without Landlord's prior written consent, which consent shall
not be unreasonably withheld or delayed. Notwithstanding the foregoing,
Landlord's consent shall not be required for, and this Section 10.1 shall not
prohibit, (i) an assignment to a corporate parent, affiliate or subsidiary of
Tenant, or any joint venture, partnership or other entity, provided such
assignee is either Integrated Living Communities, Inc. ("ILCI") or is
"controlled" directly or indirectly by ILCI (the term "control" as used herein
shall be deemed to mean ownership of at least 50% of the outstanding voting
stock of a corporation, or other majority equity and voting interest if not a
corporation); (ii) an assignment in connection with the sale of ten percent
(10%) or more of ILCI's assets and (iii) an assignment in connection with a
merger or consolidation. Any unauthorized assignment or sublease shall be
voidable and shall constitute a breach of this Lease at Landlord's option. No
assignment of this Lease shall be binding on Landlord until (a) a duplicate
original of such assignment, duly executed by the assignor shall be delivered to
Landlord, and (b) the assignee shall execute and deliver to Landlord an
instrument in and by which the assignee shall assume and agree to perform, from
and after the effective date of the assignment, all of the terms, covenants and
conditions of this Lease on Tenant's part to be performed. At least thirty (30)
days prior to the effectiveness of any assignment as to which Landlord's consent
is required, Tenant shall deliver to Landlord a package of relevant information
concerning the assignee. For purposes of this Lease, any sale or transfer of a
controlling interest in Tenant shall be deemed an assignment of this Lease. No
assignment, sale, transfer, pledge, hypothecation or encumbrance shall relieve
Tenant of any obligation contained in this Lease. Tenant shall pay all of
Landlord's reasonable costs and expenses (not in excess of $2,500),
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including reasonable attorney's fees, incurred in connection with any
assignment, sale, transfer, pledge, hypothecation, encumbrance or sublease, for
which Landlord's consent is required.
10.2 Leasehold Mortgages. Tenant shall have the right from
time to time to pledge, hypothecate, encumber or mortgage this Lease (each
herein referred to as a "leasehold mortgage"). Landlord hereby expressly agrees
that the holder of such leasehold mortgage shall be entitled to all of the
rights, privileges and powers afforded to the holder or holders of leasehold
mortgages under this and other Articles of this Lease.
10.2.1 Notwithstanding anything to the contrary contained in
this Lease, if so requested by the holder of any
leasehold mortgage, any notice from Landlord to
Tenant shall be simultaneously delivered to such
leasehold mortgagee at his or its address, and no
notice of default or termination of this Lease given
by Landlord to Tenant shall be deemed legally
effective until and unless notice of such default and
notice of such termination shall have been given by
Landlord to such leasehold mortgagee. Such leasehold
mortgagee entitled to such notice shall have and be
subrogated to any and all rights of Tenant with
respect to any default hereunder by Tenant. Without
impairing the generality of the foregoing right of
subrogation, it is specifically agreed that any such
leasehold mortgagee shall have the right to appoint
an arbitrator, in case Tenant shall fail to make such
appointment after written notice from Landlord as
provided in Article XVI hereof (a copy of which
notice shall have been simultaneously given to such
leasehold mortgagee), and, for this purpose, shall
have an additional period of fifteen (15) days to
make such appointment, and the arbitrator so
appointed shall thereupon be recognized in all
respects as if he or she had been appointed by
Tenant.
10.2.2 Landlord will not accept any surrender, cancellation
or enter into any modification of this Lease without
the prior written consent thereto of the holder of
any leasehold mortgage who shall become entitled to
notice as provided above.
10.2.3 If, by reason of any default by Tenant, this Lease
shall be terminated at the election of Landlord prior
to the stated expiration thereof, Landlord will enter
into a new lease of the Demised Premises and the
Other Assets with such leasehold mortgagee (i.e. the
holder of a mortgage on this Lease who shall become
entitled to notice, as provided above) or its nominee
for the remainder of the term effective as of the
date of such termination, at the same Annual Rent and
upon the same terms, provisions, covenants and
agreements herein contained, subject, however, to the
rights, if any, of any parties then in possession of
any part of the Demised Premises, provided (a) said
leasehold mortgagee shall make written request upon
Landlord for such new lease within forty-five (45)
days after the date of such termination and such
written request is accompanied by payment to Landlord
of all
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sums which would then be due to Landlord under this
Lease but for the termination thereof, the amount of
which Landlord agrees to advise such leasehold
mortgagee of in writing upon request; (b) said
leasehold mortgagee pays to Landlord, at the time of
the execution and delivery of said new lease, any and
all sums and reasonable expenses, including
reasonable attorneys' fees, to which Landlord shall
have been subjected or paid by reason of such
default, the amount of which sums and expenses
Landlord agrees to advise such leasehold mortgagee of
in writing upon request, and (c) said leasehold
mortgagee shall, on or before execution and delivery
of said new lease, perform and observe all the other
covenants and conditions herein contained on Tenant's
part to be performed and observed but for such
termination to the extent that Tenant shall have
failed to perform and observe the same, Landlord
hereby agreeing to advise such leasehold mortgagee in
writing, upon request, of the covenants and
conditions which Tenant shall have failed to perform
and the extent of such failure. If during such period
of forty-five (45) days requests for such new lease
shall be made by more than one leasehold mortgagee,
then provided the provisions of this Section are
complied with, Landlord shall be required to execute
and deliver such new lease to that leasehold
mortgagee (or the nominee thereof) lowest in order of
priority of lien who (i) cures all defaults under all
prior leasehold mortgages, (ii) delivers to Landlord
certificates or letters from the holders of all prior
leasehold mortgages which certify or state that no
default then exists under such prior leasehold
mortgages and (iii) executes and delivers, at the
time of the execution of such new lease, new
mortgages to the holders of all prior leasehold
mortgages on this Lease having the same terms and
conditions, and securing the same amounts, as such
prior leasehold mortgages. Upon the execution and
delivery of such new lease, any subleases which may
have theretofore been assigned and transferred to
Landlord shall thereupon be assigned and transferred,
without recourse, by Landlord to the new tenant. Such
new lease shall have the same rights and priorities
as this Lease.
10.2.4 If Landlord shall elect to terminate this Lease by
reason of any default other than a default in the
payment of money, the then holder of any leasehold
mortgage on this Lease who shall have become entitled
to notice, as provided in this Article, shall not
only have and be subrogated to any and all rights of
Tenant with respect to curing of any default and have
the right to obtain a new lease as above provided,
but shall also have the right to postpone and extend
the specified date for the termination of this Lease,
as fixed by Landlord in a notice of termination, for
a period of not more than six (6) months (subject to
extension as provided below), provided such leasehold
mortgagee shall thereafter promptly cure all defaults
which may be cured by the payment of a sum of money
and undertake to cure any other then existing default
of Tenant and shall forthwith initiate steps to
acquire Tenant's interest in this Lease by
foreclosure of its mortgage or
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otherwise. Such right shall be exercised by such
leasehold-mortgagee's giving Landlord notice of the
exercise of the same prior to the termination date
fixed in Landlord's notice of termination. If, before
the date specified for the termination of this Lease
as extended by such leasehold-mortgagee, Tenant shall
be duly removed from possession, and if an assumption
of performances and observance of the covenants and
conditions herein contained on Tenant's part to be
performed or observed shall be delivered to Landlord
by the leasehold mortgagee, or its nominee, then and
in such event the default under this Lease shall be
deemed cured and removed; and provided, further, that
if at the end of said six (6) month period such
leasehold mortgagee shall be actively engaged in
steps to acquire Tenant's interest herein, the time
of such leasehold mortgagee to comply with the
provisions of this Article shall be extended for such
additional period or periods as shall be necessary to
complete such steps with diligence, provided that
during such extension no further default shall occur
hereunder. Any payment to be made or action to be
taken by a leasehold mortgagee under this Article as
a prerequisite in obtaining a new lease or keeping
this Lease in effect shall be deemed properly to have
been made or taken by a leasehold mortgagee if such
payment is made or action taken by a nominee or agent
of such leasehold mortgagee.
10.3 Subordination and Attornment. Landlord covenants,
represents and agrees that this Lease, as the same may be modified, amended or
renewed, shall not be subject or subordinate to any mortgage or mortgages now or
hereafter placed upon, or any other liens or encumbrances hereafter affecting,
the fee title of the Demised Premises except as otherwise expressly provided in
this Section 10.3, and that Landlord will promptly and fully pay when due all
indebtedness, and perform when required all obligations, secured by any such
mortgages or liens, and shall not commit or permit any default to occur
thereunder. In the event that for any reason whatsoever Landlord shall fail or
refuse to pay, satisfy and discharge any lien or mortgage encumbering the
Demised Premises not later than the date the same becomes due and payable,
Tenant shall have the right, but not the obligation, itself to pay, satisfy and
discharge the same, in which event (i) Tenant shall have the right to receive an
assignment of such mortgage (and the note secured thereby) and promptly
thereafter to institute foreclosure or other proceedings to enforce the same
(and the note secured thereby), it being agreed that if Tenant so acquires such
mortgage (and the note secured thereby) the same shall be deemed to be in
default by virtue of Landlord's failure to comply with the provisions of this
Section, which provisions shall be deemed for such purpose to be an agreement of
modification of such mortgage (and the note secured thereby); and (ii) any
amounts expended and expenses incurred by Tenant in paying, satisfying and
discharging such mortgage, and in bringing proceedings to foreclose or
otherwise, to enforce the same, including, without limitation, reasonable
attorneys' fees, to the extent not paid by Landlord to Tenant, together with
interest thereon at the rate per annum set forth in Section 3.1.4 hereof, shall
be deductible by Tenant, together with interest thereon at the rate aforesaid,
from the installments of Annual Rent thereafter falling due hereunder. The
rights and remedies provided for in subdivisions (i) and (ii) above shall be
cumulative and not mutually exclusive. Tenant agrees that upon request of
Landlord in writing, it will subordinate the lien of this Lease
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to the lien of any mortgage on the Demised Premises, and to all renewals,
modifications, amendments, consolidations, replacements and extensions thereof,
provided that Tenant shall be granted a subordination non-disturbance and
recognition agreement in substantially the form of Exhibit D attached hereto (a
"Subordination Agreement") from the holder(s) of such mortgage. The receipt of a
Subordination Agreement from the holder(s) of any mortgage on the Demised
Premises to which this Lease is subordinate is a condition to the commencement
of the Lease Term. Further, Tenant, as a part of any Subordination Agreement, if
requested, shall agree to attorn to the holder(s) of such mortgage or to a
purchaser at foreclosure or deed in lieu of foreclosure, in a manner reasonably
acceptable to the holder(s) of such mortgage and Tenant. Landlord may not place
any mortgage on the Demised Premises when the aggregate annual debt service on
such mortgage and all other mortgages on the Demised Premises would exceed 90%
of the Annual Rent which is then in effect or will be in effect during the term
of such mortgage, or when the aggregate principal debt secured by said mortgage
and all other mortgages on the Demised Premises would exceed 80% of the fair
market value of the Demised Premises. Landlord shall give Tenant ten (10) days
prior notice of the closing of any loan to be secured by a mortgage on the
Demised Premises.
10.3.1 If Tenant shall give Landlord any notice of a default
or breach by Landlord, Tenant agrees to give a
similar written notice to the holder(s) of record of
any fee mortgage(s) (provided Tenant has received
written notice of said mortgage(s), including the
name(s) and address(es) of the then holder(s) of such
mortgage(s), in the manner provided for in Article
XVIII hereof for the giving of notices to Tenant), by
registered or certified mail, to such holders'
respective addresses specified in the aforementioned
notice to Tenant, or to any different address which
they may designate for the purpose by notice given to
Tenant in the aforesaid manner; and such holder(s)
shall be permitted to correct or remedy such breach
or default within the same time within which Landlord
may do so, and with like effect as if Landlord had
done so. Tenant's failure to give to such holder(s)
the notice provided in this Section shall not be
deemed a default by Tenant under this Lease, but no
notice given by Tenant to Landlord of any default or
breach by Landlord shall be deemed legally effective
until Tenant shall have given such notice to the
holder(s) of the first fee mortgage at the time on
the Demised Premises (provided Tenant has received
notice of said holder(s) as provided above). In no
event shall Tenant be required to give more than one
notice, to be sent to one address, in respect of any
one mortgage pursuant to this Section.
10.3.2 In the event that any fee mortgagee comes into
possession or ownership of the title to the Demised
Premises, or acquires the interest of Landlord by
foreclosure of its mortgage) or by proceedings on the
bond or debt secured thereby, or otherwise, Tenant
agrees to attorn to such fee mortgagee as its new
landlord.
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10.4 Sale by Landlord. Landlord covenants that it will not
sell or convey any right, title or interest in the Demised Premises prior to the
first anniversary of the Commencement Date, without Tenant's prior written
consent. In any event, any sale or conveyance of the Demised Premises or any
part thereof, shall be subject to the Option Agreement and the Right of First
Refusal and shall be made subject to this Lease.
10.4.1 In the event of a sale or transfer of the Demised
Premises by Landlord, with respect to either of which
either Tenant's consent has been obtained or is not
required, the grantor or transferor shall thereafter
be entirely relieved of all obligations thereafter to
be performed by Landlord under this Lease, provided
that the purchaser or transferee on any such sale or
transfer has assumed and agreed pursuant to a written
instrument satisfactory to Tenant to perform, observe
and be bound by any and all covenants, conditions and
obligations of Landlord hereunder and under the
Option Agreement and the Right of First Refusal
arising from and after such sale or transfer and to
be subject to all of the rights of Tenant under this
Lease and the Option Agreement and the Right of First
Refusal whether arising prior to or after such sale
or transfer, including without limitation all setoff
rights, and provided further that (i) any amount then
due and payable to Tenant or for which Landlord or
the then grantor or transferor would otherwise then
be liable to Tenant shall be paid to Tenant; (ii) the
interest of the grantor or transferor in any funds
then in the hands of Landlord or the then grantor or
transferor in which Tenant has an interest shall be
turned over, subject to Tenant's interest, to the
then grantee or transferee; and (iii) notice of such
sale or transfer signed by Landlord or the then
grantor or transferor and by the then grantee or
transferee shall be delivered to Tenant together with
a true copy of the transfer document and a true copy
of the written assumption agreement.
10.5 Estoppel Certificates. Tenant, upon request by Landlord
or any prospective or actual mortgagee or purchaser of the Facility, shall
execute and deliver to Landlord within ten (10) business days, after such
request, an estoppel certificate addressed to Landlord, and if requested by
Landlord also to such mortgagee or purchaser as is identified in Landlord's
request, which estoppel certificate shall state, to the extent true, the
following facts: (a) that a Lease, as attached to the estoppel certificate, is a
true and correct copy of this Lease and that this Lease has not been modified
except as set forth in such attachment or terminated; (b) that the Annual Rent
in this Lease as so modified has not been modified; (c) that there are no
outside agreements that would affect such mortgagee or purchaser or any of their
rights under this Lease or to the Demised Premises except as otherwise noted in
the estoppel certificate; (d) that to Tenant's knowledge there are no disputes
existing as to this Lease; (e) that to Tenant's knowledge Landlord has complied
with the terms of this Lease (as so amended) to the date of the estoppel
certificate and is not in default under any of its obligations contained in this
Lease (as so amended) (or if such is not the case, specifying the nature
thereof) and Landlord has not given Tenant notice of any default which remains
uncured (or if such is not the case, specifying the nature thereof); (f) that no
Annual Rent has been paid more than thirty (30) days in advance; (g) that Tenant
has
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accepted possession of the Demised Premises; (h) the dates through which Annual
Rent has been paid; and (i) any other terms reasonably acceptable to Tenant or
reasonably required by any actual or prospective mortgagee or purchaser.
Notwithstanding the foregoing, Tenant shall not be obligated to furnish any such
estoppel certificate more often than two times during any Lease Year unless the
request for the same is being made in contemplation of the sale or mortgaging of
the Demised Premises and the prospective purchaser or mortgagee is requiring the
same.
ARTICLE XI
DEFAULT
-------
11.1 Default by Tenant. The occurrence of any one or more
of the following events shall constitute a "default" or "Event of Default" for
the purposes of this Lease:
(a) The failure of Tenant to pay any part of an
Annual Rent payment due under this Lease on or before its due date, which
failure continues for ten (10) days after the receipt of written notice from
Landlord.
(b) Any assignment, transfer or sublease of this
Lease or the Demised Premises in violation of Article X hereof.
(c) The failure to occupy the Demised Premises
on the Commencement Date or the abandonment of the Demised Premises by Tenant.
(d) The failure of Tenant to perform any
material covenant or obligation contained herein other than the payment of
Annual Rent, which failure has not been corrected by Tenant within thirty (30)
days following written notice from Landlord specifying the covenant or
obligation to be remedied, or if the correction of same reasonably requires
longer than thirty (30) days, if Tenant shall not have commenced to correct the
same within such thirty (30) day period and thereafter proceed to cure the same
in good faith, with diligence, and within a reasonable period of time.
(e) If any representation or warranty made by
Tenant under this Lease shall prove to have been false in any material respect
when made and the same has not been corrected by Tenant within thirty (30) days
following written notice from Landlord specifying the representation or warranty
in question, or if the correction of same reasonably requires longer than thirty
(30) days, if Tenant shall not have commenced to correct the same within such
thirty (30) day period and thereafter be proceeding with reasonable diligence to
correct the same.
11.2 Landlord's Rights and Remedies. Upon the happening of any
Event of Default and during the continuance thereof, Landlord, at its option,
and without further demand or notice, shall have the following rights and
remedies in addition to any rights provided by law, all of which shall be
cumulative:
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(a) Perform any covenant or obligation of Tenant
and charge the reasonable cost of the cure to the next installment or
installments of Annual Rent due.
(b) Retake possession of the Demised Premises
without terminating this Lease and relet the Demised Premises or any part
thereof to a third party. If Landlord relets the Demised Premises (either for a
term greater than, less than or equal to the unexpired portion of the Lease
Term) for an aggregate rent during the portion of such new lease which is less
than Annual Rent and other charges which Tenant would pay hereunder for such
period, Landlord may immediately upon the making of such new lease, sue for and
recover the difference between the aggregate rental provided for in said new
lease for the balance of the term coextensive with the Lease Term, and the
Annual Rent which Tenant would pay hereunder for such period, together with any
reasonable expenses to which Landlord may be put for brokerage commissions,
placing the Demised Premises in tenantable condition, and other related charges
or expenses accrued prior to the new lease or otherwise. In the event Landlord
does not collect the entire amount of the aggregate rental provided for in such
new lease, Landlord may sue for and recover the difference between the amount of
such aggregate rental actually collected and the Annual Rent which Tenant would
pay hereunder. If such new lease or tenancy is made for a shorter term than the
balance of the Lease Term, or for a greater rental, any such action brought by
Landlord to collect the deficit for that period shall not bar Landlord from
thereafter suing for any loss accruing during the balance of the unexpired Lease
Term whether or not due to expiration or termination of the new lease.
(c) Give a thirty (30) day's notice of
termination of this Lease (regardless of whether Landlord prior to the giving of
such notice shall have accepted rent or any other payment, however designated,
for the use and occupancy of the Demised Premises from or on behalf of Tenant or
from any other person) to Tenant specifying such Event or Events of Default and
stating that this Lease and the Lease Term shall expire and terminate on the
date specified in such notice, which date shall be at least ten (10) days after
the giving of such notice. In the event such notice is given, this Lease and the
Lease Term and all rights of Tenant under this Lease shall expire and terminate
upon the date specified in such notice with the same effect as if the date
specified in such notice were the date originally set forth in this Lease for
the expiration of the term, but Tenant shall remain liable as provided below.
Upon any such expiration or termination of this
Lease, Tenant shall quit and peacefully surrender the Demised Premises to
Landlord, and Landlord, upon or at any time after any such expiration or
termination, may, without further notice, enter upon and re-enter the Demised
Premises and possess and repossess itself thereof, by summary proceedings,
ejectment or otherwise, and may dispossess Tenant and remove Tenant and all
other persons and property from the Demised Premises and may have, hold and
enjoy the Demised Premises and the right to receive all rental income of and
from the same.
No such expiration or termination of this Lease,
including the re-entry of Landlord, shall relieve Tenant of its liability and
obligations to pay the Annual Rent theretofore accrued or thereafter accruing,
as more particularly set forth in paragraph (g) below, and such liability and
obligations shall survive any such expiration or termination.
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(d) Tenant knowingly and voluntarily waives any
and all rights of redemption which Tenant may now have or hereafter acquire
pursuant to statute or court decision, except for notice as provided in this
Article.
(e) The rights and remedies given to Landlord in
this Lease are distinct, separate and cumulative, and no one of them, whether or
not exercised by Landlord, shall be deemed to be in exclusion of any of the
others herein or by law or in equity provided and the exercise by Landlord of
any one or more of the rights or remedies provided for in this Lease shall not
preclude the simultaneous or later exercise by Landlord of any or all other
rights or remedies.
(f) No receipt of monies by Landlord from
Tenant, after the cancellation or termination of this Lease in any lawful
manner, shall reinstate, continue or extend the Lease Term, or affect any notice
theretofore given to Tenant or operate as a waiver of the right of Landlord to
enforce the payment of Annual Rent then due or thereafter falling due, or
operate as a waiver of the right of Landlord to recover possession of the
Demised Premises by proper suit, action, proceeding or other remedy; it being
agreed that, after the service of notice to cancel or terminate as herein
provided and the expiration of the time therein specified, after the
commencement of any suit, action, proceeding or other remedy or after a final
order or judgment for possession of the Demised Premises, Landlord may demand,
receive and collect any monies due, or thereafter falling due, without in any
manner affecting such notice, suit, action, proceeding, order or judgment; and
any and all such monies so collected shall be deemed to be payments on account
of the use and occupation of the Demised Premises, or at the election of
Landlord, on account of Tenant's liability hereunder.
(g) In the event of the termination of this
Lease as provided in this Article or by operation of law or issuance of a
dispossessory warrant or otherwise, Tenant shall remain liable under this Lease
for the payment of Annual Rent and the observance and performance of all other
covenants on its part to be performed; and Landlord shall have the right to
alter, change or remodel the improvements on the Demised Premises and to lease
or let the same, or portions thereof, or not to lease or let the same, for such
periods of time and at such rentals and for such use and upon such covenants and
conditions as Landlord may elect, applying the net rentals or avails of such
letting, if any, first to the payment of Landlord's expenses in dispossessing
Tenant and the costs or expenses of making such improvements in the Demised
Premises as may be necessary in order to enable Landlord to relet the same, and
then to the payment of any brokerage commissions or other expenses of Landlord
in connection with such reletting; and the balance, if any, shall be applied by
Landlord at least once a month, on account of the payments due or payable by
Tenant hereunder, if any, with the right reserved to Landlord to bring such
action(s) or proceeding(s) for the recovery of any deficits remaining unpaid
without being obliged to await the end of the Lease Term for a final
determination of Tenant's account, and the commencement or maintenance of any
one or more actions shall not bar Landlord from bringing other or subsequent
actions for further accruals pursuant to the provisions of this Section. Any
balance remaining, however, after full payment and liquidation of Landlord's
accounts for the remainder of the Lease Term as aforesaid, shall be paid to
Tenant with the right reserved to Landlord at any time, if it has not
theretofore terminated this Lease, to give notice to Tenant of Landlord's
election to cancel this Lease and discharge all the obligations thereunder of
either party
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to the other, and the giving of such notice and the simultaneous payment by
Landlord to Tenant of any credit balance in Tenant's favor that may at such time
be owing, shall constitute a final and effective cancellation of this Lease and
a discharge of the obligations thereof on the part of either party to the other.
Tenant agrees to pay, in addition to the rent and other sums required to be paid
hereunder, such additional sums as the court may adjudge reasonable as
attorneys' fees in any successful suit or action instituted by Landlord to
enforce the provisions of this Lease or the collections of the amounts due
Landlord hereunder. Should any rent collected by Landlord be insufficient to
fully pay to Landlord a sum equal to all Annual Rent reserved herein and other
charges payable hereunder for the remainder of the Lease Term originally
demised, the balance or deficiency shall be paid by Tenant on the rent days
herein specified, that is, upon each of such rent days Tenant shall pay to
Landlord the amount of the deficiency then existing; and Tenant shall be and
remain liable for any such deficiency, and the right of Landlord to recover from
Tenant the amount thereof, or a sum equal to all such Annual Rent and Additional
Rent and other charges payable hereunder, if there shall be no reletting, shall
survive the issuance of any dispossessory warrant or other cancellation or
termination hereof, and Landlord shall be entitled to retain any surplus; and
Tenant hereby expressly waives any defense that might be predicated upon the
issuance of such dispossessory warrant or other cancellation or termination
hereof.
(h) In any of the circumstances mentioned in
paragraph (g) of this Section in which Landlord shall have the right to hold
Tenant liable upon the several rent days as therein provided, Landlord shall
have the right to election, in place and instead of holding Tenant so liable,
forthwith to recover against Tenant as damages for loss of the bargain and not
as a penalty, in addition to any other damages becoming due, an aggregate sum
which, at the time of the termination of this Lease or of the recovery of
possession of the Demised Premises by Landlord, as the case may be, represents
the then present worth of the excess (computed by discounting such excess at the
simple rate of six (6%) percent per annum), if any, of the aggregate of Annual
Rent and all other charges payable by Tenant hereunder that would have accrued
for the balance of the Lease Term over the aggregate rental value of the Demised
Premises (such rental value to be computed on the basis of a tenant paying not
only a rent to Landlord for the use and occupation of the Demised Premises, but
also such additional rent and other charges as are required to be paid by Tenant
under the terms of this Lease) for the balance of such Lease Term.
(i) Suit or suits for the recovery of the
deficiency or damages referred to above in paragraphs (g) and (h) of this
Section, or for any installment or installments of Annual Rent hereunder, or for
a sum equal to any such installment or installments may be brought by Landlord,
from time to time at Landlord's election, and nothing in this Lease contained
shall be deemed to require Landlord to await the date whereon this Lease or the
Lease Term would have expired by limitation had there been no such default by
Tenant or no such cancellation or termination.
(j) Landlord's failure to insist on the strict
performance of and compliance with each condition in this Lease shall neither
constitute nor be construed as constituting a waiver by Landlord of Landlord's
rights under this Article or by law, nor constitute nor be construed as
consisting of a waiver by Landlord of a second or subsequent default by Tenant
of the same condition. In the event litigation is commenced, it shall not be
necessary for
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Landlord to notify Tenant of any additional occurrences of default prior to
proceeding as permitted.
(k) In the event of the termination or
expiration of this Lease, Tenant shall cooperate with Landlord in the transfer
to the subsequent operator of the Facility of all licenses and permits required
to continue to operate the Facility as an assisted living facility or a nursing
care facility, whichever was being operated at the Facility by Tenant at the
time of such termination or expiration.
11.3 Default by Landlord. If Landlord defaults in the
observance or performance of any covenant, condition or obligation in this Lease
on its part to be observed or performed, Landlord shall have thirty (30) days
after receiving written notice from Tenant stating the default complained of and
referring to the Article and Section in this Lease relied on by Tenant, to cure
or cause to be cured any such default, or if such default is not capable of
being cured within such thirty (30) days to commence to cure the same during
such thirty (30) days and thereafter proceed to cure the same in good faith,
with diligence, and within a reasonable period of time.
If Landlord fails to cure any such default or to diligently
and in good faith pursue the cure as provided for herein, or if any
representation or warranty made by or on behalf of Landlord in this Lease or in
any document or agreement delivered in connection with the transactions
contemplated by this Lease shall prove to have been false or incorrect or
breached in any material respect on the date as of which made, then Tenant may
sue Landlord for its damages, including, without limitation, such additional
sums as the court may adjudge reasonable as attorneys' fees in any successful
suit or action instituted by Tenant to enforce the provisions of this Lease, and
may further obtain injunctive relief if necessary to maintain operation of the
Demised Premises or comply with applicable legal requirements of any
governmental authority. In addition, Tenant may at its option, without waiving
any claim for damages for breach of agreement, at any time thereafter cure such
default for the account of Landlord, and any amount paid or any contractual
liability incurred by Tenant in so doing shall be deemed paid or incurred for
the account of Landlord, and Landlord agrees to reimburse Tenant therefor or
save Tenant harmless therefrom; provided that Tenant may cure any such default
as aforesaid prior to the expiration of said thirty (30) day period if
reasonably necessary to cure a default under any mortgage or encumbrance which
is a lien on the Demised Premises, or to protect the Demised Premises or
Tenant's interest therein, or to prevent injury or damage to persons or
property, or to enable Tenant to conduct its business in the Demised Premises.
If Landlord shall fail to reimburse Tenant upon demand for any amount paid for
the account of Landlord hereunder or for any other sum payable to Tenant
pursuant to this Lease, said amount plus interest thereon at the rate per annum
set forth in Section 3.1.4 hereof from the date of demand upon Landlord for
payment, may be deducted by Tenant from the next or any succeeding payments of
Annual Rent due hereunder.
11.4 Delays. Whenever this Lease requires any act (other than
the payment of a liquidated sum of money, e.g., rental payments, taxes,
utilities, or any obligation that may be satisfied by the payment of a
liquidated sum of money) by Landlord or Tenant within a certain
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period of time or by a certain time, the time for the performance of such act
shall be extended by the period of any delay caused by war, strikes, lockouts,
civil commotion, storms, weather, electrical blackouts, unpreventable material
shortages, casualties, acts of God or other conditions or events beyond the
reasonable control of the obligated party; provided, however, that written
notice of such delay and the cause and circumstances thereof shall be given to
the other party promptly after the commencement of such delay and such delay
becoming known by the obligated party.
ARTICLE XII
DAMAGE TO DEMISED PREMISES
--------------------------
12.1 Major Damage. In the event that the Demised Premises are
damaged by fire or other casualty, and the damage or loss exceeds $50,000, then
Tenant shall promptly notify Landlord in writing of such an event. If the damage
is to an extent that there is Major Damage, as hereinafter defined, it shall be
the option of Tenant to cancel this Lease by written notice to Landlord within
sixty (60) days from the date of such Major Damage.
The term "Major Damage" shall mean any damage wherein: (a) the
estimated cost of fully repairing the damage exceeds fifty percent (50%) of the
then full replacement value or (b) 25% or more of the improvements are rendered
unsuitable for occupancy or (c) the damage is caused by an event which is not
covered by the insurance policy which Tenant is required to carry pursuant to
Article XV hereof, and the estimated cost of fully repairing the damage exceeds
the net amount of insurance proceeds received by Tenant with respect thereto by
$50,000 or more. Annual Rent shall abate in accordance with Section 12.2 if
Tenant is unable to use all or any part of the Demised Premises while repairs
are being made; provided, however, that any abatement so granted shall not
exceed the amount of the proceeds actually received by Landlord under any policy
of rent insurance carried for the benefit of Landlord.
If Tenant elects to terminate this Lease pursuant to this
Section 12.1, this Lease shall terminate fifteen (15) days after the date of
notice, Tenant shall surrender possession to Landlord, and all accrued rights
under this Lease shall survive termination.
12.2 Nonmajor Damage. Any other damage to the Facility from
any casualty or risk which does not qualify as Major Damage, shall be deemed to
be nonmajor. If Tenant does not elect to terminate this Lease under the Major
Damage provision in Section 12.1, or if the damage is nonmajor, then Tenant
shall, at its sole cost and expense, repair or rebuild the Facility to
substantially the same condition as existed immediately prior to the damage, in
accordance with applicable federal, state and local statutes, laws, ordinances
and codes and sufficient to meet licensure requirements of the State of Kansas
for assisted living facilities or nursing care facilities, as the case may be
according to the actual use by Tenant. The restoration shall be commenced within
ninety (90) days after settlement shall have been made with the insurance
companies and the insurance monies shall have been turned over to the Insurance
Trustee (as hereinafter defined) or Tenant, as the case may be, as provided in
Article XV hereof and the necessary governmental
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approvals shall have been obtained, and such work shall be completed as promptly
as reasonably possible. Tenant shall also restore any damaged Leased Equipment.
The Insurance Trustee shall, provided this Lease shall then be
in full force and effect, apply the net proceeds of any insurance to the payment
of the cost of such repairing or rebuilding as the same progresses, payments to
be made against properly certified vouchers of a competent architect in charge
of the work who is selected by Tenant and approved by Landlord, which approval
shall not be unreasonably withheld or delayed. The Insurance Trustee shall
advance out of such insurance proceeds toward each payment, to be made by or on
behalf of Tenant, an amount which shall bear the same proportion to such payment
as the whole amount received by the Insurance Trustee shall bear to the total
estimated cost of the repairing or rebuilding except, however, that the
Insurance Trustee shall withhold from each amount so to be paid by it ten
percent (10%) thereof until the work of repairing or rebuilding shall have been
substantially completed, and proof furnished that no lien has attached or will
attach to the Demised Premises in connection with such repairs or rebuilding. If
the total estimated cost of the repairs or rebuilding shall exceed the amount of
the net proceeds of such insurance received by the Insurance Trustee, the
Insurance Trustee shall be entitled to require of Tenant that, before such
repairing or rebuilding be commenced, the Insurance Trustee be secured by a
surety bond or cash equal to the amount of the excess of such estimated cost
over the net insurance proceeds as security for the due completion, within a
reasonable time, of such repairs or rebuilding; and if Tenant makes a cash
deposit as aforesaid, such cash deposit shall be deemed to be part of the net
insurance proceeds for the purpose of this paragraph. The contract price fixed
in Tenant's contract with the contractor who or which will perform such
repairing or rebuilding shall be deemed to be the total estimated cost of such
repairs or rebuilding for the purposes of this paragraph. If the insurance
proceeds shall exceed the cost of such repairs or rebuilding, the balance
remaining after payment of the cost of such repairs or rebuilding shall be paid
over and belong to Tenant.
In the event Tenant is unable to use all or any part of the
Facility while Tenant repairs or rebuilds same, then the Annual Rent shall be
reduced and abated by a just, fair and equitable proportion of the Annual Rent
payable according to the size, nature and extent of the property that is
damaged, taking into account the practical and economic effect of the damage in
question on the operation of the Demised Premises; provided, however, that there
shall be no such abatement in the event Tenant has not maintained insurance in
accordance with the provisions of Section 15.3. The abatement of the Annual Rent
shall commence with the date of the damage and continue until the repairs are
substantially completed. Other obligations of Tenant under this Lease shall not
abate in any manner.
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ARTICLE XIII
LANDLORD'S REPRESENTATIONS AND WARRANTIES
-----------------------------------------
Landlord and Jack West each hereby represents and warrants to Tenant as
follows:
13.1 Organization and Standing of Landlord. Landlord is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Kansas. Copies of its articles of organization,
operating agreement and all amendments thereto to date (collectively, the
"Organizational Documents") have been delivered to Tenant, and are true,
complete and correct. Landlord has the power and authority to own the property
and assets now owned by it and to conduct the business presently being conducted
by it and as currently proposed to be conducted.
13.2 Authority. Landlord has the full, absolute and
unrestricted right, power and authority to make, execute, deliver and perform
this Lease, including all Schedules and Exhibits hereto, and the other
instruments and documents required or contemplated hereby and thereby
("Landlord's Transaction Documents"). Such execution, delivery, performance and
consummation have been duly authorized by all necessary action (partnership,
corporate, limited liability company, trust or otherwise, as the case may be) on
the part of Landlord, its managing member (as hereinafter defined) and members,
and all consents of holders of indebtedness of Landlord have been obtained.
13.3 Binding Effect. This Lease constitutes the legal, valid
and binding obligation of Landlord, enforceable against Landlord in accordance
with its terms and each of Landlord's Transaction Documents executed by Landlord
constitute the legal, valid and binding obligation of Landlord, enforceable
against Landlord in accordance with their respective terms.
13.4 Absence of Conflicting Agreements. None of the execution
or delivery of this Lease or any of Landlord Transaction Documents, the
performance by Landlord of its obligations hereunder or thereunder or the
consummation of the transactions contemplated hereby or thereby, conflicts with,
or constitutes a breach of or a default under (i) Landlord's Organizational
Documents; or (ii) any applicable law, rule, judgment, order, writ, injunction,
or decree of any court currently in effect; or (iii) any applicable rule or
regulation of any administrative agency or other governmental authority
currently in effect; or (iv) except as set forth on Schedule 13.4, any written
or oral agreement, indenture, contract or instrument to which Landlord or any
managing member thereof is now a party or by which any of them or the Demised
Premises or Other Assets are bound. Said Schedule 13.4 shall be updated to the
extent necessary on and as of the day preceding the Commencement Date.
13.5 Consents. Except as set forth on Schedule 13.5, no
authorization, consent, approval, license, exemption by filing or registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any other Person is or will be
necessary in connection with Landlord's execution, delivery and performance of
this Lease or any of Landlord Transaction Documents, or for the consummation of
the transactions
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contemplated hereby or thereby. Said Schedule 13.5 shall be updated to the
extent necessary on and as of the day preceding the Commencement Date.
13.6 Contracts.
(a) Schedule 13.6 sets forth a complete and
correct list of all agreements, contracts and commitments, whether written or
oral, relating to the Facility, its operation or the Other Assets by which
Landlord or the Demised Premises is bound (the "Contracts"). Landlord is not in
default under any Contract, except any such default that, either individually or
in the aggregate, would not have a Material Adverse Effect (as hereinafter
defined), and there has not been asserted, either by or against Landlord under
any Contract, any notice of default, set-off or claim of default which has not
been cured. To the best knowledge of Landlord, after due inquiry, none of the
other parties to the Contracts are affiliated with Landlord or are in default of
any of their respective obligations under the Contracts, and there has not
occurred any event which with the passage of time or the giving of notice (or
both) would constitute a default or breach under any Contract. All amounts
payable by Landlord under the Contracts are, or will at the Commencement Date,
be on a current basis. Except as set forth on Schedule 13.6, the Contracts are
assignable to Tenant without the consent of the remaining parties thereto and
each of the Contracts can be terminated without penalty by Landlord upon sixty
(60) or less days notice. Said Schedule 13.6 shall be updated to the extent
necessary on and as of the day preceding the Commencement Date.
(b) Except as listed on Schedule 13.6, Landlord
is not a party to or liable in connection with and has not granted any written
or express, oral or implied:
(i) contract, agreement or commitment
for the employment or retention of, or collective bargaining, severance or
termination agreement with, any employee, consultant or agent or group of
employees at the Demised Premises; or
(ii) profit sharing, thrift, bonus,
incentive, deferred compensation, stock option, stock purchase, severance pay,
pension, retirement, hospitalization, insurance or other similar plan, agreement
or arrangement covering employees at the Demised Premises.
(iii) contract, agreement or commitment
currently in effect for the sale of any of Landlord's assets, properties or
rights outside its ordinary course of business (by sale of assets, sale of
stock, merger or otherwise) or any part of the Demised Premises;
(iv) contract, agreement or arrangement
currently in effect which contains any provisions requiring Landlord to
indemnify or act for, or guarantee the obligation of, any other person or
entity;
(v) agreement restricting Landlord from
conducting business anywhere in the world;
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(vi) partnership or joint venture
agreement or similar arrangement or agreement which is likely to involve a
sharing of profits or future payments with respect to Landlord's business at the
Facility or any portion thereof;
(vii) licensing, distributor, dealer,
franchise, sales or manufacturer's representative, agency or other similar
contract, agreement, arrangement or commitment for the Facility which involves
consideration of more than $10,000; or
(viii) agreement not made in the ordinary
and normal course of business of the Facility which involves consideration of
more than $10,000.
13.7 Financial Statements. Attached hereto are Landlord's
financial statements for the Demised Premises for (a) all of the calendar years
ended on December 31, since the commencement of the occupancy and use of the
Facility, (b) the calendar quarter ended March 31, 1996, and (c) the month ended
May 31, 1996, certified as true and correct by a managing member of Landlord
(the "Financial Statements"). The Financial Statements and the monthly financial
statements to be provided pursuant to Section 17.2 hereof (including any related
notes thereto) are true and correct in all material respects and present fairly
the financial condition and results of operations of the Demised Premises as, at
and for the periods therein specified and were prepared in accordance with
generally accepted accounting principles (except for each variance therefrom
that is specifically identified thereon) applied on a basis consistent with
prior periods.
13.8 Material Changes. Except as listed on Schedule 13.8,
since December 31, 1995, there has not been any material adverse change in the
condition (financial or otherwise), of the assets, properties or operations of
the Demised Premises, or any damage or destruction of the Demised Premises by
fire or other casualty, whether or not covered by insurance, and Landlord has
operated the Demised Premises only in the ordinary course of business. Landlord
has identified and communicated to Tenant all material information with respect
to any fact or condition that might have a Material Adverse Effect. Said
Schedule 13.8 shall be updated to the extent necessary on and as of the day
preceding the Commencement Date.
13.9 Licenses; Permits. Schedule 13.9 sets forth a description
of each license and all other governmental or other regulatory permits and
approvals relating to the operation of the Demised Premises heretofore obtained
and which is presently in effect (collectively, the "Licenses"). The Licenses
constitute all of the licenses, permits, easements, rights or other
authorizations of any Governmental Body or any other Person that are necessary
for the current operation of the Demised Premises. Each License is final (the
effectiveness of each not being subject to the satisfaction of any condition
precedent), not subject to lapse, termination, revocation or expiration for
failure to meet any conditions or requirements or otherwise, including without
limitation the delivery of an unqualified certificate of need or similar
certificate or document. Landlord has delivered to Tenant copies of all of the
Licenses. Landlord owns, possesses or has the legal right to use the Licenses,
free and clear of all liens, pledges, claims or other encumbrances of any nature
whatsoever. Except as disclosed on Schedule 13.9, Landlord has not received any
notice of any claim or default or any other claim or proceeding relating to any
such License which has not been cured or any notice of any threatened
termination, lapse or revocation
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of any License. Landlord is not in default under any License except any such
default that, either individually or in the aggregate, would not have a Material
Adverse Effect. The Demised Premises are fully and completely licensed by all
appropriate authorities for Landlord to carry on the business presently
conducted at the Demised Premises. No managing member, member, employee or
former employee of Landlord, or immediate family member of any managing member
or member, of Landlord, or any other person, firm or corporation owns or has any
proprietary, financial or other interest, direct or indirect, in whole or in
part in any such License owned, possessed or used in the operation of the
Demised Premises as now operated. Said Schedule 13.9 shall be updated to the
extent necessary on and as of the day preceding the Commencement Date.
13.10 Title, Condition of Personal Property.
--------------------------------------
(a) Except for the security interests listed and
described on Schedule 13.10(a), Landlord has good title to all of the Leased
Equipment, subject to no mortgage, security interest, pledge, lien, conditional
sales agreement, lease, claim, encumbrance, easement, title exception or charge,
or restraint on transfer whatsoever (collectively, "Lien"). No other person has
any right to the use or possession of any of the Leased Equipment and, except as
set forth on Schedule 13.10(a), no currently effective financing statement with
respect to the Leased Equipment has been filed in any jurisdiction, and Landlord
has not signed any such financing statement or any security agreement
authorizing any secured party thereunder to file any such financing statement.
During the five (5) year period preceding the date hereof, Landlord has
conducted its business activities only under the corporate and/or trade name
"The Homestead at Garden City." All of the Leased Equipment is in good operating
condition and repair and is functioning in the manner and for the purpose for
which it was intended and, to the best knowledge of Landlord, after due inquiry,
is in compliance with (and the operation thereof is in compliance with) all
applicable federal, state and local laws, rules and regulations, and is
sufficient and suitable to enable Tenant to operate the Demised Premises in a
normal and efficient manner. Said Schedule 13.10(a) shall be updated to the
extent necessary on and as of the day preceding the Commencement Date.
(b) Except as set forth on Schedule 13.10(b),
none of the property used by Landlord in connection with the operation of the
Demised Premises is subject to a conditional sale, security interest or similar
arrangement. Schedule 13.10(b) sets forth a complete and correct description of
each of the Personal Property Leases relating to the Demised Premises as to
which Landlord is a party (together with all modifications or amendments
thereto), the annual rental and unexpired lease term thereby and all the
information set forth thereon is complete, correct and accurate. True, correct
and complete copies of each of said Personal Property Leases (together with all
modifications or amendments thereto) have been delivered to Tenant. All of said
Personal Property Leases are valid, binding and enforceable in accordance with
their respective terms and are in full force and effect. Landlord is not in
default under any such lease, the consequences of which, either in an individual
case or in the aggregate, would have a Material Adverse Effect, and there has
not been asserted, either by or against Landlord under any such lease, any
notice of default, set-off, or claim of default. The parties to such leases
other than Landlord are not in default of their respective obligations under any
such lease, and there has not occurred any event
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which with the passage of time or giving of notice (or both) would constitute
such a default or breach under any such lease. Except as otherwise set forth on
Schedule 13.10(b), each of said Personal Property Leases is assignable to Tenant
without the consent of the lessor of such property. Said Schedule 13.10(b) shall
be updated to the extent necessary on and as of the day preceding the
Commencement Date.
13.11 Title, Condition of the Demised Premises.
(a) Landlord has good and marketable title to
the Demised Premises, insurable by any reputable, licensed title company
selected by Tenant at regular rates, free and clear of all Liens of any kind
whatsoever, other than those set forth on 13.11(a) (the "Permitted Exceptions").
Said Schedule 13.11(a) shall be updated to the extent necessary on and as of the
day preceding the Commencement Date.
(b) There are no leases or other agreements of
Landlord, as lessor, granting any third party the right to use or occupy any
part of the Demised Premises (except the rights of the residents and patients of
the Demised Premises) and no person, firm or entity other than Tenant has any
ownership interest or option or right of first refusal to acquire any ownership
interest in the Demised Premises or any building or improvements thereon.
(c) All buildings and other improvements
comprising the Demised Premises (including all roads, parking areas, curbs,
sidewalks, sewers and other utilities) have been completed and installed in
accordance with applicable requirements of all governmental authorities having
jurisdiction thereof. Such permanent certificates of occupancy and all other
licenses, permits, authorizations and approvals required by all governmental
authorities having jurisdiction and the requisite annual fire safety and life
safety inspections as were required to be issued or conducted for the buildings
and other improvements comprising the Demised Premises, have been issued, paid
for and are in full force and effect.
(d) To the best of Landlord's knowledge, the
maintenance, operations and use of the buildings and other improvements
comprising the Demised Premises comply with and do not violate any zoning,
building or similar law, ordinance, order or regulation or any certificate of
occupancy issued for the Demised Premises; and no written notice of any failure
to comply with or violation of any federal, state, county or municipal law,
ordinance, order, regulation or requirement affecting the Demised Premises shall
have been issued by any governmental authority or agency. To the best of
Landlord's knowledge, there have been no changes to building, health or fire
codes that would be applicable to the Demised Premises; no written notice of any
changes to such building, health or fire codes have been issued by any
governmental authority or agency; and there has been no change in the use of the
Demised Premises that would have caused any modifications to have been made to
the Demised Premises pursuant to any such building, health or fire codes.
(e) To the best of Landlord's knowledge, there
is no plan, study or effort by any governmental authority or agency which in any
way affects or would affect the present use or zoning of the Demised Premises or
any part thereof; and no written notice of any
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such plan, study or effort have been issued by any governmental authority or
agency. There are no assessments, except as set forth on Schedule 13.11(e), or,
to the best of Landlord's knowledge, proposed or contemplated assessments, and
there is no existing, or, to the best of Landlord's knowledge, proposed or
contemplated plan to widen, modify or realign any street or highway, and there
is no or existing, or, to the best of Landlord's knowledge, proposed or
contemplated eminent domain proceedings that would affect the Demised Premises
in any way whatsoever. Said Schedule 13.11(e) shall be updated to the extent
necessary on and as of the day preceding the Commencement Date. No subdivision
plan or plans (preliminary or otherwise) have been, or will be filed by
Landlord, with respect to the Demised Premises. The Demised Premises are not
located in areas designated by the Secretary of Housing and Urban Development or
any other governmental authority or agency as having special flood or mud slide
hazards.
(f) The buildings and other improvements
comprising the Demised Premises and all of their systems, including without
limitation, the heating, ventilation and air condition systems, and the
plumbing, electrical, mechanical and drainage systems, and roof are in good
operating condition, repair and working order, and have passed all previous
safety and/or licensing inspections, and such systems are adequate and
sufficient for use in connection with an assisted living facility, ordinary wear
and tear expected.
(g) There is no proceeding pending to which
Landlord is a party relating to the assessed valuation of any portion of the
Demised Premises and, except as set forth on Schedule 13.11(e), no assessment
for public improvements has been made against the Demised Premises that remains
unpaid.
(h) All public utilities required for the
operation of the Demised Premises either enter the Demised Premises through
adjoining public streets, or if they pass through adjoining private land, do so
in accordance with valid recorded easements held by Landlord which run for the
benefit of the Land. The Demised Premises are adjacent to and have direct access
to each abutting street located or identified on that certain survey of the
Land, dated May 23, 1996, prepared by Matthews Land Surveys, Inc. as job no.
96-114. All streets adjoining or traversing the Demised Premises have been
dedicated to and accepted by the local municipal authorities.
(i) There are no easements traversing or
contiguous to the Demised Premises which are not disclosed on any schedule to
this Lease or on any title report delivered to Tenant, or which interfere with
the intended use and operation of the Demised Premises.
(j) All certificates of occupancy and other
authorizations issued for the Demised Premises have been set forth on Schedule
13.11(j). Landlord has not received any notice of noncompliance from any
governmental authority regarding any of the improvements constructed at the
Demised Premises or the use or occupancy thereof. Said Schedule 13.11(j) shall
be updated to the extent necessary on and as of the day preceding the
Commencement Date.
13.12 Legal Proceedings. Other than as set forth on
Schedule 13.12, there are no disputes, claims, actions, suits or proceedings,
arbitrations or investigations, either
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administrative or judicial, pending, or, to the best knowledge of Landlord,
after due inquiry, threatened or contemplated, and, to the best knowledge of
Landlord, after due inquiry, there is no basis therefor, against or affecting
the Demised Premises or Landlord's rights therein or ability to consummate the
transactions contemplated hereby, at law or in equity or otherwise, before or by
any court or governmental agency or body, domestic or foreign, or before an
arbitrator of any kind. Landlord has not received any requests for information
with respect to the transactions contemplated hereby from any governmental
agency. Said Schedule 13.12 shall be updated to the extent necessary on and as
of the day preceding the Commencement Date.
13.13 Employees. Schedule 13.13 contains a complete and
correct list of the name, position, current rate of compensation and any
vacation or holiday pay, sick pay, personal leave and any other compensation
arrangements or fringe benefits, of each current employee, consultant and agent
of Landlord (together with a description of any specific arrangements or rights
concerning such persons) which are not reflected in any agreement or document
referred to in Schedule 13.6. Except as disclosed in Schedule 13.13, Landlord
currently has no, and has never had any, pension, profit sharing, bonus,
incentive, welfare benefit, sick leave or sick pay or other plan applicable to
any of the employees of the Demised Premises. Except as disclosed in Schedule
13.13, no such employee, consultant or commission agent has any vested or
unvested retirement benefits or other termination benefits. Said Schedule 13.13
shall be updated to the extent necessary on and as of the day preceding the
Commencement Date.
13.14 Collective Bargaining, Labor Contracts, Employment
Practices, etc.
During the two (2) years prior to the Commencement Date, there
has been no material adverse change in the relationship between Landlord and its
employees nor any strike or labor disturbance by such employees affecting
Landlord's business and there is no indication that such a change, strike or
labor disturbance is likely. Landlord's employees are not represented by any
labor union or similar organization and Landlord has no reason to believe that
there are pending or threatened any activities the purpose of which is to
achieve such representation of all or some of Landlord's employees. There are no
pending suits, actions or proceedings against Landlord relating to employees of
Landlord, and Landlord does not know of any threats of strikes, work stoppages
or pending grievances by any such employees. Except as set forth on Schedule
13.6, Landlord has no collective bargaining or other labor contracts, employment
contracts, pension, profit-sharing, retirement, insurance, bonus, deferred
compensation or other employee benefit plans, agreements or arrangements with
respect to such employees. Landlord is in compliance with the requirements
prescribed by all federal, state and local statutes, orders and governmental
rules and regulations applicable to any of the employee benefit plans,
agreements and arrangements identified on Schedule 13.13, including, without
limitation, the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
13.15 ERISA. Landlord does not maintain or make contributions
to and has not at any time in the past maintained or made contributions to any
employee benefit plan which is subject to the minimum funding standards of
ERISA. Landlord does not maintain or make contributions to and has not at any
time in the past maintained or made contributions to any multi-employer plan
subject to the terms of the Multi-employer Pension Plan Amendment Act of 1980
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(the "Multi-employer Act"). For the purposes of this Lease, "Company Group
Member" shall mean Landlord, each Subsidiary of Landlord, and each of their
respective predecessors and (a) each corporation that is or was at any time a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as Landlord or any Subsidiary of Landlord or any of
their respective predecessors, (b) each trade or business, whether or not
incorporated, that is or was at any time under common control (within the
meaning of Section 414(c) of the Code) with Landlord or any Subsidiary of
Landlord or any of their respective predecessors, and (c) each trade or
business, whether or not incorporated, that is or was at any time a member of
the same affiliated service group (within the meaning of Sections 414(m) and (o)
of the Code) as Landlord or any Subsidiary of Landlord or any of their
respective predecessors; provided, however, that the term "Company Group Member"
shall not include any corporation or trade or business for any period during
which the termination or withdrawal from any employee pension benefit plan (as
defined in Section 3(2) of ERISA) by such person or trade or business could not
subject Landlord or any Subsidiary of Landlord to any liability under the Code
or ERISA. (For the purposes of this Lease, "Subsidiary" shall, with respect to
any Person, mean any corporation in which the holders of more than 50% of the
capital stock are ordinarily, in the absence of contingencies, entitled to elect
a majority of the corporate directors (or persons performing similar functions)
of such corporation and where such capital stock is at the time owned by such
Person and/or one or more of its other Subsidiaries.
13.16 Insurance. Schedule 13.16 contains a true and correct
list of: (a) all policies of fire, liability and other forms of insurance held
or owned by Landlord or otherwise in force and providing coverage for the
Demised Premises (including but not limited to medical malpractice insurance,
and any state sponsored plan or program for worker's compensation); (b) all
bonds, indemnity agreements and other agreements of suretyship made for or held
by Landlord or otherwise in force and relating to the Demised Premises,
including a brief description of the character of the bond or agreement and the
name of the surety or indemnifying party. Schedule 13.16 sets forth for each
such insurance policy the name of the insurer, the amount of coverage, the type
of insurance, the policy number, the annual premium and a brief description of
the nature of insurance included under each such policy and of any claims made
thereunder during the past two years. Such policies are owned by and payable
solely to Landlord and such policies or renewals or replacements thereof will be
outstanding and in full force and effect at the Commencement Date. All insurance
policies listed on Schedule 13.16 are in full force and effect, all premiums due
on or before the Commencement Date have been or will be paid on or before the
Commencement Date, Landlord has not been advised by any of its insurance
carriers of an intention to terminate or modify any such policies, nor has
Landlord failed to comply with any of the material conditions contained in any
such policies. Said Schedule 13.16 shall be updated to the extent necessary on
and as of the day preceding the Commencement Date.
13.17 Relationships. Except as disclosed on Schedule 13.17,
Landlord has not and no managing member or member thereof or any member of such
Person's immediate family has, or at any time within the last two (2) years has
had, a material ownership interest or claim in any business, corporate or
otherwise, that is a party to, or in any property that is the subject of,
business relationships or arrangements of any kind relating to the operation of
the Demised Premises or the operation of the Facility, by which Tenant or the
Demised Premises will be bound
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after the Commencement Date. Said Schedule 13.17 shall be updated to the extent
necessary on and as of the day preceding the Commencement Date.
13.18 Assets Comprising the Demised Premises. The Land, Leased
Equipment, Contracts, Inventory, Licenses and Other Assets (collectively, the
"Assets") listed on the Schedules to this Lease as owned by Landlord, represent
all of the real and personal property, licenses, permits and authorizations,
contracts, leases and other agreements that are necessary and material to the
use and operation of the Demised Premises as now used or operated or the
operation of the Facility.
13.19 Absence of Certain Events. Except as set forth on
Schedule 13.19, since the date of the Financial Statements, Landlord has not and
from the date of the Financial Statements to the Commencement Date Landlord will
not have (except for transactions directly with Tenant):
(a) sold, assigned or transferred any of its
assets or properties, except in the ordinary course of business consistent with
past practice;
(b) mortgaged, pledged or subjected to any lien,
pledge, mortgage, security interest, conditional sales contract or other
encumbrance of any nature whatsoever any of the Assets other than the liens, if
any, of current taxes not yet due and payable;
(c) made or suffered any amendment or
termination of any contract, commitment, instrument or agreement materially
relating to the Demised Premises;
(d) except in the ordinary course of business,
consistent with past practice, or otherwise to comply with any applicable
minimum wage law, increased the salaries or other compensation of any of its
employees at the Demised Premises, or made any increase in, or any additions to,
other benefits to which any of such employees may be entitled;
(e) discharged or satisfied any lien or
encumbrance, or paid any material liabilities, other than in the ordinary course
of business consistent with past practice, or failed to pay or discharge when
due any liabilities, the failure to pay or discharge which has caused or will
cause any actual damage or risk of loss to Landlord or the Demised Premises;
(f) changed any of the accounting principles
followed by it or the methods of applying such principles in any material
respect;
(g) made or suffered any amendment or
termination of any material contract, commitment or agreement to which it is a
party or by which it is bound, or cancelled, modified or waived any debts or
claims held by it, other than in the ordinary course of business consistent with
past practice, or waived any rights of substantial value, whether or not in the
ordinary course of business; or
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(h) entered into any material transaction other
than in the ordinary course of business consistent with past practice.
Said Schedule 13.19 shall be updated to the extent necessary on and as of the
day preceding the Commencement Date.
13.20 Compliance with Laws. Landlord has not received any
claim or notice that the Demised Premises are not in compliance with any
applicable federal, state, local or other governmental laws or ordinances, or
any applicable order, rule or regulation of any federal, state, local or other
governmental agency.
13.21 Environmental Compliance.
(a) At any time during Landlord's ownership of
the Demised Premises and, to the best of Landlord's knowledge, after due
inquiry, prior to Landlord's ownership thereof:
(i) the Demised Premises has not been
used for the disposal of any industrial refuse or waste, including but not
limited to potentially infectious waste, blood- contaminated materials, or other
wastes generated in the course of resident treatment (collectively, "Medical
Waste"), or for the processing, manufacture, storage, handling, treatment or
disposal of any hazardous or toxic substance, material or waste;
(ii) no asbestos-containing materials
have been used or disposed of in or on the Demised Premises or used in the
construction of the Demised Premises;
(iii) no machinery, equipment or fixtures
containing polychlorinated biphenyls ("PCBs") have been located on the Demised
Premises;
(iv) no storage tanks for gasoline,
petroleum, or any other substance have been located on the Demised Premises;
(v) no toxic or hazardous substances or
materials have been located on the Demised Premises, which substances or
materials, if found in or on the Demised Premises, would subject the owner or
occupant of the Demised Premises to damages, penalties, liabilities or an
obligation to remove such substances or materials under any applicable federal,
state or local law, regulation or ordinance; and
(vi) no written notice from any
governmental body has ever been served upon Landlord, or any of its agents or
representatives, or upon any prior owner of the Demised Premises, claiming any
violation of any federal, state or local law, regulation or ordinance concerning
the generation, handling, storage, or disposal of Medical Waste, or the
environmental state, condition, or quality of the Demised Premises, or requiring
or calling attention to the need for any work, repairs, or demolition, on or in
connection with the Demised
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Premises in order to comply with any law, regulation or ordinance concerning the
environmental or healthful state, condition or quality of the Demised Premises.
Schedule 13.21 lists all reports of healthcare and
environmental agencies received by Landlord during the last five (5) years from
any supervisory governmental authority with respect to the operations of the
Demised Premises. Said Schedule 13.21 shall be updated to the extent necessary
on and as of the day preceding the Commencement Date. Landlord has delivered
copies of each such report to Tenant.
(b) To the best knowledge of Landlord, after due
inquiry, at all times Landlord has complied, and is complying in all respects
with all environmental and related laws, ordinances and governmental rules and
regulations applicable to Landlord or to the Demised Premises, including, but
not limited to, the Resource Conservation and Recovery Act of 1976, as amended,
the Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended, the Federal Water Pollution Control Act, as amended by the Clean
Water Act, and subsequent amendments, the Federal Toxic Substances Control Act,
as amended, and all other federal, state and local laws, regulations and
ordinances with respect to the protection of the environment (collectively,
"Environmental Laws"). The foregoing representation and warranty applies to all
aspects of the operation of the Demised Premises, including, but not limited to,
the use, handling, treatment, storage, transportation and disposal of any
hazardous, toxic or infectious waste, material or substance (including Medical
Waste) and petroleum products, material or waste whether performed on any of
Landlord's properties or at any other location.
13.22 Tax Returns. Landlord has filed all federal, state,
county and local income, excise, real property and other tax returns and
abandoned facility reports (if any) to date that are due and required to be
filed by it, and there are no claims, liens, or judgments for taxes due from
Landlord affecting the Demised Premises or any of the Leased Equipment, and no
basis for any such claim, lien, or judgment exists.
13.23 Encumbrances Created by this Agreement. Neither the
execution and delivery of this Lease or the performance of any of the
transaction documents contemplated hereby, nor the consummation of the
transactions contemplated hereby or thereby, will create any Lien on any of the
Leased Equipment or Other Assets in favor of any Person.
13.24 Residents. The rent roll attached hereto as Schedule
13.24 is a true and complete listing, as of the date hereof, of the names of all
residents of the Demised Premises, and the information set forth thereon,
including without limitation the rental amounts payable by said residents under
their respective contracts or agreements with Landlord regarding their residency
at the Demised Premises and the length of the term of such resident contracts or
agreements, is true, correct and complete. Said Schedule 13.24 shall be updated
to the extent necessary on and as of the day preceding the Commencement Date.
13.25 Zoning. Except as set forth in Schedule 13.25, there
exists no judicial, quasi-judicial, administrative or other proceeding which
might adversely affect the validity of the current zoning of the Land and Leased
Improvements, nor to the best of Landlord's knowledge,
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after due inquiry, is there any threatened action or proceeding which could
result in the modification and termination of any such zoning. Said Schedule
13.25 shall be updated to the extent necessary on and as of the day preceding
the Commencement Date.
13.26 Leases. Schedule 13.26 contains an (a) accurate and
complete list of each lease, and all Amendments thereto, of Personal Property
(collectively, the "Personal Property Leases") to which Landlord or the Demised
Premises is a party or by which Landlord or the Demised Premises is bound or
which were assigned or transferred to Landlord in connection with the Demised
Premises and (b) a list of all contracts providing for the installation or
maintenance of equipment purchased or leased by Landlord relating to the Demised
Premises or the operation of the Facility. Said Schedule 13.26 shall be updated
to the extent necessary on and as of the day preceding the Commencement Date.
13.27 Care of Residents; Deficiencies; Licensed Bed and
Rate Schedule.
(a) Landlord has cared for the residents located
at any time at the Demised Premises in accordance with recognized standards
pertaining to assisted living facilities. Landlord does not have any agreements
with any of the residents at the Demised Premises which have been prepaid for
more than one month.
(b) Schedule 13.27(b) sets forth a true and
complete list of all violations and deficiencies found or alleged by any
governmental authority with respect to the Facility or Landlord within the past
three (3) years. All such violations and deficiencies have been fully remedied
by Landlord or withdrawn by the applicable governmental authority. No violations
or deficiencies found or alleged by any governmental authority with respect to
the Facility or Landlord (whether or not listed in Schedule 13.27 (b)) will,
individually or in the aggregate, result in any Adverse Effect or adversely
effect Tenant, or its operation of the Demised Premises after the Commencement
Date or any of the transactions contemplated hereby (including, without
limitation, any adverse effect upon any application for Tenant's operation of
the Demised Premises). Said Schedule 13.27(b) shall be updated to the extent
necessary on and as of the day preceding the Commencement Date.
(c) Schedule 13.27(c) sets forth (i) the number
of licensed assisted living beds at the Demised Premises, (ii) the current rates
charged by the Demised Premises to its residents and (iii) the number of beds or
units presently occupied in, and the occupancy percentage at, the Demised
Premises, including the current rates charged by the Demised Premises for each
such occupied bed or unit, and the information set forth thereon is complete and
correct in all material respects. Said Schedule 13.27(c) shall be updated to the
extent necessary on and as of the day preceding the Commencement Date.
13.28 Books and Records. The books and records of the Demised
Premises set forth in all material respects all transactions affecting the
Demised Premises, and such books and records have been properly kept and
maintained in a manner consistent with sound business practice and are complete
and correct in all material respects.
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13.29 Intellectual Property. Schedule 13.29 sets forth a list
of all patents, copyrights, trademarks, software and computer programs,
corporate names and other intellectual property rights, including the names
"Homestead of Garden City" and all derivations and variations thereof and any
other tradenames used in connection with the operation of the Demised Premises
(collectively, the "Intellectual Property") used by Landlord in connection with
the Demised Premises. Said Schedule 13.29 shall be updated to the extent
necessary on and as of the day preceding the Commencement Date.
13.30 No Misstatements or Omissions. None of the documents,
certificates, instruments or information furnished or to be furnished by
Landlord to Tenant or any of Tenant's representatives is or will be false or
misleading as to any material fact or omits or will omit to state a material
fact necessary to make any of the statements contained therein not misleading.
Landlord has provided to Tenant all material information related to the Leased
Equipment, the Other Assets and the Demised Premises.
13.31 Bankruptcy. No insolvency proceeding of any character,
including, without limitation, bankruptcy, receivership, reorganization,
composition or arrangement with creditors, voluntary or involuntary, affecting
Landlord (other than as a creditor) or the Demised Premises or any of the Leased
Equipment or Other Assets are pending or are being contemplated by Landlord, or
are, to the best knowledge of Landlord, after due inquiry, being threatened
against Landlord by any other person, and Landlord has not made any assignment
for the benefit of creditors or taken any action in contemplation of or which
would constitute the basis for the institution of such insolvency proceedings.
ARTICLE XIV
TENANT'S REPRESENTATIONS, WARRANTIES AND COVENANTS
--------------------------------------------------
Tenant represents and warrants to Landlord, and covenants, as follows:
14.1 Organization and Standing of Tenant. Tenant is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Copies of its Articles of Incorporation and By-laws
and all amendments thereof to date, have been delivered to Landlord, and are
complete and correct. Tenant has the power and authority to own the property and
assets now owned by it and to conduct the business presently being conducted by
it.
14.2 Authority. Tenant has the full, absolute and unrestricted
right, power and authority to make, execute, deliver and perform this Lease
including all Schedules and Exhibits hereto, and the other instruments and
documents required or contemplated hereby and thereby. Upon obtaining the
consents and approvals described in Section 19.5, such execution, delivery,
performance and consummation shall have been duly authorized by all necessary
action, corporate or otherwise, on the part of Tenant, its directors and
shareholders and all consents of holders of indebtedness of Tenant shall have
been obtained.
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14.3 Binding Effect. This Lease and all related transaction
documents executed by Tenant constitute the legal, valid and binding obligation
of Tenant, enforceable against Tenant in accordance with their respective terms.
14.4 Absence of Conflicting Agreements. Neither the execution
or delivery of this Lease or any of the transaction documents related hereto by
Tenant nor the performance by Tenant of the transactions contemplated hereby and
thereby, conflicts with, or constitutes a breach of or a default under (i)
Tenant's articles of incorporation or by-laws; or (ii) any applicable law, rule,
judgment, order, writ, injunction, or decree of any court, currently in effect;
or (iii) any applicable rule or regulation of any administrative agency or other
governmental authority currently in effect; or (iv) except as set forth on 14.4,
any written or oral agreement, indenture, contract or instrument to which Tenant
or any shareholder thereof is now a party. Said Schedule 14.4 shall be updated
to the extent necessary on and as of the day preceding the Commencement Date.
14.5 Statement of Operations. Tenant shall furnish to Landlord
a statement of operations for the Demised Premises within ninety (90) days after
the close of each fiscal year of the Demised Premises. Each statement of
operations shall include occupancy statistics and a statement of income and
expenses for the Demised Premises for the period which it covers, and shall be
certified by an officer of Tenant.
ARTICLE XV
INSURANCE, SUBROGATION AND INDEMNIFICATION
------------------------------------------
15.1 Comprehensive General Liability and Professional
Insurance to be Carried by Tenant. Tenant before occupying the Demised Premises,
at its sole cost and expense, shall cause to be issued and kept in force during
the Lease Term, a policy or policies of comprehensive general liability and
professional liability insurance, including general liability and property
damage and including contractual liability under Tenant's indemnification
obligations in this Article, by the terms of which Tenant shall be insured
against claims for bodily injury, death and property damage as a result of an
occurrence on the Demised Premises, with minimum combined single limits of One
Million Dollars ($1,000,000) per occurrence and Three Million Dollars
($3,000,000) per property, with a Two Million Dollar ($2,000,000) umbrella
policy. Landlord shall be named as an additional insured or a loss payee, as
applicable, under such policy or policies of insurance. Tenant shall remain
liable to Landlord for any deficiency should such insurance under this Section
15.1 be insufficient to satisfy the liability of Tenant under Section 15.4.
15.2 Certificate of Insurance. Tenant, at its sole cost and
expense, shall carry all insurance required by this Article XV with a
financially sound and reputable insurer qualified to do business in the State of
Kansas, and Tenant shall cause each policy of insurance procured by it and
required by this Article to be endorsed to provide that each insurer shall have
the right to change or cancel the policy only after giving every insured party
thereunder thirty (30) days prior written notice by certified mail, return
receipt requested, of the insurer's intention to cancel
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or change the policy. All insurance required to be carried by Tenant pursuant to
the terms of this Lease shall be effected under valid and enforceable policies
issued by insurers rated in Best's Insurance Guide, or any successor thereto (or
if there be none, an organization having a national reputation) as having a
general policyholder rating of not less than "B+".
At Landlord's request, Tenant, at its sole cost and expense,
before commencement of the Lease Term and upon each renewal of such insurance,
shall deliver to and deposit with Landlord certificates of insurance evidencing
each policy required by this Article. Upon request of Landlord, Tenant will
furnish or cause to be furnished to Landlord from time to time, a summary of the
insurance covering required by this Article XV in form and substance reasonably
acceptable to Landlord.
A party's obligation to carry the insurance provided herein
may be brought within the coverage of a so-called "blanket policy" or policies
of the insurance carrier maintained by such party or its affiliated business
organizations. However, the other party to this Lease must be named as an
additional insured thereunder as its interest may appear; and the requirements
set forth herein must be otherwise satisfied.
