<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 13, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTEGRATED LIVING COMMUNITIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<CAPTION>
<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>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If 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. [ ]
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CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Amount of
Title of Each Class of Securities Maximum Aggregate Registration
to be Registered Offering Price(1) Fee
- --------------------------------------------------------------------------------
Common Stock, $.01 par value .... $135,171,000 $46,610.69
================================================================================
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
-----------------
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.
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC.
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CROSS-REFERENCE SHEET
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Form S-1 Item and Caption Prospectus Captions
- ------------------------- -------------------
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 Inside Front Cover Page and Outside Back Cover
Prospectus Page of Prospectus; Additional Information
3 Summary Information, Risk Factors and Ratio of Prospectus Summary; Risk Factors (Ratio of
Earnings to Fixed Charges 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
(e) Financial Statements Financial Statements; Pro Forma Financial
Information
(f) Selected Financial Information Prospectus Summary; Selected Consolidated
Financial Data
(g) Supplementary Financial Information Not Applicable
<PAGE>
(h) Management's Discussion and Analysis of Management's Discussion and Analysis of
Financial Condition and Results of Operations 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 JUNE 13, 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 Company intends to apply to have the Common Stock 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.
The following legend will run sideways down the cover page of the prospectus:
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 17 assisted living and other
senior housing facilities containing 1,808 units in six states. The 1,808 units
operated by the Company consist of 1,183 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 new assisted living facilities, of which 25 are
scheduled to open during 1997, has entered into agreements to acquire two
additional facilities containing 312 units simultaneous with the closing of this
offering and to lease two facilities containing 70 units, and is evaluating
numerous additional acquisition opportunities. All of ILC's 1995 revenues from
its owned and leased facilities 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 outstand-
ing after the offering .. 8,061,000 shares(1)
Use of proceeds............... For acquisition and development of assisted
living facilities and for general corporate
purposes
Proposed Nasdaq National
Market symbol .......... ILCC
_____________________
(1) Excludes (i) 1,031,000 shares of Common Stock issuable upon exercise of
outstanding options and (ii) 178,150 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, Three months ended March 31,
----------------------- ----------------------------
1995 1996
----------------------- ---------------------
1993 1994 Actual Forma(1) 1995 Actual Pro Forma(2)
---- ---- ------ -------- ---- ------- ------------
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Statement of Operations Data(3):
Net revenues ....................... $5,240 $11,645 $16,269 $ 27,452 $3,922 $ 5,615 $7,196
Facility operations................. 3,455 8,254 11,243 18,522 2,759 3,513 4,687
Facility rents...................... 856 1,466 2,430 1,449 614 725 462
Corporate administrative and
general............................. 315 726 1,005 3,895 243 337 974
Depreciation and amortization ..... 24 369 414 1,669 104 248 492
Loss on impairment of long-lived
assets(4)........................... -- -- 5,126 5,126 -- -- --
-- ---- ---- ----- ----- ----- ------ -----
Earnings (loss) before income
taxes.............................. 590 830 (3,949) (3,209) 202 792 581
Federal and state income taxes .... 230 311 (629) (344) 78 305 224
---- ---- ----- ----- ----- ------ -----
Net earnings (loss) ................ $ 360 $ 519 $(3,320) $ (2,865) $ 124 $ 487 $ 357
====== ======= ======= ======== ====== ======= ======
Earnings (loss) per common share ... $ 0.07 $ 0.10 $ (0.67) $ (0.48) $ 0.02 $ 0.10 $ 0.06
====== ======= ======= ======== ====== ======= ======
Weighted average shares
outstanding(5)..................... 4,961 4,961 4,961 5,929 4,961 4,961 5,929
===== ===== ===== ===== ===== ===== =====
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March 31, 1996
--------------------------------------
Pro Forma
Actual Pro Forma(6) as Adjusted(7)
------ ------------ --------------
Balance Sheet Data:
Cash and cash equivalents .............. $ 1,425 $ 1,425 $ 32,795
Total assets............................ 27,548 69,823 101,193
Long-term debt including current
portion................................. -- -- --
Stockholders' equity.................... 16,268 58,288 89,658
- -----------
(1) The pro forma statement of operations data for the year ended December 31,
1995 was 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 is
scheduled to lease commencing in June 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 associated with these facilities and to increase depreciation
resulting from the receipt of a condominium interest in these facilities.
4
<PAGE>
The pro forma statement of operations data is also adjusted 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 has agreed to lease upon
completion of construction, or the Cabot Pointe facility, which the Company
has agreed to acquire simultaneous with the closing of this offering,
because such facilities were not in operation at March 31, 1996. See
"Company History," "Use of Proceeds," "Pro Forma Financial Information" and
"Business -- Properties."
(2) The pro forma statement of operations data for the three months ended March
31, 1996 was prepared as if the Company's interest in the Vintage, Terrace
Gardens and Garden City facilities had been acquired on January 1, 1996. In
addition, the pro forma statement of operations data is adjusted to (i)
decrease rent expense associated with the Vintage, Treemont and West Palm
Beach facilities and to increase depreciation resulting from the receipt of
a condominium interest in these facilities and (ii) increase corporate
administrative and general expenses to reflect management's estimate of the
additional 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 proposed acquisitions of Homestead Wichita and
Cabot Pointe because these facilities were not in operation at March 31,
1996. See "Company History," "Use of Proceeds," "Pro Forma Financial
Information" and "Business -- Properties."
(3) The Company has grown substantially through acquisitions, which materially
affects the comparability of the financial data reflected herein. See
"Company History" and "Certain Transactions."
(4) 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."
(5) The pro forma weighted average shares outstanding is presented as if the
Company sold 967,742 shares of Common Stock, representing the number of
shares required to be sold 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 Cabot Pointe and Terrace Gardens
facilities. See "Use of Proceeds."
(6) The pro forma balance sheet data as of March 31, 1996 was prepared as if
the acquisition of the Cabot Pointe and Terrace Gardens facilities, both of
which are expected to close simultaneous with the closing of this offering,
and the capital contribution of the condominium interests in the Treemont,
Vintage and West Palm Beach facilities had been consummated as of March 31,
1996. No pro forma adjustments have been made to reflect the acquisition of
leasehold interests in the 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."
(7) Adjusted to reflect (i) the transactions reflected in note 6 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 -- Prior 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 15 of the 17
facilities currently operated by the Company until such operations were
transferred to the Company upon its formation. For the year ended December 31,
1995 and the three months ended March 31, 1996, the Company had net income
(loss) of $(3,320,000) and $487,000, respectively. On a pro forma basis, giving
effect to the acquisition of two facilities which are expected to close
simultaneous with the closing of this offering and the acquisition of a
leasehold interest in two facilities, one of which is expected to close in June
1996 and the other in July 1996 (the "Proposed Acquisitions"), 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 three months ended March 31, 1996 would have been
$(2,865,000) and $357,000, 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. 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 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
6
<PAGE>
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
restrictions. 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
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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. See "--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 party to long-term operating leases for two
of its residential facilities and has agreed to lease the Garden City facility
in June 1996 and the Homestead Wichita facility upon completion of construction,
which is currently scheduled to occur in July 1996. These leases require minimum
annual lease payments aggregating approximately $2.0 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/
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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 and to acquire a
leasehold interest in two facilities. 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 acquisitions of
the Cabot Pointe and Terrace Gardens facilities to be consummated simultaneously
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 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. 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 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."
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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 November 1995 in
consideration of IHS' transfer to the Company of 15 of the 17 assisted living
facilities currently operated by the Company. See "--Potential Conflicts of
Interest with IHS" and "Company History."
PRIOR 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. See "Business -- Operations"
and "Certain Transactions."
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 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
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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 $14.9 million of the net proceeds from
this offering to finance the Proposed Acquisitions. The Company expects to use
the remaining net proceeds (approximately $31.4 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 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
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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."
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.
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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 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 received approximately 20%
of its revenues in the year ended December 31, 1995 from 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 56 properties currently operated, managed,
proposed to be acquired or under development are located in California and Texas
(16 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.
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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 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
November 1997, 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
1,031,000 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."
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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 between the Company 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."
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation and Bylaws, 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
$5.38 per share. See "Dilution."
15
<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. Upon 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 Retirement ("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. 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 in
November 1995 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 November 1995.
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 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. There can be
no assurance that IHS will be able to meet such tests.
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. Immediately
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
16
<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 addition, the Company has agreements to lease the Homestead of Garden City
and Homestead Wichita facility from one of its third-party developers, which is
expected to occur in June 1996 and July 1996, respectively, and has entered into
definitive agreements to acquire the Cabot Pointe and Terrace Garden facilities
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 $14.9 million of the net proceeds to
consummate the Proposed Acquisitions. The remainder of the net proceeds,
approximately $31.4 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" and "-- Properties -- Proposed Acquisitions."
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
Note 1 of Notes to Consolidated Financial Statements.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
March 31, 1996, (ii) on a pro forma basis as of such date to give effect to the
Proposed Acquisitions and the capital contribution of the condominium interests
in the Treemont, Vintage and West Palm Beach facilities, as if such transactions
had occurred on March 31, 1996, and the issuance of 967,742 shares of Common
Stock, representing the number of shares required to be sold 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 Cabot
Pointe and Terrace Gardens facilities, 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. The table should be read in conjunction with the Financial
Statements and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1996
---------------------------------------
Pro Forma
Actual Pro Forma as Adjusted
------ --------- -----------
(Dollars in Thousands)
<S> <C> <C> <C>
Long-term debt, including current portion ......... $ -- $ -- $ --
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
outstanding actual; 5,928,742 shares
issued and outstanding pro forma; 8,061,000
shares issued pro forma as adjusted(1)......... 50 59 81
Additional paid-in capital....................... 18,826 60,837 92,185
Accumulated deficit ............................. (2,608) (2,608) (2,608)
Total stockholders' equity..................... 16,268 58,288 89,658
Total capitalization............................... $ 16,268 $58,288 $89,658
</TABLE>
- ------------
(1) Excludes (i) 1,031,000 shares of Common Stock issuable upon exercise of
outstanding options and (ii) 178,150 additional shares of Common Stock
reserved for issuance pursuant to the Company's stock option plans. See
"Management -- Stock Options."
18
<PAGE>
DILUTION
At March 31, 1996, the pro forma net tangible book value of the Company was
approximately $58,288,000, or $9.83 per share. Pro forma net tangible book value
per share represents the total tangible assets of the Company, reduced by its
total liabilities, after giving effect to the Proposed Acquisitions and the
contribution by IHS to the capital of the Company of the condominium interests
in the Treemont, Vintage and West Palm Beach facilities, as if such transactions
had occurred on March 31, 1996, and divided by the number of shares of Common
Stock outstanding (including 967,742 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 underwriting discounts) in order for the Company to pay the
purchase price for the Cabot Pointe and Terrace Gardens facilities). 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 March 31, 1996
would have been $89,658,000, or $11.12 per share. This represents an immediate
increase in the pro forma net tangible book value of $1.29 per share to existing
stockholders and an immediate dilution of $5.38 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 March 31, 1996.... $9.83
Increase in pro forma net tangible book value per share attributable
to this offering .................................................. 1.29
Adjusted pro forma net tangible book value per share after this
offering (1)......................................................... 11.12
Dilution per share to new investors (2)............................... $ 5.38
</TABLE>
- ------------
(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 1,031,000 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."
The following table sets forth as of March 31, 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% $18,877,000 27.0% $ 3.81
New investors . 3,100,000 38.5 51,150,000 73.0 $16.50
Total......... 8,061,000 100.0% $70,027,000 100.0%
- ---------
(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. Effective June 1,
1996, IHS contributed as capital to the Company condominium interests in
the Treemont, Vintage and West Palm Beach facilities having a value of
$27,170,000, representing the lesser of IHS' net book value or estimated
fair value. Giving effect to this capital contribution, IHS' total
consideration would have been $46,047,000 (47.4% of total consideration)
and its average price per share would have been $9.28. See "Principal and
Selling Stockholders."
The foregoing table assumes no exercise of outstanding stock options or
warrants. See "Management -- Stock Options."
19
<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 three months ended March 31, 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 three months ended March 31, 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 three months ended March 31, 1996.
The pro forma balance sheet as of March 31, 1996 was prepared as if the
acquisition of the Cabot Pointe and Terrace Gardens facilities, both of which
are expected to close simultaneous with the closing of this offering and the
receipt of the condominium interests in the Treemont, Vintage and West Palm
Beach facilities as a capital contribution had been consummated as of March 31,
1996. No pro forma adjustments have been made to reflect the acquisition of
leasehold interests in the 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
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 the Company
has agreed to lease and which is scheduled to occur in June 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 the Company has agreed to lease and which is scheduled to occur
in July 1996, or the Cabot Pointe facility, which the Company has agreed to
acquire simultaneous with the closing of this offering, because such facilities
were not in operation at March 31, 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. 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."
The pro forma statements of operations for the three months ended March 31,
1996 were prepared as if the Company's interest in the following facilities had
been acquired on January 1, 1996: Vintage, which was leased by the Company
commencing January 29, 1996; Terrace Gardens; and Garden City. No pro forma
adjustments have been made to reflect the operations of the Homestead Wichita
facility or the Cabot Pointe facility because such facilities were not in
operation at March 31, 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. 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."
20
<PAGE>
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.
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."
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
MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Vintage,
West Palm
and Cabot
ILC Treemont Terrace Gardens Pointe
--- -------- --------------- ------ Pro forma
Actual Adjustments Actual Adjustments Adjustments consolidated
------ ----------- ------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents............... $ 1,425 $ 393 $ (393)(b) $ 1,425
Accounts receivable..................... 388 407 (407)(b) 388
Prepaid expenses and other current
assets................................. 550 32 (32)(b) 550
Total current assets................... 2,363 832 (832) 2,363
Assets limited as to use................ 684 -- 684
Property, plant and equipment, net...... 23,645 $ 27,170 (a) 7,963 4,267 (b) $ 2,875 (c) 65,920
Other assets............................ 856 135 (135)(b) 856
$27,548 $ 27,170 $ 8,930 $ 3,300 $ 2,875 $ 69,823
Liabilities and Stockholder's Equity
Accounts payable ....................... $ 851 $ 177 $ (177)(b) $ 851
Accrued expenses........................ 984 531 (451)(b) $ 175 (c) 1,239
Total current liabilities.............. 1,835 708 (628) 175 2,090
Long term debt.......................... -- 8,330 (8,330) --
Refundable deposits..................... 5,377 -- 5,377
Deferred income taxes................... 172 -- 172
Unearned entrance fees.................. 3,896 -- 3,896
Total liabilities...................... 11,280 9,038 (8,958) 175 11,535
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 5,928,742 issued
and outstanding pro forma.............. 50 -- 8 (b) 1 (c) 59
Additional paid-in capital.............. 18,826 $ 27,170 (a) -- 12,142 (b) 2,699 (c) 60,837
Retained earnings (deficit)............. (2,608) (108) 108 (b) (2,608)
Net stockholder's equity............... 16,268 27,170 (108) 12,258 2,700 58,288
$27,548 $ 27,170 $ 8,930 $ 3,300 $ 2,875 $ 69,823
</TABLE>
21
<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> <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 $(1,029)(d) -- -- -- -- 48 (i) 1,449
CORPORATE ADMINI-
STRATIVE AND GENERAL. 1,005 2,008 (e) 546 81 249 6 3,895
DEPRECIATION AND
AMORTIZATION........ 414 593 (d) 345 (48)(f) 200 (114)(d) 425 (146)(h) 14 (14)(i) 1,669
LOSS ON IMPAIRMENT OF
LONG-LIVED ASSETS... 5,126 -- -- -- -- 5,126
INTEREST............. -- 739 (739)(f) 429 (429)(g) -- 16 (16)(i) --
TOTAL EXPENSES...... 20,218 1,572 5,698 (787) 1,918 (543) 2,611 (146) 102 18 30,661
EARNINGS (LOSS)
BEFORE INCOME TAXES. (3,949) $(1,572) $ 245 $ 787 $ (297) $ 543 $ 977 $ 146 $ (71) $(18) (3,209)
======= ======== ====== ======== ====== ======== ====== ======= =======
FEDERAL AND STATE
INCOME TAXES ....... (629) (344)(j)
NET LOSS............. $(3,320) $ (2,865)
======= ========
NET EARNINGS PER
COMMON SHARE........ $ (.67) $ (.48)
======= ========
WEIGHTED AVERAGE
SHARES OUTSTANDING.. 4,961 5,929
===== =======
</TABLE>
INTEGRATED LIVING COMMUNITIES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 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> <C> <C> <C> <C> <C>
Revenues:
Monthly service and entrance fees. $ 5,164 $ 1,281 $ 139 $ 82 $ 6,666
Management services and other..... 451 77 2 -- 530
Total revenues................... 5,615 1,358 141 82 7,196
Expenses:
Facility operations............... 3,513 992 104 78 4,687
Facility rents.................... 725 $ (335)(d) -- -- -- $ 72 (i) 462
Corporate administrative and
general.......................... 337 502 (e) 129 -- 6 974
Depreciation and amortization..... 248 163 (d) 86 $ (12)(f) 17 $ (10)(d) 22 (22)(i) 492
Interest.......................... -- 171 (171)(f) 36 (36)(g) 29 (29)(i) --
Total expenses................... 4,823 330 1,378 (183) 157 (46) 135 21 6,615
Earnings (loss) before income
taxes............................. 792 $ (330) $ (20) $ 183 $ (16) $ 46 $ (53) $(21) 581
=== ====== ======== ===== ======== ==== ====== ==== ===
Federal and state income taxes .... 305 224 (j)
Net earnings ...................... $ 487 $ 357
======= ======
Net earnings per common share ..... $ .10 $ .06
======= ======
Weighted average shares
outstanding....................... 4,961 5,929
===== =====
</TABLE>
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
PRO FORMA ADJUSTMENTS
(a) To record IHS' contribution to capital of the Company of the condominium
interests in the Treemont, Vintage and West Palm Beach facilities of
$21,450,000, $3,460,000 and $2,260,000, respectively.
(b) To reflect the $12,150,000 purchase price and direct costs for the Terrace
Gardens acquisition, and to eliminate the assets and liabilities retained
by the seller.
(c) To record the $2,700,000 purchase price and direct costs for the Cabot
Pointe acquisition.
(d) To reflect depreciation and amortization on the new cost bases and the
reduction of rent resulting from the capital contribution of condominium
interests in the Treemont, West Palm Beach and Vintage facilities by IHS.
(e) To reflect management's estimate that corporate administrative and general
expenses would have been $3,895,000 for the year ended December 31, 1995
and $974,000 for the three months ended March 31, 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.
(f) 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.
(g) To reflect elimination of Vintage's interest expense on debt not assumed.
(h) To reflect the impact of the Company's new basis in the assets of
Carrington Pointe.
(i) To reflect the impact of the lease agreement between the Company and
Garden City.
(j) To adjust consolidated income tax expense for the effect of the
adjustments above.
23
<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 March 31, 1996 and for the three months ended March 31,
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 three-month period ended March 31, 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>
Three months
ended
Year ended December 31, March 31,
------------------------------------------- -------------
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 $3,756 $5,164
Management services and other..... 72 48 230 739 1,146 166 451
-- -- --- --- ----- --- ---
Total revenue................... 4,965 4,729 5,240 11,645 16,269 3,922 5,615
----- ----- ----- ------ ------ ----- -----
Expenses:
Facility operations............... 2,987 3,020 3,455 8,254 11,243 2,759 3,513
Facility rents.................... 797 821 856 1,466 2,430 614 725
Corporate administrative and
general.......................... 298 284 315 726 1,005 243 337
Depreciation and amortization..... -- -- 24 369 414 104 248
Loss on impairment of long-lived
assets(2)........................ -- -- -- -- 5,126 -- --
----- ----- ----- ------ ------ ----- -----
Total expenses.................. 4,082 4,125 4,650 10,815 20,218 3,720 4,823
----- ----- ----- ------ ------ ----- -----
Earnings (loss) before income
taxes............................. 883 604 590 830 (3,949) 202 792
Federal and state income taxes .... 228 230 230 311 (629) 78 305
--- --- --- --- ---- -- ---
Net earnings (loss)................ $ 655 $ 374 $ 360 $ 519 $(3,320) $ 124 $ 487
====== ====== ====== ======= ======= ====== ======
Earnings (loss) per common share .. $ 0.13 $ 0.08 $ 0.07 $ 0.10 $ (0.67) $ 0.02 $ 0.10
====== ====== ====== ======= ======= ====== ======
Weighted average shares
outstanding....................... 4,961 4,961 4,961 4,961 4,961 4,961 4,961
===== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
------------------------------------- ---------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......... $ -- $ -- $ 1 $ 787 $ 413 $ 1,425
Working capital (deficit)......... 27 26 (36) 208 (315) 529
Total assets...................... 27 26 15,834 18,300 25,774 27,548
Long-term debt, including current
portion........................... -- -- -- -- -- --
Stockholders' equity.............. 27 26 7,286 8,718 14,773 16,268
</TABLE>
- ----------
(1) The Company has grown substantially through acquisitions, which materially
affects the comparability of the financial data reflected herein.
(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."
24
<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 17 assisted living and other senior housing
facilities containing 1,808 units in six states. The 1,808 units operated by the
Company consist of 1,183 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 two additional facilities
containing 312 units simultaneous with the closing of this offering and to lease
two facilities containing 70 units, and is evaluating numerous additional
acquisition opportunities. All of ILC's 1995 revenues from its owned and leased
facilities were derived from private pay sources.
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 quarter of 1996 comprised 93.0% and 92.0%,
respectively, of total revenues. Resident fees typically are paid monthly by
residents, their families or other responsible parties. In 1995, all of the
Company's revenue from its owned and leased facilities was derived from private
pay sources. 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
25
<PAGE>
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 quarter of 1996 accounted for the
remaining 7.0% and 8.0%, 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. 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. 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.