15.3 Other Coverage. Tenant, at its sole cost and expense,
shall carry and maintain throughout the Lease Term insurance for the benefit of
Landlord and Landlord's first fee mortgagee in such amount as shall be necessary
to provide coverage for loss of Annual Rent during the first twelve (12) months
during reconstruction following any damage or destruction of the Demised
Premises. Tenant, at its sole cost and expense, shall also carry and maintain
throughout the Lease Term insurance in a reasonable amount to provide coverage
for loss or damage to or from explosion of steam boilers, pressure vessels or
similar apparatus; and workers compensation and employer's liability insurance
with a limit of not less than the amount required by applicable state statute.
15.4 Indemnification of Landlord. Tenant assumes all risk and
responsibility for injury or death to persons and damage to property (damages to
the Demised Premises being waived to the extent of insurance proceeds paid to or
on behalf of Landlord) arising out of or in any way connected with or related to
Tenant's use and control of the Demised Premises (including matters relating to
Tenant's repair and/or alteration of the Demised Premises) and Tenant shall
defend, indemnify and hold harmless Landlord, its partners, officers, directors,
managing member, members and shareholders (collectively, the "Indemnified
Parties"), from and against any and all claims, losses, liabilities, actions,
proceedings and expenses (including reasonable attorneys' fees) imposed upon,
incurred by or asserted against any of the Indemnified Parties by reason of,
arising out of or in any way connected with Tenant's use or operation of the
Demised Premises or Other Assets, except to the extent such claims, losses,
liabilities, actions, proceedings and expenses (including attorneys' fees) arise
out of Landlord's negligence, willful misconduct or breach of this Lease. Tenant
shall at all times indemnify and hold harmless Landlord, its officers,
directors, managing member, members and shareholders, from and against any and
all claims, losses, liabilities, actions, proceedings and expenses (including
reasonable attorneys' fees) arising out of any inaccuracy in any representation
or breach of any warranty set forth in Article XIV hereof. The provisions of
this Section 15.4 shall survive the termination or expiration of this Lease.
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15.5 Indemnification of Tenant. Landlord and Jack West shall
at all times jointly and severally defend, indemnify and hold harmless Tenant,
its officers, directors and shareholders (collectively, the "Tenant Indemnified
Parties"), from and against any and all claims, losses, liabilities, actions,
proceedings and expenses (including reasonable attorneys' fees) imposed upon,
incurred by or asserted against any of the Tenant Indemnified Parties by reason
of, arising out of or in any way connected with Landlord's use, ownership or
operation of the Demised Premises prior to the Commencement Date, except to the
extent such claims, losses, liabilities, actions, proceedings and expenses
(including reasonable attorney's fees) arise out of Tenants' negligence, willful
misconduct or breach of this Lease. Landlord and Jack West shall at all times
jointly and severally defend, indemnify and hold harmless the Tenant Indemnified
Parties from and against any and all claims, losses, liabilities, actions,
proceedings and expenses (including reasonable attorneys' fees) arising out of
any inaccuracy in any representation or breach of any warranty set forth in
Article XIII hereof. The provisions of this Section 15.5 shall survive the
termination or expiration of this Lease.
15.6 Fire, Extended Coverage and Additional Perils Insurance.
Tenant, at its sole cost and expense, shall cause to be issued and kept in force
during the Lease Term, a policy or policies of fire, extended coverage and all
risks insurance by which Landlord and Tenant shall be insured against loss and
damage by fire, lightning, windstorm, hail and sprinkler damage, resulting from
damage to or destruction of the improvements, including equipment, fixtures,
furnishings and other personal property used in connection with the Demised
Premises and the Leased Equipment, if any, for its full replacement value
(exclusive of Land), less cost of excavation, foundation and footings, by
policies containing an agreed amount endorsement, demolition coverage (XCU
coverage) and ordinance or law coverage, such policy or policies to be written
on a replacement cost basis. Notwithstanding anything to the contrary, Landlord
shall at all times be entitled to insurance in an amount sufficient to avoid
being a coinsurer. All such insurance shall be carried in favor of Landlord and
Landlord's first fee mortgagee as their interest(s) may appear. Such insurance
may also be carried in favor of Tenant and the holder(s) of any leasehold
mortgages on this Lease, as their interests may appear; provided, however, that
any such policy shall effectively provide, if such provision be obtainable, that
Landlord's interest therein shall not be subject to cancellation by reason of
any act or omission of Tenant or any leasehold mortgagee. Notwithstanding
anything in this Lease to the contrary, all such fire and extended coverage and
other insurance policies covering damage to or destruction of buildings and
improvements on the Demised Premises shall effectively provide that any loss
payable thereunder shall be adjusted solely by Tenant and the leasehold
mortgagee(s), and that the proceeds of such insurance shall be payable to
Tenant, however, if in excess of One Hundred Thousand Dollars ($100,000), shall
be paid to and deposited with Landlord's first fee mortgagee, provided such
mortgagee is a bank, savings bank or trust company whose deposits are insured by
the FDIC, or insurance company, pension fund, credit company or real estate
investment trust, and such mortgagee has resources in excess of $100,000,000 (an
"Institutional Lender"), and if not then said proceeds shall be paid to and
deposited with any Institutional Lender of Tenant's selection, as insurance
trustee (the "Insurance Trustee"), which shall hold, apply and make available
the proceeds of such insurance as hereinafter provided in this Lease.
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15.7 Waiver of Subrogation. Each party to this Lease releases
the other party (which term as used in this Section includes the employees,
agents, officers, managing member, members and directors of the other party)
from all liability, whether for negligence or otherwise, in connection with loss
covered by any fire and/or extended coverage insurance policies, which the
releasor carries with respect to the Demised Premises, or any interest or
property therein or thereon (whether or not such insurance is required to be
carried under this Lease), but only to the extent that such loss is collected
under said fire and/or extended coverage insurance policies. Such release is
also conditioned upon the inclusion in the policy or policies of a provision
whereby any such release shall not adversely affect said policies, or prejudice
any right of the releasor to recover thereunder. Each party agrees that its
insurance policies aforesaid will include such a provision so long as the same
shall be obtainable without extra cost, or if extra cost shall be charged
therefor, so long as the party for whose benefit the clause or endorsement is
obtained shall pay such extra cost. If extra cost shall be chargeable therefor,
each party shall advise the other of the amount of the extra cost, and the other
party at its election, may pay the same, but shall not be obligated to do so.
ARTICLE XVI
ARBITRATION
-----------
If any controversy should arise between the parties in the performance,
interpretation or application of this Lease involving any matter, either party
may serve upon the other a written notice stating that such party desires to
have the controversy resolved by an arbitrator. If the parties cannot agree
within fifteen (15) days from the service of such notice upon the selection of
such arbitrator, an arbitrator shall be selected or designated by the American
Arbitration Association upon written request of either party hereto. Arbitration
of such controversy, disagreement, or dispute shall be conducted in accordance
with the Commercial Arbitration Rules then in force of the American Arbitration
Association and the decision and award of the arbitrator so selected shall be
binding upon Landlord and Tenant. The arbitration will be held in Dallas, Texas.
As a condition precedent to the appointment of any arbitrator, in any
non-monetary dispute, both parties shall be required to make a good faith effort
to resolve the controversy, which effort shall continue for a period of thirty
(30) days prior to any demand for arbitration. The cost of any such arbitration
shall be shared equally by the parties. Each party shall pay its own costs
incurred as a result of its participation in any such arbitration.
If the issue to be arbitrated is Landlord's or Tenant's alleged breach
of this Lease and as a result thereof, Landlord or Tenant has the right to
terminate this Lease, Tenant shall continue to lease the Demised Premises
pending the outcome of such arbitration, provided Landlord or Tenant may elect
to proceed without arbitration under its other remedies in this Lease.
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ARTICLE XVII
CERTAIN COVENANTS OF LANDLORD
-----------------------------
17.1 Covenant Not-To-Compete.
(a) For a period of five (5) years from and
after the Commencement Date neither Landlord nor any corporation, partnership or
other business entity or person controlling, controlled by or under common
control with Landlord ("Restricted Party"), shall, directly or indirectly,
operate, manage, own, control, finance or provide financing for, be a consultant
for or enter into a service contract with, any nursing home, hospital or
licensed health care facility or other person or entity of any type, licensed or
unlicensed, existing or to be constructed that provides assisted living care,
nursing home care or any other senior housing, or any entity existing or to be
formed that competes in any way with the Demised Premises (any such person or
entity being herein referred to as an "Operator"), that provides nursing home
care, assisted living care or senior housing, and which facility is located
within twenty-five (25) miles from the exterior boundaries of the Land.
(b) From and after the Commencement Date, no
Restricted Party shall disclose, directly or indirectly, to any person outside
of Tenant's employ without the express authorization of Tenant, any resident
lists, pricing strategies, resident files and records, proprietary data or trade
secrets relating to the Demised Premises or any financial or other information
about the Demised Premises not then in the public domain.
(c) For a period of five (5) years from and
after the Commencement Date, no Restricted Party shall solicit any of the
physicians, customers, vendors, suppliers, associates, employees, independent
contractors, residents or families of residents admitted to, or employed at the
Demised Premises prior to the Commencement Date, or by the Facility or by
Tenant, to take any action or to refrain from taking any action or inaction that
would be disadvantageous to Tenant or the Facility, including (but not limited
to) the solicitation of their respective physicians, suppliers, customers,
vendors, associates, employees, independent contractors, residents or families
of residents to cease doing business, or their association or employment with
the Facility or Tenant.
(d) The Restricted Parties acknowledge that the
restrictions contained in this Section 17.1 are reasonable and necessary to
protect the legitimate business interests of Tenant and that any violation
thereof by any of them would result in irreparable harm to Tenant. Accordingly,
the Restricted Parties agree that upon the violation by any of them of any of
the restrictions contained in this Section 17.1, Tenant shall be entitled to
obtain from any court of competent jurisdiction a preliminary and permanent
injunction as well as any other relief provided at law, equity, under this Lease
or otherwise. In the event any of the foregoing restrictions are adjudged
unreasonable in any proceeding, then the parties agree that the period of time
or the scope of such restrictions (or both) shall be adjusted to such a manner
or for such a time (or both) as is adjudged to be reasonable.
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Notwithstanding the foregoing, for purposes of this
Section 17.1, any advertisement prepared for and disseminated to the public in
general, which advertises the services of any facility of Landlord not otherwise
in violation of this Section 17.1 or advertises the need for services to be
supplied to such a Demised Premises, shall not be deemed to be an inducement or
solicitation with respect to any such residents, physicians, suppliers or
independent contractors.
17.2 Pre-Commencement Date Financial Statements. From the date
hereof through the Commencement Date, Landlord shall provide Tenant, within
thirty (30) days after the end of each month, with monthly financial statements
of the Demised Premises, certified by a managing member of Landlord and prepared
in accordance with generally accepted accounting principles consistently
applied.
ARTICLE XVIII
MISCELLANEOUS PROVISIONS
------------------------
18.1 Notices. All notices, requests, demand or other
communications required or permitted under this Lease shall be in writing and
shall be either personally delivered evidenced by a signed receipt, transmitted
by United States certified mail, return receipt requested, postage prepaid, or
by a nationally recognized overnight delivery service, addressed as follows:
If to Landlord: c/o The Homestead Company, L.C.
155 North Market, Suite 910
Wichita, Kansas 67202
Attention: Mr. Jack West
Copy to: Foulston & Siefkin, L.L.P.
700 Fourth Financial Center
Wichita, Kansas 67202
Attention: Gary E. Knight, Esq.
If to Tenant: c/o Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Mr. Ed Komp
Copies to: Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Marshall A. Elkins, Esq.
and
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Blass & Driggs
461 Fifth Avenue
New York, New York 10017
Attention: Michael S. Blass, Esq.
All notices, requests, demands and other communications shall
be effective (i) upon personal delivery evidenced by a signed receipt, (ii) upon
five (5) calendar days after being deposited in the United States mail or (iii)
on the next business day following timely deposit with a nationally recognized
overnight delivery service, whichever occurs first. The time period in which a
response to any such notice, request, demand or other communication must be
given, however, shall commence to run from (i) the date of personal delivery
evidenced by a signed receipt, (ii) the date of receipt on the return receipt of
the notice, request, demand or other communication; provided, however, that if a
party refuses delivery of any such notice, request, demand or other
communication sent by certified mail, or fails or neglects, without reasonable
cause, to accept delivery after three (3) attempts to so deliver by postal
authorities, it shall be deemed received on the date of its last being deposited
in the United States mail, or (iii) the date of delivery by a nationally
recognized overnight delivery service. The parties hereto shall have the right,
at any time and from time to time during the Lease Term to change their
respective addresses for notices by giving the other party hereto written notice
thereof.
18.2 Understanding and Agreements. This Lease constitutes the
entire understanding and agreements of whatsoever nature or kind existing
between the parties with respect to Tenant's lease of the Demised Premises and
Other Assets from Landlord.
18.3 Amendment. This Lease may be amended at any time and from
time to time; provided, however, that no amendment to this Lease shall be
legally enforceable against Landlord or Tenant unless it is in writing, executed
and acknowledged by both Landlord and Tenant.
18.4 Construction. This Lease shall be construed in
accordance with the laws of the State of Kansas.
18.5 Specific Performance. Landlord and Tenant for themselves
and for each person, business organization, association and corporation claiming
by, under or through either Landlord or Tenant, stipulate that both Landlord and
Tenant shall have the remedy of specific performance against the other.
Landlord and Tenant, for themselves and for each person,
business organization, association and corporation claiming by, under or through
either Landlord or Tenant, knowingly and voluntarily waive their rights to
allege or assert in or in any and all claims or counts for specific performance
arising out of or in any way connected with this Lease the defense that the
other party has an adequate remedy at law.
18.6 Binding Effect on Successors. Except as otherwise
provided for herein, Landlord and Tenant expressly agree that, subject to the
terms of this Lease, all terms and
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conditions of this Lease shall extend to and be binding upon or inure to the
benefit of the heirs, executors, administrators, personal representative,
assigns and successors in interest of both the respective parties hereto.
18.7 Lease (Short Form). Landlord and Tenant shall execute and
deliver to each other an instrument, recordable in form setting forth the term
and such other information (other than rent) as may be necessary to constitute a
"short form lease" for recording purposes immediately upon execution of this
Lease. Any party, at its expense, shall have the right to record such short form
lease for the purpose of giving notice of Tenant's interest in the Demised
Premises. This Lease shall not be recorded.
18.8 Reading and Receipt of this Lease. Landlord and Tenant
stipulate that each has read and understands the conditions in this Lease and by
their respective signatures below acknowledge the receipt of an executed copy of
this Lease.
18.9 Prohibition of Mechanics Liens. Nothing in this Lease
shall be deemed or construed in any way as constituting the consent or request
of Landlord, expressed or implied, by inference or otherwise, to any contractor,
subcontractor, laborer, or materialman for the performance of any labor or the
furnishing of any materials for any specific improvements, alteration to, or
repair of the Demised Premises or any part thereof, nor as giving Tenant any
right, power, or authority to contract for or permit the rendering of any
services or the furnishing of any materials that would give rise to the filing
of any lien against the Demised Premises or any part thereof.
18.10 Brokerage or Agents Fees. Landlord and Tenant represent
to each other that it has dealt with no broker in connection with this Lease or
the transactions contemplated hereby other than Southwest Retirement Properties
(the "Broker"), and Tenant shall pay any compensation, commissions or fees
earned by the Broker. Except for the fees payable to the Broker in connection
with this transaction, which fees are the sole responsibility of Tenant, each
party agrees to indemnify and hold the other harmless, including reasonable
attorney's fees, from all claims or actions brought by any broker or agent
claiming to represent the indemnifying party in this transaction for fees or
commissions.
18.11 Captions and Indexes. Article or Section titles,
captions or indexes, contained in this Lease are inserted only as a matter of
convenience and reference, and in no way define, limit, extend or describe the
scope of this Lease, or the intent of any provision hereof.
18.12 Pronouns. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or persons may require.
18.13 Drafting of this Lease. Landlord and Tenant have been
represented by attorneys in the negotiation and drafting of this Lease and all
of the parties to this Lease have influenced the language of this Lease.
Therefore, this Lease shall not be construed against any party to this Lease by
reason of drafting authorship.
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18.14 Counterparts. This Lease may be executed in several
counterparts, each of which shall be deemed an original, and all of which shall
together constitute one and the same instrument.
18.15 Quiet Enjoyment. Landlord covenants that Tenant, paying
the said rental and performing the covenants and conditions in this Lease
contained, shall and may peaceably and quietly have, hold and enjoy the Demised
Premises and all rights of Tenant hereunder for the Lease Term, without any
manner of hindrance or molestation whatsoever from anyone claiming by, through
or under Landlord.
ARTICLE XIX
CONDITIONS PRECEDENT TO LEASE COMMENCEMENT
------------------------------------------
Unless waived by Tenant in writing, neither the Lease Term nor Tenant's
obligations under this Lease shall commence unless and until each and every one
of the following conditions has been satisfied or fulfilled.
19.1 Representations and Warranties.
Each of the representations and warranties contained
in this Lease and on any Schedule (as originally annexed to this Lease), list,
certificate or other document delivered pursuant to the provisions hereto or in
any other document or instrument delivered in connection herewith made by or on
behalf of Landlord and/or Jack West shall be true and correct in all material
respects at and as of the time made and on and as of the Commencement Date as
though such representations and warranties were made at and as of such time,
except to the extent affected by the transactions herein contemplated.
19.2 Performance of Covenants; No Default.
Landlord shall have performed or complied in all
material respects with each of its agreements and covenants under this Lease and
under all documents and instruments delivered in connection herewith required to
be performed or complied with by it prior to or at the Commencement Date of the
Lease Term. No default shall exist nor any condition or event that, constitutes
a "default" (as defined in Article XI of this Lease), or, with notice or lapse
of time or both, would constitute a default on the part of Landlord.
19.3 Delivery of Certificate.
Landlord shall have executed and delivered to Tenant
a certificate signed by a duly authorized managing member of Landlord dated the
Commencement Date upon which Tenant may rely, certifying that the statements
made in Sections 19.1 and 19.2, are true, correct and complete as of the
Commencement Date.
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<PAGE>
19.4 Legal Matters. No suit, action, investigation, or legal
or administrative proceeding shall have been brought or shall have been
threatened by any person that questions the validity or legality of this Lease
or the transactions contemplated hereby.
19.5 Approvals.
(a) The consent or approval of all persons
necessary for the consummation of the transactions contemplated hereby
including, without limitation, all governmental, regulatory and other such
agencies, shall have been granted, including without limitation, the consents
and approvals set forth on Schedule 13.5 and any tax clearance or similar
approval and all licenses, certificates of need and other permits (including
without limitation the "Licenses") necessary for Tenant to lease and operate the
Facility shall have been issued, in Tenant's name, and the effectiveness of each
of the same shall not be subject to the satisfaction of any conditions pecedent;
(b) The consent of the Board of Directors of
Tenant; and
(c) None of the foregoing consents or approvals
(i) shall have been conditioned upon the modification, cancellation or
termination of any material lease, contract, commitment, agreement, license,
easement, right or other authorization with respect to the Facility, or (ii)
shall impose on Tenant any material condition or provision or requirement with
respect to the Facility or its operation that is more restrictive than or
different from the conditions imposed upon such operation prior to the
commencement of this Lease.
19.6 Material Adverse Change. Since the date of this Lease
there shall not have been any material adverse change to (a) the assets,
business, operations, properties, condition (financial or otherwise) or
reasonably foreseeable prospects of Landlord, (b) the ability of Landlord to
perform all or any part of its obligations under this Lease or any document or
agreement contemplated hereby, (c) the Demised Premises or Other Assets or (d)
the operation of the Facility.
19.7 Authorization Documents. Tenant shall have received
appropriate authorizing documents and the Organizational Documents with respect
to Landlord, certified in a manner reasonably acceptable to Tenant including
without limitation, a certificate of the "managing member" (as defined in the
Organizational Documents) of Landlord certifying the authorization of Landlord's
execution and full performance of each of this Lease and all documents and
agreements executed by Landlord in connection herewith, the Organizational
Documents of Landlord and the incumbency of the managing member of Landlord.
19.8 COBRA. Landlord shall have, and shall have caused all
concerned benefits plan administrators to have, given all notices, made all
offers, paid and collected all premiums, obtained all group health plan
coverage, and performed all other actions mandated by Title X of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), and which is
required to be given, made, paid, obtained, and performed as a result of the
commencement of the Term under this Lease. Any amounts under COBRA or similar
state or federal law or regulation which
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<PAGE>
becomes a liability to Tenant after commencement of this Lease but which relates
to any period of time in which Landlord had possession of the Facility shall be
paid by Landlord upon demand after the commencement of this Lease.
19.9 Environmental Compliance. Tenant shall have received, at
its own expense, a written report in form and substance acceptable to Tenant,
from a qualified geotechnical or engineering firm of Tenant's choice, concerning
the presence of hazardous substances, asbestos or asbestos-containing products,
radon and/or ureaformaldehyde insulation on or in the Facility. Such report
shall disclose at a minimum: (1) the results of a review of prior uses of the
Land disclosed by local public records; (2) contacts with local officials to
determine whether any records exist with respect to the disposal of hazardous
substances at the Land; (3) if deemed necessary by such engineering or
geotechnical firm, or by Tenant, soil samples and groundwater samples consistent
with good engineering practice; and (4) evaluation of the surrounding areas for
sensitive environmental receptors, such as drinking water wells or aquifers,
hospitals and schools.
"Hazardous Substance" shall include (a) any material that may
be dangerous to health or the environment, either separately or in combination
with any other substance, when improperly stored, treated, disposed, or
otherwise managed, including without limitation "hazardous waste," "hazardous
substances" or "toxic substances," or any other contamination, emission,
discharge, spill, or release having an adverse effect on the environment (as
such concepts or terms are used and/or defined in any of the Environmental
Laws); and (b) crude or refined oil, including but not limited to waste oil.
19.10 Facility Purchase Option. Landlord shall have
executed and delivered the Option Agreement in substantially the form of Exhibit
C attached hereto.
19.11 Non-Disturbance Agreement. Tenant shall be granted a
Subordination Agreement with respect to this Lease from the holder(s) of each
mortgage which is a lien on the Demised Premises on the date of this Lease.
ARTICLE XX
CERTAIN ADDITIONAL OBLIGATIONS OF LANDLORD
------------------------------------------
20.1 Discharge of Liabilities. Landlord shall pay all of its
liabilities and obligations which arise or accrue on or before the Commencement
Date with respect to the Facility, as and when the same shall become due and
payable.
20.2 Accounts Receivable. Any payments received by Tenant from
third party payors or private pay patients which clearly indicate they are for
services rendered prior to the Commencement Date will be transferred to Landlord
promptly after receipt thereof by Tenant. Any payments made by such payors or
patients and earmarked or itemized to or which otherwise indicate that they are
for services rendered after the Commencement Date shall be retained by Tenant.
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<PAGE>
20.3 Employment of Existing Employees. Landlord will terminate
all of its employees as of the day immediately preceding the Commencement Date.
Tenant shall have the right, but not the obligation, to hire any or all of such
employees as of or at any time after the Commencement Date. In accordance with
Sections 3.2(a) and 20.1 hereof, Landlord shall compensate each of its employees
at the Facility for all services performed up to the Commencement Date,
including, without limitation, all fringe benefits and any severance payments.
20.4 Audited Financial Statements. Notwithstanding the level
of review of the Facility's financial statements, Landlord shall cooperate with
Tenant and its certified public accountants, if Tenant deems it necessary or
desirable, to assist in the audit of the balance sheets and statements of income
and changes in financial position of the Facility from the date that the
Facility was first occupied and opened for business. Such audits shall be
conducted at Tenant's expense.
At Tenant's request, Landlord shall cooperate with all
reasonable requests of Tenant and its auditors necessary to audit all previously
unaudited periods for the purposes of enabling Tenant or its affiliate to make a
public offering of its securities under the Securities Act of 1933, as amended
(the "Securities Act"), and shall permit such financial statements to be
included in Tenant's and/or its affiliate's registration statement filed with
the Securities Exchange Commission under the Securities Act and Tenant's and/or
its affiliates' prospectus used in connection with such offering. All fees and
expenses incurred in compiling the foregoing shall be borne by Tenant.
20.5 Licenses. Landlord shall use its best efforts to deliver
to Tenant not later than ten (10) days from execution hereof copies of each of
the Licenses and of each of the applications therefor.
20.6 Collective Bargaining, Labor Contracts, etc. Between the
date hereof and the Commencement Date, Landlord shall not enter into any
contract or agreement (or negotiations in connection therewith) with any union
or other collective bargaining representative representing any employees at the
Demised Premises without the prior written consent of Tenant.
20.7 Contracts and Personal Property Leases. Landlord shall
deliver to Tenant true, correct and complete copies of all of the Contracts and
Personal Property Leases no later than ten (10) days from execution hereof.
Landlord shall terminate as of the Commencement Date any and all of such
Contracts and/or Personal Property Leases, other than Contracts and/or Personal
Property Lease, if any, as shall be designated by Tenant in writing, as the
Contracts and/or Personal Property Leases which Tenant wants assigned to it as
of the Commencement Date.
20.8 Demised Premises. All public improvements ordered,
commenced or completed prior to the date of this Lease or prior to the
Commencement Date shall be paid for in full by Landlord prior to the
Commencement Date; provided, that if the same are payable in installments,
Landlord shall pay all installments that are due and payable prior to the
Commencement Date and Tenant shall pay all installments that are due and payable
on or after the Commencement Date.
20.9 Delivery of Notices. Between the date hereof and the
Commencement Date, and during the Lease Term, Landlord shall, within five (5)
days after its receipt of any of the
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<PAGE>
following, deliver to Tenant copies of (a) all notices of any claim or default
or any other claim or proceeding relating to any License and all notices of any
threatened termination, lapse or revocation of any License, (b) all claims or
notices that the Demised Premises, or any part thereof, are not in compliance
with any applicable federal, state, local or other governmental laws or
ordinances, or any applicable order, rule or regulation of any federal, state,
local or other governmental agency, and (c) all notices or claims of any
violation of any federal, state or local law, regulation or ordinance concerning
the generation, handling, storage, or disposal of Medical Waste, or the
environmental state, condition, or quality of the Demised Premises, or requiring
or calling attention to the need for any work, repairs, or demolition, on or in
connection with the Demised Premises in order to comply with any law, regulation
or ordinance concerning the environmental or healthful state, condition or
quality of the Demised Premises.
ARTICLE XXI
EXTENSION OF COMMENCEMENT DATE AND TERMINATION
----------------------------------------------
21.1 Termination. Without limiting any of the rights of
Tenant in this Lease or as it may be otherwise lawfully entitled, it is agreed
that the commencement of the Lease Term is conditioned upon, and shall be
subject to, the satisfaction of all conditions precedent to Tenant's obligations
hereunder, including, without limitation, those conditions set forth in Article
XIX hereof, the verification by Tenant of the accuracy of all of Landlord's and
Jack West's warranties and representations made herein and the due compliance by
Landlord of all of its agreements set forth herein and elsewhere in this Lease
which are to be performed prior to the Commencement Date. If, on or before the
Commencement Date, Tenant, in its sole judgment, shall determine that any of
said conditions precedent have not been satisfied, or that Landlord's or any of
Jack West's representations or warranties are untrue or that Landlord has not
complied with any of said agreements, then the Tenant may elect to either (i)
extend the Commencement Date for a period or periods not in excess of ninety
(90) days in the aggregate, during which time Landlord shall use its best
efforts to satisfy the condition, complete its required performance and
otherwise cure the defect or non-compliance; or (ii) terminate this Lease, by
notice to Landlord. If at the end of any extended period or periods for the
Commencement Date said defect or non-compliance has not been cured to Tenant's
reasonable satisfaction, Tenant may terminate this Lease by notice to Landlord.
If this Lease is terminated, as aforesaid, Landlord shall cause any deposits,
prepayments or other sums theretofore delivered or paid by Tenant hereunder to
be refunded to Tenant, with all interest earned thereon, and Landlord shall pay
up to $15,000 of the cost of any survey obtained, any title search made, any
insurance commitment issued by Tenant's title insurance company, and any other
expenses, including but not limited to legal fees, incurred by Tenant, in
connection with this Lease.
21.2 Tenant's Remedies. If Landlord fails to comply with any
of the provisions of this Lease then, in addition to all other legal remedies
available to Tenant by reason of Landlord's default, Tenant shall have the right
to obtain specific performance of Landlord's obligations hereunder. Each and
every covenant, representation and warranty of Landlord and Jack West made
herein shall survive and continue after the Commencement Date. Nothing contained
herein shall be deemed to restrict or limit Tenant in any way from offsetting
against or deducting from any Annual Rent or other payments to be made to
Landlord herein, the amount
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<PAGE>
of any costs or damages incurred by Tenant as a result of or arising out of the
breach by Landlord of any covenant, agreement, representation or warranty made
by Landlord or Jack West in this Lease; provided that the amount to be offset
against or deducted from any particular payment shall not exceed ten (10%)
percent of such payment, with the balance of any such amount to be offset
against or deducted from subsequent payments subject to such cap and carry
forward provisions.
ARTICLE XXII
GLOSSARY AND ADDITIONAL DEFINED TERMS
-------------------------------------
Whenever used in this Lease the following terms shall have the
respective meanings ascribed to them below:
"Annual Rent" shall have the meaning set forth in Section 3.1.1.
"Assets" shall have the meaning set forth in Section 13.18.
"Broker" shall have the meaning set forth in Section 18.10.
"Capital Expenditures" shall have the meaning set forth in Section 8.1.4.
"Capital Improvement" shall have the meaning set forth in Section 8.1.4.
"Commencement Date" shall have the meaning set forth in Section 2.1.
"Company Group Member" shall have the meaning set forth in Section 13.15.
"Contracts" shall have the meaning set forth in Section 13.6.
"default" shall have the meaning set forth in Section 11.1.
"Demised Premises" shall have the meaning set forth in Section 1.1.
"ERISA" shall have the meaning set forth in Section 13.14.
"Event of Default" shall have the meaning set forth in Section 11.1.
"Environmental Laws" shall have the meaning set forth in Section 13.21(b).
"Facility" - first page
"Financial Statements" shall have the meaning set forth in Section 13.7.
"Fixtures" shall have the meaning set forth in Section 1.1(d).
"GAP" shall have the meaning set forth in Section 8.1.4.
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<PAGE>
"ILCI" shall have the meaning set forth in Section 10.1.
"Impositions" shall have the meaning set forth in Section 5.1.
"Indemnified Parties" shall have the meaning set forth in Section 15.4.
"Initial Term" shall have the meaning set forth in Section 2.1.
"Institutional Lender" shall have the meaning set forth in Section 15.6.
"Insurance Trustee" shall have the meaning set forth in Section 15.6.
"Intangibles" shall have the meaning set forth in Section 1.2(b).
"Intellectual Property" shall have the meaning set forth in Section 13.29.
"Inventory" shall have the meaning set forth in Section 1.2(a).
"Land" shall have the meaning set forth in Section 1.1(a).
"Landlord's Share" shall have the meaning set forth in Section 8.1.4.
"Landlord's Transaction Documents" shall have the meaning set forth in
Section 13.2.
"Leased Equipment" shall have the meaning set forth in Section 4.2.
"Leased Improvements" shall have the meaning set forth in Section 1.1(b).
"Lease Term" shall have the meaning set forth in Section 2.3.
"Lease Year" shall have the meaning set forth in Section 2.4.
"leasehold mortgage" shall have the meaning set forth in Section 10.2.
"Licenses" shall have the meaning set forth in Section 13.9.
"Lien" shall have the meaning set forth in Section 13.10(a).
"Major Capital Expenditure" shall have the meaning set forth
in paragraph after Section 8.1.4.
"Major Damage" shall have the meaning set forth in paragraph
after Section 12.1.
"Material Adverse Effect" shall mean, with respect to any
Person, any material adverse effect upon, as the case may be, (a) the assets,
business, operations, properties, condition (financial or otherwise) or
reasonably foreseeable prospects of Landlord, (b) the ability of Landlord
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<PAGE>
to perform all or any part of its obligations under this Lease or any document
or agreement contemplated hereby, (c) the Demised Premises or Other Assets, or
(d) the operation of the Facility.
"Medical Waste" shall have the meaning set forth in Section 13.21(a)(i).
"Money Rates Column" shall have the meaning set forth in Section 3.1.4.
"Multi -employer Act" shall have the meaning set forth in Section 13.15.
"Operator" shall have the meaning set forth in Section 17.1(a).
"Option Agreement" shall have the meaning set forth in Section 8.4.
"Other Assets" shall have the meaning set forth in Section 1.2.
"PCBs" shall have the meaning set forth in Section 13.21(a)(iii).
"Permitted Exceptions" shall have the meaning set forth in Section
13.11(a).
"Person" or "person" shall include (without limitation) any manner of
association, business trust, company, corporation, limited liability company,
estate, governmental or other authority, joint venture, natural person,
partnership, limited liability partnership, trust or other entity.
"Personal Property" shall have the meaning set forth in Section 1.1(e).
"Personal Property Leases" shall have the meaning set forth in Section
13.26.
"Price Index" shall have the meaning set forth in Section 8.1.1.2(i).
"Prepayments" shall have the meaning set forth in Section 3.2(b).
"Prime Rate" shall have the meaning set forth in Section 3.1.4.
"Proper Successor" shall have the meaning set forth in Section 4.4.
"Related Rights" shall have the meaning set forth in Section 1.1(c).
"Renewal Term" shall have the meaning set forth in Section 2.2.
"Repairs" shall have the meaning set forth in Section 8.1.1.
"Restricted Party" shall have the meaning set forth in Section 17.1(a).
"Right of First Refusal" shall have the meaning set forth in Section 8.4.
"Securities Act" shall have the meaning set forth in Section 20.4.
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<PAGE>
"Subordination Agreement" shall have the meaning set forth in Section
10.3.
"Subsidiary" shall have the meaning set forth in Section 13.15.
"Tenant Indemnified Parties" shall have the meaning set forth in Section
15.5.
"Tenant's Share" shall have the meaning set forth in Section 8.1.4.
"Trade Rights" shall have the meaning set forth in Section 1.2(c).
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be duly
executed as a sealed instrument on the day and year first above written.
LANDLORD:
THE HOMESTEAD OF GARDEN CITY, L.C.
Attest: By:
------------------------- ---------------------------------------
Name: Name:
Title: Title:
TENANT:
INTEGRATED LIVING COMMUNITIES
AT GARDEN CITY, INC.
Attest: By:
------------------------- ---------------------------------------
Name: Name:
Title: Title:
AS TO SECTIONS AND PROVISIONS
SPECIFICALLY IDENTIFYING JACK WEST:
- --------------------------
JACK WEST
- 61 -
<PAGE>
ACKNOWLEDGMENTS
---------------
STATE OF KANSAS )
) SS:
)
COUNTY OF
---------------------------
This Lease was acknowledged before me on June , 1996, by
--
, as of The Homestead of Garden City, L.C.,
- ------------------ -------------------
a Kansas limited liability company.
----------------------------------
Notary Public
My appointment expires:
-----------------------
STATE OF MARYLAND )
) SS:
)
COUNTY OF
--------------------------
This Lease was acknowledged before me on June , 1996, by
--
, as of Integrated Living
- ----------------- ----------------------------------
Communities at Garden City, Inc., a Delaware corporation.
----------------------------------
Notary Public
My appointment expires:
-----------------------
STATE OF KANSAS )
) SS:
)
COUNTY OF
--------------------------
This Lease was acknowledged before me on June , 1996, by
--
Jack West.
----------------------------------
Notary Public
My appointment expires:
-----------------------
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<PAGE>
GUARANTY OF LEASE
-----------------
FOR VALUE RECEIVED, and in consideration for THE HOMESTEAD OF GARDEN
CITY, L.C., a Kansas limited liability company having an address c/o The
Homestead Company, L.C., 155 North Market, Suite 910, Wichita, Kansas 67202,
Attention: Mr. Jack West ("Landlord") entering into the foregoing lease
agreement (the "Lease") with INTEGRATED LIVING COMMUNITIES AT GARDEN CITY, INC.,
a Delaware corporation having an office at 10065 Red Run Boulevard, Owings
Mills, Maryland 21117 ("Tenant"), the undersigned, INTEGRATED HEALTH SERVICES,
INC. ("IHS") and INTEGRATED LIVING COMMUNITIES, INC. ("ILC"), each a Delaware
corporation having an office at 10065 Red Run Boulevard, Owings Mills, Maryland
21117 (jointly and severally "Guarantor"), jointly and severally guarantee to
Landlord, the payment in full of all Annual Rent and Impositions (as such
capitalized terms are defined in the Lease) which accrues under the Lease during
the Initial Term and/or the Renewal Term (each as defined in the Lease) and
remains due and owing after the giving of any requisite notice to Tenant and the
expiration of all applicable grace periods under the Lease. Notwithstanding the
foregoing, IHS shall have no further liability under this guaranty at such time
as ILC, the sole shareholder of Tenant, has a net worth of not less than
Seventy- five Million Dollars ($75,000,000), determined in accordance with
generally accepted accounting principles, as shown on ILC's most recent
financial statement, which shall be prepared and certified to by the chief
financial officer of ILC.
Guarantor shall furnish to Landlord a copy of its Quarterly Report on
Form 10-Q within thirty (30) days after the end of each fiscal quarter of
Guarantor, and a copy of its Annual Report on Form 10-K within ninety (90) days
after the close of each fiscal year of Guarantor.
INTEGRATED HEALTH SERVICES, INC.
By:
---------------------------------
Name:
Title:
INTEGRATED LIVING COMMUNITIES, INC.
By:
---------------------------------_
Name:
Title:
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<PAGE>
STATE OF MARYLAND )
) SS:
)
COUNTY OF
--------------------------
This Guaranty of Lease was acknowledged before me on June ,
--
1996, by , as
------------------------------------ -----------------------------
of Integrated Health Services, Inc., a Delaware corporation.
----------------------------------
Notary Public
My appointment expires:
-----------------------
STATE OF MARYLAND )
) SS:
)
COUNTY OF
--------------------------
This Guaranty of Lease was acknowledged before me on June ,
--
1996, by ,as
-------------------------------------- ----------------------------
of Integrated Living Communities, Inc., a
- -----------------------------------
Delaware corporation.
---------------------------------
Notary Public
My appointment expires:
-----------------------
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<PAGE>
EXHIBIT A
DESCRIPTION OF THE LAND
- 65 -
<PAGE>
EXHIBIT B
[List of selected Personal
Property & Fixtures]
- 66 -
<PAGE>
EXHIBIT C
OPTION AGREEMENT
----------------
- 67 -
<PAGE>
EXHIBIT D
FORM OF SUBORDINATION, NON-DISTURBANCE
--------------------------------------
AND RECOGNITION AGREEMENT
- 68 -
<PAGE>
SCHEDULE ____
[ATTACH SCHEDULES]
- 69 -
PURCHASE OPTION AGREEMENT
-------------------------
BY AND BETWEEN
THE HOMESTEAD OF GARDEN CITY, L.C., as OWNER,
AND
INTEGRATED LIVING COMMUNITIES AT GARDEN CITY, INC., as OPTIONEE
as of June 18, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
1. Grant of Option.................................................... 1
---------------
2. Option Period...................................................... 1
-------------
3. Exercise of the Option............................................. 2
----------------------
4. Sale and Purchase of the Facility.................................. 3
---------------------------------
5. Purchase Price..................................................... 3
--------------
6. Intentionally Deleted
---------------------
7. Survey and Engineering............................................. 4
----------------------
8. Examination of Title............................................... 4
--------------------
9. Closing and Closing Date........................................... 5
------------------------
10. Owner's Representations and Warranties............................. 6
--------------------------------------
11. Additional Settlement Requirements................................. 8
----------------------------------
12. Covenants and Agreements of Owner.................................. 8
---------------------------------
13. Intentionally Deleted
---------------------
14. Defaults........................................................... 9
--------
15. Arbitration........................................................ 9
-----------
16. Notices............................................................ 9
-------
17. Assignment and Binding Effect......................................11
-----------------------------
18. Evidence of Title..................................................11
-----------------
19. General Provisions.................................................11
-------------------
20. Severability.......................................................11
------------
<PAGE>
21. Understanding and Agreements.......................................11
----------------------------
22. Governing Law......................................................11
--------------
23. Broker.............................................................11
------
24. Condemnation.......................................................12
------------
25. Expense of Litigation..............................................12
---------------------
26. Memorandum of Option Agreement.....................................12
------------------------------
27. Glossary of Defined Terms..........................................12
-------------------------
EXHIBIT A DESCRIPTION OF THE LAND
-----------------------
EXHIBIT B SECTION 8 TITLE ITEMS
---------------------
ii
<PAGE>
PURCHASE OPTION AGREEMENT
-------------------------
THIS PURCHASE OPTION AGREEMENT (this "Option Agreement") is made and
entered into as of the 18th day of June, 1996 by and THE HOMESTEAD OF GARDEN
CITY, L.C., a Kansas limited liability company having an address c/o The
Homestead Company, L.C., 155 North Market, Suite 910, Wichita, Kansas 67202,
Attention: Mr. Jack West ("Owner"), and INTEGRATED LIVING COMMUNITIES AT GARDEN
CITY, INC., a Delaware corporation having an office at 10065 Red Run Boulevard,
Owing Mills, Maryland 21117 ("Optionee").
W I T N E S S E T H:
WHEREAS, Owner is the owner of certain parcels of land and real
property (the "Land") as indicated and more fully described on Exhibit A hereto
and all of the "Leased Improvements", "Related Rights" and "Fixtures" (as said
terms are defined in the hereinafter described Lease) situated thereon and
appurtenant thereto, and Owner is the owner of the "Personal Property" and
"Other Assets" (as said terms are defined in the Lease) situate on, appurtenant
to and/or related to the Land and Leased Improvements (the Land, Leased
Improvements, Related Rights, Fixtures, Personal Property and Other Assets are
herein collectively referred to as the "Facility"); and
WHEREAS, Owner and Optionee have entered into a certain Lease Agreement
of even date herewith ("Lease") pursuant to which Owner has agreed to demise and
Optionee has agreed to lease the Facility; and
WHEREAS, Owner and Optionee have entered into a certain Right of First
Refusal Agreement of even date herewith (the "Right of First Refusal") with
respect to third party offers to purchase the Facility; and
WHEREAS, Owner has agreed to grant to Optionee an option to purchase
all of the Facility.
NOW, THEREFORE, for and in consideration of the promises herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by the parties, Owner and Optionee agree
as follows:
1. Grant of Option. Effective as of the date hereof and subject
to the terms and conditions as set forth below, Owner hereby grants and conveys
to Optionee the irrevocable and exclusive right and option (the "Option") to
purchase all, but not less than all, of the Facility from Owner, upon the terms
and conditions of this Option Agreement. If the Lease is terminated prior to the
Commencement Date (as defined in the Lease), then this Option Agreement shall be
deemed to be terminated simultaneously with such termination of the Lease.
2. Option Period. The Option may be exercised by Optionee in the
manner specified in Section 4 hereof at any time during the Initial Term after
the fifth anniversary of the date of the Lease and, if the Lease is extended as
provided therein, at any time during each Renewal Term of the
-1-
<PAGE>
Lease (the terms "Initial Term" and "Renewal Term" being defined in the Lease;
said periods, each individually referred to herein as an "Option Period").
Notwithstanding the foregoing, there shall be an abeyance of Optionee's right to
exercise the Option during any (a) ninety (90) day period provided in Section 3
of the Right of First Refusal during which Owner can accept an Offer (as defined
in the Right of First Refusal) and (b) period that a contract of sale between
Owner and a third party with respect to an Offer is in full force and effect.
The abeyance of Optionee's right to exercise the Option shall automatically be
lifted if Owner does not accept the Offer within such ninety (90) day period or
any such contract of sale is terminated.
If the Option has not been exercised by Optionee, as provided in
Section 3 hereof, prior to the expiration of the last Option Period, or such
later date as is provided in Section 3 hereof, the Option shall automatically
expire and be of no further force or effect.
3. Exercise of the Option. Optionee shall exercise the Option by giving
written notice thereof (the "Exercise Notice") to Owner in the manner provided
in Section 16 hereof, at least one hundred twenty (120) days prior to the date
specified in such notice for the Closing (as hereinafter defined) of the
purchase of the Facility by Optionee (as the same may be extended pursuant to
the terms hereof, the "Closing Date"), provided that in no event shall the
Closing Date specified in the Exercise Notice be later than the date originally
set forth in the Lease for the expiration of the Lease Term (as defined in the
Lease). Notwithstanding the general notice period under Section 16 hereof, the
Exercise Notice, if mailed in accordance with Section 16 hereof, shall be
effective upon deposit with the United States mail. From and after the date on
which the Exercise Notice is given, this Option Agreement shall be deemed for
all purposes to be a legally enforceable contract between Optionee and Owner for
the sale and purchase of the Facility upon the terms and conditions herein
provided. If Optionee fails to exercise the Option in the manner provided in
this Option Agreement prior to the expiration of the last Option Period, subject
to the following sentence, the Option shall expire, and no party hereto shall
thereafter have any rights, liabilities or obligations whatsoever under this
Option Agreement. Notwithstanding the foregoing and anything herein to the
contrary, in the event that the Lease is terminated for any reason prior to the
date originally set forth therein for the expiration of the term thereof, the
Option shall continue and Optionee shall have the right to exercise the Option
by giving the Exercise Notice to Owner not later than the ten (10) business days
after the date on which the notice of termination under the Lease has been
given, provided that the Closing Date in such event shall be not later than the
date which is one hundred twenty (120) days following the date the termination
of the Lease became effective. If the Lease is terminated or the Lease Term
expires prior to the Closing Date, then Optionee shall be permitted to remain in
possession of the Facility until the Closing Date, or such earlier date as this
Option Agreement may be terminated as herein provided, such possession to be
upon all of the same terms and provisions of the Lease (including the provisions
for payment of Annual Rent) in effect during the Lease Year (the terms "Annual
Rent" and "Lease Year" being defined in the Lease) in effect immediately prior
to the date of the termination of the Lease or expiration of the Lease Term.
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4. Sale and Purchase of the Facility.
----------------------------------
(a) Upon the giving of the Exercise Notice, Owner shall sell
the Facility to Optionee and Optionee shall purchase the Facility from Owner in
the manner and upon the terms and conditions set forth in this Option Agreement.
(b) Optionee's decision to exercise the Option shall not be
deemed a waiver of any breach of representation, warranty or covenant given by
Owner or Jack West in this Option Agreement, the Lease or in the Deed or Bill of
Sale referred to in Section 9 hereof, and Optionee shall retain all rights and
remedies with respect thereto.
5. Purchase Price. (a) Optionee shall pay to Owner, in
consideration of the sale and conveyance of the Facility to Optionee, a purchase
price (the "Purchase Price") equal to the fair market value of the Facility as
determined pursuant to the appraisal process hereinafter described, provided,
however, the Purchase Price shall not be less than $2,800,000. The entire
Purchase Price will be payable at the Closing by Optionee's certified check or
an official bank check, (either such check being hereinafter referred to as an
"Acceptable Check") payable to the order of Owner, or at Owner's option, by wire
transfer of immediately available federal funds to Owner's account in a
commercial bank in accordance with wire transfer instructions to be furnished by
Owner not later than ten (10) days prior to the Closing, or by (at Owner's
option) a combination of both.
(b) Any appraisal of fair market value to be made under the
provisions of this Section shall be made as follows:
At any time after Owner's receipt of Optionee's Exercise
Notice, Owner and Optionee may, by notice to the other, appoint a disinterested
person of recognized competence in the field as one of the appraisers, and
within twenty (20) days thereafter the other party shall, by notice to the party
appointing the first appraiser, appoint another disinterested person of
recognized competence in such field as a second appraiser. The appraisers thus
appointed shall appoint a third disinterested person of recognized competence in
such field, and such three appraisers shall as promptly as possible determine
such value, provided, however, that:
(i) if the second appraiser shall not have been appointed
as aforesaid, the first appraiser shall proceed to determine such value; and
(ii) if, within ten (10) days after the appointment of the
second appraiser, the two appraisers appointed by the parties shall be unable to
agree upon the appointment of a third appraiser, they shall give notice of such
failure to agree to the parties, and, if the parties fail to agree upon the
selection of such third appraiser within five (5) days after the appraisers
appointed by the parties gave notice, as aforesaid, then within five (5) days
thereafter either of the parties upon notice to the other party hereto may apply
for such appointment to a court of the State of Kansas having a situs in Finney
County.
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All appraisers, in addition to being persons of recognized
competence in the field of appraisal, shall be MAI appraisers with at least ten
years prior experience. Each of the parties shall each be entitled to present
evidence and argument to the appraisers. The determination of the majority of
the appraisers or of the sole appraiser, as the case may be, or, if there is no
majority, the average of said appraisers appraisals (provided, however, if any
single appraisal deviates from the average of the other two appraisals by more
than twenty (20%) percent, then such appraisal shall be disregarded in such
determination), shall be conclusive upon the parties and judgment upon the same
may be entered in any court having jurisdiction thereof. The appraisers shall
give notice to the parties stating their determination, and shall furnish to
each party a copy of such determination signed by them. Each party shall pay the
costs, fees and expenses of the appraiser selected by that party and costs, fees
and the expenses of the third appraiser and all other aspects of this appraisal
process shall be borne equally by the parties. Each party shall pay its own
costs and expenses incurred as a result of its participation in any such
appraisal process. In the event of the failure, refusal or inability of any
appraiser to act, a new appraiser shall be appointed in his stead within ten
(10) days, which appointment shall be made in the same manner as hereinbefore
provided for the appointment of the appraiser so failing, refusing or unable to
act. The appraisers shall base their determination on the highest and best
legally permissible use of the Facility, as-is at the time of the Closing Date,
and unencumbered by the Lease, and shall not have the power to add to, modify or
change any of the provisions of this Option Agreement.
6. Intentionally Deleted.
----------------------
7. Survey and Engineering. Optionee shall at all times during the
Option Period and before the Closing have the privilege of going upon the
Facility with its agents or engineers as needed to inspect, examine, survey and
otherwise do what Optionee deems necessary in the engineering and planning for
development of the Facility. Said privilege shall include the right to make soil
tests, borings, percolation tests and tests to obtain other information
necessary to determine surface, subsurface and topographic conditions; provided,
however, that Optionee shall hold Owner harmless from any damages incurred
through the exercise of such privilege. Optionee and Owner agree that in the
event of the exercise of the Option, Optionee may obtain surveys of the Facility
(hereinbelow referred to as the "Surveys") to be made by surveyors duly licensed
within the state where the Facility is located to determine the true and
accurate legal description of the properties comprising the Facility, which
Surveys shall be at Optionee's sole cost and expense.
8. Examination of Title. Optionee shall on or about the date of the
exercise of the Option order a title insurance search and commitment for an
Owner's title insurance policy from any reputable title insurance company, and
not later than thirty (30) days before the Closing Date Optionee shall cause a
copy of such title company's report to be sent to Owner and Optionee shall
advise Owner of any defects or objections affecting the marketability of title
for the Facility disclosed by such report (a "Defect"), other than the following
items: (herein referred to collectively as the "Permitted Exceptions") real
property and personal property taxes and assessments applicable to the Facility
that are not yet due and payable, recorded general utility service easements
affecting the Facility which are acceptable to Optionee, defects arising from
acts or omissions (or with the written
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<PAGE>
consent) of Optionee and the items listed on Exhibit B hereto. Owner shall then
have a reasonable time, not less than thirty (30) days from the date of notice
of such Defect from Optionee, to cure or remove such Defect, or if such Defect
may be removed or satisfied by the payment of a liquidated sum, Owner may, in
lieu of curing or removing such Defect, deposit with Optionee's title insurance
company such amount of money as may be determined by said company as being
sufficient to induce it to omit such Defect from its policy and to insure
Optionee against collection of the same. Owner shall, in good faith, exercise
reasonable diligence to cure all Defects. If Owner fails or refuses to cure,
remove or (if herein permitted) so insure against any Defect prior to the
Closing Date or the thirty (30) day cure period, whichever is less, in addition
to the other rights and remedies that Optionee may have in law or in equity,
Optionee may, at its option: (a) cure, remove or so insure against any such
Defect, in which event the Purchase Price shall be reduced by the amount equal
to the actual costs and expenses incurred by Optionee in curing, removing or
insuring against such Defect; (b) accept title to the Facility subject to such
Defect or Defects with an abatement of the Purchase Price in an amount equal to
the then ascertainable cost of removing or curing said Defect; or (c) cancel
this Option Agreement. If Optionee elects to cure or remove such Defect,
Optionee at its option, upon giving notice to Owner, may extend the Closing Date
for the purchase of the Facility (and if necessary, the Option Period shall also
be extended) for ninety (90) days. If any Defect shall not have been cured
within such period, Optionee may again exercise any of its rights under
subsections (a), (b), or (c) hereof.
9. Closing and Closing Date.
-------------------------
(a) The consummation of the sale by Owner and purchase by
Optionee of the Facility (the "Closing") shall occur at the offices of the
attorney for Optionee in Wichita, Kansas, on the Closing Date as designated by
Optionee in the Exercise Notice. At the Closing, Owner shall execute and deliver
to Optionee a general warranty deed (the "Deed") conveying fee simple marketable
record title to the Facility to Optionee free and clear of all liens, special
assessments and other Impositions (as defined in the Lease), or installments
thereof, as the case may be, which were due and payable prior to the date of
this Option Agreement, easements, reservations, restrictions and encumbrances
whatsoever, excepting only the Permitted Exceptions. At the Closing, Owner shall
deliver a bill of sale (the "Bill of Sale") to Optionee conveying good and
marketable title to the Fixtures, Personal Property and Other Assets. The Bill
of Sale shall contain a warranty that such property is free and clear of all
liens, encumbrances, security interests and adverse claims except for the
lien(s) of the Permitted Exceptions, if any. It is agreed that Optionee shall
prepare any required sales tax return; that said return shall be executed by
Owner at the Closing; and that Owner shall file same and pay any sales tax due
thereon promptly after the Closing.
(b) No prorations or apportionments shall be required at the
Closing, except that Optionee shall pay, or cause to be paid, to Owner at or
before the Closing all Annual Rent and other sums then due and payable pursuant
to the Lease and, if applicable, accrued from the date of termination of the
Lease or expiration of the Lease Term through the Closing Date, as herein
provided. Owner shall, at the Closing, pay for the preparation of the Deed and
for all transfer taxes as required by law.
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<PAGE>
(c) The Deed shall be in recordable form and duly executed and
acknowledged. The Deed shall have affixed thereto any requisite surtax and
documentary tax stamps, in proper amount, affixed by Owner, at Owner's sole cost
and expense. At the Closing, Owner shall deliver to Optionee its Acceptable
Check(s), to the order of the appropriate tax collecting agency or official, in
the amount of all transfer taxes and other taxes and charges in connection with
the sale and transfer of the Facility by Owner to Optionee and the recording of
the Deed, or allow Optionee a credit against the Purchase Price due at Closing
in the amount thereof.
(d) A draft of the Deed and the Bill of Sale, and a proposed
schedule of apportionments shall be delivered by Owner to Optionee's attorneys
for review and approval at least ten (10) business days prior to the Closing
Date.
(e) If Owner or any managing member or member of Owner is a
corporation, Owner shall deliver, or cause to be delivered, to Optionee at the
Closing a sworn certificate by the secretary of such corporation certifying that
the Board of Directors and Shareholders of such corporation have adopted
resolutions authorizing the sale of the Facility pursuant to this Option
Agreement and delivery of the Deed and all other documents delivered to
Optionee, and setting forth such additional facts, if any, needed to show that
the conveyance is in conformity with applicable law.
(f) At the Closing, Owner shall deliver to Optionee copies of
any required transfer tax returns executed by Owner.
(g) At the Closing, Owner shall deliver to Optionee, such
affidavits as Optionee's title insurance company shall require in order to omit
from its title insurance policy all mechanics' liens arising from the acts or
omissions of Owner and rights of parties in possession (other than parties in
possession under the Lease) and exceptions for judgments, bankruptcies or other
returns against persons or entities whose names are the same as or similar to
Owner's name.
(h) At the Closing, Owner shall deliver to Optionee an
affidavit stating, under penalty of perjury, Owner's United States taxpayer
identification number and that Owner is not a "foreign person" as defined in
Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended, and
otherwise in the form prescribed by the Internal Revenue Service.
(i) At the Closing, Owner shall deliver any affidavits,
statements, certifications or other documents which are required by the laws and
regulations of the state and local governmental authorities in which the
Facility is located, to be delivered by sellers of real estate, and shall also
deliver all other documents it is required to deliver pursuant to the provisions
of this Option Agreement.
10. Owner's Representations and Warranties.
---------------------------------------
(a) To induce Optionee to enter into this Option Agreement,
Owner and Jack West each hereby represents and warrants, to Optionee as follows:
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(i) Owner is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Kansas. Copies of its articles of organization, operating agreement and all
amendments thereto to date (collectively, the "Organizational Documents") have
been delivered to Optionee, and are true, complete and correct. Owner has the
power and authority to own the property and assets now owned by it and to
conduct the business presently being conducted by it and as currently proposed
to be conducted.
(ii) Owner has the full, absolute and unrestricted
right, power and authority to make, execute, deliver and perform this Option
Agreement, including all Schedules and Exhibits hereto, and the other
instruments and documents required or contemplated hereby and thereby ("Owner's
Transaction Documents"). Such execution, delivery, performance and consummation
have been duly authorized by all necessary action (partnership, corporate, trust
or otherwise, as the case may be) on the part of Owner, its managing member and
members and all consents of holders of indebtedness of Owner have been obtained.
(iii) This Option Agreement constitutes the legal,
valid and binding obligation of Owner, enforceable against Owner in accordance
with its terms and each of Owner's Transaction Documents executed by Owner
constitute the valid and binding obligation of Owner, enforceable against Owner
in accordance with their respective terms.
(iv) None of the execution or delivery of this Option
Agreement or any of Owner's Transaction Documents, the performance by Owner of
its obligations hereunder or thereunder nor the consummation of the transactions
contemplated hereby or thereby, conflicts with, or constitutes a breach of or a
default under (1) Owner's Organizational Documents; or (2) any applicable law,
rule, judgment, order, writ, injunction, or decree of any court currently in
effect; or (3) any applicable rule or regulation of any administrative agency or
other governmental authority currently in effect; or (4) any written or oral
agreement, indenture, contract or instrument to which Owner or any member
thereof is now a party or by which any of them or the Facility is bound.
(v) No authorization, consent, approval, license,
exemption by filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
any other Person (as defined in the Lease) is or will be necessary in connection
with any Owner's execution, delivery and performance of this Option Agreement or
any of Owner's Transaction Documents, or for the consummation of the
transactions contemplated hereby and thereby.
(b) All of the representations, warranties and agreements set
forth herein and elsewhere in this Option Agreement, shall be true in all
material respects upon the execution of this Option Agreement, shall be deemed
to be repeated on the Commencement Date of the Lease and at and as of the
Closing Date and shall survive the delivery of the Deed. No such representation
or warranty shall omit to state a material fact necessary to make the statements
contained herein or therein not misleading. Except as herein expressly provided,
neither Owner nor Jack West makes any representations or warranties with respect
to the Facility.
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<PAGE>
(c) Without limiting any of the rights of Optionee elsewhere
provided for in this Option Agreement, it is agreed that the obligation of
Optionee to close title under this Option Agreement is conditioned upon, and
shall be subject to, the verification by Optionee of the accuracy of all of
Owner's and Jack West's warranties and representations and the due compliance by
Owner with all of its agreements set forth herein and elsewhere in this Option
Agreement. If, on or before the Closing Date, Optionee, in its reasonable
judgment, shall determine that any of Owner's or any of Jack West's
representations or warranties are untrue in any material respect or that Owner
has not complied with any of said agreements, then Optionee may elect to
terminate this Option Agreement by notice given to Owner. If this Option
Agreement is terminated, as aforesaid, Owner shall pay the cost of any survey
obtained and the cost of any title search made, any insurance commitment issued,
by Optionee's title insurance company and any other expenses, including, but not
limited to, reasonable attorneys' fees and disbursements, incurred by Optionee,
in connection with this Option Agreement.
11. Additional Settlement Requirements.
-----------------------------------
(a) Optionee's obligation to accept title to the Facility
shall be subject to each of the following conditions being in effect at the
Closing Date:
(i) the satisfaction of all title requirements
and conditions set forth under this Option Agreement; and
(ii) each and every one of the representations and
warranties described in Section 10 hereof being true and correct as of
the Closing Date in all material respects.
(b) At the Closing, Owner shall:
(i) duly execute and deliver to Optionee the
Deed in recordable form and the Bill of Sale conveying the Facility to Optionee
in accordance with the terms hereof;
(ii) deliver possession of the Facility to
Optionee, free and clear of any indebtedness and security liens relating thereto
(excluding those created by Optionee).
(c) At the Closing, Optionee shall deliver, as herein
provided, the balance of the Purchase Price for the Facility and all other sums
due pursuant to the terms of this Option Agreement.
12. Covenants and Agreements of Owner. Owner hereby further covenants
and agrees that from and after the date hereof until the Closing Date, unless
permitted pursuant to the Lease, Owner shall not grant or otherwise create or
consent to or permit the creation of any easement, restriction, lien or
encumbrance affecting the Facility or any portion or portions thereof without
the prior written consent of Optionee. From and after the date hereof until the
Closing Date, unless permitted pursuant to the Lease or the Right of First
Refusal, Owner shall not, without the prior written consent of Optionee, sell,
convey or transfer the Facility or any portion or portions thereof,
-8-
<PAGE>
to anyone other than Optionee; provided, however, that any such sale, conveyance
-------- -------
or transfer shall be subject to all rights of Optionee under this Option
Agreement, the Right of First Refusal and the Lease.
13. Intentionally Deleted.
----------------------
14. Defaults. In the event Owner or Jack West breach, in any material
respect, any warranty or representation as contained in this Option Agreement,
or Owner fails to comply with or perform any of the covenants, agreements or
obligations to be performed by Owner under the terms and provisions of this
Option Agreement, Optionee shall be entitled to exercise any and all rights and
remedies available to Optionee at law or in equity, including, without
limitation, the enforcement by specific performance of Owner's obligations under
this Option Agreement. If Owner shall be in compliance with all its obligations
hereunder and shall tender the Deed, the Bill of Sale and all other instruments
required by this Option Agreement in full compliance with its obligations
hereunder and Optionee shall fail or refuse to close title as required by the
terms of this Option Agreement, or if Optionee otherwise defaults hereunder so
that Owner has the right to refuse to close title, then Owner shall be entitled
to exercise any and all rights and remedies available to Owner at law or in
equity, including, without limitation, the enforcement by specific performance
of Optionee's obligations under this Option Agreement.
15. Arbitration. If any controversy should arise between the parties in
the performance, interpretation or application of this Option Agreement,
involving any matter, either party may serve upon the other a written notice
stating that such party desires to have the controversy reviewed by an
arbitrator. If the parties cannot agree within fifteen (15) days from the
service of such notice upon the selection of such arbitrator, an arbitrator
shall be selected or designated by the American Arbitration Association upon
written request of either party hereto. Arbitration of such controversy,
disagreement, or dispute shall be conducted in accordance with the Commercial
Arbitration Rules then in force of the American Arbitration Association and the
decision and award of the arbitrator so selected shall be binding upon Owner and
Optionee. The arbitration will be held in Dallas, Texas.
As a condition precedent to the appointment of any arbitrator
both parties shall be required to make a good faith effort to resolve the
controversy which effort shall continue for a period of thirty (30) days prior
to any demand for arbitration. The cost and expense of any such arbitration
shall be shared equally by the parties. Each party shall pay its own costs and
expenses incurred as a result of its participation in any such arbitration.
16. Notices. All notices, requests, demand or other communications
required or permitted under this Option Agreement shall be in writing and shall
be either personally delivered evidenced by a signed receipt or transmitted by
United States mail, certified, return receipt requested or by a nationally
recognized overnight delivery service, postage prepaid, addressed as follows:
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<PAGE>
If to Owner: c/o The Homestead Company, L.C.
155 North Market, Suite 910
Wichita, Kansas 67202
Attention: Mr. Jack West
Copy to: Foulston & Siefkin, L.L.P.
700 Fourth Financial Center
Wichita, Kansas 67202
Attention: Gary E. Knight, Esq.
If to Optionee: c/o Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings, Mills, Maryland 21117
Attention: Mr. Ed Komp
Copies to: Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Marshall A. Elkins, Esq.
and
Blass & Driggs
461 Fifth Avenue
New York, New York 10017
Attention: Michael S. Blass, Esq.
All notices, requests, demands and other communications shall
be effective (i) upon personal delivery evidenced by a signed receipt, (ii) upon
five (5) calendar days after being deposited in the United States mail or (iii)
on the next business day following timely deposit with a nationally recognized
overnight delivery service, whichever occurs first. The time period in which a
response to any such notice, request, demand or other communication must be
given, however, shall commence to run from (i) the date of personal delivery
evidenced by a signed receipt, (ii) the date of receipt on the return receipt of
the notice, request, demand or other communication; provided, however, that if a
party refuses delivery of any such notice, request, demand or other
communication sent by mail, or fails or neglects, without reasonable cause, to
accept delivery after three (3) attempts to so deliver by postal authorities, it
shall be deemed received on the date of its last being deposited in the United
States mail, or (iii) the date of delivery by a nationally recognized overnight
delivery service. The parties hereto shall have the right, at any time and from
time to time during the term of this Option Agreement to change their respective
addresses for notices by giving the other party hereto written notice thereof.
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<PAGE>
17. Assignment and Binding Effect. The rights and obligations of
Optionee hereunder shall be assignable. The parties to this Option Agreement
mutually agree that it shall be binding upon and enure to the benefit of the
parties hereto, their successors and assigns.
18. Evidence of Title. Owner agrees to deliver to Optionee, or
Optionee's counsel, as soon as reasonably possible after the date hereof, copies
of all title information in possession of or available to Owner, including, but
not limited to: title insurance policies, attorney's opinions on title, boundary
surveys, covenants, leases, easements and deeds relating to the Facility.
19. General Provisions. No failure of any party to exercise any
power given hereunder or to insist upon strict compliance with any obligation
specified herein, and no custom or practice at variance with the terms hereof,
shall constitute a waiver of either party's right to demand exact compliance
with the terms hereof. This Option Agreement contains the entire agreement of
the parties hereto, and no representations, inducements, promises or agreements,
oral or otherwise, among the parties not embodied herein shall be of any force
or effect. Any amendment to this Option Agreement shall not be binding upon any
of the parties hereto unless such amendment is in writing and executed by all
parties hereto. This Option Agreement may be executed in multiple counterparts,
each of which shall constitute an original, but all of which taken together
shall constitute one and the same agreement. Owner and Optionee agree that such
documents as may be legally necessary or otherwise appropriate to carry out the
terms of this Option Agreement shall be executed and delivered by each party at
the Closing.
20. Severability. This Option Agreement is intended to be
performed in accordance with, and only to the extent permitted by, all
applicable laws, ordinances, rules and regulations. If any provision of this
Option Agreement or the application thereof to any person or circumstance shall,
for any reason and to any extent, be invalid or unenforceable, the remainder of
this Option Agreement and the application of such provision to other persons or
circumstances shall not be affected thereby but rather shall be enforced to the
greatest extent permitted by law.
21. Understanding and Agreements. This Option Agreement
constitutes the entire understanding and agreements of whatsoever nature or kind
existing among the parties with respect to the Option.
22. Governing Law. This Option Agreement shall be construed and
interpreted in accordance with the laws of the State of Kansas.
23. Broker. Each of the parties hereto agrees that it has not
dealt with any broker in connection with this transaction other than Southwest
Retirement Properties (the "Broker") and Optionee agrees to pay any commissions
earned by the Broker, whether pursuant to a separate agreement between it and
the Broker, or otherwise. If no broker is specified in this Section, the parties
acknowledge that this Option Agreement was brought about by direct negotiation
between Owner and Optionee and that neither Owner nor Optionee know of anyone
entitled to a commission in connection with this transaction. Owner and Optionee
shall indemnify and defend each other against any and all
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<PAGE>
claims, demands, costs, expenses or causes of actions arising out of a breach of
the agreements contained in this Section 23. The representations, warranties and
indemnities contained in this Section 23 shall survive the Closing, or if the
Closing does not occur, the termination of this Option Agreement.
24. Condemnation. If, after the exercise of the Option and prior to the
Closing Date, all or any portion of the Facility is taken by eminent domain or
condemnation (or is the subject of a pending or contemplated taking which has
not been consummated), Owner shall notify Optionee of such fact, and Optionee
shall have, in the event that the whole Facility or a "substantial and material
portion" (as defined in Section 7.3 of the Lease) of the Facility is taken (or
is the subject of a pending or contemplated taking which has not been
consummated), the option to terminate this Option Agree ment upon notice to
Owner given not later than fifteen (15) days after receipt of Owner's notice.
Upon such termination by Optionee neither party shall have any further rights or
obligations hereunder. If Optionee does not exercise this option to terminate
this Option Agreement or the taking (or pending or contemplated taking) is not
of the whole or a substantial and material portion of the Facility, there shall
be a fair and equitable adjustment of the Purchase Price or, at the option of
Optionee, in lieu of such adjustment, Owner shall assign and turn over, and
Optionee shall be entitled to receive and keep, all awards or other proceeds for
such taking by eminent domain or condemnation.
25. Expense of Litigation. If either party incurs any expense,
including reasonable attorneys' fees, in connection with any action or
proceeding instituted by either party by reason of any default or alleged
default of the other party hereunder, the court or tribunal before which such
proceeding is pending may award to the party prevailing in such action or
proceeding the reasonable attorneys' fees of such prevailing party from the
other party.
26. Memorandum of Option Agreement. Owner and Optionee shall execute
and deliver to each other an instrument, recordable in form setting forth such
information as may be necessary to constitute a "memorandum of agreement" for
recording purposes immediately upon execution of this Option Agreement. Any
party, at its expense, shall have the right to record such memorandum of
agreement for the purpose of giving notice of Optionee's rights pursuant to this
Option Agreement. This Option Agreement shall not be recorded.
27. Glossary of Defined Terms. The following is a list of words or
phrases defined herein and the Section in which such definition is located:
"Option Agreement" located on page 1.
"Owner" located on page 1.
"Optionee" located on page 1.
"Land" located on page 1.
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<PAGE>
"Leased Improvements" located on page 1.
"Related Rights" located on page 1.
"Fixtures" located on page 1.
"Personal Property" located on page 1.
"Other Assets" located on page 1.
"Facility" located on page 1.
"Lease" located on page 1.
"Option" located in Section 1.
"Commencement Date" located in Section 1.
"Initial Term" located in Section 2.
"Renewal Term" located in Section 2.
"Option Period" located in Section 2.
"Exercise Notice" located in Section 3.
"Closing Date" located in Section 3.
"Lease Term" located in Section 3.
"Lease Year" located in Section 3.
"Purchase Price" located in Section 5.
"Acceptable Check" located in Section 5.
"Surveys" located in Section 7.
"Defect" located in Section 8.
"Permitted Exceptions" located in Section 8.
-13-
<PAGE>
"Closing" located in Section 9.