Three months
Year ended December 31, ended March 31,
----------------------- ---------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
Monthly service and entrance fees .. 95.6% 93.7% 93.0% 95.8% 92.0%
Management services and other ...... 4.4 6.3 7.0 4.2 8.0
Total revenues .................... 100.0 100.0 100.0 100.0 100.0
Facility operations................. 66.0 70.8 69.1 70.2 62.6
Facility rents...................... 16.3 12.6 14.9 15.7 12.9
Corporate administrative and
general............................. 6.0 6.2 6.2 6.2 6.0
Depreciation and amortization ...... 0.4 3.2 2.6 2.7 4.4
Loss on impairment of long-lived
assets.............................. -- -- 31.5 -- --
Total expenses..................... 88.7 92.8 124.3 94.8 85.9
Earnings (loss) before income
taxes............................... 11.3 7.2 (24.3) 5.2 14.1
Federal and state income taxes ..... 4.4 2.7 (3.9) 2.0 5.4
Net earnings (loss)................. 6.9% 4.5% (20.4)% 3.2% 8.7%
26
<PAGE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1995
Revenues increased from $3.9 million in 1995 to $5.6 million in 1996,
representing a 43.2% 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 three months
ended March 31, 1996 was 93.4% as compared to 90.0% during the three months
ended March 31, 1995. Management services and other revenue increased from
$166,000 in 1995 to $451,000 in 1996, representing a 171.3% increase, primarily
due to the addition of four managed facilities subsequent to March 31, 1995 and
increased other revenue at its existing owned and leased facilities.
Facility operations expense increased from $2.8 million in 1995 to $3.5
million in 1996, representing a 27.3% 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 70.2% in 1995 to 62.6% 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 $614,000 in 1995 to $725,000 in 1996,
representing an 18.0% increase. Substantially all of the increase resulted from
the leasing of the Vintage facility commencing January 29, 1996. Facility rents
as a percentage of revenue decreased from 15.7% in 1995 to 12.9% 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 $243,000 in 1995
to $337,000 in 1996, an increase of 38.4%. 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 Waterside facility was charged a
management fee of 4.5% of monthly service fee revenue by each of IHS and the
minority partner while the other facilities were charged a management fee equal
to 6% of total revenue by IHS. The reason for the decrease in corporate
administrative and general expense as a percentage of revenues from 1995 to 1996
is that the Waterside facility's revenues constituted a smaller percentage of
total revenue in 1996 as compared to 1995 due to the acquisitions mentioned
above. See Note 7 of Notes to Consolidated Financial Statements.
Depreciation and amortization expense increased from $104,000 in 1995 to
$248,000 in 1996, representing a 138.1% increase. Substantially all of the
increase resulted from the addition of the Carrington Pointe facility on
December 31, 1995. Depreciation and amortization expense as a percentage of
revenue increased from 2.7% in 1995 to 4.4% in 1996 due to the above mentioned
acquisition.
Earnings before income taxes increased $590,000 from $202,000 in 1995 to
$792,000 in 1996, representing a 292.9% increase. This was primarily due to the
improved operating results at the Carrington Pointe and Vintage facilities
acquired subsequent to March 31, 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 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.
27
<PAGE>
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 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 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 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 Shore, 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.
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 being an owned facility for all
of 1994 but only one month of 1993.
28
<PAGE>
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
from IHS and cash from operations.
At March 31, 1996, the Company had working capital of $529,000 as compared to
a deficit of $315,000 at December 31, 1995.
The Company has obtained a commitment (the "Financing Commitment") from a
real estate investment trust ("REIT") 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 the REIT and will lease each New Facility and financed Existing
Facility from the REIT 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. The REIT'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 the REIT'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 the REIT and included in the development
agreement. Total Construction Cost (as defined) will equal land cost plus total
actual construction costs, one point on Maximum Cost (accrued as a cost by the
REIT), 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 the REIT equal to $1,550 per month (subject to reduction) and an
allowance for the REIT's cost of money at 1.5% over the Bank of New York prime
rate. The cost of overruns, if any, including the REIT's carrying cost on
overruns, are to be paid by the Company. The REIT 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.
The REIT will pay fair market value, based on an appraisal, to purchase an
Existing Facility. All leases will be "triple net" and the REIT will have the
right to a higher lease rate on facilities located in states that tax REIT
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 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
29
ness days prior to lease commencement. The base rent under New Facility leases
will equal the lease rate multiplied by the Total Construction Cost, not to
exceed the Maximum Cost. Beginning in the second year of the lease, each lease
will provide for the payment of additional rent, increased annually and paid
quarterly in arrears, equal to the sum of (a) the prior year's additional rent
and (b) the annual change in the CPI multipled 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 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 additional rent 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 the REIT and a subsidiary of the Company will be
guaranteed by the Company. The Company will be obligated to reimburse the REIT
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 $1,000,000
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
acquisition 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 $14.9 million of the net proceeds
of this offering to acquire two additional facilities simultaneous with the
closing of this offering, and anticipates that it will make capital expenditures
of approximately $500,000 with respect to these two
30
<PAGE>
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 agreed to provide two of its third-party developers
lines of credit aggregating $1.6 million. See "Use of Proceeds" and "Business --
Properties."
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."
31
<PAGE>
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 17 assisted living and other
senior housing facilities containing 1,808 units in six states. The 1,808 units
operated by the Company consist of 1,183 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 two additional
facilities containing 312 units simultaneous with the closing of this offering
and to lease two facilities containing 70 units, and is evaluating numerous
additional acquisition opportunities. All of ILC's 1995 revenues from its owned
and leased facilities 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
32
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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
33
<PAGE>
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
34
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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
35
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;
(b) ensure better construction quality control; and (c) save time and money with
bulk purchasing of materials and fixtures at a lower cost. 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,
simultaneously with the closing of this offering, ownership of two additional
assisted living facilities. In addition, the Company has agreed to lease two
facilities, which is expected to occur with respect to one facility in June 1996
and with respect to the other facility in July 1996. 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
grounds keeping 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.
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
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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 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.
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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 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. Addi
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tionally, 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 80% 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 17 assisted living
facilities in six states, containing 1,808 units. Six of the facilities are
owned, two are leased and the remaining nine 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.
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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
-------- -------- ------------ -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
CALIFORNIA
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....................... Sanger 2/96 49 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
Walnut Creek Alzheimer and
Dementia Care Center............. Walnut Creek 10/95 76 76 ALZ,AL,ADC(25) 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
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
</TABLE>
- -----------
(1) Represents date operations commenced by IHS. 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, physical rehabilitation, etc.
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.
Management Agreements. The Company currently manages nine assisted living
facilities with an aggregate of 697 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
40
<PAGE>
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, or leasehold interests in, four assisted living
facilities. 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.
Services
Facility Location Offered(1) Units(2) Beds(3) Status
- -------- -------- ---------- -------- ------- ------
FLORIDA
Cabot Pointe............. Bradenton AL, ALZ 54 76 Own(4)
KANSAS
Homestead of Garden City. Garden City AL 35 46 Lease(5)
Homestead of Wichita .... Wichita AL 35 46 Lease(6)
Terrace Gardens.......... Wichita AL, SH 258 342 Own(7)
- -------------
(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) Purchase price of $2,700,000. This acquisition is expected to close
simultaneous with the closing of this offering.
(5) 15 year lease at $287,500 per year, subject to adjustment based on a price
index. The Company expects to lease the facility in June 1996.
(6) 15 year lease at $287,500 per year, subject to adjustment based on a price
index. The Company expects to lease this facility upon completion of
construction, which is currently scheduled to occur in July 1996.
(7) Purchase price of $12,150,000. This facility includes a 100-bed nursing
facility. This acquisition is expected to close simultaneous with the
closing of this offering.
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 be approximately $72,000 per unit,
depending on local variations in land and construction costs. 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."
41
<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 D
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............ Q3/97 80 92 AL,ALZ Z
Lafayette.......... Q3/97 80 92 AL,ALZ Z
NEBRASKA(6)
Columbus........... Q4/97 35 40 AL D
Freemont........... Q2/97 35 40 AL D
Grand Island....... Q2/97 35 40 AL D
Hastings........... Q3/97 35 40 AL D
Kearney............ Q2/97 35 40 AL D
Norfolk............ Q2/97 35 40 AL D
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 = Seniors
Apartments and 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,
42
<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 agreed to provide the developer with an $800,000
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 $750,000 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
43
<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
44
<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 May 31, 1996, the Company had 473 employees, including 261 full-time
employees, of which 12 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."
45
<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 August 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.
46
<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>
<S> <C> <C>
Name Age Position
Robert N. Elkins,
M.D.................. 52 Chairman of the Board of Directors
Edward J. Komp....... 42 President, Chief Executive Officer and Director
Senior Vice President -- Chief Operating Officer and
Kayda A. Johnson .... 48 Secretary
Senior Vice President -- Chief Financial Officer and
John B. Poole........ 44 Treasurer
Senior Vice President -- Acquisitions and
Kyle D. Shatterly ... 35 Development
Luis Bared........... 46 Director
Lawrence P. Cirka ... 44 Director
Charles A. Laverty .. 50 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.
47
<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
owns and operates Bared Jewelers, which he founded in 1975. Bared Jewelers has
three 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.
----------
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 Stock
48
<PAGE>
holders, 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 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 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
49
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 not to be employed or have
certain other relationships with entities which are directly in the business of
50
<PAGE>
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. 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) any person (as
such term is used in Sections 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 (iv) 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
51
<PAGE>
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 a change
in control of the Company (as defined below under "Non-Employee Director Stock
Option Plan", except that the options granted to Dr. Elkins and Mr. Cirka will
not become immediately exercisable upon a change in control of the Company where
the company acquiring the Company is IHS) or 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 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, 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
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<PAGE>
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) 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 (iv) 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.
OPTION GRANTS
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------- Value at Assumed Annual
Number of Percent of Rates of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise Option Term (2)
Options Employees in Price Expiration -------------------
Name Granted(#) 1996 ($/Share)(1) Date 5%($) 10%($)
- ---- ---------- ---- ------------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Edward J. Komp .. 200,000 38.8% $ 16.50 6/10/2006 $2,076,000 $5,260,000
Kayda Johnson ... 100,000 19.4% $ 16.50 6/10/2006 $1,038,000 $2,630,000
John B. Poole ... 100,000 19.4% $ 16.50 6/10/2006 $1,038,000 $2,630,000
Kyle D.Shatterly. 70,000 13.6% $ 16.50 6/10/2006 $ 726,600 $1,841,000
</TABLE>
- ------------
(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.
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
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<PAGE>
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. Upon 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 agreements to manage nine facilities.
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.
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 range from $850 to $3,300); 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
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<PAGE>
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 payment terms of each sublease agreement are substantially similar
to the terms of the underlying lease between IHS and the property owner. 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.
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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 June 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 Offering(1) Number of Owned After Offering(1)
-------------------------- Shares Being -----------------------
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%
</TABLE>
- -------------
* 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.
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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
Company intends to apply to have the Common Stock 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
57
<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
58
<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.
59
<PAGE>
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.
60
<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 November 1997, 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 November 1997 (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.
61
<PAGE>
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
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<PAGE>
present 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.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES PAGE
<S> <C>
Independent Auditors' Report F-3
Consolidated Balance Sheets -- December 31, 1994 and 1995 and March 31,
1996 (unaudited) F-4
Consolidated Statements of Operations -- Years ended December 31, 1993, 1994
and 1995 and three months ended March 31, 1995 (unaudited) and 1996 (unaudited)
F-5
Consolidated Statements of Changes in Stockholder's Equity -- Years ended
December 31, 1993, 1994 and 1995 and three months ended March 31, 1996
(unaudited) F-6
Consolidated Statements of Cash Flows -- Years ended December 31, 1993, 1994
and 1995 and three months ended March 31, 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-19
Statement of Operations F-20
Statement of Cash Flows F-21
Notes to Financial Statements F-22
One Month Period ended November 30, 1993
Independent Auditors' Report F-24
Statement of Operations F-25
Statement of Cash Flows F-26
Notes to Financial Statements F-27
CARRINGTON POINTE
Independent Auditors' Report F-29
Statements of Operations -- Years ended December 31, 1993, 1994 and 1995 F-30
Statements of Cash Flows -- Years ended December 31, 1993, 1994 and 1995 F-31
Notes to Financial Statements F-32
VINTAGE HEALTH CARE CENTER RETIREMENT DIVISION
Independent Auditors' Report F-34
Balance Sheets -- December 31, 1994 and 1995 F-35
Statements of Operations -- Years ended December 31, 1994 and 1995 F-36
Statements of Changes in Division Equity -- Years ended December 31, 1994
and 1995 F-37
Statements of Cash Flows -- Years ended December 31, 1994 and 1995 F-38
Notes to Financial Statements F-39
F-1
<PAGE>
PROBABLE ACQUISITIONS
TERRACE GARDENS TENANTS IN COMMON PAGE
Independent Auditors' Report F-42
Balance Sheets -- December 31, 1994 and 1995 F-43
Statements of Operations -- Years ended December 31, 1993, 1994 and 1995 F-44
Statements of Changes in Owner's Deficit -- Years ended December 31, 1993,
1994 and 1995 F-45
Statements of Cash Flows -- Years ended December 31, 1993, 1994 and 1995 F-46
Notes to Financial Statements F-47
</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,
----------------- March 31,
1994 1995 1996
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................ $ 786,552 $ 413,362 $ 1,425,005
Accounts receivable.................................. 177,849 525,555 388,293
Prepaid expenses and other current assets............ 205,494 187,294 550,247
------- ------- -------
Total current assets............................... 1,169,895 1,126,211 2,363,545
Assets limited as to use (note 3)..................... 735,318 658,726 683,526
Property, plant and equipment, net (note 4) .......... 14,773,241 23,751,175 23,645,348
Goodwill, less accumulated amortization of $43,805 ... 1,573,586 -- --
Other assets.......................................... 47,514 237,650 855,650
------ ------- -------
$18,299,554 $25,773,762 27,548,069
=========== =========== ==========
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable .................................... $ 356,188 510,353 850,909
Accrued expenses (note 8) ........................... 605,318 930,941 983,504
- ------- ------- -------
Total current liabilities.......................... 961,506 1,441,294 1,834,413
Refundable deposits (note 11)......................... 4,311,490 5,243,332 5,377,332
Deferred income taxes (note 6)........................ 620,435 -- 172,112
Unearned entrance fees (note 1)....................... 3,687,707 4,316,391 3,895,883
- --------- --------- ---------
Total liabilities.................................. 9,581,138 11,001,017 11,279,740
--------- ---------- ----------
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 18,827,183
Retained earnings (deficit).......................... 224,811 (3,095,637) (2,608,464)
------- ---------- ----------
Net stockholder's equity........................... 8,718,416 14,772,745 16,268,329
--------- ---------- ----------
$18,299,554 $25,773,762 $27,548,069
=========== =========== ===========
</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, Three months ended March 31,
------------------------ -----------------------------
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 $ 3,756,024 $ 5,164,054
Management services and other.......... 230,516 738,558 1,145,734 166,394 451,399
------- ------- --------- ------- -------
Total revenues....................... 5,240,028 11,644,483 16,269,291 3,922,418 5,615,453
--------- ---------- ---------- --------- ---------
Expenses:
Facility operations.................... 3,455,602 8,253,851 11,242,938 2,758,752 3,512,944
Facility rents - Parent Company (note
5).................................... 855,963 1,466,243 2,430,397 614,460 725,276
Corporate administrative and general
(note 7).............................. 314,541 725,497 1,005,372 243,343 336,887
Depreciation and amortization.......... 23,530 368,657 414,401 104,252 248,195
Loss on impairment of long-lived assets
(note 12)............................. -- -- 5,125,838 -- --
-- ------- --------- ---------- --------- ---------
Total expenses....................... 4,649,636 10,814,248 20,218,946 3,720,807 4,823,302
--------- ---------- ---------- --------- ---------
Earnings (loss) before income taxes.. 590,392 830,235 (3,949,655) 201,611 792,151
Federal and state income taxes (note
6)..................................... 230,253 311,338 (629,207) 77,620 304,978
- ------- ------- -------- ------ -------
Net earnings (loss).................. $ 360,139 $ 518,897 $(3,320,448) $ 123,991 $ 487,173
========== =========== =========== =========== ===========
Earnings (loss) per common share ....... $ .07 $ .10 $ (.67) $ .02 $ .10
========== =========== =========== =========== ===========
</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 THREE MONTHS ENDED MARCH 31, 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)................. -- -- 487,173 487,173
Net capital contributions from parent
company (unaudited)...................... -- 1,008,411 -- 1,008,411
------ --------- ---------- ---------
Balance at March 31, 1996 (unaudited) ... $49,610 $18,827,183 $(2,608,464) $16,268,329
======= =========== =========== ===========
</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>
Three months ended
Years ended December 31, March 31,
------------------------ ------------------------
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) $ 123,991 $ 487,173
Adjustments to reconcile net earnings (loss) to
net cash provided (used) by operating
activities:
Deferred income taxes......................... 54,127 162,871 (620,435) (261,477) 172,112
Loss on impairment of long-lived assets....... -- -- 5,125,838 --
Depreciation and amortization................. 23,530 368,657 414,401 104,252 248,195
Decrease (increase) in accounts receivable ... (80,272) 102,777 (335,601) (548,705) 137,262
Decrease (increase) in prepaid expenses and
other current assets......................... 4,992 (170,051) 31,720 134,300 (362,953)
Earned entrance fees.......................... (87,675) (679,319) (680,409) (153,326) (261,528)
Entrance fees received........................ 80,550 768,798 1,491,593 669,760 134,000
Increase (decrease) in accounts payable and
accrued expenses............................. (165,781) 532,662 264,869 (294,471) 393,119
-------- ------- ------- -------- -------
Net cash provided (used) by operating
activities..................................... 189,610 1,605,292 2,371,528 (225,676) 947,380
------- --------- --------- -------- -------
Cash flows from financing activities:
Net capital contributions from (distributions
to) parent company ........................... (168,472) (427,127) (2,536,614) 564,542 1,008,411
Refundable deposits received................... 57,750 505,865 1,456,709 669,760 134,000
Refunds of deposits and entrance fees.......... (62,275) (370,769) (707,367) (160,963) (292,980)
------- -------- -------- -------- --------
Net cash provided (used) by financing
activities..................................... (172,997) (292,031) (1,787,272) 1,073,339 849,431
-------- -------- ---------- --------- -------
Cash flows from investing activities:
Property, plant and equipment additions........ (11,627) (358,375) (843,902) (433,674) (142,368)
Increase in other assets....................... -- -- (190,136) 3,095 (618,000)
Decrease (increase) in assets limited as to
use........................................... (3,817) (169,503) 76,592 102,220 (24,800)
------ -------- ------ ------- -------
Net cash used by investing activities........... (15,444) (527,878) (957,446) (328,359) (785,168)
------- -------- -------- -------- --------
Increase (decrease) in cash..................... 1,169 785,383 (373,190) 519,304 1,011,643
Cash, beginning of period....................... -- 1,169 786,552 786,552 413,362
------ ----- ------- ------- -------
Cash, end of period............................. $ 1,169 $ 786,552 $ 413,362 $ 1,305,856 $ 1,425,005
========== ========== =========== =========== ===========
Noncash investing and financing activities --
acquisitions of facilities: (note 2)
Assets of businesses acquired, net............. $7,068,554 $1,340,510 $11,911,391 -- --
Capital contributed by Parent Company.......... $7,068,554 $1,340,510 $11,911,391 -- --
========== ========== =========== =========== ===========
</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 MARCH 31, 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>
<S> <C> <C> <C>
Owner/Lessee
Date of Acquisition and IHS Owned or
Facility and Location Operating Entity Leased
West Palm Beach
Retirement,
a 34-unit assisted living December 1, 1993
facility West Palm Beach, Florida Central Park Lodges, Inc. Leased
Waterside Retirement Estates
(formerly Lakehouse East),
a 164-unit continuing care December 1, 1993
retirement community Sarasota, Florida F.L.C. Lakehouse, Inc. Owned
The Homestead,
a 50-unit assisted living March 18, 1994
and adult day care facility Denton, Maryland I.H.S. of Denton, Inc. Owned
Treemont Retirement
Community, a 231-unit
continuing care retirement
community, Alzheimer's February 9, 1989 Cambridge Group of
and adult day care facility Dallas, Texas Texas, Inc. Leased
The Shores, a 260-unit assisted
living, continuing care
retirement community and September 1, 1994 Integrated Health Services
Alzheimer's care facility Bradenton, Florida of Lester, Inc. Leased
Cheyenne Place Retirement,
a 95-unit congregate care September 1, 1994 Integrated Health Services
facility Colorado Springs, Colorado of Lester, Inc. Leased
Carrington Pointe, a
172-unit congregate
care and assisted living December 15,1995 Integrated Management -
facility Fresno, California Carrington Pointe, Inc. Owned
</TABLE>
Also, the statements include accounts of Integrated Health Services
Retirement Management, Inc., ("IHSRM"), which manages nine 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:
Building and improvements ... 40 years
Land improvements............ 25 years
Equipment.................... 10 years
Leasehold improvements....... Term of the lease
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 March 31, 1996 and for
the three months ended March 31, 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.
Years ended December 31,
-----------------------
1994 1995
---- ----
Revenues................. $ 22,514,216 $ 27,452,000
Net loss................. $ (18,700) $ (2,865,000)
Net loss per common share. $ -- $ (.48)
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.