"Deed" located in Section 9.
"Bill of Sale" located in Section 9.
"Organizational Documents" located in Section 10.
"Owner's Transaction Documents" located in Section 10.
"Broker" located in Section 23.
IN WITNESS WHEREOF, the parties hereto have caused this Option
Agreement to be duly executed as a sealed instrument on the day and year first
above written.
OWNER:
THE HOMESTEAD OF GARDEN CITY, L.C.
Attest: By:
---------------------------------- ------------------------------
Name: Name:
Title: Title:
OPTIONEE:
INTEGRATED LIVING COMMUNITIES
AT GARDEN CITY, INC.
Attest: By:
---------------------------------- -------------------------------
Name: Name:
Title: Title:
AS TO SECTIONS AND PROVISIONS
SPECIFICALLY IDENTIFYING JACK WEST:
- --------------------------
JACK WEST
-14-
<PAGE>
ACKNOWLEDGMENTS
---------------
STATE OF KANSAS )
) SS:
COUNTY OF _____________________________ )
This Option Agreement was acknowledged before me on June ,
--
1996, by , as of The Homestead of
--------------------------- ---------------------
Garden City, L.C., a Kansas limited liability company.
-----------------------------------
Notary Public
My appointment expires:
-----------------------
STATE OF MARYLAND )
) SS:
COUNTY OF _____________________________ )
This Option Agreement was acknowledged before me on June ,
--
1996, by , as of Integrated
---------------------------- -----------------------
Living Communities at Garden City, Inc., a Delaware corporation.
-----------------------------------
Notary Public
My appointment expires:
-----------------------
STATE OF KANSAS )
) SS:
COUNTY OF _____________________________ )
This Option Agreement was acknowledged before me on June ,
--
1996, by Jack West.
-----------------------------------
Notary Public
My appointment expires:
-----------------------
-15-
<PAGE>
EXHIBIT A
---------
DESCRIPTION OF THE LAND
-----------------------
-16-
<PAGE>
EXHIBIT B
---------
SECTION 8 TITLE ITEMS
---------------------
1. Easements and setback lines as set forth on the recorded plat filed in
Envelope 282A and on the replat filed in Envelope 334B.
2. An oil and gas lease filed in Book OG13 at page 640. Said lease is
utilized by instrument filed in Book OG32 at page 223, an affidavit of
production is filed in Book OG32 at page 291.
-17-
RIGHT OF FIRST REFUSAL AGREEMENT
--------------------------------
THIS RIGHT OF FIRST REFUSAL AGREEMENT (this "Agreement"), made
and entered into as of the 18th day of June, 1996, by and between THE HOMESTEAD
OF GARDEN CITY, L.C., a Kansas limited liability company having an address c/o
The Homestead Company, L.C., 155 North Market, Suite 910, Wichita, Kansas 67202,
Attention: Mr. Jack West, as landlord ("Landlord"), and INTEGRATED LIVING
COMMUNITIES AT GARDEN CITY, INC., a Delaware corporation having an office at
10065 Red Run Boulevard, Owings Mills, Maryland 21117, as tenant ("Tenant").
W I T N E S S E T H: That;
-------------------
WHEREAS, Landlord and Tenant are parties to a certain Lease
Agreement dated of even date herewith (the "Lease") covering the Facility known
as "The Homestead at Garden City;" and
WHEREAS, in consideration for Tenant's agreement to lease the
Demised Premises under the Lease, Landlord has agreed to grant Tenant a right of
first refusal to purchase the Demised Premises described in the Lease, which
includes the Land described on Exhibit A hereto.
NOW, THEREFORE, for good and valuable consideration including,
without limitation, the rents and mutual covenants and agreements contained in
the Lease, the parties agree as follows:
1. Grant of Right of First Refusal. Landlord hereby grants to
Tenant a right of first refusal to purchase the Demised Premises under the terms
and conditions hereinafter set forth.
2. Notice of Offers. If at any time during the Lease Term
Landlord receives a bona fide written Offer (as hereinafter defined) for the
sale of the Demised Premises from any third person or entity which Landlord
desires to accept, Landlord shall notify Tenant of such Offer in writing, which
notification (the "Notice") shall contain a copy of the bona fide written Offer.
For purposes of this Agreement, an "Offer" shall mean any written instrument
setting forth the terms pursuant to which such third party proposes to purchase
the Demised Premises, including, without limitation, non-binding letters of
intent.
3. Exercise of Right of First Refusal. Tenant shall have
twenty (20) days after receipt of the Notice in which to elect to purchase the
Demised Premises on the same terms and conditions as those contained in the
Offer; provided, however, that the purchase price payable by Tenant or its
designee shall be the purchase price set forth in the Offer or the purchase
price that Tenant is required to pay under the Option Agreement, whichever is
less. Such election shall be made by written notice to Landlord, accompanied by
a check in the amount of the deposit set forth in the Offer, if any, and within
thirty (30) days thereafter the parties shall enter into a formal contract for
the sale of the Demised Premises containing all terms of the Offer made to
Landlord, except as hereinabove set forth and except as the parties may
otherwise mutually agree. If Tenant fails to give
-1-
<PAGE>
the notice or tender the payment, or if Tenant fails to enter into the contract
of sale as provided herein, Landlord shall have the right to accept the Offer,
but shall not accept any other offer at a lower price, or on terms materially
more favorable to the third party purchaser than that contained in the Offer,
without first again granting Tenant the right to purchase the Demised Premises
as aforesaid. In the event Landlord does not accept the Offer within ninety (90)
days after Tenant fails to exercise its right of first refusal with respect to
the Demised Premises as granted herein, or within ninety (90) days after Tenant
notifies Landlord that it declines to exercise its right of first refusal, or if
the contract with the third party is thereafter terminated for any reason,
Landlord shall again give Tenant the right to purchase the Demised Premises as
set forth herein before accepting the Offer or any other bona fide written offer
of any third party.
4. Transfer of Ownership Interests by Landlord. The right of
first refusal contained herein shall not be applicable to transfers of ownership
interests in Landlord provided that a majority interest in Landlord continues to
be held in the aggregate by the members of Landlord which or who were members on
the Commencement Date of the Lease.
5. Notices. All notices, requests, demands or other
communications required or permitted under this Agreement shall be in writing
and shall be either personally delivered evidenced by a signed receipt,
transmitted by United States certified mail, return receipt requested, postage
prepaid, or by a nationally recognized overnight delivery service, addressed as
follows:
If to Landlord: c/o The Homestead Company, L.C.
155 North Market, Suite 910
Wichita, Kansas 67202
Attention: Mr. Jack West
Copy to: Foulston & Siefkin L.L.P.
700 Fourth Financial Center
Wichita, Kansas 67202
Attention: Gary E. Knight, Esq.
If to Tenant: c/o Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Mr. Ed Komp
Copies to: Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Marshall A. Elkins, Esq.
and
-2-
<PAGE>
Blass & Driggs
461 Fifth Avenue
New York, New York 10017
Attention: Michael S. Blass, Esq.
All notices, requests, demands and other communications shall
be effective (a) upon personal delivery evidenced by a signed receipt, (b) upon
five (5) calendar days after being deposited in the United States mail or (c) on
the next business day following timely deposit with a nationally recognized
overnight delivery service, whichever occurs first. The time period in which a
response to any such notice, request, demand or other communication must be
given, however, shall commence to run from (i) the date of personal delivery
evidenced by a signed receipt, (ii) the date of receipt on the return receipt of
the notice, request, demand or other communication; provided, however, that if a
party refuses delivery of any such notice, request, demand or other
communication sent by certified mail, or fails or neglects, without reasonable
cause, to accept delivery after three (3) attempts to so delivery by postal
authorities, it shall be deemed received on the date of its last being deposited
in the United States mail, or (iii) the date of delivery by a nationally
recognized overnight delivery service. The parties hereto shall have the right,
at any time to change their respective addresses for notices by giving the other
party hereto written notice thereof.
6. Understanding and Agreements. This Agreement
constitutes the entire understanding and agreements of whatsoever nature or kind
existing between the parties with respect to Tenant's right of first refusal to
purchase the Demised Premises from Landlord.
7. Amendment. This Agreement may be amended at any time
and from time to time; provided, however, that no amendment to this Agreement
shall be legally enforceable against Landlord or Tenant unless it is in writing,
executed and acknowledged by both Landlord and Tenant.
8. Construction. This Agreement shall be construed in
accordance with the laws of the State of Kansas.
9. Defined Terms. All capitalized terms used herein and
not otherwise defined shall have the same meaning as is ascribed to such terms
in the Lease.
10. Binding Effect on Successors. Except as otherwise
provided for herein, Landlord and Tenant expressly agree that, subject to the
terms of this Agreement, all terms and conditions of this Agreement shall extend
to and be binding upon or inure to the benefit of the heirs, executors,
administrators, personal representative, assigns and successors in interest of
both the respective parties hereto.
11. Memorandum of Right of First Refusal. Landlord and
Tenant shall execute and deliver to each other an instrument, recordable in form
setting forth such information as may be necessary to constitute a "memorandum
of right of first refusal" for recording purposes immediately
-3-
<PAGE>
upon execution of this Agreement. Any party, at its expense, shall have the
right to record such memorandum of right of first refusal for the purpose of
giving notice of Tenant's rights pursuant to this Agreement. This Agreement
shall not be recorded.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
LANDLORD:
THE HOMESTEAD OF GARDEN CITY, L.C.
Attest: By:
----------------------- ----------------------------------
Name: Name:
----------------------- -------------------------------
Title: Title:
----------------------- -------------------------------
TENANT:
INTEGRATED LIVING COMMUNITIES
AT GARDEN CITY, INC.
Attest: By:
------------------------ ---------------------------------
Name: Name:
------------------------ --------------------------------
Title: Title:
------------------------ ------------------------------
-4-
<PAGE>
ACKNOWLEDGMENTS
---------------
STATE OF KANSAS )
) SS:
)
COUNTY OF
-------------------------------
This Option Agreement was acknowledged before me on June ,
--
1996, by , as of The Homestead of
--------------------------- ---------------------
Garden City, L.C., a Kansas limited liability company.
-----------------------------------
Notary Public
My appointment expires:
-----------------------
STATE OF MARYLAND )
) SS:
)
COUNTY OF
------------------------------
This Option Agreement was acknowledged before me on June ,
---
1996, by , as of
------------------------------------- -------------------------
Integrated Living Communities at Garden City, Inc., a Delaware corporation.
-----------------------------------
Notary Public
My appointment expires:
-----------------------
-5-
<PAGE>
EXHIBIT A
---------
DESCRIPTION OF THE LAND
-----------------------
-6-
SUBLEASE
BETWEEN
INTEGRATED LIVING COMMUNITIES OF BRADENTON, INC.
AND
INTEGRATED HEALTH SERVICES OF LESTER, INC.
As of June 1, 1996
------------------
The Shores Nursing and Retirement Centers
1700 Third Avenue West
Bradenton, Florida 34205
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
<S> <C> <C> <C>
DEMISED PREMISES................................................................................................ 2
1.1 Premises........................................................................... 2
1.2 Assumed Name....................................................................... 3
ARTICLE II
TERM, EXTENSION AND RENEWAL..................................................................................... 4
2.1 Term............................................................................... 4
2.2 Extension of the Initial Term...................................................... 4
2.3 Renewal Terms...................................................................... 4
ARTICLE III
RENTAL.......................................................................................................... 5
3.1 Base Rental........................................................................ 5
3.2 Definitions........................................................................ 6
3.3 Effective Date Payments............................................................ 6
3.4 Receivable Payments to Landlord and Tenant......................................... 7
ARTICLE IV
TITLE AND POSSESSION............................................................................................ 7
4.1 Authority.......................................................................... 7
4.2 Leased Equipment................................................................... 7
4.3 Surrender of Possession............................................................ 8
4.4 Holding Over....................................................................... 8
4.5 Surrender of Premises License by Landlord.......................................... 8
4.6 Facility License................................................................... 8
ARTICLE V
TAXES, ASSESSMENTS AND UTILITIES................................................................................ 8
5.1 Taxes.............................................................................. 8
5.2 Sewer Use Fees..................................................................... 9
5.3 Utilities.......................................................................... 9
ARTICLE VI
USE OF PREMISES................................................................................................. 9
6.1 Use by Tenant...................................................................... 9
6.2 Compliance with Laws............................................................... 10
6.3 Waste.............................................................................. 10
i
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
6.4 License and Permits................................................................ 10
6.5 Right of Entry for Inspection and Repairs.......................................... 10
6.6 Reports to Landlord and Litchfield................................................. 10
6.7 Additional Tenant Obligations...................................................... 11
ARTICLE VII
EMINENT DOMAIN.................................................................................................. 11
7.1 Permanent or Temporary Taking...................................................... 11
7.2 Permanent Taking................................................................... 11
7.3 Temporary Taking................................................................... 11
7.4 Partial Taking..................................................................... 11
ARTICLE VIII
ALTERATIONS, REPAIRS AND TRADE FIXTURES......................................................................... 12
8.1 Repairs by Tenant Generally........................................................ 12
8.2 Quality and Promptness of Repairs.................................................. 13
8.3 Liability of Landlord and Litchfield............................................... 13
ARTICLE IX
SIGNS........................................................................................................... 14
ARTICLE X
ASSIGNMENT, SUBLETTING AND SUBORDINATION........................................................................ 14
10.1 Assignment or Subletting by Tenant................................................. 14
10.2 Assignment by Landlord............................................................. 15
10.3 Subordination and Attornment....................................................... 15
10.4 Sale by Litchfield................................................................. 16
10.5 Estoppel Certificates.............................................................. 16
ARTICLE XI
DEFAULT......................................................................................................... 16
11.1 Default by Tenant.................................................................. 16
11.2 Landlord's Rights and Remedies..................................................... 18
11.3 Default by Landlord................................................................ 20
ARTICLE XII
BANKRUPTCY...................................................................................................... 21
ARTICLE XIII
ii
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
DAMAGE TO PREMISES.............................................................................................. 21
ARTICLE XIV
INSURANCE, SUBROGATION AND INDEMNIFICATION...................................................................... 22
14.1 Comprehensive General Liability and Professional Liability
Insurance to be Carried by Tenant.................................................. 22
14.2 Certificate of Insurance........................................................... 22
14.3 Adjustments to Insurance Coverage.................................................. 23
14.4 Other Coverage..................................................................... 23
14.5 Fire, Extended Coverage and Additional Perils Insurance............................ 23
14.6 Subrogation Rights................................................................. 24
14.7 Litigation Cooperation............................................................. 24
14.8 Self-Insurance..................................................................... 24
14.9 Indemnification of Landlord and Litchfield......................................... 24
ARTICLE XV
GENERAL CONDITIONS.............................................................................................. 27
15.1 Notice............................................................................. 27
15.2 Amendment.......................................................................... 28
15.3 Cooperation........................................................................ 28
15.4 Construction....................................................................... 29
15.5 Binding Effect on Successors....................................................... 29
15.6 Memorandum of Sublease............................................................. 29
15.7 Reading and Receipt of this Sublease............................................... 29
15.8 Attorneys' Fees.................................................................... 29
15.9 Captions and Indexes............................................................... 29
15.10 Severability....................................................................... 30
15.11 Pronouns........................................................................... 30
15.12 Triple Net Sublease................................................................ 30
15.13 Drafting of this Sublease.......................................................... 30
15.14 Counterparts....................................................................... 30
15.15 No Personal Liability.............................................................. 30
15.16 Mechanics' Liens................................................................... 30
15.17 Litchfield's Acceptance and Agreement.............................................. 31
ARTICLE XVI
PURCHASE OPTION................................................................................................. 31
</TABLE>
iii
<PAGE>
SUBLEASE
--------
THIS SUBLEASE ("Sublease") is made and entered into as of the 1st day
of June, 1996, by and between Integrated Health Services of Lester, Inc., a
Delaware corporation, with principal offices at 10065 Red Run Boulevard, Owings
Mills, Maryland 21117 ("Landlord") and Integrated Living Communities of
Bradenton, Inc., a Delaware corporation, with principal offices at 10065 Red Run
Boulevard, Owings Mills, Maryland 21117 ("Tenant").
W I T N E S S E T H:
WHEREAS, Litchfield Asset Management Corp., a Connecticut corporation
("Litchfield") is the present owner of the real property, improvements and
personal property constituting The Shores Nursing and Retirement Centers (the
"Facility"), situated at 1700 Third Avenue West, Bradenton, Florida 34205, as
described on Exhibit A hereto; and
WHEREAS, pursuant to a Lease, dated as of August 31, 1994 (the
"Lease"), between Litchfield and Landlord, Litchfield leased the Facility and
the Premises (as defined in Section 1.1 of the Lease) to Landlord, during the
term therein provided; and
WHEREAS, simultaneously Litchfield and Landlord entered into forty-two
(42) additional Leases, each dated as of August 31, 1994 (the "Affiliated
Leases") with respect to the other properties owned by Litchfield (such other
properties, other than the Facility and the Premises, being referred to herein
collectively as the "Affiliated Properties"), all as identified on Exhibit A to
the Facilities Agreement, dated as of August 31, 1994 (the "Facilities
Agreement"), among Litchfield, Landlord and Integrated Health Services, Inc., a
Delaware corporation ("Integrated"); and
WHEREAS, pursuant to the Facilities Agreement, Landlord and Integrated
agreed, among other things, that (i) Landlord would be obligated to lease the
Premises from Litchfield, (ii) Landlord was granted an option, pursuant to the
Purchase Option Agreement, dated as of August 31, 1994 (the "Purchase Option
Agreement"), between Litchfield and Landlord, to purchase the Premises from
Litchfield, and (iii) Litchfield entered into a Loan Agreement, dated as of
August 31, 1994 (the "Loan Agreement") with National Health Investors, Inc., a
Maryland corporation ("Lender") pursuant to which Litchfield issued Notes
(collectively, the "Note") to provide for the financing of a portion of the
purchase price of the Premises and the other Affiliated Properties and
encumbered the Premises with a security instrument in favor of the Lender (the
"Mortgage"); and
WHEREAS, Integrated agreed to guarantee payments of Rent (as defined in
Section 3.2(h) of the Lease) and certain other payments and obligations to be
made by Landlord under the Lease; and
WHEREAS, with the agreement and consent of Litchfield and Lender,
Landlord desires to sublease the Facility and the Premises (as defined in
Section 1.1 of this Sublease) to
<PAGE>
Tenant, during the term herein provided and Tenant desires to accept such
sublease upon the terms and subject to the conditions contained in this
Sublease; and
WHEREAS, simultaneously Landlord and Integrated Living Communities of
Colorado Springs, Inc. ("Integrated Living Colorado") entered into a Sublease,
dated as of June 1, 1996 (the "Colorado Sublease"), with respect to subleasing
the Cheyenne Place Retirement Center; and
WHEREAS, Integrated Living Communities, Inc., a Delaware corporation
("Integrated Living"), has agreed to guarantee payments of Rent (as defined in
Article III of this Sublease) and certain other payments and obligations to be
made by Tenant under this Sublease and Integrated Living Colorado under the
Colorado Sublease.
NOW, THEREFORE, in consideration of the rents, mutual covenants, and
agreements set forth in this Sublease, the parties agree that the use and
occupancy of the premises demised herein shall be subject to, and be in
accordance with, the terms, conditions and provisions of this Sublease as
follows:
ARTICLE I
DEMISED PREMISES
----------------
1.1 Premises. Subject to all of the terms and conditions of
this Sublease, Landlord hereby subleases to Tenant for the term and upon the
conditions provided in this Sublease, and Tenant hereby subleases from Landlord,
all of Landlord's right, title and interest in and to the following real and
personal property:
(a) the real property described in Exhibit A attached
hereto (the "Land"), and
(b) all buildings, structures, fixtures and other
improvements of every kind including, but not
limited to, the Facility, alleyways and connecting
tunnels, sidewalks, utility pipes, conduits and
lines (on-site and off-site), and parking areas and
roadways appurtenant to such buildings and
structures presently or hereafter situated upon the
Land (collectively, the "Leased Improvements"), and
(c) all easements, licenses, rights, privileges and
appurtenances relating to the Land and the Leased
Improvements (collectively, the "Related Rights"),
and
2
<PAGE>
(d) all equipment, machinery, fixtures, and other items
of real and/or7 personal property, including all
components thereof, now and hereafter located in,
on or used in connection with, and permanently
affixed to or incorporated into the Leased
Improvements, including, without limitation, if
any, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and
water pollution control, waste disposal, air-
cooling and air-conditioning systems and apparatus,
sprinkler systems and fire and theft protection
equipment, and built-in oxygen and vacuum systems,
all of which, to the greatest extent permitted by
law, are hereby deemed by the parties hereto to
constitute real estate, together with all
replacements, modifications, alterations and
additions thereto (collectively, the "Fixtures"),
and
(e) all equipment, machinery, furniture, furnishings,
moveable walls or partitions, computers or trade
fixtures, office equipment, operating supplies, or
other tangible real or personal property,
installed, stored, used or useful in the operation
of Facility and removable without causing material
damage to the Premises, including without
limitation all items of furniture, furnishings,
equipment, appliances, apparatus, and vehicles
together with all replacements, modifications,
alterations and additions thereto (collectively,
the "Personal Property"), and
(f) all inventory supplies and consumables used or
useful in connection with the operation of the
Premises (collectively, the "Inventory"), and
(g) all intangible assets, including but not limited
to, to the extent applicable, licenses, Certificate
of Need approvals, permits and other governmental
approvals from the applicable licensing and
certification agencies regarding the ownership and
operation of the Facility (collectively, the
"Intangibles").
(The Land, Leased Improvements, Related Rights, Fixtures, Personal Property,
Inventory, and Intangibles, collectively, the "Premises".)
This Sublease, and Tenant's right to possession pursuant
hereto, is to be effective on the Effective Date, as defined in Article II
hereof. Tenant shall have no obligations as tenant of the Premises, or any other
obligations pursuant hereto or in respect of the Premises under this Sublease,
until the commencement of the Term, as defined in Article II hereof.
1.2 Assumed Name. Subject to applicable law and the rights, if
any, of any party other than Litchfield and Landlord, Tenant shall have the
right to use and to register
3
<PAGE>
as the assumed business name for the Premises the name The Shores (the "Assumed
Name") on the Effective Date of this Sublease and thereafter while this Sublease
is in effect. Upon termination of this Sublease, such right shall terminate and
Tenant shall then deliver to Landlord or Litchfield, as applicable, all releases
or documents necessary to terminate such right to use and register the Assumed
Name.
ARTICLE II
TERM, EXTENSION AND RENEWAL
---------------------------
2.1 Term. The term of this Sublease shall commence at 12:01
a.m., local time, on June 1, 1996 (the "Effective Date"). The term of this
Sublease shall run from the Effective Date and terminate at 12:00 midnight,
local time, on the date (the "Lease Termination Date") that is seven (7) years
from the Effective Date as defined in Section 2.1 of the Lease (the "Initial
Term"), unless sooner terminated, extended or renewed as provided in Sections
2.2, 2.3 and 2.4 hereof.
2.2 Extension of the Initial Term. In the event the Lease is
extended pursuant to Section 2.2(a) of the Lease, then the Initial Term of this
Sublease shall be extended for an equal number of additional lease years (such
additional periods are referred to individually as the "Extended Term" and
collectively as the "Extended Terms"). Such Extended Terms shall begin upon the
expiration of the Initial Term or any prior Extended Term, with such Extended
Terms under the same terms and conditions of the Lease and this Sublease, except
as otherwise stated therein and herein.
2.3 Renewal Terms. Upon the expiration of the Initial Term or
any Extended Term under the Lease and if no Tenant Event of Default exists under
this Sublease, Tenant is hereby granted (i) one (1) option to renew this
Sublease for an additional period of seven (7) years and (ii) three (3)
successive options to renew this Sublease for an additional period of five (5)
years for each such option, such renewal term(s) to begin respectively upon the
expiration of the prior term(s) (such renewal periods are referred to
collectively as the "Renewal Terms," and individually each as the "Renewal
Term"), with each Renewal Term under the same terms and conditions of this
Sublease, except as otherwise stated herein. Tenant may exercise its right to
exercise the aforesaid options by providing written notice in each instance to
Landlord, Litchfield and Lender (in accordance with Section 15.1 hereof) no less
than fifteen (15) months prior to the expiration of the Initial Term, or if the
Initial Term is extended pursuant to Section 2.2 hereof, nine (9) months prior
to the expiration of the Extended Term, or if this Sublease is renewed pursuant
to this Section 2.3, nine (9) months prior to the expiration of any Renewal
Term; provided, however, Landlord shall have complied with the renewal
provisions set forth in the Lease with respect to each such Renewal Term.
4
<PAGE>
The Initial Term, any Extended Term pursuant to Section 2.2
hereof and any Renewal Term pursuant to Section 2.3 hereof shall be referred to
collectively as the "Term".
ARTICLE III
RENTAL
------
3.1 Base Rental. Rent shall commence on the Effective Date of
this Sublease. The monthly payments of Rent provided for herein shall be paid by
Tenant in advance, without notice or demand, on the first day of each month in
equal monthly installments throughout the Lease Year, except as otherwise stated
herein. The Rent for the calendar month during which Rent shall begin to accrue
and for the last calendar month of the Term of this Sublease shall be prorated
based upon the actual number of days in such month, if necessary. All Rent
payments shall be paid to Landlord at the address stated in Section 15.1 hereof
or to such other person, firm or corporation or at such other address as
Landlord may designate by notice in writing to Tenant. For purposes of this
Article III and as otherwise provided for in this Sublease, capitalized terms
used herein shall have the meanings assigned to them in Section 3.2 hereof,
unless otherwise previously defined or stated herein.
Tenant agrees to pay Landlord as rent (the "Rent")
for each Lease Year all of the amounts payable by Landlord to Litchfield and to
Lender (on behalf of Litchfield) as provided for in Article III and Article IV
of the Lease.
For the period from the Effective Date to and
including August 31, 1996, Tenant shall pay Landlord the sum of $311,163.
Beginning September 1, 1996 and during the first
Lease Year of this Sublease, Tenant shall pay Landlord the sum of $1,244,652
(the "First Year Rent"). Within thirty (30) days after the end of the first
Lease Year, the First Year Rent shall be reviewed by Landlord to determine if
the sum accurately represents the amount paid by Landlord under the Lease during
the first Lease Year. If the First Year Rent is less than the amount paid by
Landlord under the Lease, then Tenant shall pay such additional amount to
Landlord as Rent under this Sublease within five (5) days of written notice
thereof by Landlord of the amount owed by Tenant. If the First Year Rent is in
excess of the amount paid by Landlord under the Lease, then such amount shall be
credited to Tenant as partial payment of Rent in the second Lease Year under
this Sublease.
Beginning in the second Lease Year and for all
Lease Years thereafter during the Term of this Sublease and until the Lease
Termination Date, the Rent under this Sublease for each such Lease Year shall be
the amount paid by Landlord under the Lease for the prior Lease Year under the
Lease. Landlord shall provide Tenant written notice within ten (10) days prior
to the beginning of each Lease Year under this Sublease of the amount of Rent
5
<PAGE>
that Tenant will be obligated to pay Landlord under this Sublease for such Lease
Year. Within thirty (30) days after the end of each Lease Year during the Term
of this Sublease, the prior Lease Year's Rent under this Sublease shall be
reviewed by Landlord to determine if the sum accurately represents the amount
paid by Landlord under the Lease for such Lease Year. If the Rent paid by Tenant
during such Lease Year under this Sublease was less than the amount paid by
Landlord under the Lease, then Tenant shall pay such additional amount to
Landlord as Rent under this Sublease within five (5) days of written notice
thereof by Landlord of the amount owed by Tenant. If the Rent paid by Tenant
during such Lease Year under this Sublease was in excess of the amount paid by
Landlord under the Lease, then such amount shall be credited to Tenant as
partial payment of Rent in the following Lease Year under this Sublease;
provided, however, that if such credit occurs at the end of the Term of this
Sublease, then Landlord shall be obligated to pay such excess amount to Tenant.
3.2 Definitions.
------------
(a) "Rent" shall mean the amount paid by Tenant to
Landlord as described in Section 3.1 herein.
(b) "Lease Year" shall mean any twelve (12) month
period that commences on the Effective Date of the Lease, or any subsequent
anniversary of the Effective Date of the Lease.
(c) "Lender" shall mean National Health Investors,
Inc., a Maryland corporation, or any successor thereof, together with any holder
of the Loan or any renewal, extension or refinancing of the Loan.
(d) "Loan" shall mean the loan of Litchfield
entered into as of August 31, 1994, with the Lender, together with any advance,
renewal, extension, modification, amendment or refinancing of such Loan.
3.3 Effective Date Payments. Landlord shall be responsible for
payment of all payables accrued prior to the Effective Date of this Sublease
(the "Effective Date Payables"), including, but not limited to, salaries, wages,
compensation, employee vacation, holiday, bonuses, sick leave or amounts for
other employee benefit programs of Landlord attributable to the period prior to
the Effective Date, trade payables, utilities, insurance, telephone expenses,
taxes or assessments, and other charges, expenses and costs accrued prior to the
Effective Date (collectively, the "Payables"). All Payables shall be calculated
and adjusted pro rata, as of the Effective Date of this Sublease, as between
Landlord and Tenant. Landlord shall defend, indemnify and hold Tenant harmless
from and against any and all claims, demands, actions, liabilities and expenses
(including reasonable attorneys' fees) arising out of, or in connection with the
Effective Date Payables of the Premises or the Facility accrued prior to the
Effective Date.
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Any advance payments made by patients of the Facility for
services to be rendered after the Effective Date of this Sublease shall be paid
or credited to Tenant upon the Effective Date of this Sublease, and any patient
deposit trust funds shall be paid or assigned to Tenant upon the Effective Date
of this Sublease.
3.4 Receivable Payments to Landlord and Tenant. During the
Term of this Sublease, Tenant shall remit to Landlord as soon as reasonably
possible after receipt thereof all receivables due and owing to Landlord that
are collected by or paid to Tenant and that are attributable to the use,
possession and management of the Premises prior to the Effective Date of this
Sublease. During the Term of this Sublease, Landlord shall remit to Tenant as
soon as reasonably possible after receipt thereof all receivables due and owing
to Tenant that are collected by or paid to Landlord and that are attributable to
Tenant's use, possession and management of the Premises from, on and after the
Effective Date or have been sold, transferred or conveyed to Tenant by Landlord.
If Tenant determines after the Effective Date of this Sublease that Landlord (or
Landlord's predecessor in interest) has advance billed and collected patient
receivables that are actually attributable to Tenant's use, possession and
management of the Premises after the Effective Date of this Sublease, then
Tenant, after notice to Landlord thereof and in the absence of a dispute
thereof, shall have the right to offset and deduct from the Rent the total
amount representing such advance billed and collected patient receivables.
ARTICLE IV
TITLE AND POSSESSION
--------------------
4.1 Authority. Landlord has the complete right and authority to enter into this
Sublease on the terms and conditions and for the use herein stated.
4.2 Leased Equipment. Landlord shall furnish as "Leased
Equipment" in the Facility all of the Personal Property and Inventory necessary
to reasonably operate the Facility in accordance with state health care
standards as of the Effective Date, including, but not limited to, the items
described on Exhibit B hereto and such Leased Equipment shall be leased to
Tenant and be controlled by the terms of this Sublease. No additional rent,
beyond the Rent provided for in Article III hereof, shall be paid by Tenant for
the Leased Equipment.
If necessary or appropriate for the operation of the Facility,
Tenant shall during the Term add additional items that will become Leased
Equipment or repair or replace part or all of the items of Leased Equipment
which have been damaged or destroyed through no fault or neglect of Landlord and
such repair or replacement shall be at the sole cost and expense of Tenant, but
any such additional, repaired or replaced Leased Equipment shall be and remain
the property of Landlord. Such additional or replacement fixtures, equipment or
furnishings
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shall not be subject to leases or conditional sales contracts, except those
entered into in the ordinary course of business.
4.3 Surrender of Possession. At the end of the Term or upon
the earlier termination of this Sublease, Tenant, (i) at its sole cost and
expense, shall surrender the Premises and the Leased Equipment (including
additions, replacements and accessories thereto), to Landlord, which Leased
Equipment shall specifically include all the Personal Property and Inventory
necessary to reasonably operate the Premises in accordance with state healthcare
standards in effect as of the end of the Term of this Sublease, in the same good
condition and state of repair as they were at the beginning of the original
Term, ordinary wear and tear excepted, and broom clean and (ii) shall surrender
its license to operate the Premises as a health care facility in favor of
Landlord; provided, however, Landlord or subsequent tenant has applied for and
will receive (at Landlord's or subsequent tenant's cost and expense, including
filing and licensure fees) appropriate governmental approvals for such license
transfer, which transfer Tenant shall reasonably cooperate with in all material
respects. At the end of the Term, Tenant shall pay all scheduled periodic
amounts due and owed to third parties as of the Lease Termination Date for any
of the Leased Equipment and the Leased Equipment shall be surrendered to
Landlord free and clear of all liens and encumbrances (other than those in favor
of Lender), except liens and encumbrances in respect of the remaining Leased
Equipment payment obligations.
4.4 Holding Over. If Tenant remains in possession of the
Premises after the expiration of the Term of this Sublease, such possession
shall be as a month-to-month tenant. During such month-to-month tenancy, Rent
shall be payable at one hundred twenty-five percent (125%) of the rate as is in
effect during the last month of the preceding Term (including the adjustment
provided in Section 3.3 hereof) and the provisions of this Sublease shall be
applicable and continue in full force and effect.
4.5 Surrender of Premises License by Landlord. On the
Effective Date, Landlord shall surrender its license to operate the Premises as
a health care facility in the name of Tenant.
4.6 Facility License. On the Effective Date, Landlord shall
cooperate with Tenant so as to obtain a license to operate the Premises as a
health care facility in the name of Tenant.
ARTICLE V
TAXES, ASSESSMENTS AND UTILITIES
--------------------------------
5.1 Taxes. Tenant, at its sole cost and expense, shall pay when due all real
estate taxes, personal property taxes, Rent Taxes (as defined below) and
assessments, if any, becoming due
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and payable against the Premises or the Leased Equipment beginning as of the
Effective Date and all taxes and assessments (if any) thereafter becoming due
and payable during the Term of this Sublease. Notwithstanding the foregoing in
no event shall Tenant be obligated to pay any income tax of Landlord or
Litchfield, any franchise tax of Landlord or Litchfield or any other tax
assessed against the income or capital of Landlord or Litchfield. Tenant shall
have the right, at its sole cost and expense and in good faith, to contest the
amount or validity of any such tax or assessment payable by Tenant under the
terms of this Sublease. If Tenant contests any proposed real estate tax or
assessment, then Tenant shall escrow the full amount of such proposed real
estate tax or assessment during the period of the contest, including, if
applicable, any statutory interest or penalty requirements and shall provide
Landlord and Litchfield with proof of the escrow and the identity of escrow
agent. In addition, if at any time payment of any such tax or assessment shall
become necessary to prevent the tax sale of the Premises or any portion thereof
because of nonpayment, then Tenant shall pay the same in sufficient time to
prevent such sale. In no event, and under no circumstances, shall Tenant permit
the Premises to be lost due to the failure to pay taxes described in the
Section. Any real estate taxes and assessments which become due for the year in
which possession is given to Tenant but which are payable prior to the Effective
Date shall be prorated for the calendar year between Landlord and Tenant and
such proration shall also occur at the end of the Term for the calendar year of
termination. "Rent Taxes" shall mean any excise, transaction, sales or privilege
tax (except federal and state taxes imposed in connection with change of
ownership of the Premises) at any time levied or imposed by any government or
government authority, subdivision, agency or body on account of or measured by
the Rent or any other sums payable under this Sublease.
5.2 Sewer Use Fees. Tenant, at its sole cost and expense,
shall pay when due all sewer use fees and deposits (if any) assessed against the
Premises, beginning as of the Effective Date of this Sublease and during the
Term of this Sublease. In the event of the expiration or earlier termination of
this Sublease or termination of the right of possession of Tenant, Tenant shall
not be entitled to a return of all sewer use deposits.
5.3 Utilities. Tenant, at its sole cost and expense, shall
obtain in its name and pay when due all charges and deposits (if any) for gas,
water, electricity, cable television, trash, telephone, communication services,
and all other utilities (collectively, the "Utilities") used on or supplied to
the Premises, beginning as of the Effective Date of this Sublease and during the
Term of this Sublease. In the event of the expiration or earlier termination of
this Sublease or termination of the right of possession of Tenant, Tenant shall
not be entitled to a return of all utilities deposits.
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ARTICLE VI
USE OF PREMISES
---------------
6.1 Use by Tenant. Upon the Effective Date, Tenant shall use the Facility and
the Premises only for the business purpose of a health care facility, ancillary,
medical and therapeutic health care services and for no other purpose. Tenant
covenants and agrees that during the Term of this Sublease, it will continuously
operate the Facility as a provider of health care services in material
compliance with all applicable rules, regulations, laws, statutes, orders,
ordinances and requirements, and will maintain its certifications for
reimbursement and licensure, and its accreditation, if compliance with
accreditation standards is required to maintain the operations of the Facility
and a failure to comply would adversely affect operations of the Facility.
6.2 Compliance with Laws. Tenant shall use its reasonable best
efforts and at its sole cost and expense, to get the Premises into material
compliance, and Tenant shall operate the Premises in material compliance with
all applicable city, county, state and federal building codes, ordinances,
rules, regulations and laws applicable to the Premises.
6.3 Waste. Tenant shall neither commit, nor permit the
commission of waste upon or against the Premises and the Leased Equipment,
ordinary wear and tear excepted.
6.4 License and Permits. Tenant at its sole cost and expense,
shall acquire and maintain all licenses and permits needed to operate a long
term care facility on the Premises.
6.5 Right of Entry for Inspection and Repairs. Landlord,
Litchfield and Lender (or their authorized designee) shall have the right to
enter upon the Premises for the purpose of inspection or making such
improvements, repairs and alterations of the Premises as Landlord, Litchfield
and Lender (or their authorized designee) may be required or permitted hereunder
to provide, or may deem reasonably necessary or advisable. At all reasonable
times and with the least disturbance reasonably necessary, Landlord, Litchfield
and Lender (or their authorized designee) may inspect the Premises or view the
Premises with existing or prospective mortgagees, prospective purchasers or
prospective tenants or sub-tenants. Except in cases of emergency or when Tenant
is in default under this Sublease, Landlord, Litchfield and Lender (or their
authorized designee) shall give Tenant reasonable advance notice before entering
the Premises; provided, however, Landlord, Litchfield and Lender (or their
authorized designee) shall not infringe on Tenant's normal and customary rights
of quiet enjoyment. The consent of Tenant (not to be unreasonably withheld)
shall be obtained prior to commencement of major repairs, improvements or
alterations to the Premises by Landlord or Litchfield and, if reasonably
possible, such work shall be done at such time or times as will not unreasonably
interfere with the operations of Tenant. The exercise of any right reserved
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hereunder by Landlord, Litchfield and Lender shall not operate as a constructive
eviction or disturbance of Tenant's use and possession of the Premises and shall
not render Landlord, Litchfield and Lender liable to Tenant or any other person.
6.6 Reports to Landlord and Litchfield. At least quarterly and
annually, Tenant shall furnish to Landlord and Litchfield a written report, in
form and substance reasonably satisfactory to Landlord and Litchfield, regarding
the operation, management and financial performance of the Premises, including,
but not limited to, information as to the Net Revenues for the Premises, as
defined in Section 3.2(g) of the Lease.
6.7 Additional Tenant Obligations. During the term of the
Note, Tenant shall perform the obligations set forth on Exhibit D hereto as
required therein, unless Landlord and Litchfield otherwise consent in writing;
provided, however, that in the event of a refinance, amendment, modification or
supplement of the Loan (a "Loan Refinance") evidenced by a note, Tenant shall
perform and observe such covenants, duties and obligations required by the
instruments evidencing the security or pertaining to such Loan Refinance.
ARTICLE VII
EMINENT DOMAIN
--------------
7.1 Permanent or Temporary Taking. In the event notice of the taking of all or
any portion of the Premises on a permanent or temporary basis by any federal,
state, local or quasi-governmental agency or other authority, by means of
condemnation or threat of condemnation is received by Landlord, Litchfield or
Tenant, then such party shall promptly provide to the other parties notice of
such proposed or threatened taking. Upon the occurrence of such taking, whether
by condemnation, threat of condemnation or conveyance in lieu of condemnation,
the terms and conditions of this Article VII shall govern and control.
7.2 Permanent Taking. In the event of the taking of the entire
Premises or so much thereof that the remainder of the Premises cannot reasonably
be utilized as a health care facility and the Lease is terminated as a result
thereof, then this Sublease shall terminate as of the effective date of such
taking by the governmental or quasi-governmental authority.
7.3 Temporary Taking. In the event that all or any part of the
Premises shall be taken for a temporary use by a governmental or
quasi-governmental authority, all such compensation for the temporary taking
received by Landlord under the Lease or Tenant under this Sublease shall be
payable to Landlord. Tenant's obligation to pay Rent shall continue under this
Sublease; provided, however, Rent shall be reduced or adjusted to the extent
Landlord's obligation to pay Rent under the Lease is modified.
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7.4 Partial Taking. In the event that a portion of the
Premises shall be taken by a governmental or quasi-governmental authority but
the remainder of the Premises can reasonably be utilized as a health care
facility, then this Sublease shall continue and, except as otherwise provided in
this Section 8.4, Tenant shall continue to perform all terms and conditions of
this Sublease as if such condemnation or taking shall not have occurred. Neither
party shall have any right to terminate the Sublease as a result of such taking
or condemnation. Tenant's obligation to pay Rent shall continue under this
Sublease; provided, however, Rent shall be reduced or adjusted to the extent
Landlord's obligation to pay Rent under the Lease is modified. If applicable
under the Lease, to the extent such compensation is not applied to the
indebtedness secured by the Facility, all compensation paid in respect of such
taking shall belong to and be the property of Litchfield; provided, however,
that to the extent such shall not reduce the award or compensation to
Litchfield, Tenant shall be entitled to seek and maintain an independent action
or claim in the condemnation or eminent domain proceedings for its equipment
(other than the Leased Equipment) or signs, moving expenses, relocation costs or
any other allowances to which Tenant may be legally entitled. In any event
Landlord and Litchfield shall not be liable to Tenant for any damage,
compensation or award.
ARTICLE VIII
ALTERATIONS, REPAIRS AND TRADE FIXTURES
---------------------------------------
8.1 Repairs by Tenant Generally. Tenant, at its sole cost and expense, shall
inspect, maintain and repair the improvements constituting the Premises so as to
keep the Leased Improvements and interior decorations in good repair and in a
safe condition, ordinary wear and tear excepted, free from dirt, water, snow,
ice, refuse, trash and obstruction and in material compliance with applicable
laws. This obligation to repair shall include, but not be limited to, Tenant's
signs, glass, any air conditioning, heating, electrical, parking areas and
driveways, plumbing systems, roof, walls and all interior repairs. Except as
otherwise provided for herein, Tenant shall not alter any part of the structure
of the Premises or change or alter any permanent improvement in or on the
Premises or make additions thereto without the prior written consent of
Landlord, Litchfield and Lender (or their authorized designee), which consent
shall not be unreasonably withheld; provided, however, that no such alterations
or additions shall adversely affect the fair market value or useful life of the
Premises. However, Tenant may make such alterations without Landlord's and
Litchfield's consent if such alterations have an aggregate cost of no more than
$1,500,000, so long as Tenant gives a copy of the plans to Landlord, Litchfield
and Lender (or their authorized designee) within ten (10) days prior to making
the alterations. Landlord, Litchfield and Lender reserve the right to impose
reasonable requirements as a condition of granting their consent to any proposed
alterations in excess of $1,500,000, including, without limitation, requirements
that Tenant (a) submit for Landlord's, Litchfield's and Lender's (or their
authorized designee's) prior approval (which approval shall not be unreasonably
withheld) plans and specifications prepared by licensed architects and
engineers, (b) submit for Landlord's and Litchfield's prior approval
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(which approval shall not be unreasonably withheld) the names, addresses, and
general information of all contractors, subcontractors, and suppliers, (c)
obtain, arrange for and/or post necessary permits, bonds, and additional
insurance, (d) submit contractor, subcontractor, and supplier lien waivers, and
(e) materially comply with such other requirements as Landlord, Litchfield and
Lender (or their authorized designee) may reasonably impose concerning the
manner in which the work shall be done and the other aspects of the work. Any
alteration or repair work shall be performed in a good and workmanlike manner,
with quality materials, materially in accordance with plans and specifications
approved by Landlord, Litchfield and Lender (or their authorized designee). Any
alteration or repair work shall be completed so as to cause the least material
interference at the Premises, in material compliance with all applicable laws,
permits, licenses, and regulations. Tenant shall use its reasonable best efforts
to keep the Premises free from any mechanic's, materialman's, or similar liens
and encumbrances and any claims therefor in connection with any alteration or
repair work. Tenant shall give Landlord, Litchfield and Lender (or their
authorized designee) notice at least ten (10) days prior to commencement of the
alteration or repair work, to afford Landlord, Litchfield and Lender (or their
authorized designee) the opportunity to post or record appropriate notices of
nonresponsibility. Tenant shall remove any lien, claim, or encumbrance, by bond
or otherwise, within thirty (30) days after such claim is asserted. If Tenant
fails to do so, Landlord, Litchfield or Lender may pay the amount or take such
other action as Landlord, Litchfield or Lender deems reasonably necessary to
remove such claim, lien, or encumbrance after investigating the validity
thereof. The amount so paid and costs incurred by Landlord, Litchfield or Lender
shall be payable by Tenant on demand, together with detailed information
regarding such amount. Nothing in this Sublease shall authorize Tenant to do any
act which shall subject Litchfield's title to the Premises or its interest
therein to any such liens, claims, or encumbrances. Any such liens shall attach
solely to Tenant's interest in the Premises and shall in all respects be
subordinate to Litchfield's title to the Premises. Tenant shall not do anything
or permit anything to be done upon the Premises which will adversely affect the
safety or security of the Premises, or which will increase the rate of fire or
casualty insurance upon the improvements or their contents, without Landlord's,
Litchfield's and Lender's (or their authorized designee) written consent, or
which will cause structural damage to the Premises or to any improvements
therein. Except for trade fixtures, any improvements made to the Premises shall
become the property of Landlord, free of charge, if affixed to the realty.
8.2 Quality and Promptness of Repairs. All repairs made by
Tenant shall be made promptly when necessary; shall be at least equal to the
original construction in the quality of materials and workmanship and shall be
done in full compliance with all applicable building codes, ordinances, rules,
regulations and statutes of the city, county, state and federal governments;
provided, however, Landlord or Litchfield shall have the right to perform
necessary repairs for and on behalf of Tenant, and charge Tenant for the cost of
such repairs.
8.3 Liability of Landlord and Litchfield. Landlord shall not
be liable to Tenant or any other person or corporation, including employees and
invitees, for death or
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injury to the person or for loss or damage to property caused by theft,
vandalism, water, rain, snow, frost, fire, storm or accident, or by breakage,
stoppage, or leakage of water, gas, heating or sewer pipes or plumbing, upon,
about or adjacent to the Premises or by any other cause, except damages caused
by Litchfield's breach of the Lease, Landlord's breach of this Sublease or by
the gross negligence or willful misconduct of Landlord, Litchfield or their
employees or agents.
ARTICLE IX
SIGNS
-----
Tenant shall have the right to place upon the Premises such
sign or signs as it may desire for advertising purposes, at Tenant's sole cost
and expense. All signs shall comply with all applicable federal, state and local
statutes, rules, regulations and ordinances. Tenant shall maintain such signs in
a good state of repair and shall repair any damage to the Premises by the
erection, maintenance or removal of such signs at the termination of this
Sublease. Upon the termination of this Sublease, all signs of Tenant shall be
removed in accordance with Article IX relating to trade fixtures.
ARTICLE X
ASSIGNMENT, SUBLETTING AND SUBORDINATION
----------------------------------------
10.1 Assignment or Subletting by Tenant. Tenant shall not
assign this Sublease or any interest herein, or sublet the Premises or any part
thereof or any right or privilege appurtenant thereto, or allow any person other
than Tenant and its agents, employees, patients and medical staff to occupy or
use the Premises or any part thereof without Landlord's, Litchfield's and
Lender's prior written consent, if required. This Section shall not prohibit
assignment to affiliated entities of Tenant, co-ventures or partnerships of
which Tenant is a participant (collectively, a "Successor Affiliate"); or any
other such entity or successor; provided, however, that such affiliate entity,
co-venture or partnership shall be and remain at least fifty-one percent (51%)
owned or beneficially owned by Integrated Living. Upon the occurrence of any
assignment or subletting to a Successor Affiliate, Tenant shall promptly provide
to Landlord and Litchfield written notice of such assignment or subletting,
together with a copy of all assignments, transfers, subleases, financial and
ownership information regarding such Successor Affiliate and such other
information reasonably requested by Landlord and Litchfield. Any unauthorized
assignment or sublease shall be voidable and shall constitute a breach of this
Sublease at Landlord's or Litchfield's option.
Landlord, Litchfield and Lender shall not unreasonably
withhold or delay their consent to assignment or subletting of this Sublease.
Without limitation of Landlord's, Litchfield's and Lender's right to withhold
their consent, Landlord, Litchfield and Lender may
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withhold their consent and be deemed reasonable hereunder if one or more of the
following applicable facts exist:
(a) Assignee or sublessee does not agree in
writing to be bound by all terms, conditions
and obligations under the Lease and this
Sublease.
(b) Assignee's or sublessee's proposed use of
the Premises is not permitted by the use
provisions of the Lease and this Sublease.
(c) The proposed assignee or sublessee does not
promptly obtain licensure approval after the
assignment or sublease in accordance with
applicable Florida statutes, rules and
regulations.
It shall not be unreasonable to withhold said
consent if Tenant is in default of this Sublease at such time.
In the event Landlord, Litchfield and Lender refuse to grant
such consent and if Tenant wishes to contest Landlord's and Lender's decision,
then Tenant's sole remedy shall be for injunctive relief and specific
performance and not for any form of damages or costs, unless such refusal to
grant consent is found to be arbitrary and capricious by unappealable final
decision of a court of competent jurisdiction. Any such assignment or sublease
shall be subject to the terms of the Lease and this Sublease and Tenant shall
remain primarily liable to Landlord, Litchfield and Lender for the full
performance of the duties and obligations under this Sublease.
10.2 Assignment by Landlord. Landlord shall not sell, assign
or transfer this Sublease or any interest herein unless permitted under the
Lease or this Sublease.
Any unauthorized assignment shall be voidable and
shall constitute a breach of this Sublease at Tenant's option.
Tenant shall be under no obligation to any assignee
of Landlord (other than Litchfield and Lender) except upon written notice of
such assignment from Landlord, Litchfield and Lender. Upon notice to Tenant of
any such assignment, the Rent payable by Tenant which are subject to this
assignment shall be paid to or upon the written order of the assignee.
10.3 Subordination and Attornment. This Sublease shall be
subject and subordinate to the lien contemplated by the Loan Agreement and any
lien securing indebtedness hereafter to be secured by the Premises at the
election of any owner of the Premises, and to all renewals, modifications,
amendments, consolidations, replacements and extensions thereof, subject,
however, to the covenants and conditions contained in this Section
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11.3. Tenant shall execute and deliver to the owner of the Premises, Lender and
any other holder of secured indebtedness, documents which may be reasonably
required by any owner of the Premises in confirmation of such subordination
promptly upon Landlord's or Litchfield's written request. Further, Tenant, as a
part of any subordination agreement, if requested, shall agree to attorn to
Lender and any other holder of secured indebtedness in the event of foreclosure
or deed in lieu of foreclosure, in a manner reasonably acceptable to Lender and
any such other lender. In consideration of Tenant's execution of a subordination
and/or attornment agreement, Landlord or Litchfield shall cooperate and assist
Tenant in obtaining a non-disturbance agreement from Lender and any such other
holder of secured indebtedness. In any event, Tenant shall be obligated to
continue to pay Rent and comply with all other terms of this Sublease if allowed
to remain in possession after any foreclosure or deed in lieu of foreclosure;
provided, however, if any Lender or other holder of secured indebtedness
forecloses on the lien contemplated by the Loan Agreement or any other lien
securing indebtedness in respect of the Premises, or the Premises are purchased
at a foreclosure sale, Tenant shall not be disturbed so long as Tenant has met
and continues to meet all its requirements under this Sublease. Except for the
lien securing indebtedness contemplated by the Loan Agreement, Landlord or
Litchfield may not place any other lien securing indebtedness on the Premises
without the written consent of Tenant.
10.4 Sale by Litchfield. Any sale, assignment or conveyance of
the Premises shall be made subject to the Lease, this Sublease and the Purchase
Option Agreement. If the Premises is sold to Landlord pursuant to the Purchase
Option Agreement, then this Sublease shall terminate on the date of acquisition
of the Premises by Landlord.
10.5 Estoppel Certificates. Tenant, upon request by Landlord
or Litchfield, shall execute and deliver to Landlord or Litchfield, in
contemplation of the sale or mortgage of the Premises, and Landlord or
Litchfield upon request by Tenant shall execute and deliver to Tenant, in
contemplation of an assignment of the Lease or this Sublease, an estoppel
certificate which shall, at a minimum, state, to the extent true, the following
facts: (a) that this Sublease is a true and correct copy of this Sublease and
that it has not been modified or terminated except as set forth, (b) that the
Rent in this Sublease has not been modified, (c) that there are no outside
agreements that would affect the beneficiary of the estoppel certificate or any
of their rights under this Sublease or to the Premises, (d) that there are no
disputes existing as to this Sublease, (e) that Landlord has complied with the
terms of this Sublease to the date of the certificate, (f) that there has been
no Rent paid more than thirty (30) days in advance, and (g) any other terms
reasonably acceptable to Tenant or reasonably required by any mortgagee.
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ARTICLE XI
DEFAULT
-------
11.1 Default by Tenant. As used herein, the term "Event of
Default" shall mean the occurrence of any one or more of the following:
(a) The failure of Tenant to pay the Rent under
this Sublease and the continuation of such
failure for a period thirty (30) consecutive
calendar days (twenty-eight (28) consecutive
calendar days for the month of February)
after the date the Rent is due and payable
under this Sublease.
(b) The failure of Tenant to pay any other sum
of money payable under this Sublease and the
continuation of such failure for a period
fifteen (15) consecutive calendar days after
the date such other sum of money is due and
payable.
(c) Unauthorized assignment of this Sublease or
any interest therein or unauthorized
sublease of the Premises or any part
thereof.
(d) Abandonment or vacating of the Premises by
Tenant or any permitted subtenant, or
failure of Tenant or any permitted
subtenant, to conduct business as required
by this Sublease.
(e) Dissolution of Tenant or Integrated Living.
(f) The appointment of a receiver or trustee
over all or any part of the property of
Tenant or Integrated Living or any permitted
subtenant, and, in the case of any such
appointment without the consent or
acquiescence of Tenant or Integrated Living
or any permitted subtenant, the expiration
of one hundred and eighty (180) consecutive
calendar days after the effective date of
such appointment without such appointment
having been released or vacated.
(g) The voluntary or involuntary making by or
against Tenant or Integrated Living or any
permitted subtenant of a general assignment
for the benefit of any one or more of the
past, present or future creditors of Tenant
or Integrated Living or any permitted
subtenant and, in the case of any
involuntary assignment, the expiration of
one hundred and eighty (180)
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consecutive calendar days without such
involuntary assignment being fully and
completely abrogated.
(h) The filing or attachment of any lien or
encumbrance against the Premises arising out
of any act or omission by Tenant or any
permitted subtenant which is not released or
bonded by Tenant in accordance with the law
within thirty (30) consecutive calendar days
after the filing of any such lien or
encumbrance.
(i) Failure of Tenant or any permitted subtenant
to provide evidence of the obtaining or
maintenance of any insurance coverage
provided hereunder and the continuation of
such failure for a period of fifteen (15)
calendar days after the date of delivery of
written notice thereof from Landlord.
(j) Failure of Tenant or any permitted subtenant
to perform any material covenant, condition,
indemnity or obligation contained in this
Sublease or the Lease which is not covered
by any other subsection of this Section 12.1
and the continuation of such failure for a
period of thirty (30) calendar days after
the date of delivery of written notice
thereof from Landlord; provided, however,
that if such failure could not reasonably be
cured within such thirty (30) day period,
then such thirty (30) day period shall be
extended for such additional period of time
as may be reasonably required in order to
cure such failure, provided that Tenant
exercises reasonable diligence in curing
such failure during and after the expiration
of the initial thirty (30) day period.
(k) Any act of intentional material damage to
the Premises or any common area.
(l) The occurrence of an Event of Default under
Article XIII of any of the Affiliated Leases
or Article XI of the Colorado Sublease.
In the event of any default, Landlord shall give Tenant
written notice of the default stating the default complained of and referring to
the applicable Article and Section in this Sublease relied on by Landlord.
11.2 Landlord's Rights and Remedies. Upon any Event of Default
and a failure by Tenant to cure same within the time period provided in the
preceding Section, if any, Landlord, at its option, and without further demand
or notice, shall have the following
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rights and remedies in addition to any rights provided by law or equity, all of
which shall be cumulative:
(a) Perform any covenant or obligation of Tenant and
add the cost of the cure to the next installment or
installments of the Rent due.
(b) Terminate the Sublease and Landlord may make a
demand for accrued Rent.
(c) Reenter the Premises without terminating the
Sublease and take possession of the Premises and
any Leased Equipment and Tenant shall remain liable
for the equivalent amount of Rent reserved for the
balance of the Term, as and when due, less the
avails, if any, of reletting the Premises or any
part thereof to a third party. If Landlord relets
the Premises (either for a term greater than, less
than or equal to the unexpired portion of the Term
then in effect under the terms of this Sublease)
for an aggregate rent during the portion of such
new sublease which is less than the Rent and other
charges which Tenant would pay hereunder for such
period, Landlord may immediately upon the making of
such new sublease, sue for and recover the
difference between the aggregate rental provided
for in said new sublease for the portion of the
term coextensive with the Term then in effect under
this Sublease, and the Rent and other charges which
Tenant would pay hereunder for such period,
together with any reasonable expenses, including,
without limitation, attorneys' fees and expenses,
to which Landlord may be put for brokerage
commissions, placing the Premises in tenantable
condition, and other related charges or expenses
accrued prior to the new sublease or otherwise;
provided, however, the aggregate rental provided
for in said new sublease is reasonable for the
Premises. If such new sublease or tenancy is made
for a shorter term than the balance of the Term of
this Sublease, any such action brought by Landlord
to collect the deficit for that period shall not
bar Landlord from thereafter suing for any loss
accruing during the balance of the unexpired Term
of this Sublease. Landlord shall use its reasonable
efforts to negotiate and obtain terms and
conditions for any reletting of the Premises that
are commercially reasonable terms and conditions
under the circumstances. Landlord shall also abide
by the real property laws applicable to the
Premises in respect of reletting the Premises and
mitigating the liability and obligations of Tenant
under this subsection (c).
(d) Neither (i) the termination of this Sublease
pursuant to subsection (b); (ii) the repossession
of the Premises; (iii) the failure of Landlord,
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notwithstanding reasonable best efforts, to relet
the Premises; (iv) the reletting of all or any
portion thereof; nor (v) the failure of Landlord to
collect or receive any rentals due upon any such
reletting, shall relieve Tenant of its liability
and obligations hereunder, all of which shall
otherwise survive any such termination,
repossession or reletting. Any payments with
respect to rental, taxes, insurance and maintenance
of the Premises made by any subsequent tenant of
the Premises, during the time Tenant shall remain
liable to Landlord under this Sublease, shall to
the extent to such payment relieve Tenant of its
liability for that payment under this subsection
(d).
(e) Landlord may enforce, by action or otherwise, any
other term or covenant of this Sublease.
(f) At the option of Landlord, the rights and remedies
of this Section 12.2 shall apply to this Sublease,
the Colorado Sublease or both.
Tenant knowingly and voluntarily waives demand for
performance, notice to quit and any and all rights of redemption which Tenant
may now have or hereafter acquire pursuant to statute or court decision, except
for notice as provided in this Article.
Landlord shall have the right to cure any Event of Default by
Tenant without giving notice to Tenant in the event of any emergency.
Landlord's failure to insist on the strict performance of and
compliance with each condition in this Sublease shall neither constitute nor be
construed as constituting a waiver by Landlord of Landlord's rights under this
Article or by law, nor constitute nor be construed as consisting of a waiver by
Landlord of a second or subsequent Event of Default by Tenant of same condition.
Acceptance of past due Rent or other sums due shall in no way act as a waiver of
Tenant's Event of Default nor prevent Landlord from proceeding as above stated.
In the event litigation is commenced, it shall not be necessary for Landlord to
notify Tenant of any additional occurrences of Event of Default prior to
proceeding as permitted.
11.3 Default by Landlord. If Landlord defaults in the
performance of any condition or obligation in this Sublease and if Tenant gives
Landlord notice of the default stating the default complained of and referring
to the Article and Section in this Sublease relied on by Tenant, Landlord shall
have thirty (30) calendar days after receiving written notice from Tenant to
undertake the cure of any such default and shall thereafter cure same in good
faith, with diligence, and within a reasonable period of time.
If Landlord fails to cure any such default or to diligently
and in good faith pursue the cure as provided for herein, then Tenant may sue
Landlord for its damages, and
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may further obtain injunctive relief if necessary and permitted as a matter of
law to maintain operation of the Facility or conform with applicable law.
Whenever this Sublease requires any act (other than the
payment of a liquidated sum of money, e.g., rental payments, taxes, utilities,
etc.) by Landlord or Tenant within a certain period of time or by a certain
time, the time for the performance of such act shall be extended by the period
of any delay caused by war, strikes, lockouts, civil commotion, unpreventable
material shortages, casualties, acts of God or other similar conditions or
events beyond the control of the obligated party; provided, however, that
written notice of such delay and the cause and circumstances thereof shall be
given to the other party immediately after commencement of such delay and
knowledge of such delay becoming known by the obligated party.
ARTICLE XII
BANKRUPTCY
----------
If an Event of Default described in Article 11.1(g) occurs,
then Landlord may terminate this Sublease by giving notice to Tenant of its
intention so to do; provided, however, neither bankruptcy, insolvency, an
assignment for the benefit of creditors nor the appointment of a receiver shall
affect this Sublease or permit its termination so long as the covenants on the
part of Tenant to be performed shall be performed by Tenant or a person or
entity claiming under Tenant. In the event Rent is not paid as herein provided
after the filing of a petition in bankruptcy or any arrearage in Rent is not
made whole, this Sublease shall be immediately terminated and Landlord shall be
free to pursue its remedies set forth in Article XI.
ARTICLE XIII
DAMAGE TO PREMISES
------------------
In the event that, at any time during the Term of this
Sublease, the Premises are damaged or destroyed by fire, the elements, or other
casualty, whether or not insured by Tenant, Tenant shall immediately notify
Landlord and Litchfield in writing of the occurrence of such damage or
destruction. This Sublease shall not terminate as a result of such damage or
destruction, and Tenant shall, at its sole cost and expense, including the
proceeds of insurance in respect of such damage or destruction, if any, repair,
rebuild or restore the Premises to substantially the same condition as existed
immediately prior to the damage or destruction and in accordance with all
applicable federal, state and local building codes and regulations and is
sufficient to meet state licensure requirements for long term health care
facilities. Subject to the rights of the Lender, the proceeds, if any, of
insurance in respect of such damage or destruction shall be made available to
Tenant for the prosecution of such repair, rebuilding or restoration. The
repair, rebuilding or restoration shall be completed as promptly as reasonably
possible. Any and all such work shall be performed in a good and workmanlike
manner, with quality materials and no liens shall attach to the interest of
Landlord and Litchfield as a result
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of such work. Prior to undertaking such work, Tenant shall (a) submit to
Landlord and Litchfield for their prior approval, which approval shall not be
unreasonably withheld, plans and specifications prepared by licensed architects
and engineers, (b) submit to Landlord and Litchfield for their prior approval,
which approval shall not be unreasonably withheld, the names, addresses and
general information in respect of all contractors, subcontractors and suppliers,
(c) obtain, arrange for and/or post necessary permits, bonds, licenses and
insurance, (d) submit contractor, subcontractor and supplier lien waivers, and
(e) comply with such other requirements as Landlord and Litchfield may
reasonably impose concerning the manner in which the work shall be performed and
other aspects of the work.
ARTICLE XIV
INSURANCE, SUBROGATION AND INDEMNIFICATION
------------------------------------------
14.1 Comprehensive General Liability and Professional Liability Insurance to be
Carried by Tenant. Subject to Tenant's rights of self-insurance set forth in
Section 14.8 hereof, Tenant, before occupying the Premises, at its sole cost and
expense, shall cause to be issued and kept in force during the Term and any
Renewal Term, if any, a policy or policies of comprehensive general liability
and professional liability insurance, including general liability, malpractice
and property damage, by the terms of which Landlord, Lender and Tenant shall be
insured against claims for bodily injury, death and property damage as a result
of an occurrence on the Premises, with minimum combined single limits of
$1,000,000 per occurrence and $3,000,000 million aggregate per facility, with a
$2,000,000 umbrella policy. Tenant shall remain liable to Landlord, Litchfield
and Lender for any deficiency should insurance afforded this Section be
insufficient to satisfy the liability of Tenant under Section 14.5, including,
without limitation, the amount of any deductibles maintained by Tenant, unless
such liability arises from negligence of Landlord or Litchfield.
14.2 Certificate of Insurance. Tenant, at its sole cost and
expense, shall carry all insurance required by this Article with a company or
companies reasonably acceptable to Landlord, Litchfield and Lender and qualified
to do business in the state or commonwealth where the Premises is located. All
such policies shall bear endorsements to the effect that Landlord, Litchfield,
Lender and Tenant are named as additional insureds as their interest may appear
and Lender shall also be named as loss payee on the fire, extended coverage and
peril insurance provided under Section 14.6 and that all such parties shall be
notified by certified mail, return receipt requested, not less than thirty (30)
days in advance of any termination expiration or cancellation if such coverage
is not replaced prior to expiration by coverage complying with the provisions
herein.
Upon notification of such termination, cancellation or
expiration by its insurance carrier, Tenant shall advise Lender, Litchfield and
Landlord of such termination,
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expiration or cancellation unless such coverage is replaced or Tenant elects to
self-insure in accordance with Section 14.8 hereof.
At Landlord's, Litchfield's or Lender's request, Tenant, at
its sole cost and expense, before commencement of the Term of this Sublease and
upon each renewal of such insurance, shall deliver to and deposit with Landlord,
Litchfield and Lender certificates of insurance for each policy required by this
Article, and evidence that, all current premiums on such policies have been
paid. At Landlord's, Litchfield's and Lender's request, Tenant shall deliver
copies of the applicable policies.
Tenant's obligation to carry the insurance provided herein may
be brought within the coverage of a so-called "blanket policy" or policies of
the insurance carrier maintained by Tenant or Integrated Living. The coverage
afforded Landlord, Litchfield and Lender must not be reduced or diminished by
the blanket policy of insurance, with an endorsement to that effect provided to
such Landlord, Litchfield and Lender; and the requirements set forth herein must
be otherwise satisfied.
All requirements for Tenant to maintain insurance coverages
are limited to what is available from established insurance carriers at
commercially reasonable rates. Upon the written request of Tenant, Lender,
Litchfield or Landlord may permit, which permission may not be unreasonably
withheld, modifications to the insurance otherwise required by this Section
14.5, taking into account the cost and availability of insurance for such risk
and the effect of the terms and rates of such insurance upon the costs and
charges of Tenant for its services. In determining whether to approve any such
modification, Lender, Litchfield or Landlord may rely upon a written evaluation
with respect thereto by an independent insurance consultant provided by Tenant
and acceptable to Lender, Litchfield or Landlord.
14.3 Adjustments to Insurance Coverage. In order to maintain
the same level of coverage that will exist at the commencement of the Term, the
amounts and types of coverage called for herein shall be subject to review by
Landlord, Litchfield and Lender at the end of each three (3) Lease Years
following the Effective Date of the Lease and, if appropriate, the amounts and
types of coverage shall be increased or extended to provide the amounts and
types of coverage that are at least equal to the amounts and types of coverages
carried by prudent owners and operators of properties similar to the Premises,
but in no event shall the coverage be less than as required by the terms of this
Article.
14.4 Other Coverage. Tenant, at its sole cost and expense,
shall carry and throughout the Term of this Sublease maintain insurance in a
reasonable amount to provide coverage for loss or damage to or from:
(a) the Leased Equipment for its full replacement
value;
(b) explosion of steam boilers, pressure vessels or
similar apparatus;
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(c) loss of Rent during the period of reconstruction
and the six (6) months following completion of
reconstruction after any damage or destruction of
the Premises;
(d) flood insurance, windstorm, and earthquake
insurance, as reasonably required by Lender,
Litchfield or Landlord; and
(e) Workers Compensation Insurance, as required by the
laws of the state where the Facility is located.
14.5 Fire, Extended Coverage and Additional Perils Insurance.
Tenant, at its sole cost and expense, shall cause to be issued and kept in force
during the Term of this Sublease, a policy or policies of fire, extended
coverage and additional perils insurance by which Landlord, Litchfield and
Lender shall be insured against loss and damage by fire, lightning, hail,
earthquakes and sprinkler damage resulting from damage to or destruction of the
Leased Improvements, including equipment, furnishings and other tangible
personal property used in connection with operation of the Premises, located on
the Premises and the Leased Equipment, if any, for its full replacement value
(exclusive of land) as established by the insurance carrier.
14.6 Subrogation Rights. Tenant, and for each person,
organization, association and corporation claiming under or through Tenant,
herein waives, releases and discharges Landlord, Litchfield and Lender from all
costs, expenses, losses, damages, demands, claims and liabilities arising in any
manner, excluding negligence of Landlord, Litchfield or Lender, that is covered
by policies of insurance now or hereafter existing during the Term or any
Renewal Term (if any). However, this release is applicable only to the extent of
the maximum proceeds paid under each applicable policy of insurance, excluding
applicable deductibles.
If the release and discharge of Landlord, Litchfield and
Lender by Tenant, as contained in this Article, to the extent of maximum
proceeds paid under each applicable policy of insurance, contravenes any
applicable statute or decision with regard to exculpatory agreements, the
liability of Landlord, Litchfield and Lender shall be deemed not released but
shall be secondary to all of the insurance proceeds paid under such applicable
policy of insurance.
14.7 Litigation Cooperation. Tenant shall fully cooperate with
Landlord and Lender and/or their counsel in respect of providing applicable
information, testimony or documentation reasonably necessary for Landlord,
Litchfield and Lender to negotiate, litigate and/or settle any and all causes of
action or similar matters in respect of the Premises. Upon termination of this
Sublease, Tenant shall fully cooperate with Landlord and Litchfield and/or
management retained by Landlord and Litchfield in respect of relicensure and/or
recertification of Landlord and Litchfield and/or management retained by
Landlord and Litchfield.
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14.8 Self-Insurance. Notwithstanding any provision in this
Article XIV to the contrary, so long as the amount of self-insurance is
comparable to the amount of insurance maintained by Tenant with respect to the
Premises as of the Effective Date of this Sublease or generally by entities in
Tenant's business with respect to similar Facilities, Tenant may satisfy all or
a portion of the insurance requirements set forth in Section 14.1 through
self-insurance by Tenant or Integrated Living (by means of deductible,
self-insured retentions or excess reinsurance).
14.9 Indemnification of Landlord and Litchfield. Tenant shall
indemnify and hold harmless Landlord and Litchfield and their officers,
directors, shareholders, employees, agents and assigns (collectively, the
"Landlord Parties") from any and all liabilities, obligations, losses, demands,
judgments, actions, suits, causes of action, claims, proceedings,
investigations, citations, matters, damages, penalties, sanctions, costs,
expenses, and disbursements (including, without limitation, reasonable
attorneys' and consultants' fees and expenses), whether or not subject to
litigation (hereinafter collectively referred to as the "Claims") of any kind or
character imposed upon, arising out of, in connection with, incurred or in any
way attributed or relating to the following:
(a) the use, operation, possession, or management of
the Premises by Tenant beginning on the Effective
Date of this Sublease and during the Term of this
Sublease until the Lease Termination Date;
(b) the breach or failure by Tenant of any
representation, warranty or covenant that is
contained in this Sublease;
(c) any and all Claims accruing on or after the
Effective Date of this Sublease relating to any
current or former employee, consultant or
independent contractor of Tenant or the Facility,
including, but not limited to, (i) the termination
or discharge of any current or former employee,
consultant, or independent contractor of Tenant or
the Facility on or after the Effective Date of this
Sublease, (ii) Claims under federal, state, or
local laws, rules or regulations, accruing on or
after the Effective Date of this Sublease, related
to wages, hours, fair employment practices, unfair
labor practices, or other terms and conditions of
employment and claims arising under the Worker
Adjustment and Retraining Notification Act or any
analogous state statute, or (iii) matters arising
from any severance policy, claim, agreement or
contract;
(d) any and all Claims with respect to any qualified or
non-qualified retirement or benefit plans or
arrangements established on or after the Effective
Date of this Sublease involving any employee,
consultant or independent contractor of Tenant or
the Facility; and
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(e) the violation of any Environmental Law or the
existence, presence or Release (as defined in the
Facilities Agreement) of any Hazardous Material (as
defined in the Facilities Agreement) (collectively,
"Environmental Liability") where the Environmental
Liability is based on an occurrence, event or
condition at or relating to the Facility that is
attributable to the use, possession, operation or
management of the Facility by Tenant on and after
the Effective Date of this Sublease and during the
term of this Sublease until the Lease Termination
Date; provided, however, that the indemnification
obligation of Tenant hereunder shall be limited
solely to Claims (of any kind and nature
whatsoever) for (i) remediation of and response
actions related to such Environmental Liability
(including, without limitation, any such Claim for
cleanup, treatment, corrective action, compliance,
financial assurance, restoration, removal,
abatement, encapsulation, containment,
revegetation, monitoring, sampling, investigation,
study, assessment, and the protection of, or
mitigative action related to, wildlife, aquatic
species, wetlands, vegetation, flora and fauna) and
(ii) any Claim asserted by a third party relating
to such Environmental Liability (including, without
limitation, any Claim involving natural resources
damages, property damage, payment of fines or
penalties or settlement amounts, or any other
action or cause of action by, or obligation to, a
third party (including, without limitation, any
Claim for personal injury or death, contribution or
cost recovery)). Notwithstanding anything to the
contrary in this subsection (e), in the event that
any Environmental Liability accrues or arises on or
after the Effective Date of this Sublease but is
not attributable to the use, possession, operation
or management of the Facility by Tenant, then all
costs and expenses associated with such Claim shall
be shared equally by Tenant and Litchfield. All
Claims under this subsection (e) shall be resolved
in accordance with the procedure set forth in
Section 15.7(d) of the Facilities Agreement.
Tenant further covenants and agrees to defend the Landlord
Parties on account of said Claims and to pay any judgment against the Landlord
Parties, or any other amount as indicated in this Section 14.9, along with all
reasonable costs and expenses relative to any such Claims, including attorneys'
fees and expenses; provided, however, that the Landlord Parties shall,
nevertheless, have the right, if they so elect, to participate (with counsel of
their choosing, which counsel must be approved by Tenant, which approval may not
be unreasonably withheld) in the defense of any such Claim in which they may be
a party without relieving Tenant of the obligation to defend the same. To the
extent applicable, the Landlord Parties covenant not to settle or compromise any
Claim under this section without the written consent of Tenant, which consent
may not be unreasonably withheld or delayed under the
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circumstances. Failure to comply with the preceding covenant shall be deemed a
complete waiver of any rights that Landlord has or may have under this Section
14.9.
The indemnities of Tenant set forth in this Section 14.9 and
the obligations of Tenant related thereto shall remain operative and in full
force during the Term of this Sublease; however, the indemnities and the
obligations of Tenant related thereto shall terminate with respect to any Claim
not asserted by the Landlord Parties to Tenant on or before the date that is one
year from the Lease Termination Date (the "Indemnities Termination Date").
Any Claim for indemnification under this Section 14.9 which is
asserted in writing to Tenant by the Landlord Parties prior to the Indemnities
Termination Date shall survive the termination of the survival period for the
indemnities and the obligations of Tenant as provided herein.
ARTICLE XV
GENERAL CONDITIONS
------------------
15.1 Notice. All notices, requests, demands or other communications required or
permitted under this Lease shall be in writing and shall be either personally
delivered evidenced by a signed receipt or transmitted by return receipt
requested, postage prepaid or by overnight courier services with signed receipt,
and addressed as follows, unless and until either of such parties notifies the
other in accordance with this Section of a change of address:
If to Litchfield: Litchfield Asset Management Corp.
128 Litchfield Road
New Milford, Connecticut 06776
Attention: Eugene H. Rosen
Copy to: Owens, Clary & Aiken, L.L.P.
Suite 2400
1717 Main Street
Dallas, Texas 75201
Attention: Leighton Aiken, Esq.
If to Landlord: Integrated Health Services of Lester, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Brian K. Davidson
Copy to: Marshall A. Elkins, Esq.
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If to Tenant: Integrated Living Communities of Bradenton, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Edward J. Komp
If to Lender: National Health Investors, Inc.
City Center
100 Vine Street
Murfreesboro, Tennessee 37130
Attention: Richard F. LaRoche, Jr.
Copy to: Farris, Warfield & Kanaday
Third National Financial Center
424 Church Street, Suite 1900
Nashville, Tennessee 37219
Attention: Robert N. Buchanan, III, Esq.
So long as the Note remains outstanding, the Tenant shall give
Lender copies of any notices required to be given to Landlord and Litchfield.
All notices, requests, demands and other communications shall
be effective upon personal delivery evidenced by a signed receipt or upon three
(3) calendar days after being deposited in the United States mail, whichever
occurs first. The time period in which a response to any such notice, request,
demand or other communication must be given, however, shall commence to run from
the date of personal delivery evidenced by a signed receipt or the date of
receipt on the return receipt of the notice, request, demand or other
communication; provided, however, that if a party refuses delivery of any such
notice, request, demand or other communication sent by mail, or fails or
neglects, without reasonable cause, to accept delivery, it shall be deemed
received on the date of being deposited in the United States mail. The parties
hereto shall have the right, at any time and from time to time during the Term,
to change their respective addresses for notices by giving the other party
hereto written notice thereof.
15.2 Amendment. This Sublease may be amended at any time and
from time to time; provided, however, that no amendment to this Sublease shall
be legally enforceable against Landlord, Litchfield or Tenant unless it is in
writing, executed and acknowledged by Landlord, Litchfield and Tenant.
15.3 Cooperation. Tenant, Landlord and Litchfield shall
cooperate in all respects in connection with the giving of any notices to any
governmental authority or self-regulatory organization or securing the
permission, approval, determination, consent or waiver of any governmental
authority or other party required in connection with the consummation of the
transactions contemplated by this Sublease. From time to time, upon request of
Tenant,
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Landlord and Litchfield shall cooperate fully and assist Tenant in the orderly
transfer of administrative authority and management of the Facility to Tenant
pursuant to this Sublease, to avoid any interruption in the rendering of
services at the Facility, including cooperation and assistance with personnel
matters, reimbursement issues, program development and compliance with relevant
laws. Additionally, Landlord and Litchfield shall promptly surrender to Tenant
all keys, contracts and other documents and records maintained by Landlord,
Litchfield or their predecessors in connection with the operation of the
Facility. In the event that the Purchase Option Agreement, as applicable, has
not been exercised by Landlord and/or the Lease and this Sublease have
terminated, upon request of Landlord or Litchfield, Tenant shall cooperate fully
and assist Landlord and Litchfield in the orderly transfer of administrative
authority and management of the Facility to Landlord or Litchfield or their
designee, to avoid any interruption in the rendering of services at the
Facility, including cooperation and assistance with personnel matters,
reimbursement issues, program development and compliance with relevant laws.
15.4 Construction. This Sublease shall be construed and
enforced in accordance with the laws of the state where the Premises is located,
without regard to provisions governing conflicts of laws.
15.5 Binding Effect on Successors. Landlord, Litchfield and
Tenant expressly agree that, subject to the terms of this Sublease all terms and
conditions of this Sublease shall extend to and be binding upon or inure to the
benefit of the heirs, executors, administrators, personal representatives,
assigns and successors in interest of Landlord, Litchfield and Tenant.
15.6 Memorandum of Sublease. Landlord and Tenant shall execute
and deliver to each other a Memorandum of Sublease for recording purposes
immediately upon execution of this Sublease by the parties. Any party, at its
expense, shall have the right to record such Memorandum of Sublease for the
purpose of giving notice of Tenant's interest in the Premises.
15.7 Reading and Receipt of this Sublease. Landlord and Tenant
stipulate that each has read and understands the conditions in this Sublease and
by their respective signatures below, acknowledge the receipt of an executed
copy of this Sublease.
15.8 Attorneys' Fees. Without limitation of the provisions in
Section 14.5 hereof and without duplication, if any party incurs attorneys' fees
reasonably necessary to enforce any of the terms of this Sublease wherein the
other party has failed to abide by the terms of this Sublease or is in default
hereunder, then, in such an event, the party in default or who has failed to
abide by the terms of this Sublease shall reimburse the complaining party for
its reasonable attorneys' fees, costs and disbursements incurred. The
reimbursement of fees, costs and disbursements shall not be conditioned upon the
commencement of litigation. If
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<PAGE>
litigation is commenced the successful party shall be entitled to reimbursement
from the other party for its reasonable attorneys' fees, costs and disbursements
incurred.
15.9 Captions and Indexes. Article or Section titles, captions
or indexes, contained in this Sublease are inserted only as a matter of
convenience and reference, and in no way define, limit, extend or describe the
scope of this Sublease, or the intent of any provision hereof.
15.10 Severability. If any one or more of the provisions
contained herein shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Sublease, but this Sublease shall
be construed as if such invalid, illegal or unenforceable provision had not been
contained herein.
15.11 Pronouns. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or persons may require.
15.12 Triple Net Sublease. This Sublease is intended by the
parties to be a triple net Sublease and Landlord, Litchfield and Lender shall
not be required to make any payment of any kind with respect to the Premises,
Facility or the Leased Equipment except as expressly stated herein.
15.13 Drafting of this Sublease. Landlord and Tenant have been
represented by attorneys in negotiation and drafting this Sublease and the
parties to this Sublease have influenced the language of this Sublease.
Therefore, this Sublease shall not be construed against any party to this
Sublease by reason of drafting authorship.
15.14 Counterparts. This Sublease may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
15.15 No Personal Liability. All covenants, duties,
obligations, representations, warranties and liabilities of Landlord hereunder
shall be the sole responsibility of Landlord and shall be recourse solely to
Landlord and its assets. Under no circumstances whatsoever shall the officers,
directors or shareholders of Landlord be deemed personally liable hereunder for
any such covenants, duties, obligations, representations, warranties or
liabilities.
15.16 Mechanics' Liens. Contractors, subcontractors,
mechanics, laborers, materialmen and others who perform any work, labor or
services or furnish any materials or otherwise participate in any improvements
to the Premises and who are not acting pursuant to a direct contract with
Landlord and Litchfield, are hereby given notice that Tenant is not
30
<PAGE>
authorized to subject Landlord's or Litchfield's interest in the Premises to any
claim for mechanics, laborers, materialmens liens or other liens and all persons
dealing directly or indirectly with Tenant may not look to the Premises as
security for payment.
15.17 Litchfield's Acceptance and Agreement. Notwithstanding
any consent by or approval of Litchfield in respect of this Sublease, Landlord
shall remain primarily responsible and liable to Litchfield under the Lease,
including without limitation, (a) for the payment of the rental and other sums
due and payable under the Lease, (b) for the performance of all of Landlord's
covenants, duties and obligations under the Lease and (c) for the compliance
with and observance of all conditions and restrictions provided under the Lease.
Nothing herein shall constitute a novation by Litchfield nor any modification,
amendment or supplement of the terms, conditions and provisions of the Lease.
Consent by Litchfield to this Sublease shall not be deemed as a forbearance,
waiver or release of any of Litchfield's rights to seek any remedy or right
against Landlord upon any breach of the Lease or upon any occurrence of any
event of default. Such consent shall not be deemed any agreement that Litchfield
must seek performance by Tenant prior to enforcement of any rights or remedies
against Landlord.
ARTICLE XVI
PURCHASE OPTION
---------------
Pursuant to the Purchase Option Agreement, Landlord was
granted an option to purchase the Premises from Litchfield upon the terms and
subject to the conditions set forth in the Purchase Option Agreement. Litchfield
and Tenant shall during the Term of this Sublease be subject to the terms and
conditions of the Purchase Option Agreement, including, but not limited to, the
immediate termination of this Sublease upon acquisition of the Premises by
Landlord pursuant to the Purchase Option Agreement.
SIGNATURE PAGE FOLLOWS
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Sublease to be duly executed and delivered as a sealed instrument on the day and
year first above written.
INTEGRATED LIVING COMMUNITIES OF
BRADENTON, INC.
ATTEST:
By: By:
------------------------- -----------------------------
Name: Name: Edward J. Komp
------------------------- -----------------------------
Title: Title: Chief Executive Officer
------------------------- -----------------------------
(Seal)
INTEGRATED HEALTH SERVICES OF
LESTER, INC.
ATTEST:
By: By:
------------------------- -----------------------------
Name: Michael Tan Name: Eleanor C. Harding
------------------------- -----------------------------
Title: Assistant Secretary Title: Senior Vice President
------------------------- -----------------------------
(Seal)
ACCEPTED AND AGREED TO ACCEPTED AND AGREED TO
THIS ___ of ________, 1996 THIS ___ of ________, 1996
LITCHFIELD ASSET MANAGEMENT INTEGRATED HEALTH SERVICES, INC.
CORP. INC.
By: By:
------------------------- -----------------------------
Name: Eugene H. Rosen Name: Eleanor C. Harding
------------------------- -----------------------------
Title: President Title: Senior Vice President
------------------------- -----------------------------
(Seal)
ACCEPTED AND AGREED TO
THIS ___ of ________, 1996
NATIONAL HEALTH INVESTORS, INC.
By:
-------------------------
Name: Richard F. LaRoche, Jr.
-------------------------
Title: Vice President
-------------------------
(Seal)
<PAGE>
Acknowledgments
---------------
STATE OF MARYLAND )
) ss.:
COUNTY OF BALTIMORE )
I, the undersigned Notary Public in and for said County, in said
State, hereby certify that Edward J. Komp, whose name as the Chief Executive
Officer of Integrated Living Communities of Bradenton, Inc., a Delaware
corporation, is signing to the foregoing instrument and who is known to me,
acknowledged before me on this date that, being informed of the contents of said
instrument, he, as such officer and with full authority, executed the same
voluntarily on the day the same bears date.
Given under my hand and official seal, this ___ day of ________, 1996.
-----------------------------
Notary Public
My commission expires:
-----------------------------
STATE OF MARYLAND )
) ss.:
COUNTY OF BALTIMORE )
I, the undersigned a Notary Public in and for said County, in said
State, hereby certify that Eleanor C. Harding, whose name as a Senior Vice
President of Integrated Health Services of Lester, Inc., a Delaware corporation,
is signing the foregoing instrument and who is known to me, acknowledged before
me on this date that, being informed of the contents of said instrument, he as
such officer and with full authority, executed the same voluntarily on the day
the same bears date.
Given under my hand and official seal, this ___ day of ________, 1996.
-----------------------------
Notary Public
My commission expires:
-----------------------------
<PAGE>
Acknowledgments
---------------
STATE OF MARYLAND )
) ss.:
COUNTY OF BALTIMORE )
I, the undersigned a Notary Public in and for said County, in said
State, hereby certify that Eleanor C. Harding, whose name as a Senior Vice
President of Integrated Health Services, Inc., a Delaware corporation, is
signing the foregoing instrument and who is known to me, acknowledged before me
on this date that, being informed of the contents of said instrument, he as such
officer and with full authority, executed the same voluntarily on the day the
same bears date.
Given under my hand and official seal, this ___ day of ________, 1996.
-----------------------------
Notary Public
My commission expires:
-----------------------------
STATE OF TEXAS )
) ss.:
COUNTY OF DALLAS )
I, the undersigned Notary Public in and for said County, in said
State, hereby certify that Eugene H. Rosen, whose name as President of
Litchfield Asset Management Corp., a Delaware corporation, is signing to the
foregoing instrument and who is known to me, acknowledged before me on this date
that, being informed of the contents of said instrument, he, as such officer and
with full authority, executed the same voluntarily on the day the same bears
date.
Given under my hand and official seal, this ___ day of ________, 1996.
-----------------------------
Notary Public
My commission expires:
-----------------------------
<PAGE>
Acknowledgments
---------------
STATE OF TENNESSEE )
) ss.:
COUNTY OF RUTHERFORD )
I, the undersigned Notary Public in and for said County, in said
State, hereby certify that Richard F. LaRoche, Jr., whose name as Vice President
of National Health Investors, Inc., a Delaware corporation, is signing to the
foregoing instrument and who is known to me, acknowledged before me on this date
that, being informed of the contents of said instrument, he, as such officer and
with full authority, executed the same voluntarily on the day the same bears
date.
Given under my hand and official seal, this ___ day of ________, 1996.
-----------------------------
Notary Public
My commission expires:
-----------------------------
<PAGE>
GUARANTY
FROM
INTEGRATED LIVING COMMUNITIES, INC.
As of June 1, 1996
<PAGE>
GUARANTY
THIS GUARANTY is made and entered into as of the 1st day of
June 1996, by INTEGRATED LIVING COMMUNITIES, INC. (the "Guarantor"), a Delaware
corporation, with principal offices at 10065 Red Run Boulevard, Owings Mills,
Maryland 21117, for the benefit of (a) INTEGRATED HEALTH SERVICES OF LESTER,
INC. ("IHS"), a Delaware corporation, with principal offices at 10065 Red Run
Boulevard, Owings Mills, Maryland 21117 and (b) LITCHFIELD ASSET MANAGEMENT
CORP. ("Litchfield"), a Connecticut corporation, with principal offices at 128
Litchfield Road, P.O. Box 3039, New Milford, Connecticut 06776, their successors
and permitted assigns.
W I T N E S S E T H:
WHEREAS, pursuant to Leases, each dated as of August 31, 1994,
between Litchfield and IHS, IHS is the present lessee of the skilled nursing
home and retirement center facilities listed on Exhibit A attached hereto,
hereinafter collectively called the "Facilities", together with the real
property, improvements and personal property used in connection with the
operation of each of the Facilities; and
WHEREAS, (i) IHS and Integrated Living Communities of
Bradenton, Inc. ("Integrated Living Bradenton"), a Delaware corporation, with
principal offices at 10065 Red Run Boulevard, Owings Mills, Maryland 21117,
entered into a Sublease, dated June 1, 1996 (the "Bradenton Sublease"), (ii) IHS
and Integrated Living Communities of Colorado Springs, Inc. ("Integrated Living
Colorado Springs"), a Delaware corporation, with principal offices at 10065 Red
Run Boulevard, Owings Mills, Maryland 21117, entered into a Sublease, dated June
1, 1996 (the "Colorado Springs Sublease") (the Bradenton Sublease and the
Colorado Springs Sublease, collectively, the "Subleases") (Integrated Living
Bradenton and Integrated Living Colorado Springs, collectively, "Integrated
Living") and (iii) the Guarantor has agreed to guaranty payment of certain
obligations of Integrated Living Bradenton and Integrated Living Colorado
Springs under the Subleases; and
WHEREAS, Integrated Living Bradenton and Integrated Living
Colorado Springs are each a wholly subsidiary of Guarantor;
NOW, THEREFORE, in consideration of the promises and in order
to induce IHS to enter into the Subleases and in order to induce Litchfield to
consent to the Subleases, the Guarantor hereby agrees for the benefit of IHS and
Litchfield as follows:
1. The Guarantor hereby unconditionally and irrevocably guarantees the
prompt and complete payment of the following obligations (collectively, the
"Obligations") as they become due under or in respect of the Subleases, in
accordance with the terms thereof:
(i) The Rent (as defined in Article III of the
Subleases);
1
<PAGE>
(ii) The receivable amounts under Section 3.4 of the
Subleases;
(iii) The licenses to operate the Facilities to IHS or
Litchfield at the end of the Term of the Subleases
under Section 4.3(ii) of the Subleases;
(iv) The taxes, sewer use fees and utilities costs and
expenses under Article V of the Subleases;
(v) The physical improvements costs for the Facilities
required under Exhibit D of the Subleases;
(vi) The Annual Capital Improvement Amounts (as defined in
Exhibit D of the Subleases);
(vii) The Debt Service Reserve required under Exhibit D of
the Subleases;
(viii) All other amounts payable by Tenant to IHS as part of
Rent;
(ix) All amounts payable as and when due IHS under Section
11.2(d) of the Subleases; provided, however,
Guarantor's obligations under this subsection (ix)
shall be limited to the amounts described in
subsections (i) and (ii), (iv) through (viii) and
(xi) herein;
(x) The amount of all premiums for the insurance policies
required to be maintained by Tenant under Article XIV
of the Subleases, for as long as Tenant is the Tenant
under the Subleases; and
(xi) The attorneys' fees, costs and disbursements required
under Section 15.8 of the Subleases.
The Guarantor hereby further agrees to pay all expenses,
including reasonable attorneys' fees and expenses from time to time that may be
paid or incurred by IHS or Litchfield, in collecting any or all of the
Obligations and/or enforcing any rights under this Guaranty.
2. The Guarantor hereby agrees that when making any demand hereunder
against the Guarantor, IHS or Litchfield may, but shall be under no obligation
to, make a similar demand on Integrated Living and any failure by IHS or
Litchfield to make any such demand or to collect any payments from Integrated
Living or any other person or any release of Integrated Living or any other
person shall not relieve the Guarantor from the Guarantor's Obligations
hereunder, and shall not impair or affect the rights and remedies, express or
implied, or as a
2
<PAGE>
matter of law, of IHS or Litchfield against the Guarantor. For purposes hereof,
"demand" shall include, without limitation, the commencement and continuance of
any legal proceedings.
3. This Guaranty is a primary obligation of the Guarantor. The
Guarantor waives any and all notice of the creation, renewal, extension or
accrual of any of the Obligations and notice of or proof of reliance by IHS or
Litchfield upon this Guaranty or acceptance of this Guaranty. The Obligations
shall conclusively be deemed to have been created, contracted or incurred in
reliance upon this Guaranty, and all dealings between the Guarantor and IHS or
Litchfield shall likewise be conclusively presumed to have been had or
consummated in reliance upon this Guaranty. The Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or the nonpayment
to or upon such Guarantor or any other person with respect to the Obligations.
This Guaranty shall be construed as a continuing, absolute and unconditional
guaranty of payment (and not a guaranty of collection) and shall remain in full
force and effect until all Obligations have been paid in full and discharged.
Guarantor's Obligations shall not be affected, prejudiced, modified or impaired
by any state of facts or the happening from time to time of any event
whatsoever, including, without limitation, any of the following, whether or not
with notice to or the consent of Guarantor: (i) the validity, regularity or
enforceability of the Subleases, any of the Obligations with respect thereto at
any time or from time to time held by IHS or Litchfield; (ii) any defense or
counterclaim which may at any time be available to or be asserted by Integrated
Living or any other person against IHS or Litchfield (other than in respect of
payment of the Guarantor's Obligations); (iii) any renewal or extension that may
be made of the time of payment of any sums owing or payable under the Subleases
or of the time for performance by any party obligated thereto of any of the
terms and provisions of the Subleases, or of any other sums or obligations under
or arising out of or on account of the Subleases or this Guaranty; (iv) the
merger or consolidation of Integrated Living or Guarantor or a change in
Integrated Living's or Guarantor's business operations or management; (v) the
termination of any relationship of Guarantor with Integrated Living or
Integrated Living's business, including, without limitation, any relationship of
ownership or commerce; (vi) any change (whether an increase or decrease) in
Guarantor's share of ownership of Integrated Living; (vii) any assignment of any
of the Subleases or subletting any of the Facility or any part thereof; or
(viii) any circumstance whatsoever which constitutes, or might be construed to
constitute, an equitable or legal discharge of any other person for all or any
part of the Obligations, or of the Guarantor under this Guaranty, in bankruptcy
or in any other instance whatsoever. The obligations and liabilities of the
Guarantor hereunder shall not be conditioned or contingent upon the pursuit by
IHS or Litchfield or any other person at any time of any right or remedy against
any other person (including Integrated Living) which is or may be or become
liable in respect of all or any part of the Obligations or any mitigation of
damages. This Guaranty shall continue to be effective, or be reinstated, as the
case may be, if at any time payment of any of the Obligations, or any part
thereof, is rescinded or must otherwise be restored or returned by dissolution,
liquidation or reorganization of the Guarantor, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee, custodian
or similar officer
3
<PAGE>
for, the Guarantor, or any substantial part of its property, or otherwise, all
as though such payments or performance had not been made.
4. Notwithstanding any payment or payments made by the Guarantor
hereunder, the Guarantor shall not be entitled to be subrogated to any of the
rights of IHS or Litchfield against Integrated Living or otherwise in respect of
any of the Obligations.
5. The Guarantor hereby represents and warrants to IHS and
Litchfield that:
(i) it (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and is
entitled to carry on its business as now conducted and presently
contemplated and (b) has the necessary corporate power to enter into,
and to authorize, the execution, delivery and performance of this
Guaranty;
(ii) it directly owns and holds all of the issued and
outstanding shares of capital stock of Integrated Living;
(iii) this Guaranty constitutes the legal, valid and binding
obligation of the Guarantor, enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy,
reorganization, insolvency, moratorium and other similar laws of
general application relating to or affecting the enforcement of
creditors' rights and by general equity principles regardless of
whether such enforceability is considered in a proceeding at law or in
equity;
(iv) the execution, delivery and performance of this Guaranty
by the Guarantor will not violate any requirement of law or the charter
or bylaws of the Guarantor or any existing mortgage, contract, lease,
indenture or agreement binding on the Guarantor or the Guarantor's
property or result in the creation or imposition of any lien on any of
the properties or assets of the Guarantor pursuant to the provisions of
any of the foregoing;
(v) no consent of any other person is required or, if
required, such consent has been obtained, and no consent, license,
permit, approval or authorization of, exemption by, notice or report
to, or registration, filing or declaration with, any governmental
authority is required (other than as required under federal securities
laws) in connection with the execution, delivery, performance, validity
or enforceability of this Guaranty; and
(vi) no litigation, arbitration, investigation or
administrative proceeding of or before any court, arbitrator or
governmental authority is currently pending or, to the knowledge of the
Guarantor, threatened (A) with respect to this Guaranty or any of the
transactions contemplated by this Guaranty or (B) against or affecting
the Guarantor, or
4
<PAGE>
any of its properties or assets, which, if adversely determined, would
have a material adverse effect on its ability to perform its
obligations hereunder.
6. No failure to exercise and no delay in exercising, on the part of
IHS or Litchfield, any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege. The rights and remedies herein
provided are cumulative and not exclusive of any rights or remedies provided by
law.
7. No provision of this Guaranty shall be waived, amended or
supplemented except by a written instrument executed by IHS and Litchfield and
the lender in respect of the Facilities. Guarantor shall cooperate with IHS and
Litchfield and the lender to Litchfield with respect to the Facilities to make
any amendments or modifications to this Guaranty or execute loan documents that
are reasonably required by IHS, Litchfield or the lender to Litchfield with
respect to the Facilities and reasonably acceptable to Guarantor and its lenders
with respect to the Facilities.
8. All rights and duties of the parties hereto shall inure to the
benefit of and bind their successors and assigns, but shall not, and is not
intended to, create rights in any other third parties; provided, however, that
(a) the Guarantor may not assign its obligations hereunder without the express
written consent of IHS and Litchfield and (b) IHS and Litchfield may not assign
their obligations hereunder without the express written consent of the
Guarantor.
9. This Guaranty shall be construed according to and governed by the
laws of the State of New York, without regard to its principles of conflicts of
law. The Guarantor, whether or not a New York resident, hereby waives any plea
or claim of lack of personal jurisdiction or improper venue in any action, suit
or proceeding brought to enforce this Guaranty. The Guarantor specifically
authorizes any such action to be instituted and prosecuted in any Circuit Court
in New York, or United States District Court of New York, at the election of IHS
or Litchfield, where venue would lie and be proper against such Guarantor.
10. This Guaranty and the Guarantor's Obligations shall immediately
terminate upon the satisfaction of such Obligations pursuant to the Subleases.
No representation, warranty, covenant or agreement of Guarantor contained herein
shall survive the termination of this Guaranty.
11. The Guarantor will promptly after the sending or filing thereof
provide to IHS and Litchfield and Litchfield's lender in respect of the
Facilities copies of all periodic reports on Forms 10-Q and 10-K and reports on
Form 8-K filed by the Guarantor with the Securities and Exchange Commission or
any national securities exchange.
5
<PAGE>
12. The Guarantor agrees that any presently existing or hereafter
arising loan or extension of credit made by the Guarantor to Integrated Living
and any other presently existing or hereafter arising obligation of Integrated
Living to the Guarantor shall be subordinate to obligations of Integrated Living
under the Subleases as to both payment and collection. Accordingly, the
Guarantor agrees not to accept any payment whatsoever from IHS or Litchfield or
to allow any payment by Integrated Living on the Guarantor's behalf while any
Event as Default has occurred and is continuing under any of the Subleases. The
Guarantor agrees that in the event of a bankruptcy or other insolvency
proceeding involving Integrated Living, the Guarantor will timely file a claim
for the amount of the subordinated debt in form reasonably acceptable to IHS,
Litchfield and Litchfield's lender in respect of the Facilities. The Guarantor
agrees to pursue said claim with diligence. The proceeds of such claims shall be
delivered to IHS or Litchfield or their assigns to the extent the Guarantor owes
IHS or Litchfield any amounts under this Guaranty.
13. IHS and Litchfield and their respective assigns may make repeated
demands upon the Guarantor from time to time hereunder for payment of any part
of the Obligations and this Guarantor shall remain in part of the Obligations
and this Guaranty shall remain in full force and effect, notwithstanding the
Guarantor's failure to make voluntary payment of the Obligations.
SIGNATURE PAGE FOLLOWS
6
<PAGE>
IN WITNESS WHEREOF, the Guarantor has duly executed, sealed
and delivered this Guaranty as of the day of , 1996.
INTEGRATED LIVING COMMUNITIES, INC.
By:
------------------------------
Name: Edward J. Komp
------------------------------
Title: Chief Executive Office
------------------------------
(Seal)
<PAGE>
SUBLEASE
BETWEEN
INTEGRATED LIVING COMMUNITIES OF COLORADO SPRINGS, INC.
AND
INTEGRATED HEALTH SERVICES OF LESTER, INC.
As of June 1, 1996
------------------
Cheyenne Place Retirement Center
945 Tenderfoot Hill Road
Colorado Springs, Colorado 80906
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
ARTICLE I
DEMISED PREMISES................................................................................................ 2
1.1 Premises........................................................................... 2
1.2 Assumed Name....................................................................... 3
ARTICLE II
TERM, EXTENSION AND RENEWAL..................................................................................... 4
2.1 Term............................................................................... 4
2.2 Extension of the Initial Term...................................................... 4
2.3 Renewal Terms...................................................................... 4
ARTICLE III
RENTAL.......................................................................................................... 5
3.1 Base Rental........................................................................ 5
3.2 Definitions........................................................................ 6
3.3 Effective Date Payments............................................................ 6
3.4 Receivable Payments to Landlord and Tenant......................................... 7
ARTICLE IV
TITLE AND POSSESSION............................................................................................ 7
4.1 Authority.......................................................................... 7
4.2 Leased Equipment................................................................... 7
4.3 Surrender of Possession............................................................ 8
4.4 Holding Over....................................................................... 8
4.5 Surrender of Premises License by Landlord.......................................... 8
4.6 Facility License................................................................... 8
ARTICLE V
TAXES, ASSESSMENTS AND UTILITIES................................................................................ 8
5.1 Taxes.............................................................................. 8
5.2 Sewer Use Fees..................................................................... 9
5.3 Utilities.......................................................................... 9
ARTICLE VI
USE OF PREMISES................................................................................................. 9
6.1 Use by Tenant...................................................................... 9
6.2 Compliance with Laws............................................................... 10
6.3 Waste.............................................................................. 10
i
</TABLE>
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C> <C>
6.4 License and Permits................................................................ 10
6.5 Right of Entry for Inspection and Repairs.......................................... 10
6.6 Reports to Landlord and Litchfield................................................. 10
6.7 Additional Tenant Obligations...................................................... 11
ARTICLE VII
EMINENT DOMAIN.................................................................................................. 11
7.1 Permanent or Temporary Taking...................................................... 11
7.2 Permanent Taking................................................................... 11
7.3 Temporary Taking................................................................... 11
7.4 Partial Taking..................................................................... 11
ARTICLE VIII
ALTERATIONS, REPAIRS AND TRADE FIXTURES......................................................................... 12
8.1 Repairs by Tenant Generally........................................................ 12
8.2 Quality and Promptness of Repairs.................................................. 13
8.3 Liability of Landlord and Litchfield............................................... 13
ARTICLE IX
SIGNS........................................................................................................... 14
ARTICLE X
ASSIGNMENT, SUBLETTING AND SUBORDINATION........................................................................ 14
10.1 Assignment or Subletting by Tenant................................................. 14
10.2 Assignment by Landlord............................................................. 15
10.3 Subordination and Attornment....................................................... 15
10.4 Sale by Litchfield................................................................. 16
10.5 Estoppel Certificates.............................................................. 16
ARTICLE XI
DEFAULT......................................................................................................... 16
11.1 Default by Tenant.................................................................. 16
11.2 Landlord's Rights and Remedies..................................................... 18
11.3 Default by Landlord................................................................ 20
ARTICLE XII
BANKRUPTCY...................................................................................................... 21
ARTICLE XIII
ii
<PAGE>
TABLE OF CONTENTS
Section Page
DAMAGE TO PREMISES.............................................................................................. 21
ARTICLE XIV
INSURANCE, SUBROGATION AND INDEMNIFICATION...................................................................... 22
14.1 Comprehensive General Liability and Professional Liability
Insurance to be Carried by Tenant.................................................. 22
14.2 Certificate of Insurance........................................................... 22
14.3 Adjustments to Insurance Coverage.................................................. 23
14.4 Other Coverage..................................................................... 23
14.5 Fire, Extended Coverage and Additional Perils Insurance............................ 23
14.6 Subrogation Rights................................................................. 24
14.7 Litigation Cooperation............................................................. 24
14.8 Self-Insurance..................................................................... 24
14.9 Indemnification of Landlord and Litchfield......................................... 24
ARTICLE XV
GENERAL CONDITIONS.............................................................................................. 27
15.1 Notice............................................................................. 27
15.2 Amendment.......................................................................... 28
15.3 Cooperation........................................................................ 28
15.4 Construction....................................................................... 29
15.5 Binding Effect on Successors....................................................... 29
15.6 Memorandum of Sublease............................................................. 29
15.7 Reading and Receipt of this Sublease............................................... 29
15.8 Attorneys' Fees.................................................................... 29
15.9 Captions and Indexes............................................................... 29
15.10 Severability....................................................................... 30
15.11 Pronouns........................................................................... 30
15.12 Triple Net Sublease................................................................ 30
15.13 Drafting of this Sublease.......................................................... 30
15.14 Counterparts....................................................................... 30
15.15 No Personal Liability.............................................................. 30
15.16 Mechanics' Liens................................................................... 30
15.17 Litchfield's Acceptance and Agreement.............................................. 31
ARTICLE XVI
PURCHASE OPTION................................................................................................. 31
</TABLE>
iii
<PAGE>
SUBLEASE
THIS SUBLEASE ("Sublease") is made and entered into as of the 1st day
of June, 1996, by and between Integrated Health Services of Lester, Inc., a
Delaware corporation, with principal offices at 10065 Red Run Boulevard, Owings
Mills, Maryland 21117 ("Landlord") and Integrated Living Communities of Colorado
Springs, Inc., a Delaware corporation, with principal offices at 10065 Red Run
Boulevard, Owings Mills, Maryland 21117 ("Tenant").
W I T N E S S E T H:
WHEREAS, Litchfield Asset Management Corp., a Connecticut corporation
("Litchfield") is the present owner of the real property, improvements and
personal property constituting Cheyenne Place Retirement Center (the
"Facility"), situated at 945 Tenderfoot Hill Road, Colorado Springs, Colorado
80906, as described on Exhibit A hereto; and
WHEREAS, pursuant to a Lease, dated as of August 31, 1994 (the
"Lease"), between Litchfield and Landlord, Litchfield leased the Facility and
the Premises (as defined in Section 1.1 of the Lease) to Landlord, during the
term therein provided; and
WHEREAS, simultaneously Litchfield and Landlord entered into forty-two
(42) additional Leases, each dated as of August 31, 1994 (the "Affiliated
Leases") with respect to the other properties owned by Litchfield (such other
properties, other than the Facility and the Premises, being referred to herein
collectively as the "Affiliated Properties"), all as identified on Exhibit A to
the Facilities Agreement, dated as of August 31, 1994 (the "Facilities
Agreement"), among Litchfield, Landlord and Integrated Health Services, Inc., a
Delaware corporation ("Integrated"); and
WHEREAS, pursuant to the Facilities Agreement, Landlord and Integrated
agreed, among other things, that (i) Landlord would be obligated to lease the
Premises from Litchfield, (ii) Landlord was granted an option, pursuant to the
Purchase Option Agreement, dated as of August 31, 1994 (the "Purchase Option
Agreement"), between Litchfield and Landlord, to purchase the Premises from
Litchfield, and (iii) Litchfield entered into a Loan Agreement, dated as of
August 31, 1994 (the "Loan Agreement") with National Health Investors, Inc., a
Maryland corporation ("Lender") pursuant to which Litchfield issued Notes
(collectively, the "Note") to provide for the financing of a portion of the
purchase price of the Premises and the other Affiliated Properties and
encumbered the Premises with a security instrument in favor of the Lender (the
"Mortgage"); and
WHEREAS, Integrated agreed to guarantee payments of Rent (as defined in
Section 3.2(h) of the Lease) and certain other payments and obligations to be
made by Landlord under the Lease; and
WHEREAS, with the agreement and consent of Litchfield and Lender,
Landlord desires to sublease the Facility and the Premises (as defined in
Section 1.1 of this Sublease) to
<PAGE>
Tenant, during the term herein provided and Tenant desires to accept such
sublease upon the terms and subject to the conditions contained in this
Sublease; and
WHEREAS, simultaneously Landlord and Integrated Living Communities of
Bradenton, Inc. ("Integrated Living Bradenton") entered into a Sublease, dated
as of June 1, 1996 (the "Shores Sublease"), with respect to subleasing The
Shores Nursing and Retirement Center; and
WHEREAS, Integrated Living Communities, Inc., a Delaware corporation
("Integrated Living"), has agreed to guarantee payments of Rent (as defined in
Article III of this Sublease) and certain other payments and obligations to be
made by Tenant under this Sublease and Integrated Living Bradenton under the
Shores Sublease.
NOW, THEREFORE, in consideration of the rents, mutual covenants, and
agreements set forth in this Sublease, the parties agree that the use and
occupancy of the premises demised herein shall be subject to, and be in
accordance with, the terms, conditions and provisions of this Sublease as
follows:
ARTICLE I
DEMISED PREMISES
----------------
1.1 Premises. Subject to all of the terms and conditions of
this Sublease, Landlord hereby subleases to Tenant for the term and upon the
conditions provided in this Sublease, and Tenant hereby subleases from Landlord,
all of Landlord's right, title and interest in and to the following real and
personal property:
(a) the real property described in Exhibit A attached
hereto (the "Land"), and
(b) all buildings, structures, fixtures and other
improvements of every kind including, but not
limited to, the Facility, alleyways and connecting
tunnels, sidewalks, utility pipes, conduits and
lines (on-site and off-site), and parking areas and
roadways appurtenant to such buildings and
structures presently or hereafter situated upon the
Land (collectively, the "Leased Improvements"), and
(c) all easements, licenses, rights, privileges and
appurtenances relating to the Land and the Leased
Improvements (collectively, the "Related Rights"),
and
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(d) all equipment, machinery, fixtures, and other items
of real and/or personal property, including all
components thereof, now and hereafter located in,
on or used in connection with, and permanently
affixed to or incorporated into the Leased
Improvements, including, without limitation, if
any, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and
water pollution control, waste disposal, air-
cooling and air-conditioning systems and apparatus,
sprinkler systems and fire and theft protection
equipment, and built-in oxygen and vacuum systems,
all of which, to the greatest extent permitted by
law, are hereby deemed by the parties hereto to
constitute real estate, together with all
replacements, modifications, alterations and
additions thereto (collectively, the "Fixtures"),
and
(e) all equipment, machinery, furniture, furnishings,
moveable walls or partitions, computers or trade
fixtures, office equipment, operating supplies, or
other tangible real or personal property,
installed, stored, used or useful in the operation
of Facility and removable without causing material
damage to the Premises, including without
limitation all items of furniture, furnishings,
equipment, appliances, apparatus, and vehicles
together with all replacements, modifications,
alterations and additions thereto (collectively,
the "Personal Property"), and
(f) all inventory supplies and consumables used or
useful in connection with the operation of the
Premises (collectively, the "Inventory"), and
(g) all intangible assets, including but not limited
to, to the extent applicable, licenses, Certificate
of Need approvals, permits and other governmental
approvals from the applicable licensing and
certification agencies regarding the ownership and
operation of the Facility (collectively, the
"Intangibles").
(The Land, Leased Improvements, Related Rights, Fixtures, Personal Property,
Inventory, and Intangibles, collectively, the "Premises".)
This Sublease, and Tenant's right to possession pursuant
hereto, is to be effective on the Effective Date, as defined in Article II
hereof. Tenant shall have no obligations as tenant of the Premises, or any other
obligations pursuant hereto or in respect of the Premises under this Sublease,
until the commencement of the Term, as defined in Article II hereof.
1.2 Assumed Name. Subject to applicable law and the rights, if
any, of any party other than Litchfield and Landlord, Tenant shall have the
right to use and to register
3
<PAGE>
as the assumed business name for the Premises the name The Shores (the "Assumed
Name") on the Effective Date of this Sublease and thereafter while this Sublease
is in effect. Upon termination of this Sublease, such right shall terminate and
Tenant shall then deliver to Landlord or Litchfield, as applicable, all releases
or documents necessary to terminate such right to use and register the Assumed
Name.
ARTICLE II
TERM, EXTENSION AND RENEWAL
---------------------------
2.1 Term. The term of this Sublease shall commence at 12:01
a.m., local time, on June 1, 1996 (the "Effective Date"). The term of this
Sublease shall run from the Effective Date and terminate at 12:00 midnight,
local time, on the date (the "Lease Termination Date") that is seven (7) years
from the Effective Date as defined in Section 2.1 of the Lease (the "Initial
Term"), unless sooner terminated, extended or renewed as provided in Sections
2.2, 2.3 and 2.4 hereof.
2.2 Extension of the Initial Term. In the event the Lease is
extended pursuant to Section 2.2(a) of the Lease, then the Initial Term of this
Sublease shall be extended for an equal number of additional lease years (such
additional periods are referred to individually as the "Extended Term" and
collectively as the "Extended Terms"). Such Extended Terms shall begin upon the
expiration of the Initial Term or any prior Extended Term, with such Extended
Terms under the same terms and conditions of the Lease and this Sublease, except
as otherwise stated therein and herein.
2.3 Renewal Terms. Upon the expiration of the Initial Term or
any Extended Term under the Lease and if no Tenant Event of Default exists under
this Sublease, Tenant is hereby granted (i) one (1) option to renew this
Sublease for an additional period of seven (7) years and (ii) three (3)
successive options to renew this Sublease for an additional period of five (5)
years for each such option, such renewal term(s) to begin respectively upon the
expiration of the prior term(s) (such renewal periods are referred to
collectively as the "Renewal Terms," and individually each as the "Renewal
Term"), with each Renewal Term under the same terms and conditions of this
Sublease, except as otherwise stated herein. Tenant may exercise its right to
exercise the aforesaid options by providing written notice in each instance to
Landlord, Litchfield and Lender (in accordance with Section 15.1 hereof) no less
than fifteen (15) months prior to the expiration of the Initial Term, or if the
Initial Term is extended pursuant to Section 2.2 hereof, nine (9) months prior
to the expiration of the Extended Term, or if this Sublease is renewed pursuant
to this Section 2.3, nine (9) months prior to the expiration of any Renewal
Term; provided, however, Landlord shall have complied with the renewal
provisions set forth in the Lease with respect to each such Renewal Term.
4
<PAGE>
The Initial Term, any Extended Term pursuant to Section 2.2
hereof and any Renewal Term pursuant to Section 2.3 hereof shall be referred to
collectively as the "Term".
ARTICLE III
RENTAL
------
3.1 Base Rental. Rent shall commence on the Effective Date of
this Sublease. The monthly payments of Rent provided for herein shall be paid by
Tenant in advance, without notice or demand, on the first day of each month in
equal monthly installments throughout the Lease Year, except as otherwise stated
herein. The Rent for the calendar month during which Rent shall begin to accrue
and for the last calendar month of the Term of this Sublease shall be prorated
based upon the actual number of days in such month, if necessary. All Rent
payments shall be paid to Landlord at the address stated in Section 15.1 hereof
or to such other person, firm or corporation or at such other address as
Landlord may designate by notice in writing to Tenant. For purposes of this
Article III and as otherwise provided for in this Sublease, capitalized terms
used herein shall have the meanings assigned to them in Section 3.2 hereof,
unless otherwise previously defined or stated herein.
Tenant agrees to pay Landlord as rent (the "Rent")
for each Lease Year all of the amounts payable by Landlord to Litchfield and to
Lender (on behalf of Litchfield) as provided for in Article III and Article IV
of the Lease.
For the period from the Effective Date to and
including August 31, 1996, Tenant shall pay Landlord the sum of $119,511.
Beginning September 1, 1996 and during the first
Lease Year of this Sublease, Tenant shall pay Landlord the sum of $478,044 (the
"First Year Rent"). Within thirty (30) days after the end of the first Lease
Year, the First Year Rent shall be reviewed by Landlord to determine if the sum
accurately represents the amount paid by Landlord under the Lease during the
first Lease Year. If the First Year Rent is less than the amount paid by
Landlord under the Lease, then Tenant shall pay such additional amount to
Landlord as Rent under this Sublease within five (5) days of written notice
thereof by Landlord of the amount owed by Tenant. If the First Year Rent is in
excess of the amount paid by Landlord under the Lease, then such amount shall be
credited to Tenant as partial payment of Rent in the second Lease Year under
this Sublease.
Beginning in the second Lease Year and for all
Lease Years thereafter during the Term of this Sublease and until the Lease
Termination Date, the Rent under this Sublease for each such Lease Year shall be
the amount paid by Landlord under the Lease for the prior Lease Year under the
Lease. Landlord shall provide Tenant written notice within ten (10) days prior
to the beginning of each Lease Year under this Sublease of the amount of Rent
5
<PAGE>
that Tenant will be obligated to pay Landlord under this Sublease for such Lease
Year. Within thirty (30) days after the end of each Lease Year during the Term
of this Sublease, the prior Lease Year's Rent under this Sublease shall be
reviewed by Landlord to determine if the sum accurately represents the amount
paid by Landlord under the Lease for such Lease Year. If the Rent paid by Tenant
during such Lease Year under this Sublease was less than the amount paid by
Landlord under the Lease, then Tenant shall pay such additional amount to
Landlord as Rent under this Sublease within five (5) days of written notice
thereof by Landlord of the amount owed by Tenant. If the Rent paid by Tenant
during such Lease Year under this Sublease was in excess of the amount paid by
Landlord under the Lease, then such amount shall be credited to Tenant as
partial payment of Rent in the following Lease Year under this Sublease;
provided, however, that if such credit occurs at the end of the Term of this
Sublease, then Landlord shall be obligated to pay such excess amount to Tenant.
3.2 Definitions.
-----------
(a) "Rent" shall mean the amount paid by Tenant to
Landlord as described in Section 3.1 herein.
(b) "Lease Year" shall mean any twelve (12) month
period that commences on the Effective Date of the Lease, or any subsequent
anniversary of the Effective Date of the Lease.
(c) "Lender" shall mean National Health Investors,
Inc., a Maryland corporation, or any successor thereof, together with any holder
of the Loan or any renewal, extension or refinancing of the Loan.
(d) "Loan" shall mean the loan of Litchfield
entered into as of August 31, 1994, with the Lender, together with any advance,
renewal, extension, modification, amendment or refinancing of such Loan.
3.3 Effective Date Payments. Landlord shall be responsible for
payment of all payables accrued prior to the Effective Date of this Sublease
(the "Effective Date Payables"), including, but not limited to, salaries, wages,
compensation, employee vacation, holiday, bonuses, sick leave or amounts for
other employee benefit programs of Landlord attributable to the period prior to
the Effective Date, trade payables, utilities, insurance, telephone expenses,
taxes or assessments, and other charges, expenses and costs accrued prior to the
Effective Date (collectively, the "Payables"). All Payables shall be calculated
and adjusted pro rata, as of the Effective Date of this Sublease, as between
Landlord and Tenant. Landlord shall defend, indemnify and hold Tenant harmless
from and against any and all claims, demands, actions, liabilities and expenses
(including reasonable attorneys' fees) arising out of, or in connection with the
Effective Date Payables of the Premises or the Facility accrued prior to the
Effective Date.
6
<PAGE>
Any advance payments made by patients of the Facility for
services to be rendered after the Effective Date of this Sublease shall be paid
or credited to Tenant upon the Effective Date of this Sublease, and any patient
deposit trust funds shall be paid or assigned to Tenant upon the Effective Date
of this Sublease.
3.4 Receivable Payments to Landlord and Tenant. During the
Term of this Sublease, Tenant shall remit to Landlord as soon as reasonably
possible after receipt thereof all receivables due and owing to Landlord that
are collected by or paid to Tenant and that are attributable to the use,
possession and management of the Premises prior to the Effective Date of this
Sublease. During the Term of this Sublease, Landlord shall remit to Tenant as
soon as reasonably possible after receipt thereof all receivables due and owing
to Tenant that are collected by or paid to Landlord and that are attributable to
Tenant's use, possession and management of the Premises from, on and after the
Effective Date or have been sold, transferred or conveyed to Tenant by Landlord.
If Tenant determines after the Effective Date of this Sublease that Landlord (or
Landlord's predecessor in interest) has advance billed and collected patient
receivables that are actually attributable to Tenant's use, possession and
management of the Premises after the Effective Date of this Sublease, then
Tenant, after notice to Landlord thereof and in the absence of a dispute
thereof, shall have the right to offset and deduct from the Rent the total
amount representing such advance billed and collected patient receivables.
ARTICLE IV
TITLE AND POSSESSION
--------------------
4.1 Authority. Landlord has the complete right and authority to enter into this
Sublease on the terms and conditions and for the use herein stated.
4.2 Leased Equipment. Landlord shall furnish as "Leased
Equipment" in the Facility all of the Personal Property and Inventory necessary
to reasonably operate the Facility in accordance with state health care
standards as of the Effective Date, including, but not limited to, the items
described on Exhibit B hereto and such Leased Equipment shall be leased to
Tenant and be controlled by the terms of this Sublease. No additional rent,
beyond the Rent provided for in Article III hereof, shall be paid by Tenant for
the Leased Equipment.
If necessary or appropriate for the operation of the Facility,
Tenant shall during the Term add additional items that will become Leased
Equipment or repair or replace part or all of the items of Leased Equipment
which have been damaged or destroyed through no fault or neglect of Landlord and
such repair or replacement shall be at the sole cost and expense of Tenant, but
any such additional, repaired or replaced Leased Equipment shall be and remain
the property of Landlord. Such additional or replacement fixtures, equipment or
furnishings
7
<PAGE>
shall not be subject to leases or conditional sales contracts, except those
entered into in the ordinary course of business.
4.3 Surrender of Possession. At the end of the Term or upon
the earlier termination of this Sublease, Tenant, (i) at its sole cost and
expense, shall surrender the Premises and the Leased Equipment (including
additions, replacements and accessories thereto), to Landlord, which Leased
Equipment shall specifically include all the Personal Property and Inventory
necessary to reasonably operate the Premises in accordance with state healthcare
standards in effect as of the end of the Term of this Sublease, in the same good
condition and state of repair as they were at the beginning of the original
Term, ordinary wear and tear excepted, and broom clean and (ii) shall surrender
its license to operate the Premises as a health care facility in favor of
Landlord; provided, however, Landlord or subsequent tenant has applied for and
will receive (at Landlord's or subsequent tenant's cost and expense, including
filing and licensure fees) appropriate governmental approvals for such license
transfer, which transfer Tenant shall reasonably cooperate with in all material
respects. At the end of the Term, Tenant shall pay all scheduled periodic
amounts due and owed to third parties as of the Lease Termination Date for any
of the Leased Equipment and the Leased Equipment shall be surrendered to
Landlord free and clear of all liens and encumbrances (other than those in favor
of Lender), except liens and encumbrances in respect of the remaining Leased
Equipment payment obligations.
4.4 Holding Over. If Tenant remains in possession of the
Premises after the expiration of the Term of this Sublease, such possession
shall be as a month-to-month tenant. During such month-to-month tenancy, Rent
shall be payable at one hundred twenty-five percent (125%) of the rate as is in
effect during the last month of the preceding Term (including the adjustment
provided in Section 3.3 hereof) and the provisions of this Sublease shall be
applicable and continue in full force and effect.
4.5 Surrender of Premises License by Landlord. On the
Effective Date, Landlord shall surrender its license to operate the Premises as
a health care facility in the name of Tenant.
4.6 Facility License. On the Effective Date, Landlord shall
cooperate with Tenant so as to obtain a license to operate the Premises as a
health care facility in the name of Tenant.
ARTICLE V
TAXES, ASSESSMENTS AND UTILITIES
--------------------------------
5.1 Taxes. Tenant, at its sole cost and expense, shall pay
when due all real estate taxes, personal property taxes, Rent Taxes (as defined
below) and assessments, if any, becoming due
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<PAGE>
and payable against the Premises or the Leased Equipment beginning as of the
Effective Date and all taxes and assessments (if any) thereafter becoming due
and payable during the Term of this Sublease. Notwithstanding the foregoing in
no event shall Tenant be obligated to pay any income tax of Landlord or
Litchfield, any franchise tax of Landlord or Litchfield or any other tax
assessed against the income or capital of Landlord or Litchfield. Tenant shall
have the right, at its sole cost and expense and in good faith, to contest the
amount or validity of any such tax or assessment payable by Tenant under the
terms of this Sublease. If Tenant contests any proposed real estate tax or
assessment, then Tenant shall escrow the full amount of such proposed real
estate tax or assessment during the period of the contest, including, if
applicable, any statutory interest or penalty requirements and shall provide
Landlord and Litchfield with proof of the escrow and the identity of escrow
agent. In addition, if at any time payment of any such tax or assessment shall
become necessary to prevent the tax sale of the Premises or any portion thereof
because of nonpayment, then Tenant shall pay the same in sufficient time to
prevent such sale. In no event, and under no circumstances, shall Tenant permit
the Premises to be lost due to the failure to pay taxes described in the
Section. Any real estate taxes and assessments which become due for the year in
which possession is given to Tenant but which are payable prior to the Effective
Date shall be prorated for the calendar year between Landlord and Tenant and
such proration shall also occur at the end of the Term for the calendar year of
termination. "Rent Taxes" shall mean any excise, transaction, sales or privilege
tax (except federal and state taxes imposed in connection with change of
ownership of the Premises) at any time levied or imposed by any government or
government authority, subdivision, agency or body on account of or measured by
the Rent or any other sums payable under this Sublease.
5.2 Sewer Use Fees. Tenant, at its sole cost and expense,
shall pay when due all sewer use fees and deposits (if any) assessed against the
Premises, beginning as of the Effective Date of this Sublease and during the
Term of this Sublease. In the event of the expiration or earlier termination of
this Sublease or termination of the right of possession of Tenant, Tenant shall
not be entitled to a return of all sewer use deposits.
5.3 Utilities. Tenant, at its sole cost and expense, shall
obtain in its name and pay when due all charges and deposits (if any) for gas,
water, electricity, cable television, trash, telephone, communication services,
and all other utilities (collectively, the "Utilities") used on or supplied to
the Premises, beginning as of the Effective Date of this Sublease and during the
Term of this Sublease. In the event of the expiration or earlier termination of
this Sublease or termination of the right of possession of Tenant, Tenant shall
not be entitled to a return of all utilities deposits.
9
<PAGE>
ARTICLE VI
USE OF PREMISES
---------------
6.1 Use by Tenant. Upon the Effective Date, Tenant shall use the Facility and
the Premises only for the business purpose of a health care facility, ancillary,
medical and therapeutic health care services and for no other purpose. Tenant
covenants and agrees that during the Term of this Sublease, it will continuously
operate the Facility as a provider of health care services in material
compliance with all applicable rules, regulations, laws, statutes, orders,
ordinances and requirements, and will maintain its certifications for
reimbursement and licensure, and its accreditation, if compliance with
accreditation standards is required to maintain the operations of the Facility
and a failure to comply would adversely affect operations of the Facility.
6.2 Compliance with Laws. Tenant shall use its reasonable best
efforts and at its sole cost and expense, to get the Premises into material
compliance, and Tenant shall operate the Premises in material compliance with
all applicable city, county, state and federal building codes, ordinances,
rules, regulations and laws applicable to the Premises.
6.3 Waste. Tenant shall neither commit, nor permit the
commission of waste upon or against the Premises and the Leased Equipment,
ordinary wear and tear excepted.
6.4 License and Permits. Tenant at its sole cost and expense,
shall acquire and maintain all licenses and permits needed to operate a long
term care facility on the Premises.
6.5 Right of Entry for Inspection and Repairs. Landlord,
Litchfield and Lender (or their authorized designee) shall have the right to
enter upon the Premises for the purpose of inspection or making such
improvements, repairs and alterations of the Premises as Landlord, Litchfield
and Lender (or their authorized designee) may be required or permitted hereunder
to provide, or may deem reasonably necessary or advisable. At all reasonable
times and with the least disturbance reasonably necessary, Landlord, Litchfield
and Lender (or their authorized designee) may inspect the Premises or view the
Premises with existing or prospective mortgagees, prospective purchasers or
prospective tenants or sub-tenants. Except in cases of emergency or when Tenant
is in default under this Sublease, Landlord, Litchfield and Lender (or their
authorized designee) shall give Tenant reasonable advance notice before entering
the Premises; provided, however, Landlord, Litchfield and Lender (or their
authorized designee) shall not infringe on Tenant's normal and customary rights
of quiet enjoyment. The consent of Tenant (not to be unreasonably withheld)
shall be obtained prior to commencement of major repairs, improvements or
alterations to the Premises by Landlord or Litchfield and, if reasonably
possible, such work shall be done at such time or times as will not unreasonably
interfere with the operations of Tenant. The exercise of any right reserved
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<PAGE>
hereunder by Landlord, Litchfield and Lender shall not operate as a constructive
eviction or disturbance of Tenant's use and possession of the Premises and shall
not render Landlord, Litchfield and Lender liable to Tenant or any other person.
6.6 Reports to Landlord and Litchfield. At least quarterly and
annually, Tenant shall furnish to Landlord and Litchfield a written report, in
form and substance reasonably satisfactory to Landlord and Litchfield, regarding
the operation, management and financial performance of the Premises, including,
but not limited to, information as to the Net Revenues for the Premises, as
defined in Section 3.2(g) of the Lease.
6.7 Additional Tenant Obligations. During the term of the
Note, Tenant shall perform the obligations set forth on Exhibit D hereto as
required therein, unless Landlord and Litchfield otherwise consent in writing;
provided, however, that in the event of a refinance, amendment, modification or
supplement of the Loan (a "Loan Refinance") evidenced by a note, Tenant shall
perform and observe such covenants, duties and obligations required by the
instruments evidencing the security or pertaining to such Loan Refinance.
ARTICLE VII
EMINENT DOMAIN
--------------
7.1 Permanent or Temporary Taking. In the event notice of the taking of all or
any portion of the Premises on a permanent or temporary basis by any federal,
state, local or quasi-governmental agency or other authority, by means of
condemnation or threat of condemnation is received by Landlord, Litchfield or
Tenant, then such party shall promptly provide to the other parties notice of
such proposed or threatened taking. Upon the occurrence of such taking, whether
by condemnation, threat of condemnation or conveyance in lieu of condemnation,
the terms and conditions of this Article VII shall govern and control.
7.2 Permanent Taking. In the event of the taking of the entire
Premises or so much thereof that the remainder of the Premises cannot reasonably
be utilized as a health care facility and the Lease is terminated as a result
thereof, then this Sublease shall terminate as of the effective date of such
taking by the governmental or quasi-governmental authority.
7.3 Temporary Taking. In the event that all or any part of the
Premises shall be taken for a temporary use by a governmental or
quasi-governmental authority, all such compensation for the temporary taking
received by Landlord under the Lease or Tenant under this Sublease shall be
payable to Landlord. Tenant's obligation to pay Rent shall continue under this
Sublease; provided, however, Rent shall be reduced or adjusted to the extent
Landlord's obligation to pay Rent under the Lease is modified.
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7.4 Partial Taking. In the event that a portion of the
Premises shall be taken by a governmental or quasi-governmental authority but
the remainder of the Premises can reasonably be utilized as a health care
facility, then this Sublease shall continue and, except as otherwise provided in
this Section 8.4, Tenant shall continue to perform all terms and conditions of
this Sublease as if such condemnation or taking shall not have occurred. Neither
party shall have any right to terminate the Sublease as a result of such taking
or condemnation. Tenant's obligation to pay Rent shall continue under this
Sublease; provided, however, Rent shall be reduced or adjusted to the extent
Landlord's obligation to pay Rent under the Lease is modified. If applicable
under the Lease, to the extent such compensation is not applied to the
indebtedness secured by the Facility, all compensation paid in respect of such
taking shall belong to and be the property of Litchfield; provided, however,
that to the extent such shall not reduce the award or compensation to
Litchfield, Tenant shall be entitled to seek and maintain an independent action
or claim in the condemnation or eminent domain proceedings for its equipment
(other than the Leased Equipment) or signs, moving expenses, relocation costs or
any other allowances to which Tenant may be legally entitled. In any event
Landlord and Litchfield shall not be liable to Tenant for any damage,
compensation or award.
ARTICLE VIII
ALTERATIONS, REPAIRS AND TRADE FIXTURES
---------------------------------------
8.1 Repairs by Tenant Generally. Tenant, at its sole cost and expense, shall
inspect, maintain and repair the improvements constituting the Premises so as to
keep the Leased Improvements and interior decorations in good repair and in a
safe condition, ordinary wear and tear excepted, free from dirt, water, snow,
ice, refuse, trash and obstruction and in material compliance with applicable
laws. This obligation to repair shall include, but not be limited to, Tenant's
signs, glass, any air conditioning, heating, electrical, parking areas and
driveways, plumbing systems, roof, walls and all interior repairs. Except as
otherwise provided for herein, Tenant shall not alter any part of the structure
of the Premises or change or alter any permanent improvement in or on the
Premises or make additions thereto without the prior written consent of
Landlord, Litchfield and Lender (or their authorized designee), which consent
shall not be unreasonably withheld; provided, however, that no such alterations
or additions shall adversely affect the fair market value or useful life of the
Premises. However, Tenant may make such alterations without Landlord's and
Litchfield's consent if such alterations have an aggregate cost of no more than
$1,500,000, so long as Tenant gives a copy of the plans to Landlord, Litchfield
and Lender (or their authorized designee) within ten (10) days prior to making
the alterations. Landlord, Litchfield and Lender reserve the right to impose
reasonable requirements as a condition of granting their consent to any proposed
alterations in excess of $1,500,000, including, without limitation, requirements
that Tenant (a) submit for Landlord's, Litchfield's and Lender's (or their
authorized designee's) prior approval (which approval shall not be unreasonably
withheld) plans and specifications prepared by licensed architects and
engineers, (b) submit for Landlord's and Litchfield's prior approval
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(which approval shall not be unreasonably withheld) the names, addresses, and
general information of all contractors, subcontractors, and suppliers, (c)
obtain, arrange for and/or post necessary permits, bonds, and additional
insurance, (d) submit contractor, subcontractor, and supplier lien waivers, and
(e) materially comply with such other requirements as Landlord, Litchfield and
Lender (or their authorized designee) may reasonably impose concerning the
manner in which the work shall be done and the other aspects of the work. Any
alteration or repair work shall be performed in a good and workmanlike manner,
with quality materials, materially in accordance with plans and specifications
approved by Landlord, Litchfield and Lender (or their authorized designee). Any
alteration or repair work shall be completed so as to cause the least material
interference at the Premises, in material compliance with all applicable laws,
permits, licenses, and regulations. Tenant shall use its reasonable best efforts
to keep the Premises free from any mechanic's, materialman's, or similar liens
and encumbrances and any claims therefor in connection with any alteration or
repair work. Tenant shall give Landlord, Litchfield and Lender (or their
authorized designee) notice at least ten (10) days prior to commencement of the
alteration or repair work, to afford Landlord, Litchfield and Lender (or their
authorized designee) the opportunity to post or record appropriate notices of
nonresponsibility. Tenant shall remove any lien, claim, or encumbrance, by bond
or otherwise, within thirty (30) days after such claim is asserted. If Tenant
fails to do so, Landlord, Litchfield or Lender may pay the amount or take such
other action as Landlord, Litchfield or Lender deems reasonably necessary to
remove such claim, lien, or encumbrance after investigating the validity
thereof. The amount so paid and costs incurred by Landlord, Litchfield or Lender
shall be payable by Tenant on demand, together with detailed information
regarding such amount. Nothing in this Sublease shall authorize Tenant to do any
act which shall subject Litchfield's title to the Premises or its interest
therein to any such liens, claims, or encumbrances. Any such liens shall attach
solely to Tenant's interest in the Premises and shall in all respects be
subordinate to Litchfield's title to the Premises. Tenant shall not do anything
or permit anything to be done upon the Premises which will adversely affect the
safety or security of the Premises, or which will increase the rate of fire or
casualty insurance upon the improvements or their contents, without Landlord's,
Litchfield's and Lender's (or their authorized designee) written consent, or
which will cause structural damage to the Premises or to any improvements
therein. Except for trade fixtures, any improvements made to the Premises shall
become the property of Landlord, free of charge, if affixed to the realty.
8.2 Quality and Promptness of Repairs. All repairs made by
Tenant shall be made promptly when necessary; shall be at least equal to the
original construction in the quality of materials and workmanship and shall be
done in full compliance with all applicable building codes, ordinances, rules,
regulations and statutes of the city, county, state and federal governments;
provided, however, Landlord or Litchfield shall have the right to perform
necessary repairs for and on behalf of Tenant, and charge Tenant for the cost of
such repairs.
8.3 Liability of Landlord and Litchfield. Landlord shall not
be liable to Tenant or any other person or corporation, including employees and
invitees, for death or
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injury to the person or for loss or damage to property caused by theft,
vandalism, water, rain, snow, frost, fire, storm or accident, or by breakage,
stoppage, or leakage of water, gas, heating or sewer pipes or plumbing, upon,
about or adjacent to the Premises or by any other cause, except damages caused
by Litchfield's breach of the Lease, Landlord's breach of this Sublease or by
the gross negligence or willful misconduct of Landlord, Litchfield or their
employees or agents.
ARTICLE IX
SIGNS
-----
Tenant shall have the right to place upon the Premises such
sign or signs as it may desire for advertising purposes, at Tenant's sole cost
and expense. All signs shall comply with all applicable federal, state and local
statutes, rules, regulations and ordinances. Tenant shall maintain such signs in
a good state of repair and shall repair any damage to the Premises by the
erection, maintenance or removal of such signs at the termination of this
Sublease. Upon the termination of this Sublease, all signs of Tenant shall be
removed in accordance with Article IX relating to trade fixtures.
ARTICLE X
ASSIGNMENT, SUBLETTING AND SUBORDINATION
----------------------------------------
10.1 Assignment or Subletting by Tenant. Tenant shall not assign this Sublease
or any interest herein, or sublet the Premises or any part thereof or any right
or privilege appurtenant thereto, or allow any person other than Tenant and its
agents, employees, patients and medical staff to occupy or use the Premises or
any part thereof without Landlord's, Litchfield's and Lender's prior written
consent, if required. This Section shall not prohibit assignment to affiliated
entities of Tenant, co-ventures or partnerships of which Tenant is a participant
(collectively, a "Successor Affiliate"); or any other such entity or successor;
provided, however, that such affiliate entity, co-venture or partnership shall
be and remain at least fifty-one percent (51%) owned or beneficially owned by
Integrated Living. Upon the occurrence of any assignment or subletting to a
Successor Affiliate, Tenant shall promptly provide to Landlord and Litchfield
written notice of such assignment or subletting, together with a copy of all
assignments, transfers, subleases, financial and ownership information regarding
such Successor Affiliate and such other information reasonably requested by
Landlord and Litchfield. Any unauthorized assignment or sublease shall be
voidable and shall constitute a breach of this Sublease at Landlord's or
Litchfield's option.
Landlord, Litchfield and Lender shall not unreasonably
withhold or delay their consent to assignment or subletting of this Sublease.
Without limitation of Landlord's, Litchfield's and Lender's right to withhold
their consent, Landlord, Litchfield and Lender may
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withhold their consent and be deemed reasonable hereunder if one or more of the
following applicable facts exist:
(a) Assignee or sublessee does not agree in
writing to be bound by all terms, conditions
and obligations under the Lease and this
Sublease.
(b) Assignee's or sublessee's proposed use of
the Premises is not permitted by the use
provisions of the Lease and this Sublease.