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1994 1995 March 31, 1996
---- ---- --------------
(unaudited)
<S> <C> <C> <C>
Land and improvements........................ $ 5,166,862 $ 4,010,343 $ 4,010,343
Building and improvements.................... 9,332,822 18,828,646 18,945,018
Equipment.................................... 592,027 1,312,103 1,318,398
Construction in progress..................... 5,574 214,332 223,831
Leasehold improvements....................... 18,570 102,331 112,533
----------- ----------- -----------
15,115,855 24,467,755 24,610,123
Less accumulated depreciation and
amortization................................. 342,614 716,580 964,775
----------- ----------- ----------
Total........................................ $14,773,241 $23,751,175 $23,645,348
=========== =========== ===========
</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 initial term of the leases, as amended, expire on
September 1, 2002, and provide for various renewal terms at the option of IHS at
fair market rentals. Rent expense included in the financial statements under
these leases was none in 1993, $467,091 in 1994 and $1,401,271 in 1995. The
Company will sublease these facilities from IHS under the same terms as the
aforementioned leases. Minimum rent payments under these noncancellable
subleases are summarized as follows for the years ended December 31:
1996........ $1,401,271
1997........ 1,401,271
1998........ 1,401,271
1999........ 1,401,271
2000........ 1,401,271
Thereafter.. 2,335,447
---------
$9,341,802
==========
(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:
Years ended Three months ended
------------------------------ ---------------------------
1993 1994 1995 1995 1996
---- ---- ---- ----- -----
(unaudited)
Current... $ 176,126 $148,467 $ (8,772) $ 339,097 $ 132,866
Deferred . 54,127 162,871 (620,435) (261,477) 172,112
--------- -------- --------- ----------- ----------
$ 230,253 $311,338 $ (629,207) $ 77,620 $ 304,978
========= ======== =========== =========== ==========
F-14
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC AND SUBSIDIARIES -
(Wholly-Owned by Integrated Health Services, Inc.) (Continued)
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>
Three months ended
Years ended December 31, March 31,
--------------------------------- -----------------------
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) $ 68,548 $269,331
State income taxes, net of Federal tax
benefit.................................. 29,287 31,053 (175,233) 9,558 35,589
Other........................................ 233 (1,995) (2,501) (486) 58
Valuation allowance adjustment............... -- -- 891,410 -- --
-------- -------- ----------- ----------- --------
$230,253 $311,338 $ (629,207) $ 77,620 $304,978
======== ======== =========== =========== ========
</TABLE>
Deferred income tax liabilities are summarized as follows:
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------------------- ---------
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 $ 808,299
Unearned entrance fees................ (1,416,228) (1,382,890) (1,661,811) (1,499,915)
Accrued expenses...................... (77,999) (29,038) (27,682) (27,682)
Other................................. (29,441) -- -- --
----------- ----------- ----------- -----------
457,564 620,435 (891,410) (719,298)
Valuation allowance................... -- -- 891,410 891,410
----------- ----------- ------------ -----------
Deferred income tax liability......... $ 457,564 $ 620,435 $ -- $ 172,112
=========== =========== ============ ============
</TABLE>
(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:
December 31, March 31, 1996
---------------------- ----------------------
1994 1995 (unaudited)
---- ----
Accrued salaries and wages . 188,382 307,327 333,648
Refundable security
deposits.................... 291,807 370,331 395,531
Other accrued expenses ..... 125,129 253,283 254,325
--------- -------- --------
$ 605,318 $930,941 $983,504
========= ======== ========
(9) NOTE RECEIVABLE
Integrated Health Service Retirement Management, Inc. (IHSRM), a subsidiary
of IHS, entered into loan and security agreements dated August 7, 1995 and
amended on February 29, 1996 with an individual, the president of Elderly
Development Company, Inc. Under the agreements, IHSRM has agreed to loan up to
$750,000 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 IHSRM 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 IHSRM. The loan and security agreements provide
IHSRM 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. No stock options have been granted through March
31, 1996.
(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 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.
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, and to lease two assisted-living facilities. The proposed asset
purchase acquisitions are scheduled to close simultaneously with the intial
public offering of ILC common stock. The proposed lease transactions are
scheduled to close prior to the initial public offering of ILC common stock.
There can be no assurance that these acquisitions will close as scheduled or at
all. A summary of the acquisitions is as follows:
<TABLE>
<CAPTION>
Type of Purchase Number Annual
Facilities Acquired Acquisition Location Price of Units Rent
- ------------------- ----------- ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Terrace Gardens.......... Purchase Wichita, Kansas $12,150,000 258 $ --
Cabot Pointe............. Purchase Bradenton, Florida 2,700,000 54 --
Garden City,
Homestead of Garden City Lease Kansas -- 35 287,500
Homestead of Wichita ... Lease Wichita, Kansas -- 35 287,500
</TABLE>
Note Receivable
Integrated Health Services Retirement Management, Inc. (IHSRM), 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 with an
assisted living facility development company, The Homestead Company, L.C., a
Kansas limited liability company. Under such agreement, IHSRM has agreed to loan
up to $800,000, 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 IHSRM 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 guaranty 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 IHSRM.
F-18
<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-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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 $12.15 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-47
<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-48
<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-49
<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-50
<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
<TABLE>
<CAPTION>
<S> <C>
Page
Prospectus Summary................................ 3
Risk Factors...................................... 6
Company History................................... 16
Use of Proceeds................................... 17
Dividend Policy................................... 17
Capitalization.................................... 18
Dilution.......................................... 19
Pro Forma Financial Information................... 20
Selected Consolidated Financial Data.............. 24
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 25
Business.......................................... 32
Management........................................ 47
Certain Transactions.............................. 54
Principal and Selling Stockholders................ 56
Description of Capital Stock...................... 57
Shares Eligible for Future Sale................... 60
Underwriting...................................... 62
Legal Matters..................................... 63
Experts........................................... 63
Additional Information............................ 63
Index to Financial Statements..................... F-1
</TABLE>
----------------
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
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 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.
II-1
<PAGE>
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.
Since the Company's formation in November 1995 it has only issued shares of
Common Stock to Integrated Health Services, Inc. ("IHS") in consideration of
IHS' contribution to it of certain assets. 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 , 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.*
5 Opinion of Fulbright & Jaworski L.L.P.*
10.1 Declaration of Condominium of West Palm Beach, a Condominium, dated
as of June 1, 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.
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.
II-2
<PAGE>
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 10, 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 10, 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 10, 1996, by and
between The Hartmoor Homestead, L.C. and Integrated Living
Communities at Wichita, Inc.
10.14 Lease Agreement, dated as of June 10, 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 10, 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 10, 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 , 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 , 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 , 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 , 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.*
10.31 Form of Option Agreement under Non-Employee Director Stock Option
Plan.*
II-3
<PAGE>
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.*
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.*
10.36 Development Services Agreement, dated as of June 3, 1996, by and
among Integrated Living Communities, Inc., Integrated Health
Services, Inc. and Aguirre, Inc.*
10.37 Letter of Intent Agreement, dated as of March 18, 1996, among
Integrated Living Communities, Inc. and .*
10.38 Loan Commitment letter, dated May 30, 1996, from to the
Company.*
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 Power of Attorney (included on signature page)
27 Financial Data Schedule
- -----------
* To be filed by amendment.
(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-4
<PAGE>
SIGNATURES
Pursuant to the Requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this 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 12th day of June, 1996.
By: /s/ Edward J. Komp
----------------------------------------
Edward J. Komp
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Edward J. Komp and John B. Poole, or either of
them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and any and all related registration
statements and post-effective amendments pursuant to Rule 462(b) promulgated
under the Securities Act of 1933, and to file the same with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting said attorney-in-fact and agent, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/ Edward J. Komp
- --------------------- President, Chief Executive
Edward J. Komp Officer and Director
(principal executive officer) June 12, 1996
/s/ John B. Poole Senior Vice President--
- ---------------------- Chief Financial Officer
John B. Poole (principal financial and accounting officer) June 12, 1996
/s/ Robert N. Elkins
- ----------------------
Robert N. Elkins, M.D. Chairman of the Board of Directors June 12, 1996
- ----------------------
Luis Bared Director
/s/ Lawrence P. Cirka
- ----------------------
Lawrence P. Cirka Director June 12, 1996
/s/ Charles A. Laverty
- -----------------------
Charles A. Laverty Director June 12, 1996
/s/ Lisa Merritt
- -----------------------
Lisa Merritt Director June 12, 1996
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Description Page
- -- ----------- ----
<S> <C> <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 , 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.*
5 Opinion of Fulbright & Jaworski L.L.P.*
10.1 Declaration of Condominium of West Palm Beach, a Condominium, dated
as of June 1, 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.
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.
<PAGE>
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 10, 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 10, 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 10, 1996, by and
between The Hartmoor Homestead, L.C. and Integrated Living
Communities at Wichita, Inc.
10.14 Lease Agreement, dated as of June 10, 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 10, 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 10, 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 , 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 , 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 , 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 , 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.*
10.31 Form of Option Agreement under Non-Employee Director Stock Option
Plan.*
<PAGE>
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.*
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.*
10.36 Development Services Agreement, dated as of June 3, 1996, by and
among Integrated Living Communities, Inc., Integrated Health
Services, Inc. and Aguirre, Inc.*
10.37 Letter of Intent Agreement, dated as of March 18, 1996, among
Integrated Living Communities, Inc. and .*
10.38 Loan Commitment letter, dated May 30, 1996, from to the
Company.*
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 Power of Attorney (included on signature page)
27 Financial Data Schedule
</TABLE>
- -----------
* To be filed by amendment.
<PAGE>
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 6, 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....................................................... 6
X. BY-LAWS................................................................................................ 7
XI. MAINTENANCE............................................................................................ 7
XII. COMMON EXPENSES AND COMMON SURPLUS..................................................................... 8
XIII. ASSESSMENTS: LIABILITY, LIENS, PRIORITY, INTEREST AND COLLECTIONS..................................... 9
XIV. TERMINATION OF CONDOMINIUM............................................................................. 10
XV. EQUITABLE RELIEF....................................................................................... 10
XVI. LIMITATION OF LIABILITY................................................................................ 10
XVII. LIENS.................................................................................................. 11
XVIII. EASEMENTS.............................................................................................. 11
XIX. USE AND TRANSFER RESTRICTIONS.......................................................................... 12
XX. INSURANCE.............................................................................................. 13
i
<PAGE>
XXI. RECONSTRUCTION OR REPAIR AFTER CASUALTY................................................................ 18
XXII. EMINENT DOMAIN OR CONDEMNATION PROCEEDING.............................................................. 19
XXIII. LIABILITY - GENERALLY.................................................................................. 19
XXIV. GENERAL PROVISIONS..................................................................................... 20
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
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
1
<PAGE>
be 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.
3
<PAGE>
III. RESTRAINT UPON SEPARATION AND PARTITION OF COMMON ELEMENTS.
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.
4
<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.
5
<PAGE>
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
ByLaws. There shall be no cumulative voting.
E. The powers and duties of the Association shall include those set
forth in the Articles, the ByLaws, 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
6
<PAGE>
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
7
<PAGE>
and 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.
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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 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 By-Laws.
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.
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I. The Unit Owners shall be bound by and perform under the Services
Agreement, a copy of which shall be provided to all Unit Owners.
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
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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
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.
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C. Purchase of Insurance by Unit Owners: Each Unit Owner shall
maintain the following:
(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 or 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
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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
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.
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G. The following conditions and procedures shall apply to
reconstruction work (the "Work") and disbursement of remaining insurance
proceeds on account of same:
(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.
17
<PAGE>
(e) The amount of each of Association's Progress
Payments shall be computed as follows:
|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
18
<PAGE>
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 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:
-----------------------------------------
Printed Name: Name:
---------------- ---------------------------------------
Title:
---------------------------------------
INTEGRATED LIVING COMMUNITIES OF WEST PALM
BEACH, INC., a Delaware corporation
- ------------------------------
Printed Name:
----------------
- ------------------------------ By:
-----------------------------------------
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
ORL-160656.1/321
June 6, 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 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>
</TABLE>
SERVICES AGREEMENT
This Services Agreement ("Agreement") is made and entered into as of
this ____day of ___________, 1996, between Integrated Living Communities of West
Palm Beach, Inc. a Delaware corporation ("ILC") and Central Park Lodges of West
Palm Beach, Inc., a Florida corporation ("CPL").
RECITALS
WHEREAS, ILC is the owner of that portion of the facility located at
2939 S. Haverhill Road, West Palm Beach, Florida designated for assisted living
services (the "ALF"), as further set forth in that certain condominium
declaration, dated as of __________, by and between the parties hereto
("Condominium Declaration"); and
WHEREAS, CPL is the owner of that portion of the facility located at
2939 S. Haverhill Road, West Palm Beach, Florida designated for skilled nursing
services (the "SNF"), as further set forth in the Condominium Declaration; and
WHEREAS, this Agreement sets forth the terms and conditions upon which
CPL will provide certain services to ILC at the ALF; and
WHEREAS, CPL shall be an independent contractor and shall retain
control over its employees and agents.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, CPL and ILC, intending to be legally
bound, agree as follows:
ARTICLE I
MAINTENANCE AND SECURITY SERVICES
1.1 Maintenance Services.
(a) During the Term (as defined below), CPL shall provide
Building Maintenance Services (defined herein) to the ALF. For purposes hereof,
"Building Maintenance Services" shall mean general maintenance of the buildings
and grounds of the ALF. The Building Maintenance Services shall be consistent
with the standard of services provided prior to the date hereof.
<PAGE>
(b) In connection with the provision of Building Maintenance
Services to the ALF, ILC shall be responsible for the payment of three thousand
two hundred ($3,200.00) dollars per month (the "Building Maintenance Service
Fees"). On each anniversary date of the commencement of this Agreement, the
Building Maintenance Service Fees shall be increased by a percentage (not to
exceed four (4%) percent) which is equal to the percentage increase in the
"Consumer Price Index for All Urban Consumers--All Cities" published by the
United States Department of Labor's Bureau of Labor Statistics for the then most
recently ended 12-month period as of the date of such adjustment (the "Annual
Adjustment"). The total costs and expenses described herein, include, without
limitation, all wages, benefits, payroll taxes and workers' compensation
premiums.
ARTICLE II
HOUSEKEEPING AND LAUNDRY
2.1 Housekeeping.
(a) During the Term, CPL shall provide the housekeeping staff
and all cleaning services to the ALF. The housekeeping staff and cleaning
services provided by CPL to ILC shall be consistent with the standard of
services provided prior to the date hereof.
(b) In connection with the provision of such housekeeping
staff and cleaning services to the ALF, ILC shall be responsible for the payment
of two thousand ($2,000.00) dollars per month. On each anniversary date of the
commencement of this Agreement, such payment for the housekeeping staff and
cleaning services will be increased by the Annual Adjustment. The total costs
and expenses described herein, include, without limitation, all wages, benefits,
payroll taxes, and workers' compensation premiums.
2.2 Laundry. During the Term, CPL shall provide laundry services for
the ALF every Monday and Thursday with such services to be provided from a
central laundry which is owned and operated by CPL. CPL shall charge ILC eight
hundred fifty ($850.00) dollars per month (the "Laundry Fees") for the laundry
services provided to the ALF. On each anniversary date of the commencement of
this Agreement, the laundry fees shall be increased by the Annual Adjustment.
The laundry services provided by CPL to ILC shall be consistent with the
standard of services provided prior to the date hereof.
2
<PAGE>
ARTICLE III
ADMINISTRATION
3.1 Emergency Calls.
(a) The emergency call system is centrally located in the SNF.
In the event an emergency call is originated in the ALF, CPL's personnel will
immediately notify ILC's personnel to respond to the situation.
(b) The parties agree that ILC shall be responsible for a flat
fee payment of one hundred ($100.00) dollars per month for its use of the
emergency call service. On each anniversary date of the commencement of this
Agreement, the emergency call service fee shall be increased by the Annual
Adjustment.
ARTICLE IV
NUTRITION SERVICES
4.1 Nutrition Services. During the Term, CPL shall own, manage, and
operate the preparation, service and sale of food, beverages, goods, merchandise
and other items at the ALF (the "Nutrition Services") for ILC as described
below:
(a) CPL shall provide three (3) meals per day for ALF's
residents, including food supplements at regular times comparable to normal
mealtimes in the community serviced by the ALF at other similar assisted living
facilities. Menus shall be approved by ILC, which approval shall not be
unreasonably withheld. Such menus shall comply with the standards for
nutritional adequacy as set forth by the American Dietetic Association and meet
the requirements of all physician ordered therapeutic diets. The meals shall be
served to ILC's residents in dining rooms in the ALF.
(b) CPL shall provide meals for employees of ILC, made
available thirty (30) minutes prior to or thirty (30) minutes following resident
meals, the number and serving times of which shall be mutually agreed upon by
the parties, by letter agreement dated within sixty (60) days of the
commencement date of this Agreement.
(c) CPL shall provide such other meals or refreshments as may
be reasonably requested by ILC, which by way of example shall include resident
family meals and marketing meals.
(d) CPL shall provide all maintenance and cleaning of the
kitchen and upkeep
3
<PAGE>
of food inventory, in order to ensure that the Nutrition Services are provided
as and when due in accordance with the terms hereof.
(e) CPL will perform quarterly resident surveys as a
component of CPL's self- evaluation program. Results of all surveys and action
plans shall be reviewed with ILC's administration.
4.2 Minimum Requirements.
(a) CPL's provision of the Nutrition Services shall be in
compliance with the following standards:
(i) a one-week supply, or such amount as may be
required by law, of non-perishable food and supplies necessary to meet
the needs of the residents of the ALF shall be maintained at all times;
(ii) all menus used in connection with the provision
of the Nutrition Services shall (i) meet the nutritional needs of the
ALF's residents in accordance with the recommended dietary allowances
of the Food and Nutrition Board of the National Research Council,
National Academy of Sciences, (ii) be prepared in advance, and (iii) be
followed;
(iii) CPL shall provide food that shall be (i)
prepared by methods that conserve nutritive value, flavor, and
appearance, (ii) palatable, attractive, and at the proper temperature,
(iii) prepared in a form designed to meet individual needs, and in the
event that a resident refuses food served, that any substitute offered
to such resident shall be of similar nutritive value to the food
originally offered; and (iv) prepared pursuant to instructions to be
provided by ILC;
(iv) therapeutic diets shall be served to residents
of the ALF as prescribed by the residents' attending physician, it
being ILC's responsibility to provide accurate records which reflect
the physician ordered diets;
(v) there are no more than fourteen (14) hours
between a substantial evening meal and breakfast the following day
(except when a nourishing snack is provided at bedtime, up to sixteen
(16) hours may elapse between a substantial evening meal and breakfast
the following day if a resident group agrees to this meal span, and a
nourishing snack is served);
(vi) snacks shall be available for residents of the
ALF at bedtime each day;
(vii) special eating equipment and utensils shall be
available to residents
4
<PAGE>
of the ALF who need them, which items shall have been provided by ILC
prior to the commencement of this Agreement to the extent required by
residents of the ALF, provided, that ILC shall have responsibility for
supplying such equipment and utensils to those residents of the ALF
whose need for them shall arise after the commencement of this
Agreement to the extent the special eating equipment and utensils
provided by ILC prior to the commencement of this Agreement as
aforesaid are not adequate to fulfill such need;
(viii) CPL shall procure food from sources approved
or considered satisfactory by federal, state, and local authorities;
and
(ix) CPL shall store, prepare, distribute, and serve
food under sanitary conditions and dispose of garbage and refuse
properly.
(b) ILC shall be responsible for the cost of Nutrition
Services in the amount of ten ($10.00) dollars per resident per day. On each
anniversary date of the commencement of this Agreement, such payment shall be
increased by the Annual Adjustment.
ARTICLE V
PAYMENT
5.1 Payment. CPL shall submit invoices to ILC on the 30th day of each
month during the term of this Agreement. Payment shall be due ten (10) days
after date of invoice. Any payment due from ILC for the provision of services
hereunder which is not made within ten (10) days of the date due shall bear
interest at the rate of 1% per month from the date due to the date paid in full.
Further, in the event that any payment required to be made to CPL hereon shall
remain unpaid after the same becomes due, ILC shall pay to CPL, in addition to
all other amounts payable hereunder, and not as a penalty but as the agreed cost
to CPL resulting from such delay, a "late fee" equal to five (5%) percent per
month of such overdue amount. Upon termination of this Agreement, all
outstanding amounts shall become immediately due and payable.
ARTICLE VI
GENERAL TERMS AND CONDITIONS
6.1 Term. The term of this Agreement (the "Term") shall commence as of
the date hereof, and shall end on that date which is one (1) year following the
date hereof, unless sooner terminated as provided in Section 6.2, below. At the
end of the initial term, this Agreement shall be renewed for successive terms of
one (1) year, unless terminated as provided in Section 6.2, below.
5
<PAGE>
6.2 Termination.
(a) This Agreement may be terminated immediately by any party
hereto in the event of a material breach of the terms of this Agreement or of
the Lease by the other party hereto, which breach is not cured to the
satisfaction of the non-breaching party within thirty (30) days of its receipt
of notice thereof.
(b) This Agreement may be terminated by either party at any
time without cause upon one hundred eighty (180) days notice to the other party.
6.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
6.4 Compliance With Law. CPL shall comply with all applicable laws,
ordinances, rules and regulations relating to the services described herein
including sanitation, safety and health and will obtain all licenses and permits
required in connection therewith.
6.5 Worker's Compensation Insurance. Each party shall maintain workers'
compensation as required by state law covering all of its employees employed in
connection with the services described herein.
6.6 Comprehensive or Commercial Insurance.
(a) CPL shall maintain during the term of the Agreement
comprehensive or commercial general bodily injury & property damage liability
insurance in the combined single limit of not less than three million
($3,000,000.00) dollars, for each occurrence including, but not limited to,
personal injury liability, broad form property damage liability, blanket
contractual liability and products liability, covering the operations and
activities of CPL under this Agreement and shall provide ILC with a certificate
evidencing such policy. The insurance policies shall contain a covenant from the
issuing company that the policies shall not be canceled prior to thirty (30)
days written notice to ILC.