(c) The proposed assignee or sublessee does not
promptly obtain licensure approval after the
assignment or sublease in accordance with
applicable Florida statutes, rules and
regulations.
It shall not be unreasonable to withhold said
consent if Tenant is in default of this Sublease at such time.
In the event Landlord, Litchfield and Lender refuse to grant
such consent and if Tenant wishes to contest Landlord's and Lender's decision,
then Tenant's sole remedy shall be for injunctive relief and specific
performance and not for any form of damages or costs, unless such refusal to
grant consent is found to be arbitrary and capricious by unappealable final
decision of a court of competent jurisdiction. Any such assignment or sublease
shall be subject to the terms of the Lease and this Sublease and Tenant shall
remain primarily liable to Landlord, Litchfield and Lender for the full
performance of the duties and obligations under this Sublease.
10.2 Assignment by Landlord. Landlord shall not sell, assign
or transfer this Sublease or any interest herein unless permitted under the
Lease or this Sublease.
Any unauthorized assignment shall be voidable and
shall constitute a breach of this Sublease at Tenant's option.
Tenant shall be under no obligation to any assignee
of Landlord (other than Litchfield and Lender) except upon written notice of
such assignment from Landlord, Litchfield and Lender. Upon notice to Tenant of
any such assignment, the Rent payable by Tenant which are subject to this
assignment shall be paid to or upon the written order of the assignee.
10.3 Subordination and Attornment. This Sublease shall be
subject and subordinate to the lien contemplated by the Loan Agreement and any
lien securing indebtedness hereafter to be secured by the Premises at the
election of any owner of the Premises, and to all renewals, modifications,
amendments, consolidations, replacements and extensions thereof, subject,
however, to the covenants and conditions contained in this Section
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11.3. Tenant shall execute and deliver to the owner of the Premises, Lender and
any other holder of secured indebtedness, documents which may be reasonably
required by any owner of the Premises in confirmation of such subordination
promptly upon Landlord's or Litchfield's written request. Further, Tenant, as a
part of any subordination agreement, if requested, shall agree to attorn to
Lender and any other holder of secured indebtedness in the event of foreclosure
or deed in lieu of foreclosure, in a manner reasonably acceptable to Lender and
any such other lender. In consideration of Tenant's execution of a subordination
and/or attornment agreement, Landlord or Litchfield shall cooperate and assist
Tenant in obtaining a non-disturbance agreement from Lender and any such other
holder of secured indebtedness. In any event, Tenant shall be obligated to
continue to pay Rent and comply with all other terms of this Sublease if allowed
to remain in possession after any foreclosure or deed in lieu of foreclosure;
provided, however, if any Lender or other holder of secured indebtedness
forecloses on the lien contemplated by the Loan Agreement or any other lien
securing indebtedness in respect of the Premises, or the Premises are purchased
at a foreclosure sale, Tenant shall not be disturbed so long as Tenant has met
and continues to meet all its requirements under this Sublease. Except for the
lien securing indebtedness contemplated by the Loan Agreement, Landlord or
Litchfield may not place any other lien securing indebtedness on the Premises
without the written consent of Tenant.
10.4 Sale by Litchfield. Any sale, assignment or conveyance of
the Premises shall be made subject to the Lease, this Sublease and the Purchase
Option Agreement. If the Premises is sold to Landlord pursuant to the Purchase
Option Agreement, then this Sublease shall terminate on the date of acquisition
of the Premises by Landlord.
10.5 Estoppel Certificates. Tenant, upon request by Landlord
or Litchfield, shall execute and deliver to Landlord or Litchfield, in
contemplation of the sale or mortgage of the Premises, and Landlord or
Litchfield upon request by Tenant shall execute and deliver to Tenant, in
contemplation of an assignment of the Lease or this Sublease, an estoppel
certificate which shall, at a minimum, state, to the extent true, the following
facts: (a) that this Sublease is a true and correct copy of this Sublease and
that it has not been modified or terminated except as set forth, (b) that the
Rent in this Sublease has not been modified, (c) that there are no outside
agreements that would affect the beneficiary of the estoppel certificate or any
of their rights under this Sublease or to the Premises, (d) that there are no
disputes existing as to this Sublease, (e) that Landlord has complied with the
terms of this Sublease to the date of the certificate, (f) that there has been
no Rent paid more than thirty (30) days in advance, and (g) any other terms
reasonably acceptable to Tenant or reasonably required by any mortgagee.
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ARTICLE XI
DEFAULT
-------
11.1 Default by Tenant. As used herein, the term "Event of
Default" shall mean the occurrence of any one or more of the following:
(a) The failure of Tenant to pay the Rent under
this Sublease and the continuation of such
failure for a period thirty (30) consecutive
calendar days (twenty-eight (28) consecutive
calendar days for the month of February)
after the date the Rent is due and payable
under this Sublease.
(b) The failure of Tenant to pay any other sum
of money payable under this Sublease and the
continuation of such failure for a period
fifteen (15) consecutive calendar days after
the date such other sum of money is due and
payable.
(c) Unauthorized assignment of this Sublease or
any interest therein or unauthorized
sublease of the Premises or any part
thereof.
(d) Abandonment or vacating of the Premises by
Tenant or any permitted subtenant, or
failure of Tenant or any permitted
subtenant, to conduct business as required
by this Sublease.
(e) Dissolution of Tenant or Integrated Living.
(f) The appointment of a receiver or trustee
over all or any part of the property of
Tenant or Integrated Living or any permitted
subtenant, and, in the case of any such
appointment without the consent or
acquiescence of Tenant or Integrated Living
or any permitted subtenant, the expiration
of one hundred and eighty (180) consecutive
calendar days after the effective date of
such appointment without such appointment
having been released or vacated.
(g) The voluntary or involuntary making by or
against Tenant or Integrated Living or any
permitted subtenant of a general assignment
for the benefit of any one or more of the
past, present or future creditors of Tenant
or Integrated Living or any permitted
subtenant and, in the case of any
involuntary assignment, the expiration of
one hundred and eighty (180)
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consecutive calendar days without such
involuntary assignment being fully and
completely abrogated.
(h) The filing or attachment of any lien or
encumbrance against the Premises arising out
of any act or omission by Tenant or any
permitted subtenant which is not released or
bonded by Tenant in accordance with the law
within thirty (30) consecutive calendar days
after the filing of any such lien or
encumbrance.
(i) Failure of Tenant or any permitted subtenant
to provide evidence of the obtaining or
maintenance of any insurance coverage
provided hereunder and the continuation of
such failure for a period of fifteen (15)
calendar days after the date of delivery of
written notice thereof from Landlord.
(j) Failure of Tenant or any permitted subtenant
to perform any material covenant, condition,
indemnity or obligation contained in this
Sublease or the Lease which is not covered
by any other subsection of this Section 12.1
and the continuation of such failure for a
period of thirty (30) calendar days after
the date of delivery of written notice
thereof from Landlord; provided, however,
that if such failure could not reasonably be
cured within such thirty (30) day period,
then such thirty (30) day period shall be
extended for such additional period of time
as may be reasonably required in order to
cure such failure, provided that Tenant
exercises reasonable diligence in curing
such failure during and after the expiration
of the initial thirty (30) day period.
(k) Any act of intentional material damage to
the Premises or any common area.
(l) The occurrence of an Event of Default under
Article XIII of any of the Affiliated Leases
or Article XI of the Colorado Sublease.
In the event of any default, Landlord shall give Tenant
written notice of the default stating the default complained of and referring to
the applicable Article and Section in this Sublease relied on by Landlord.
11.2 Landlord's Rights and Remedies. Upon any Event of Default
and a failure by Tenant to cure same within the time period provided in the
preceding Section, if any, Landlord, at its option, and without further demand
or notice, shall have the following
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rights and remedies in addition to any rights provided by law or equity, all of
which shall be cumulative:
(a) Perform any covenant or obligation of Tenant and
add the cost of the cure to the next installment or
installments of the Rent due.
(b) Terminate the Sublease and Landlord may make a
demand for accrued Rent.
(c) Reenter the Premises without terminating the
Sublease and take possession of the Premises and
any Leased Equipment and Tenant shall remain liable
for the equivalent amount of Rent reserved for the
balance of the Term, as and when due, less the
avails, if any, of reletting the Premises or any
part thereof to a third party. If Landlord relets
the Premises (either for a term greater than, less
than or equal to the unexpired portion of the Term
then in effect under the terms of this Sublease)
for an aggregate rent during the portion of such
new sublease which is less than the Rent and other
charges which Tenant would pay hereunder for such
period, Landlord may immediately upon the making of
such new sublease, sue for and recover the
difference between the aggregate rental provided
for in said new sublease for the portion of the
term coextensive with the Term then in effect under
this Sublease, and the Rent and other charges which
Tenant would pay hereunder for such period,
together with any reasonable expenses, including,
without limitation, attorneys' fees and expenses,
to which Landlord may be put for brokerage
commissions, placing the Premises in tenantable
condition, and other related charges or expenses
accrued prior to the new sublease or otherwise;
provided, however, the aggregate rental provided
for in said new sublease is reasonable for the
Premises. If such new sublease or tenancy is made
for a shorter term than the balance of the Term of
this Sublease, any such action brought by Landlord
to collect the deficit for that period shall not
bar Landlord from thereafter suing for any loss
accruing during the balance of the unexpired Term
of this Sublease. Landlord shall use its reasonable
efforts to negotiate and obtain terms and
conditions for any reletting of the Premises that
are commercially reasonable terms and conditions
under the circumstances. Landlord shall also abide
by the real property laws applicable to the
Premises in respect of reletting the Premises and
mitigating the liability and obligations of Tenant
under this subsection (c).
(d) Neither (i) the termination of this Sublease
pursuant to subsection (b); (ii) the repossession
of the Premises; (iii) the failure of Landlord,
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notwithstanding reasonable best efforts, to relet
the Premises; (iv) the reletting of all or any
portion thereof; nor (v) the failure of Landlord to
collect or receive any rentals due upon any such
reletting, shall relieve Tenant of its liability
and obligations hereunder, all of which shall
otherwise survive any such termination,
repossession or reletting. Any payments with
respect to rental, taxes, insurance and maintenance
of the Premises made by any subsequent tenant of
the Premises, during the time Tenant shall remain
liable to Landlord under this Sublease, shall to
the extent to such payment relieve Tenant of its
liability for that payment under this subsection
(d).
(e) Landlord may enforce, by action or otherwise, any
other term or covenant of this Sublease.
(f) At the option of Landlord, the rights and remedies
of this Section 12.2 shall apply to this Sublease,
the Colorado Sublease or both.
Tenant knowingly and voluntarily waives demand for
performance, notice to quit and any and all rights of redemption which Tenant
may now have or hereafter acquire pursuant to statute or court decision, except
for notice as provided in this Article.
Landlord shall have the right to cure any Event of Default by
Tenant without giving notice to Tenant in the event of any emergency.
Landlord's failure to insist on the strict performance of and
compliance with each condition in this Sublease shall neither constitute nor be
construed as constituting a waiver by Landlord of Landlord's rights under this
Article or by law, nor constitute nor be construed as consisting of a waiver by
Landlord of a second or subsequent Event of Default by Tenant of same condition.
Acceptance of past due Rent or other sums due shall in no way act as a waiver of
Tenant's Event of Default nor prevent Landlord from proceeding as above stated.
In the event litigation is commenced, it shall not be necessary for Landlord to
notify Tenant of any additional occurrences of Event of Default prior to
proceeding as permitted.
11.3 Default by Landlord. If Landlord defaults in the
performance of any condition or obligation in this Sublease and if Tenant gives
Landlord notice of the default stating the default complained of and referring
to the Article and Section in this Sublease relied on by Tenant, Landlord shall
have thirty (30) calendar days after receiving written notice from Tenant to
undertake the cure of any such default and shall thereafter cure same in good
faith, with diligence, and within a reasonable period of time.
If Landlord fails to cure any such default or to diligently
and in good faith pursue the cure as provided for herein, then Tenant may sue
Landlord for its damages, and
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may further obtain injunctive relief if necessary and permitted as a matter of
law to maintain operation of the Facility or conform with applicable law.
Whenever this Sublease requires any act (other than the
payment of a liquidated sum of money, e.g., rental payments, taxes, utilities,
etc.) by Landlord or Tenant within a certain period of time or by a certain
time, the time for the performance of such act shall be extended by the period
of any delay caused by war, strikes, lockouts, civil commotion, unpreventable
material shortages, casualties, acts of God or other similar conditions or
events beyond the control of the obligated party; provided, however, that
written notice of such delay and the cause and circumstances thereof shall be
given to the other party immediately after commencement of such delay and
knowledge of such delay becoming known by the obligated party.
ARTICLE XII
BANKRUPTCY
----------
If an Event of Default described in Article 11.1(g) occurs,
then Landlord may terminate this Sublease by giving notice to Tenant of its
intention so to do; provided, however, neither bankruptcy, insolvency, an
assignment for the benefit of creditors nor the appointment of a receiver shall
affect this Sublease or permit its termination so long as the covenants on the
part of Tenant to be performed shall be performed by Tenant or a person or
entity claiming under Tenant. In the event Rent is not paid as herein provided
after the filing of a petition in bankruptcy or any arrearage in Rent is not
made whole, this Sublease shall be immediately terminated and Landlord shall be
free to pursue its remedies set forth in Article XI.
ARTICLE XIII
DAMAGE TO PREMISES
------------------
In the event that, at any time during the Term of this
Sublease, the Premises are damaged or destroyed by fire, the elements, or other
casualty, whether or not insured by Tenant, Tenant shall immediately notify
Landlord and Litchfield in writing of the occurrence of such damage or
destruction. This Sublease shall not terminate as a result of such damage or
destruction, and Tenant shall, at its sole cost and expense, including the
proceeds of insurance in respect of such damage or destruction, if any, repair,
rebuild or restore the Premises to substantially the same condition as existed
immediately prior to the damage or destruction and in accordance with all
applicable federal, state and local building codes and regulations and is
sufficient to meet state licensure requirements for long term health care
facilities. Subject to the rights of the Lender, the proceeds, if any, of
insurance in respect of such damage or destruction shall be made available to
Tenant for the prosecution of such repair, rebuilding or restoration. The
repair, rebuilding or restoration shall be completed as promptly as reasonably
possible. Any and all such work shall be performed in a good and workmanlike
manner, with quality materials and no liens shall attach to the interest of
Landlord and Litchfield as a result
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of such work. Prior to undertaking such work, Tenant shall (a) submit to
Landlord and Litchfield for their prior approval, which approval shall not be
unreasonably withheld, plans and specifications prepared by licensed architects
and engineers, (b) submit to Landlord and Litchfield for their prior approval,
which approval shall not be unreasonably withheld, the names, addresses and
general information in respect of all contractors, subcontractors and suppliers,
(c) obtain, arrange for and/or post necessary permits, bonds, licenses and
insurance, (d) submit contractor, subcontractor and supplier lien waivers, and
(e) comply with such other requirements as Landlord and Litchfield may
reasonably impose concerning the manner in which the work shall be performed and
other aspects of the work.
ARTICLE XIV
INSURANCE, SUBROGATION AND INDEMNIFICATION
------------------------------------------
14.1 Comprehensive General Liability and Professional Liability Insurance to be
Carried by Tenant. Subject to Tenant's rights of self-insurance set forth in
Section 14.8 hereof, Tenant, before occupying the Premises, at its sole cost and
expense, shall cause to be issued and kept in force during the Term and any
Renewal Term, if any, a policy or policies of comprehensive general liability
and professional liability insurance, including general liability, malpractice
and property damage, by the terms of which Landlord, Lender and Tenant shall be
insured against claims for bodily injury, death and property damage as a result
of an occurrence on the Premises, with minimum combined single limits of
$1,000,000 per occurrence and $3,000,000 million aggregate per facility, with a
$2,000,000 umbrella policy. Tenant shall remain liable to Landlord, Litchfield
and Lender for any deficiency should insurance afforded this Section be
insufficient to satisfy the liability of Tenant under Section 14.5, including,
without limitation, the amount of any deductibles maintained by Tenant, unless
such liability arises from negligence of Landlord or Litchfield.
14.2 Certificate of Insurance. Tenant, at its sole cost and
expense, shall carry all insurance required by this Article with a company or
companies reasonably acceptable to Landlord, Litchfield and Lender and qualified
to do business in the state or commonwealth where the Premises is located. All
such policies shall bear endorsements to the effect that Landlord, Litchfield,
Lender and Tenant are named as additional insureds as their interest may appear
and Lender shall also be named as loss payee on the fire, extended coverage and
peril insurance provided under Section 14.6 and that all such parties shall be
notified by certified mail, return receipt requested, not less than thirty (30)
days in advance of any termination expiration or cancellation if such coverage
is not replaced prior to expiration by coverage complying with the provisions
herein.
Upon notification of such termination, cancellation or
expiration by its insurance carrier, Tenant shall advise Lender, Litchfield and
Landlord of such termination,
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expiration or cancellation unless such coverage is replaced or Tenant elects to
self-insure in accordance with Section 14.8 hereof.
At Landlord's, Litchfield's or Lender's request, Tenant, at
its sole cost and expense, before commencement of the Term of this Sublease and
upon each renewal of such insurance, shall deliver to and deposit with Landlord,
Litchfield and Lender certificates of insurance for each policy required by this
Article, and evidence that, all current premiums on such policies have been
paid. At Landlord's, Litchfield's and Lender's request, Tenant shall deliver
copies of the applicable policies.
Tenant's obligation to carry the insurance provided herein may
be brought within the coverage of a so-called "blanket policy" or policies of
the insurance carrier maintained by Tenant or Integrated Living. The coverage
afforded Landlord, Litchfield and Lender must not be reduced or diminished by
the blanket policy of insurance, with an endorsement to that effect provided to
such Landlord, Litchfield and Lender; and the requirements set forth herein must
be otherwise satisfied.
All requirements for Tenant to maintain insurance coverages
are limited to what is available from established insurance carriers at
commercially reasonable rates. Upon the written request of Tenant, Lender,
Litchfield or Landlord may permit, which permission may not be unreasonably
withheld, modifications to the insurance otherwise required by this Section
14.5, taking into account the cost and availability of insurance for such risk
and the effect of the terms and rates of such insurance upon the costs and
charges of Tenant for its services. In determining whether to approve any such
modification, Lender, Litchfield or Landlord may rely upon a written evaluation
with respect thereto by an independent insurance consultant provided by Tenant
and acceptable to Lender, Litchfield or Landlord.
14.3 Adjustments to Insurance Coverage. In order to maintain
the same level of coverage that will exist at the commencement of the Term, the
amounts and types of coverage called for herein shall be subject to review by
Landlord, Litchfield and Lender at the end of each three (3) Lease Years
following the Effective Date of the Lease and, if appropriate, the amounts and
types of coverage shall be increased or extended to provide the amounts and
types of coverage that are at least equal to the amounts and types of coverages
carried by prudent owners and operators of properties similar to the Premises,
but in no event shall the coverage be less than as required by the terms of this
Article.
14.4 Other Coverage. Tenant, at its sole cost and expense,
shall carry and throughout the Term of this Sublease maintain insurance in a
reasonable amount to provide coverage for loss or damage to or from:
(a) the Leased Equipment for its full replacement
value;
(b) explosion of steam boilers, pressure vessels or
similar apparatus;
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(c) loss of Rent during the period of reconstruction
and the six (6) months following completion of
reconstruction after any damage or destruction of
the Premises;
(d) flood insurance, windstorm, and earthquake
insurance, as reasonably required by Lender,
Litchfield or Landlord; and
(e) Workers Compensation Insurance, as required by the
laws of the state where the Facility is located.
14.5 Fire, Extended Coverage and Additional Perils Insurance.
Tenant, at its sole cost and expense, shall cause to be issued and kept in force
during the Term of this Sublease, a policy or policies of fire, extended
coverage and additional perils insurance by which Landlord, Litchfield and
Lender shall be insured against loss and damage by fire, lightning, hail,
earthquakes and sprinkler damage resulting from damage to or destruction of the
Leased Improvements, including equipment, furnishings and other tangible
personal property used in connection with operation of the Premises, located on
the Premises and the Leased Equipment, if any, for its full replacement value
(exclusive of land) as established by the insurance carrier.
14.6 Subrogation Rights. Tenant, and for each person,
organization, association and corporation claiming under or through Tenant,
herein waives, releases and discharges Landlord, Litchfield and Lender from all
costs, expenses, losses, damages, demands, claims and liabilities arising in any
manner, excluding negligence of Landlord, Litchfield or Lender, that is covered
by policies of insurance now or hereafter existing during the Term or any
Renewal Term (if any). However, this release is applicable only to the extent of
the maximum proceeds paid under each applicable policy of insurance, excluding
applicable deductibles.
If the release and discharge of Landlord, Litchfield and
Lender by Tenant, as contained in this Article, to the extent of maximum
proceeds paid under each applicable policy of insurance, contravenes any
applicable statute or decision with regard to exculpatory agreements, the
liability of Landlord, Litchfield and Lender shall be deemed not released but
shall be secondary to all of the insurance proceeds paid under such applicable
policy of insurance.
14.7 Litigation Cooperation. Tenant shall fully cooperate with
Landlord and Lender and/or their counsel in respect of providing applicable
information, testimony or documentation reasonably necessary for Landlord,
Litchfield and Lender to negotiate, litigate and/or settle any and all causes of
action or similar matters in respect of the Premises. Upon termination of this
Sublease, Tenant shall fully cooperate with Landlord and Litchfield and/or
management retained by Landlord and Litchfield in respect of relicensure and/or
recertification of Landlord and Litchfield and/or management retained by
Landlord and Litchfield.
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<PAGE>
14.8 Self-Insurance. Notwithstanding any provision in this
Article XIV to the contrary, so long as the amount of self-insurance is
comparable to the amount of insurance maintained by Tenant with respect to the
Premises as of the Effective Date of this Sublease or generally by entities in
Tenant's business with respect to similar Facilities, Tenant may satisfy all or
a portion of the insurance requirements set forth in Section 14.1 through
self-insurance by Tenant or Integrated Living (by means of deductible,
self-insured retentions or excess reinsurance).
14.9 Indemnification of Landlord and Litchfield. Tenant shall
indemnify and hold harmless Landlord and Litchfield and their officers,
directors, shareholders, employees, agents and assigns (collectively, the
"Landlord Parties") from any and all liabilities, obligations, losses, demands,
judgments, actions, suits, causes of action, claims, proceedings,
investigations, citations, matters, damages, penalties, sanctions, costs,
expenses, and disbursements (including, without limitation, reasonable
attorneys' and consultants' fees and expenses), whether or not subject to
litigation (hereinafter collectively referred to as the "Claims") of any kind or
character imposed upon, arising out of, in connection with, incurred or in any
way attributed or relating to the following:
(a) the use, operation, possession, or management of
the Premises by Tenant beginning on the Effective
Date of this Sublease and during the Term of this
Sublease until the Lease Termination Date;
(b) the breach or failure by Tenant of any
representation, warranty or covenant that is
contained in this Sublease;
(c) any and all Claims accruing on or after the
Effective Date of this Sublease relating to any
current or former employee, consultant or
independent contractor of Tenant or the Facility,
including, but not limited to, (i) the termination
or discharge of any current or former employee,
consultant, or independent contractor of Tenant or
the Facility on or after the Effective Date of this
Sublease, (ii) Claims under federal, state, or
local laws, rules or regulations, accruing on or
after the Effective Date of this Sublease, related
to wages, hours, fair employment practices, unfair
labor practices, or other terms and conditions of
employment and claims arising under the Worker
Adjustment and Retraining Notification Act or any
analogous state statute, or (iii) matters arising
from any severance policy, claim, agreement or
contract;
(d) any and all Claims with respect to any qualified or
non-qualified retirement or benefit plans or
arrangements established on or after the Effective
Date of this Sublease involving any employee,
consultant or independent contractor of Tenant or
the Facility; and
25
<PAGE>
(e) the violation of any Environmental Law or the
existence, presence or Release (as defined in the
Facilities Agreement) of any Hazardous Material (as
defined in the Facilities Agreement) (collectively,
"Environmental Liability") where the Environmental
Liability is based on an occurrence, event or
condition at or relating to the Facility that is
attributable to the use, possession, operation or
management of the Facility by Tenant on and after
the Effective Date of this Sublease and during the
term of this Sublease until the Lease Termination
Date; provided, however, that the indemnification
obligation of Tenant hereunder shall be limited
solely to Claims (of any kind and nature whatsoever)
for (i) remediation of and response actions related
to such Environmental Liability (including, without
limitation, any such Claim for cleanup, treatment,
corrective action, compliance, financial assurance,
restoration, removal, abatement, encapsulation,
containment, revegetation, monitoring, sampling,
investigation, study, assessment, and the protection
of, or mitigative action related to, wildlife,
aquatic species, wetlands, vegetation, flora and
fauna) and (ii) any Claim asserted by a third party
relating to such Environmental Liability (including,
without limitation, any Claim involving natural
resources damages, property damage, payment of fines
or penalties or settlement amounts, or any other
action or cause of action by, or obligation to, a
third party (including, without limitation, any
Claim for personal injury or death, contribution or
cost recovery)). Notwithstanding anything to the
contrary in this subsection (e), in the event that
any Environmental Liability accrues or arises on or
after the Effective Date of this Sublease but is not
attributable to the use, possession, operation or
management of the Facility by Tenant, then all costs
and expenses associated with such Claim shall be
shared equally by Tenant and Litchfield. All Claims
under this subsection (e) shall be resolved in
accordance with the procedure set forth in Section
15.7(d) of the Facilities Agreement.
Tenant further covenants and agrees to defend the Landlord
Parties on account of said Claims and to pay any judgment against the Landlord
Parties, or any other amount as indicated in this Section 14.9, along with all
reasonable costs and expenses relative to any such Claims, including attorneys'
fees and expenses; provided, however, that the Landlord Parties shall,
nevertheless, have the right, if they so elect, to participate (with counsel of
their choosing, which counsel must be approved by Tenant, which approval may not
be unreasonably withheld) in the defense of any such Claim in which they may be
a party without relieving Tenant of the obligation to defend the same. To the
extent applicable, the Landlord Parties covenant not to settle or compromise any
Claim under this section without the written consent of Tenant, which consent
may not be unreasonably withheld or delayed under the
26
<PAGE>
circumstances. Failure to comply with the preceding covenant shall be deemed a
complete waiver of any rights that Landlord has or may have under this Section
14.9.
The indemnities of Tenant set forth in this Section 14.9 and
the obligations of Tenant related thereto shall remain operative and in full
force during the Term of this Sublease; however, the indemnities and the
obligations of Tenant related thereto shall terminate with respect to any Claim
not asserted by the Landlord Parties to Tenant on or before the date that is one
year from the Lease Termination Date (the "Indemnities Termination Date").
Any Claim for indemnification under this Section 14.9 which is
asserted in writing to Tenant by the Landlord Parties prior to the Indemnities
Termination Date shall survive the termination of the survival period for the
indemnities and the obligations of Tenant as provided herein.
ARTICLE XV
GENERAL CONDITIONS
------------------
15.1 Notice. All notices, requests, demands or other
communications required or permitted under this Lease shall be in writing and
shall be either personally delivered evidenced by a signed receipt or
transmitted by return receipt requested, postage prepaid or by overnight courier
services with signed receipt, and addressed as follows, unless and until either
of such parties notifies the other in accordance with this Section of a change
of address:
If to Litchfield: Litchfield Asset Management Corp.
128 Litchfield Road
New Milford, Connecticut 06776
Attention: Eugene H. Rosen
Copy to: Owens, Clary & Aiken, L.L.P.
Suite 2400
1717 Main Street
Dallas, Texas 75201
Attention: Leighton Aiken, Esq.
If to Landlord: Integrated Health Services of Lester, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Brian K. Davidson
Copy to: Marshall A. Elkins, Esq.
27
<PAGE>
If to Tenant: Integrated Living Communities of Colorado
Springs, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attention: Edward J. Komp
If to Lender: National Health Investors, Inc.
City Center
100 Vine Street
Murfreesboro, Tennessee 37130
Attention: Richard F. LaRoche, Jr.
Copy to: Farris, Warfield & Kanaday
Third National Financial Center
424 Church Street, Suite 1900
Nashville, Tennessee 37219
Attention: Robert N. Buchanan, III, Esq.
So long as the Note remains outstanding, the Tenant shall give
Lender copies of any notices required to be given to Landlord and Litchfield.
All notices, requests, demands and other communications shall
be effective upon personal delivery evidenced by a signed receipt or upon three
(3) calendar days after being deposited in the United States mail, whichever
occurs first. The time period in which a response to any such notice, request,
demand or other communication must be given, however, shall commence to run from
the date of personal delivery evidenced by a signed receipt or the date of
receipt on the return receipt of the notice, request, demand or other
communication; provided, however, that if a party refuses delivery of any such
notice, request, demand or other communication sent by mail, or fails or
neglects, without reasonable cause, to accept delivery, it shall be deemed
received on the date of being deposited in the United States mail. The parties
hereto shall have the right, at any time and from time to time during the Term,
to change their respective addresses for notices by giving the other party
hereto written notice thereof.
15.2 Amendment. This Sublease may be amended at any time and
from time to time; provided, however, that no amendment to this Sublease shall
be legally enforceable against Landlord, Litchfield or Tenant unless it is in
writing, executed and acknowledged by Landlord, Litchfield and Tenant.
15.3 Cooperation. Tenant, Landlord and Litchfield shall
cooperate in all respects in connection with the giving of any notices to any
governmental authority or self-regulatory organization or securing the
permission, approval, determination, consent or waiver of any governmental
authority or other party required in connection with the consummation of the
transactions contemplated by this Sublease. From time to time, upon request of
Tenant,
28
<PAGE>
Landlord and Litchfield shall cooperate fully and assist Tenant in the orderly
transfer of administrative authority and management of the Facility to Tenant
pursuant to this Sublease, to avoid any interruption in the rendering of
services at the Facility, including cooperation and assistance with personnel
matters, reimbursement issues, program development and compliance with relevant
laws. Additionally, Landlord and Litchfield shall promptly surrender to Tenant
all keys, contracts and other documents and records maintained by Landlord,
Litchfield or their predecessors in connection with the operation of the
Facility. In the event that the Purchase Option Agreement, as applicable, has
not been exercised by Landlord and/or the Lease and this Sublease have
terminated, upon request of Landlord or Litchfield, Tenant shall cooperate fully
and assist Landlord and Litchfield in the orderly transfer of administrative
authority and management of the Facility to Landlord or Litchfield or their
designee, to avoid any interruption in the rendering of services at the
Facility, including cooperation and assistance with personnel matters,
reimbursement issues, program development and compliance with relevant laws.
15.4 Construction. This Sublease shall be construed and
enforced in accordance with the laws of the state where the Premises is located,
without regard to provisions governing conflicts of laws.
15.5 Binding Effect on Successors. Landlord, Litchfield and
Tenant expressly agree that, subject to the terms of this Sublease all terms and
conditions of this Sublease shall extend to and be binding upon or inure to the
benefit of the heirs, executors, administrators, personal representatives,
assigns and successors in interest of Landlord, Litchfield and Tenant.
15.6 Memorandum of Sublease. Landlord and Tenant shall execute
and deliver to each other a Memorandum of Sublease for recording purposes
immediately upon execution of this Sublease by the parties. Any party, at its
expense, shall have the right to record such Memorandum of Sublease for the
purpose of giving notice of Tenant's interest in the Premises.
15.7 Reading and Receipt of this Sublease. Landlord and Tenant
stipulate that each has read and understands the conditions in this Sublease and
by their respective signatures below, acknowledge the receipt of an executed
copy of this Sublease.
15.8 Attorneys' Fees. Without limitation of the provisions in
Section 14.5 hereof and without duplication, if any party incurs attorneys' fees
reasonably necessary to enforce any of the terms of this Sublease wherein the
other party has failed to abide by the terms of this Sublease or is in default
hereunder, then, in such an event, the party in default or who has failed to
abide by the terms of this Sublease shall reimburse the complaining party for
its reasonable attorneys' fees, costs and disbursements incurred. The
reimbursement of fees, costs and disbursements shall not be conditioned upon the
commencement of litigation. If
29
<PAGE>
litigation is commenced the successful party shall be entitled to reimbursement
from the other party for its reasonable attorneys' fees, costs and disbursements
incurred.
15.9 Captions and Indexes. Article or Section titles, captions
or indexes, contained in this Sublease are inserted only as a matter of
convenience and reference, and in no way define, limit, extend or describe the
scope of this Sublease, or the intent of any provision hereof.
15.10 Severability. If any one or more of the provisions
contained herein shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Sublease, but this Sublease shall
be construed as if such invalid, illegal or unenforceable provision had not been
contained herein.
15.11 Pronouns. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or persons may require.
15.12 Triple Net Sublease. This Sublease is intended by the
parties to be a triple net Sublease and Landlord, Litchfield and Lender shall
not be required to make any payment of any kind with respect to the Premises,
Facility or the Leased Equipment except as expressly stated herein.
15.13 Drafting of this Sublease. Landlord and Tenant have been
represented by attorneys in negotiation and drafting this Sublease and the
parties to this Sublease have influenced the language of this Sublease.
Therefore, this Sublease shall not be construed against any party to this
Sublease by reason of drafting authorship.
15.14 Counterparts. This Sublease may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
15.15 No Personal Liability. All covenants, duties,
obligations, representations, warranties and liabilities of Landlord hereunder
shall be the sole responsibility of Landlord and shall be recourse solely to
Landlord and its assets. Under no circumstances whatsoever shall the officers,
directors or shareholders of Landlord be deemed personally liable hereunder for
any such covenants, duties, obligations, representations, warranties or
liabilities.
15.16 Mechanics' Liens. Contractors, subcontractors,
mechanics, laborers, materialmen and others who perform any work, labor or
services or furnish any materials or otherwise participate in any improvements
to the Premises and who are not acting pursuant to a direct contract with
Landlord and Litchfield, are hereby given notice that Tenant is not
30
<PAGE>
authorized to subject Landlord's or Litchfield's interest in the Premises to any
claim for mechanics, laborers, materialmens liens or other liens and all persons
dealing directly or indirectly with Tenant may not look to the Premises as
security for payment.
15.17 Litchfield's Acceptance and Agreement. Notwithstanding
any consent by or approval of Litchfield in respect of this Sublease, Landlord
shall remain primarily responsible and liable to Litchfield under the Lease,
including without limitation, (a) for the payment of the rental and other sums
due and payable under the Lease, (b) for the performance of all of Landlord's
covenants, duties and obligations under the Lease and (c) for the compliance
with and observance of all conditions and restrictions provided under the Lease.
Nothing herein shall constitute a novation by Litchfield nor any modification,
amendment or supplement of the terms, conditions and provisions of the Lease.
Consent by Litchfield to this Sublease shall not be deemed as a forbearance,
waiver or release of any of Litchfield's rights to seek any remedy or right
against Landlord upon any breach of the Lease or upon any occurrence of any
event of default. Such consent shall not be deemed any agreement that Litchfield
must seek performance by Tenant prior to enforcement of any rights or remedies
against Landlord.
ARTICLE XVI
PURCHASE OPTION
---------------
Pursuant to the Purchase Option Agreement, Landlord was
granted an option to purchase the Premises from Litchfield upon the terms and
subject to the conditions set forth in the Purchase Option Agreement. Litchfield
and Tenant shall during the Term of this Sublease be subject to the terms and
conditions of the Purchase Option Agreement, including, but not limited to, the
immediate termination of this Sublease upon acquisition of the Premises by
Landlord pursuant to the Purchase Option Agreement.
SIGNATURE PAGE FOLLOWS
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Sublease to be duly executed and delivered as a sealed instrument on the day and
year first above written.
INTEGRATED LIVING COMMUNITIES OF
COLORADO SPRINGS, INC.
ATTEST:
By: By:
----------------------- --------------------------------
Name: Name: Edward J. Komp
----------------------- -------------------------------
Title: Title: Chief Executive Officer
----------------------- -------------------------------
(Seal)
INTEGRATED HEALTH SERVICES OF
LESTER, INC.
ATTEST:
By: By:
----------------------- --------------------------------
Name: Michael Tan Name: Eleanor C. Harding
----------------------- --------------------------------
Title: Assistant Secretary Title: Senior Vice President
----------------------- --------------------------------
(Seal)
ACCEPTED AND AGREED TO ACCEPTED AND AGREED TO
THIS ___ of ________, 1996 THIS ___ of ________, 1996
LITCHFIELD ASSET MANAGEMENT INTEGRATED HEALTH SERVICES, INC.
CORP. INC.
By: By:
----------------------- --------------------------------
Name: Eugene H. Rosen Name: Eleanor C. Harding
----------------------- --------------------------------
Title: President Title: Senior Vice President
----------------------- --------------------------------
(Seal)
ACCEPTED AND AGREED TO
THIS ___ of ________, 1996
NATIONAL HEALTH INVESTORS, INC.
By:
-----------------------
<PAGE>
Name: Richard F. LaRoche, Jr.
-----------------------
Title: Vice President
-----------------------
(Seal)
34
<PAGE>
Acknowledgments
---------------
STATE OF MARYLAND )
) ss.:
COUNTY OF BALTIMORE )
I, the undersigned Notary Public in and for said County, in said
State, hereby certify that Edward J. Komp, whose name as the Chief Executive
Officer of Integrated Living Communities of Colorado Springs, Inc., a Delaware
corporation, is signing to the foregoing instrument and who is known to me,
acknowledged before me on this date that, being informed of the contents of said
instrument, he, as such officer and with full authority, executed the same
voluntarily on the day the same bears date.
Given under my hand and official seal, this ___ day of ________, 1996.
---------------------------
Notary Public
My commission expires:
---------------------------
STATE OF MARYLAND )
) ss.:
COUNTY OF BALTIMORE )
I, the undersigned a Notary Public in and for said County, in said
State, hereby certify that Eleanor C. Harding, whose name as a Senior Vice
President of Integrated Health Services of Lester, Inc., a Delaware corporation,
is signing the foregoing instrument and who is known to me, acknowledged before
me on this date that, being informed of the contents of said instrument, he as
such officer and with full authority, executed the same voluntarily on the day
the same bears date.
Given under my hand and official seal, this ___ day of ________, 1996.
---------------------------
Notary Public
My commission expires:
---------------------------
<PAGE>
Acknowledgments
---------------
STATE OF MARYLAND )
) ss.:
COUNTY OF BALTIMORE )
I, the undersigned a Notary Public in and for said County, in said
State, hereby certify that Eleanor C. Harding, whose name as a Senior Vice
President of Integrated Health Services, Inc., a Delaware corporation, is
signing the foregoing instrument and who is known to me, acknowledged before me
on this date that, being informed of the contents of said instrument, he as such
officer and with full authority, executed the same voluntarily on the day the
same bears date.
Given under my hand and official seal, this ___ day of ________, 1996.
---------------------------
Notary Public
My commission expires:
---------------------------
STATE OF TEXAS )
) ss.:
COUNTY OF DALLAS )
I, the undersigned Notary Public in and for said County, in said
State, hereby certify that Eugene H. Rosen, whose name as President of
Litchfield Asset Management Corp., a Delaware corporation, is signing to the
foregoing instrument and who is known to me, acknowledged before me on this date
that, being informed of the contents of said instrument, he, as such officer and
with full authority, executed the same voluntarily on the day the same bears
date.
Given under my hand and official seal, this ___ day of ________, 1996.
---------------------------
Notary Public
My commission expires:
---------------------------
<PAGE>
Acknowledgments
---------------
STATE OF TENNESSEE )
) ss.:
COUNTY OF RUTHERFORD )
I, the undersigned Notary Public in and for said County, in said
State, hereby certify that Richard F. LaRoche, Jr., whose name as Vice President
of National Health Investors, Inc., a Delaware corporation, is signing to the
foregoing instrument and who is known to me, acknowledged before me on this date
that, being informed of the contents of said instrument, he, as such officer and
with full authority, executed the same voluntarily on the day the same bears
date.
Given under my hand and official seal, this ___ day of ________, 1996.
---------------------------
Notary Public
My commission expires:
---------------------------
REGISTRATION RIGHTS AGREEMENT
AGREEMENT, dated as of June 1, 1996, by and between Integrated
Living Communities, Inc. (the "Company"), a Delaware corporation, and Integrated
Health Services, Inc., a Delaware corporation ("IHS").
RECITALS:
---------
WHEREAS, the Company, a wholly-owned subsidiary of IHS,
proposes to offer shares of its Common Stock to the public pursuant to a
registration statement filed with, and declared effective by, the Commission (as
hereinafter defined) under the Securities Act (as hereinafter defined).
WHEREAS, the Company and IHS desire to establish certain terms
and conditions upon which the Company will register the shares of the Company's
Common Stock owned by IHS.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements of the parties as set forth herein and other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
hereto agree as follows:
Section 1. Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's Common Stock, $.01 par
value per share.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, and shall include any
successor statute.
"Holder" shall mean any holder of outstanding Registrable
Securities.
"Register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registered Securities" shall mean Registrable Securities
which have been registered under the Securities Act pursuant to a registration
statement filed with and declared effective by the Commission.
"Registrable Securities" shall mean shares of Common Stock now
owned or hereafter acquired by IHS or its assignees pursuant to Section 10
hereof which have
<PAGE>
not been (a) registered under the Securities Act pursuant to an effective
registration statement filed thereunder and disposed of in accordance with the
registration statement covering them or (b) publicly sold pursuant to Rule 144.
"Registration Expenses" shall mean all expenses incurred by
the Company in compliance with Sections 2, 4 and 5 hereof, including, without
limitation, all registration, filing and National Association of Securities
Dealers fees, all fees and expenses of complying with securities or blue sky
laws, all word processing, duplicating and printing expenses, messenger,
telecommunications, mailing and delivery expenses, the fees and disbursements of
counsel for the Company and of its independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, the fees and disbursements incurred by the
holders of Registrable Securities to be registered (including the fees and
disbursements of one law firm and one accounting firm retained by such Holders
in accordance with Section 2 hereof), premiums and other costs of policies of
insurance against liabilities arising out of the public offering of the
Registrable Securities being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but excluding
Selling Expenses, if any, provided that, in any case where Registration Expenses
are not to be borne by the Company, such expenses shall not include salaries of
Company personnel or general overhead expenses of the Company, auditing fees,
premiums or other expenses relating to liability insurance required by
underwriters of the Company or other expenses for the preparation of financial
statements or other data normally prepared by the Company in the ordinary course
of its business or which the Company would have incurred in any event.
"Rule 144" shall mean Rule 144 promulgated under the
Securities Act, or any successor rule then in force.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder, and shall include any
successor statute.
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities.
Section 2. Piggyback Registration.
-----------------------
(a) If the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders exercising their respective demand registration rights, other than a
registration on any form which does not permit secondary sales or does not
include substantially the same information as would be required to be included
in a registration statement covering the sale of Registrable Securities, the
Company will:
(i) promptly give to each Holder written notice
thereof (which shall include a list of the jurisdictions in
which the Company intends to
-2-
<PAGE>
attempt to qualify such securities under the applicable blue
sky or other state securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable
Securities specified in a written request or requests made by
any Holder within twenty-five (25) days after receipt of the
written notice from the Company described in clause (i) above.
Such written request may specify all or a part of a Holder's
Registrable Securities.
For purposes of any registration pursuant to this Section 2 the Holders of a
majority-in-interest of the Registrable Securities to be registered shall choose
the counsel for all of the selling Holders. Notwithstanding the foregoing
provisions, the Company may withdraw any registration statement referred to in
this Section 2 for any reason without thereby incurring any liability to the
Holders requesting inclusion of their Registrable Securities in such
registration.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise each Holder as a part of the written notice given
pursuant to Section 2(a)(i). If any Holder proposes to distribute its securities
through such underwriting it shall (together with the Company and the other
persons who, by virtue of agreements with the Company, are entitled to include
their securities in any such registration (the "Other Stockholders")
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected by the Company. Notwithstanding any other provision of this Section 2,
if the managing underwriter advises the Company that marketing factors require a
limitation on the number of shares to be underwritten, the Company shall so
advise all holders of securities requesting registration, and the number of
shares of securities that are entitled to be included in the registration and
underwriting shall be allocated in the following manner: the securities of the
Company held by officers and directors of the Company shall be excluded from
such registration and underwriting to the extent required by such limitation
(pro rata based upon the number of securities requested to be included in such
registration by each such person), and, if further limitation on the number of
shares is required, the securities of the Company held by Other Stockholders
(other than Other Stockholders exercising demand registration rights) shall be
excluded from such registration to the extent required by such limitation (pro
rata based upon the number of securities requested to be included in such
registration by each such person), and if a further limitation on the number of
shares is required, the Registrable Securities that may be included in the
registration and underwriting shall be allocated among all such Holders
requesting inclusion in the registration pursuant to this Section 2 in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities which they had requested to be included in such registration at the
time of filing the registration statement. If any Holder or any officer or
director of the Company or Other Stockholder disapproves of the terms of any
such underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any Registrable Securities or other
securities
-3-
<PAGE>
excluded or withdrawn from such underwriting shall, subject to the provisions of
Section 2(c), be withdrawn from such registration.
Section 3. Expenses of Registration. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Agreement shall be borne by the Company, and all Selling
Expenses shall be borne by the Holders of the securities so registered pro rata
on the basis of the number of their shares so registered
Section 4. Registration on Form S-3. After the Company has
qualified for the use of Form S-3 or any successor form, in addition to the
rights contained in the foregoing provisions of this Agreement, the Holders of
Registrable Securities shall have the right to request registrations on Form S-3
(such requests shall be in writing and shall state the number of shares of
Registrable Securities to be disposed of and the intended methods of disposition
of such shares by such Holder or Holders); provided, however, that the Company
shall not be obligated to file more than one Form S-3 in any six-month period.
Notwithstanding the foregoing, the Company shall not be
required to effect registration under this Section 4 if counsel for the Company,
reasonably acceptable to the Holders requesting registration, shall deliver an
opinion reasonably acceptable to the Holders requesting registration that,
pursuant to Rule 144 under the Securities Act or otherwise, such Holders can
publicly sell the Registrable Securities as to which registration has been
requested without registration under the Securities Act and without any
limitation with respect to offerees, manner of offering or the size of the
transaction.
Section 5. Registration Procedures. In the case of each
registration effected by the Company pursuant to this Agreement, the Company
will keep each Holder advised in writing as to the initiation of each
registration and as to the completion thereof. Whenever the holders of
Registrable Securities have requested that any Registrable Securities be
registered pursuant to this Agreement, the Company will use its best efforts to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof, and pursuant thereto
the Company will at its expense and as expeditiously as possible:
(a) Prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective; provided that before
filing a registration statement or prospectus or any amendment or supplement
thereto, including documents incorporated by reference after the initial filing
of any registration statement, the Company shall furnish to the Holders of the
Registrable Securities covered by such registration statement and the
underwriters, if any, copies of all such documents proposed to be filed, which
documents will be subject to the review of such Holders and underwriters;
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<PAGE>
(b) Prepare and file with the Commission such amendments and
post-effective amendments to a registration statement as may be necessary to
keep such registration effective for a period of twelve (12) months or until the
Holder or Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs; provided, however, that the
Company, in good faith, may delay the filing of any amendment or supplement to
the Registration Statement for a reasonable period of time, not to exceed 120
days, in order to permit the Company (A) to effect disclosure or disposition or
consummation of any transaction requiring confidential treatment which is being
actively pursued at such time and which would require disclosure in the
Registration Statement or (B) to negotiate, effect or complete any transaction
which the Company reasonably believes might be jeopardized, delayed or made more
costly to the Company by disclosure in the Registration Statement; and provided
further, however, that (i) such 12 month period shall be extended for a period
of time equal to the period the Holder refrains from selling any securities
included in such registration in accordance with the provisions of Section 11
hereof; (ii) such 12 month period shall be extended by the number of days during
the period from and including the date of the giving of notice pursuant to
Section 5(e) hereof to and including the date when each Holder of Registrable
Securities covered by such registration statement shall have received the copies
of the supplemented or amended prospectus contemplated by Section 5(e) hereof;
and (iii) in the case of any registration of Registrable Securities on Form S-3
which are intended to be offered on a continuous or delayed basis, such 12 month
period shall be extended, if necessary, to keep the registration statement
effective until all such Registrable Securities are sold, provided that Rule
415, or any successor rule under the Securities Act, permits an offering on a
continuous or delayed basis, and provided further that applicable rules under
the Securities Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment which (y) includes any
prospectus required by Section 10(a)(3) of the Securities Act or (z) reflects
facts or events representing a material or fundamental change in the information
set forth in the registration statement, the incorporation by reference in the
registration statement of periodic reports filed pursuant to Section 13 or 15(d)
of the Exchange Act that contain the information required to be included in (y)
and (z) above;
(c) Cause the related prospectus to be supplemented by any
required prospectus supplement, and as so supplemented, to be filed pursuant to
Rule 424 under the Securities Act; and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement or supplement to such prospectus;
(d) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus as
a Holder from time to time may reasonably request;
(e) Notify each seller of Registered Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an
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<PAGE>
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing, and at the request of any such
seller, prepare and furnish to such seller a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such shares, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(f) Cause all such Registered Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed or, if not then listed, cause such Registered Securities to be included
in a national automated quotation system;
(g) Provide a transfer agent and registrar for all Registered
Securities and a CUSIP number for all such Registered Securities, in each case
not later than the effective date of such registration;
(h) Make available for inspection during regular business
hours by any seller of Registrable Securities, any underwriter participating in
any disposition pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such seller or underwriter
(collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company (collectively the "Records")
as shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors, employees and
independent accountants to supply all information reasonably requested by such
seller, underwriter, attorney or accountant in connection with such registration
statement. Records which the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (A) the disclosure of such Records is
necessary to avoid or correct any misstatement or omission in the registration
statement, (B) the release of such Records is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction, or (C) the disclosure of
such Records is required by any governmental regulatory body with jurisdiction
over any seller of Registrable Securities. Such seller, upon learning, that
disclosure of such Records is sought in a court of competent jurisdiction, shall
notify the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of the Records deemed confidential;
(i) Cooperate with the sellers of Registered Securities and
the managing underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing the Registered Securities to be sold,
without any restrictive legends, in such denominations and registered in such
names as the managing underwriter(s) may request at least two business days
prior to any sale thereof to the underwriters, if applicable;
(j) Obtain from its accountants "cold-comfort" letters, dated
the effective date of the registration statement and the date of the closing of
the sale of the
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<PAGE>
Registered Securities, and addressed to the Company and the selling Holders, in
form and substance as are customarily issued in connection with underwritten
public offerings and otherwise reasonably satisfactory to the Company and a
majority-in-interest of the selling Holders;
(k) Obtain from its counsel an opinion, addressed to the
selling Holders, with respect to the offering in form and substance reasonably
satisfactory to a majority-in-interest of the selling Holders;
(l) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
(m) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 4 hereof, the Company will
enter into any underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting, indemnification and contribution provisions; provided,
however, that no Holder will be liable for indemnification or contribution in
excess of the net proceeds such Holder received in the offering;
(n) Use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(o) Use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
sellers thereof to consummate the disposition of such Registrable Securities;
and
(p) Take all such other actions as the Holders of a majority
of the Registrable Securities being sold and the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a stock split
or combination of shares).
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<PAGE>
Section 6. Indemnification; Contribution.
-----------------------------
(a) To the extent permitted by law, the Company will indemnify
each Holder, each of its officers, directors, members and partners, and each
person controlling such Holder, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, each
director and controlling person of the Company and each officer of the Company
who signed the registration statement, and each underwriter, if any, and each
person who controls any underwriter, against all claims, losses, damages and
liabilities (or actions, proceedings or settlements, if such settlements are
effected with the written consent of the Company, in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act or the Exchange Act or any rule
or regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of its
officers, directors, members and partners, and each person controlling such
Holder, each such director, controlling person and officer, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability, action or
proceeding; provided, however, that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors, officers and controlling persons,
and each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of the Securities Act or the Exchange Act or the rules and
regulations thereunder, each other such Holder and Other Stockholder (if and to
the extent such Other Stockholder has agreed to indemnify the Holders as set
forth in this clause (b)) including Registrable Securities and other securities
in the securities as to which such registration, qualification or compliance is
being effected, and each of their officers, directors, members and partners, and
each person controlling such Holder or Other Stockholder, against all claims,
losses, damages and liabilities (or actions, proceedings or settlements in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and such Holders, Other Stockholders,
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<PAGE>
directors, officers, members, partners, persons, underwriters or control persons
for any legal or any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage, liability,
action or proceeding, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use
therein; provided, however, that the obligations of each such Holder hereunder
shall be limited to an amount equal to the net proceeds to each such Holder of
securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section
6 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, unless such failure
to notify materially adversely affects the Indemnifying Party's ability to
defend such action. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 6
shall for any reason be unenforceable by an Indemnified Party, although
otherwise available in accordance with its terms, then each Indemnifying Party
shall, in lieu of indemnifying such Indemnified Party, contribute to the amount
paid or payable by such Indemnified Party as a result of the losses, claims,
damages, liabilities or expenses with respect to which such Indemnified Party
has claimed indemnification, in such proportion as is appropriate to reflect the
relative fault of the Indemnified Party on the one hand and the Indemnifying
Party on the other in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault, in the case of an untrue
statement, alleged untrue statement, omission or alleged omission, shall be
determined by, among other things, whether such statement, alleged statement,
omission or alleged omission relates to information supplied by the Indemnifying
Party or the Indemnified Party, and such parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement,
alleged statement, omission or alleged omission. The Company and each Holder
agree that it would not be just and equitable
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<PAGE>
if contribution pursuant hereto were to be determined by pro rata allocation or
by any other method of allocation which does not take into account such
equitable considerations. The amount paid or payable by an Indemnified Party as
a result of the losses, claims, damages, liabilities or expenses referred to
herein shall be deemed to include any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
against any action or claim which is the subject hereof. In no case, however,
shall a Holder be responsible for a portion of the contribution obligation in
excess of the net proceeds to such Holder of securities sold as contemplated
herein. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation.
(e) Anything to the contrary contained in this Section 6
notwithstanding, no Holder shall be liable for any indemnification or
contribution in excess of the net proceeds received by it from any sale of
Registrable Securities which has been registered hereunder.
Section 7. Obligations of Holder.
----------------------
(a) Each Holder of Registrable Securities included in any
registration shall furnish to the Company such information regarding such Holder
and the distribution proposed by such Holder as the Company may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Agreement.
(b) Each Holder of the Registrable Securities agrees by
acquisition of such Registered Securities that upon receipt of any notice from
the Company pursuant to Section 5(e), such Holder will forthwith discontinue
such Holder's disposition of Registered Securities pursuant to the registration
statement relating to such Registered Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by Section
5(e) and, if so directed by the Company, will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in such
Holder's possession of the prospectus relating to such Registered Securities at
the time of receipt of such notice.
Section 8. Limitations on Registration of Issues of
Securities. Any right given by the Company to any holder or prospective holder
of the Company's securities in connection with the registration of securities
shall be conditioned such that it shall be consistent with the rights of the
Holders provided in this Agreement.
Section 9. Rule 144 Reporting. With a view to making available
to the Holders the benefits of certain rules and regulations of the Commission
which may permit a Holder to sell securities of the Company to the public
without registration, the Company agrees to:
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<PAGE>
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities
Act, at all times following the effective date of the first
registration under the Securities Act filed by the Company for an
offering of its securities to the general public;
(b) Use its best efforts to file with the Commission
in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act at any time
following registration of any of its securities under the Securities
Act or Exchange Act; and
(c) So long as a Holder owns any Registrable
Securities, furnish to such Holder forthwith upon request a written
statement by the Company as to its compliance with the reporting
requirements of Rule 144 (at any time following the effective date of
the first registration statement filed by the Company for an offering
of its securities to the general public), and of the Securities Act and
the Exchange Act following registration of any of its securities under
the Securities Act or Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents
so filed as a Holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
Section 10. Transfer or Assignment of Registration Rights. The
rights to cause the Company to register the securities granted to IHS by the
Company under Sections 2 and 4 may be transferred or assigned by IHS to a
transferee or assignee of any of IHS' Registrable Securities; provided, however,
that the Company is given written notice by IHS at the time of or within a
reasonable time after said transfer or assignment, stating the name and address
of said transferee or assignee and identifying the securities with respect to
which such registration rights are being transferred or assigned; and provided,
further, that the transferee or assignee of such rights assumes the obligations
of IHS under this Agreement.
Section 11. "Market Stand-off" Agreement. Each Holder agrees,
if requested by the Company and an underwriter of Common Stock (or other
securities) of the Company, not to sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such Holder during the
period required by such underwriter following the effective date of a
registration statement of the Company filed under the Securitie Act without the
prior consent of such underwriter, provided, however, that all Holders, Other
Stockholders and officers and directors of the Company enter into similar
agreements on substantially similar terms.
Such agreement shall be in writing in a form reasonably
satisfactory to the Company and such underwriter. The Company may impose
stop-transfer instructions with respect to the shares (or securities) subject to
the foregoing restriction until the end of said period.
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<PAGE>
Section 12. Adjustments Affecting Registrable Securities. The
Company will not take any action, or permit any change to occur, with respect to
the Registrable Securities which would adversely affect the ability of the
Holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement or which would adversely
affect the marketability of such Registrable Securities in any such
registration.
Section 13. Governing Law. This Agreement shall be governed in
all respects by the laws of the State of Delaware, without application of the
conflicts of laws principles thereof.
Section 14. Successors and Assigns. This Agreement shall be
binding upon, and inure to the benefit of, the successors, assigns, heirs,
executors and administrators of the parties hereto.
Section 15. Entire Agreement; Amendment. This Agreement
constitutes the full and entire understanding and agreement between the parties
with regard to the subjects hereof. Neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated, except by a written instrument
signed by the Company and the Holders of not less than a majority-in-interest of
the Registrable Securities. Notwithstanding the foregoing, no amendment,
modification, supplement or waiver of, or departure from, Section 6 or this
sentence of this Section 15 shall be effective without the written consent of
all Holders then holding Registrable Securities.
Section 16. Attorney's Fees. In any action or proceeding
brought to enforce any provision of this Agreement, or where any provision
hereof or thereof is validly asserted as a defense, the successful party shall
be entitled to recover reasonable attorney's fees in addition to any other
available remedy.
Section 17. Notices, etc. All notices or other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally
or sent by telex, telefax or telegraphic communication, by recognized overnight
courier marked for overnight delivery, or by registered or certified mail,
postage prepaid, addressed as follows: (a) if to IHS, at 10065 Red Run
Boulevard, Owings Mills, Maryland 21117, Attention: Chairman of the Board or at
such other address as IHS shall have furnished to the Company in writing,if to
an Investor, as indicated on Schedule 1 attached hereto, or at such other
address as such Investor shall have furnished to the Company in writing; (b) if
to any other holder of any shares of Common Stock at such address as such holder
shall have furnished the Company in writing, or, until any such holder so
furnishes an address to the Company, then to and at the address of the last
holder thereof who has so furnished an address to the Company; or (c) if to the
Company, at 10065 Red Run boulevard, Owings Mills, Maryland 21117, Attention:
President, or such other addresses as shall be furnished by like notice by such
party. All such notices and communications shall, when telexed (provided the
correct answerback has been received) or telefaxed (immediately thereafter
confirmed by telephone) or telegraphed, be effective when telexed, telefaxed or
delivered to the telegraph company, respectively, or if sent by nationally
recognized overnight courier service, be effective one business day after the
same has been delivered to such courier service marked for overnight delivery,
or, if mailed, be effective when received.
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Section 18. Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner so as to be effective and
valid under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision of this Agreement. If any provision contained in
this Agreement is determined to be invalid, illegal or unenforceable as written,
a court of competent jurisdiction shall, at any party's request, reform the
terms of this Agreement to the extent necessary to cause such otherwise invalid
provisions to be enforceable under applicable law.
Section 19. Titles and Subtitles. The titles of the sections,
paragraphs and subparagraphs of this Agreement are for convenience of reference
only and are not to be considered in construing this Agreement.
Section 20. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day, month and year first written above.
INTEGRATED LIVING COMMUNITIES, INC.
By:
------------------------------------
Name:
Title:
INTEGRATED HEALTH SERVICES, INC.
By:
------------------------------------
Name:
Title:
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Execution Counterpart
Carrington Pointe
PURCHASE AND SALE AGREEMENT
AGREEMENT dated as of October 4, 1995 between LIBERTY CARRINGTON POINTE
LIMITED PARTNERSHIP, a Massachusetts corporation ("Seller"), with an address of
c/o Liberty Real Estate Corporation, One Financial Center, 23rd Floor, Boston,
Massachusetts 02111, Attention: Robert G. Noonan, Telecopier No. 617-772-7300
and INTEGRATED MANAGEMENT - CARRINGTON POINTE, INC., a Delaware corporation
("Buyer"), with an address of 10065 Red Run Boulevard, Owings Mills, Maryland
21117, Attention: Brian K. Davidson, Telecopier No. 410-998-8708.
In consideration of the mutual undertakings and covenants herein
contained, Seller and Buyer hereby covenant and agree as follows:
SECTION 1
---------
SALE OF PROPERTY AND ACCEPTABLE TITLE
-------------------------------------
1.01 Agreement to Buy and to Sell; Property. Seller shall sell to
Buyer, and Buyer shall purchase from Seller, at the price and upon the terms and
conditions set forth in this Agreement the following:
(a) that certain tract or parcel of land containing
approximately 5.31 acres located at 1715 E. Alluvial Avenue, Fresno, California,
more particularly described in Schedule A attached hereto (the "Land");
(b) the 172 unit congregate care facility, commonly known as
Carrington Pointe, which contains related improvements, facilities, amenities,
structures, driveways and walkways, all of which have been constructed on the
Land (collectively, the "Improvements");
(c) all right, title and interest of Seller in and to any
alleys, strips or gores adjoining the Land, and any easements, rights-of-way or
other interests in, on, under or to, any land, highway, street, road,
right-of-way or avenue, open or proposed, in, on, under, across, in front of,
abutting or adjoining the Land, and all right, title and interest of Seller in
and to any awards for damage thereto by reason of a change of grade thereof;
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<PAGE>
(d) the accessions, appurtenant rights, privileges,
appurtenances and all the estate and rights of Seller in and to the Land and the
Improvements, as applicable, or otherwise appertaining to any of the property
described in the immediately preceding clauses (a), (b) and/or (c);
(e) the personal property listed in Schedule B attached hereto
owned by Seller and located on or in or used solely in connection with the Land
and Improvements (collectively, the "Personal Property");
(f) all inventories of supplies, drugs, food and other
disposables and consumables owned by Seller and located on or in or used solely
in connection with the Land and Improvements (the "Inventory Property"); and
(g) all of Seller's interest in any intangible property now or
hereafter, owned by Seller and used solely in connection with the Land,
Improvements and Personal Property, including without limitation the right to
use any trade style or name now used in connection with the same, any contract
rights, escrow or security deposits, utility agreements or other rights related
to the ownership of or use and operation of the Property, as hereinafter defined
(the "Intangible Property").
All of the items described in subparagraphs (a), (b), (c), (d), (e), (f)
and (g) above are collectively the "Property".
1.02 Title. Seller shall convey to Buyer by special warranty deed (the
"Deed"), and Buyer shall accept the fee simple title to the Property in
accordance with the terms of this Agreement, and Buyer's obligation to accept
said title shall be conditioned upon Buyer then being conveyed good and clear
record and marketable fee simple title to the Property, subject only to the
Permitted Exceptions (as hereinafter defined).
(a) Within thirty (30) days from the date of this Agreement,
Buyer shall obtain a Commitment For Title Insurance for an ALTA Owner's Form B
Title Insurance Policy (the "Title Policy") prepared by Lawyers Title Insurance
Corporation (the "Title Insurer") and legible copies of all instruments and
plans mentioned therein as exceptions to title (all of such items are
hereinafter collectively referred to as the "Commitment"). The Commitment shall
be in the amount of the Purchase Price (as defined in Section 2.01 hereof).
Should such Commitment contain any title exceptions which are not acceptable to
Buyer, in its sole discretion, Buyer shall, prior to the expiration of the
Inspection Period (as defined in Section 16.01), notify Seller if
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<PAGE>
any such exceptions are unacceptable. If Buyer fails to so notify Seller of any
unacceptable exceptions as described above, the exceptions set forth in Schedule
B of the Commitment shall be deemed accepted by Buyer and included as the
"Permitted Exceptions". If any exceptions are unacceptable to Buyer and Buyer
timely notifies Seller in writing of such fact as above provided, Seller, in
Seller's sole discretion, shall have thirty (30) days from the date Seller
receives notice of such unacceptable exceptions to remove or cure such
exceptions and the date of Closing shall be extended, if necessary. Seller shall
be deemed to have refused to cure any unacceptable exceptions, which Seller may
so do in its sole discretion, unless Seller, within ten (10) days after receipt
of notice from Buyer, shall notify Buyer in writing that Seller will attempt to
cure such unacceptable exceptions. If Seller fails or refuses to cure said
unacceptable exceptions within the time period above provided, Buyer may (i)
terminate this Agreement and the Deposit shall be returned to Buyer, or (ii)
waive such exceptions and accept title subject thereto, in which event there
shall be no reduction in the Purchase Price.
Simultaneously with the delivery of the Deed, Seller shall enter into,
and deliver to Buyer a special warranty bill of sale and instrument of transfer
and assignment (the "General Instrument"), in form and substance reasonably
satisfactory to Seller's and Buyer's counsel, assigning and transferring all of
the Seller's right, title and interest in and to all of the Personal Property,
Inventory Property and Intangible Property.
1.03 Survey. Within seven (7) days from the date of this Agreement,
Seller will provide Buyer with the most recent as-built survey of the Property
in Seller's possession. Buyer, at Buyer's cost, may obtain an as-built survey
(the "Survey") of the Land and the Improvements by a registered land surveyor
acceptable to Buyer.
Should such Survey contain any encumbrances, encroachments or other
survey defects (collectively "survey matters") which are not acceptable to Buyer
in its sole discretion, Buyer shall, prior to the expiration of the Inspection
Period (as defined in Section 16.01), notify Seller if any such survey matters
are unacceptable. If Buyer fails to so notify Seller of the unacceptable survey
matters as described above, the Survey shall be deemed accepted by Buyer. If any
survey matters are unacceptable to Buyer and Buyer timely notifies Seller in
writing of such fact as above provided, Seller, in Seller's sole discretion,
shall have thirty (30) days from the date Seller receives notice of such
unacceptable survey matters to cure such
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survey matters and the date of Closing shall be extended, if necessary. Seller
shall be deemed to have refused to cure any unacceptable survey matters, which
Seller may so do in its sole discretion, unless Seller, within ten (10) days
after receipt of notice from Buyer, shall notify Buyer in writing that Seller
will attempt to cure such unacceptable survey matters. If Seller fails or
refuses to cure said unacceptable survey matters within the time period
provided, Buyer may (i) terminate this Agreement and the Deposit shall be
returned to Buyer, or (ii) waive such survey matters and accept title subject
thereto, in which event there shall be no reduction in the Purchase Price.
SECTION 2
---------
PURCHASE PRICE, ACCEPTABLE FUNDS,
DEPOSIT AND ESCROW OF DEPOSIT
-----------------------------
2.01 Purchase Price. The purchase price ("Purchase Price") to be
paid by Buyer to Seller for the Property is Twelve Million Three Hundred
Thousand Dollars ($12,300,000.00) subject to the prorations and adjustments as
hereinafter provided in this Agreement.
2.02 Payment of Monies. All monies payable under this Agreement,
unless otherwise specified in this Agreement, shall be paid by wire transfer.
2.03 Payment of Purchase Price. The Purchase Price, subject to
prorations and adjustments, shall be paid as follows:
(a) One Hundred Twenty-Three Thousand Dollars
($123,000.00) have been paid as a deposit this day (the "Initial Deposit"); and
(b) One Hundred Twenty-Three Thousand Dollars
($123,000.00) shall be paid as an additional deposit on or before the expiration
of the Inspection Period (the "Additional Deposit"); and
(c) The balance of the Purchase Price shall be paid at the
time of delivery of the Deed by wire transfer in accordance with wiring
instructions to be provided by Seller at least two (2) days prior to Closing.
2.04 Deposit; Escrow Agent. The Initial Deposit shall be delivered
by Buyer to Lawyers Title Insurance Corporation - Boston Office - National
Division (the "Escrow Agent") simultaneously
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with the complete execution of this Agreement. In the event Buyer does not elect
to terminate this Agreement pursuant to Section 16.02 hereof, the Additional
Deposit shall be delivered by Buyer to the Escrow Agent on or before the
expiration of the Inspection Period. (The Initial Deposit and the Additional
Deposit, together with interest accrued thereon, are collectively referred to
herein as the "Deposit"). Upon receipt from Buyer of the Deposit, Escrow Agent
shall invest the Deposit in an interest-bearing account or money market fund
agreeable to Buyer. Buyer's federal taxpayer identification number is
77-0253110. All interest on the Deposit shall accrue to the Buyer, except as
otherwise provided in Section 12.03 hereof. At the Closing, Escrow Agent shall
release the Deposit to Seller, which Deposit shall be credited against the
balance of the Purchase Price owed by Buyer to Seller. Escrow Agent shall agree
to hold and dispose of the Deposit in accordance with the terms and provisions
of this Agreement.
If the Buyer's conditions to Closing set forth in Sections 16.01(a),
16.01(b), 16.01(c) or 16.01(d) have not been satisfied and Buyer elects to
terminate this Agreement pursuant to the terms thereof, Escrow Agent shall
return the Deposit to Buyer. If the Buyer's conditions to Closing set forth in
Sections 16.01(a), 16.01(b), 16.01(c) and 16.01(d) have been satisfied or deemed
waived by Buyer pursuant to the terms thereof and Buyer fails to perform Buyer's
obligations hereunder at Closing, Seller shall be entitled to terminate this
Agreement by written notice to Buyer whereupon Escrow Agent shall release the
Deposit to Seller and Seller shall be entitled to retain the Deposit as
liquidated damages pursuant to Section 12.03.