(b) ILC shall maintain during the term of the Agreement
comprehensive or commercial general bodily injury and property damage liability
insurance in the same amount and on the same terms as the insurance required to
be provided by CPL under the terms hereof.
6.7 Indemnify. CPL and ILC shall defend, indemnify and hold each other
harmless from and against all claims, liability, loss and expenses, including
reasonable costs, collection expenses and attorney's fees, which may arise
because of the negligence, misconduct, or fault of the indemnifying party, its
agents or employees in the performance of its obligations under the Agreement.
This provision shall survive termination of the Agreement.
6.8 Omnibus Budget Reconciliation Act of 1987. CPL and ILC shall comply
with
6
<PAGE>
the Omnibus Budget Reconciliation Act of 1987 until the expiration of four (4)
years after the furnishing of any services under the Agreement. CPL and ILC and
any of their subcontractors whose subcontracts are of a value or cost of ten
thousand ($10,000.00) dollars or more, shall upon written request, make
available to the Secretary of the Department of Health and Human Services, the
Comptroller General of the United States, or any of their duly authorized
representatives, the Agreement and such books, documents and records of CPL and
ILC and such subcontractors, if any, as are necessary to certify the nature and
extent of the costs to ILC of performance of the Agreement. The subcontracts, if
any, shall contain a clause similarly requiring the retention and availability
of like documentation.
6.9 Insolvency. In addition to all other rights herein, either party
may terminate the Agreement without prior notice should the other party become
insolvent, voluntarily file for bankruptcy or receivership, or make any
assignment for the benefit of creditors, or should the other party have
commenced against it any proceeding, suit or action in bankruptcy or
receivership, provided such proceeding, suit or action is not dismissed within
thirty (30) days.
6.10 Effect of Termination. Upon termination of the Agreement, all
outstanding amounts shall immediately become due and payable.
6.11 Notice. Any notice or communication required or permitted to be
given under the Agreement shall be in writing and served personally, delivered
by courier or sent by United States certified mail, postage prepaid with return
receipt requested, addressed to the other party;
To CPL: Central Park Lodges of West Palm Beach, Inc.
c/o Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Eleanor C. Harding
To ILC: Integrated Living Communities of West Palm Beach, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Kayda Johnson
and/or to such other persons or places as either of the parties may hereafter
designate in writing. All such notices shall be effective when received or when
receipt is first denied, whichever occurs earlier.
6.12 Catastrophe. Neither CPL nor ILC shall be liable for failure to
perform its respective obligations under the Agreement when such failure is
caused by fire, explosion, water, act of God, civil disorder or disturbances,
strikes, vandalism, war, riot, sabotage, weather and energy related closings,
governmental rules and regulations or like causes beyond the reasonable control
of such.
6.13 Construction and Effect. A waiver of any failure to perform under
the Agreement
7
<PAGE>
shall neither be construed as nor constitute a waiver of any subsequent failure.
The articles and section headings used herein are used solely for convenience
and shall not be deemed to limit the subject of the articles and sections or be
considered in their interpretation. Any exhibits referred to herein are made a
part of the Agreement by reference. The Agreement may be executed in several
counterparts, each of which shall be deemed an original.
6.14 Severability. If any term or provisions of the Agreement or the
application thereof to any person or circumstance shall to any extent or for any
reason be invalid or unenforceable, the remainder of the Agreement and the
application of such term or provision to any person or circumstance other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each remaining term and provision of the Agreement shall be valid
and enforceable to the fullest extent permitted by law.
6.15 Amendments. All provisions of the Agreement shall remain in effect
throughout the term thereof unless the parties agree, in a written document
signed by both parties, to amend, add or delete any provision. The Agreement
contains all agreements of the parties with respect to matters covered herein,
superseding any prior agreements and may not be changed other than by an
agreement in writing signed by the parties hereto.
6.16 Counterparts. This Agreement and any amendments hereto may be
executed in counterparts, each of which shall be deemed to be an original but
all of which taken together shall constitute but one and the same instrument.
[SIGNATURES ON THE FOLLOWING PAGE]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first set forth above.
CENTRAL PARK LODGES OF WEST
PALM BEACH, INC.
By:___________________________________
Title:________________________________
INTEGRATED LIVING COMMUNITIES
OF WEST PALM BEACH, INC.
By:___________________________________
Title:________________________________
9
<PAGE>
AMENDMENT TO SERVICES AGREEMENT
This Amendment to Services Agreement ("Amendment"), is made and entered
into this 1 day of June, 1996, between INTEGRATED LIVING COMMUNITIES OF WEST
PALM BEACH, INC., a Delaware corporation ("ILC"), and CENTRAL PARK LODGES OF
WEST PALM BEACH, INC., a Florida corporation ("CPL").
RECITALS
WHEREAS, ILC and CPL have entered into a Services Agreement, dated June
1, 1996, (the "Agreement"); and
WHEREAS, this Agreement sets forth the terms and conditions upon which
CPL will provide certain services to ILC at the ALF (as defined in the
Agreement); and
WHEREAS, ILC and CPL wish to amend the Agreement as follows:
During the Term (as defined in the Agreement), CPL shall provide
general building management and landscaping services with respect to the
physical structure of the ALF.
In connection with the provision of general building management and
landscaping services for the ALF, ILC shall be responsible for the payment of
fourteen thousand one hundred sixty-six dollars ($14,166) per month.
All other terms and conditions of the Agreement shall remain in full
force and effect.
[SIGNATURES ON THE FOLLOWING PAGE}
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date and year first set forth above.
CENTRAL PARK LODGES OF WEST PALM BEACH, INC.
By:
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Title: Senior Vice President-Finance
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INTEGRATED LIVING COMMUNITIES OF WEST PALM BEACH, INC.
By:
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Title: Senior Vice President - CEO
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<PAGE>
DECLARATION OF CONDOMINIUM
of
TREEMONT, A CONDOMINIUM
<PAGE>
INDEX
TO
DECLARATION OF CONDOMINIUM
<TABLE>
<CAPTION>
ARTICLES PAGE
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I. DEFINITIONS................................................................................... 1
II. CONDOMINIUM NAME, CONDOMINIUM PARCELS, APPURTENANCES,
POSSESSION AND ENJOYMENT...................................................................... 3
III. RESTRAINT UPON SEPARATION AND PARTITION OF COMMON
ELEMENTS...................................................................................... 5
IV. DESCRIPTION OF PROPERTY SUBMITTED TO CONDOMINIUM
OWNERSHIP..................................................................................... 5
V. COMMON ELEMENTS............................................................................... 5
VI. LIMITED COMMON ELEMENTS....................................................................... 6
VII. ALTERATIONS OF AND IMPROVEMENTS TO UNITS AND COMMON
ELEMENTS....................................................................................... 6
VIII. AMENDMENT OF DECLARATION...................................................................... 7
IX. THE ASSOCIATION, ITS POWERS AND RESPONSIBILITIES.............................................. 7
X. BYLAWS........................................................................................ 9
XI. MAINTENANCE.................................................................................. 10
XII. COMMON EXPENSES AND COMMON SURPLUS........................................................... 11
XIII. ASSESSMENTS: LIABILITY, LIENS, PRIORITY, INTEREST AND
COLLECTIONS................................................................................... 11
XIV. CREATION OF CONDOMINIUM...................................................................... 13
XV. EQUITABLE RELIEF............................................................................. 13
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XVI. LIMITATION OF LIABILITY...................................................................... 14
XVII. LIENS........................................................................................ 14
XVIII. EASEMENTS.................................................................................... 14
XIX. USE AND TRANSFER RESTRICTIONS................................................................ 15
XX. INSURANCE.................................................................................... 18
XXI. RECONSTRUCTION OR REPAIR AFTER CASUALTY...................................................... 24
XXII. EMINENT DOMAIN OR CONDEMNATION PROCEEDING.................................................... 25
XXIII. LIABILITY - GENERALLY........................................................................ 25
XXIV. GENERAL PROVISIONS............................................................................ 26
<PAGE>
EXHIBITS TO DECLARATION
EXHIBIT "A" LEGAL DESCRIPTION
EXHIBIT "B" PERCENTAGE SHARE OF COMMON ELEMENTS,
COMMON EXPENSES AND COMMON SURPLUS
EXHIBIT "C" PLOT PLAN AND SURVEY
EXHIBIT "D" ARTICLES OF INCORPORATION
EXHIBIT "E" BYLAWS
<PAGE>
DECLARATION OF CONDOMINIUM
of
TREEMONT, A CONDOMINIUM
CAMBRIDGE GROUP OF TEXAS, INC., a Texas corporation, whose mailing
address is 10065 Red Run Boulevard, Owings Mills, Maryland 21117, 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 DALLAS, INC.,
a Delaware corporation, whose mailing address is 10065 Red Run Boulevard, Owings
Mills, Maryland 21117 (collectively referred to herein as "Developer"), for
themselves, their successors, grantees and assigns, hereby submit said property,
improvements thereon and appurtenances thereto to condominium ownership pursuant
to Texas Uniform Condominium Act, Chapter 82, Texas Property Code and any
amendments thereto ("Condominium Act"), as enacted upon date of recordation
hereof. It is the intent of Developer that the Condominium be a commercial
condominium.
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 Bylaws 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 Bylaws attached hereto, and in all amendments thereto, unless the context
requires otherwise:
A. "Articles" and "Bylaws" means the Articles of Incorporation and the
Bylaws 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 Treemont Condominium Association, Inc., the
Texas non-profit corporation responsible for the operation of the Condominium.
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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 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 County of Dallas, State of Texas.
M. "Declaration" or "Declaration of Condominium" means this instrument
as it may from time to time be amended.
N. "Developer" means Cambridge Group of Texas, Inc., a Texas
corporation, and Integrated Living Communities of Dallas, 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.
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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 the County, 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 Bylaws 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 Treemont, a
Condominium.
II. CONDOMINIUM NAME, CONDOMINIUM PARCELS, APPURTENANCES,
POSSESSION AND ENJOYMENT.
A. The name of this Condominium is TREEMONT, 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
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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.
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III. RESTRAINT UPON SEPARATION AND PARTITION OF COMMON ELEMENTS.
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 in 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.
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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.
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
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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.
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 Bylaws 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.
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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 Texas non-profit corporation and a copy of
its Articles 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 Bylaws.
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
Bylaws. There shall be no cumulative voting.
E. The powers and duties of the Association shall include those set
forth in the Articles, the Bylaws, 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 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
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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.
5. The power to purchase Units in the Condominium and to acquire,
hold, lease, mortgage and convey the same.
6. The power to obtain and maintain adequate insurance to protect
the Association and the Common Elements and Association
Property.
7. 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.
8. 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. BYLAWS.
The administration of the Association and the operation of the
Condominium Property shall be governed by the Bylaws of the Association, a copy
of which is attached hereto and made
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a part hereof as Exhibit "E." No modification of or amendment to the Bylaws
shall be deemed valid unless duly adopted as provided in the Bylaws 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
Bylaws 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 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. The responsibility for the maintenance, repair, and replacement, and
the cost of keeping clean and in orderly condition the fences, pools, awnings or
any other improvements or personal property forming a part of the Limited Common
Elements which exclusively serve
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a certain Unit or Units to the exclusion of other Units, shall be borne by the
Owner(s) of the Unit(s) to which the same are appurtenant.
E. 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.
F. 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 Bylaws. 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.
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.
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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 (I %) 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 Texas
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 the County 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
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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 the manner as a foreclosure of a mortgage on real
property. In any such foreclosure, the court, in its discretion, may 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. CREATION 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.
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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.
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 lien or to release the lien of record
from such Condominium Parcel.
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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 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:
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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.
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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. 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 unless
permitted by applicable law.
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.
J. 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
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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 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 Texas to the extent the Association hires
employees.
5. Directors and officers liability insurance, if available.
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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
Texas, 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:
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,
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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
Texas, 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
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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 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.
2. 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.
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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 Mortgages 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:
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. Affidavit 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 an Affidavit of Commencement is recorded
pursuant to Section 53.124 of the Texas Property Code and a certified
copy of such Affidavit 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
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(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:
The Progress
Payment payable to
the Contractor under
the Construction X the total (LESS) Retainage under
Contract by the remaining Contract
Construction 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 herein, 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
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b. a 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 Affidavit of Bills Paid complying in all
respects to the provisions of Chapter 53 of Texas Property Code, duly and
properly executed 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 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 proceeds available under required
policies of insurance plus deductible amounts, then the damage shall be
deemed Major damage as addressed below.
-24-
<PAGE>
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 offer
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
-25-
<PAGE>
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.
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
Texas 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 Bylaws 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 Bylaws, 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 ______________. All notices shall be deemed sent when deposited in a
depository of the United States Postal Service, properly addressed and
containing sufficient postage. Any party may change his or its mailing address
by written notice to the other party.
-26-
<PAGE>
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.
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.
EXECUTED as of the ___________ day of __________________, 1996.
CAMBRIDGE GROUP OF TEXAS, INC.
By: ____________________________
Name: __________________________
Title: _________________________
INTEGRATED LIVING COMMUNITIES
OF
DALLAS, INC.
By: ____________________________
Name: __________________________
Title: _________________________
THE STATE OF ______ ss.
ss.
COUNTY OF _________ ss.
This instrument was acknowledged before me on this _______ day of
_____________, 1996, by __________________________________, as
__________________ of Cambridge Group of Texas, Inc., a Texas corporation, on
behalf of said corporation.
-27-
<PAGE>
--------------------------------
NOTARY PUBLIC IN AND FOR THE
STATE OF _______________________
THE STATE OF ______ ss.
ss.
COUNTY OF _________ ss.
This instrument was acknowledged before me on this _______ day of
____________, 1996, by _______________________________, as __________________ of
Integrated Living Communities of Dallas, Inc., a Delaware corporation, on behalf
of said corporation.
--------------------------------
NOTARY PUBLIC IN AND FOR THE
STATE OF _______________________
-28-
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
<PAGE>
EXHIBIT "B"
PERCENTAGE SHARE OF COMMON ELEMENTS,
COMMON EXPENSES AND COMMON SURPLUS
The Percentage Share of Common Elements, Common Expenses and Common
Surplus for each unit:
Unit A = _________ %
Unit B = _________ %
<PAGE>
EXHIBIT "C"
PLOT PLAN AND SURVEY
Unit A = Skilled Nursing Facility
Unit B = Assisted Life Care Facility
<PAGE>
EXHIBIT "D"
ARTICLES OF INCORPORATION
TREEMONT CONDOMINIUM ASSOCIATION, INC.
<PAGE>
EXHIBIT "E"
BYLAWS
TREEMONT CONDOMINIUM ASSOCIATION, INC.
<PAGE>
</TABLE>
SERVICES AGREEMENT
This Services Agreement ("Agreement") is made and entered into as of
this ___ day of _______________, 1996, between Integrated Living Communities of
Dallas, Inc., a Delaware corporation ("ILC") and Cambridge Group of Texas, Inc.,
a Texas corporation ("CGT").
RECITALS
WHEREAS, ILC is the owner of that portion of the facility located at
5550 Harvest Hill Road, Dallas, Texas designated for assisted living services
(the "ALF"), as further set forth in that certain condominium declaration, dated
as of , by and between the parties hereto ("Condominium Declaration"); and
WHEREAS, CGT is the owner of that portion of the facility located at
5550 Harvest Hill Road, Dallas, Texas designated for skilled nursing services
(the "SNF"), as further set forth in the Condominium Declaration; and
WHEREAS, this Agreement sets forth the terms and conditions upon which
CGT will provide certain services to ILC at the ALF; and
WHEREAS, CGT shall be an independent contractor and shall retain
control over its employees and agents.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, CGT and ILC, intending to be legally
bound, agree as follows:
ARTICLE I
LAUNDRY
1.1 Laundry. During the Term (as defined below), CGT shall provide
laundry services for the ALF with such services to be provided from a central
laundry which is owned and operated by CGT. CGT shall charge ILC three thousand
three hundred ($3,300.00) dollars per month (the "Laundry Fees") for the laundry
services provided to the ALF. On each anniversary date of the commencement of
this Agreement, the Laundry Fees shall be increased by a percentage (not to
exceed four (4%) percent) which is equal to the percentage increase in the
"Consumer Price Index for All Urban Consumers--All Cities" published by the
United States Department of Labor's Bureau of Labor Statistics for the then most
recently ended 12-month period as of the date of such adjustment (the "Annual
Adjustment"). The laundry services provided by CGT to ILC shall be consistent
with the standard of services provided prior to the date hereof.
1
<PAGE>
ARTICLE II
ADMINISTRATION
2.1 Emergency Calls.
(a) The emergency call system is centrally located in the SNF.
In the event an emergency call is originated in the ALF, CGT's personnel will
immediately notify ILC's personnel to respond to the situation.
(b) The parties agree that ILC shall be responsible for a flat
fee payment of one hundred ($100.00) dollars per month for its use of the
emergency call services. On each anniversary date of the commencement of this
Agreement, the emergency call service fee shall be increased by the Annual
Adjustment.
ARTICLE III
NUTRITION SERVICES
3.1 Nutrition Services. During the Term, CGT shall own, manage, and
operate the preparation, service and sale of food, beverages, goods,
merchandise, and other items at the ALF (the "Nutrition Services") for ILC as
described below:
(a) CGT shall provide three (3) meals per day for ALF's
residents, including food supplements at regular times comparable to normal
mealtimes in the community serviced by the ALF at other similar assisted living
facilities. Menus shall be approved by ILC, which approval shall not be
unreasonably withheld. Such menus shall comply with the standards for
nutritional adequacy as set forth by the American Dietetic Association and meet
the requirements of all physician ordered therapeutic diets. The meals shall be
served to ILC's residents in dining rooms in the ALF.
(b) CGT shall provide meals for employees of ILC, made
available thirty (30) minutes prior to or thirty (30) minutes following resident
meals, the number and serving times of which shall be mutually agreed upon by
the parties, by letter agreement dated within sixty (60) days of the
commencement date of this Agreement.
(c) CGT shall provide such other meals or refreshments as may
be reasonably requested by ILC, which by way of example shall include resident
family meals and marketing meals.
2
<PAGE>
(d) CGT shall provide all maintenance and cleaning of the
kitchen and upkeep of food inventory, in order to ensure that the Nutrition
Services are provided as and when due in accordance with the terms hereof.
(e) CGT will perform quarterly resident surveys as a component
of CGT's self- evaluation program. Results of all surveys and action plans shall
be reviewed with ILC's administration.
3.2 Minimum Requirements.
(a) CGT's provision of the Nutrition Services shall be in
compliance with the following standards:
(i) a one-week supply, or such amount as may be
required by law, of non-perishable food and supplies necessary to meet
the needs of the residents of the ALF shall be maintained at all times;
(ii) all menus used in connection with the provision
of the Nutrition Services shall (i) meet the nutritional needs of the
ALF's residents in accordance with the recommended dietary allowances
of the Food and Nutrition Board of the National Research Council,
National Academy of Sciences, (ii) be prepared in advance, and (iii) be
followed;
(iii) CGT shall provide food that shall be (i)
prepared by methods that conserve nutritive value, flavor, and
appearance, (ii) palatable, attractive, and at the proper temperature,
(iii) prepared in a form designed to meet individual needs, and in the
event that a resident refuses food served, that any substitute offered
to such resident shall be of similar nutritive value to the food
originally offered; and (iv) prepared pursuant to instructions to be
provided by ILC;
(iv) therapeutic diets shall be served to residents
of the ALF as prescribed by the residents' attending physician, it
being ILC's responsibility to provide accurate records which reflect
the physician ordered diets;
(v) there shall be no more than fourteen (14) hours
between a substantial evening meal and breakfast the following day
(except when a nourishing snack is provided at bedtime, up to sixteen
(16) hours may elapse between a substantial evening meal and breakfast
the following day if a resident group agrees to this meal span, and a
nourishing snack is served);
(vi) snacks shall be made available for residents of
the ALF at bedtime each day;
3
<PAGE>
(vii) special eating equipment and utensils shall be
available to residents of the ALF who need them, which items shall have
been provided by ILC prior to the commencement of this Agreement to the
extent required by residents of the ALF, provided, that ILC shall have
responsibility for supplying such equipment and utensils to those
residents of the ALF whose need for them shall arise after the
commencement of this Agreement to the extent the special eating
equipment and utensils provided by ILC prior to the commencement of
this Agreement as aforesaid are not adequate to fulfill such need;\
(viii) CGT shall procure food from sources approved
or considered satisfactory by federal, state, and local authorities;
and
(ix) CGT shall store, prepare, distribute, and serve
food under sanitary conditions and dispose of garbage and refuse
properly.
(b) ILC shall be responsible for the cost of Nutrition
Services in the amount of ten ($10.00) dollars per resident per day. On each
anniversary date of the commencement of this Agreement, such payment shall be
increased by the Annual Adjustment.
ARTICLE IV
PAYMENT
4.1 Payment. CGT shall submit invoices to ILC on the 30th day of each
month during the term of this Agreement. Payment shall be due ten (10) days
after date of invoice. Any payment due from ILC for the provision of services
hereunder which is not made within ten (10) days of the date due shall bear
interest at the rate of 1% per month from the date due to the date paid in full.
Further, in the event that any payment required to be made to CGT hereon shall
remain unpaid after the same becomes due, ILC shall pay to CGT, in addition to
all other amounts payable hereunder, and not as a penalty but as the agreed cost
to CGT resulting from such delay, a "late fee" equal to five (5%) percent per
month of such overdue amount. Upon termination of this Agreement, all
outstanding amounts shall become immediately due and payable.
ARTICLE V
GENERAL TERMS AND CONDITIONS
5.1 Term. The term of this Agreement (the "Term") shall commence as of
the date hereof, and shall end on that date which is one (1) year following the
date hereof, unless sooner terminated as provided in Section 5.2, below. At the
end of the initial term, this Agreement shall be renewed for successive terms of
one (1) year, unless terminated as provided in Section 5.2, below.