2.05 Escrow Provisions. Escrow Agent hereby acknowledges receipt by
Escrow Agent of the Deposit paid by Buyer to be applied on the Purchase Price of
the Property under the terms hereof. Escrow Agent agrees to hold, keep and
deliver said Deposit and all other sums delivered to it pursuant hereto in
accordance with the terms and provisions of this Agreement. Escrow Agent shall
not be entitled to any fees or compensation for its services hereunder. Escrow
Agent shall be liable only to hold said sums and deliver the same to the parties
named herein in accordance with the provisions of this Agreement, it being
expressly understood that by acceptance of this agreement Escrow Agent is acting
in the capacity of a depository only and shall not be liable or responsible to
anyone for any damages, losses or expenses unless same shall have been caused by
the gross negligence or willful malfeasance of Escrow Agent. In the event of
any disagreement between Buyer and Seller resulting in any adverse claims and
demands being made in connection with or for the monies involved
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herein or affected hereby, Escrow Agent shall be entitled to refuse to comply
with any such claims or demands so long as such disagreement may continue; and
in so refusing Escrow Agent shall make no delivery or other disposition of any
of the monies then held by it under the terms of this Agreement, and in so doing
Escrow Agent shall not become liable to anyone for such refusal; and Escrow
Agent shall be entitled to continue to refrain from acting until (a) the rights
of the adverse claimants shall have been finally adjudicated in a court of
competent jurisdiction of the monies involved herein or affected hereby, or (b)
all differences shall have been adjusted by agreement between Seller and Buyer,
and Escrow Agent shall have been notified in writing of such agreement signed by
the parties hereto. Escrow Agent shall not be required to disburse any of the
monies held by it under this Agreement unless in accordance with either a joint
written instruction of Buyer and Seller or an Escrow Demand from either Buyer or
Seller in accordance with the provisions hereinafter. Upon receipt by Escrow
Agent from either Buyer or Seller (the "Notifying Party") of any notice or
request (the "Escrow Demand") to perform any act or disburse any portion of the
monies held by Escrow Agent under the terms of this Agreement, Escrow Agent
shall give written notice to the other party (the "Notified Party"). If within
five (5) days after the giving of such-notice, Escrow Agent does not receive any
written objection to the Escrow Demand from the Notified Party, Escrow Agent
shall comply with the Escrow Demand. If Escrow Agent does receive written
objection from the Notified Party in a timely manner, Escrow Agent shall take no
further action until the dispute between the parties has been resolved pursuant
to either clause (a) or (b) above. Further Escrow Agent shall have the right at
all times to pay all sums held by it (i) to the appropriate party under the
terms hereof, or (ii) into any court of competent jurisdiction after a dispute
between or among the parties hereto has arisen, whereupon Escrow Agent's
obligations hereunder shall terminate.
Seller and Buyer jointly and severally agree to indemnify and hold
harmless said Escrow Agent from any and all costs, damages and expenses,
including reasonable attorneys' fees, that said Escrow Agent may incur in its
compliance of and in good faith with the terms of this agreement; provided,
however, this indemnity shall not extend to any act of gross negligence or
willful malfeasance on the part of the Escrow Agent.
SECTION 3
---------
THE CLOSING
-----------
3.01 Closing. Except as otherwise provided in this Agreement, the
delivery of all documents necessary for the closing
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of this transaction pursuant to this Agreement (the "Closing") shall take place
in the offices of Hunton & Williams, 200 Park Avenue, 43rd Floor, New York, New
York 10166 or such other place as Seller and Buyer shall mutually agree, at
10:00 A.M. local time on December 15, 1995; provided, however, such date shall
automatically be extended to the date that health law counsel to the Buyer
determines to be necessary for a license to be granted to Buyer pursuant to
Section 16.01(b) hereof, but in any event not later than December 28, 1995. It
is agreed that time is of the essence of this Agreement.
SECTION 4
---------
SELLER'S PRE-CLOSING DELIVERIES
-------------------------------
Seller shall furnish to Buyer for inspection and approval by Buyer the
following:
4.01 Leases. Seller shall provide Buyer with access on-site to the
originals of all leases and related lease files.
4.02 Permits. Copies of all certificates of occupancy (if any), and
other permits and licenses (if any) required for the occupancy and operation of
the Property.
4.03 Taxes. A copy of 1994 and 1995 (if available) real estate and
personal property tax statements for the Property.
4.04 Current Rent Roll. A list of the current rents now being collected
on each of the apartment units in the Improvements which includes: apartment
number, unit type, unit status, tenant name, commencement and termination dates,
market rent, lease rent, deposits and details of any concessions.
4.05 Service Contracts. Copies of all service, maintenance, supply and
management contracts affecting the use, ownership, maintenance and/or operation
of the Property.
4.06 Utility Bills. Copies of all utility bills (gas, electric, water
and sewer) relating to the Property for the immediately prior 12 month period.
4.07 Inventory Property. A list of all Inventory Property located on
and used solely in connection with the operation of the Property.
4.08 Appraisals. Copies of all existing appraisals in respect of the
Property.
4.09 Environmental Reports. Copies of all existing environmental
reports in respect of the Property.
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SECTION 5
---------
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller represents and warrants to Buyer as of the date hereof as
follows:
5.01 Ownership. Seller has good and marketable title to the Property,
including the Inventory Property and the Personal Property.
5.02 Leases. As of the date of the Agreement there are no leases,
subleases, licenses or other rental agreements or occupancy agreements (written
or verbal) which grant any possessory interest in and to any space situated on
or in the Improvements or that otherwise give rights with regard to use of the
Improvements other than the leases (the "Leases") described in, Schedule C
attached hereto (the "Rent Roll"). The Rent Roll is true, accurate and complete
as of the date hereof. Except as otherwise specifically set forth in the Rent
Roll or elsewhere in this Agreement:
(a) the Leases are in full force and effect and none of them
has been modified, amended or extended;
(b) Seller has neither sent written notice to any tenant of
the Property, nor received any notice from any such tenant, claiming that such
tenant, or Seller, as the case may be, is in default, which default remains
uncured other than as shown on Schedule C attached hereto;
(c) to the best knowledge of Seller, no action or proceeding
instituted against Seller by any tenant of any unit in the Property is presently
pending;
(d) there are no security deposits or other deposits other
than those set forth in the Rent Roll;
(e) no rent has been paid more than thirty (30) days in
advance under any lease of any unit in the Property other than as shown on the
Rent Roll; and
(f) no leasing commission shall be due for any period
subsequent to the Closing other than for Tenants who have executed a lease prior
to Closing but do not move in until after the Closing, which commissions shall
be paid by Buyer.
5.03 Service and Management Contracts. Schedule D attached hereto lists
all services, maintenance, supply and management contracts (collectively,
"Service Contracts") affecting the
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operation of the Property. Except as set forth on Schedule D, each of the
Service Contracts is in full force and effect, has not been modified or amended
and may be assigned to Buyer pursuant to the Assignment of Service Contracts.
5.04 Ability to Perform. Seller has full power to execute, deliver and
carry out the terms and provisions of this Agreement and has taken all necessary
action to authorize the execution, delivery and performance of this Agreement,
and this Agreement constitutes the legal, valid and binding obligation of Seller
enforceable in accordance with its terms. Except as set forth in this Agreement,
no order, permission, consent, approval, license, authorization, registration or
validation of, or filing with, or exemption by, any governmental agency,
commission, board or public authority is required to authorize, or is required
in connection with, the execution, delivery and performance of this Agreement by
Seller or the taking by Seller of any action contemplated by this Agreement.
5.05 No Actions. There are no pending, or to Seller's knowledge,
threatened litigation, legal actions or proceedings against or relating to
Seller or the ownership of the Property or the ability of Seller to perform its
obligations under this Agreement.
5.06 No Violation Notice. Seller has not received written notice:
(a) from any federal, state, county or municipal authority
alleging any fire, health, safety, building, pollution, environmental, zoning or
other violation of law in respect of the Property or any part thereof, which has
not been entirely corrected;
(b) concerning the possible or anticipated condemnation of any
part of the Property, or the widening, change of grade or limitation on use of
streets abutting the same or concerning any special taxes or assessments levied
or to be levied against the Property or any part thereof;
(c) from any insurance company or bonding company of any
defects or inadequacies in the Property or any part thereof, which would
adversely affect the insurability of the same or cause the imposition of
extraordinary premiums or charges therefor or of any termination or threatened
termination of any policy of insurance or bond; or
(d) concerning any change in the zoning classification of the
Property or any part thereof.
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5.07 No Employment Contracts, Unions, Pension Plans. Seller has not
entered into any employment contracts or labor union contracts and has not
established any retirement, pension or profit sharing plans relating to the
operation or maintenance of the Property which shall survive the Closing or for
which Buyer shall have any liability or obligation.
5.08 Seller's Authority. (i) Seller is duly formed and validly existing
under the laws of the Commonwealth of Massachusetts with full power and
authority to carry on its business; (ii) Seller has the right, power and
authority to enter into and perform all of the agreements and covenants
contained in this Agreement, and any other documents and instruments relating
hereto or thereto; (iii) this Agreement, the Deed, the General Assignment and
the other documents to be executed and delivered by Seller at Closing, upon
execution and delivery will have been duly and validly authorized by Seller and
will be valid and binding obligations of the Seller, enforceable in accordance
with its terms, subject only to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws for the relief of debtors heretofore
or hereafter enacted to the extent that the same may be constitutionally
applied; and (iv) the execution and delivery by Seller of this Agreement and the
performance by Seller of its obligations hereunder do not and will not
constitute a default under, or conflict with or violate, any provision of the
Partnership Agreement pursuant to which Seller was formed or any other agreement
by which Seller is bound.
5.09 Liens. Seller agrees to keep the Property free from mechanics' and
materialmen's liens prior to Closing.
5.10 Environmental Compliance. Seller has no actual knowledge, and has
not received written notice from any governmental authority (a) that the
Property is in violation of any Environmental Law and (b) of any pending or
threatened claims involving the Property. Except as set forth in Schedule 5.10
hereto, to Seller's actual knowledge, neither the Property nor Seller is the
subject of any administrative or judicial action or proceeding pursuant to any
Environmental Laws in connection with the Property. Promptly upon learning
thereof, at or following the date hereof and the Closing, Seller shall provide
written notice to Buyer of any written notification of (i) the assertion of any
claim or any threatened claim relating to the Property under any Environmental
Law or (ii) the assertion of any claim of noncompliance with or violation of any
Environmental Law. "Hazardous Materials", as used herein, shall mean
collectively, (a) any petroleum or petroleum product, explosive, radioactive
material, radon gas, asbestos, urea formaldehyde foam insulation, and PCBs and
(b) materials which are now or hereafter become defined as "hazardous
substances", "hazardous wastes", "extremely hazardous
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substances", "hazardous materials", "restricted hazardous wastes", "toxic
chemicals", "pollutants", "toxic pollutants", "hazardous air pollutants", "air
contaminants", "hazardous chemicals", or words of similar import under any
applicable Environmental Laws. "Environmental Laws", as used herein, shall mean
all federal, state, and local laws, statutes, ordinances, regulations, policies,
rules, directives, guidelines, permits, licenses, criteria and rules of common
law now or hereafter in effect, and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the regulation and protection of
human health, safety, the environment and natural resources (including, without
limitation, ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, and wildlife, aquatic species and vegetation), including,
without limitation, relating to emissions, discharges, releases or threatened
releases of Hazardous Materials or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials. Environmental Laws include, but are not limited
to, the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, the Federal Insecticide, Fungicide, and Rodenticide Act, the Resource
Conservation and Recovery Act, the Toxic Substances Control Act, the Clean Air
Act, the Clean Water Act, the occupational Safety and Health Act, and the Safe
Drinking Water Act, and as the same may be amended, modified and supplemented,
the regulations promulgated pursuant thereto, and their state and local
counterparts or equivalents.
Any reference in this Section 5 to Seller's knowledge or notice of any
matter, shall only mean such knowledge or notice that is actually known by or
has actually been received by Robert G. Noonan or Mark J. Winkeller, the
authorized agents of Seller. Any knowledge or notice given, had or received by
any of Seller's agents, servants or employees, other than Robert G. Noonan or
Mark J. Winkeller, shall not be imputed to Seller.
SECTION 6
---------
AS-IS CONDITION
---------------
6.01 As-Is. Buyer acknowledges and agrees that it will be purchasing
the Property based solely upon its inspection and investigations of the Property
and that Buyer will be purchasing the Property "AS IS" and "WITH ALL FAULTS"
based upon the condition of the Property as of --the date of this Agreement,
subject to reasonable-wear and tear from the date of this Agreement until the
Closing. Without limiting the foregoing, Buyer acknowledges that, except as may
otherwise be specifically
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set forth in Section 5 hereof, neither Seller nor its consultants or agent have
made any other representations or warranties of any kind upon which Buyer is
relying as to any matters concerning the Property, including, but not limited
to, the condition of the Land or any Improvements, the existence or nonexistence
of asbestos, toxic water or any hazardous material, the tenants of the Property
or the leases affecting the Property, economic projections or market studies
concerning the Property, any development rights, taxes, bonds, covenants,
conditions and restrictions affecting the Property, water or water rights,
topography, drainage, soil, subsoil of the Property, the utilities serving the
Property or any zoning, environmental or building laws, rules or regulations
affecting the Property.
6.02 No Financial Representation. Seller has provided to Buyer certain
unaudited historical financial information regarding the Property relating to
certain periods of time in which Seller owned the Property. Seller and Buyer
hereby acknowledge that such information has been provided to Buyer and Buyer's
request solely as illustrative material. Seller makes no representation or
warranty that such material is complete or accurate or that Buyer will achieve
similar financial or other results with respect to the operations of the
Property, it being acknowledged by Buyer that Seller's operation of the Property
and allocations of revenues or expenses may be vastly different than Buyer may
be able to attain. Buyer acknowledges that it is a sophisticated and experienced
purchaser of health-care related real estate and further that Buyer has relied
upon its own investigation and inquiry with respect to the operation of the
Property and releases Seller from any liability with respect to such historical
information.
SECTION 7
---------
INSURANCE
---------
7.01 Maintenance of Insurance. Until the Closing, Seller shall maintain
its present insurance on the Property which insurance in respect of fire and
casualty shall be covered by a standard All-Risk Policy in the amounts as
currently insured. Subject to the provisions of Section 7.02, the risk of loss
in and to the Property shall remain vested in Seller until the Closing. Buyer
will obtain its own insurance on the Property at Closing.
7.02 Casualty or Condemnation. If prior to the Closing, the
Improvements or any material portion thereof (having a replacement cost equal to
or in excess of $100,000.00) are damaged or destroyed by fire or casualty, or
any part of the Property is taken by eminent domain by any governmental entity,
then Buyer or
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Seller shall have the option, exercisable by written notice given to the other
party at or prior to the Closing, to terminate this Agreement, whereupon all
obligations of all parties hereto shall cease, the Deposit shall be returned to
Buyer and this Agreement shall be void and without recourse to the parties
hereto except for provisions which are expressly stated to survive such
termination. If neither Buyer nor Seller elects to terminate this Agreement or
if such damage or destruction or taking has a replacement cost or is in an
amount of less than $100,000.00, Buyer shall proceed with the purchase of the
Property without reduction or offset of the Purchase Price, and in such case,
unless Seller shall have previously restored the Property to its condition prior
to the occurrence of any such damage or destruction, Seller shall pay over or
assign to Buyer all amounts received or due from, and all claims against, any
insurance company or governmental entity as a result of such destruction or
taking.
SECTION 8
---------
SELLER'S OBLIGATIONS PRIOR TO CLOSING
-------------------------------------
Seller covenants that between the date of this Agreement and the
Closing:
8.01 No Lease Amendments. Seller shall not, without Buyer's prior
written consent (a) enter into any new lease for an apartment unit with a
first-time tenant unless the lease is for a period of no more than one year and
the rent shall be not less than the amount of the market rent noted on the Rent
Roll for the respective apartment; or (b) enter into, amend, renew or extend any
Lease for an apartment unit with an existing tenant unless the lease is for a
period of not more than one year and that the rent for the amended, renewal or
extension term shall not be less than the amount of rent noted on the Rent Roll,
for the respective apartment; or (c) terminate any Lease except by reason of a
default by the tenant thereunder or by reason of the provisions contained in the
Lease.
8.02 Continuation of Service Contracts. Seller shall not modify or
amend any Service Contract or enter into any new service contract for the
Property, without the prior written consent of Buyer which consent shall not be
unreasonably withheld or delayed provided the same is terminable without penalty
by the then owner of the Property upon not more than thirty (30) days' notice.
8.03 Replacement of Personal Property. No personal property included as
part of the Property shall be removed from the
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Property unless the same is replaced with similar items of at least equal
quality prior to the Closing.
8.04 Tax Procedure. Seller shall not withdraw, settle or otherwise
compromise any protest or reduction proceeding affecting real estate taxes
assessed against the Property for any fiscal period in which the Closing is to
occur or any subsequent fiscal period without the prior written consent of
Buyer. Real estate tax refunds and credits received after the Closing which are
attributable to the fiscal tax year during which the Closing occurs shall be
apportioned between Seller and Buyer, after deducting the expenses of collection
thereof, based upon the relative time periods each owns the Property, which
obligation shall survive the Closing.
8.05 Access. Seller shall allow Buyer or Buyer's representatives access
to the Property, the Leases and other documents required to be delivered under
this Agreement upon reasonable prior notice at reasonable times.
SECTION 9
---------
SELLER'S CLOSING OBLIGATIONS
----------------------------
9.01 Closing, Deliveries and Obligations. At the Closing, Seller shall
deliver the following to Buyer:
(a) Deed. The Deed and the General Instrument of transfer, in
form reasonably satisfactory to Buyer's and Seller's counsel, duly executed and
acknowledged, which together convey the Property to Buyer, subject only to
Permitted Exceptions.
(b) Assignment of Leases and Security Deposits. An assignment
and assumption of the Leases and Security Deposits in form reasonably
satisfactory to Buyer's and Seller's counsel.
(c) Lease Records. Original copies of all Leases, and related
documents in the possession or under the control of Seller. Such records shall
include a schedule of all cash security deposits and a check or credit to Buyer
in the amount of such security deposits held by Seller at the Closing under the
Leases together with appropriate instruments of transfer or assignment with
respect to any lease securities which are other than cash and a schedule
updating the Rent Roll and setting forth all arrears in rents and all
prepayments of rents.
(d) Permits. Seller shall deliver, to the extent in the
possession of Seller: original copies of all certificates, licenses, permits,
authorizations and approvals issued for or with
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respect to the Property by governmental authorities having jurisdiction, except
that photocopies may be substituted if the originals are posted at the Property.
(e) Service Contracts. An assignment and assumption of Service
Contracts together with, all Service Contracts in Seller's possession or control
which are in effect at the Closing.
(f) Title Affidavits. Such affidavits (without indemnity) as
the Title Insurer may reasonably require in order to omit from its title
insurance policy all exceptions for (i) parties in possession other than under
the rights to possession granted under the Leases; and (ii) mechanics' liens.
(g) Files. Seller shall make all of its files and records
relating to the Property available to Buyer at the Property upon reasonable
prior notice for copying, which obligation shall survive the Closing.
(h) Notices of Sales. Sufficient letters, executed by Seller,
advising the tenants under the Leases of the sale of the Property to Buyer and
directing that all rents and other payments thereafter becoming due under the
Leases be sent to Buyer or as Buyer may direct.
(i) Title Policy. The Title Policy required by Section 1.02.
(j) Non-Foreiqn Affidavit. Seller shall execute and deliver to
Buyer and Buyer's counsel, at Closing such evidence as may be reasonably
required by Buyer to show compliance by Seller with the Foreign Investment and
Real Property Tax Act, IRC Section 1445(b)(2), as amended.
(k) Opinion of Seller's Counsel. An opinion of Seller's
counsel, in form and substance reasonably satisfactory to Buyer, substantiating
that: (i) Seller is duly formed and validly existing under the laws of the
Commonwealth of Massachusetts with full power and authority to carry on its
business; (ii) Seller has the right, power and authority to enter into and
perform all of the agreements and covenants contained in this Agreement, and any
other documents and instruments relating hereto or thereto; (iii) this
Agreement, the Deed, the General Assignment and the other documents to be
executed and delivered by Seller at Closing, upon execution and delivery will
have been duly and validly authorized by Seller; and (iv) the execution and
delivery by Seller of this Agreement and the performance by Seller of its
obligations hereunder do not and will not constitute a default under, or
conflict with or violate, any provision of the
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Partnership Agreement pursuant to which Seller was formed or any other
agreement by which Seller is bound.
(1) Seller's Certificate. A Certificate by an authorized
representative of Seller as to the validity of the representations of Seller
described in Section 5 hereof as of the date of the Closing.
9.02 Seller's Expenses. Seller shall pay its own counsel fees, all
transfer taxes and documentary stamps, one-half of all escrow and recording
fees, and all other closing costs which are customarily paid by sellers in
transactions of this nature in Fresno, California.
SECTION 10
----------
BUYER'S CLOSING OBLIGATIONS
---------------------------
At the Closing, Buyer shall:
10.01 Payment of Purchase Price. Deliver to Seller the Purchase Price,
as adjusted for (i) apportionments under Section 11, and (ii) any adjustments
thereto required pursuant to the express provisions this Agreement.
10.02 Indemnity. Deliver to Seller assumption agreements signed by
Buyer with respect to the performance by Buyer of the landlord's obligations
under the Leases, Security Deposits and the Service Contracts assumed by Buyer,
in each case in respect of the period from and after the Closing.
10.03 Recording Deed. Cause the Deed to be recorded.
10.04 Management Agreement. The Amended and Restated Management
Agreement dated as of May 24, 1990 (the "Management Agreement") by and between
Liberty Real Estate Corporation ("Liberty") and Integrated Management -
Carrington Pointe, Inc. ("Buyer") shall be terminated; Seller shall pay all
management fees due and payable under the Management Agreement through Closing;
all termination fees due under the Management Agreement shall be waived; and the
parties shall execute mutual releases releasing the parties from any further
obligations under the Management Agreement.
10.05 Other Documents. Deliver any other documents required by this
Agreement to be delivered by Buyer.
10.06 Buyer's Expenses. Pay its own counsel fees and all Survey costs,
all Title Insurance costs, one-half of all escrow
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and recording fees, and all other closing costs which are customarily paid by
buyers in transactions of this nature in Fresno, California.
SECTION 11
----------
APPORTIONMENTS AND ADJUSTMENTS TO PURCHASE PRICE
------------------------------------------------
11.01 Apportionments. The following apportionments shall be made
between the parties at the Closing as of the close of the business day prior to
the Closing:
(a) prepaid and collected rent;
(b) security deposits;
(c) the parties agree that all current employees of the
Property are the Buyer's employees, in its capacity as Manager under the
Management Agreement, accordingly there shall be no adjustment with respect to
wages, vacation pay, pension and welfare benefits and other fringe benefits of
all persons employed at the Property;
(d) real estate and personal property taxes, water charges,
sewer rents and vault charges, if any, on the basis of the fiscal period for
which assessed, except that if there is a water meter on the Property,
apportionment at the Closing shall be based on the last available reading,
subject to adjustment after the Closing on a per diem basis, when the next
reading is available;
(e) charges or prepayments under transferable Service
Contracts; provided, however, Seller shall be responsible for all termination
fees for Service Contracts not able to be assumed by Buyer.
(f) all other income and expenses relating to the Property.
If the Closing shall occur before a new tax rate is fixed, the
apportionment of taxes at the Closing shall be upon the basis of the old tax
rate for the preceding period applied to the latest assessed valuation. Promptly
after the new tax rate is fixed, the apportionment of taxes shall be recomputed.
Any discrepancy resulting from such recomputation and any errors or omissions in
computing apportionments at the Closing shall be promptly corrected, which
obligation shall survive the Closing.
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<PAGE>
11. 02 Application of Rent Payments. If any tenant is in arrears in the
payment of rent at the Closing, rents received from such tenant after the
Closing shall be applied in the following order of priority: (a) first to the
month in which the Closing occurred, (b) then to the period prior to the month
in which the Closing occurred, and (c) then to any month or months following the
month in which the Closing occurred. If rents or any portion thereof received by
Seller or Buyer after the Closing are payable to the other party by reason of
this allocation, the appropriate sum shall be paid to the other party within
thirty (30) days from the receipt thereof, which obligation shall survive the
Closing.
SECTION 12
----------
FAILURE TO PERFORM
------------------
12.01 Buyer's Election. If Seller is unable to give title or to make
conveyance, or to satisfy all of Seller's obligations as set forth in this
Agreement, Buyer shall have the right to elect, in its sole discretion, at the
Closing, to accept such title as Seller can deliver to the Property in its then
condition and to pay therefor the Purchase Price without reduction or offset, in
which case Seller shall convey such title for such price.
12.02 Seller's Default. If at the Closing, Seller is unable to give
title or to make conveyance, or to satisfy all of Seller's obligations as set
forth in this Agreement, and Buyer does not elect to take title as provided in
Section 12.01, Seller shall be in default under this Agreement and all Deposits
made hereunder shall be forthwith returned to Buyer. In addition to the
foregoing, if Buyer desires to purchase the Property in accordance with the
terms of this Agreement and Seller refuses to perform Seller's obligations
hereunder, Buyer, at its option, and as Buyer's sole and exclusive remedy, shall
have the right to compel specific performance by Seller hereunder in which event
any Deposit made hereunder shall be credited against the Purchase Price.
12.03 Buyer's Default. The parties acknowledge that in the event of
Buyer's failure to fulfill its obligations hereunder it is impossible to compute
exactly the damages which would accrue to the Seller in such event. The parties
have taken these facts into account in setting the amount of the Deposit,
required pursuant to Section 2.04, for Two Hundred Forty-Six Thousand Dollars
($246,000.00) and hereby agree that: (i) such amount together with the interest
earned thereon is the pre-estimate of such damages which would accrue to Seller;
(ii) such amount represents damages and not any penalty against Buyer; and (iii)
if this Agreement
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<PAGE>
shall be terminated by Seller by reason of Buyer's failure to fulfill Buyer's
obligations hereunder, the Deposit together with the interest thereon shall be
Seller's full and liquidated damages in lieu of all other rights and remedies
which Seller may have against Buyer at law or in equity.
SECTION 13
----------
BROKERAGE AND FINANCING FEES
----------------------------
13.01 Brokerage Fees. Buyer represents and warrants that Buyer has not
dealt with any broker in connection with this purchase and sale and that Buyer
does not know of any broker who has claimed or may have the right to claim a
commission in connection with this purchase and sale. Seller represents and
warrants that Marcus & Millichap, Inc. ("Broker") is the only broker with whom
Seller has dealt in connection with this purchase and sale and Seller does not
know of any other broker who has claimed or may have the right to claim a
commission in connection with this purchase and sale. The commission of the
Broker shall be paid by the Seller pursuant to a separate agreement, but Seller
shall be obligated to pay such commission only if, as and when the Deed is
recorded. In any event, Buyer shall have no obligation to pay a brokerage
commission to Broker or any other broker. Seller and Buyer shall indemnify and
defend each other against any costs, claims or expenses, including attorneys',
fees, arising out of the breach on their respective parts of any
representations, warranties or agreements contained in this Section. The
representations and obligations under this Section shall survive the Closing or,
if the Closing does not occur, the termination of this Agreement.
SECTION 14
----------
NOTICES
-------
14.01 Effective Notices. All notices under this Agreement shall be in
writing and shall be delivered personally or shall be sent by Federal Express or
other comparable overnight delivery courier, addressed as set forth at the
beginning of this Agreement or by telecopier to the telecopier number as set
forth at the beginning of this Agreement. Notices shall be deemed effective,
when so delivered. Copies of all such notices to Buyer shall be sent to John R.
Fallon, Jr., Esquire, Hunton & Williams, 43rd Floor, Met Life Building, 200 Park
Avenue, New York, New York
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<PAGE>
10166, Telecopier No. 212-309-1100 and copies of all such notices to Seller
shall be sent to Joel H. Sirkin, Esquire, Hale and Dorr, 60 State Street,
Boston, Massachusetts 02109, Telecopier No. 617-526-5000.
SECTION 15
----------
LIMITATIONS ON SURVIVAL
-----------------------
15.01 Representations and Warranties. Except as otherwise expressly
provided in this Agreement, no representations, warranties, covenants or other
obligations of Seller set forth in this Agreement shall survive the Closing, and
no action based thereon shall be commenced after Closing. The representations,
warranties, covenants and other obligations of Seller set forth in Section 5
shall survive until one (1) year after the Closing.
15.02 Merger. Except as provided in Section 15.01 and except for such
other obligations of Seller which are expressly provided herein to survive the
Closing, the delivery of the Deed by Seller, and the acceptance and recording
thereof by Buyer, shall be deemed the full performance and discharge of each and
every obligation on the part of Seller to be performed hereunder and shall be
merged in the delivery and acceptance of the Deed, except as provided in Section
15.01 and except for such other obligations of Seller which are expressly
provided herein to survive the Closing.
SECTION 16
----------
CONDITIONS
----------
16.01 Inspection Condition.
(a) It shall be a condition of this Agreement that on or
before December 1, 1995 (the "Inspection Period"), Buyer shall have approved in
its sole discretion, (i) the matters set forth in Section 4; (ii) all zoning,
building code and other governmental laws, ordinances, rules, regulations,
rulings and decision applicable to the Property; (iii) an appraisal of the
Property; (iv) an engineering and physical inspection of the Property; (v) an
environmental/hazardious substance inspection; (vi) a termite inspection; and
(vii) an inspection of the financial books and records relating to all income
and expenses of the Property. In the conduct of its inspection of the Property,
Buyer shall not unreasonably interfere with the operation of the Property or the
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<PAGE>
occupancy of the tenants. To the extent any of the inspections disrupt the
condition of the Property, Buyer shall restore the Property to its prior
condition thereafter and Buyer shall indemnify Seller against any loss or damage
to person or property arising from the conduct of Buyer's inspection of the
Property. The foregoing provisions of this Agreement shall survive the Closing
or any termination of this Agreement.
(b) Exemption Condition. It shall be a condition of this
Agreement that on or before the Closing, the State of California Department of
Social Services (the "Department") shall have issued to Buyer or its designee
(the "Buyer Operator") a license (the "License") which permits a change of
ownership of the Property and allows the Buyer Operator to operate the Property
as a Residential-Elderly Facility. Within twenty-one (21) days after the
execution of this Agreement, Buyer shall submit an application to the Department
for the License and Buyer shall use diligent efforts thereafter to pursue the
approval of the License. Seller agrees to cooperate with Buyer in connection
with submission of the application and during the approval process.
(c) Board of Directors and Lender Approvals. It shall be a
condition of this Agreement that on or before December 1, 1995, the Board of
Directors of Integrated Health Services, Inc. ("IHS") and, if applicable, the
lenders of IHS, shall approve this Agreement and the transaction completed
hereunder.
(d) As of the Closing, Seller shall have performed all of
Seller's covenants, agreements and obligations under this Agreement and all of
Seller's representations and warranties set forth in Section 5 of this Agreement
shall be true and correct in all material respects as of the Closing Date.
16.02 Consequences of Failure of Inspection Condition.
-----------------------------------------------
(a) In the event that Buyer deems any inspection matter
relating to the Property, pursuant to Section 16.01(a) hereinabove, unacceptable
to Buyer, in Buyer's sole discretion, Buyer shall be entitled to terminate this
Agreement by written notice given to Seller on or before the expiration of the
Inspection Period, at which time, the Deposit shall be promptly returned to
Buyer, and, thereafter, this Agreement shall be void and without recourse to
either party except for provisions which are expressly stated to survive
termination of this Agreement. In the event Buyer does not so timely deliver
written notice of termination prior to the expiration of the Inspection Period,
then the foregoing Inspection Condition set forth in Section 16.01(a)
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<PAGE>
shall automatically be deemed waived by Buyer and satisfied in full.
(b) In the event that Buyer is unable to obtain the License
pursuant to Section 16.01(b) hereinabove on or before the Closing, Buyer shall
be entitled to terminate this Agreement by written notice given to Seller on or
before the Closing, at which time, the Deposit shall be promptly returned to
Buyer, and, thereafter, this Agreement shall be void and without recourse to
either party except for provisions which are expressly stated to survive
termination of this Agreement.
(c) In the event that Buyer is unable to obtain the approval
of the Board of Directors of IHS or, if applicable, the lenders of IHS, pursuant
to Section 16.01(c) on or before the Closing, Buyer shall be entitled to
terminate this Agreement by written notice given to Seller on or before December
1, 1995, at which time the Deposit shall be promptly returned to Buyer, and,
thereafter this Agreement shall be void and without recourse to either party
except for provisions which are expressly stated to survive termination of this
Agreement.
(d) In the event that the conditions set forth in Section
16.01(d) hereinabove have not been satisfied as of Closing, Buyer shall be
entitled to terminate this Agreement by written notice given to Seller on or
before the Closing, at which time the Deposit shall be promptly returned to
Buyer, and, thereafter, this Agreement shall be void and without recourse to
either party except for provisions which are expressly stated to survive the
termination of this Agreement.
SECTION 17
----------
MISCELLANEOUS PROVISIONS
------------------------
17.01 Assignment. Upon prior notice to Seller, Buyer shall be entitled
to assign this Agreement and its rights hereunder to a corporation, general
partnership, limited partnership or other lawful entity entitled to do business
in the state in which the Property is located ("Assignee"). In the event of such
an assignment of this Agreement to Assignee (a) Buyer shall notify Seller
promptly (b) Buyer shall be jointly and severally liable with Assignee as to any
and all liability under this Agreement from and after such assignment, (c)
Assignee shall assume all obligations of Buyer under this Agreement and (d) from
and after
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<PAGE>
any such assignment the term "Buyer" shall be deemed to mean the Assignee under
any such assignment.
17.02 Limitation of Seller's Liability. No shareholders of Seller, nor
any of its respective officers, directors, agents, employees, heirs, successors
or assigns shall have any personal liability of any kind or nature for or by
reason of any matter or thing whatsoever under, in connection with, arising out
of or in any way related to this Agreement and the transactions contemplated
herein, provided that notwithstanding the foregoing, Liberty Real Estate
Corporation, the managing general partner of Seller, shall have full liability
for the obligations and indemnities of Seller under this Agreement, and, except
with respect to Liberty Real Estate Corporation, Buyer hereby waives for itself
and anyone who may claim by, through or under Buyer any and all rights to sue or
recover on account of any such alleged personal liability.
17.03 Integration. This Agreement embodies and constitutes the entire
understanding between the parties with respect to the transaction contemplated
herein, and all prior agreements, understandings, representations and
statements, oral or written, are merged into this Agreement. Neither this
Agreement nor any provision hereof may be waived, modified, amended, discharged
or terminated except by an instrument signed by the party against whom the
enforcement of such waiver, modification, amendment, discharge or termination is
sought, and then only to the extent set forth in such instrument.
17.04 Governinq Law. This Agreement shall be governed by, and construed
in accordance with the laws of the State of California.
17.05 Captions. The captions in this Agreement are inserted for
convenience of reference only and in no way define, describe or limit the scope
or intent of this Agreement or any of the provisions hereof.
17.06 Bind and Inure. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
17.07 Drafts. This Agreement shall not be binding or effective until
properly executed and delivered by both Seller and Buyer. The delivery by Buyer
to Seller of an executed counterpart of this Agreement shall constitute an offer
which may be accepted by the delivery to Buyer of a duly executed counterpart of
this Agreement and the satisfaction of all conditions under which such offer is
made, but such offer may be revoked by Buyer by written notice given at any time
prior to such acceptance and satisfaction.
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<PAGE>
17.08 Number and Gender. As used in this Agreement, the masculine shall
include the feminine and neuter, the singular shall include the plural and the
plural shall include the singular, as the context may require.
17.09 Further Assurances and Cooperation. Subsequent to the Closing,
Buyer and Seller agree to take such actions and execute and deliver such
instruments of transfer, conveyance, assignment or release as the other party
may reasonably request in order to carry out the terms of this Agreement and the
instruments contemplated hereunder; provided however that neither party shall be
obligated to incur any additional cost liability or expense in connection
therewith.
17.10 Attachments. If the provisions of any schedule or rider to this
Agreement are inconsistent with the provisions of this Agreement, the provisions
of such schedule or rider shall prevail. Schedules A, B, C and D, attached are
hereby incorporated as integral parts of this Agreement.
17.11 Indemnification. Seller and Liberty Real Estate Corporation, its
managing general partner, shall indemnify and hold harmless Buyer, and its
respective officers, directors, shareholders, employees, agents, and assigns
(collectively, the "Buyer Indemnified Parties"), from any and all liabilities,
obligations, losses, demands, judgments, actions, suits, causes of action,
claims, proceedings, investigations, citations, matters, damages, penalties,
sanctions, costs, expenses, and disbursements (including, without limitation
reasonable attorneys' and consultants' fees and expenses), whether or not
subject to litigation, (hereinafter collectively referred to as the "Claims") of
any kind or character imposed upon, arising out of, in connection with, incurred
or in any way attributed or relating to the breach or failure of any
representation, warranty or covenant that is contained in this Agreement.
Seller further covenants and agrees to defend the Buyer Indemnified
Parties on account of said Claims and to pay any judgment against the Buyer
Indemnified Parties, or any other amount as indicated in this Section 17.11,
along with all reasonable costs and expenses relative to any such Claims,
including attorneys' fees and expenses; provided, however, that the Buyer
Indemnified Parties shall, nevertheless, have the right, if they so elect, to
participate (with counsel of their choosing, which counsel must be approved by
Seller, which approval may not be unreasonably withheld) in the defense of any
such Claim in which they may be a party without relieving Seller of the
obligation to defend the same. To the extent applicable, the Buyer Indemnified
Parties covenant not to settle or compromise any
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<PAGE>
Claim under this section without the written consent of Seller, which consent
may not be unreasonably withheld or delayed under the circumstances. Failure to
comply with the preceding covenant shall be deemed a complete waiver of any
rights that the Buyer Indemnified Parties have or may have under this Section
17.11.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the date first above written.
SELLER:
CARRINGTON POINTE LIMITED
PARTNERSHIP
By: Liberty Retirement Housing
Limited Partnership, General Partner
WITNESS: By: Liberty Real Estate
Corporation, Managing
General Partner
/s/Karen Harrington By: /s/Robert G. Noonan
- ------------------- --------------------------
Robert G. Noonan
Senior Vice President
BUYER:
WITNESS: INTEGRATED MANAGEMENT-CARRINGTON,
POINTE, INC.
/s/Daniel J. Booth By: /s/David N. Chichester
- --------------------- -----------------------------------
David N. Chichester
Senior Vice President
RECEIPT
-------
The Purchase and Sale Agreement, together with Buyer's Deposit has been
received by the Escrow Agent on this the 11th day of October, 1995, and the
Escrow Agent acknowledges the terms
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<PAGE>
thereof and agrees to perform as Escrow Agent in accordance therewith.
ESCROW AGENT
LAWYERS TITLE INSURANCE CORPORATION
By: /s/Robert G. Lamb
--------------------------------
Its: Vice President
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<PAGE>
JOINDER
Liberty Real Estate Corporation joins in the execution of this Purchase
and Sale Agreement and covenants and agrees to be bound by the terms and
provisions of Sections 17.02 and 17.11 hereof.
Liberty Real Estate Corporation
By: /s/Robert G. Noonan
------------------------------
Robert G. Noonan
Senior Vice President
-27-
<PAGE>
List of Schedules
Schedule A - Description of Land
Schedule B - Personal Property
Schedule C - Rent Roll
Schedule D - Services Contracts
-28-
FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT
This FIRST AMENDMENT dated as of December 15, 1995 by and between
Liberty/Carrington Pointe Limited Partnership, a Massachusetts limited
partnership (also known as Liberty/ Carrington Pointe, a Massachusetts Limited
Partnership) ("Seller") and Integrated Management - Carrington Pointe, Inc. (
"Buyer").
WHEREAS, Seller and Buyer entered into a Purchase and Sale Agreement
dated as of October 4, 1995 (the "Agreement") in connection with the sale of the
Carrington Pointe congregate care facility located in Fresno, California (the
"Property"); and
WHEREAS, the signature block to the Agreement incorrectly identified the
Seller as Carrington Pointe Limited Partnership and the general partner of
Seller as Liberty Retirement Housing Limited Partnership and the general partner
of Liberty Retirement Limited Partnership as Liberty Real Estate Corporation;
and
WHEREAS, the Seller is Liberty/Carrington Pointe Limited Partnership, a
Massachusetts limited partnership (also known as Liberty/Carrington Pointe, a
Massachusetts Limited Partnership), and the general partner of Seller is LRE
Properties, Inc., a Massachusetts corporation; and
WHEREAS, Seller and Buyer desire to amend the Agreement in accordance
with the terms hereof.
NOW, THEREFORE, in consideration of the mutual undertakings and
covenants herein contained, Seller and Buyer hereby covenant and agree as
follows:
1. Section 2.01 of the Agreement is amended by adding the following
additional provisions thereto:
"Notwithstanding the provisions of this Section 2.01 to the
contrary, the Purchase Price shall be adjusted in the event that either
of the following events occur, as follows:
a. In the event the Buyer is able to obtain the License in
satisfaction of the condition set forth in Section 16.01(b) and the
Closing is fully consummated (i.e. the Deed is accepted and recorded by
Buyer and the Purchase Price is paid to and received by Seller) on or
before December 28, 1995, the Purchase Price to be paid by Buyer shall
be reduced by the sum of Five Hundred Thousand Dollars ($500,000.00)
from $12,300,000.00 to $11,800,000.00, subject to all other prorations
and adjustments otherwise provided for in the Agreement; or
<PAGE>
b. In the event the Buyer is unable to obtain the License on or
before December 28, 1995 the parties shall use good faith efforts to
agree upon the terms of an irrevocable escrow agreement (the
"Irrevocable Escrow") which shall provide, among other terms, that (i)
on or before December 28, 1995, the Buyer shall deliver the Purchase
Price into escrow, and Seller shall deliver the Deed into escrow and
the parties shall deliver all other documents required for closing into
escrow, (ii) until the close of escrow, the Seller shall remain the
owner of the Property and the Buyer shall remain the manager of the
Property pursuant to the Management Agreement, (iii) the Buyer shall
use continued diligent efforts to obtain the License as promptly as
possible, (iv) there shall be no conditions to the completion of escrow
other than the issuance of the License and upon the issuance of the
License, the escrow agent shall be irrevocably required to record the
Deed and deliver the Purchase Price to Seller and (v) if the License is
not issued on or before January 31, 1996, unless extended in writing by
mutual agreement of the Buyer and Seller, the escrow shall be rescinded
and the escrow agent shall return the Deed to the Seller and deliver
the Purchase Price to Buyer. If the parties are able to mutually agree
upon and execute the Irrevocable Escrow and pursuant thereto, Buyer
delivers the Purchase Price to the escrow agent on or before December
28, 1995, the Purchase Price to be paid by Buyer shall be reduced by
the sum of Two Hundred Fifty Thousand Dollars ($250,000.00) from
$12,300,000.00 to $12,050,000.00, subject to all other prorations and
adjustments otherwise provided for in the Agreement. If the parties are
unable to mutually agree upon and execute the Irrevocable Escrow on or
before December 25, 1995, the provision of this subsection (b) shall be
null and void."
2. All references in the Agreement to Carrington Pointe Limited
Partnership are hereby deleted and the words "Liberty/ Carrington Pointe Limited
Partnership, a Massachusetts limited partnership (also known as
Liberty/Carrington Pointe, a Massachusetts Limited Partnership)" are inserted in
place thereof.
3. All references in the Agreement to Liberty Retirement Housing
Limited Partnership are hereby deleted and the words "LRE Properties, Inc., a
Massachusetts corporation, its general partner" are inserted in place thereof.
4. The words ", its managing general partner," set forth in the first
sentence of Section 17.11 of the Agreement are hereby deleted.
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<PAGE>
5. With the exception of the references to Liberty Real Estate
Corporation contained in Section 17.02 and Section 17.11 of the Agreement, all
references in the Agreement to Liberty Real Estate Corporation are hereby
deleted.
6. By its signature below, Liberty Real Estate Corporation ratifies
its agreement to be bound by the terms and provisions of Sections 17.02 and
17.11 of the Agreement.
7. Buyer and Seller agree that except for the foregoing amendments,
all other terms and provisions of the Agreement shall remain in full force and
effect and are hereby ratified and confirmed by the parties.
EXECUTED as a sealed instrument as of the date first written above.
SELLER:
LIBERTY/CARRINGTON POINTE LIMITED
PARTNERSHIP, a Massachusetts limited
partnership (also known as Liberty/
Carrington Pointe, a Massachusetts
Limited Partnership)
By: LRE Properties, Inc.
Managing General Partner
By: /s/Robert G. Noonan
------------------------
Robert G. Noonan
Vice President
BUYER:
INTEGRATED MANAGEMENT - CARRINGTON
POINTE, INC.
By: /s/Daniel J. Booth
----------------------------
Daniel J. Booth
Vice President
-3-
<PAGE>
Liberty Real Estate Corporation joins in the execution of this First
Amendment to Purchase and Sale Agreement and covenants and agrees to be bound by
the terms and provisions of Sections 17.02 and 17.11 of the Agreement.
Liberty Real Estate Corporation, a
Massachusetts Corporation
By: /s/Robert G. Noonan
----------------------
Robert G. Noonan
Vice President
-4-
REVOLVING CREDIT DEMAND NOTE
----------------------------
$750,000.00 Dated: February 29, 1996
FOR VALUE RECEIVED, the undersigned, LORI ZITO D/B/A ELDERLY
DEVELOPMENT COMPANY ("Borrower"), hereby unconditionally promises to pay to the
order of INTEGRATED HEALTH SERVICES RETIREMENT MANAGEMENT, INC., a Delaware
corporation ("Lender"), ON DEMAND, the principal amount of each loan made by the
Lender to the Borrower pursuant to the Revolving Credit and Security Agreement,
the aggregate principal amount of which loans to Borrower at any time
outstanding shall not exceed the sum of SEVEN HUNDRED FIFTY THOUSAND
($750,000.00) DOLLARS, together with interest thereon as hereinafter provided.
This Note shall bear interest from its date until maturity on the
principal amount outstanding from time to time hereunder (calculated on the
basis of a 360-day year of twelve 30-day months) at a rate of eleven and three
quarters of one (11-3/4%) per cent per annum, such interest to be due and
payable monthly in arrears and upon demand. Each payment made hereunder shall be
applied first to the payment of all accrued interest and the balance shall be
applied to the principal.
Notwithstanding any provision contained herein or in the Revolving
Credit and Security Agreement, the total liability of Borrower for payment of
interest pursuant hereto, including late charges, shall not exceed the maximum
amount of such interest permitted by law to be charged, collected, or received
from Borrower, and if any payments by Borrower include interest in excess of
such a maximum amount, Lender shall apply such excess to the reduction of the
unpaid principal amount due pursuant hereto, or if none is due, such excess
shall be refunded to Borrower.
This Note is the Loan Note referred to in the Revolving Credit and
Security Agreement of even date herewith made by and between the Borrower and
the Lender (the "Revolving Credit and Security Agreement"). This Note is
entitled to all of the benefits under the Revolving Credit and Security
Agreement and the other agreements and documents executed pursuant thereto or in
connection therewith (collectively, the "Loan Documents"). Borrower shall pay
all costs of collection of this Note, including reasonable attorney's fees.
The Lender is authorized but not required to record the date and amount
of each loan made, the date and amount of any principal and interest payment,
and the principal balance hereof on any schedule which may be attached hereto
and made a part hereof, and any such recordation shall, in the absence of
manifest error, constitute prima facie evidence of the accuracy of the
information so recorded; provided however, that the Lender's failure to so
record shall not limit the obligations of the Borrower hereunder and under the
Revolving Credit and Security Agreement to pay the principal of and interest on
the loans.
Borrower waives notice of demand, presentment for payment, notice of
protest, and protest of this Note. All rights and remedies given by this Note,
the Revolving Credit and Security Agreement, the other Loan Documents and by law
are cumulative and not exclusive of any thereof or of any other rights or
remedies available to the Lender and no course of dealing between Borrower and
the Lender, or any delay or omission in exercising any right or remedy, shall
operate as a waiver of any right or remedy, and every right and remedy may be
exercised from time to time and as often as shall be deemed appropriate by
Lender.
1
<PAGE>
Borrower represents and warrants that the loans evidenced hereby are
made for business purposes only and are therefore commercial loans.
The Borrower may repay all or any part of the remaining principal
balance of this Note at any time without penalty or premium.
This Note constitutes satisfaction of that certain Promissory Note of
the Borrower dated August 7, 1995, in the principal amount of $130,000.00, plus
the $77,000.00 which was advanced on December 20, 1995.
This Note shall be governed, interpreted, and enforceable in accordance
with the laws of the State of Maryland.
IN WITNESS WHEREOF, the undersigned has executed this Note on the date
first above written.
/s/ Lori Zito
----------------------------
Lori Zito d/b/a
Elderly Development Company
2
<PAGE>
ALLONGE AND AMENDMENT OF REVOLVING CREDIT DEMAND NOTE
Reference is made to that certain Revolving Credit Demand Note in the
original principal amount of $750,000, dated February 29, 1996 (the "Original
Note") made by LORI ZITO D/B/A ELDERLY DEVELOPMENT COMPANY ("Borrower"), and
payable to INTEGRATED HEALTH SERVICES RETIREMENT MANAGEMENT, INC., a Delaware
corporation ("Lender"). This Allonge and Amendment (this "Allonge") shall be and
remain attached to and shall constitute an integral part of the above described
Original Note from and after the date hereof (the Original Note as modified by
this Allonge being hereinafter referred to as the "Note"). Terms capitalized but
not otherwise defined herein shall have the meanings given to them,
respectively, in the Original Note.
The Original Note is hereby amended by amending the first Paragraph
thereof in full to read as follows:
"FOR VALUE RECEIVED, the undersigned, LORI ZITO D/B/A ELDERLY
DEVELOPMENT COMPANY ("Borrower"), hereby unconditionally promises to pay to the
order of INTEGRATED LIVING COMMUNITIES RETIREMENT MANAGEMENT, INC., a Delaware
corporation ("Lender"), ON DEMAND, the principal amount of each loan made by the
Lender to the Borrower pursuant to the Revolving Credit and Security Agreement,
the aggregate principal amount of which loans to Borrower at any time
outstanding shall not exceed the sum of ONE MILLION ($1,000,000.00) DOLLARS,
together with interest thereon as hereinafter provided."
The Original Note is further amended by increasing the face amount
thereof to $1,000,000.00, and by reflecting the name change of Lender from
"Integrated Health Services Retirement Management, Inc." to "Integrated Living
Communities Retirement Management, Inc."
Except as modified hereby, all the terms and conditions of the Original
Note are hereby ratified and confirmed. This Allonge may be signed in one or
more counterparts each of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
undersigned has caused this Allonge to be executed as of the 9 of July, 1996.
/s/ Lori Zito
- --------------------------------
Lori Zito d/b/a Elderly
Development Company
ACCEPTED BY:
INTEGRATED LIVING COMMUNITIES
RETIREMENT MANAGEMENT, INC.
By: /s/ Edward J. Komp
--------------------------
Name: Edward J. Komp
Title: CEO
REVOLVING CREDIT AND SECURITY AGREEMENT
---------------------------------------
AGREEMENT made as of the 29th day of February, 1996, between LORI ZITO
D/B/A ELDERLY DEVELOPMENT COMPANY (the "Borrower"), and INTEGRATED HEALTH
SERVICES RETIREMENT MANAGEMENT, INC., a Delaware corporation ("Lender").
WHEREAS, Borrower is the holder of five land contracts in Escondido,
Yorba Linda, Riverside, Rancho Mirage, and Sen Bernardino, California (the
"Sites") and any additional land contracts entered into by Borrower with the
approval of Lender, as scheduled on Exhibit A attached hereto (collectively, the
"Land Contracts"); and
WHEREAS, Borrower wishes to obtain a loan to finance the development of
assisted living facilities ("Facilities") on the Sites; and
WHEREAS, Lender is willing to make available to Borrower a revolving
line of credit in the maximum amount of $750,000.00, and Borrower wishes to
obtain such revolving line of credit, all upon the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, and for other good and valuable consideration, the parties hereby agree
that:
1. Revolving Credit Loan.
---------------------
Subject to the terms and conditions hereof and relying upon the
representations and warranties of Borrower herein set forth, Lender shall make a
revolving credit loan ("Loan") to Borrower, provided that the aggregate
principal amount of all Loans at any one time outstanding to the Borrower shall
not exceed the sum of SEVEN HUNDRED FIFTY THOUSAND ($750,000.00) DOLLARS. Within
such limits of amount, and subject to the other provisions of this Agreement,
the Borrower may borrow, repay, and reborrow pursuant to this Section 1. The
proceeds of the Loan shall only be used for the development of the Facilities
pursuant to the Land Contracts. At any time when Borrower wishes to borrow any
amounts under the Loan, Borrower will notify Lender of the amount requested and
proposed use of the proceeds, and, subject to Lender's approval, Lender will use
its best efforts to remit the amount requested to Borrower within ten (10)
business days of the request.
2. Loan Note.
----------
The obligation of the Borrower to repay the aggregate unpaid principal
amount of the Loans, together with interest thereon, shall be evidenced by that
certain revolving credit demand note (the "Loan Note") of Borrower of even date
herewith, payable to the order of Lender in a
1
<PAGE>
face amount equal to the maximum loan amount set forth in Section 1, above, and
payable upon the demand of Lender.
3. Repayment of the Loan.
---------------------
(a) Interest on the Loan shall be payable monthly at a rate per
annum of eleven and three quarters of one (11-3/4%) percent.
(b) The entire outstanding principal balance of the Loan Note, and
all accrued and unpaid interest thereon, shall be fully due and payable by the
Borrower upon the demand of the Lender.
4. Grant of Security Interest.
--------------------------
(a) Borrower hereby grants to Lender a lien and security interest
in all of the following described property (the "Collateral"):
(i) Borrower's interest in any and all of the
documentation, including architectural plans, of the development and
construction of the Facilities;
(ii) an assignment of the Land Contracts;
(iii) Borrower's interest in any and all licenses, permits
and other governmental approvals for the Facilities; and
(iv) any and all proceeds of any of the foregoing.
(b) The lien and security interest granted herein is given to secure
performance and payment of all obligations, fees and indebtedness of Borrower to
Lender or any of its subsidiaries of whatever kind and whenever or however
created or incurred, whether now existing or hereafter arising (hereinafter
called the "Obligations"), including, without limiting the generality of the
foregoing, any such obligations or indebtedness arising under this Agreement.
(c) Borrower will take any and all action requested by Lender to
perfect Lender's security interest in the Collateral granted pursuant to the
terms of this Section 4, including, without limitation, the execution and filing
of financing statements in any jurisdiction which Lender deems appropriate.
5. Priority of Lien.
-----------------
Borrower represents, warrants and agrees that (i) Borrower owns good
and indefeasible title to the Collateral, (ii) no security interest or lien has
been created by Borrower, or is known by Borrower to exist with respect to any
Collateral, (iii) no financing statement or other security
2
<PAGE>
instrument is on file in any jurisdiction covering such Collateral, (iv)
Borrower will not create any other security interest or lien and will not file
or permit to be filed any other financing statement or other security instrument
with respect to the Collateral other than required pursuant to Section 4 hereof,
without the consent of Lender, (v) Borrower will not incur any additional debt
without the prior written consent of Lender, and (vi) Borrower will not sell,
assign, transfer or in any other way alienate Borrower's rights under the Land
Contracts without the prior written consent of Lender. Borrower will execute,
deliver and file such financing statements, security agreements and other
documents as may be requested by Lender from time to time to confirm, perfect
and preserve the security interest created hereby, and in addition, hereby
authorizes Lender to execute on behalf of Borrower, deliver and file such
financing statements, security agreements and other documents without the
signatures of Borrower, all at the expense of Borrower. The lien herein referred
to as security for the Obligations, in favor of Lender, is and shall be first,
prior and superior to all other liens with respect to the Collateral.
6. Additional Covenants of Borrower.
--------------------------------
(a) Until the Obligations are paid in full, and subject to the
provisions of Section 7, below, Borrower agrees that she will:
(i) furnish or cause to be furnished to the Lender any
financial or other information that the Lender may
reasonably deem necessary or desirable;
(ii) duly pay and discharge all taxes, assessments and
governmental charges owed by or against Borrower or
any of its properties, prior to the date on which
penalty will attach thereto, unless and only to the
extent that any such taxes are contested in good
faith by appropriate proceedings by Borrower;
(iii) take whatever actions are necessary to comply with
all statutes and regulations governing the
construction of the Facilities;
(iv) promptly cure any defects in the execution and
delivery of this Agreement and all other instruments
executed in connection with this transaction;
(v) execute and deliver or cause to be executed and
delivered any other instruments or documents which
the Lender may reasonably request;
(vi) promptly notify the Lender of any Event of Default
discovered by Borrower;
(vii) provide Lender with monthly development reports
regarding the status of the Sites, including, without
limitation, progress updates on any relevant due
diligence dates and deadlines under the Land
Contracts; and
3
<PAGE>
(viii) not incur any pre-development costs for the Sites
without the prior approval of Lender which shall not
be unreasonably withheld.
7. Remedies.
--------
If all or any part of the Obligations shall become due and payable,
Lender shall have in any jurisdiction where enforcement hereof is sought, in
addition to all other rights and remedies which Lender may have under law or in
equity, the following rights and remedies: to foreclose the liens and security
interests created under this agreement or under any other agreement relating to
Collateral by any available judicial procedure or without judicial process, to
enter any premises where any Collateral may be located for the purpose of taking
possession or removing the same, to sell, assign, lease, or otherwise dispose of
the Collateral or any part thereof, either at public or private sale or at any
broker's board, in lots or in bulk, for cash, on credit or otherwise, with or
without representations or warranties, and upon such terms as shall be
acceptable to Lender, all at Lender's sole option and as Lender in its sole
discretion may deem advisable, and Lender and Borrower may bid or become
purchaser at any such sale if public, free from any right of redemption which is
hereby expressly waived by the Borrower, and Lender shall have the right at its
option to apply or be credited with the amount of all or any part of the
Obligations owing to Lender against the purchase price bid by Lender at any such
sale. The net cash proceeds resulting from the collection, liquidation, sale,
lease or other disposition of Collateral shall be applied first, to the expenses
(including all attorneys' fees) of retaking, holding, storing, processing and
preparing for sale, selling, collecting, liquidating and the like, and then to
the satisfaction of all Obligations, application as to particular Obligations or
against principal or interest to be in Lender's absolute discretion. The
Borrower shall be liable to Lender and shall pay to Lender on demand any
deficiency which may remain after such sale, disposition, collection or
liquidation of Collateral, and Lender in turn agrees to remit to the Borrower
any surplus remaining after all Obligations have been paid in full. The Borrower
will, at Lender's request, assemble all Collateral and make it available to
Lender at places which Lender may select, whether at premises of the Borrower or
elsewhere, and will make available to Lender all premises and facilities of the
Borrower for the purpose of Lender's taking possession of Collateral or of
removing or putting the Collateral in saleable form.
8. Waivers.
-------
With respect to both Obligations and Collateral, the Borrower assents
to any extension or postponement of the time of payment or other indulgence, to
any substitution, exchange or release of Collateral, to the addition or release
of any party or person primarily or secondarily liable, to the acceptance of
partial payments thereon and the settlement, compromising or adjusting of any
thereof, all in such manner and at such time or times as the Lender may deem
advisable. The Lender may exercise its rights with respect to Collateral without
resorting or regard to other Collateral or sources of reimbursement for
Obligations. The Lender shall not be deemed to have waived any of its rights
upon or under Obligations or Collateral unless such waiver be in writing and
signed by the Lender. No delay or omission on the part of the Lender on
Obligations or
4
<PAGE>
Collateral, whether evidenced hereby or by any other instrument or papers, shall
be cumulative and may be exercised separately or concurrently.
9. Transfers by Lender.
-------------------
Lender may transfer any or all of the Obligations, and upon any such
transfer Lender may transfer any or all of the Collateral and shall be fully
discharged thereafter from all liability with respect to the Collateral so
transferred, and the transferee shall be vested with all rights, powers and
remedies of Lender hereunder with respect to Collateral so transferred; but with
respect to any Collateral not so transferred Lender shall retain all rights,
powers and remedies hereby given. Lender may at any time deliver any or all of
the Collateral to Borrower, whose receipt shall be a complete and full
acquittance for the Collateral so delivered, and Lender shall thereafter be
discharged from any liability therefor.
10. Definition of Borrower.
----------------------
The term "Borrower" as used throughout this Agreement shall include (a)
the successors and assigns of Borrower; (b) any individual, association, trust,
partnership, corporation, or other entity to which all or substantially all of
the business or assets of Borrower shall have been transferred or with or into
which the business of Borrower shall have been merged, consolidated, reorganized
or absorbed; and (c) in the case of a partnership or joint venture, any general
or limited partnership or joint venture which shall have been created by reason
of, or continued in existence after, the admission of any new partner, partners
or joint venturers therein or the dissolution of the existing partnership or
joint venture by the death, resignation or other withdrawal of any partner or
joint venturer.
11. Continuing Agreement.
--------------------
This is a continuing agreement and all the rights, powers and remedies
of Lender hereunder shall continue to exist unless (a) all Obligations shall
have been paid in full, or (b) Lender, upon request of Borrower, has executed a
termination statement. Otherwise this Agreement shall continue irrespective of
the fact that any or all of the Obligations may have become barred by any
statute of limitations or that the liability of Borrower may have ceased, and
notwithstanding the death, incapacity or bankruptcy of Borrower or any other
event or proceeding affecting Borrower. The rights, powers and remedies of
Lender hereunder shall be in addition to all rights, powers and remedies given
by statute or rule of law and, regardless of whether or not the Uniform
Commercial Code is in effect in the jurisdiction where such rights, powers and
remedies are asserted, Lender shall have the rights, powers and remedies of a
Lender under the Uniform Commercial Code, as amended. No forbearance or delay by
Lender in exercising any right, power or remedy shall be deemed a waiver thereof
or preclude any other or further exercise thereof; and no single or partial
exercise of any right, power or remedy shall preclude any other or further
exercise thereof, or the exercise of any right, power or remedy.
5
<PAGE>
12. Maximum Interest.
----------------
All agreements between Borrower and Lender are hereby expressly limited
so that in no contingency or event whatsoever, whether by reason of deferment in
accordance with this Agreement or advancement of the loan proceeds, acceleration
of maturity of the Obligations, or otherwise, shall the amount paid or agreed to
be paid to Lender for the use, forbearance or detention of the money to be
loaned hereunder exceed the maximum permissible under applicable law. If, from
any circumstance whatsoever, fulfillment of any provision hereof, at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by law, then, ipso facto, the obligation to be fulfilled
---- -----
shall be reduced to the limit of such validity, and if from any circumstance
Lender should ever receive as interest an amount which would exceed the highest
lawful rate, such amount which would be excessive interest shall be applied to
the reduction of the principal of the Obligations and not to the payment of
interest.
13. Borrower's Representations and Warranties.
-----------------------------------------
To induce the Lender to enter into the transactions provided for
herein, Borrower represents and warrants to Lender that:
(a) Borrower is duly authorized to execute and deliver this
Agreement and to perform all of her obligations under this
Agreement, including the execution, delivery and performance
of whatever additional documents are necessary or required in
connection with the transactions contemplated herein;
(b) the execution and delivery by Borrower of this Agreement and
the performance by Borrower of her obligations under this
Agreement do not and will not conflict with any provision of
law, or of any other agreement affecting or binding upon
Borrower;
(c) this Agreement, when duly executed and delivered, will be the
valid and binding obligation of Borrower enforceable in
accordance with its terms, except as limited by bankruptcy,
insolvency or other laws of general application relating to
the enforcement of creditors' rights and except to the extent
that the availability of specific performance thereof may be
limited by principles of equity; and
(d) the proceeds of the Loan will be used for business purposes,
and the Loan constitutes a commercial loan.
14. Notices.
-------
Any notice or other communication by either party to the other shall be
in writing and shall be given and be deemed to have been duly given, upon the
date delivered if delivered personally or upon the date received if mailed
postage pre-paid, registered, or certified mail, addressed as follows:
6
<PAGE>
To the Borrower: Lori Zito
35B Red Hill Circle
Tiburon, CA 94920
------------------------------------------------------
To the Lender: Integrated Health Services Retirement Management, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attention: Daniel J. Booth
With copies to: Integrated Health Services Retirement Management, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attention: Marshall A. Elkins, Esq.
Blass & Driggs
461 Fifth Avenue, 19th Floor
New York, NY 10017
Attention: Michael S. Blass, Esq.
or to such other address, and to the attention of such other person or officer
as either party may designate in writing by notice.
15. Applicable Law.
--------------
The substantive laws of the State of Maryland shall govern the
validity, construction, enforcement and interpretation of this Agreement and all
other documents and instruments referred to herein, unless otherwise specified
therein.
[SIGNATURES ON THE FOLLOWING PAGE]
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date first above written.
BORROWER: LENDER:
INTEGRATED HEALTH
SERVICES RETIREMENT
MANAGEMENT, INC.
By: By:
---------------------------- ------------------------------
Lori Zito d/b/a/
Elderly Development Company
8
<PAGE>
AMENDMENT NO. 1
TO
REVOLVING CREDIT AND SECURITY AGREEMENT
THIS AMENDMENT NO. 1 TO REVOLVING CREDIT AND SECURITY AGREEMENT (the
"First Amendment") is made as of the 9 day of July, 1996, by and between LORI
ZITO D/B/A ELDERLY DEVELOPMENT COMPANY (the "Borrower"), and INTEGRATED LIVING
COMMUNITIES RETIREMENT MANAGEMENT, INC., a Delaware corporation ("Lender").
WHEREAS, Borrower and Lender have entered into that certain revolving
credit and security agreement dated February 29, 1996 (the "Revolving Credit and
Security Agreement"); and
WHEREAS, pursuant to the Revolving Credit and Security Agreement,
Lender made available to Borrower a revolving line of credit in the maximum
amount of $750,000, pursuant to the terms and conditions set forth therein; and
WHEREAS, Lender was formerly known as "Integrated Health Services
Retirement Management, Inc."; and
WHEREAS, the parties wish to amend the Revolving Credit and Security
Agreement to increase the maximum amount of the line of credit to $1,000,000.
NOW THEREFORE, in consideration of the mutual promises hereinafter set
forth, and for other good and valuable consideration, the parties hereby agree
as follows:
1. Section 1 of the Revolving Credit and Security Agreement shall be
amended to read in its entirely as follows:
"Subject to the terms and conditions hereof and relying upon the
representations and warranties of Borrower herein set forth, Lender
shall make a revolving credit loan ("Loan") to Borrower, provided
that the aggregate principal amount of all Loans at any one time
outstanding to the Borrower shall not exceed the sum of ONE MILLION
($1,000,000.00) DOLLARS. Within such limits of amount, and subject
to the other provisions of this Agreement, the Borrower may borrow,
repay, and reborrow pursuant to this Section 1. The proceeds of the
Loan shall only be used for the development of the Facilities
pursuant to the Land Contracts. At any time when Borrower wishes to
borrow any amounts under the Loan, Borrower will notify Lender of
the amount requested and the proposed use of the proceeds, and,
subject to Lender's approval, Lender will use its best efforts to
<PAGE>
remit the amount requested to Borrower within ten (10) business days
of the request."
2. Except as expressly amended hereby, the Revolving Credit and
Security Agreement shall remain unchanged in all respects and shall continue in
full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this First Amendment
on the date first above written.
Borrower: Lender:
INTEGRATED LIVING
COMMUNITIES RETIREMENT
MANAGEMENT, INC.
By: /s/ Lori Zito By: /s/ Edward J. Komp
---------------------------- ------------------------------
Lori Zito d/b/a Name: Edward J. Komp
Elderly Development Company -----------------------------
Title: CEO
---------------------------
Capstone John W. McRoberts
Capital President & CEO
June 26, 1996
Mr. John B. Poole
Senior Vice President & CEO
Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Dear John:
This letter confirms the conditional approval of Capstone Capital Corporation, a
Maryland Corporation ("CCT") for the proposed acquisition of several senior
housing facilities on terms herein described. CCT's intention to purchase the
senior housing facilities is subject to Integrated Living Communities, Inc.
("ILC") compliance with and acceptance of the terms and conditions of each lease
as herein set forth and of the terms and conditions set forth in an agreement of
sale and purchase for each facility, each of which are to be prepared in
accordance with CCT's customary documentation and with the terms of this letter.
This conditional approval shall be withdrawn if it has not been accepted by
Integrated by July 15, 1996.
Purchaser/Lessor: Capstone Capital Corporation, or
wholly-owned subsidiary, ("CCT").
Lessee: Integrated Living Communities, Inc. ("ILC").
Maximum
Commitment: $40,000,000 ("Commitment").
Commitment Fee: .25% of maximum commitment within 1 business
day of signing as an Expense Deposit, and 1%
of total project cost at takedown as a fee
to CCT. The Expense Deposit is to be used as
a credit against the legal, survey, title
and other expenses of closing each facility.
Leased Facilities: Various senior housing residences
("Facilities") which may provide either
congregate care services, assisted living
services, Alzheimer's care services, skilled
nursing services, or some combination
thereof.
Capstone Approval: CCT maintains the absolute right to
pre-approve each Facility funded by this
Commitment.
<PAGE>
Initial Term: Not less than twelve years nor more than
fifteen years (all leases funded under this
Commitment shall have the same initial term
expiration date).
Optional
Renewal Term: Three separate five year periods (total of
fifteen years): however, no lease may be
extended unless all leases are extended. The
Lease payment for the first year of each
optional period will be based upon a fair
market rental value.
Initial
Lease Rate: 350 basis points in excess of the yield on
U.S. Treasury bills of the same maturity as
that of the lease (or closest maturity to
that of the lease). However, the Initial
Lease Rate will not be less than 10%.
Annual Lease
Payment Adjustment: Equal to the positive change in CPI;
however, with the exception of the first
year of each renewal option period, in no
event will the change be less than 2% nor
more than 5% of the previous year's lease
payment.
Lease Covenants: Rent Coverage (EBITDAR divided by rent) for
each Facility equal to or greater than
1.25x.
Cross Defaults: All leases between CCT and ILC shall be
cross-defaulted.
Lease Guaranty: All leases between CCT and ILC (subsidiary)
shall be guaranteed by ILC (parent).
Guarantor, or Lessee in the case of ILC
(parent), shall maintain a minimum net worth
of at least $80,000,000 and shall maintain
rent and interest coverage EBITDAR divided
by (rent + interest) of 1.5x or greater.
First Right
of Refusal: Granted to ILC.
Triple Net: Lessee is responsible for all maintenance,
upkeep, insurance, taxes, etc. with respect
to the Facilities.
Capital
Replacement
Reserve: Lessee will fund a Capital Replacement
Reserve Account equal to $____________ (to
be negotiated
<PAGE>
for each transaction, depending upon the age
of the Facility, its current condition and
its intended use).
Annual
Inspection Fee: Lessee to reimburse CCT for up to $2,000 per
year for each year of the lease for an
independent third party inspection of each
Facility.
Closing Cost: Lessee shall pay for all cost of documenting
the Commitment as well as all costs
associated with each transaction pursuant to
the Commitment, including, but not limited
to, initial inspection report, environmental
surveys, title, land survey, property
transfer fees and attorney fees (Lessor's
and Lessee's). Upon acceptance of this term
sheet, ILC will deposit $20,000 with CCT to
be credited against closing costs incurred
by CCT, $5,000 of which shall be
non-refundable.
Conditions
Precedent: Commitment to be approved by CCT Board of
Directors.
ILC shall have successfully completed the
issuance of 3,100,000 shares of its common
stock and shall have received net proceeds
therefrom of not less than $40,000,000.