4
<PAGE>
5.2 Termination.
(a) This Agreement may be terminated immediately by any party
hereto in the event of a material breach of the terms hereof by the other party
hereto, which breach is not cured to the satisfaction of the non-breaching party
within thirty (30) days of its receipt of notice thereof.
(b) This Agreement may be terminated by either party at any
time without cause upon one hundred eighty (180) days notice to the other party.
5.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
5.4 Compliance With Law. CGT shall comply with all applicable laws,
ordinances, rules and regulations relating to the services described herein
including sanitation, safety and health and will obtain all licenses and permits
required in connection therewith.
5.5 Worker's Compensation Insurance. Each party shall maintain workers'
compensation as required by state law covering all of its employees employed in
connection with the services described herein.
5.6 Comprehensive or Commercial Insurance.
(a) CGT shall maintain during the term of the Agreement
comprehensive or commercial general bodily injury & property damage liability
insurance in the combined single limit of not less than three million
($3,000,000.00) dollars, for each occurrence including, but not limited to,
personal injury liability, broad form property damage liability, blanket
contractual liability and products liability, covering the operations and
activities of CGT under this Agreement and shall provide ILC with a certificate
evidencing such policy. The insurance policies shall contain a covenant from the
issuing company that the policies shall not be canceled prior to thirty (30)
days written notice to ILC.
(b) ILC shall maintain during the term of the Agreement
comprehensive or commercial general bodily injury and property damage liability
insurance in the same amount and on the same terms as the insurance required to
be provided by CGT under the terms hereof.
5.7 Indemnify. CGT and ILC shall defend, indemnify and hold each other
harmless from and against all claims, liability, loss and expenses, including
reasonable costs, collection expenses and attorney's fees, which may arise
because of the negligence, misconduct, or fault of the indemnifying party, its
agents or employees in the performance of its obligations under the Agreement.
This provision shall survive termination of the Agreement.
5.8 Omnibus Budget Reconciliation Act of 1987. CGT and ILC shall comply
with
5
<PAGE>
the Omnibus Budget Reconciliation Act of 1987 until the expiration of four (4)
years after the furnishing of any services under the Agreement. CGT and ILC and
any of their subcontractors whose subcontracts are of a value or cost of ten
thousand ($10,000.00) dollars or more, shall upon written request, make
available to the Secretary of the Department of Health and Human Services, the
Comptroller General of the United States, or any of their duly authorized
representatives, the Agreement and such books, documents and records of CGT and
ILC and such subcontractors, if any, as are necessary to certify the nature and
extent of the costs to ILC of performance of the Agreement. The subcontracts, if
any, shall contain a clause similarly requiring the retention and availability
of like documentation.
5.9 Insolvency. In addition to all other rights herein, either party
may terminate the Agreement without prior notice should the other party become
insolvent, voluntarily file for bankruptcy or receivership, or make any
assignment for the benefit of creditors, or should the other party have
commenced against it any proceeding, suit or action in bankruptcy or
receivership, provided such proceeding, suit or action is not dismissed within
thirty (30) days.
5.10 Effect of Termination. Upon termination of the Agreement, all
outstanding amounts shall immediately become due and payable.
5.11 Notice. Any notice or communication required or permitted to be
given under the Agreement shall be in writing and served personally, delivered
by courier or sent by United States certified mail, postage prepaid with return
receipt requested, addressed to the other party;
To CGT: Cambridge Group of Texas, Inc.
c/o Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Eleanor C. Harding
To ILC: Integrated Living Communities of Dallas, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Kayda Johnson
and/or to such other persons or places as either of the parties may hereafter
designate in writing. All such notices shall be effective when received or when
receipt is first denied, whichever occurs earlier.
5.12 Catastrophe. Neither CGT nor ILC shall be liable for failure to
perform its respective obligations under the Agreement when such failure is
caused by fire, explosion, water, act of God, civil disorder or disturbances,
strikes, vandalism, war, riot, sabotage, weather and energy related closings,
governmental rules and regulations or like causes beyond the reasonable control
of such.
6
<PAGE>
5.13 Construction and Effect. A waiver of any failure to perform under
the Agreement shall neither be construed as nor constitute a waiver of any
subsequent failure. The articles and section headings used herein are used
solely for convenience and shall not be deemed to limit the subject of the
articles and sections or be considered in their interpretation. Any exhibits
referred to herein are made a part of the Agreement by reference. The Agreement
may be executed in several counterparts, each of which shall be deemed an
original.
5.14 Severability. If any term or provisions of the Agreement or the
application thereof to any person or circumstance shall to any extent or for any
reason be invalid or unenforceable, the remainder of the Agreement and the
application of such term or provision to any person or circumstance other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each remaining term and provision of the Agreement shall be valid
and enforceable to the fullest extent permitted by law.
5.15 Amendments. All provisions of the Agreement shall remain in effect
throughout the term thereof unless the parties agree, in a written document
signed by both parties, to amend, add or delete any provision. The Agreement
contains all agreements of the parties with respect to matters covered herein,
superseding any prior agreements and may not be changed other than by an
agreement in writing signed by the parties hereto.
[SIGNATURES ON THE FOLLOWING PAGE]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first set forth above.
CAMBRIDGE GROUP OF TEXAS, INC.
By:______________________________
Title:___________________________
INTEGRATED LIVING COMMUNITIES
OF DALLAS, INC.
By:_______________________________
Title:____________________________
8
<PAGE>
AMENDMENT TO SERVICES AGREEEMENT
This Amendment to Services Agreement ("Amendment"), is made and entered
into this 1 day of June, 1996, between INTEGRATED LIVING COMMUNITIES OF DALLAS,
INC., a Delaware corporation ("ILC"), and CAMBRIDGE GROUP OF TEXAS, INC., a
Texas Corporation ("CGT").
RECITALS
WHEREAS, ILC and CGT have entered into a Services Agreement, dated June
1, 1996, (the "Agreement"); and
WHEREAS, the Agreement sets forth the terms and conditions upon which
CGT will provide certain services to ILC at the ALF (as defined in the
Agreement); and
WHEREAS, ILC and CGT wish to amend the Agreement as follows:
During the Term (as defined in this Agreement), CGT shall provide
general building management and landscaping services with respect to the
physical structure of the ALF.
In connection with the provision of general building management and
landscaping servies for the ALF, ILC shall be responsible for the payment of
thirty-one thousand eighty-three dollars ($31,083) per month.
All other terms and conditions of the Agreement shall remain in full
force and effect.
[SIGNATURES ON THE FOLLOWING PAGE}
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date and year first set forth above.
CAMBRIDGE GROUP OF TEXAS, INC.
By:
---------------------------
Title:
---------------------------
INTEGRATED LIVING COMMUNITIES OF DALLAS, INC.
By:
----------------------------
Title:
----------------------------
DECLARATION OF CONDOMINIUM
of
VINTAGE, A CONDOMINIUM
<PAGE>
INDEX
TO
DECLARATION OF CONDOMINIUM
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C> <C>
I. DEFINITIONS................................................................................... 1
II. CONDOMINIUM NAME, CONDOMINIUM PARCELS, APPURTENANCES,
POSSESSION AND ENJOYMENT...................................................................... 3
III. RESTRAINT UPON SEPARATION AND PARTITION OF COMMON
ELEMENTS...................................................................................... 5
IV. DESCRIPTION OF PROPERTY SUBMITTED TO CONDOMINIUM
OWNERSHIP..................................................................................... 5
V. COMMON ELEMENTS............................................................................... 5
VI. LIMITED COMMON ELEMENTS....................................................................... 6
VII. ALTERATIONS OF AND IMPROVEMENTS TO UNITS AND COMMON
ELEMENTS...................................................................................... 6
VIII. AMENDMENT OF DECLARATION...................................................................... 7
IX. THE ASSOCIATION, ITS POWERS AND RESPONSIBILITIES.............................................. 8
X. BYLAWS....................................................................................... 10
XI. MAINTENANCE.................................................................................. 10
XII. COMMON EXPENSES AND COMMON SURPLUS........................................................... 11
XIII. ASSESSMENTS: LIABILITY, LIENS, PRIORITY, INTEREST AND
COLLECTIONS.................................................................................. 11
XIV. CREATION OF CONDOMINIUM...................................................................... 13
XV. EQUITABLE RELIEF............................................................................. 14
XVI. LIMITATION OF LIABILITY...................................................................... 14
XVII. LIENS........................................................................................ 14
<PAGE>
XVIII. EASEMENTS.................................................................................... 15
XIX. USE AND TRANSFER RESTRICTIONS................................................................ 15
XX. INSURANCE.................................................................................... 18
XXI. RECONSTRUCTION OR REPAIR AFTER CASUALTY...................................................... 24
XXII. EMINENT DOMAIN OR CONDEMNATION PROCEEDING.................................................... 25
XXIII. LIABILITY - GENERALLY........................................................................ 25
XXIV. GENERAL PROVISIONS........................................................................... 26
</TABLE>
<PAGE>
EXHIBITS TO DECLARATION
EXHIBIT "A" LEGAL DESCRIPTION
EXHIBIT "B" PERCENTAGE SHARE OF COMMON ELEMENTS,
COMMON EXPENSES AND COMMON SURPLUS
EXHIBIT "C" PLOT PLAN AND SURVEY
EXHIBIT "D" ARTICLES OF INCORPORATION
EXHIBIT "E" BYLAWS
<PAGE>
DECLARATION OF CONDOMINIUM
of
VINTAGE, A CONDOMINIUM
INTEGRATED HEALTH SERVICES AT GREAT BEND, INC., a Delaware corporation,
whose mailing address is 10065 Red Run Boulevard, Owings Mills, Maryland 21117,
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
DENTON (TEXAS), INC., a Delaware corporation, whose mailing address is 10065 Red
Run Boulevard, Owings Mills, Maryland 21117, (collectively referred to herein as
"Developer"), for themselves, their successors, grantees and assigns, hereby
submit said property, improvements thereon and appurtenances thereto to
condominium ownership pursuant to Texas Uniform Condominium Act, Chapter 82,
Texas Property Code and any amendments thereto ("Condominium Act"), as enacted
upon date of recordation hereof. It is the intent of Developer that the
Condominium be a commercial condominium.
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 Bylaws 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 "Bylaws" means the Articles of Incorporation and the
Bylaws 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 Vintage Condominium Association, Inc., the Texas
non-profit corporation responsible for the operation of the Condominium.
-1-
<PAGE>
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 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 County of Denton, State of Texas.
M. "Declaration" or "Declaration of Condominium" means this instrument
as it may from time to time be amended.
N. "Developer" means Integrated Health Services at Great Bend, Inc.,
and Integrated Living Communities of Denton (Texas), Inc., 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.
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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 the County, 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 Bylaws 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 Vintage, a
Condominium.
II. CONDOMINIUM NAME, CONDOMINIUM PARCELS, APPURTENANCES,
POSSESSION AND ENJOYMENT.
A. The name of this Condominium is VINTAGE, 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
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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.
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III. RESTRAINT UPON SEPARATION AND PARTITION OF COMMON ELEMENTS.
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 in 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.
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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.
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
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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.
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 Bylaws 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.
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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 Texas non-profit corporation and a copy of
its Articles 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 Bylaws.
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
Bylaws. There shall be no cumulative voting.
E. The powers and duties of the Association shall include those set
forth in the Articles, the Bylaws, 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 and maintenance contracts referred to
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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.
5. The power to purchase Units in the Condominium and to acquire,
hold, lease, mortgage and convey the same.
6. The power to obtain and maintain adequate insurance to protect
the Association and the Common Elements and Association
Property.
7. 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.
8. 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.
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X. BYLAWS.
The administration of the Association and the operation of the
Condominium Property shall be governed by the Bylaws 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 Bylaws shall be deemed valid unless duly
adopted as provided in the Bylaws 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 Bylaws 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 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.
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D. The responsibility for the maintenance, repair, and replacement, and
the cost of keeping clean and in orderly condition the fences, pools, awnings or
any other improvements or personal property forming a part of the Limited Common
Elements which exclusively serve a certain Unit or Units to the exclusion of
other Units, shall be borne by the Owner(s) of the Unit(s) to which the same are
appurtenant.
E. 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.
F. 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 Bylaws. 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.
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
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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 (I %) 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 Texas
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 the County in the manner provided by the
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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 the manner as a foreclosure of a mortgage on real
property. In any such foreclosure, the court, in its discretion, may 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. CREATION 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).
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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.
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
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proportionate amount attributable to his Condominium Parcel. Upon such payment,
it shall be the duty of the lien or 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 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.
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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.
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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. 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 an Assisted Life Care Facility, and Unit B is and shall continue to be
operated as an Skilled Nursing Facility. The services operated in each Unit may
be supplemented as follows:
1. Unit A can add services whose acuity/skill level is lower than
services it currently provides under its Main Business.
2. Unit B can add services whose acuity/skill level is higher
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 A shall not be
permitted to include a segregated and secured Alzheimers ward
unless permitted by applicable law.
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.
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J. 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 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.
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4. Worker's compensation insurance meeting all the requirements
of the laws of Texas 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
Texas, 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:
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
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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
Texas, 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)
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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 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.
2. 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;
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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 Mortgages 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:
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. Affidavit 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 an Affidavit of Commencement is recorded
pursuant to Section 53.124 of the Texas Property Code and a certified
copy of such Affidavit 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
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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:
The Progress
Payment payable to
the Contractor under
the Construction X the total (LESS) Retainage under
Contract : by the remaining Contract
Construction proceeds
Contract Sum
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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 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 Affidavit of Bills Paid complying in all
respects to the provisions of Chapter 53 of Texas Property Code, duly and
properly executed 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 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,
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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 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 offer
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
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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.
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
Texas 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 Bylaws 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
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Bylaws, 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 _______________________. All notices shall be deemed sent when deposited
in a depository of the United States Postal Service, properly addressed and
containing sufficient postage. 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.
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.
EXECUTED as of the ___________ day of __________________, 1996.
INTEGRATED HEALTH SERVICES AT
GREAT BEND, INC.
By: ____________________________
Name: __________________________
Title: _________________________
INTEGRATED LIVING COMMUNITIES
OF
DENTON (TEXAS), INC.
By: ____________________________
Name: __________________________
Title: _________________________
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<PAGE>
THE STATE OF ______ ss.
ss.
COUNTY OF _________ ss.
This instrument was acknowledged before me on this _______ day of
______________, 1996, by _____________________________, as
__________________________ of Integrated Health Services at Great Bend, Inc., a
Delaware corporation, on behalf of said corporation.
----------------------------------
NOTARY PUBLIC IN AND FOR THE
STATE OF __________________
THE STATE OF ______ ss.
ss.
COUNTY OF _________ ss.
This instrument was acknowledged before me on this _______ day of
______________, 1996, by ______________________________, as
_______________________ of Integrated Living Communities of Denton (Texas),
Inc., a Delaware corporation, on behalf of said corporation.
---------------------------------
NOTARY PUBLIC IN AND FOR THE
STATE OF __________________
-28-
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
<PAGE>
EXHIBIT "B"
PERCENTAGE SHARE OF COMMON ELEMENTS,
COMMON EXPENSES AND COMMON SURPLUS
The Percentage Share of Common Elements, Common Expenses and Common
Surplus for each unit:
Unit A = ___%
Unit B = ___%
<PAGE>
EXHIBIT "C"
PLOT PLAN AND SURVEY
Unit A = Assisted Life Care Facility
Unit B = Skilled Nursing Facility
<PAGE>
EXHIBIT "D"
ARTICLES OF INCORPORATION
VINTAGE CONDOMINIUM ASSOCIATION, INC.
<PAGE>
EXHIBIT "E"
BYLAWS
VINTAGE CONDOMINIUM ASSOCIATION, INC.
<PAGE>
SERVICES AGREEMENT
This Services Agreement ("Agreement") is made and entered into as of
this day of , 1996, between Integrated Living Communities of Denton
(Texas), Inc., a Delaware corporation ("ILC") and Integrated Health Services
at Great Bend, Inc., a Delaware corporation ("IHSGB").
RECITALS
WHEREAS, ILC is the owner of that portion of the facility located at
205 North Bonnie Brae, Denton, Texas designated for assisted living services
(the "ALF"), as further set forth in that certain condominium declaration, dated
as of , by and between the parties hereto ("Condominium
Declaration"); and
WHEREAS, IHSGB is the owner of that portion of the facility located at
205 North Bonnie Brae, Denton, Texas designated for skilled nursing services
(the "SNF"), as further set forth in the Condominium Declaration; and
WHEREAS, this Agreement sets forth the terms and conditions upon which
IHSGB will provide certain services to ILC at the ALF; and
WHEREAS, IHSGB shall be an independent contractor and shall retain
control over its employees and agents.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, IHSGB and ILC, intending to be
legally bound, agree as follows:
ARTICLE I
LAUNDRY
1.1 Laundry. During the Term (as defined below), IHSGB shall provide
laundry services for the ALF with such services to be provided from a central
laundry which is owned and operated by IHSGB. IHSGB shall charge ILC one
thousand five hundred ($1,500.00) dollars per month (the "Laundry Fees") for the
laundry services provided to the ALF. On each anniversary date of the
commencement of this Agreement, the Laundry Fees shall be increased by a
percentage (not to exceed four (4%) percent) which is equal to the percentage
increase in the "Consumer Price Index for All Urban Consumers -- All Cities"
published by the United States Department of Labor's Bureau of Labor Statistics
for the then most recently ended 12-month period as of the date of such
adjustment (the "Annual Adjustment"). The laundry services provided by IHSGB to
ILC shall be consistent with the standard of services provided prior to the date
hereof.
<PAGE>
ARTICLE II
ADMINISTRATION
2.1 Administrative Services.
(a) During the Term, IHSGB shall provide administrative
services to the ALF.
(b) In connection with the provision of administrative
services to the ALF, ILC shall be responsible for the payment of thirty (30%)
percent of the total costs and expenses of the Executive Director. The total
costs and expenses described herein, include, without limitation, all wages,
benefits, payroll taxes, and workers' compensation premiums.
2.2 Emergency Calls.
(a) The emergency call system is centrally located in the SNF.
In the event an emergency call is originated in the ALF, IHSGB's personnel will
immediately notify ILC's personnel to respond to the situation.
(b) The parties agree that ILC shall be responsible for a flat
fee payment of one hundred ($100.00) dollars per month for its use of the
emergency call service. On each anniversary date of the commencement of this
Agreement, the emergency call service fee shall be increased by the Annual
Adjustment.
ARTICLE III
NUTRITION SERVICES
3.1 Nutrition Services. During the Term, IHSGB shall own, manage,
and operate the preparation, service and sale of food, beverages, goods,
merchandise, and other items at the ALF (the "Nutrition Services") for ILC as
described below:
(a) IHSGB shall provide three (3) meals per day for ALF's
residents, including food supplements at regular times comparable to normal
mealtimes in the community serviced by the ALF at other similar assisted living
facilities. Menus shall be approved by ILC, which approval shall not be
unreasonably withheld. Such menus shall comply with the standards for
nutritional adequacy as set forth by the American Dietetic Association and meet
the requirements of all physician ordered therapeutic diets. The meals shall be
served to ILC's residents in dining rooms in the ALF.
2
<PAGE>
(b) IHSGB shall provide meals for employees of ILC, made
available thirty (30) minutes prior to or thirty (30) minutes following resident
meals, the number and serving times of which shall be mutually agreed upon by
the parties, by letter agreement dated within sixty (60) days of the
commencement date of this Agreement.
(c) IHSGB shall provide such meals or refreshments as may be
reasonably requested by ILC, which by way of example shall include resident
family meals and marketing meals.
(d) IHSGB shall provide all maintenance and cleaning of the
kitchen and upkeep of food inventory, in order to ensure that the Nutrition
Services are provided as and when due in accordance with the terms hereof.
(e) IHSGB will perform quarterly resident surveys as a
component of IHSGB's self-evaluation program. Results of all surveys and action
plans shall be reviewed with ILC's administration.
3.2 Minimum Requirements.
(a) IHSGB's provisions of the Nutrition Services shall be in
compliance with the following standards:
(i) a one-week supply, or such amount as may be
required by law, of non-perishable food and supplies necessary to meet
the needs of the residents of the ALF shall be maintained at all times;
(ii) all menus used in connection with the provision
of the Nutrition Services shall (i) meet the nutritional needs of the
ALF's residents in accordance with the recommended dietary allowances
of the Food and Nutrition Board of the National Research Council,
National Academy of Sciences, (ii) be prepared in advance, and (iii) be
followed;
(iii) IHSGB shall provide food that shall be (i)
prepared by methods that conserve nutritive value, flavor, and
appearance, (ii) palatable, attractive, and at the proper temperature,
(iii) prepared in a form designed to meet individual needs, and in the
event that a resident refuses food served, that any substitute offered
to such resident shall be of similar nutritive value to the food
originally offered; and (iv) prepared pursuant to instructions to be
provided by ILC;
(iv) therapeutic diets shall be served to residents
of the ALF as prescribed by the residents' attending physician, it
being ILC's responsibility to provide accurate records which reflect
the physician ordered diets;
3
<PAGE>
(v) there shall be no more than fourteen (14) hours
between a substantial evening meal and breakfast the following day
(except when a nourishing snack is provided at bedtime, up to sixteen
(16) hours may elapse between a substantial evening meal and breakfast
the following day if a resident group agrees to this meal span, and a
nourishing snack is served);
(vi)snacks shall be available for residents of the
ALF at bedtime each day;
(vii) special eating equipment and utensils shall be
available to residents of the ALF who need them, which items shall have
been provided by ILC prior to the commencement of this Agreement to the
extent required by residents of the ALF, provided, that ILC shall have
responsibility for supplying such equipment and utensils to those
residents of the ALF whose need for them shall arise after the
commencement of this Agreement to the extent the special eating
equipment and utensils provided by ILC prior to the commencement of
this Agreement as aforesaid are not adequate to fulfill such need;
(viii) IHSGB shall procure food from sources approved
or considered satisfactory by federal, state, and local authorities;
and
(ix) IHSGB shall store, prepare, distribute, and
serve food under sanitary conditions and dispose of garbage and refuse
properly.
(b) ILC shall be responsible for the cost of Nutrition
Services in the amount of eight ($8.00) dollars per resident per day. On each
anniversary date of the commencement of this Agreement, such payment shall be
increased by the Annual Adjustment.
ARTICLE IV
PAYMENT
4.1 Payment. IHSGB shall submit invoices to ILC on the 30th day of each
month during the term of this Agreement. Payment shall be due ten (10) days
after date of invoice. Any payment due from ILC for the provision of services
hereunder which is not made within ten (10) days of the date due shall bear
interest at the rate of 1% per month from the date due to the date paid in full.
Further, in the event that any payment required to be made to IHSGB hereon shall
remain unpaid after the same becomes due, ILC shall pay to IHSGB, in addition to
all other amounts payable hereunder, and not as a penalty but as the agreed cost
to IHSGB resulting from such delay, a "late fee" equal to five (5%) percent per
month of such overdue amount. Upon termination of this Agreement, all
outstanding amounts shall become immediately due and payable.
4
<PAGE>
ARTICLE V
GENERAL TERMS AND CONDITIONS
5.1 Term. The term of this Agreement (the "Term") shall commence
as of the date hereof, and shall end on that date which is one (1) year follow-
ing the date hereof, unless sooner terminated as provided in Section 5.2, below.
At the end of the initial term, this Agreement shall be renewed for successive
terms of one (1) year, unless terminated as provided in Section 5.2, below.
5.2 Termination.
(a) This Agreement may be terminated immediately by any party
hereto in the event of a material breach of the terms hereof by the other party
hereto, which breach is not cured to the satisfaction of the non-breaching party
within thirty (30) days of its receipt of notice thereof.
(b) This Agreement may be terminated by either party at any
time without cause upon one hundred eighty (180) days notice to the other party.
5.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
5.4 Compliance With Law. IHSGB shall comply with all applicable
laws, ordinances, rules and regulations relating to the services described
herein including sanitation, safety and health and will obtain all licenses and
permits required in connection therewith.
5.5 Worker's Compensation Insurance. Each party shall maintain
workers' compensation as required by state law covering all of its employees
employed in connection with the services described herein.
5.6 Comprehensive or Commercial Insurance.
(a) IHSGB shall maintain during the term of the Agreement
comprehensive or commercial general bodily injury & property damage liability
insurance in the combined single limit of not less than three million
($3,000,000.00) dollars, for each occurrence including, but not limited to,
personal injury liability, broad form property damage liability, blanket
contractual liability and products liability, covering the operations and
activities of IHSGB under this Agreement and shall provide ILC with a
certificate evidencing such policy. The insurance policies shall contain a
covenant from the issuing company that the policies shall not be canceled prior
to thirty (30) days written notice to ILC.
5
<PAGE>
(b) ILC shall maintain during the term of the Agreement
comprehensive or commercial general bodily injury and property damage liability
insurance in the same amount and on the same terms as the insurance required to
be provided by IHSGB under the terms hereof.
5.7 Indemnify. IHSGB and ILC shall defend, indemnify and hold each
other harmless from and against all claims, liability, loss and expenses,
including reasonable costs, collection expenses and attorney's fees, which may
arise because of the negligence, misconduct, or fault of the indemnifying party,
its agents or employees in the performance of its obligations under the
Agreement. This provision shall survive termination of the Agreement.
5.8 Omnibus Budget Reconciliation Act of 1987. IHSGB and ILC shall
comply with the Omnibus Budget Reconciliation Act of 1987 until the expiration
of four (4) years after the furnishing of any services under the Agreement.
IHSGB and ILC and any of their subcontractors whose subcontracts are of a value
or cost of ten thousand ($10,000.00) dollars or more, shall upon written
request, make available to the Secretary of the Department of Health and Human
Services, the Comptroller General of the United States, or any of their duly
authorized representatives, the Agreement and such books, documents and records
of IHSGB and ILC and such subcontractors, if any, as are necessary to certify
the nature and extent of the costs to ILC of performance of the Agreement. The
subcontracts, if any, shall contain a clause similarly requiring the retention
and availability of like documentation.
5.9 Insolvency. In addition to all other rights herein, either
party may terminate the Agreement without prior notice should the other party
become insolvent, voluntarily file for bankruptcy or receivership, or make any
assignment for the benefit of creditors, or should the other party have
commenced against it any proceeding, suit or action in bankruptcy or
receivership, provided such proceeding, suit or action is not dismissed within
thirty (30) days.
5.10 Effect of Termination. Upon termination of the Agreement, all
outstanding amounts shall immediately become due and payable.
5.11 Notice. Any notice or communication required or permitted to
be given under the Agreement shall be in writing and served personally,
delivered by courier or sent by United States certified mail, postage prepaid
with return receipt requested, addressed to the other party;
To IHSGB: Integrated Health Services at Great Bend, Inc.
c/o Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Eleanor C. Harding
To ILC: Integrated Living Communities of Denton (Texas), Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Kayda Johnson
6
<PAGE>
and/or to such other persons or places as either of the parties may hereafter
designate in writing. All such notices shall be effective when received or when
receipt is first denied, whichever occurs earlier.
5.12 Catastrophe. Neither IHSGB nor ILC shall be liable for failure
to perform its respective obligations under the Agreement when such failure is
caused by fire, explosion, water, act of God, civil disorder or disturbances,
strikes, vandalism, war, riot, sabotage, weather and energy related closings,
governmental rules and regulations or like causes beyond the reasonable control
of such.
5.13 Construction and Effect. A waiver of any failure to perform
under the Agreement shall neither be construed as nor constitute a waiver of any
subsequent failure. The articles and section headings used herein are used
solely for convenience and shall not be deemed to limit the subject of the
articles and sections or be considered in their interpretation. Any exhibits
referred to herein are made a part of the Agreement by reference. The Agreement
may be executed in several counterparts, each of which shall be deemed an
original.
5.14 Severability. If any term or provisions of the Agreement or
the application thereof to any person or circumstance shall to any extent or for
any reason be invalid or unenforceable, the remainder of the Agreement and the
application of such term or provision to any person or circumstance other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each remaining term and provision of the Agreement shall be valid
and enforceable to the fullest extent permitted by law.
5.15 Amendments. All provisions of the Agreement shall remain in
effect throughout the term thereof unless the parties agree, in a written
document signed by both parties, to amend, add or delete any provision. The
Agreement contains all agreements of the parties with respect to matters covered
herein, superseding any prior agreements and may not be changed other than by an
agreement in writing signed by the parties hereto.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first set forth above.
INTEGRATED HEALTH SERVICES
AT GREAT BEND, INC.
By:
Title:
INTEGRATED LIVING COMMUNITIES
OF DENTON (TEXAS), INC.
By:
Title:
8
<PAGE>
AMENDMENT TO SERVICES AGREEMENT
This Amendment to Services Agreement ("Amendment"), is made and entered
into this 1 day of June, 1996, between INTEGRATED LIVING COMMUNITIES OF DENTON
(TEXAS), INC., a Delaware corporation ("ILC"), and INTEGRATED HEALTH SERVICES AT
GREAT BEND, INC., a Delaware corporation ("IHSGB").
RECITALS
WHEREAS, ILC and IHSGB have entered into a Services Agreement, dated
June 1, 1996, (the "Agreement"); and
WHEREAS, the Agreement sets forth the terms and conditions upon which
IHSGB will provide certain services to ILC at the ALF (as defined in the
Agreement); and
WHEREAS, ILC and IHSGB wish to amend the Agreement as follows:
During the Term (as defined in the Agreement), IHSGB shall provide
general building management and landscaping services with respect to the
physical structure of the ALF.
In connection with the provision of general building management and
landscaping services for the ALF, ILC shall be responsible for the payment of
four thousand five hundred eighty-three dollars ($4,583) per month.
All other terms and conditions of the Agreement shall remain in full
force and effect.
[SIGNATURES ON THE FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date and year first set forth above.
INTEGRATED HEALTH SERVICES AT GREAT BEND, INC.
By:
--------------------------
Title:
--------------------------
INTEGRATED LIVING COMMUNITIES OF DENTON (TEXAS), INC.
By:
--------------------------
Title:
--------------------------
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") is made and
entered into effective , 1996, by and between INTEGRATED LIVING
COMMUNITIES, INC., a Delaware corporation (the "Company") and INTEGRATED
HEALTH SERVICES, INC., a Delaware corporation (the "IHS").
WHEREAS, Company is engaged in the business of owning and operating
assisted living facilities ("ALFs"); and
WHEREAS, the IHS is experienced in the administration and operation of
ALFs; and
WHEREAS, the Company desires to engage IHS to provide the services
described herein, and IHS desires to accept such engagement, upon the terms and
subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
TERM
1.1 This Agreement shall be effective as of its date and shall continue
in effect for an initial term of twelve (12) months. This Agreement
automatically shall be renewed for a further term of twelve (12) months unless
either party gives notice to the other of its election not to so renew at least
ninety (90) days prior to the expiration of the initial term.
ARTICLE II
SERVICES
2.1 Engagement; Responsibilities of IHS. Company hereby engages IHS and
its affiliates (collectively, "IHS") to provide the services described below
(the "Services"), subject to the terms of this Agreement.
(a) Accounts Payable. IHS shall establish such systems, as
necessary, to improve the efficiency and operations of the ALFs, which services
may include the centralization of billing and accounts payable at Company's
location. IHS shall supervise the processing and paying of all bills for the
account of the Company. All costs for paying accounts payable, including data
processing costs, shall be at the Company's expense.
<PAGE>
(b) Accounts Receivable.
1. Establishment of Certain Systems. IHS shall
establish such systems, as necessary, to improve the efficiency and operations
of the ALFs, which services may include the centralization of accounts
receivable at the Company's location.
(c) Corporate Accounting. IHS shall maintain or cause to
be maintained, an accurate accounting system in connection with its
administration of the Company. The books and records shall be kept in accordance
with generally accepted accounting principles. All books and records maintained
by IHS relating to the operations of the Company shall be the property of the
Company. IHS shall respond to any reasonable request of the Company concerning
Company's books and records and shall provide reasonable assistance to the
Company's auditors in connection with the preparation of an annual audited
financial statement for the Company. Such audit shall be at Company's expense.
IHS shall, directly or through an affiliate, provide the data processing
required to maintain the accounting records of the ALFs. IHS shall make
recommendations for computer systems to be placed in ALFs and will make
arrangements for the purchase or lease of such hardware and software at
Company's expense.
(d) Payroll and Payroll Tax Filing. All payroll services
will be performed at the Company and supervised by IHS or IHS may subcontract
portions of the payroll services to an outside payroll service. IHS shall
supervise at Company's expense the processing and issuance of all payroll checks
for the Company. IHS shall, directly or through an affiliate, provide the data
processing required to maintain the payroll records of the Company. IHS shall
make recommendations for computer systems to be placed in ALFs and will make
arrangements for the purchase or lease of such hardware and software at
Company's expense. All such data processing and computer costs shall be at the
Company's expense. IHS shall at Company's expense prepare or cause to be
prepared and filed all necessary reports with respect to withholding taxes,
social security taxes, unemployment taxes, disability insurance and other
unaudited services.
(e) Human Resources Support.
IHS shall, under the sole discretion of the Company, be
responsible for human resources support services, including, but not limited to,
the hiring and discharge of employees of the Company, and the administration of
employee benefits.
(f) Risk Management Support.
IHS shall apply for, obtain and maintain on behalf of the
Company and at the Company's expense at all times during the term of this
Agreement, the following insurance in such amounts and coverage as may be
determined by the Company upon consultation with IHS, or as may be required by
any financing or lease arrangements of the Company, whichever is greater.
- 2 -
<PAGE>
(i) Commercial primary and excess general liability,
including automobile liability (as needed), products liability
bonds, professional and other liability, and property damage
insurance, insuring the Company and IHS against loss or
liability for damages or personal injury, death, or property
damage arising or resulting from the management, maintenance,
and/or operation of the ALFs;
(ii) Such workers' compensation and other similar
insurance as may be required by law or as may be required to
insure the Company and IHS against loss or the payment of
damages for such liabilities as may be imposed by law;
(iii) Unemployment Compensation insurance through the
appropriate state agencies; and
(iv) Fidelity and honesty insurance.
All insurance provided for under the foregoing provisions of
this Section shall be effected by policies issued by insurance companies with at
least an "A-" rating from A.M. Best and of good reputation, of sound adequate
financial responsibility, and properly licensed and qualified to do business in
the states where the Company and its ALFs are located.
Each of the policies of insurance referred to in Paragraphs
[i] through [iv] of this Section shall insure the Company and IHS and their
respective officers, partners, directors, shareholders, managers and employees.
IHS and its officers, partners, directors, shareholders, managers and employees
shall, to the extent permissible, be named as additional insured under all such
policies of insurance.
ARTICLE III
COMPENSATION
3.1 Commencing upon the date of this Agreement, as full and exclusive
compensation for the Services to be rendered by IHS during the term of this
Agreement, the Company shall pay to IHS at its principal office, or at such
other place as IHS may from time to time designate in writing, and at the times
hereinafter specified an administration fee (the "Administration Fee") of one
point two percent (1.2%) of the gross revenues of each ALF per month.
3.2 IHS will bill the Company monthly by itemized invoice for services
provided, and reimbursable expenses incurred, during the preceding month, which
invoice shall include a calculation of the Administration Fee. The Company will
pay invoices for Administration Fees and reimbursable expenses set forth in
Exhibit A hereto within thirty (30) days of receipt.
- 3 -
<PAGE>
ARTICLE IV
TERMINATION OF PORTION OF SERVICES
4.1 Company may, at its sole option, terminate any portion of the
Services described in Article II prior to the expiration or termination of this
Agreement, by providing thirty (30) days prior written notice to IHS pursuant to
Section 9.1 hereof; provided Company may not terminate a partial portion of the
Services (i.e.: terminate the payroll services and not the payroll tax filing).
4.2 Upon the termination of any portion of the Services, the
compensation payable to IHS pursuant to Article III hereof will be reduced by
the applicable percentage as described below.
(a) The Services set forth in Subsection 2.1(a) comprise
thirty (30%) percent of the Administration Fee;
(b) The Services described in Subsection 2.1(b) comprise
five (5%) percent of the Administration Fee;
(c) The Services set forth in Subsection 2.1(c) comprise
thirty-five (35%) percent of the Administration Fee;
(d) The Services described in Subsection 2.1(d) comprise
twenty (20%) percent of the Administration Fee;
(e) The Services contained in Subsection 2.1(e) comprise
five (5%) percent of the Administration Fee;
(f) The Services set forth in Subsection 2.1(f) comprise
five (5%) percent of the Administration Fee.
ARTICLE V
TERMINATION OF AGREEMENT
5.1 Termination. Either party may terminate this Agreement, with
or without cause, by providing notice to the other party pursuant to Section 9.1
hereof, and such termination shall be effective ninety (90) days after receipt
of such notice.
5.2 Surviving Rights Upon Termination. If either party exercises
its option to terminate pursuant to this Article V, each party shall forthwith
account for and pay to the other all sums due and owing pursuant to the terms of
this Agreement. All other rights and obligations of the parties under this
Agreement shall terminate, unless otherwise expressly provided for herein.
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<PAGE>
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification of Company. IHS shall indemnify and hold the
Company and its officers, directors, employees, stockholders and affiliates
harmless from any and all claims, losses, judgments, damages, expenses and
liabilities incurred by the Company and their respective officers, directors,
employees, stockholders, and affiliates, including reasonable attorney's fees,
arising out of any gross negligence or the willful misconduct of IHS in
connection with the performance of its duties under this Agreement. However,
IHS's obligation to indemnify Company shall not extend to any claims relating to
actions or omissions IHS performs at the direction of the Company. IHS's
obligations under this Section 6.l shall survive termination of this Agreement.
6.2 Indemnification of IHS. Company shall indemnify and hold IHS
and its officers, directors, employees, stockholders and affiliates harmless
from any and all claims, losses, judgments, damages, expenses or liabilities
whatsoever incurred by IHS and its respective officers, directors, employees and
affiliates, including reasonable attorneys' fees, arising out of or related to
IHS's performance under this Agreement, or any alleged breach of this Agreement
by IHS, except for claims, losses, judgments, damages, expenses or liabilities
caused by the gross negligence or willful misconduct of IHS or its officers,
directors, employees or affiliates in connection with the performance of its
duties under this Agreement. The Company's obligations under this Section 6.2
shall survive termination of this Agreement.
ARTICLE VII
CONFIDENTIALITY
7.1 Non-Disclosure of Confidential Information. Company
acknowledges that IHS's business involves the development and use of
Confidential Information (defined below) and that IHS may make available such
Confidential Information to Company in connection with IHS's duties under this
Agreement. IHS acknowledges that Company's business involves the development and
use of Confidential Information and that Company may make available such
Confidential Information to IHS in connection with IHS's duties under this
Agreement. Except as the Company and IHS may disclose in fulfillment of their
duties and responsibilities under this Agreement or as the Company and IHS may
disclose pursuant to the requirements of law, each party hereto agrees that it
shall not, at any time during or after the term of this Agreement, divulge,
furnish or make accessible the Confidential Information of the other party
hereto to any person or entity for any purpose whatsoever. "Confidential
Information" means any confidential or proprietary information not available in
the public domain, including, without limitation, manuals, forms, policies and
procedures, computer programs, system documentation and related software,
patient records and patient information, and any other information of any kind
with respect to the finances, business plans or business operations of the
parties.
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<PAGE>
7.2 Remedies. The parties agree that an aggrieved party who is the
beneficiary of any restriction contained herein may not be adequately
compensated by damages for a breach of the covenants contained in this Article
VII, and such aggrieved party shall be entitled to injunctive relief and
specific performance in addition to all other remedies. If a court of competent
jurisdiction shall finally determine that the restraints provided for in this
Article VII are too broad as to the activity, geographic area or time covered,
said activity, geographic area or time covered will be reduced to whatever
extent the court deems necessary, and such covenant shall be enforced as to such
reduced activity, geographic area or time period.
7.3 Proprietary Material. The parties acknowledge and agree that
their respective systems, methods, programs, software, brochures, manuals,
forms, data, procedures, and related information are proprietary in nature,
shall be and remain (along with any corresponding copyrights or similar rights)
their sole property and shall not at any time be directly or indirectly used,
distributed, disclosed, copied or otherwise employed, except in the operation of
the Company under IHS's administration during the term of this Agreement. Upon
termination of this Agreement, each party shall return to the other all such
proprietary items (including all copies thereof), to use its best efforts to
ensure that its employees have not retained any such items and, upon request by
any party, to confirm compliance with the foregoing in writing.
ARTICLE VIII
SUCCESSORS AND ASSIGNS
8.1 Assignments by IHS. IHS with the consent of the Company, which
consent shall not be unreasonably withheld, shall have the right to assign this
Agreement to a wholly or majority owned subsidiary provided that IHS shall not
thereby be released from its obligations hereunder. Otherwise, IHS shall have no
right to assign this Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 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:
To the Company: Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: John Poole
- 6 -
<PAGE>
To IHS: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Eleanor C. Harding
Marshall A. Elkins, 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.
9.2 Independent Contractor. It is expressly agreed by the Company
and IHS that IHS is at all times acting and performing under this Agreement as
an independent contractor, and that no act, commission or omission by either the
Company or IHS shall be construed to make or constitute the other its partner,
principal, agent, joint venturer or associate, except to the extent specified
herein.
9.3 Modifications and Changes. Subject to Section 9.8 hereof, this
Agreement cannot be changed or modified except by another agreement that both
parties sign.
9.4 Understanding and Agreements. This Agreement constitutes the
entire understanding and agreements of whatsoever nature or kind existing
between the parties with respect to IHS's administration and operation of the
ALFs.
9.5 Headings. The article and paragraph headings contained herein
are for convenience of reference only and are not intended to define, limit, or
describe the scope of intent of any provision of this Agreement.
9.6 Governing Law. This Agreement shall be deemed to have been
made and shall be construed and interpreted in accordance with the laws of the
State of Delaware.
9.7 Enforceability. Should any provision of this Agreement be
unenforceable as between the parties, such unenforceability shall not affect the
enforceability of the other provisions of this Agreement.
9.8 Force Majeure. No party shall be deemed to be in violation of
this Agreement, or shall be liable for any resulting claims, losses, damages,
expenses and liabilities if it is prevented, either directly or indirectly, from
performing any of its obligations hereunder for any reason beyond its control,
including, without limitation, or any statute, regulation or rule of the Federal
government, any state or local government, or any agencies thereof. IHS shall
not, by entering into and performing this Agreement, become liable for any of
the existing or future obligations, liabilities, claims, expenses or debts of
the Company.
9.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
9.10 Entire Agreement. This Agreement constitutes the entire
agreement of the parties in regard to the subject matter herein. This Agreement
is intended as a complete and exclusive statement of the terms of their
agreement with respect to the subject matter hereof and shall supersede all
prior and concurrent promises, representations, negotiations, discussions and
agreements that may have been made in connection with the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Administrative Services Agreement effective as of the day and year first above
written.
Company: IHS:
INTEGRATED LIVING INTEGRATED HEALTH
COMMUNITIES, INC. SERVICES, INC.
By: By:
------------------------------ ---------------------------------
Title: Title:
------------------------------ ---------------------------------
<PAGE>
LEASE AGREEMENT
Between
THE HARTMOOR HOMESTEAD, L.C., as LANDLORD,
And
INTEGRATED LIVING COMMUNITIES AT WICHITA, INC., as TENANT
as of June 10, 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
<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
10th 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.