Sincerely,
/s/ John W. McRoberts
- -------------------------------
John W. McRoberts
President and CEO
Approved and Accepted this
___________ day of July, 1996
Integrated Living Communities, Inc., a Delaware Corporation
By: /s/
---------------------------------------
Its CEO
---------------------------------------
HEALTH CARE PROPERTY INVESTORS, INC.
10990 WILSHIRE BOULEVARD, SUITE 1200
LOS ANGELES, CALIFORNIA 90024
(310) 473-1990
FAX: (310) 444-7817
June 11, 1996
VIA FEDERAL EXPRESS
- -------------------
Mr. Edward Komp
Chief Executive Officer
Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Dear Ed:
The purpose of this letter is to confirm our mutual intent and
agreement in principle with respect to the general terms and conditions of a
master agreement pursuant to which Integrated Living Communities, Inc., a
Delaware corporation, or an affiliate thereof ("ILC") and Health Care Property
Investors, Inc., a Maryland corporation, or an affiliate thereof ("HCPI") may
enter into a series of agreements to develop and lease, purchase and lease, or
sell and lease back the land, improvements and personal property of certain
congregate, assisted living, alzheimer and skilled nursing facilities, (the
"Facilities", or a "Facility").
Under the master agreement, HCPI will invest a total of up to $100
million in the land, improvements, and personal property of Facilities to be
approved by HCPI. Of HCPI's total investment, no less than $40 million will be
in existing properties including the Existing Facilities shown on the attached
Exhibit A and additional Facilities to be identified at a later date ("Existing
Facilities"). The remainder may be invested in new construction projects from
the list of New Facilities shown on the attached Exhibit A ("New Facilities").
ILC will develop each New Facility under a separate development agreement
pursuant to the terms set forth in the Development Agreement included as Exhibit
I herein. ILC (the "Lessee") will lease each New and Existing Facility pursuant
to a lease having the terms and conditions set forth on the Lease Term Sheet
included as Exhibit II herein.
As soon as practical after the date hereof, HCPI will submit for your
review drafts of the master agreements, which will include the forms of contract
of acquisition, development agreement, lease, and ancillary agreements
containing the terms set forth in Exhibit I and Exhibit II. The definitive
agreements will contain representations and warranties, indemnities, affirmative
convenants and conditions precedent as are customary in transactions of this
type and include provisions which protect Health Care Property Investors, Inc.'s
tax status as a real estate investment trust and such other provisions as shall
be mutually agreeable.
Exhibit III sets forth the form for the required Irrevocable Standby
Letter of Credit, and Exhibit IV sets forth the definitive insurance provisions
we require during the construction of each Facility and the term of each Lease.
<PAGE>
Mr. Edward Komp
June 11, 1996
Page 2
Each party agrees to take such corporate and other actions as will be
necessary and appropriate to cause the transaction referred to above to be duly
consummated as soon as practicable. Subject to paragraph 16, each party also has
agreed to cause its officers, directors, and agents to cooperate fully with the
other parties in connection with the transaction contemplated hereby.
The obligations of HCPI to consummate this transaction and close each
Facility will be subject to:
1. For New Facilities, receipt of all consents and approvals from
governmental authorities and others required for construction,
including without limitation, all building permits, receipt
and approval of all construction plans, specifications and
contracts, and evidence of satisfactory insurance coverage for
the construction phase.
2. Receipt of evidence that the zoning ordinances, general plans
and all other land use regulations of the applicable
jurisdictions and all other convenants, conditions and
restrictions, if any, affecting the Facility permit the
transfer of the land and construction and use of the Facility
(and reconstruction and resumption of use in the event of
damage, destruction, or cessation of use) for the business to
be conducted thereon as a matter of right for an unlimited
time period and not merely as a legal nonconforming use.
3. Receipt of evidence of compliance with all legal requirements,
including but not limited to all permits and licenses, and
proof that the Facility is or will be (for Existing and New
Facilities, respectively) in compliance, in all material
respects, with all applicable federal, state and local laws,
ordinances and regulations, including but not limited to rules
and regulations relating to Medicare and Medicaid fraud and
abuse practices, if applicable, and all insurance
requirements.
4. Disclosures in writing, for HCPI's approval, of all pending or
threatened litigation or governmental proceedings seeking to
enjoin, challenge or collect material damages in connection
with ILC or the Facility if it is an Existing Facility.
5. Receipt of title commitments for the Facility satisfactory to
HCPI in current ALTA extended coverage form for the State in
which the Facility is located without any creditors' rights
exceptions. The policies will provide coverage satisfactory to
HCPI with respect to: covenants, conditions and restrictions
affecting the Facility; completion, dedication and maintenance
of, and access to the Facility; the ability to conduct the
business of the Facility within, and compliance with, the
requirements of applicable zoning and other land use
regulations, as described in Item 2 above; insuring over and
against any party in possession of the Facility; and such
other title
<PAGE>
Mr. Edward Komp
June 11, 1996
Page 3
issues as reasonably required by HCPI. The policy will be in
an amount at least equal to the Total Construction Cost or
Purchase Price, whichever is applicable, of the Facility (as
defined in Exhibits I and II). HCPI will also have received a
chain of title report showing all previous owners and lessees
of the land from 1940 to the present.
6. For New Facilities, receipt of an "as built" ALTA survey for
the property prior to closing the land purchase and an "as
built" ALTA survey after completion of the foundation and
completion of the Facility. For Existing Facilities, receipt
of an "as built" ALTA survey. The surveys will be certified to
HCPI and the title company as being true and accurate and will
identify thereon all easements (including utility easements),
building lines, roads and other such items as may be required
by HCPI or the title company. The surveys will indicate that
there are no encroachments onto any adjacent properties or
onto any building line or easement affecting the Facility
except encroachments allowed by easements or other agreements
with affected landowners that are satisfactory to HCPI.
7. Satisfactory completion of environmental due diligence,
including but not limited to receipt of a written report
satisfactory to HCPI from a qualified geotechnical or
engineering firm acceptable to HCPI concerning the presence of
hazardous substances on, in, or under the Facility or adjacent
properties.
8. Receipt of legal opinions from ILC's counsel in form and
substance reasonably satisfactory to HCPI and its counsel.
9. Receipt of the Letter of Credit as described in Exhibits I and
II.
10. HCPI's funding of the New Facilities will be contingent upon
ILC completing an initial public offering which results in
shareholder's equity as determined using generally accepted
accounting principles of not less than $75 million dollars.
11. For each closing, receipt and approval of Existing Facility
operating statements, if applicable, and financial statements
for ILC and its affiliates for the most recent quarter end
prior to closing; and verification that no material adverse
change in the financial condition, business, or prospects of
ILC or any of its affiliates has occurred from the date of the
most recent quarter end to the time of closing.
12. Approval of the detailed budget, plans, specifications,
construction and architects' contracts, and major subcontracts
for each new Facility.
13. Review and approval of the transaction by HCPI's tax counsel
for compliance with REIT requirements.
<PAGE>
Mr. Edward Komp
June 11, 1996
Page 4
14. Satisfactory site visits for each Facility.
15. Satisfactory physical inspections for each Existing Facility,
including but not limited to receipt of a written report
satisfactory to HCPI from architectural and engineering firms
related to inspections of the Facility's physical condition
and compliance with the Americans with Disabilities Act.
16. Ratification of all of the terms contained in this letter and
the attached exhibits by the Investment Committee of the Board
of Directors of HCPI. The Committee may require other terms
and conditions when considering the financial condition of ILC
and other relevant matters.
17. Review and approval of feasibility studies and satisfactory
completion of all other due diligence items customary in a
transaction of this type.
Each party to this agreement represents to the other that no action of
such party has entitled any broker, finder, or other person to any commission or
finder's fee in connection with the transaction contemplated hereby.
We are pleased to submit this letter to you. This letter is not
intended to be binding upon either party except with respect to the Lessee's
obligations to pay expenses as set forth below. If you are in agreement with the
foregoing, please sign this letter where indicated and initial each page of the
exhibits and return it to the undersigned along with your check made out to
Health Care Property Investors, Inc. in the amount of $200,000 payable as an
Expense Deposit. The enclosed copy is for your records. Unless and until the
transactions contemplated hereunder close, the parties hereto agree that the
existence and terms of this commitment will remain confidential. If any party
determines for whatever reason not to pursue further negotiations with respect
to the definitive agreements or the transactions contemplated herein, HCPI shall
return to ILC that portion of the Expense Deposit required to be returned in
accordance with the terms set forth under the heading "Expense Deposit" in
Exhibit II attached hereto. This commitment must be executed and the Expense
Deposit must be paid by June 26, 1996 or the commitment will expire. Once this
commitment is executed, HCPI will be under no obligation under the terms of this
commitment for any Facilities not closed by June 30, 1997.
Very truly yours,
/s/ James G. Reynolds
---------------------------
James G. Reynolds
Executive Vice President
Chief Financial Officer
<PAGE>
Mr. Edward Komp
June 11, 1996
Page 5
Agreed to and confirmed as of this 25th day of June, 1996.
Integrated Living Communities, Inc.
By: /s/ Edward Komp
-------------------------
Edward Komp
Chief Executive Officer
cc: John Poole
<PAGE>
EXHIBIT I
INTEGRATED LIVING COMMUNITIES, INC.
DEVELOPMENT AGREEMENT
---------------------
(for New Facilities only)
Maximum Cost: The Maximum Cost and a development budget for each Facility will
be approved by HCPI and will be set forth in a separate Development Agreement
relating to such Facility. In addition, for each Facility, ILC and HCPI will
execute a Contract of Acquisition to acquire the land for such Facility. The
cost of the land is included in Maximum Cost for each Facility, and such land
cost will not exceed fair market value as determined by Valuation Counselors
Group, Inc. HCPI reserves the right to approve each Facility's feasibility at
HCPI's reasonable discretion.
Developer: ILC.
- ----------
Total Construction Cost: The Total Construction Cost will equal land costs plus
total actual construction costs, one point on Maximum Cost to be accrued as a
cost by HCPI, all legal costs (including in-house legal costs) of HCPI and all
legal costs of the Lessee and the Developer, title insurance costs, appraisal
costs, environmental and engineering fees, a construction administration fee to
be accrued as a cost by HCPI equal to $1,550 per month, and an allowance for
HCPI's cost of money at 1.50 percent over the Bank of New York prime rate
calculated using a 360 day year. The construction administration fee will be
reduced to $1,250 per month for all Facilities which are within one hour driving
distance from another Facility which is under construction at the same time.
Total Construction Cost will include the project contingency set forth in the
budget only to the extent actually expended. Overruns, if any, including HCPI's
carrying cost overruns, to be paid by ILC. HCPI will not be required to pay a
Total Construction Cost in excess of Maximum Cost.
Services to be Provided by the Developer: Each Development Agreement will
require that the Developer will arrange, coordinate and carry out all services
for the development of the Facility, including:
1. Obtaining all approvals necessary to construct and operate the
Facility.
2. Negotiating and entering into construction contracts,
architects' contracts and other contracts and agreements
related to the construction of the Facility. Such contracts to
be assignable to HCPI.
3. Establishing a system of accounts and record keeping during
construction adequate to manage the construction of the
Facility and reasonably satisfactory to HCPI.
<PAGE>
EXHIBIT I
INTEGRATED LIVING COMMUNITIES, INC.
DEVELOPMENT AGREEMENT
---------------------
(for New Facilities only)
(continued)
-----------
Services to be Provided by the Developer: (continued)
- -----------------------------------------
4. Monitoring performance under all construction documents and
reporting monthly the status of estimated costs to develop and
construct the Facility in relation to established budgets.
5. Managing and coordinating contractors, architects and other
consultants.
6. Reviewing and proposing changes, as required, to the plans and
specifications of any item relating to the construction of the
Facility.
7. Performing on behalf of HCPI all functions and duties of the
owner under the construction contract and other contract
documents relating to the construction of the Facility.
Developer will cause plans and specifications for the construction of
the Facilities and related site work to be prepared by licensed engineers and
architects and in accordance with applicable codes and local construction
customs and techniques (the "Plans"). HCPI will have the right to approve the
Plans prior to the execution of the corresponding Development Agreement and to
reasonably approve any material changes. Developer will assure that (a) the
Plans are in compliance with applicable codes and are adequate for the
construction of the Facilities; and (b) that the construction of the Facilities
is done in a good and workmanlike manner in keeping with local custom and
construction methods.
Construction Draw Requests: The costs of land acquisition (including all costs
related thereto) will be disbursed at closing under the land acquisition
contract. Draw requests will be reviewed monthly and will be based on the pro
rata share completion to date of each construction line item listed in the HCPI
approved detailed budget. Ten percent of the total budget will be retained until
Substantial Completion. (As defined in the Lease Term Sheet). Each draw request
must be accompanied by supporting documentation, including but not limited to
lien releases from the general contractor and all subcontractors no more than
one month in arrears with respect to services performed or materials purchased
in excess of $5,000, detailed cost breakdowns, fee schedules, documentation
supporting all costs spent to date, and copies of all subcontracts not
previously submitted.
Payment and Completion Bond: A payment and completion bond will be required from
the General Contractors.
<PAGE>
EXHIBIT I
INTEGRATED LIVING COMMUNITIES, INC.
DEVELOPMENT AGREEMENT
---------------------
(for New Facilities only)
(continued)
-----------
Land Contract of Acquisition and Development Agreement Guarantees: By ILC,
including completion of the Facilities, at no cost to HCPI in excess of each of
their Maximum Costs.
Guaranteed Completion Date: ILC will guarantee completion of each Facility
within 12 months from the date its Development Agreement is executed.
Development Fee: The amount of the Development Fee will equal the actual fees
agreed to be paid by ILC to an unrelated third party developer, not to exceed
five percent (5%) of Maximum Cost. Such amounts shall be paid 25 percent upon
construction commencement, 25 percent upon half completion and 50 percent upon
Substantial Completion, or as reasonably agreed to by HCPI.
Letters of Credit: ILC will provide a letter of credit equal to six months'
estimated lease payments at closing of the land purchase and Development
Agreement for each Facility. The letter of credit will secure all obligations
under the Contract of Acquisition, Development Agreement and Lease (see letter
of credit requirement under the Lease Term Sheet). The letter of credit will be
cross defaulted and cross collateralized and will secure all existing and future
obligations of ILC and any of their affiliates to HCPI or its affiliates.
Insurance: Adequate workman's compensation insurance and builder's risk
insurance will be maintained during construction of the Facilities. Such
workman's compensation insurance will be in accordance with the requirements of
applicable local, state and federal laws.
<PAGE>
EXHIBIT II
INTEGRATED LIVING COMMUNITIES, INC.
LEASE TERM SHEET
----------------
(for New and Existing Facilities)
Lessee: Simultaneously with the purchase of the New Facility land or Existing
Facility, Integrated Living Communities, Inc. ("ILC") will enter into a lease of
the Facility. The lease terms for the Facility will commence on the Lease
Commencement Date as shown below.
Lessor: Health Care Property Investors, Inc. or an affiliate ("HCPI").
Existing Facility Purchase Price: HCPI will pay fair market real estate value
for each Existing Facility, as verified by Valuation Counselors Group, Inc. Also
for Facilities to be acquired from third parties, the Purchase Price will not be
more than the acquisition price for the real estate and personal property,
excluding working capital items, as agreed to by such third party and ILC.
Triple Net Lease: The Facilities will be leased on a completely net basis.
Lessee will be responsible for all expenses associated with the Facilities,
including but not limited to maintenance, repairs, insurance, property taxes,
sales taxes, other business profits taxes, and franchise taxes charged to Lessor
or its affiliates as a result of the Facilities' ownership (excluding in all
events federal and state income taxes). HCPI reserves the right to quote a
higher lease rate on facilities located in the few States that require income
taxes for real estate investment trusts.
Primary Term: Lessee will lease the Facilities for 15 years.
Renewal Options: Lessee will have two ten-year renewal options at fair market
value lease rates, but not less than the total rent paid in the final year of
the most recent prior term. Beginning in the second year of each renewal term,
Additional Rent will be calculated as provided under "Additional Rent" below,
except that Base Revenues will equal Gross Revenues for the first Lease Year of
the applicable renewal term. All of the Facilities must be renewed together as a
group and not individually.
Lease Commencement Date: Lease commencement for each Existing Facility will be
the closing date of the transaction. Lease commencement for each New Facility
will be the earliest of (1) receipt of Certificate of Occupancy, Architect's
Certificate of Completion, and all licenses and approvals necessary for
operation of the New Facility for its Primary Intended Use (hereafter referred
to as "Substantial Completion"), (2) the day the Lessee opens for business, or
(3) the Guaranteed Completion Date (as defined in Exhibit I).
Base Rent: Annual base rent will be paid monthly in advance calculated as shown
below. Base spreads quoted may be adjusted as agreed upon by HCPI and ILC in
the event financing conditions materially differ at the time each Lease
commences.
<PAGE>
EXHIBIT II
INTEGRATED LIVING COMMUNITIES, INC.
LEASE TERM SHEET
----------------
(for New and Existing Facilities)
(continued)
Existing Facilities: The base lease rate will equal 325 basis points
above the 10-year Treasury Note rate published in the Wall Street Journal, three
business days prior to lease commencement. The Base Rent will equal the lease
rate multiplied by the Existing Facility Purchase Price.
New Facilities: The base lease rate will equal 350 basis points above
the 10-year Treasury Note rate published in the Wall Street Journal, three
business days prior to lease commencement. The Base Rent will equal the lease
rate multiplied by the actual Total Construction Cost, not to exceed the Maximum
Cost (both terms as defined in the Development Agreement).
Additional Rent: Additional Rent will be increased annually and paid quarterly
in arrears. Beginning in the second year of the Lease, and for each year
thereafter, Additional Rent will equal the sum of (a) the prior year's
additional rent, and (b) the annual change in the CPI multiplied by the prior
year's total rent.
In no event will additional rent be less than the sum of (a) the additional rent
paid for the previous year plus (b) one hundred percent (100%) of the Facility's
Gross Revenues in excess of Base Revenues, up to but not exceeding an amount
equal to two percent (2%) of the prior year's total rent. For Additional Rent
purposes, Gross Revenues will equal annual revenues (including ancillary
revenues) less bad debts, and Base Revenues will equal 50% of second lease year
Gross Revenues.
In no event will additional rent be greater than a five percent (5%) annual
increase over the previous year's total rent.
Letter of Credit: An annually renewed letter of credit in the form shown as
Exhibit III and equal to six months total lease payments issued by a commercial
bank reasonably satisfactory to HCPI will be required to secure the Contract of
Acquisition, Development Agreement, and Lease obligations. Lessee must provide
the letter of credit on the date the Development Agreement is executed for New
Facilities, and at closing for Existing Facilities. The letter of credit will be
reduced to four months total lease payments after ILC has completed an initial
public offering which results in shareholder's equity, as determined using
generally accepted accounting principles, of not less than $75 million dollars.
The letter of credit will also secure all existing or future obligations between
ILC and any of its affiliates and HCPI and its
<PAGE>
EXHIBIT II
INTEGRATED LIVING COMMUNITIES, INC.
LEASE TERM SHEET
----------------
(for New and Existing Facilities)
(continued)
affiliates. HCPI can draw all or any part of the letter of credit upon a default
under any existing or future agreement between HCPI and its affiliates, and ILC
and any of its affiliates.
Land Contract of Acquisition, Development Agreement and Lease Obligation
Gurantees: Full guarantee by ILC.
Cross Default and Cross Collateralization: All agreements, all letters of
credit, and all Leases, existing and future, will be cross defaulted and cross
collateralized with all other agreements between HCPI or its affiliates and ILC
or its affiliates.
Other Assets: HCPI will have no interest whatsoever in Lessee's accounts
receivable, inventory or equipment not purchased by HCPI. Lessee will grant
Lessor a security interest in all of Lessee's Intangible Property. Lessee
Intangible Property will include but not be limited to all licenses and permits,
certificates of need, and the right to use any trade names associated with the
respective Facilities.
Insurance: As detailed in Exhibit IV, the policy must name HCPI as the
additional insured with a rider that HCPI must be notified of any material
change. The policy must cover general liability and malpractice with a limit of
not less than $1,000,000 per occurrence and $3,000,000 annual aggregate.
Broker's Fees: There are no brokers' fees associated with this transaction.
Sublease and Assignment: Consent to a sublease or assignment of the Lease will
be at HCPI's sole and absolute discretion. Any master sublease will be
subordinate to the Lease and may be terminated by HCPI in the event of a
termination of the Lease. HCPI will require appropriate clauses, to be
negotiated, in any sublease to (i) assure that the income to be derived by HCPI
with respect to such sublease will qualify under the REIT gross income tests and
(ii) protect its tax status as a Real Estate Investment Trust. In the event HCPI
approves a sublease, HCPI will require Lessee to pay to HCPI in consideration
for consent to sublease the difference between fair market rent for the
Facilities, as determined by appraisal and total rent actually payable under the
lease until lease termination. Lessee will pay such consideration on a monthly
basis throughout the duration of any sublease. In the event HCPI approves an
assignment, HCPI will require Lessee to pay HCPI in consideration for consent to
such assignment, the gross fair market value of Lessee's leasehold interest as
determined by appraisal.
Expense Deposit: An Expense Deposit of $200,000 will be due upon signing the
commitment letter. For purposes of reimbursement, the Deposit will be allocated
on a pro rata basis. The
<PAGE>
EXHIBIT II
INTEGRATED LIVING COMMUNITIES, INC.
LEASE TERM SHEET
----------------
(for New and Existing Facilities)
(continued)
Deposit for New Facilities will be reimbursed to ILC with the first construction
draw. HCPI will keep all Deposits collected for Existing Facilities. In the
event the transaction does not close for any reason, other than ILC choosing
another financing source, any portion of the Deposit not paid to third parties
will be refunded.
Transaction Costs: For New Facilities, HCPI legal costs (including in-house
costs), appraisal costs (if any), engineering fees, environmental fees, and HCPI
construction administration fees equal to $1,550 per month and all other closing
costs associated with construction will be funded and included in the Total
Construction Cost. For Existing Facilities, HCPI will pay its own legal costs
(including in-house costs), appraisal costs, engineering fees, and environmental
fees up to the amount of the Expense Deposit allocated to that Existing
Facility. ILC will pay HCPI's costs in excess of the amount of the Expense
Deposit allocated to that Existing Facility and all other closing costs.
Notwithstanding the foregoing, HCPI's maximum legal costs associated with the
development of a definitive master agreement (including the negotiation of
definitive forms of the Leases, the Development Agreements and all related
documentation) will not exceed $100,000. HCPI assumes that it will receive from
ILC, complete due diligence information for the first three Facilities shortly
after execution of the commitment and that development and negotiation of legal
documents for the first Facility will constitute the master agreement for all
the Facilities. If legal documents can be developed for the second and third
Facilities at the same time and the three Facilities close simultaneously, the
$100,000 maximum will cover legal documentation costs for the first three
Facilities. If only the first one or two Facilities can be closed together, the
$100,000 will cover documentation costs for the first one or two Facilities. The
$100,000 will be allocated accordingly among the first one, two, or three
Facilities. HCPI and ILC will share equally in all of HCPI's legal costs over
$100,000. HCPI's maximum legal costs for additional Facilities which close
simultaneously with the first three facilities will not exceed $10,000 per
Facility. HCPI and ILC will share equally in all of HCPI's legal costs in excess
of $10,000.
For subsequent closings, HCPI's legal costs will not exceed $35,000 for the
first facility and $10,000 for each additional facility which closes
simultaneously. HCPI and ILC will share equally in all of HCPI's legal costs in
excess of these amounts.
Commitment Fee: The Lessee shall pay HCPI a non-refundable Lease Commitment Fee,
calculated as one percent (1%) of the Purchase Price of each Existing Facility,
which shall be due and payable at the closing.
<PAGE>
EXHIBIT II
INTEGRATED LIVING COMMUNITIES, INC.
LEASE TERM SHEET
----------------
(for New and Existing Facilities)
(continued)
Ratification: The terms contained herein are subject to ratification by the
Investment Committee of the Board of Directors of Health Care Property
Investors, Inc. The Committee may require other terms and conditions, when
considering the financial condition of the Lessee, the Facilities and other
relevant matters.
<PAGE>
EXHIBIT III
IRREVOCABLE STANDBY LETTER OF CREDIT
- ------------------------------------
10990 Wilshire Boulevard, Suite 1200
Los Angeles, California 90024
Date: Letter of Credit No.:
------------------------------- -----------------
Expiration Date:
-----------------------
GENTLEMEN:
We hereby establish our irrevocable letter of credit in your favor for the
account of _________________________ available by your draft(s) on us payable at
sight not to exceed a total of ____________________________
(_______________________) when accompanied by this letter of credit and the
following documents.
1) A certificate purported to be executed by a representative of
___________________ ("Lessor") stating that ________________________
("Lessee"), as lessee, has committed an Event of Default under the
lease dated ________________, between Lessor and Lessee, or that Lessee
or an affiliate of Lessee, has committed an event of default under any
other lease or agreement or other instrument with or in favor of Lessor
or an affiliate of Lessor including, without limitation the
_________________ dated __________________, and stating the amount for
which a draw under this letter of credit is made; (or) a certificate
purported to be executed by a representative of Lessor stating that a
replacement letter of credit for this instrument has not been supplied
prior to thirty (30) days in advance of the expiration of this
instrument for the account of Lessor.
2) The original letter of credit must accompany all drafts unless a
partial draw is presented, in which case the original must accompany
the final draft.
<PAGE>
Irrevocable Standby Letter of Credit
Page Two
Partial drawings are permitted, with the letter of credit being reduced, without
amendment, by the amount(s) drawn hereunder.
This letter of credit shall expire at 3:00 p.m. at the office of
____________________ on the expiration date.
This letter of credit may be transferred or assigned by the beneficiary hereof
to any successor or assign of such beneficiary's interest in any such lease or
other agreement or to any lender obtaining a lien or security interest in the
property covered by any such lease. Each draft hereunder by any assignee or
successor shall be accompanied by a copy of the fully executed documents or
judicial orders evidencing such encumbrance, assignment or transfer.
Any draft drawn hereunder must bear the legend "Drawn under
______________________ Letter of Credit Number ________________ dated
_____________________. Except so far as otherwise expressly stated, this letter
of credit is subject to the "Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Brochure No. 500." We
hereby agree with you and all persons negotiating such drafts that all drafts
drawn and negotiated in compliance with the terms of this letter of credit will
be duly honored upon presentment and deliver of the documents specified above by
certified or registered mail to ____________________ located at
____________________________ if negotiated not later than 3:00 p.m. on or before
the expiration date shown above.
Very truly yours,
By
--------------------------------------
By
--------------------------------------
<PAGE>
EXHIBIT IV
LEASE INSURANCE REQUIREMENTS
----------------------------
1. General Insurance Requirements. During the Term, Lessee shall at all
times keep the Leased Property, and all property located in or on the Leased
Property, including Capital Additions, the Fixtures and the Personal Property,
insured with the kinds and amounts of insurance described below. This insurance
shall be written by companies authorized to do insurance business in the State
in which the Leased Property is located. All liability type policies must name
Lessor as an "additional insured." All property, loss of rental and business
interruption type policies shall name Lessor as "loss payee." In addition, the
policies, as appropriate, shall name as an "additional insured" or "loss payee"
the holder of any mortgage, deed of trust or other security agreement ("Facility
Mortgagee") securing any indebtedness or any other Encumbrance placed on the
Leased Property in accordance with the provisions of Article XXXVI ("Facility
Mortgage") by way of a standard form of mortgagee's loss payable endorsement.
Any loss adustment shall require the written consent of Lessor, Lessee, and each
Facility Mortgagee. Evidence of insurance shall be deposited with Lessor and, if
requested, with any Facility Mortgagee(s). If any provision of any Facility
Mortgage requires deposits of insurance to be made with such Facility Mortgagee,
Lessee shall either pay to Lessor monthly the amounts required and Lessor shall
transfer such amounts to each Facility Mortgagee, or, pursuant to written
direction by Lessor, Lessee shall make such deposits directly with such Facility
Mortgagee. The policies shall insure against the following risks:
1.1 Loss or damaged by fire, vandalism and malicious mischief,
extended coverage perils commonly known as special form perils, earthquake
(including earth movement) and windstorm in an amount not less than the
insurable value on a replacement cost basis (as defined below in Section 3.2)
and including a building ordinance coverage endorsement;
1.2 Loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus, now or hereafter installed in the Facility, in
such limits with respect to any one accident as may be reasonably requested by
Lessor from time to time;
1.3 Flood (when the Leased Property is located in whole or in
part within a designated 100-year flood plain area) and such other hazards and
in such amounts as may be customary for comparable properties in the area;
1.4 Loss of rental value in an amount not less than twelve
(12) months' Rent payable hereunder or business interruption in an amount not
less than twelve (12) months of income and normal operating expenses including
payroll and Rent payable hereunder with an endorsement extending the period of
indemnity by at least ninety (90) days (Building Ordinance - Increased Period of
Restoration Endorsement) necessitated by the occurrence of any of the hazards
described in Sections 1.1, 1.2 or 1.3;
<PAGE>
1.5 Claims for personal injury or property damage under a
policy of comprehensive general public liability insurance with amounts not less
than One Million and No/100 Dollars ($1,000,000.00) combined single limit and
Three Million No/100 Dollars ($3,000,000.00) in the annual aggregate; and
1.6 Medical Professional liability with amounts not less than
One Million Dollars ($1,000,000) combined single limit and Three Million Dollars
($3,000,000) in the annual aggregate.
2. Replacement Cost. The term "replacement cost" shall mean the actual
replacement cost of the insured property from time to time with new materials
and workmanship of like kind and quality. If either party believes that the
replacement cost has increased or decreased at any time during the Term, it
shall have the right to have such replacement cost redetermined by an impartial
national insurance company reasonably acceptable to both parties (the "impartial
appraiser"). The party desiring to have the replacement cost so redetermined
shall forthwith, on receipt of such determination by the impartial appraiser,
give written notice thereof to the other party hereto. The determination of the
impartial appraiser shall be final and binding on the parties hereto, and Lessee
shall forthwith increase or decrease the amount of the insurance carried
pursuant to this Article to the amount so determined by the impartial appraiser.
Each party shall pay one-half (1/2) of the fee, if any, of the impartial
appraiser. If Lessee has made improvements to the Leased Property, Lessor may at
Lessee's expense have the replacement cost redetermined at any time after such
improvements are made, regardless of when the replacement cost was last
determined.
3. Additional Insurance. In addition to the insurance described above,
Lessee shall maintain such additional insurance as may be reasonably required
from time to time by any Facility Mortgagee and shall further at all times
maintain adequate workers' compensation coverage and any other coverage required
by Legal Requirements for all Persons employed by Lessee on the Leased Property
and any Capital Addition thereto in accordance with Legal Requirements.
4. Waiver of Subrogation. All insurance policies carried by either
party covering the Leased Property and any Capital Addition thereto and Lessee's
Personal Property including contents, fire and casualty insurance, shall
expressly waive any right of subrogation on the part of the insurer against the
other party. The parties hereto agree that their policies will include such
waiver clause or endorsement so long as the same are obtainable without extra
cost, and in the event of such an extra charge the other party, at its election,
may pay the same, but shall not be obligated to do so. Each party waives any
claims it has against the other party to the extent such claim is covered by
insurance.
5. Policy Requirements. All of the policies of insurance referred to in
this Article shall be written in form satisfactory to Lessor and by insurance
companies with a policyholder rating of "A" and a financial rating of "X" in the
most recent version of Best's Key Rating Guide. Lessee shall pay all of the
premiums therefor, and deliver such policies or
<PAGE>
certificates thereof to Lessor prior to their effective date (and with respect
to any renewal policy, at least thirty (30) days prior to the expiration of the
existing policy), and in the event of the failure of Lessee either to effect
such insurance in the names herein called for or to pay the premiums therefor,
or to deliver such policies or certificates thereof to Lessor, at the times
required, Lessor shall be entitled, but shall have no obligation, to effect such
insurance and pay the premiums therefor, in which event the cost thereof,
together with interest thereon at the Overdue Rate, shall be repayable to Lessor
upon demand therefor. Each insurer shall agree, by endorsement on the policy or
policies issued by it, or by independent instrument furnished to Lessor, that it
will give to Lessor thirty (30) days' written notice before the policy or
policies in question shall be altered, allowed to expire or canceled. Each
policy shall have a deductible or deductibles, if any, which are no greater than
those normally maintained for similar facilities in the State.
6. Increase in Limits. If either party shall at any time believe the
limits of the insurance required hereunder to be either excessive or
insufficient, the parties shall endeavor to agree in writing on the proper and
reasonable limits for such insurance to be carried and such insurance shall
thereafter be carried with the limits thus agreed on until further change
pursuant to the provisions of this section. If the parties shall be unable to
agree thereon, the proper and reasonable limits for such insurance to be carried
shall be determined by an impartial third party reasonably selected by Lessor.
Nothing herein shall permit the amount of insurance to be reduced below the
amount or amounts required by any of the Facility Mortgagee.
7. Blanket Policies and Policies Covering Multiple Locations.
Notwithstanding anything to the contrary contained in this Article, Lessee's
obligations to carry the casualty insurance provided for herein may be brought
within the coverage of a blanket policy or policies of insurance carried and
maintained by Lessee; provided, however, that the coverage afforded Lessor will
not be reduced or diminished or otherwise be different 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 provided further that
the requirements of this Article are otherwise satisfied. For any liability
policies covering facilities in addition to the Leased Property, Lessor may
require excess limits as lessor reasonably determines.
8. No Separate Insurance. Lessee shall not, on Lessee's own initiative
or pursuant to the request or requirement of any third party, (i) take out
separate insurance concurrent in form or contributing in the event of loss with
that required in this Article to be furnished by, or which may reasonably be
required to be furnished by, Lessee or (ii) increase the amounts 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 Lessor and all Facility Mortgagees, are
included therein as additional insured and the loss is payable under such
insurance in the same manner as losses are payable under this Lease. Lessee
shall immediately notify Lessor of the taking out of any such separate insurance
or of the increasing of any of the amounts of the then existing insurance by
securing an additional policy or additional policies.
<PAGE>
Exhibit A
Existing Facilities
Approximate
Facilities Units Purchase Price
- ---------- ----- --------------
Bradenton, Florida 40 $2,700,000 *
Denton, Maryland 40 1,600,000
Wichita, Kansas 342 12,150,000 *
--- ----------
Total Existing Facilities 422 $16,450,000
--- -----------
New Facilities
Approximate
Facilities Units Construction Cost
- ---------- ----- -----------------
Colorado Springs, Colorado 80 $5,760,000
Rancho Mirage, California 80 5,760,000
San Bernadino, California 80 5,760,000
Escondido, California 80 5,760,000
Oceanside, California 80 5,760,000
Yorba Linda, California 80 5,760,000
Hemet, California 80 5,760,000
Baton Rouge, Louisiana 80 5,760,000
Baton Rouge, Louisiana 80 5,760,000
Lafayette, Louisiana 80 5,760,000
Covington, Louisiana 80 5,760,000
Bossier, Louisiana 80 5,760,000
Lake Charles, Louisiana 80 5,760,000
Alexandria, Louisiana 80 5,760,000
Merced, California 40 2,880,000
Barrington, Illinois 80 5,760,000
Columbus, Nebraska 35 2,500,000
Freemont, Nebraska 35 2,500,000
Grand Island, Nebraska 35 2,500,000
Hastings, Nebraska 35 2,500,000
Kearney, Nebraska 35 2,500,000
Norfolk, Nebraska 35 2,500,000
-- ---------
Total New Facilities 1,450 $104,280,000
===== ============
* Amount to be adjusted, if appropriate, for working capital items.
-----------------------------
ASSET PURCHASE AGREEMENT
Dated as of January _______, 1996
among
C.S. DENTON PARTNERS, LTD.,
THOMAS SCOTT
and
INTEGRATED HEALTH SERVICES AT GREAT BEND, INC.
-----------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I: SALE AND PURCHASE OF ASSETS...........................................................................1
1.1 Acquired Assets.................................................................................1
1.2 Assumption of Liability.........................................................................2
1.3 Designated Contracts............................................................................2
ARTICLE II: PURCHASE PRICE.......................................................................................3
2.1 Determination and Payment of Purchase Price.....................................................3
2.2 Certain Adjustments to the Purchase Price.......................................................3
2.3 Transfer Taxes; Prorated Items..................................................................3
2.4 Other Prorations................................................................................4
2.5 Resident Trust Funds............................................................................4
ARTICLE III: THE CLOSING.........................................................................................5
3.1 Time and Place of Closing.......................................................................5
ARTICLE IV: SELLER'S REPRESENTATIONS AND WARRANTIES..............................................................5
4.1 Organization and Standing of Seller.............................................................5
4.2 Authority.......................................................................................5
4.3 Binding Effect..................................................................................6
4.4 Absence of Conflicting Agreements...............................................................6
4.5 Consents........................................................................................6
4.6 Schedule of Assets and Properties...............................................................6
4.7 Contracts.......................................................................................7
4.8 Financial Statements............................................................................7
4.9 Material Changes................................................................................7
4.10 Medicare and Medicaid Cost Reports..............................................................8
4.11 Licenses; Permits; Certificates of Need.........................................................8
4.12 Title, Condition of Personal Property...........................................................8
4.13 Title, Condition of the Real Property...........................................................9
4.14 Legal Proceedings..............................................................................11
4.15 Employees......................................................................................11
4.16 Collective Bargaining, Labor Contracts, Employment Practices, etc..............................11
4.17 ERISA..........................................................................................12
4.18 Insurance......................................................................................12
4.19 Relationships..................................................................................12
4.20 Absence of Certain Events......................................................................12
4.21 Compliance with Laws...........................................................................13
4.22 Environmental Compliance.......................................................................13
(ii)
<PAGE>
4.23 Tax Returns....................................................................................15
4.24 Encumbrances Created by this Agreement.........................................................15
4.25 Patients.......................................................................................15
4.26 Zoning.........................................................................................15
4.27 No Broker......................................................................................15
4.28 Government Standards; Operating Changes........................................................15
4.29 Care of Patients; Deficiencies; Licenses Bed and Rate Schedule.................................16
4.30 Patient Trust Funds............................................................................17
4.31 Books and Records..............................................................................17
4.32 Intellectual Property..........................................................................17
4.33 No Misstatements or Omissions..................................................................17
4.34 Bankruptcy.....................................................................................17
4.35 Consumable Inventories.........................................................................17
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE BUYER..........................................................17
5.1 Organization and Standing......................................................................17
5.2 Power and Authority............................................................................18
5.3 Binding Agreement..............................................................................18
5.4 Finders........................................................................................18
ARTICLE VI: INFORMATION AND RECORDS CONCERNING THE FACILITY.....................................................18
6.1 Access to Information and Records before Closing...............................................18
ARTICLE VII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING...........................................................19
7.1 Conduct of Business Pending Closing............................................................19
7.2 Negative Covenants of Seller...................................................................19
7.3 Affirmative Covenants of Seller................................................................19
7.4 Affirmative Covenants of Buyer.................................................................20
7.5 Pursuit of Consents and Approvals..............................................................20
ARTICLE VIII: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.......................................................21
8.1 Representations and Warranties.................................................................21
8.2 Performance of Covenants.......................................................................21
8.3 Delivery of Closing Certificate................................................................21
8.4 Opinion of Counsel.............................................................................21
8.5 Legal Matters..................................................................................21
8.6 Approvals......................................................................................22
8.7 Material Change................................................................................22
8.8 Title Insurance................................................................................22
8.9 Deed...........................................................................................22
8.10 Assets Transferred at Closing..................................................................22
8.11 Possession.....................................................................................23
8.12 Environmental Compliance.......................................................................23
(iii)
<PAGE>
8.13 Engineering Report.............................................................................23
8.14 Termite Inspection.............................................................................23
8.15 COBRA..........................................................................................23
8.16 Authorization Documents........................................................................24
8.17 Due Diligence..................................................................................24
8.18 Payoff Letters.................................................................................24
8.19 Cancellation of Management Agreement...........................................................24
8.20 Audit..........................................................................................24
8.21 Other Documents................................................................................24
ARTICLE IX: CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS........................................................24
9.1 Representations and Warranties.................................................................24
9.2 Performance of Covenants.......................................................................25
9.3 Delivery of Closing Certificate................................................................25
9.4 Opinion of Counsel.............................................................................25
9.5 Legal Matters..................................................................................25
9.6 Authorization Documents........................................................................25
9.7 Other Documents................................................................................25
ARTICLE X: OBLIGATIONS OF PARTIES AFTER CLOSING.................................................................25
10.1 Discharge of Liabilities.......................................................................25
10.2 Indemnification................................................................................25
10.3 Records........................................................................................26
10.4 Collection of Accounts Receivable..............................................................26
10.5 Employment of Existing Employees...............................................................27
10.6 Restrictions...................................................................................27
10.7 Audited Financial Statements...................................................................28
ARTICLE XI: TERMINATION.........................................................................................28
11.1 Termination....................................................................................28
11.2 Effect of Termination..........................................................................29
ARTICLE XII: CASUALTY, RISK OF LOSS.............................................................................29
12.1 Casualty, Risk of Loss.........................................................................29
ARTICLE XIII: MISCELLANEOUS PROVISIONS..........................................................................29
13.1 Survival of Representations and Warranties.....................................................29
13.2 Public Announcements...........................................................................29
13.3 Costs and Expenses.............................................................................30
13.4 Performance....................................................................................30
13.5 Benefit and Assignment.........................................................................30
13.6 Effect and Construction of this Agreement......................................................30
13.7 Cooperation - Further Assistance...............................................................30
(iv)
<PAGE>
13.8 Notices........................................................................................30
13.9 Waiver, Discharge, etc.........................................................................31
13.10 Rights of Persons Not Parties.........................................................31
13.11 Governing Law.........................................................................31
13.12 Severability..........................................................................31
</TABLE>
(v)
<PAGE>
SCHEDULES
---------
Schedule 1.1 - Description of Real Property
Schedule 1.3 - Designated Contracts
Schedule 2.2(a) - Accrued Vacation Pay
Schedule 2.2(b) - Prepayments
Schedule 2.5 - Resident Trust Funds
Schedule 4.5 - Consent List of Seller
Schedule 4.6 - Schedule of Assets
Schedule 4.7 - Contracts
Schedule 4.8 - Financial Statements
Schedule 4.9 - Material Changes
Schedule 4.11 - Licenses, Permits, Certificates of Need
Schedule 4.12(a) - Liens on Personal Property
Schedule 4.12(b) - Leases of Personal Property
Schedule 4.13 - Certificates of Occupancy
Schedule 4.14 - Legal Proceedings
Schedule 4.15 - Employees
Schedule 4.16 - Collective Bargaining Agreements
Schedule 4.18 - Insurance
Schedule 4.19 - Relationships
Schedule 4.20 - Certain Events
Schedule 4.22 - Environmental Matters
Schedule 4.25 - Patients
Schedule 4.26 - Zoning
Schedule 4.28 - Operating Licenses and Certificates
Schedule 4.29(b) - Violations and Deficiencies
Schedule 4.29(c) - Long Term Care Information
Schedule 4.32 - Intellectual Property
Schedule 10.4 - Accounts Receivables
Schedule 10.5 - Designated Employees
EXHIBITS
--------
Exhibit 8.4 - Opinion of Seller's Counsel
Exhibit 8.9 - Special Warranty Deed
Exhibit 8.10 - Bill of Sale, Assignment of Contracts
Exhibit 9.4 - Opinion of Buyer's Counsel
(vi)
<PAGE>
-------------------------
ASSET PURCHASE AGREEMENT
--------------------------
This Asset Purchase Agreement (the "Agreement") is made as of
the ___ day of January, 1996, among INTEGRATED HEALTH SERVICES AT GREAT BEND,
INC., a Delaware corporation having its principal office at 10065 Red Run
Boulevard, Owings Mills, MD 21117 (the "Buyer") and C. S. DENTON PARTNERS, LTD.,
a Texas limited partnership having its principal office at 17103 Preston Road,
Suite 200, Dallas, TX 75348 (the "Seller") and THOMAS SCOTT ("Scott").
BACKGROUND
----------
WHEREAS, Seller is the owner of that certain 110-bed skilled
nursing and 110-bed assisted living facility named "Vintage Health Care Center"
located in Denton, TX (the "Facility"), together with the Assets described in
Section 1.1 below; and
WHEREAS, Buyer wishes to acquire, and Seller wishes to sell,
the Facility, in accordance with the terms and conditions hereinafter set forth.
WHEREAS, Scott is the sole shareholder, sole director and
president of Denton NH, Inc, the general partner of the Seller; and
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants, agreements and representations and warranties herein
contained, Seller, Scott and Buyer, intending to be legally bound, agree as
follows:
ARTICLE I: SALE AND PURCHASE OF ASSETS
--------------------------------------
1.1 Acquired Assets. Subject to the terms and conditions of
this Agreement, at the Closing (as hereinafter defined), Buyer will acquire from
Seller, and Seller will sell, assign, transfer and convey to Buyer, all of the
assets, properties and business of Seller that comprise the Facility including,
without limitation, the real property and all improvements thereon, together
with all rights, easements, privileges, and hereditaments belonging or
appertaining thereto or any additions thereto, free and clear of all liens,
mortgages and encumbrances other than as set forth on Schedule 8.8 attached
hereto, all as more particularly described on Schedule 1.1 attached hereto (the
"Property"), and such other property owned by Seller that comprises, including
without limitation, all tangible, intangible, real, personal or mixed property,
the inventory of consumables at the Facility (the "Inventory"), claims and
rights under contracts, Designated
1
<PAGE>
Contracts (defined herein), patient lists and records, telephone numbers,
furniture, fixtures, equipment, supplies, prepaid items, surveys, building
plans, good will, and, to the extent permitted by law, all permits, licenses and
certificates of need and other rights held by Seller with respect to the
ownership or operation of the Facility as the same shall exist on the Closing
Date, as the case may be, and all of Seller's books and records pertaining to
the foregoing all as more fully set forth on the Schedules attached hereto, but
excluding all cash, cash equivalents and accounts receivable, (together all such
properties, assets or business to be conveyed to Buyer from Seller at the
Closing are hereafter referred to as the "Assets").
1.2 Assumption of Liability. Except as expressly provided
herein, Buyer shall not assume, nor in any way be liable or responsible for any
claims, lawsuits, liabilities, obligations or debts of Seller, including without
limitation (i) malpractice claims asserted by patients of the Facility or any
other tort claims asserted against Seller, claims for breach of contract, or any
claims of any kind asserted by patients, former patients, employees of Seller or
any other party that are based on acts or omissions occurring on or before the
Closing Date; and (ii) any accounts payable, employment or other taxes, and any
other obligation or liability of Seller to pay money whatsoever.
Notwithstanding the provisions of the immediately preceding
paragraph, on the Closing Date, contingent upon the consummation of the
transactions contemplated hereby, Buyer shall assume and thereafter in due
course fully satisfy those obligations arising under the Designated Contracts
(defined herein) specified pursuant to Section 1.3 below and assigned by Seller
to Buyer, with respect to, and only with respect to, performance and payments
owed that become due thereunder subsequent to the Closing Date. Liabilities and
obligations under such Designated Contracts that have accrued, or the
performance of which is due, on or prior to the Closing Date, and all
liabilities and obligations under all other Contracts shall remain the sole
responsibility of Seller and shall be paid or performed on or prior to the
Closing Date, subject to the terms and conditions of this Agreement.
1.3 Designated Contracts.
(a) As soon as practicable after the date hereof but
in no event later than the day immediately preceding the Closing Date, Buyer
shall deliver notice in writing to Seller designating which, if any, of the
Contracts (defined herein) set forth on Schedule 4.7 will be assigned to and
assumed by Buyer (the "Designated Contracts"). Such notice of designation will
be set forth on Schedule 1.3 to be attached hereto. If within said period of
time Buyer fails to so deliver notice to Seller, Buyer will be deemed to have
designated none of the Contracts and Seller will remain fully liable thereunder.
To the extent Buyer makes any such designation, Seller shall at Closing be
obligated to assign all of its right, title and interest under such Contracts to
Buyer and Buyer shall assume the obligations accruing after Closing under such
Designated Contracts.
(b) Notwithstanding anything to the contrary
contained herein, Buyer is not assuming and will not be responsible for any
liabilities or obligations under the Designated
2
<PAGE>
Contracts incurred on or occurring before the Closing Date; all such liabilities
and obligations remaining the sole and exclusive responsibility of Seller
pursuant to Section 1.2 herein and shall be paid or performed on or prior to the
Closing Date.
(c) Immediately after notice of the designation by
Buyer of the Contracts to be assigned by Seller, Seller will use its best
efforts and shall diligently proceed to obtain any consents of any parties
necessary to permit the assignment of the Designated Contracts. In the event
that any of the Designated Contracts are not assignable, or the parties to such
Designated Contract fail or refuse to consent to any assignment on or before the
Closing Date, Buyer shall have no liability to assume and will not assume any
such Designated Contracts.
ARTICLE II: PURCHASE PRICE
--------------------------
2.1 Determination and Payment of Purchase Price. The purchase
price of the Assets shall be SIX MILLION NINE HUNDRED THOUSAND AND 00/100
($6,900,000.00) DOLLARS, subject to adjustment as provided in Sections 2.2 and
2.3 below (the "Purchase Price"). Such amount shall be payable in cash at the
Closing by wire transfer of immediately available funds.
2.2 Certain Adjustments to the Purchase Price. In addition, at
the Closing hereunder:
(a) Seller shall deliver to Buyer Schedule 2.2(a),
effective as of the last day of the calendar month preceding the Closing Date
(the "Calculation Date"), showing the amount of accrued holiday and vacation
pay, accrued sick pay and personal leave and any other similar benefits, and
payroll taxes and workers' compensation insurance premiums with respect thereto
for each of its employees who Buyer desires to employ and who accept such
employment with Buyer as of the Closing Date. The amount applicable for any
accrued holiday and vacation pay and accrued sick pay and personal leave shall
be estimated prior to Closing and shall be settled as an adjustment to the
Purchase Price ninety (90) days after Closing pursuant to Subparagraph (c)
below.
(b) Seller shall deliver to Buyer Schedule 2.2(b)
listing the amount of any prepayments received by Seller prior to Closing on
account of any goods or services to be rendered or supplied by Seller, and such
prepayments shall reduce the Purchase Price at Closing pursuant to Subparagraph
(c) below.
(c) The amount applicable for any accrued holiday and
vacation pay and accrued sick pay and personal leave and the amount of any
payroll taxes and workers' compensation insurance premiums calculated under
Section 2.2(a) and any prepayment amounts under Section 2.2(b), above will
increase or reduce the Purchase Price payable to Seller on a dollar-for-dollar
basis, as appropriate, rather than paid by Seller to Buyer at Closing.
3
<PAGE>
2.3 Transfer Taxes; Prorated Items. On the Closing Date, the
following adjustments and prorations shall be computed as of the Closing Date
with respect to the following taxes (unless otherwise stated herein) and the
cash portion of the Purchase Price shall be adjusted, upward or downward as
appropriate, to reflect such prorations:
(a) Transfer Taxes and Escrow Fees. All state and
local real estate transfer and recording taxes or fees and escrow fees shall be
borne equally between the Seller and the Buyer.
(b) Real Estate Taxes, etc. Real property taxes and
all other public or governmental charges against the Assets (including charges
for sewer, water, drainage or other services) assessed for the fiscal year in
which the Closing Date occurs shall be adjusted and apportioned as of the
Closing Date.
(c) Personal Property Taxes. Personal property taxes
attributable to the personal property comprising the Assets for the fiscal year
in which the Closing Date occurs shall be adjusted and apportioned as of the
Closing Date and paid thereafter by Buyer.
(d) Service Contracts, Leases and Utilities. Except
as otherwise provided in Section 1.3, all prepayments made or payments due under
any continuing service contracts and leases affecting the Assets, including
without limitation water, sewer, electric, gas and utility bills, parking,
garbage removal, and maintenance agreements shall be adjusted and apportioned as
of the Closing Date and such obligations thereafter shall be assumed by Buyer.
(e) Sales Taxes. Any applicable sales taxes payable
in connection with the transfer of the Assets shall be shared equally by Seller
and Buyer.
2.4 Other Prorations. All other charges and fees customarily
prorated and adjusted in similar transactions in the locale in which the Assets
are situated (including without limitation any and all employee benefits not
otherwise governed by Section 2.2) shall be prorated as of the Closing Date in
accordance with such custom and thereafter be assumed by Buyer.
In the event that accurate prorations and other adjustments
cannot be made as of the Closing Date because current bills or statements are
not obtainable (as, for example, utility bills), the parties shall prorate such
items upon receipt of the final bill of statement, but in no event later than
ninety (90) days after Closing; provided, that any bill received by Seller up to
one (1) year after the Closing Date for fees and expenses incurred prior to the
Closing Date shall be paid by Seller. Without limiting the foregoing, in the
event the Closing Date is not the first business day of a month, any items set
forth in Sections 2.2(a) and (b) above accruing after the Calculation Date but
prior to the Closing Date shall be estimated, subject to adjustment aforesaid,
and such estimates shall reduce the Purchase Price pursuant to Section 2.2(c)
above. The Seller shall use its best efforts to have all utility meters read on
the Closing Date so as to accurately determine the proration of current utility
bills.
4
<PAGE>
2.5 Resident Trust Funds. Seller shall deliver to Buyer before
Closing Schedule 2.5 listing the amount of escrow monies of residents of the
Facility held in trust by Seller ("Resident Trust Funds") and, if such monies
are held in separate accounts, specifying the name of the bank at which such
account(s) is maintained and identifying patient account numbers. At Closing,
Seller shall assign, transfer and deliver to Buyer, as trustee and subject to
the same terms of trust, all such amounts held in Resident Trust Funds and all
passbooks and other books and records pertaining thereto. Buyer shall assume all
liability with respect to such Resident Trust Funds arising after the Closing
Date. Any liability with respect to such Resident Trust Funds arising or
accruing on or before the Closing Date, and any liability arising after the
Closing Date in the event the amount of the Resident Trust Funds delivered by
Seller to Buyer is demonstrated to be less than the funds delivered to Seller to
hold in trust prior to the Closing Date, shall remain the sole responsibility of
the Seller.
ARTICLE III: THE CLOSING
------------------------
3.1 Time and Place of Closing.
(a) Except as set forth in paragraph (b) of this
Section, the closing (the "Closing") of the purchase and sale of the Assets
contemplated by this Agreement shall take place on or before January 15, 1996
(the "Closing Date"), to be effective as of January 1, 1996, at the offices of
the Buyer, or at such other time on the Closing Date and place upon which the
parties may agree. Seller shall deliver possession of the Assets to Buyer, which
shall accept the same on said date.
(b) If prior to or by the Closing Date, the state
agency or agencies with jurisdiction over the licensing of the Facility notifies
Buyer that there exist impediments to such agency or agencies issuing to the
Buyer a license to operate the Facility immediately upon the Buyer's acquisition
of the Assets, then, in such event, Buyer shall be entitled to extend the
Closing Date for a period sufficient to meet such requirements.
ARTICLE IV: SELLER'S REPRESENTATIONS AND WARRANTIES
---------------------------------------------------
Seller represents and warrants to Buyer as follows; provided
that any representations and warranties of Seller with respect to periods prior
to March 31, 1992 shall be to the best of Seller's knowledge after due inquiry,
except as expressly indicated herein:
4.1 Organization and Standing of Seller. Seller is a limited
partnership duly organized and validly existing under the laws of the State of
Texas. Copies of its Certificate of Limited Partnership and Partnership
Agreement and all amendments thereof to date, have been delivered to Buyer, and
are complete and correct. Seller has the power and authority to own property and
assets now owned by it and to conduct the business presently being conducted by
it.
5
<PAGE>
4.2 Authority. Seller has the full power and authority to
make, execute, deliver and perform this Agreement including all Schedules and
Exhibits hereto, and the other instruments and documents required or
contemplated hereby and thereby ("Seller's Transaction Documents"). Such
execution, delivery, performance and consummation have been duly authorized by
all necessary action, corporate or otherwise, on the part of Seller, its general
partner and limited partners and all consents of holders of indebtedness of
Seller have been obtained or such indebtedness has been paid in full.
4.3 Binding Effect. This Agreement and all related transaction
documents executed by Seller constitute the valid and binding obligation of
Seller, enforceable against Seller in accordance with their respective terms.
4.4 Absence of Conflicting Agreements. Neither the execution
or delivery of this Agreement or any of the Seller's Transaction Documents by
Seller nor the performance by Seller of the transactions contemplated hereby and
thereby, conflicts with, or constitutes a breach of or a default under (i)
Seller's Certificate of Limited Partnership or Partnership Agreement; or (ii)
any applicable law, rule, judgment, order, writ, injunction, or decree of any
court, currently in effect; or (iii) any applicable rule or regulation of any
administrative agency or other governmental authority currently in effect; or
(iv) any written or oral agreement, indenture, contract or instrument to which
Seller or any shareholder thereof is now a party or by which any of them or any
of the Assets is bound.
4.5 Consents. Except as set forth on Schedule 4.5, no
authorization, consent, approval, license, exemption by filing or registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary in connection with
Seller's entry into, execution, delivery and performance of this Agreement, any
of the transaction documents related hereto, or for the Seller's consummation of
the transactions contemplated hereby and thereby.
4.6 Schedule of Assets and Properties.
(a) To the best of Seller's knowledge after due
inquiry, set forth in Schedule 4.6 are complete and accurate lists of all of the
material items comprising Seller's Assets as it relates to this Facility (other
than the Property) and the Inventory as of the date of this Agreement as
follows:
(i) All machinery, vehicles and equipment,
office equipment, furniture and supplies owned or leased by Seller and used in
connection with the Facility and any other items of personal property that
comprise or are otherwise used by Seller in connection with the Facility.
6
<PAGE>
(ii) All franchises, licenses, permits,
easements, rights and other authorizations, if any, and any other item of
intangible or intellectual property ( other than tradenames, trademarks and
service marks and all proprietary information) that are owned, possessed or used
by Seller or any person in the operation of the Facility.
4.7 Contracts.
(a) Schedule 4.7 sets forth a complete and correct
list of all agreements, contracts and commitments whether written or oral,
relating to the Facility or its operation by which Seller or the Facility is
bound (the "Contracts"). Seller is not in default under any Contract in any
material amount and there has not been asserted, either by or against Seller
under any Contract, any notice of default, set-off or claim of default. To the
best of Seller's knowledge, the parties to the Contracts other than the Seller
are not in default of any of their respective obligations under the Contracts,
and there has not occurred any event which with the passage of time or the
giving of notice (or both) would constitute a default or breach under any
Contract. All amounts payable under the Contracts are, or will at the Closing
Date, be on a current basis. Except as set forth on Schedule 4.7, the Contracts
are assignable to Buyer without the consent of the remaining parties thereto.
Seller shall deliver schedule 4.7 prior to the Closing Date, together with
copies of all such agreements, contracts and commitments.
(b) Except as listed on Schedule 4.7, Seller is not a
party to or liable in connection with and has not granted any written or
express, oral or implied:
(i) contract, agreement or commitment for
the employment or retention of, or collective bargaining,
severance or termination agreement with, any employee,
consultant or agent or group of employees at the Facility;
(ii) profit sharing, thrift, bonus,
incentive, deferred compensation, stock option, stock
purchase, severance pay, pension, retirement, hospitalization,
insurance or other similar plan, agreement or arrangement
covering employees at the Facility.
4.8 Financial Statements. Attached hereto are Seller's
financial statements for the Facility for the two (2) most recent fiscal years
and the eleven (11) months ended on November 30, 1995, certified as true and
correct by Seller's chief financial officer (the "Financial Statements"). The
Financial Statements (including any related notes thereto) are true and correct
in all material respects and present fairly the financial condition and results
of operations of the Facility as, at and for the periods therein specified and
were prepared in accordance with generally accepted accounting principles
applied on a basis consistent with prior periods.
4.9 Material Changes. Except as listed on Schedule 4.9 hereto,
since November 30, 1995, there has not been any material adverse change in the
condition (financial or otherwise), of the assets, properties or operations of
the Facility, or any damage or destruction of the Facility by fire or other
casualty, whether or not covered by insurance, and Seller has, and as of the
Closing, will have, operated the Facility only in the normal course. Seller has
identified
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and communicated to Buyer all material information with respect to any fact or
condition that might adversely affect the future prospects (financial, licensure
status or otherwise) of the Facility.
4.10 Medicare and Medicaid Cost Reports. Seller has delivered
to the Buyer true and correct copies of all Medicare and Medicaid cost reports
relating to the Facility for the last two (2) fiscal years. The information
contained in such reports is true and correct in all respects. Seller will
prepare or have prepared terminating cost reports or other documentation
required by Medicare and Medicaid.
4.11 Licenses; Permits; Certificates of Need. Schedule 4.11
sets forth a description of (a) each license and all other governmental or other
regulatory permits and approvals relating to the operation of the Facility
heretofore obtained and that is now in effect; (b) each final Certificate of
Need issued with respect to the Facility heretofore obtained and that is now in
effect; and (c) each other license, permit, easement, right or other
authorization that is necessary for the operation of the Facility, including the
Life Safety Codes, zoning laws and building codes (collectively, the
"Licenses"). Seller has delivered to Buyer copies of all of the Licenses listed
on Schedule 4.11. Seller shall use its best efforts to deliver to Buyer within
ten (10) days from execution hereof copies of each application for each of the
Licenses. Schedule 4.11 also sets forth a description of each accreditation of
the Facility, copies of which Seller has delivered to the Buyer. The Facility is
licensed and certified by the Texas Department of Human Services for 110
Medicaid beds. Seller owns, possesses or has the legal right to use the
Licenses, free and clear of all liens, pledges, claims or other encumbrances of
any nature whatsoever. Seller is not in default under, nor has it received any
notice of any claim or default or any other claim or proceeding relating to, any
such License. The Facility is fully and completely licensed by all appropriate
authorities for Seller to carry on the business presently conducted at the
Facility. No shareholder, director or officer, employee or former employee, or
immediate family member of any such person, or any other person, firm or
corporation owns or has any proprietary, financial or other interest, direct or
indirect, in whole or in part in any such License owned, possessed or used in
the operation of the Facility as now operated.
4.12 Title, Condition of Personal Property.
(a) Except for the security interests listed and
described on Schedule 4.12(a), Seller has good and marketable title to all such
tangible and intangible personal property owned by Seller located at or used by
Seller in connection with the ownership or operation of the Facility, subject to
no mortgage, security interest, pledge, lien, conditional sales agreement,
lease, claim, encumbrance or charge, or restraint on transfer whatsoever. No
other person has any right to the use or possession of any of such property and,
except as set forth on Schedule 4.12(a), no currently effective financing
statement with respect to such property has been filed in any jurisdiction, and
Seller has not signed any such financing statement or any security agreement
authorizing any secured party thereunder to file any such financing statement.
Since March 31, 1992, Seller has conducted its business activities only under
the corporate and/or trade names "Vintage Health Care Center," "Vintage
Retirement Center," "Vintage Retirement Community," and "CS Denton Partners,
Ltd." All of the personal property is in good operating condition and repair and
is functioning in the manner and for the purpose for which it was intended and
is in
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compliance with (and the operation thereof is in compliance with) all applicable
Federal, state and local laws, rules and regulations, and is sufficient and
suitable to enable the Buyer to operate the Facility in a normal and efficient
manner.
(b) Except as set forth on Schedule 4.12(b), none of
the personal property used by Seller in connection with the operation of the
Facility is subject to a conditional sale, security interest or similar
arrangement. Schedule 4.12(b) sets forth a complete and correct copy of each of
the personal property leases relating to the Facility as to which Seller or the
Facility is a party or by which Seller or Facility is bound or which were
assigned or transferred to Seller (together with all modifications or amendments
thereto), the annual rental and unexpired lease term thereby, and a list of all
Contracts providing for the installation or maintenance of equipment purchased
or leased by Seller, and all the information set forth thereon is complete,
correct and accurate. All of said personal property leases are valid, binding
and enforceable in accordance with their respective terms and are in full force
and effect. Seller is not in default under any of such leases and there has not
been asserted, either by or against Seller under any of such leases, any notice
of default, set-off, or claim of default. To the best of Seller's knowledge, the
parties to such leases other than the Seller are not in default of their
respective obligations under any of such leases, and there has not occurred any
event which with the passage of time or giving of notice (or both) would
constitute such a default or breach under any of such leases. Except as
otherwise set forth on Schedule 4.12(b), each of said personal property leases
is assignable to Buyer without the consent of the lessor of such Facility.
4.13 Title, Condition of the Real Property.
(a) Seller has good and marketable title to the real
property comprising Facility (the "Real Property"), insurable by any reputable,
licensed title company selected by Buyer at regular rates, free and clear of all
liens, claims, charges, easements, encumbrances and title exceptions of any kind
whatsoever other than as set forth on Schedule 8.8 attached hereto.
(b) There are no leases or other agreements of Seller
as lessor, granting any third party the right to use or occupy any part of the
Real Property (except the rights of the patients of the Facility) and no person,
firm or entity has any ownership interest or option or right of first refusal to
acquire any ownership interest in the Real Property or any building or
improvements thereon.
(c) To the best of Seller's knowledge after due
inquiry, all buildings and other improvements comprising the Facility (including
all roads, parking areas, curbs, sidewalks, sewers and other utilities) have
been completed and installed in accordance with such plans and specifications as
were approved by the governmental authorities having jurisdiction thereof. Such
permanent statements of occupancy and all other licenses, permits,
authorizations and approvals required by all governmental authorities having
jurisdiction and the requisite annual fire safety and life safety inspections as
were issued or conducted for the buildings and other improvements comprising the
Real Property, have been issued, paid for and are in full force and effect.
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(d) To the best of Seller's knowledge, as of the
Closing Date the maintenance, operations and use of the buildings and other
improvements comprising the Real Property will comply with and do not violate
any zoning, building or similar law, ordinance, order or regulation or any
statement of occupancy issued for the Facility. As of the Closing Date there
will have been no material violation of any Federal, state, county or municipal
law, ordinance, order, regulation or requirement affecting the Facility and no
written notice of any such violation shall have been issued by any governmental
authority. To the best of Seller's knowledge after due inquiry, since the
construction of the Facility was completed there have been no changes to
building, health or fire codes that would be applicable to the Facility and
there has been no change in the use of the Facility that would have caused any
modifications to have been made to the Facility pursuant to any such building,
health or fire codes.
(e) To the best of Seller's knowledge, there is no
plan, study or effort by any governmental authority or agency which in any way
affects or would affect the present use or zoning of the Real Property or any
part thereof. To the best of Seller's knowledge, there are no assessments or
proposed assessments and there is no existing, proposed or contemplated plan to
widen, modify or realign any street or highway or any existing, proposed or
contemplated eminent domain proceedings that would affect the Real Property in
any way whatsoever. No subdivision plan or plans (preliminary or otherwise) have
been or will be filed by Seller or at Seller's direction with respect to the
Real Property. The Real Property is not located in areas designated by the
Secretary of Housing and Urban Development or any other governmental authority
or agency as having special flood or mud slide hazards.
(f) To the best of Seller's knowledge after due
inquiry, the buildings and other improvements comprising the Real Property and
all of their systems, including without limitation, the heating, ventilating and
air condition systems, and the plumbing, electrical, mechanical and drainage
systems, and roof are in good operating condition, repair and working order, and
have passed all previous safety and/or licensing inspections, the last such
inspection being on the ______ day of ________________, 19____ and that such
systems are adequate and sufficient for use in connection with a nursing home
facility, ordinary wear and tear expected.
(g) There is no proceeding pending to which Seller is
a party relating to the assessed valuation of any portion of the Facility and no
assessment for public improvements have been made against the Facility that
remain unpaid. All public improvements ordered, commenced or completed prior to
the date of this Agreement or prior to the Closing Date shall be paid for in
full by the Seller prior to the Closing.
(h) To the best of Seller's knowledge after due
inquiry, all public utilities required for the operation of the Facility either
enter the Facility through adjoining public streets, or if they pass through
adjoining private land, do so in accordance with valid recorded easements held
by Seller. The Real Property is adjacent to and has direct access to each
abutting street. To the best of Seller's knowledge, all streets adjoining or
traversing the Real Property have been dedicated to and accepted by the local
municipal authorities.
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(i) To the best of Seller's knowledge after due
inquiry, there are no easements traversing or contiguous to the Real Property
which are not disclosed on any schedule hereto on any title report delivered to
the Buyer or which interfere with the intended use and operation of the
Facility.
(j) All certificates of occupancy and other
authorizations issued for the Real Property have been set forth on Schedule 4.13
hereto. Seller has not received any notice of noncompliance from any
governmental authority regarding any of the improvements constructed on the Real
Property or the use or occupancy thereof.
4.14 Legal Proceedings. Other than as set forth on Schedule
4.14, there are no disputes, claims, actions, suits or proceedings, arbitrations
or investigations, either administrative or judicial, pending, or, to the best
of Seller's knowledge, threatened or contemplated, nor, to the best of Seller's
knowledge, is there any basis therefor, against or affecting the Facility or the
Assets or Seller's rights therein or Seller's ability to consummate the
transactions contemplated herein, at law or in equity or otherwise, before or by
any court or governmental agency or body, domestic or foreign, or before an
arbitrator of any kind. Seller has received no requests for information with
respect to the transactions contemplated hereby from any governmental agency.
4.15 Employees. Schedule 4.15 contains a complete and correct
list of the name, position, current rate of compensation and any earned or
accrued vacation or holiday pay, sick pay, personal leave and any other
compensation arrangements or fringe benefits, of each current employee,
consultant and agent of the Seller (together with a description of any specific
arrangements or rights concerning such persons) that are not reflected in any
agreement or document referred to in Schedule 4.15. Seller currently has no, and
has never had any, pension, profit sharing, bonus, incentive, welfare benefit,
sick leave or sick pay or other plan applicable to any of the employees of the
Facility. No such employee, consultant or commission agent has any vested or
unvested retirement benefits or other termination benefits, except as described
on Schedule 4.15.
4.16 Collective Bargaining, Labor Contracts, Employment
Practices, etc.
(a) During the two (2) years prior to the Closing
Date, there has been no material or adverse change in the relationship between
Seller and its employees nor any strike or labor disturbance by such employees
affecting Seller's business and there is no indication that such a change,
strike or labor disturbance is likely. Seller's employees are not represented by
any labor union or similar organization and Seller has no reason to believe that
there are pending or threatened any activities the purpose of which is to
achieve such representation of all or some of Seller's employees. There are no
pending suits, actions or proceedings against Seller relating to employees of
Seller, and Seller does not know of any threats of strikes, work stoppages or
pending grievances by any such employees. Except as set forth on Schedule 4.16,
the Seller has no collective bargaining or other labor contracts, employment
contracts, pension, profit-sharing, retirement, insurance, bonus, deferred
compensation or other employee benefit plans, agreements
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or arrangements with respect to such employees. Seller is in compliance with the
requirements prescribed by all Federal, state and local statutes, orders and
governmental rules and regulations applicable to any of the employee benefit
plans, agreements and arrangements identified on Schedule 4.16, including,
without limitation, the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
(b) Between the date hereof and the Closing Date,
Seller shall not enter into any contract or agreement (or negotiations in
connection therewith) with any union or other collective bargaining
representative representing any employees at the Facility without the prior
written consent of Buyer.