- 3 -
<PAGE>
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
- 4 -
<PAGE>
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
- 5 -
<PAGE>
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 the Kansas
City, MO.-KS. 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
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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 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
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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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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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.
(b) 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:
- 67 -
<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 following describe the final plans and specifications prepared by
- -----------------------------:
1.
2.
3.
4.
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
- 73 -
<PAGE>
EXHIBIT E
FORM OF SUBORDINATION, NON-DISTURBANCE
AND RECOGNITION AGREEMENT
- 74 -
<PAGE>
SCHEDULE ____
[ATTACH SCHEDULES]
- 75 -
<PAGE>
EXHIBIT D
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 10, 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
------------
(i)
<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 ("Option Agreement") is made and entered
into as of the 10th 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.
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<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
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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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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.
"Leased Improvements" located on page 1.
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<PAGE>
"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.
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<PAGE>
"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 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
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<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:
----------------------
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EXHIBIT A
DESCRIPTION OF THE LAND
-----------------------
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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 10th 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
-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
Blass & Driggs
-2-
<PAGE>
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 upon execution of
this Agreement. Any party, at its expense, shall have the right to record such
-3-
<PAGE>
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-
<PAGE>
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 10, 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
(1)
<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
10th 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
- 2 -
<PAGE>
(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 17, 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
- 3 -
<PAGE>
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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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 the Kansas
City, Mo.-KS. 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 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, 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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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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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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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, 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
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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
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<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 -
<PAGE>
EXHIBIT D
PURCHASE OPTION AGREEMENT
-------------------------
BY AND BETWEEN
THE HARTMOOR HOMESTEAD, L.C., as OWNER,
AND
INTEGRATED LIVING COMMUNITIES AT GARDEN CITY, INC., as OPTIONEE
as of June 10, 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
-------------
(i)
<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
---------------------
<PAGE>
PURCHASE OPTION AGREEMENT
-------------------------
THIS PURCHASE OPTION AGREEMENT (this "Option Agreement") is made and
entered into as of the 10th 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.
-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 Finney 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.
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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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<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:
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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.
-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 against any and all
-11-
<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.
"Leased Improvements" located on page 1.
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<PAGE>
"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.
-13-
<PAGE>
"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
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<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-
<PAGE>
RIGHT OF FIRST REFUSAL AGREEMENT
--------------------------------
THIS RIGHT OF FIRST REFUSAL AGREEMENT (this "Agreement"), made
and entered into as of the 10th 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
-1-
<PAGE>
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
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.
-2-
<PAGE>
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 (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.
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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 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:___________________________________
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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:
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EXHIBIT A
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DESCRIPTION OF THE LAND
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EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of May 1, 1996 (the "Effective
Date"), by and between INTEGRATED LIVING COMMUNITIES, INC., a Delaware
corporation (hereinafter referred to as the "Company"), and EDWARD J. KOMP
(hereinafter referred to as the "Executive").
W I T N E S S E T H:
WHEREAS, the Company wishes to employ the Executive and to ensure the
continued services of the Executive for the Term (as hereinafter defined), and
the Executive desires to be employed by the Company for such Term, upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premise and the
mutual agreements herein contained, the parties, intending to be legally bound,
hereby agree as follows:
ARTICLE I
EMPLOYMENT RELATIONSHIP
1.1 Employment. The Company hereby employs the Executive in the
position of President and Chief Executive Officer of the Company, with such
responsibilities as may be assigned to Executive from time to time by the
Company's Board of Directors. Executive shall report to and be responsible to
the Board of Directors of the Company for the period hereinafter set forth, and
the Executive hereby accepts such employment.
<PAGE>
During the Term, the Executive agrees to devote all such working time
as is reasonably required for the discharge of his duties hereunder and to
perform such services faithfully and to the best of his ability. Notwithstanding
the foregoing, nothing in this Agreement shall preclude the Executive from (a)
engaging in charitable and community affairs, so long as they are consistent
with his duties and responsibilities under this Agreement, (b) managing his
personal investments, and (c) serving on the boards of directors of other
companies with the consent of the President or the individual to whom the
Executive reports.
1.2 Term. Unless sooner terminated pursuant to Article III below, the
term of this Agreement (the "Term") shall commence on the Effective Date, and be
in effect for three (3) years; provided, however, that on each May 1st after the
date of this Agreement (an "Anniversary Date"), the then current term of this
Agreement automatically shall be extended by an additional period of twelve (12)
months, so that, as of each Anniversary Date, this Agreement shall have an
unexpired Term of three (3) years. Notwithstanding the foregoing, either party
hereto may elect not to so extend this Agreement by giving written notice of his
or its election to the other party hereto at least one hundred twenty (120) days
prior to any Anniversary Date. In the event the Company elects not to renew this
Agreement with appropriate notice as provided herein, the Company may buy out
the remaining term of the Agreement through the payment of severance to the
Executive as provided in Section 3.4.
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ARTICLE II
COMPENSATION
2.1 Salary. The Executive shall receive a base salary at an initial
rate of Two Hundred Eighty-five Thousand Dollars ($285,000.00) per year (the
"Salary"), payable in substantially equal installments in accordance with the
pay policy established by the Company from time to time, but not less frequently
than monthly. On each Anniversary Date, the Salary shall be increased or
decreased (but not below Two Hundred Eighty-five Thousand Dollars ($285,000.00))
by a percentage which is equal to the percentage increase or decrease, as
applicable, in the "Consumer Price Index for All Urban Consumers" published by
the United States Department of Labor's Bureau of Labor Statistics for the then
most recently ended twelve (12) month period as of the date of such adjustment,
and increased by such additional amounts as may be determined at the discretion
of the Board of Directors of the Company. Once adjusted, such adjusted amount
shall constitute Salary for purposes of this Agreement.
2.2 Bonuses. If the Company meets or exceeds the goals as determined by
the Board (the "Target"), then the Company shall pay the Executive an annual
bonus ("Bonus") based on the Executive's performance, benefit to the Company at
large, and the extent to which the Company equals or exceeds the Target, payable
within ninety (90) days of the end of the fiscal year. Such Bonus shall be
discretionary except that if the Company meets it Target then the Executive
shall receive a bonus of not less than fifty percent (50%) of his Salary.
2.3 Executive Benefits and Perquisites. During the Term, the Company
shall provide and/or pay for employee benefits and perquisites including,
without limitation:
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(a) comprehensive individual health insurance in accordance
with the Company's executive plan, including dental, vision and
dependent coverage;
(b) life insurance coverage in an amount equal to One Million
Dollars ($1,000,000), any proceeds of which shall be payable to the
Executive's designated beneficiary or his estate;
(c) three (3) weeks paid noncumulative vacation annually;
(d) annual sick leave, personal leave and holiday leave in
accordance with Company policy;
(e) disability insurance coverage in a monthly benefit amount
equal to the sum of 100% of Executive's Salary plus "Bonus Amount" (as
defined in Section 3.4(a)) or pursuant to Company policy;
(f) an automobile allowance of $9,600.00 per year, and as
increased from time to time by an amount equal to the CPI increase set
forth in Section 2.1;
(g) accidental death and dismemberment insurance, pursuant to
Company policy;
(h) personal umbrella (excess) insurance coverage in the
amount of Five Million Dollars ($5,000,000); and
(i) the Executive shall be eligible to participate in an
executive retirement program (SERP) that the Company shall establish
and maintain.
Once increased, the level of benefits and perquisites shall not be
decreased without the Executive's consent.
2.4 Equity-based Compensation. During the Term, the Compensation
Committee, in its complete discretion, may select the Executive to participate
in programs or enter into agreements which provide for the grant of certain
equity-based compensation or rights to the Executive.
2.5 Relocation Expenses. The Company has required the Executive to
relocate to the Naples\Ft. Myers, Florida as a condition of employment. The
Executive has agreed to relocate to
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a location acceptable to the Company (the "Location") by September 30, 1996. The
Company shall reimburse the Executive's reasonable expenses for his relocation
to the Location according the terms in this Section 2.5 and with the appropriate
documentation and prior approval of the CEO or head of Human Resources.
Reasonable relocation expenses shall include (i) the expense to moving
Executive's family, personal and household goods and (ii) the travel and
accommodation expenses for one trip to the Location to search for a new
residence. Executive shall obtain three (3) bids concerning the moving of his
personal property which bids shall be submitted to the CEO or head of Human
Resources for his review and prior approval. In the event that the Executive is
terminated or resigns within the first twelve (12) months of his employment with
the Company, Executive shall repay to the Company a prorated portion of his
relocation expenses. The prorated amount shall be calculated on a monthly basis
with one-twelfth (1/12) of the expenses being assigned to each month.
Until Executive relocates to the Location, the Company agrees
to reimburse his travel costs to the Company's offices up to $1,000 per month,
such reimbursement subject to the provisions above.
ARTICLE III
TERMINATION AND SEVERANCE
3.1 Termination; Nonrenewal. The Company shall have the right to
terminate the Executive's employment, and the Executive shall have the right to
resign his employment with the Company, at any time during the Term, for any
reason or for no stated reason, upon no less than ninety (90) days prior written
notice (or such shorter notice to the extent provided for herein). Upon
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the Executive's termination without "Cause" (as defined in Section 3.2) or
resignation for "Good Reason" (as defined in Section 3.3) or upon the expiration
of the Term following the Company's election not to renew this Agreement (in
accordance with Section 1.3), the Executive shall be entitled to severance as
set forth in Section 3.4. Upon the expiry of the term hereof, the Executive
shall be entitled to severance as set forth in Section 3.4. Upon the Executive's
termination for Cause or resignation without Good Reason, the Executive shall
not be entitled to severance. If the Executive's employment is terminated
because of a Permanent Disability (as defined in Section 3.5), the Executive
shall receive the benefits and payments described in Section 3.5.
3.2 Termination For Cause.
(a) The Company may terminate this Agreement for Cause
following a determination by the Chief Executive Officer that Cause
exists. For purposes of this Agreement, Cause shall mean any or all of
the following:
(i) the Executive materially fails to perform his
duties hereunder;
(ii) a material breach by the Executive of his
covenants under Sections 4.1 or 4.2;
(iii) Executive is convicted of any felony.
(iv) Executive commits theft, larceny or embezzlement
of Company's tangible or intangible property.
(b) Notwithstanding anything in Section 3.2(a) to the
contrary, a termination shall not be for Cause unless (i) the party to whom the
Executive reports notifies the Executive, in writing, of his intention to
terminate the Executive for Cause (which notice shall set forth the conduct
alleged to constitute Cause) (the "Cause Notice"); and (ii) the Executive does
not cure his conduct (to the
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reasonable satisfaction of the party to whom the Executive reports), within
sixty (60) days after the receipt of the Cause Notice.
3.3 Termination for Good Reason. (a) The Executive may terminate this
Agreement for Good Reason, provided he gives the Company prior written notice
that Good Reason exists (the "Good Reason Notice"). For purposes of this
Agreement, Good Reason shall mean one or both of the following:
(1) a material breach of the Agreement by the Company
(including, without limitation, one or more of the following without
the Executive's prior written consent:
(i) a material diminution of the Executive's
responsibilities, title, authority or status,
(ii) the failure of the Company to pay the Executive
amounts when due under this Agreement,
(iii) the Executive's removal or dismissal from, the
position set forth in Section 1.1 above, and
(iv) a reduction in Salary or a material reduction in
benefits (other than a reduction in Salary permitted by
Section 2.1).
(2) the resignation by the Executive within one (1) year of a
"Change of Control," as defined in Section 3.3(b).
Notwithstanding the foregoing, a termination on account of a reason described in
paragraph (1), shall be deemed not to be for Good Reason unless the Executive
(i) gives the Company the opportunity to cure the condition that purports to be
Good Reason, and (ii) the Company fails to cure that condition within sixty (60)
days after the receipt of the Good Reason Notice (or, with respect to the
failure to make any payment when due to the Executive within ten (10) days after
the receipt of such notice).
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Notwithstanding any of the foregoing, if there is a "Change of Control"
as defined hereafter, the Company shall cause the Executive's outstanding
options which are not immediately exercisable to vest and become immediately
exercisable and the restrictions on equity held by the Executive which are
scheduled to lapse solely through the passage of time to lapse (such events
collectively referred to as "Acceleration of Equity Rights") and an immediate
vesting of all amounts in the Executive's SERP (any reference to the Executive's
Acceleration of Equity Rights shall also include the immediate vesting of all
amounts in the Executive's SERP).
(b) For purposes of this Agreement, a "Change of Control"
shall be deemed to occur if (i) there shall be consummated (x) any
consolidation, reorganization 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) any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act, including any "group" (as defined in Section 13(d)(3) of the
Exchange Act) (other than the Executive or any group controlled by the
Executive)) shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of twenty percent (20%) 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) and such person discloses its intent to
effect a change in the control or ownership
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of the Company in any filing with the Securities and Exchange Commission, or
(iv) within any twenty-four (24) month period beginning on or after the
Effective Date, the persons who were directors of the Company immediately before
the beginning of such period (the "Incumbent Directors") shall cease (for any
reason other than death, disability or retirement) to constitute at least a
majority of the Board or the board of directors of any successor to the Company,
provided that, any director who was not a director as of the Effective Date
shall be deemed to be an Incumbent Director if such director was elected to the
Board by, or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent Directors either
actually or by prior operation of this Section 3.3(b)(iv) unless such election,
recommendation or approval was the result of any actual or threatened election
contest of the type contemplated by Regulation 14a-11 promulgated under the
Exchange Act or any successor provision.
3.4 Severance. (a) If the Executive resigns for Good Reason, or is
terminated without Cause or at the end of the term hereof, or if the Company
gives the Executive notice of its intention not to extend the Term, in
accordance with Article II, the Company shall cause an immediate Acceleration of
Equity Rights and the SERP in favor of the Executive. In addition, the Company
shall pay the Executive an amount (the "Severance Amount") equal to the sum of
(1) the remaining Salary due under the remainder of the term of this Agreement,
assuming that, if no notice has been given pursuant to Section 1.2 above not to
renew this Agreement, then the remaining amount of time under this Agreement
shall be three (3) years (the "Severance Term"); and (2) the Bonus Amount which
shall be the greater of i) the Executive's Bonus in the year of termination or
in the immediately preceding calendar year, whichever is greater. Such Severance
Amount shall be payable in cash as follows:
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(x) no later than 10 days after the effective date of
Executive's termination, the Company shall pay the Executive one-half
(1/2) of the Severance Amount in a lump sum;
(y) commencing on the first day of the month following the
effective date of Executive's termination and on the first day of the
month thereafter for a period equal to the Severance Term, the Company
shall pay the remaining one-half (1/2) of the Severance Amount to the
Executive in equal monthly installments;
provided, however, that if the Executive's employment terminates other than for
Cause, within one (1) year following a Change of Control, the Company shall, in
lieu of the making the payments described in (x) and (y), pay the Executive the
Severance Amount in one lump sum cash payment within ten (10) days after the
effective date of Executive's termination.
In addition, for a period equal to the Severance Term following the
effective date of the Executive's termination, the Company shall provide
continued employee benefits and coverage for the Executive and his dependents of
the type and at a level of coverage comparable to the coverage in effect at the
time of termination or the preceding year, whichever is greater ("Continued
Benefits") including, but not limited to, those benefits and perquisites set
forth in Section 2.3 hereof. Such allowances, benefits and coverages, etc., to
be not less than those in effect on the Effective Date of Executive's
termination or the preceding year, whichever is greater. Notwithstanding the
foregoing, if any of the Continued Benefits or other benefits to be provided
hereunder have been decreased or otherwise negatively affected within twelve
(12) months prior to the effective date of the Executive's termination, the
reference for measuring such benefit shall be the date prior to such reduction
rather than the date of such termination.
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3.5 Termination for Disability. (a) The Company may terminate the
Executive following a determination by the Chief Executive Officer or the Board
of Directors that the Executive has a Permanent Disability; provided, however,
that no such termination shall be effective (i) prior to the expiration of the
six (6) month period following the date the Executive first incurred the
condition which is the basis for the Permanent Disability or (ii) if the
Executive begins to substantially perform the significant aspects of his regular
duties prior to the proposed effective date of such termination. For purposes of
this Agreement, "Permanent Disability" shall mean the Executive's inability, by
reason of any physical or mental impairment, to substantially perform the
significant aspects of his regular duties, as contemplated by this Agreement,
which inability is reasonably contemplated to continue for at least one (1) year
from its incurrence and at least ninety (90) days from the effective date of the
Executive's termination. Any question as to the existence, extent, or
potentiality of the Executive's Permanent Disability shall be determined by a
qualified independent physician selected by the Executive (or, if the Executive
is unable to make such selection, by an adult member of the Executive's
immediate family) and reasonably acceptable to the Company.
(b) If the Executive is terminated because of his Permanent
Disability, the Company shall provide for the Acceleration of Equity Rights and,
the Company shall, (i) for a period of twelve (12) months following the
effective date of such termination (the "Disability Period") pay the Executive
one hundred (100%) percent of his Salary plus Bonus Amount, offset by the
amount, if any, paid to the Executive under the salary replacement portion of
disability benefits paid under a disability plan or policy paid for by the
Company; and (ii) provide him with Continued Benefits during the Disability
Period.
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3.6 Death or Disability After Termination. Should the Executive die or
become disabled before receipt of any or all payments to which the Executive is
entitled to under Section 3.4 (or in the case of the Executive's death following
his termination on account of Permanent Disability, before receipt of all
payments under Section 3.5) then the balance of the payments to which the
Executive is entitled shall continue to be paid to the Executive (in the case of
his disability) or to the executors or administrators of the Executive's estate
(in the event of the Executive's death); provided, however, that the Company
may, at any time within its discretion, accelerate any payments and pay the
Executive or his estate the present value of such payments in a lump sum cash
payment. For purposes of determining the present value under this Section 3.6,
the interest rate shall be the prime rate of Citibank, N.A.
ARTICLE IV
COVENANTS OF THE EXECUTIVE
4.1 Confidential Information. In connection with his employment at the
Company, the Executive will have access to confidential information consisting
of some or all of the following categories of information:
(a) Financial Information, including but not limited to
information relating to the Company's earnings, assets, debts, prices,
pricing structure, volume of purchases or sales or other financial data
whether related to the Company or generally, or to particular products,
services, geographic areas, or time periods;
(b) Supply and Service Information, including but not limited
to information relating to goods and services, suppliers' names or
addresses, terms of supply or service contracts or of particular
transactions, or related information about potential suppliers to the
extent that such information is not generally known to the public, and
the extent that the combination of suppliers or use of a particular
supplier, though generally known or available, yields advantages to the
Company details of which are not generally known;
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(c) Marketing Information, including but not limited to
information relating to details about ongoing or proposed marketing
programs or agreements by or on behalf of the Company, sales forecasts,
advertising formats and methods or results of marketing efforts or
information about impending transactions;
(d) Personnel Information, including but not limited to
information relating to employees' personnel or medical histories,
compensation or other terms of employment, actual or proposed
promotions, hirings, resignation, disciplinary actions, terminations or
reasons therefor, training methods, performance, or other employee
information; and
(e) Customer Information, including but not limited to
information relating to past, existing or prospective customers' names,
addresses or backgrounds, records of agreements and prices, proposals
or agreements between customers and the Company, status of customers'
accounts or credit, or related information about actual or prospective
customers as well as customer lists.
All of the foregoing are hereinafter referred to as "Trade Secrets."
The Company and the Executive consider their relation one of confidence with
respect to Trade Secrets. Therefore, during and after the employment by the
Company, regardless of the reasons that such employment ends, the Executive
agrees:
(aa) To hold all Trade Secrets in confidence and not
discuss, communicate or transmit to others, or make any
unauthorized copy of or use the Trade Secrets in any capacity,
position or business except as it directly relates to the
Executive's employment by the Company;
(bb) To use the Trade Secrets only in furtherance of
proper employment related reasons of the Company to further
the interests of the Company;
(cc) To take all reasonable actions that the Company
deems necessary or appropriate, to prevent unauthorized use or
disclosure of or to protect the Company's interest in the
Trade Secrets; and
(dd) That any of the Trade Secrets, whether prepared
by the Executive or which may come into the Executive's
possession during the Executive's employment hereunder, are
and remain the property of the Company and its affiliates, and
all such Trade Secrets, including copies thereof, together
with all other property belonging to the Company or its
affiliates, or used in their respective businesses, shall be
delivered to or left with the Company.
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This Agreement does not apply to (i) information that by means other
than the Executive's deliberate or inadvertent disclosure becomes known to the
public; (ii) disclosure compelled by judicial or administrative proceedings
provided the Executive affords the Company the opportunity to obtain assurance
that compelled disclosures will receive confidential treatment; and (iii)
information independently developed by the Executive, the development of which
was not a breach of this Agreement.
4.2 Non-Competition. (a) During the Term and for a period of twelve
(12) months thereafter, the Executive agrees that he will not, without the
express written consent of the Company, for the Executive or on behalf of any
other person, firm, entity or other enterprise (i) directly or indirectly
solicit for employment or recommend to any subsequent employer of the Executive
the solicitation for employment of any person who, at the time of such
solicitation is employed by Company or any affiliate thereof, (ii) directly or
indirectly solicit, divert, or endeavor to entice away any customer of the
Company or any affiliate thereof, or otherwise engage in any activity intended
to terminate, disrupt, or interfere with the Company's or any affiliate's
relationship with a customer, supplier, lessor or other person, or (iii) be
employed by, be a director, officer 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 (1) healthcare facility or
business, including but not limited to, any subacute healthcare facility,
rehabilitation hospital, nursing home, home health care business, assisted
living, retirement housing, or congregate care facility or (2) any other
business similar to a business which is or was owned, operated or managed by the
Company during the Term or during the period that this Section 4.2 shall
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apply to the Executive, unless such business comprises (and has during the
preceding twelve (12) month period comprised) less than five percent (5%) of the
Company's gross revenues; and, in the case of any facility or business
described, in either case, which competes with any such type of facility or
business then operated by the Company or any of its subsidiaries. This provision
shall not be construed to prohibit the Executive from owning up to 10% of the
outstanding voting shares of the equity securities of any company whose common
stock is listed for trading on any national securities exchange or on the NASDAQ
System or serving as a director of any such company. The provisions of this
Section 4.2 shall nly apply to businesses and operations located in, or
otherwise conducted in, the United States.