4.17 ERISA. Seller does not maintain or make contributions to
and has not at any time in the past maintained or made contributions to any
employee benefit plan which is subject to the minimum funding standards of
ERISA. Seller does not now maintain or make contributions to and has not at any
time in the past maintained or made contributions to any multi-employer plan
subject to the terms of the Multi-employer Pension Plan Amendment Act of 1980
(the "Multi-employer Act").
4.18 Insurance. Schedule 4.18 contains a true and correct list
of: (a) all policies of fire, liability and other forms of insurance held or
owned by Seller or otherwise in force and providing coverage for the Facility
(including but not limited to medical malpractice insurance, and any state
sponsored plan or program for worker's compensation); (b) all bonds, indemnity
agreements and other agreements of suretyship made for or held by the Seller or
otherwise in force and relating to the Facility, including a brief description
of the character of the bond or agreement, the name of the surety or
indemnifying party. Schedule 4.18 sets forth for each such insurance policy the
name of the insurer, the amount of coverage, the type of insurance, the policy
number, the annual premium and a brief description of the nature of insurance
included under each such policy and of any claims made thereunder during the
past two years. Such policies are owned by and payable solely to Seller, and
said policies or renewals or replacements thereof will be outstanding and duly
in force at the Closing Date. All insurance policies listed on Schedule 4.18 are
in full force and effect, all premiums due on or before the Closing Date have
been or will be paid on or before the Closing Date, Seller has not been advised
by any of its insurance carriers of an intention to terminate or modify any such
policies, nor has Seller failed to comply with any of the material conditions
contained in any such policies.
4.19 Relationships. Except as disclosed on Schedule 4.19
hereto and other than any matter relating to Preferred Care, Inc., neither
Seller nor any limited partner or the general partner thereof or any member of
such person's immediate family has, or at any time within the last two (2) years
has had, a material ownership interest or claim in any business, corporate or
otherwise, that is a party to, or in any Facility that is the subject of,
business relationships or arrangements of any kind relating to the operation of
the Facility by which Buyer will be bound after the Closing.
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4.20 Absence of Certain Events. Except as set forth on
Schedule 4.20, since the date of the Financial Statements, Seller has not and
from the date of the Financial Statements to the Closing Date, Seller will not
have (except for transactions directly with Buyer):
(a) sold, assigned or transferred any of its assets
or properties, except in the ordinary course of business consistent with past
practice;
(b) mortgaged, pledged or subjected to any lien,
pledge, mortgage, security interest, conditional sales contract or other
encumbrance of any nature whatsoever any of the Assets other than the liens, if
any, of current taxes not yet due and payable;
(c) made or suffered any amendment or termination of
any contract, commitment, instrument or agreement materially relating to the
Facility;
(d) except in the ordinary course of business,
consistent with past practice, or otherwise to comply with any applicable
minimum wage law, increased the salaries or other compensation of any of its
employees at the Facility, or made any increase in, or any additions to, other
benefits to which any of such employees may be entitled;
(e) discharged or satisfied any lien or encumbrance,
or paid any material liabilities, other than in the ordinary course of business
consistent with past practice, or failed to pay or discharge when due any
liabilities, the failure to pay or discharge of which has caused or will cause
any actual damage or risk of loss to Seller or the Facility;
(f) changed any of the accounting principles followed
by it or the methods of applying such principles;
(g) made or suffered any amendment or termination of
any material contract, commitment or agreement to which it is a party or by
which it is bound, or canceled, modified or waived any debts or claims held by
it, other than in the ordinary course of business consistent with past practice,
or waived any rights of substantial value, whether or not in the ordinary course
of business; or
(h) entered into any material transaction other than
in the ordinary course of business consistent with past practice.
4.21 Compliance with Laws. Seller has not received any claim
or notice that the Facility is not in compliance with any applicable Federal,
state, local or other governmental laws or ordinances, or any applicable order,
rule or regulation of Federal, state, local or other governmental agency. The
Facility is in material compliance with all existing applicable federal, state
and local laws and regulations, including the Life Safety Codes, governmental
regulations, zoning laws, building codes and local ordinances. All deficiencies
on all state and federal inspections have been corrected, or are in the process
of being corrected.
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4.22 Environmental Compliance.
(a) At any time during Seller's ownership of the
Facility and, to the best of Seller's knowledge, prior to Seller's ownership
thereof:
(i) The Facility has not been used for the
disposal of any industrial refuse or waste, including but not
limited to potentially infectious waste, blood-contaminated
materials, or other wastes generated in the course of patient
treatment (collectively "Medical Waste"), or for the
processing, manufacture, storage, handling, treatment or
disposal of any hazardous or toxic substance, material or
waste.
(ii) No asbestos-containing materials have
been used or disposed of on the Facility or used in the
construction of the Facility.
(iii) No machinery, equipment or fixtures
containing polychlorinated biphenyls ("PCBs") have been
located on the Facility.
(iv) No storage tanks for gasoline,
petroleum, or any other substance have been located on the
Facility.
(v) No toxic or hazardous substances or
materials have been located on the Facility, which substances
or materials, if found on the Facility, would subject the
owner or occupant of the Facility to damages, penalties,
liabilities or an obligation to remove such substances or
materials under any applicable Federal, state or local law,
regulation or ordinance.
(vi) No notice from any governmental body
has ever been served upon Seller, its agents or
representatives, or upon any prior owner of the Facility,
claiming any violation of any Federal, state or local law,
regulation or ordinance concerning the generation, handling,
storage, or disposal of Medical Waste, or the environmental
state, condition, or quality of the Facility, or requiring or
calling attention to the need for any work, repairs, or
demolition, on or in connection with the Facility in order to
comply with any law, regulation or ordinance concerning the
environmental or healthful state, condition or quality of the
Facility.
(vii) Schedule 4.22 lists all reports of
healthcare and environmental agencies received by Seller since
March 31, 1992 and, if available, for the two (2) years prior
thereto, from any supervisory governmental authority with
respect to the operations of the Facility. Seller has
delivered copies of each such report to Buyer.
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(b) At all times, Seller has complied, and is
complying in all respects with all environmental and related laws, ordinances
and governmental rules and regulations applicable to it and the Facility,
including, but not limited to, the Resource Conservation and Recovery Act of
1976, as amended, the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended, the Federal Water Pollution Control Act, as
amended by the Clean Water Act, and subsequent amendments, the Federal Toxic
Substances Control Act, as amended, and all other Federal, state and local laws,
regulations and ordinances with respect to the protection of the environment
(collectively "Environmental Laws"). The foregoing representation and warranty
applies to all aspects of the operation of the Facility and the Leased Equipment
including, but not limited to, the use, handling, treatment, storage,
transportation and disposal of any hazardous, toxic or infectious waste,
material or substance (including Medical Waste) and petroleum products, material
or waste whether performed on Seller's properties or at any other location.
4.23 Tax Returns. Seller has filed all Federal, state, county
and local income, excise, Facility and other tax returns and abandoned Facility
reports (if any) to date that are due and required to be filed by it, all such
returns and reports are in material compliance with applicable law, and there
are no claims, liens, or judgments for taxes due from the Seller affecting the
Facility or any of the Assets, and no basis for any such claim, lien, or
judgment exists.
4.24 Encumbrances Created by this Agreement. The execution and
delivery of this Agreement or any of the Seller's Transaction Documents does
not, and the consummation of the transactions contemplated hereby or thereby
will not, create any liens or other encumbrances on any of the Assets in favor
of third parties.
4.25 Patients. Attached hereto as Schedule 4.25 is a listing,
as of the date hereof, of the names of all patients or residents of the
Facility, and a summary of the principal provisions of all contracts and
agreements of the Facility with each of such patients or residents, including
the rental amounts payable thereunder and the length of the term of such patient
contracts or agreements and whether such patients are private pay patients, or
payments are made to Seller by Medicare or Medicaid for or on behalf of such
patients.
4.26 Zoning. Except as set forth in Schedule 4.26 hereto, to
the best of Seller's knowledge there exists no judicial, quasi-judicial,
administrative or other proceeding which might adversely affect the validity of
the current zoning of the Real Property and Improvements, nor is there any
threatened action or proceeding which could result in the modification and
termination of any such zoning.
4.27 No Broker. Seller has not incurred any liability for
broker's or finder's fees or commissions to any broker, financial advisor or
other intermediary in connection with the transactions contemplated by this
Agreement.
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4.28 Government Standards; Operating Changes. To the best of
Seller's knowledge the Facility currently satisfies in all respects all
requirements under applicable laws to permit the Facility to be operated as a
licensed long-term care facility. Seller has filed all required cost reports
with respect to Medicare and Medicaid. Seller has provided to Buyer its audited
and unaudited cost reports for Medicare and Medicaid and all other rate
compensation and reimbursement reports, audits and schedules prepared or issued
by, or filed with, any governmental or regulatory authority with respect to the
operations of the Facility for the last three (3) years, and each such report is
complete and accurate in all material respects. Schedule 4.28 hereto sets forth
the status of any open cost reporting periods, pending reimbursement appeals,
and reimbursement payment rates for the most recent three (3) years. Seller has
obtained, and Schedule 4.28 hereto lists and sets forth copies of, all licenses,
permits, approvals, qualifications, registrations, certifications and other
authorizations of any Governmental Authority (the "Operating Licenses and
Certifications") which are required for Seller to own and operate the Facility
as presently owned and operated. Except as set forth in Schedule 4.28 hereto,
all of the Operating Licenses and Certifications are valid and in good standing,
do not contain any restrictions and are non-provisional. non-probationary and in
full force and effect. There is no pending or threatened action by any
Governmental Authority or other party to suspend, revoke or terminate or
challenge any of the Operating Licenses and Certifications and, to the knowledge
of Seller, Seller is in compliance in all material respect with all such
Operating Licenses and Certifications.
4.29 Care of Patients; Deficiencies; Licenses Bed and Rate
Schedule.
(a) Seller has cared for the patients located at any
time at the Facility in accordance with recognized standards pertaining to
long-term care facilities. Seller does not have any agreement with any of its
patients which have been prepaid for more than one month.
(b) Schedule 4.29(b) hereto set forth a true and
complete list of all violations and deficiencies found or alleged by any
Governmental Authority with respect to the Facility or Seller within the past
three (3) years. All such violations and deficiencies have been fully remedied
by Seller or withdrawn by the applicable Governmental Authority. No violations
or deficiencies found or alleged by any Governmental Authority with respect to
the Facility or Seller since the date of the last survey of the Facility
(whether or not listed in Schedule 4.29 (b)) will result in any adverse effect
upon Buyer in its operation of the Facility after the Effective Date or upon any
of the transactions contemplated herein (including, without limitation, any
adverse effect upon any application for Buyer's operation of the Facility).
(c) Schedule 4.29(c) hereto sets forth (i) the number
of licenses long- term care beds at the Facility, (ii) the current rates charged
by the Facility to its patients or residents and (iii) the number of beds or
units presently occupied in, and the occupancy percentage at, the Facility,
including the current rates charged by the Facility for each such occupied bed
or unit. Schedule 4.29(c) hereto further sets forth the name and number of
patients or residents at the Facility which are Private Pay (as defined below)
patients or receive reimbursement from, or
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are participants in, any federal or state Medicare or Medicaid program (whether
pending or otherwise) or any other third party payor arrangement. As used
herein, the term "Private Pay" shall mean a patient or resident (i) for whom
payment is not made by Medicare of Medicaid (and not including any "pending"
patient), (ii) who has sufficient assets to remain as such for the twelve (12)
month period following the Effective Date or such person's anticipated length of
stay, whichever is less and (iii) who is not more than sixty (60) days in
arrears (based upon monthly billing having not more than thirty (30) day terms).
4.30 Patient Trust Funds. Any and all patient trust funds
held, maintained or administered by or on behalf of Seller or the Facility have
been, and presently are, held, maintained or administered in full compliance
with all applicable laws, rules and regulations.
4.31 Books and Records. The books and records of the Facility
set forth in all material respects all transactions affecting the Facility, and
such books and records have been properly kept and maintained in a manner
consistent with sound business practice and are complete and correct in all
material respects.
4.32 Intellectual Property. Schedule 4.32 hereto sets forth a
list of all patents, copyrights, trademarks, software and computer programs,
corporate names and other intellectual property rights, including the name
"Vintage Health Care Center" and all derivations and variations thereof and any
other tradenames used in connection with the operation of the Facility
(collectively, the "Intellectual Property") used by Seller in connection with
the Facility. To the best knowledge of Seller, neither Seller nor any of its
affiliates is infringing upon any intellectual property rights of any other
person nor is any other person infringing on any Seller's rights in respect of
the Intellectual Property.
4.33 No Misstatements or Omissions. None of the documents,
certificates, instruments or information furnished or to be furnished by Seller
to Buyer or any of Buyer's representatives is or will be false or misleading as
to any material fact or omits or will omit to state a material fact necessary to
make any of the statement contained therein not misleading. Seller has provided
to Buyer all material information related to the Assets and the Facility.
4.34 Bankruptcy. No insolvency proceeding of any character
including, without limitation, bankruptcy, receivership, reorganization,
composition or arrangement with creditors, voluntary or involuntary, affecting
Seller (other than as a creditor) or of the Facility or any of the Assets are
pending or are being contemplated by Seller, or are the best knowledge of Seller
being threatened against Seller by any other Person, and Seller has not made any
assignment for the benefit of creditors or taken any action in contemplation of
or which would constitute the basis for the institution of such insolvency
proceedings.
4.35 Consumable Inventories. The Facility contains levels of
consumable inventories and supplies as are necessary to operate the Facility as
licensed and certified by all federal, state and local agencies.
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ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE BUYER
------------------------------------------------------
Buyer represents and warrants to Seller as follows:
5.1 Organization and Standing. Buyer has been duly
incorporated and is validly existing in good standing under the laws of the
State of Delaware, and is or prior to the Closing will be duly qualified to do
business in the State of Texas.
5.2 Power and Authority. Buyer has the corporate power and
authority to execute, deliver and perform this Agreement, and as of the Closing
the Buyer will have the corporate power and authority to execute and deliver the
instruments and agreements required to be delivered by it to Seller at the
Closing (collectively the "Buyer's Transaction Documents").
5.3 Binding Agreement. This Agreement has been duly executed
and delivered by Buyer. This Agreement is, and when executed and delivered by
Buyer at the Closing each of the related transaction documents executed by Buyer
will be, the legal, valid and binding obligation of Buyer, enforceable against
Buyer in accordance with their respective terms, as such enforceability may be
limited by applicable creditors rights laws and the availability of equitable
remedies.
5.4 Finders. No broker or finder is entitled to any broker's
or finder's fee or other commission in connection with the transactions
contemplated by this Agreement based in any way on agreements, understandings or
arrangements with Buyer.
ARTICLE VI: INFORMATION AND RECORDS CONCERNING THE FACILITY
-----------------------------------------------------------
6.1 Access to Information and Records before Closing.
(a) Prior to the Closing Date, Buyer may make, or
cause to be made, such investigation of the Facility's and Seller's financial
and legal conditions as Buyer deems necessary or advisable to familiarize itself
with the Facility and/or matters relating to its history or operation. Seller
shall permit Buyer and its authorized representatives (including legal counsel
and accountants), to have full access to the Facility and Seller's books and
records and Seller will furnish, or cause to be furnished, to Buyer such
financial and operating data and other information and copies of documents with
respect to the products, services, operations and Assets, the Real Property and
the Facility as Buyer shall from time to time request. The documents to which
the Buyer shall have access shall include, but not be limited to, Seller's tax
returns and related work papers since their inception and printouts of patient
or resident account information maintained by or on behalf of any person with
respect to the Facility; and Seller shall make, or cause to be made, extracts
thereof as Buyer or its representatives may request from time to time, to enable
the Buyer and its representatives to investigate the affairs of Seller and the
Facility and the accuracy of the representations and warranties made in this
Agreement. Seller shall cause its accountants
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to cooperate with Buyer and to disclose the results of audits relating to Seller
and/or to the Facility and to produce the working papers relating thereto. No
such investigation by Buyer or its representatives shall affect any of the
Seller's representations and warranties in this Agreement or Buyer's right to
rely thereon. Buyer shall conduct its investigation hereunder in such manner as
will not cause any unreasonable disruption to the business of the Facility.
(b) In the event of the termination of this Agreement
prior to Closing, Buyer will deliver to Seller all documents, work papers and
other materials hereunder obtained from Seller and relating to Seller or the
transactions herein contemplated. Buyer shall maintain the confidentiality of
any documents or information obtained by it during the course of its
investigation and shall return the same to Seller in the event the transaction
provided for herein fails to close for any reason whatsoever.
6.2 Maps, Plans, Surveys, etc. Seller shall deliver, or cause
to be delivered, to the Buyer, without charge, all plans, maps, surveys,
descriptions, and title reports respecting the Real Property and the use and
occupancy thereof in Seller's possession that exist as of the date of this
Agreement, which materials shall be returned to Seller if this Agreement is
terminated.
ARTICLE VII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING
-----------------------------------------------------
7.1 Conduct of Business Pending Closing. Between the date of
this Agreement and the Closing Seller shall conduct its business relating to the
operation of the Facility solely in the ordinary course of business consistent
with past practice, and maintain its existence.
7.2 Negative Covenants of Seller. Without the prior written
approval of Buyer, Seller shall not, between the date hereof and the Closing:
(i) dissolve, merge or enter into a share exchange with or into any other
entity; or (ii) enter into any Contract or modify or terminate any existing
Contract without the prior consent of Buyer; or (iii) cause or permit to occur
any of the events or occurrences described in Section 4.20 (Absence of Certain
Events) of this Agreement.
7.3 Affirmative Covenants of Seller. Between the date hereof
and the Closing, Seller shall:
(a) maintain the Facility in substantially the state
of repair, order and condition as on the date hereof, reasonable wear and tear
or loss by casualty excepted;
(b) maintain in full force and effect all Licenses,
currently in effect with respect to the Facility;
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(c) maintain in full force and effect the insurance
policies and binders currently in effect with respect to the Facility, including
without limitation those listed on Schedule 4.18;
(d) utilize its best efforts to preserve intact the
present business organization of the Facility; keep available the services of
Seller's present employees and agents, and any other employees and agents
employed in connection with the Facility; and maintain Seller's relations and
goodwill with the suppliers, patients and residents, employees, affiliated
medical personnel and anyone having business relating to the Facility;
(e) maintain all of the books and records relating to
the Facility in accordance with its past practices;
(f) comply with all provisions of the Contracts
listed in Schedule 4.7 and with any other agreements that Seller has entered
into with respect to the Facility in the ordinary course of business since the
date of this Agreement and with the provisions of all laws, rules and
regulations applicable to the Seller's business or the Facility;
(g) cause to be paid when due, all taxes, assessments
and charges or levies imposed upon it or on any of its properties or which it is
required to withhold and pay over;
(h) promptly advise Buyer in writing of the threat or
commencement against Seller of any dispute, claim, action, suit or proceeding,
arbitration or investigation that would materially adversely affect the
operations, properties, assets or prospects of the Facility; and
(i) maintain material compliance with all federal,
state and local standards.
7.4 Affirmative Covenants of Buyer. Buyer will proceed with
all due diligence to conduct such investigations with respect to the Facility as
it deems to be reasonably necessary in connection with its purchase thereof,
including, but not limited to, zoning investigations, soil studies,
environmental assessments, seismic assessments, wetlands reports, investigations
of Seller's and the Facility's books and records and structural inspections,
provided no investigations will be physically intrusive on the Facility unless
Seller consents thereto, which consent shall not be reasonably withheld (the
"Due Diligence Review"); provided, however, nothing herein shall be construed as
amending or modifying in any manner the representations or warranties of Seller
set forth in this Agreement, which representations and warranties shall be
separate from and unaffected by Buyer's Due Diligence Review; and provided,
further, that Buyer shall maintain the confidentiality of any documents or
information obtained by it during the course of its Due Diligence Review and
shall return the same to Seller in the event the transaction provided for herein
fails to close for any reason whatsoever.
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7.5 Pursuit of Consents and Approvals. Prior to the Closing
Buyer shall undertake to obtain all consents and approvals of governmental
agencies and all other parties necessary for the lawful consummation of the
transactions contemplated hereby and the lawful use, occupancy and enjoyment of
the Facility by Buyer in accordance herewith (the "Required Approvals"). Within
five (5) days from the execution hereof, Buyer shall submit to the Texas
Department of Human Services (the "Agency") a written notice setting forth its
intent to purchase the Facility and requesting a written confirmation from such
Agency that the proposed acquisition of the Facility by the Buyer shall not be
subject to the approval of or review by such Agency.
If the applicable licensing agency or Medicare certification agency
requires that, prior to giving written assurance regarding the issuance of an
operating license, certification or provider agreement to Buyer following the
Closing, all Medicare estimated adjustments be paid to the applicable agency on
or before the Closing, Seller shall pay such amounts on or before the Closing
Date in order to permit Buyer to obtain such written assurances.
ARTICLE VIII: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
---------------------------------------------------------
Unless waived by Buyer, its obligations to consummate the
purchase of the Assets is subject to the fulfillment, prior to or at the
Closing, of each of the following conditions. Upon failure of any of the
following conditions Buyer may terminate this Agreement pursuant to and in
accordance with Article XI herein.
8.1 Representations and Warranties. The representations and
warranties of Seller contained in this Agreement or on any Schedule, list,
certificate or other document delivered pursuant to the provisions hereof shall
be true and correct in all material respects at and as of the Closing Date as
though such representations and warranties were made at and as of such time,
except to the extent affected by the transactions herein contemplated.
8.2 Performance of Covenants. Seller shall have performed or
complied in all material respects with each of its agreements and covenants
required by this Agreement to be performed or complied with by it prior to or at
the Closing.
8.3 Delivery of Closing Certificate. Seller shall have
executed and delivered to the Buyer a certificate of the chief executive officer
of the Seller dated the Closing Date upon which Buyer may rely, certifying that
the statements made in Sections 8.1 and 8.2, are true, correct and complete as
of the Closing Date.
8.4 Opinion of Counsel. Seller shall have delivered to the
Buyer an opinion, dated the Closing Date, of counsel for Seller, in the form
attached hereto as Exhibit 8.4.
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8.5 Legal Matters. No suit, action, investigation, or legal or
administrative proceeding shall have been brought or shall have been threatened
by any person that questions the validity or legality of this Agreement or the
transactions contemplated hereby.
8.6 Approvals.
(a) The consent or approval of all persons necessary
for the consummation of the transactions contemplated hereby shall have been
granted, including without limitation, the Required Approvals and any tax
clearance or similar approval;
(b) None of the foregoing consents or approvals (i)
shall have been conditioned upon the modification, cancellation or termination
of any material lease, contract, commitment, agreement, license, easement, right
or other authorization with respect to the Facility, or (ii) shall impose on the
Buyer any material condition or provision or requirement with respect to the
Facility or its operation that is more restrictive than or different from the
conditions imposed upon such operation prior to Closing.
8.7 Material Change. Since the date of this Agreement there
shall not have been any material adverse change in the condition (financial or
otherwise) of the Assets, Properties or operations of the Facility or the
Seller.
8.8 Title Insurance. Buyer shall have obtained, at normal
rates, a title commitment from a reputable title insurance company selected by
Buyer (the "Title Company") for an owner's title policy insuring that title to
the Property and improvements to the Facility shall be good and marketable and
free and clear of all liens, assessments, restrictions, encumbrances, easements,
leases, tenancies, claims or rights of use or possession and other title
objections (including any lien or future claim from materials or labor supplied
for improvement of such property), except for (a) utility and other easements
that do not materially adversely affect the intended use of the Facility or the
value of the Facility; (b) matters listed in Schedule 8.8 hereto; and (c) the
standard exceptions normally contained in Schedule B to a T-1 Owner Policy of
Title Insurance Title Policy and schedules thereto and any exceptions that are
standard in the State of Texas for all properties similarly used; provided,
however, that, at the request of Buyer, Seller, shall use its best efforts to
provide such affidavits to the Title Company or take such other actions that
would enable the Title Company to remove any of such standard exceptions. With
respect to the standard survey exceptions, Buyer may obtain prior to the Closing
any survey (or engineering study), at Buyer's expense, but if such survey (or
study) discloses any material discrepancy or exception to title not included
within the restrictions permitted hereunder, Buyer may consider such a defect in
title and may, at its option, elect to cancel this Agreement pursuant to Section
11.1 hereof.
8.9 Deed. Seller shall have delivered a special warranty deed
for the Property in the form of Exhibit 8.9 hereto with warranty against
grantor's acts; a no-flood-plain certificate; and a copy of the then valid
Certification of Occupancy for the Facility.
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8.10 Assets Transferred at Closing. Seller shall have
delivered or caused to be delivered to Buyer possession of the Assets (or the
right to obtain possession on demand) together with such instruments of sale and
transfer, including without limitation, a Bill of Sale and Assignment of
Contracts, in the form of Exhibit 8.10 attached hereto and made a part hereof,
sufficient to vest in Buyer good and marketable title to the Assets, free and
clear of all liens, security interests, encumbrances, claims and other
exceptions of any kind whatsoever.
8.11 Possession. Possession of the Facility shall be or shall
have been delivered to Buyer as provided in this Agreement, free and clear of
any leases, claims to or rights of possession, other than the rights of any
patient to use or occupy the Facility.
8.12 Environmental Compliance. Buyer shall have received, at
its own expense, a written report in form and substance acceptable to Buyer and
Buyer's Lenders, from a qualified geotechnical or engineering firm of Buyer's
choice, concerning the presence of hazardous substances, asbestos or
asbestos-containing products, radon and/or ureaformaldehyde insulation on or in
the Facility and/or the Real Property. Such report shall disclose at a minimum:
(1) the results of a review of prior uses of the Real Property disclosed by
local public records; (2) contacts with local officials to determine whether any
records exist with respect to the disposal of hazardous substances at the Real
Property; (3) if deemed necessary by such engineering or geotechnical firm, or
by Buyer, soil samples and groundwater samples consistent with good engineering
practice; and (4) evaluation of the surrounding areas for sensitive
environmental receptors, such as drinking water wells or aquifers, hospitals and
schools.
"Hazardous Substance" shall include (a) any material that may
be dangerous to health or the environment, either separately or in combination
with any other substance, when improperly stored, treated, disposed, or
otherwise managed, including without limitation "hazardous waste," "hazardous
substances" or "toxic substances," or any other contamination, emission,
discharge, spill, or release having an adverse effect on the environment (as
such concepts or terms are used and/or defined in any of the Environmental
Laws); and (b) crude or refined oil, including but not limited to waste oil.
8.13 Engineering Report. Buyer shall have received, at its own
expense, an engineering survey and report in form and substance satisfactory to
Buyer, from a qualified engineering or other firm of Buyer's choice concerning a
full and complete inspection of the Facility, the physical soundness and
structural integrity of the buildings, and the condition (including freedom from
material defect) of the heating, air conditioning, plumbing and electrical
systems, the appliances of or in the buildings, and other material components.
8.14 Termite Inspection. Buyer shall have received, at
Seller's expense, a report from a qualified inspector approved by Buyer and
Buyer's Lenders stating that the Facility is free from termite, wood boring
insect or other pest infestation, and/or resultant damage that has not been
corrected.
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8.15 COBRA. Seller shall have, and shall have caused all
concerned benefits plan administrators to have, given all notices, made all
offers, paid and collected all premiums, obtained all group health plan
coverage, and performed all other actions mandated by Title X of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), and which is
required to be given, made, paid, obtained, and performed as a result of the
Closing under this Agreement. Any amounts under COBRA or similar state or
federal law or regulation which becomes a liability to the Buyer after Closing
but which relates to any period of time in which the Seller owned the Real
Property shall be paid by the Seller either by a dollar for dollar reduction of
the Purchase Price at the Closing or upon demand after the Closing.
8.16 Authorization Documents. Buyer shall have received a
certificate of the General Partner of the Seller certifying a copy of
Resolutions of the of Seller and consent of its limited partners authorizing the
Seller's execution and full performance of Seller's Transaction Documents, and
the Certificate of Limited Partnership and Partnership Agreement of Seller.
8.17 Due Diligence. Buyer shall be satisfied with the results
of its Due Diligence Review, including, but not limited to the results of an EPA
Phase I Assessment of the Facility; provided, however, nothing herein shall be
construed as amending or modifying in any manner the representations and
warranties of Seller set forth in this Agreement, which representations and
warranties shall be separate from and unaffected by Buyer's Due Diligence Review
except as to any representations or warranties which, during the course of
Buyer's Due Diligence Review, Buyer obtains knowledge of falsity or inaccuracy
and advises Seller in writing thereof.
8.18 Payoff Letters. Seller shall have received payoff letters
in connection with the satisfaction of all mortgages and liens reflected on
Schedule 4.6. Seller agrees that Buyers may fund such payoff amounts directly to
the mortgage and lien holders out of the Purchase Price.
8.19 Cancellation of Management Agreement. Seller shall have
canceled its management agreement for the Facility with an affiliate of
Preferred Care, Inc.
8.20 Audit. Buyer shall have completed the audit described in
Section 10.7 hereof.
8.21 Other Documents. Seller shall have furnished Buyer with
all other documents, certificates and other instruments required to be furnished
to Buyer by Seller pursuant to the terms hereof.
ARTICLE IX: CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
--------------------------------------------------------
Unless waived by Seller, its obligation to consummate the sale
of the Assets is subject to the fulfillment, prior to or at the Closing, of each
of the following conditions:
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9.1 Representations and Warranties. The representations and
warranties of the Buyer in this Agreement or on any Schedule, list, certificate
or document delivered pursuant to the provisions hereof shall be true at and as
of the Closing Date as though such representations and warranties were made at
and as of such time, except to the extent affected by the transactions herein
contemplated.
9.2 Performance of Covenants. Buyer shall have performed or
complied with each of its agreements and conditions required by this Agreement
to be performed or complied with by it prior to or at the Closing.
9.3 Delivery of Closing Certificate. Buyer shall have
delivered to Seller a certificate of the executive vice president of Buyer dated
the Closing Date upon which Seller can rely, certifying that the statements made
in Sections 9.1 and 9.2 are true, correct and complete as of the Closing Date.
9.4 Opinion of Counsel. Buyer shall have delivered to Seller
an opinion, dated the Closing Date, of Blass & Driggs, Esqs., Counsel for Buyer,
in the form attached as Exhibit 9.4.
9.5 Legal Matters. No suit, actions, investigation or legal or
administrative proceeding shall have been brought or shall have been threatened
by any person that questions the validity or legality of this Agreement or the
transactions contemplated hereby.
9.6 Authorization Documents. Seller shall have received a
certificate of the Secretary or other officer of the Buyer certifying a copy of
Resolutions of the Board of Directors of Seller authorizing the Buyer's
execution and full performance of Buyer's Transaction Documents and the
incumbency of the officers of the Buyer.
9.7 Other Documents. Buyer shall have furnished Seller with
all documents, certificates and other instruments required to be furnished to
Seller by Buyer pursuant to the terms hereof.
ARTICLE X: OBLIGATIONS OF PARTIES AFTER CLOSING
-----------------------------------------------
10.1 Discharge of Liabilities. Seller shall pay all of its
liabilities and obligations with respect to the Facility that are not expressly
assumed by Buyer at Closing, as and when the same shall become due and payable.
10.2 Indemnification.
(a) The Seller and Scott covenant and shall defend
and indemnify Buyer and hold it harmless against and with respect to any and all
damage, loss, liability, deficiency,
25
<PAGE>
cost and expense (including without limitation reasonable attorney's fees) (all
of the foregoing hereinafter collectively referred to as "Loss") resulting from
(i) any misrepresentation, breach of warranty, or failure to fulfill any
agreement or covenant on the part of Seller under this Agreement; (ii) any
taxes, interest, penalties and additions to tax that are required to be paid to
the United States Government or any state or local taxing authority resulting
from the operation of the Facility for any period ending on or before the
Closing Date; (iii) if applicable, all amounts that are due or that may become
due to Medicare intermediaries, or to other public or private third party
payors, if any, on account of adjustments to Medicare or any other public or
private third party payor cost reimbursement claims made with respect to the
Facility for any period ending on or before the Closing Date or any reductions
in future rates due to adjustments in Seller's historical costs by Medicare or
any other public or private third party payors; provided that Buyer shall give
at least ten (10) days notice of such rulings and shall allow Seller to
participate in negotiations with the Medicare intermediaries or other public or
private third party payors so long as such negotiations are resolved within six
(6) months of the date of initial notification; (iv) any claim relating to any
liability of the Facility or the Seller that are not expressly assumed by the
Buyer pursuant to the terms of this Agreement ("Unassumed Liability"); (v) any
liability arising out of any bulk transfer act (provided that Buyer acknowledges
that the Seller has not agreed to undertake any bulk sales compliance); (vi) any
liability arising out of Seller's noncompliance with COBRA or any like statute;
(vii) any liability arising out of any environmental hazard or condition with
respect to the Real Property or to the Facility existing as of the Closing Date
and any law, regulation or decree on action of any government entity in
connection therewith; (viii) any other claims, liability or cost of any nature
whatsoever, known or unknown, whether accrued, absolute contingent or otherwise,
presently existing or arising in the future which such liability arose out of
Seller's conduct prior to Closing; and (ix) any and all actions, suits,
proceedings, demands, assessments, judgments, costs and legal and other expenses
incident to any of the foregoing; provided that Buyer hereby waives it right to
indemnification for any Loss which arose directly out of the negligent actions
or omissions of Integrated Health Services at Big Sail, Inc. in its role as
Manager of the Facility pursuant to that certain Management Agreement dated
March 29, 1995, by and among Preferred Care, Inc., Scott, and Integrated Health
Services at Big Sail, Inc; and provided further, that the total obligation of
Scott for any and all indemnification claims hereunder shall not exceed an
aggregate of $750,000.00, and that no claim for indemnification from Scott shall
be for an amount which is less than $100,000.00.
(b) Buyer covenants and shall indemnify Seller and
hold it harmless against and with respect to any and all Loss resulting from (i)
any misrepresentation, breach of warranty, or failure to fulfill any agreement
or covenant on the part of Buyer under this Agreement or (ii) Buyer's operation
of the Facility after the Closing Date.
10.3 Records. On the Closing Date Seller shall deliver, or
cause to be delivered, to Buyer all patient lists and records and all other
records and files not then in Buyer's possession relating to the operations of
the Facility.
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10.4 Collection of Accounts Receivable. Buyer shall make
reasonable efforts consistent with the collection of its own accounts receivable
to assist Seller in collecting all accounts receivable resulting from activities
occurring or services rendered to patients prior to the Closing as set forth on
Schedule 10.4. In addition, Buyer shall assist Seller by allowing examination by
Seller's authorized representatives of relevant documentation in Buyer's
possession after the Closing Date, and by transferring to Seller any payments
Buyer may receive from any source whatsoever concerning Seller's recovery of
accounts receivable as provided below. Any payments received by Buyer from third
party payors or private pay patients which are for services rendered prior to
the Closing Date will be transferred to Seller within thirty (30) days after
receipt thereof by Buyer. Any payments made by such payors or patients and
earmarked or itemized to services rendered after the Closing Date shall be
retained by Buyer; provided, however, that any payments received by Buyer from
or on behalf of any private pay patients after the Closing Date will be
attributed first to any outstanding balance for services rendered or activities
occurring prior to the Closing Date for and on behalf of such patient, and shall
be transferred to Seller within thirty (30) days after such determination by
Buyer.
One hundred eighty (180) days following the Closing Date,
Buyer shall provide to Seller, an accounting setting forth the accounts
receivable at the Closing Date, and, as to such accounts, the payments received
thereafter, the source thereof, and the application of such payments.
10.5 Employment of Existing Employees. On the Closing Date,
Buyer shall have the option of offering to employ those of Seller's employees
set forth on Schedule 4.15, except those listed on Schedule 10.5 attached
hereto. Seller shall compensate all employees for all services performed up to
the Closing Date. On the Closing Date, Buyer shall assume the duty to compensate
any employees who are hired by it, subject to any other terms contained in this
Agreement relating to compensation of employees.
10.6 Restrictions.
(a) From and after the Closing Date, the Seller shall not
disclose, directly or indirectly, to any person outside of Buyer's employ
without the express authorization of the Buyer, any pricing strategies or
records of the Seller, any proprietary data or trade secrets owned by the Seller
or any financial or other information about the Seller not then in the public
domain; provided, however, that the Seller shall be permitted to make such
disclosures as may be required by law or by a court or governmental authority.
(b) The Seller shall not engage or participate in any effort
or act to induce any of the suppliers, associates, employees, independent
contractors, customers, vendors, residents, patients, or families of residents
or patients of the Facility to cease doing business, or their association or
employment, with the Facility.
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<PAGE>
(c) For a period of five (5) years after the Closing Date, the
Seller shall not, directly or indirectly, for or on behalf of itself or any
other person, firm, entity or other enterprises, be employed by, be a director
or manager of, act as a consultant for, be a partner in, have a proprietary
interest in, give advice to, loan money to or otherwise associate with, any
person, enterprise, partnership, association, corporation, joint venture or
other entity which is directly or indirectly in the business of owning,
operating or managing any entity of any type, licensed or unlicensed, which is
engaged in or provides assisted living care, nursing home care, home health
care, senior housing, adult day care, retirement housing, primary care clinic
services or adult congregate living care anywhere within a twenty-five (25) mile
radius of the Facility; provided, however, that nothing contained herein shall
apply to Seller's affiliation with facilities currently owned, leased or
managed, or purchased in the future by Preferred Care, Inc.
(d) The Seller acknowledges that the restrictions contained in
this Paragraph 10.6 are reasonable and necessary to protect the legitimate
business interests of Buyer and that any violation thereof by it would result in
irreparable harm to Buyer. Accordingly, the Seller agrees that upon the
violation by it of any of the restrictions contained in this Section 10.6, Buyer
shall be entitled to obtain from any court of competent jurisdiction a
preliminary and permanent injunction as well as any other relief provided at law
or equity, under this Agreement or otherwise. In the event any of the foregoing
restrictions are adjudged unreasonable in any proceeding, then the parties agree
that the period of time or the scope of such restrictions (or both) shall be
adjusted in such a manner or for such a time (or both) as is adjudged to be
reasonable.
10.7 Audited Financial Statements. Notwithstanding the level
of review of the Facility's financial statements, Seller shall cooperate with
Buyer and its certified public accountants, if Buyer deems it necessary or
desirable, to assist in the audit of the balance sheets and statements of income
and changes in financial position of the Facility for each of the three (3)
calendar years ended prior to Closing. Such audits shall be conducted at Buyer's
expense.
At Buyer's request, Seller shall cooperate with all reasonable
requests of Buyer and its auditors necessary to audit all previously unaudited
periods for the purposes of enabling Buyer to make a public offering of its
securities under the Securities Act of 1933, as amended (the "Securities Act"),
and shall permit such financial statements to be included in Buyer's
registration statement filed with the Securities Exchange Commission under the
Securities Act and Buyer's prospectus used in connection with such offering. All
fees and expenses incurred in compiling the foregoing shall be borne by Buyer.
ARTICLE XI: TERMINATION
-----------------------
11.1 Termination. This Agreement may be terminated at any time
at or prior to the time of Closing by:
(a) The Buyer, if any condition precedent to Buyer's
obligations hereunder, including without limitation those conditions set forth
in Article VIII hereof, have not
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been satisfied by the Closing Date or pursuant to Section 12.1 if any portion of
the Assets is damaged or destroyed as a result of fire, other casualty or
otherwise damaged or destroyed for any reason whatsoever;
(b) Seller, if any condition precedent to Seller's
obligations hereunder, including without limitation those conditions set forth
in Article IX hereof, have not been satisfied by the Closing Date;
(c) the mutual consent of the Buyer and the Seller.
11.2 Effect of Termination. If a party terminates this
Agreement because one of its conditions precedent has not been fulfilled, or if
this Agreement is terminated by mutual consent, this Agreement shall become null
and void without any liability of any party to the other; provided, however,
that if such termination is by Buyer pursuant to Section 11.1(a) as a result of
a breach by the Seller of any of its representations, warranties or covenants in
this Agreement, or if such termination is by the Seller pursuant to Section
11.1(b) as a result of a breach by the Buyer of any of its representations,
warranties or covenants in this Agreement, nothing herein shall affect the
non-breaching party's right to damages on account of such other party's breach.
Furthermore, nothing in this Section 11.2 shall affect the Buyer's right to
specific performance of the Seller's obligations at Closing hereunder.
ARTICLE XII: CASUALTY, RISK OF LOSS
-----------------------------------
12.1 Casualty, Risk of Loss. Seller shall bear the risk of all
loss or damage to the Assets from all causes, until the Closing. If at any time
prior to the Closing any portion of the Assets is damaged or destroyed as a
result of fire, casualty or for any reason whatsoever, Seller shall immediately
give notice thereof to Buyer. Buyer shall have the right, in its sole and
absolute discretion, within ten (10) days of receipt of such notice, to (i)
elect not to proceed with the Closing and terminate this Agreement, or (ii)
proceed to Closing and consummate the transactions contemplated hereby and
receive any and all insurance proceeds received or receivable by Seller on
account of any such casualty.
ARTICLE XIII: MISCELLANEOUS PROVISIONS
--------------------------------------
13.1 Survival of Representations and Warranties. All
representations, warranties, covenants and agreements made by each party in this
Agreement or in any Schedule, certificate, document or list delivered by any
such party pursuant hereto shall survive for a period of two (2) years from the
Closing Date, except that representations and warranties regarding reimbursement
matters shall survive for a period of three (3) years and taxation matters shall
survive for a period of five (5) years from the Closing Date. Notwithstanding
any investigation conducted before or after the Closing or the decision of any
party to consummate the Closing,
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each party hereto shall be entitled to rely and is hereby declared to have
reasonably relied upon the representations and warranties of the other party.
13.2 Public Announcements. Any general public announcements or
similar media publicity with respect to this Agreement or the transactions
contemplated herein shall be at such time and in such manner as Buyer shall
determine; provided that nothing herein shall prevent either party, upon notice
to the other, from making such written notices as such party's counsel may
consider advisable in order to satisfy the party's legal and contractual
obligations in such regard.
13.3 Costs and Expenses. Except as expressly otherwise
provided in this Agreement, each party hereto shall bear its own costs and
expenses in connection with this Agreement and the transactions contemplated
hereby.
13.4 Performance. In the event of a breach by any party of its
obligations hereunder, the other party shall have the right, in addition to any
other remedies which may be available, to obtain specific performance of the
terms of this Agreement, and the breaching party hereby waives the defense that
there may be an adequate remedy at law. Should any party default in its
performance, or other remedy, the prevailing party shall be entitled to its
reasonable attorneys' fees.
13.5 Benefit and Assignment. This Agreement binds and inures
to the benefit of each party hereto and its successors and proper assigns. The
Buyer may not assign its interest under this Agreement to any other person on
entity without the prior written consent of the Seller; provided, however, that
Buyer may assign its rights, duties and obligations hereunder to one or more
subsidiaries or affiliates of Buyer, or to one or more limited or general
partnerships of which either Buyer or one of its subsidiaries is a general
partner, or to a Real Estate Investment Trust or as part of any Sale Leaseback,
Asset Backed Security Financing, 501(c)(3) arrangement, Commercial Paper
arrangement or as part of any other financing vehicle, without such consent; and
further provided that in the instance of such assignment Buyer shall remain
responsible for consummating the Closing and performing all of its other
obligations as provided in this Agreement.
13.6 Effect and Construction of this Agreement. This Agreement
and the Exhibits and Schedules hereto embody the entire agreement and
understanding of the parties and supersede any and all prior agreements,
arrangements and understandings relating to matters provided for herein,
including without limitations the Letter Agreement. The captions used herein are
for convenience only and shall not control or affect the meaning or construction
of the provisions of this Agreement. This Agreement may be executed in one or
more counterparts, and all such counterparts shall constitute one and the same
instrument.
13.7 Cooperation - Further Assistance. Subject to the terms
and conditions herein provided, each of the parties hereto shall use its best
efforts to take, or cause to be taken, such action, to execute and deliver, or
cause to be executed and delivered, such additional documents and instruments,
and to do, or cause to be done, all things necessary, proper and advisable under
the provisions of this Agreement and under applicable law to consummate and make
effective the transactions contemplated by this Agreement.
30
<PAGE>
13.8 Notices. All notices required or permitted hereunder
shall be in writing and shall be deemed to be properly given when personally
delivered to the party entitled to receive the notice or when sent by certified
or registered mail, postage prepaid, properly addressed to the party entitled to
receive such notice at the address stated below:
If to the Buyer: Integrated Health Services at Great Bend, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attention: Brian D. Davidson
with a copy to: Blass & Driggs
461 Fifth Avenue
New York, NY 10017
Attention: Michael S. Blass, Esq.
If to the Seller
and Scott: C.S. Denton Partners, Ltd.
17103 Preston Road, Suite 200
Dallas, TX 75348
Attention: Tom Scott
With a copy to: Patrick Stark, Esq.
Kane, Russell, Coleman & Logan
1601 Elm Street, Suite 3700
Dallas, TX 75201
13.9 Waiver, Discharge, etc. This Agreement shall not be
released, discharged, abandoned, changed or modified in any manner, except by an
instrument in writing executed by or on behalf of each of the parties hereto by
their duly authorized officer or representative. The failure of any party to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of any party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to be a waiver of any other or subsequent breach.
13.10 Rights of Persons Not Parties. Nothing contained in this
Agreement shall be deemed to create rights in persons not parties hereto, other
than the successors and proper assigns of the parties hereto.
13.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, disregarding any
rules relating to the choice or conflict of laws.
13.12 Severability. Any provision, or distinguishable portion
of any provision, of the Agreement which is determined in any judicial or
administrative proceeding to be prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of
31
<PAGE>
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. It is the intention of the parties that if any provision of
Section 10.6 shall be determined to be overly broad in any respect, then it
should be enforceable to the maximum extent permissible under the law. To the
extent permitted by applicable law, the parties waive any provision of law which
renders a provision hereof prohibited or unenforceable in any respect.
IN WITNESS WHEREOF, each of the parties hereto and in the
capacity indicated below has executed this Agreement as of the day and year
first above written.
BUYER: SELLER:
INTEGRATED HEALTH SERVICES AT C.S. DENTON PARTNERS, LTD.,
GREAT BEND, INC. a Texas limited partnership
By: By: Denton NH, Inc.,
------------------------------- a Texas corporation,
its general partner
Its:
-------------------------------
By: /s/Thomas D. Scott
----------------------------------
Thomas D. Scott, President
/s/Thomas Scott
------------------------------------
Thomas Scott, Individually
32
INTEGRATED LIVING COMMUNITIES, INC.
10065 Red Run Boulevard
Owings Mills, MD 21117
March 27, 1996
---
The Homestead Company, L.C.
151 Wittier, Suite 2000
Wichita, Kansas 67207
Att'n.: Jack West
Re: Options to Receive Assignments of Various Land Contracts
--------------------------------------------------------
Dear Mr. West:
This letter agreement is intended to acknowledge and evidence the
agreement between The Homestead Company, L.C. ("Homestead"), and the
undersigned, Integrated Living Communities, Inc. ("ILC"), with respect to the
various contracts and agreements described in Exhibit A annexed hereto (each, a
"Contract and collectively the "Contracts"), entered into by Homestead, as
buyer, and various property owners, as sellers, concerning the sale of various
parcels of real property which are more particularly described in the Contracts
(each, a "Property" and collectively, the "Properties"). Homestead and ILC
hereby agree as follows:
1. Homestead hereby grants and conveys to ILC an Irrevocable and
exclusive right and option ("Option") with respect to each of
the Contracts to receive an assignment of all of the buyer's
right, title and interest in; to and under any and all of the
Contracts, from Homestead upon the following terms and
conditions.
2. The Option with respect to a Contract may be exercised by ILC in
the manner herein specified at any time prior to the last date
on which a closing of title ("Closing") can take place under,
and pursuant to, that Contract. The period during which an
Option may be exercised with respect to a particular Contract is
herein referred to as the "Option Period".
3. ILC shall exercise an Option with respect to a particular
Contract by giving notice thereof, written or oral, (the
"Exercise Notice") to Homestead at any time during the
applicable Option Period.
4. Upon ILC's request following the giving of the Exercise Notice
with respect to a Contract and at or before the Closing under
such Contract, Homestead shall assign such Contract to ILC, or
to any person or entity designated by ILC to receive such
assignment, which assignment shall be in form and content
acceptable to ILC.
5. ILC shall pay to Homestead, in consideration of the assignment
of a Contract to ILC, a purchase price (the "Purchase Price")
equal to the sum of (i) the aggregate amounts
<PAGE>
theretofore paid as deposits or down payments by Homestead under
such Contract on account of the purchase price required to be
paid thereunder by the buyer at the Closing and not theretofore
reimbursed or returned to Homestead, and (ii) all costs and
expenses theretofore incurred by Homestead in connection with
the development of the Property which is the subject of such
Contract, which costs and expenses were funded under the
hereinafter defined Loan Agreement, plus, in the event the
Option is being exercised as to all of the Contracts not
theretofore assigned pursuant to this letter agreement, accrued
interest (not yet due and payable) on such principal balance
("Interest") pursuant to the Revolving Credit and Security
Agreement dated March 18, 1996 between Homestead, as Borrower,
and Integrated Health Services Retirement Management, Inc.
("IHSRM"), as Lender (the "Loan Agreement"). The entire Purchase
Price will be payable at the Closing.
6. The parties hereto acknowledge that as of the date hereof the
Contracts are encumbered by a blanket lien and security interest
in favor of IHSRM pursuant to the Loan Agreement and that it is
intended that each Contract as to which the Option is exercised
shall be assigned to ILC or its designee free and clear of all
liens, encumbrances and security interests. Accordingly, in
order to facilitate such an assignment, (i) Homestead hereby
directs that payment of the Purchase Price be made directly to
IHSRM or application by IHSRM in reduction of the principal
balance due under the Loan Agreement and accrued and unpaid
interest thereon and (ii) IHSRM by its signature below agrees
that upon its receipt of an amount equal to the Purchase Price
in connection with an assignment of a Contract to TLC or its
designee, IHSPM will release such Contract from the lien and
security interest created under the Loan Agreement and will
apply said amount in reduction of the principal balance of the
Loan Agreement and, in the event that all of the Contracts or
the last remaining Contract(s) encumbered by such lien and
security interest is being assigned, accrued and unpaid interest
on such principal balance as aforesaid, upon, and only upon, the
assignment of the Contract. It Is understood and agreed that the
validity of the Loan Agreement, the continuing lien and security
interest created thereunder on any and all unassigned Contracts
and the obligations of Homestead thereunder shall in no way be
terminated, affected or impaired by reason of the release,
exchange, substitution and/or subordination by IHSRM of the lien
and security interest on the assigned Contract or the failure by
IHSRM to exercise, or its delay in exercising any right or
remedy it may have with respect to such lien and security
interest on such Contract.
7. The consummation of the assignment of a Contract by Homestead
shall occur at the offices of the attorney for ILC on the date
as designated by ILC in the Exercise Notice (the "Closing
Date"). At the closing, Homestead shall execute and deliver to
ILC, or to any person or entity designated by ILC to receive
such assignment, an assignment of all right, title and interest
of the purchaser under the Contract, free and clear of all liens
and encumbrances whatsoever.
8. Homestead hereby further covenants and agrees that from and
after the date hereof Homestead shall not take any action under
any of the Contracts without the prior written consent of ILC.
2
<PAGE>
9. The rights and obligations of ILC hereunder shall be assignable.
The parties to this letter agreement mutually agree that it
shall be binding upon and enure to the benefit of the parties
hereto, their successors and assigns.
10. Any amendment to this letter agreement shall not be binding upon
any of the parties hereto unless such amendment is in writing
and executed by all parties hereto. The parties hereto agree
that such documents as may be legally necessary or otherwise
appropriate to carry out the terms of this letter agreement
shall be executed and delivered by each party at or before the
closing.
If the above terms are acceptable, kindly so indicate by executing this
letter agreement and its enclosed counterparts and returning it to the
undersigned.
Very truly yours,
INTEGRATED LlVING
COMMUNITIES, INC.
ACKNOWLEDGED AND AGREED By: /s/Edward J. Komp
TO AS OF THE DATE FIRST SET -----------------
FORTH ABOVE Name: Edward J. Komp
Title: CEO
THE HOMESTEAD COMPANY, L.C.
By: /s/Jack West
---------------------
Name: Jack West
Title: CEO 11. In the event ILC exercises any
of its options hereunder, ILC
agrees to retain Homestead as
the developer of the property
under Homestead's usual and
Lender under the Loan Agreement customary terms.
- -------------------------------
INTEGRATED HEALTH SERVICES
RETIREMENT MANAGEMENT, INC.
By: /s/Eleanor C. Harding
-----------------------------
Name: Eleanor C. Harding
Title: SVP - Financing
3
<PAGE>
EXHIBIT A
Real Estate Contract dated as of March 15, 1996 between JOHNSON IMPERIAL
HOME Co. OF HASTINGS, as Seller, and THE HOMESTEAD COMPANY, L.C., as
Buyer, concerning the purchase and sale of the real property legally
described therein, together with all easements, rights-of-way, privileges,
hereditaments and rights appurtenant thereto, and all improvements
attached thereto and more particularly described therein.
Real Estate Contract dated as of February 27, 1996 between LEFTOVER LAND,
LTD., as Seller, and THE HOMESTEAD COMPANY, L.C., as Buyer, together with
Addendum to Purchase Agreement between said Seller and said Buyer of even
date therewith, concerning the purchase and sale of the real property
legally described therein, together with all easements, rights-of-way,
privileges, hereditaments and rights appurtenant thereto, and all
improvements attached thereto and more particularly described therein.
Real Estate Contract dated as of March 12, 1996 between MENNONITE HOUSING
REHABILITATION SERVICES, INC., as Seller, and THE HOMESTEAD COMPANY, L.C.,
as Buyer, concerning the purchase and sale of the real property legally
described therein, together with all easements, rights-of-way, privileges,
hereditaments and rights appurtenant thereto, and all improvements
attached thereto and more particularly described therein.
Real Estate Contract dated as of March 1, 1996 between RICHARD SMITH and
FRAN JABARA d/b/a SOUTHTOWN, as Seller, and THE HOMESTEAD COMPANY, L.C.,
as Buyer, concerning the purchase and sale of the real property legally
described therein, together with all easements, rights-of-way, privileges,
hereditaments and rights appurtenant thereto, and all improvements
attached thereto and more particularly described therein.
Real Estate Contract dated as of March 1, 1996 between THE HOMESTEAD OF
MANHATTAN, L.C., as Seller, and THE HOMESTEAD COMPANY, L.C., as Buyer,
concerning the purchase and sale of the real property legally described
therein, together with all easements, rights-of-way, privileges,
hereditaments and rights appurtenant thereto, and all improvements
attached thereto and more particularly described therein.
Real Estate Contract dated as of February 28, 1996 between DR. A. W. KHAN,
as Seller, and THE HOMESTEAD COMPANY, L.C., as Buyer, concerning the
purchase and sale of the real property legally described therein, together
with all easements, rights-of-way, privileges, hereditaments and rights
appurtenant thereto, and all improvements attached thereto and more
particularly described therein.
Real Estate Contract dated as of February 12, 1996 between THE ABUNDANT
LIFE CHRISTIAN CENTER, as Seller, and THE HOMESTEAD COMPANY, L.C., as
Buyer, concerning the purchase and sale of the real property legally
described therein, together with all easements, rights-of-way, privileges,
hereditaments and rights appurtenant thereto, and all improvements
attached thereto and more particularly described therein,
4
<PAGE>
Real Estate Contract dated as of March 15, 1996 between JOHNSON IMPERIAL
HOME CO. [OF KEARNEY], as Seller, and the HOMESTEAD COMPANY, L.C., as
Buyer, concerning the purchase and sale of the real property legally
described therein, together with all easements, rights-of-way, privileges,
hereditarnents and rights appurtenant thereto, and all improvements
attached thereto and more particularly described therein.
Real Estate Contract dated as of March 15, 1996 between THE KANSAS LAND
COMPANY, as Seller, and the HOMESTEAD COMPANY, L.C., as Buyer, concerning
the purchase and sale of the real property legally described therein,
together with all easements, rights-of-way, privileges, hereditaments and
rights appurtenant thereto, and all improvements attached thereto and more
particularly described therein.
Real Estate Contract dated as of March 15, 1996 between MR. TOM
SPRINGFIELD, as Seller, and THE HOMESTEAD COMPANY, L.C. as Buyer,
concerning the purchase and sale of the real property legally described
therein, together with all easements, rights-of-way, privileges,
hereditaments and rights appurtenant thereto, and all improvements
attached thereto and more particularly described therein.
5
INTEGRATED LIVING COMMUNITIES, INC.
10065 Red Run Boulevard
Owings Mills, MD 21117
March 21, 1996
--
Lori Zito d/b/a Elderly Development Company
31-B Red Hill Circle
Tiburon, CA 94920
Re: Options to Receive Assignments of Various Land Contracts
--------------------------------------------------------
Dear Ms. Zito:
This letter agreement is intended to acknowledge and evidence the
agreement between yourself (d/b/a Elderly Development Company) ("Zito"), and the
undersigned, Integrated Living Communities, Inc. ("ILC"), with respect to the
various contracts and agreements described in Exhibit A annexed hereto (each, a
"Contract and collectively the "Contracts"), entered into by Zito, as
purchaser/optionee, and various property owners, as sellers/optionor, concerning
the sale of various parcels of real property which are more particularly
described in the Contracts (each, a "Property" and collectively, the
"Properties"). Zito and ILC hereby agree as follows:
1. Zito hereby grants and conveys to ILC an irrevocable and exclusive
right and option ("Option") with respect to each of the Contracts
to receive an assignment of all of the purchasers right, title and
interest in, to and under any and all of the Contracts, from Zito
upon the following terms and conditions.
2. The Option with respect to a Contract may be exercised by ILC in
the manner herein specified at any time prior to the last date on
which a closing of title ("Closing") can take place under, and
pursuant to, that Contract. The period during which an Option may
be exercised with respect to a particular Contract is herein
referred to as the "Option Period".
3. ILC shall exercise an Option with respect to a particular Contract
by giving notice thereof, written or oral, (the "Exercise Notice")
to Zito at any time during the applicable Option Period.
4. Upon ILC's request following the giving of the Exercise Notice
with respect to a Contract and at or before the Closing under such
Contract, Zito shall assign such Contract to ILC, or to any person
or entity designated by ILC to receive such assignment, which
assignment shall be in form and content acceptable to ILC.
5. ILC shall pay to Zito, in consideration of the assignment of a
Contract to ILC, a purchase price (the "Purchase Price") equal to
the sum of (i) the aggregate amounts theretofore paid as deposits
or down payments by Zito under such Contract on account of the
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. March 21 1996
--
purchase price required to be paid thereunder by the purchaser at
the Closing and not theretofore reimbursed or returned to Zito,
and (ii) all costs and expenses theretofore incurred by Zito in
connection with the development of the Property which is the
subject of such Contract, which costs and expenses were funded
under the hereinafter defined Loan Agreement, plus, in the event
the Option is being exercised as to all of the Contracts not
theretofore assigned pursuant to this letter agreement, accrued
interest (not yet due and payable) on such principal balance
("Interest") pursuant to the Revolving Credit and Security
Agreement dated February 29, 1996 between Zito, as Borrower, and
Integrated Health Services Retirement Management, Inc. ("IHSL"),
as Lender (the "Loan Agreement "). The entire Purchase Price will
be payable at the Closing.
6. The parties hereto acknowledge that as of the date hereof the
Contracts are encumbered by a blanket lien and security interest
in favor of IHSL pursuant to the Loan Agreement and that it is
intended that each Contract as to which the Option is exercised
shall be assigned to ILC or its designee free and clear of all
liens, encumbrances and security interests. Accordingly, in order
to facilitate such an assignment, (i) Zito hereby directs that
payment of the Purchase Price be made directly to IHSL for
application by IHSL in reduction of the principal balance due
under the Loan Agreement [and accrued and unpaid interest thereon]
and (4) IHSL by its signature below agrees that upon its receipt
of an amount equal to the Purchase Price in connection with an
assignment of a Contract to ILC or its designee, IHSL will release
such Contract from the lien and security interest created under
the Loan Agreement and will apply said amount in reduction of the
principal balance of the Loan Agreement and, in the event that all
of the Contracts or the last remaining Contract(s) encumbered by
such lien and security interest is being assigned, accrued and
unpaid interest on such principal balance as aforesaid, upon, and
only upon, the assignment of the Contract. It is understood and
agreed that the validity of the Loan Agreement, the continuing
lien and security interest created thereunder on any and all
unassigned Contracts and the obligations of Zito thereunder shall
in no way be terminated, affected or impaired by reason of the
release, exchange, substitution and/or subordination by IHSL of
the lien and security interest on the assigned Contract or the
failure by IHSL to exercise, or its delay in exercising any right
or remedy it may have with respect to such lien and security
interest on such Contract.
7. The consummation of the assignment of a Contract by Zito shall
occur at the offices of the attorney for ILC on the date as
designated by ILC in the Exercise Notice (the "Closing Date"). At
the closing, Zito shall execute and deliver to ILC, or to any
person or entity designated by ILC to receive such assignment, an
assignment of all right, title and interest of the purchaser under
the Contract, free and clear of all liens and encumbrances
whatsoever.
8. Zito hereby further covenants and agrees that from and after the
date hereof Zito shall not take any action under any of the
Contracts without the prior written consent of ILC.
2
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. March 21, 1996
--
9. The rights and obligations of ILC hereunder shall be assignable.
The parties to this letter agreement mutually agree that it shall
be binding upon and enure to the benefit of the parties hereto,
their successors and assigns.
10. Any amendment to this letter agreement shall not be binding upon
any of the parties hereto unless such amendment is in writing and
executed by all parties hereto. The parties hereto agree that such
documents as may be legally necessary or otherwise appropriate to
carry out the terms of this letter agreement shall be executed and
delivered by each party at or before the closing.
If the above terms are acceptable, kindly so indicate by executing this
letter agreement and its enclosed counterparts and returning it to the
undersigned.
Very truly yours,
INTEGRATED LIVING
COMMUNITIES, INC.
ACKNOWLEDGED AND AGREED By: /s/Edward J. Komp
TO AS OF THE DATE FIRST SET ----------------------
FORTH ABOVE Name: Edward J. Komp
Title: CEO
/s/Lori Zito
- ---------------------------------
Lori Zito, d/b/a Elderly
Development Company.
Lender under the
- ----------------
Loan Agreement
- --------------
INTEGRATED HEALTH
SERVICES RETIREMENT
MANAGEMENT, INC.
By: /s/Eleanor C. Harding
------------------------------
Name: Eleanor C. Harding
Title: SVP - Finance
3
<PAGE>
EXHIBIT A
Sale-Purchase Agreement and Joint Escrow Instructions, dated 1996,
between MI H. MIN, as Seller, and LORI ZITO D/B/A ELDERLY DEVELOPMENT COMPANY,
as Purchaser, concerning the purchase and sale of approximately five acres of
real property located on Vista Del Sol in Rancho Mirage, County of Riverside,
State of California and more particularly described therein.
Sale-Purchase Agreement and Joint Escrow Instructions, dated 1996,
between LINDA HANADA, as Seller, and LORI ZITO D/B/A ELDERLY DEVELOPMENT
COMPANY, as Purchaser, concerning the purchase and sale of approximately 2.3
acres of real property located at 8507 Magnolia Street, Riverside, County of
Riverside, State of California and more particularly described therein.
Sale-Purchase Agreement and Joint Escrow Instructions, dated March 13, 1996,
between LOUIS CORBO and PATRICIA A. CORBO, as Sellers, and LORI ZITO D/B/A
ELDERLY DEVELOPMENT COMPANY, as Purchaser, concerning the purchase and sale of
approximately 1.37 acres of real property located at the southeast corner of
30th Street and "G" Street, San Bernardino, County of San Bernardino, State of
California and more particularly described therein.
Sale-Purchase Agreement and Joint Escrow Instructions, dated 1996,
between AUGUSTUS F. BARNES, GEORGINA BARNES, BEVERLY DEAN BOWMAN, ALBERTA
LYNNE BOWMAN, MARIA H. JOHANSEN and NORMAN F. JOHANSEN, as Sellers, and LORI
ZITO D/B/A ELDERLY DEVELOPMENT COMPANY, as Purchaser, concerning the purchase
and sale of real property described as Parcel 2 of Parcel Map 14588, located
in the City of Escondido, County of San Diego, State of California, and more
particularly described therein.
Option Agreement dated January 27, 1995, between reorganized PROPERTY
MORTGAGE CO., INC., as Optioner, and LORI ZITO, as Optionee, concerning the
purchase and sale of real property located in the County of Orange, State of
California, commonly known as 4792 Lakeview Avenue, Yorba Linda, California
and more particularly described therein.
4
REVOLVING CREDIT NOTE
---------------------
$75,000,000.00
FOR VALUE RECEIVED, the undersigned, INTEGRATED LIVING COMMUNITIES,
INC., a Delaware corporation (the "Maker") hereby unconditionally promises to
pay to the order of INTEGRATED HEALTH SERVICES, INC., a Delaware corporation
(the "Lender"), the sum of SEVENTY-FIVE MILLION ($75,000,000.00) DOLLARS, or
such amount thereof as shall have been advanced to Maker from Lender at any time
or from time to time after the date hereof as loans by Lender to Maker, and all
accrued and unpaid interest thereon, shall be fully due and payable on the
earlier of (i) June 30, 1998, or (ii) the effective date of the initial public
offering of the Maker.
This Note shall bear interest from its date until maturity on the
principal amount outstanding from time to time hereunder (calculated on the
basis of a 360-day year of twelve 30-day months) at a rate per annum equal to
four-teen (14%) percent. Each installment when paid shall be applied first to
the payment of all accrued interest and the balance shall be applied to
principal.
Notwithstanding any provision contained herein, the total liability of
Maker for payment of interest pursuant hereto shall not exceed the maximum
amount of such interest permitted by law to be charged, collected, or received
from Maker and if any payments by Maker includes interest in excess of such a
maximum amount, Lender shall apply such excess to the reduction of the unpaid
principal amount due pursuant hereto, or if none is due, such excess shall be
refunded to Maker.
The Lender will record the date and amount of each loan made to Maker,
the date and amount of any principal and interest payment, and the principal
balance hereof on any schedule which may be attached hereto and made a part
hereof, and any such recordation shall, in the absence of manifest error,
constitute prima facie evidence of the accuracy of the information so recorded;
provided however, that the Lender's failure to so record shall not limit the
obligations of the Maker hereunder to pay the principal of and interest on the
loans advanced to Maker.
The Maker may prepay all or any part of the remaining principal balance
of this Note at any time without penalty or premium.
Maker waives presentment for payment, demand, notice of non-payment,
notice of protest and protest of this Note, and all other notices in connection
with the delivery, acceptance, performance, default, dishonor, or enforcement of
the repayment of this Note. Upon the occurrence of a default under this Note,
the Lender may proceed to protect and enforce its rights hereunder in any
manner or order it deems expedient without regard to any equitable principles
<PAGE>
of marshalling or otherwise. All rights and remedies given by this Note are
cumulative and not exclusive of any thereof or of any other rights or remedies
available to the Lender and no course of dealing between Maker and the Lender or
any delay or omission in exercising any right or remedy shall operate as a
waiver of any right or remedy, and every right and remedy may be exercised from
time to time and as often as shall be deemed appropriate by Lender.
This Note shall be governed, interpreted, and enforceable in accordance
with the laws of the State of Delaware.
This Note is made and delivered in substitution for that certain
Revolving Credit Note, dated December 29, 1995 of Integrated Living Communities,
Inc. in the principal amount of $50,000,000.00, which prior note is deemed fully
paid and satisfied.
[SIGNATURES ON THE FOLLOWING PAGE]
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Note on the date
first above written.
INTEGRATED LIVING COMMUNITIES,
INC.
By: /s/Edward J. Komp
-----------------------
Title: CEO -ILC
3
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Integrated Living Communities, Inc.:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Our report on the consolidated financial statements of Integrated Living
Communities, Inc. and subsidiaries dated June 5, 1996 refers to the adoption of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
/s/ KPMG Peat Marwick LLP
Baltimore, Maryland
July 30, 1996
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Amendment No. 1 to Registration Statement No. 333-05877
of Integrated Living Communities, Inc. on Form S-1 of our report dated May 15,
1995, on the financial statements of F.I.C. Lakehouse Inc., Don Blivas, Janice
Blivas, Fred Fiala, and John Rowe d/b/a Lakehouse East (a Partnership),
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
- --------------------------
DELOITTE & TOUCHE LLP
Tampa, Florida
July 30, 1996
INTEGRATED LIVING COMMUNITIES, INC.
Secretary's Certificate
-----------------------
I, Kayda A. Johnson, Secretary of Integrated Living Communities,
Inc., a Delaware corporation (the "Corporation"), do hereby certify that set
forth below is a true and correct copy of a resolution, duly adopted by the
Board of Directors of the Corporation at a meeting duly called and held on June
10, 1996 at which a quorum was present, in connection with the Corporation's
Registration Statement on Form S-1 (No. 333-05877) (the "Registration
Statement") and any amendments(s) or post-effective amendment(s) thereto,
pertaining to the authoriziation of the name of officers signing the
Registration Statement or any amendment(s) or post-effective amendment(s)
thereto to be signed pursuant to a power of attorney, and that such resolution
has not been rescinded or modified and is still in full force and effect.
IN WITNESS WHEREOF, the undersigned has executed this Certificate
this 31st day of July, 1996.
/s/Kayda A. Johnson
------------------------------
Kayda A. Johnson, Secretary
"RESOLVED, that the officers and directors of the Corporation who
are required to or do execute the Registration Statement be, and each of
them hereby is, authorized to execute and deliver a power-of-attorney
appointing Edward J. Komp and John B. Poole to be the attorneys-in-fact and
agents with full power of substitution and resubstitution, for each of such
directors and officers and in their name, place and stead, in any and all
capacities, to sign any amendment(s) to the Registration Statement,
including any post-effective amendment(s), to file the same with the
Commission and to perform all other acts necessary in connection with any
matter relating to the Registration Statement and any amendment(s) or
post-effective amendment(s) thereto."
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<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 119,995
<SECURITIES> 0
<RECEIVABLES> 354,314
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<CURRENT-ASSETS> 881,154
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<CURRENT-LIABILITIES> 2,137,220
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0
0
<COMMON> 49,610
<OTHER-SE> 40,281,450
<TOTAL-LIABILITY-AND-EQUITY> 55,464,581
<SALES> 11,294,999
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<INCOME-PRETAX> 1,690,063
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<INCOME-CONTINUING> 1,039,389
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<NET-INCOME> 1,039,389
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