4.3 Remedies For Breach of Article IV. In the event that the Executive
materially violates the covenants contained in this Article IV, after his
termination of employment under circumstances which entitle him to payments or
benefits under Section 3.4, the Company may, at its election, upon ten (10)
days' prior notice, terminate the Severance Period and cease providing the
Executive with such payments and benefits. In addition, the Executive
acknowledges and agrees that the amount of damages in the event of the
Executive's breach of this Article IV will be difficult, if not impossible, to
ascertain. The Executive therefore agrees that the Company, in addition to, and
without limiting any other remedy or right it may have, shall have the right to
an injunction enjoining any breach of the covenants made by the Executive in
this Article IV.
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ARTICLE V
AMENDMENT AND ASSIGNMENT
5.1 Right of the Executive to Assign. The Executive may not assign,
transfer, pledge or hypothecate or otherwise transfer his rights, obligations,
interests and benefits under this Agreement and any attempt to do so shall be
null and void.
5.2 Right of Company to Assign. This Agreement shall be assignable and
transferable by the Company and any such assignment or transfer shall inure to
the benefit of and be binding upon the Executive, the Executive's heirs and
personal representatives, and the Company and its successors and assigns. The
Executive agrees to execute all documents necessary to ratify and effectuate
such assignment. An assignment of this Agreement by the Company shall not
release the Company from its monetary obligations under this Agreement.
5.3 Amendment/Waiver. No change or modification of this Agreement shall
be valid unless it is in writing and signed by both parties hereto. No waiver of
any provisions of this Agreement shall be valid unless in writing and signed by
the person or party to be charged.
ARTICLE VI
GENERAL
6.1 Governing Law. This Agreement shall be subject to and governed by
the laws of the State of Florida.
6.2 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and the Executive and their respective heirs, legal
representatives, executors, administrators, successors and permitted assigns.
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6.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes the Prior Agreement and all other prior
agreements, either oral or written, between the parties hereto; provided,
however, that this Agreement does not supersede any agreements pertaining to
stock options which have been granted as of the Effective Date, except to the
extent that any such option agreement contains provisions which are contrary to
the provisions of this Agreement (including provisions regarding the
Acceleration of Equity Rights).
6.4 Mitigation. The Executive shall not be required to mitigate damages
or the amount of any payment provided for under this Agreement by seeking other
employment or otherwise nor may any payments provided for under this Section be
reduced by any amounts earned by the Executive, except as provided in Article
IV.
6.5 Survivorship. The respective rights and obligations of the parties
hereunder shall survive the termination of this Agreement to the extent
necessary to preserve the rights and obligations of the parties under this
Agreement.
6.6 Notices. All notices, demands, requests, consents, approvals or
other communications required or permitted hereunder shall be in writing and
shall be delivered by hand, registered or certified mail with return receipt
requested or by a nationally recognized overnight delivery service, in each case
with all postage or other delivery charges prepaid, and to the address of the
party to whom it is directed as indicated below, or to such other address as
such party may specify by giving notice to the other in accordance with the
terms hereof. Any such notice shall be deemed to be received (i) when delivered,
if by hand, (ii) on the next business day following timely deposit with a
nationally recognized overnight delivery service or (iii) on the date shown on
the
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<PAGE>
return receipt as received or refused or on the date the postal authorities
state that delivery cannot be accomplished, if sent by registered of certified
mail, return receipt requested.
If to the Company: Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attn: Chairman of the Board
If to the Executive: Edward J. Komp
-------------------------------
-------------------------------
6.7 Indemnification. The Company agrees to maintain Director's and
Officer's liability insurance as determined by the Board of Directors; provided,
however, that the level of insurance may be decreased with the Executive's
consent. To the extent not covered by such liability insurance, the Company
shall indemnify and hold the Executive harmless to the fullest extent permitted
by Delaware law against any judgments, fines, amounts paid in settlement and
reasonable expenses (including reasonable attorneys' fees), and advance amounts
necessary to pay the foregoing at the earliest time and to the fullest extent
permitted by law, in connection with any claim, action or proceeding (whether
civil or criminal) against the Executive as a result of his serving as an
officer or director of the Company or in any capacity at the request of the
Company in or with regard to any other entity, employee benefit plan or
enterprise. This indemnification shall be in effect during the Term and
thereafter and shall be in addition to and not in lieu of any other
indemnification rights the Executive may otherwise have.
6.8 Attorneys' Fees. Upon presentation of an invoice, the Company shall
pay directly or reimburse the Executive for all reasonable attorneys' fees and
costs incurred by the Executive:
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(a) in connection with the negotiation, preparation and
execution of this Agreement; and
(b) in connection with any dispute brought by the Executive
over the terms of this Agreement unless there is a determination that
the Executive had no reasonable basis for his claim.
6.9 Arbitration. Except as otherwise provided in Section 4.3, any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three
arbitrators in Lee or Collier County, Florida, in accordance with the rules of
the American Arbitration Association then in effect, and judgement may be
entered on the arbitrators' award in any court having jurisdiction. The Company
shall pay all costs of the American Arbitration Association and the arbitrator.
In the event that the Executive loses on all claims within arbitration, then the
Executive shall reimburse the Company for the costs of the arbitration. Each
party shall select one arbitrator, and the two so designated shall select a
third arbitrator. If either party shall fail to designate an arbitrator within
seven (7) days after arbitration is requested, or if the two arbitrators shall
fail to select a third arbitrator within fourteen (14) days after arbitration is
requested, then an arbitrator shall be selected by the American Arbitration
Association upon application of either party. Notwithstanding the foregoing, the
Executive shall be entitled to seek specific performance from a court of the
Executive's right to be paid until the date of termination during the pendency
of any dispute or controversy arising under or in connection with this Agreement
and the Company shall have the right to obtain injunctive relief from a court.
6.10 Severability. No provision in this Agreement if held unenforceable
shall in any way invalidate any other provisions of this Agreement, all of which
shall remain in full force and effect.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized officers and its corporate seal to be hereunto affixed,
and the Executive has hereunto set the Executive's hand on the day and year
first above written.
COMPANY EXECUTIVE
- ------- ---------
Integrated Living Communities, Inc.,
a Delaware corporation
By: Name: Edward J. Komp
---------------------------- -------------- ---------------------
Title:
-------------------------
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<PAGE>
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of May 1, 1996 (the "Effective
Date"), by and between INTEGRATED LIVING COMMUNITIES, INC., a Delaware
corporation (hereinafter referred to as the "Company"), and KAYDA JOHNSON
(hereinafter referred to as the "Executive").
W I T N E S S E T H:
WHEREAS, the Company wishes to employ the Executive and to ensure the
continued services of the Executive for the Term (as hereinafter defined), and
the Executive desires to be employed by the Company for such Term, upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premise and the
mutual agreements herein contained, the parties, intending to be legally bound,
hereby agree as follows:
ARTICLE I
EMPLOYMENT RELATIONSHIP
1.1 Employment. The Company hereby employs the Executive in the
position of Senior Vice President and Chief Operating Officer of the Company,
with such responsibilities as may be assigned to Executive from time to time by
the Company's President and Chief Executive Officer. Executive shall report to
and be responsible to the individual(s) who is/are President and Chief Executive
Officer of the Company for the period hereinafter set forth, and the Executive
hereby accepts such employment.
<PAGE>
During the Term, the Executive agrees to devote all such working time
as is reasonably required for the discharge of her duties hereunder and to
perform such services faithfully and to the best of her ability. Notwithstanding
the foregoing, nothing in this Agreement shall preclude the Executive from (a)
engaging in charitable and community affairs, so long as they are consistent
with her duties and responsibilities under this Agreement, (b) managing her
personal investments, and (c) serving on the boards of directors of other
companies with the consent of the President or the individual to whom the
Executive reports.
1.2 Term. Unless sooner terminated pursuant to Article III below, the
term of this Agreement (the "Term") shall commence on the Effective Date, and be
in effect for three (3) years; provided, however, that on each May 1st after the
date of this Agreement (an "Anniversary Date"), the then current term of this
Agreement automatically shall be extended by an additional period of twelve (12)
months, so that, as of each Anniversary Date, this Agreement shall have an
unexpired Term of three (3) years. Notwithstanding the foregoing, either party
hereto may elect not to so extend this Agreement by giving written notice of her
or its election to the other party hereto at least one hundred twenty (120) days
prior to any Anniversary Date. In the event the Company elects not to renew this
Agreement with appropriate notice as provided herein, the Company may buy out
the remaining term of the Agreement through the payment of severance to the
Executive as provided in Section 3.4.
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<PAGE>
ARTICLE II
COMPENSATION
2.1 Salary. The Executive shall receive a base salary at an initial
rate of One Hundred Ninety-five Thousand Dollars ($195,000.00) per year (the
"Salary"), payable in substantially equal installments in accordance with the
pay policy established by the Company from time to time, but not less frequently
than monthly. On each Anniversary Date, the Salary shall be increased or
decreased (but not below One Hundred Ninety-five Thousand Dollars ($195,000.00))
by a percentage which is equal to the percentage increase or decrease, as
applicable, in the "Consumer Price Index for All Urban Consumers" published by
the United States Department of Labor's Bureau of Labor Statistics for the then
most recently ended twelve (12) month period as of the date of such adjustment,
and increased by such additional amounts as may be determined at the discretion
of the Chief Executive Officer or the President. Once adjusted, such adjusted
amount shall constitute Salary for purposes of this Agreement.
2.2 Bonuses.
If the Company meets or exceeds the goals as determined by the
Board (the "Target"), then the Company shall pay the Executive an annual bonus
("Bonus") based on the Executive's performance, benefit to the Company at large,
and the extent to which the Company equals or exceeds the Target, payable within
ninety (90) days of the end of the fiscal year. Such Bonus shall be
discretionary except that if the Company meets it Target then the Executive
shall receive a bonus of not less than thirty percent (30%) of her Salary.
2.3 Executive Benefits and Perquisites. During the Term, the Company
shall provide and/or pay for employee benefits and perquisites including,
without limitation:
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(a) comprehensive individual health insurance in accordance
with the Company's executive plan, including dental, vision and
dependent coverage;
(b) life insurance coverage in an amount equal to Five Hundred
Thousand Dollars ($500,000), any proceeds of which shall be payable to
the Executive's designated beneficiary or her estate;
(c) three (3) weeks paid noncumulative vacation annually;
(d) annual sick leave, personal leave and holiday leave in
accordance with Company policy;
(e) disability insurance coverage in a monthly benefit amount
equal to the sum of 100% of Executive's Salary plus "Bonus Amount" (as
defined in Section 3.4(a));
(f) an automobile allowance of $9,600.00 per year, and as
increased from time to time by an amount equal to the CPI increase set
forth in Section 2.1;
(g) accidental death and dismemberment insurance, pursuant to
Company policy;
(h) personal umbrella (excess) insurance coverage in the
amount of Two Million Dollars ($2,000,000.00); and
(i) the Executive shall be eligible to participate in an
executive retirement program (SERP) that the Company shall establish
and maintain.
Once increased, the level of benefits and perquisites shall not be
decreased without the Executive's consent.
2.4 Equity-based Compensation. During the Term, the Compensation
Committee, in its complete discretion, may select the Executive to participate
in programs or enter into agreements which provide for the grant of certain
equity-based compensation or rights to the Executive.
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<PAGE>
ARTICLE III
TERMINATION AND SEVERANCE
3.1 Termination; Nonrenewal. The Company shall have the right to
terminate the Executive's employment, and the Executive shall have the right to
resign her employment with the Company, at any time during the Term, for any
reason or for no stated reason, upon no less than ninety (90) days prior written
notice (or such shorter notice to the extent provided for herein). Upon the
Executive's termination without "Cause" (as defined in Section 3.2) or
resignation for "Good Reason" (as defined in Section 3.3) or upon the expiration
of the Term following the Company's election not to renew this Agreement (in
accordance with Section 1.3), the Executive shall be entitled to severance as
set forth in Section 3.4. Upon the expiry of the term hereof, the Executive
shall be entitled to severance as set forth in Section 3.4. Upon the Executive's
termination for Cause or resignation without Good Reason, the Executive shall
not be entitled to severance. If the Executive's employment is terminated
because of a Permanent Disability (as defined in Section 3.5), the Executive
shall receive the benefits and payments described in Section 3.5.
3.2 Termination For Cause.
(a) The Company may terminate this Agreement for Cause
following a determination by the Chief Executive Officer that Cause exists. For
purposes of this Agreement, Cause shall mean any or all of the following:
(i) the Executive materially fails to perform her
duties hereunder;
(ii) a material breach by the Executive of her
covenants under Sections 4.1 or 4.2;
(iii) Executive is convicted of any felony.
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<PAGE>
(iv) Executive commits theft, larceny or embezzlement
of Company's tangible or intangible property.
(b) Notwithstanding anything in Section 3.2(a) to the
contrary, a termination shall not be for Cause unless (i) the party to whom the
Executive reports notifies the Executive, in writing, of her intention to
terminate the Executive for Cause (which notice shall set forth the conduct
alleged to constitute Cause) (the "Cause Notice"); and (ii) the Executive does
not cure her conduct (to the reasonable satisfaction of the party to whom the
Executive reports), within sixty (60) days after the receipt of the Cause
Notice.
3.3 Termination for Good Reason. (a) The Executive may terminate this
Agreement for Good Reason, provided he gives the Company prior written notice
that Good Reason exists (the "Good Reason Notice"). For purposes of this
Agreement, Good Reason shall mean one or both of the following:
(1) a material breach of the Agreement by the Company
(including, without limitation, one or more of the following without
the Executive's prior written consent:
(i) a material diminution of the Executive's
responsibilities, title, authority or status,
(ii) the failure of the Company to pay the Executive
amounts when due under this Agreement,
(iii) the Executive's removal or dismissal from, the
position set forth in Section 1.1 above, and
(iv) a reduction in Salary or a material reduction in
benefits (other than a reduction in Salary permitted by
Section 2.1).
(2) the resignation by the Executive within one (1) year of a
"Change of Control," as defined in Section 3.3(b).
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<PAGE>
Notwithstanding the foregoing, a termination on account of a reason described in
paragraph (1), shall be deemed not to be for Good Reason unless the Executive
(i) gives the Company the opportunity to cure the condition that purports to be
Good Reason, and (ii) the Company fails to cure that condition within sixty (60)
days after the receipt of the Good Reason Notice (or, with respect to the
failure to make any payment when due to the Executive within ten (10) days after
the receipt of such notice).
Notwithstanding any of the foregoing, if there is a "Change of Control"
as defined hereafter, the Company shall cause the Executive's outstanding
options which are not immediately exercisable to vest and become immediately
exercisable and the restrictions on equity held by the Executive which are
scheduled to lapse solely through the passage of time to lapse (such events
collectively referred to as "Acceleration of Equity Rights") and an immediate
vesting of all amounts in the Executive's SERP (any reference to the Executive's
Acceleration of Equity Rights shall also include the immediate vesting of all
amounts in the Executive's SERP).
(b) For purposes of this Agreement, a "Change of Control"
shall be deemed to occur if (i) there shall be consummated (x) any
consolidation, reorganization 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
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<PAGE>
Company, or (iii) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act, including any "group" (as defined in Section
13(d)(3) of the Exchange Act) (other than the Executive or any group controlled
by the Executive)) shall become the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of twenty percent (20%) 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) and such person discloses its intent to
effect a change in the control or ownership of the Company in any filing with
the Securities and Exchange Commission, or (iv) within any twenty-four (24)
month period beginning on or after the Effective Date, the persons who were
directors of the Company immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than death, disability
or retirement) to constitute at least a majority of the Board or the board of
directors of any successor to the Company, provided that, any director who was
not a director as of the Effective Date shall be deemed to be an Incumbent
Director if such director was elected to the Board by, or on the recommendation
of or with the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors either actually or by prior operation of this
Section 3.3(b)(iv) unless such election, recommendation or approval was the
result of any actual or threatened election contest of the type contemplated by
Regulation 14a-11 promulgated under the Exchange Act or any successor provision.
3.4 Severance. (a) If the Executive resigns for Good Reason, or is
terminated without Cause or at the end of the term hereof, or if the Company
gives the Executive notice of its intention not to extend the Term, in
accordance with Article II, the Company shall cause an immediate Acceleration of
Equity Rights and the SERP in favor of the Executive. In addition, the Company
shall pay the Executive an amount (the "Severance Amount") equal to One and
One-half (1.5) times
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<PAGE>
the sum of (1) her Salary in the year of Termination or the immediately
preceding year, whichever is greater; and (2) the Bonus Amount which shall be
the greater of i) the Executive's Bonus in the year of termination or in the
immediately preceding calendar year, whichever is greater. Such Severance Amount
shall be payable in cash as follows:
(x) no later than 10 days after the effective date of
Executive's termination, the Company shall pay the Executive one-half
(1/2) of the Severance Amount in a lump sum;
(y) commencing on the first day of the month following the
effective date of Executive's termination and on the first day of the
month thereafter for a period of eighteen (18) months, the Company
shall pay the remaining one-half (1/2) of the Severance Amount to the
Executive in equal monthly installments;
provided, however, that if the Executive's employment terminates other than for
Cause, within one (1) year following a Change of Control, the Company shall, in
lieu of the making the payments described in (x) and (y), pay the Executive the
Severance Amount in one lump sum cash payment within ten (10) days after the
effective date of Executive's termination.
In addition, for a period of eighteen (18) months following the
effective date of the Executive's termination, the Company shall provide
continued employee benefits and coverage for the Executive and her dependents of
the type and at a level of coverage comparable to the coverage in effect at the
time of termination or the preceding year, whichever is greater ("Continued
Benefits") including, but not limited to, those benefits and perquisites set
forth in Section 2.3 hereof. Such allowances, benefits and coverages, etc., to
be not less than those in effect on the Effective Date of Executive's
termination or the preceding year, whichever is greater. Notwithstanding the
foregoing, if any of the Continued Benefits or other benefits to be provided
hereunder have been decreased or
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<PAGE>
otherwise negatively affected within twelve (12) months prior to the effective
date of the Executive's termination, the reference for measuring such benefit
shall be the date prior to such reduction rather than the date of such
termination.
3.5 Termination for Disability. (a) The Company may terminate the
Executive following a determination by the Chief Executive Officer or the Board
of Directors that the Executive has a Permanent Disability; provided, however,
that no such termination shall be effective (i) prior to the expiration of the
six (6) month period following the date the Executive first incurred the
condition which is the basis for the Permanent Disability or (ii) if the
Executive begins to substantially perform the significant aspects of her regular
duties prior to the proposed effective date of such termination. For purposes of
this Agreement, "Permanent Disability" shall mean the Executive's inability, by
reason of any physical or mental impairment, to substantially perform the
significant aspects of her regular duties, as contemplated by this Agreement,
which inability is reasonably contemplated to continue for at least one (1) year
from its incurrence and at least ninety (90) days from the effective date of the
Executive's termination. Any question as to the existence, extent, or
potentiality of the Executive's Permanent Disability shall be determined by a
qualified independent physician selected by the Executive (or, if the Executive
is unable to make such selection, by an adult member of the Executive's
immediate family) and reasonably acceptable to the Company.
(b) If the Executive is terminated because of her Permanent
Disability, the Company shall provide for the Acceleration of Equity Rights and,
the Company shall, (i) for a period of twelve (12) months following the
effective date of such termination (the "Disability Period") pay the Executive
one hundred (100%) percent of her Salary plus Bonus Amount, offset by the
amount, if any, paid to the Executive under the salary replacement portion of
disability benefits paid under
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<PAGE>
a disability plan or policy paid for by the Company; and (ii) provide him with
Continued Benefits during the Disability Period.
3.6 Death or Disability After Termination. Should the Executive die or
become disabled before receipt of any or all payments to which the Executive is
entitled to under Section 3.4 (or in the case of the Executive's death following
her termination on account of Permanent Disability, before receipt of all
payments under Section 3.5) then the balance of the payments to which the
Executive is entitled shall continue to be paid to the Executive (in the case of
her disability) or to the executors or administrators of the Executive's estate
(in the event of the Executive's death); provided, however, that the Company
may, at any time within its discretion, accelerate any payments and pay the
Executive or her estate the present value of such payments in a lump sum cash
payment. For purposes of determining the present value under this Section 3.6,
the interest rate shall be the prime rate of Citibank, N.A.
ARTICLE IV
COVENANTS OF THE EXECUTIVE
4.1 Confidential Information. In connection with her employment at the
Company, the Executive will have access to confidential information consisting
of some or all of the following categories of information:
(a) Financial Information, including but not limited to
information relating to the Company's earnings, assets, debts, prices,
pricing structure, volume of purchases or sales or other financial data
whether related to the Company or generally, or to particular products,
services, geographic areas, or time periods;
(b) Supply and Service Information, including but not limited
to information relating to goods and services, suppliers' names or
addresses, terms of supply or service contracts or of particular
transactions, or related information about potential suppliers to the
extent that such information is not generally known to the public, and
the extent that the
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combination of suppliers or use of a particular supplier, though
generally known or available, yields advantages to the Company details
of which are not generally known;
(c) Marketing Information, including but not limited to
information relating to details about ongoing or proposed marketing
programs or agreements by or on behalf of the Company, sales forecasts,
advertising formats and methods or results of marketing efforts or
information about impending transactions;
(d) Personnel Information, including but not limited to
information relating to employees' personnel or medical histories,
compensation or other terms of employment, actual or proposed
promotions, hirings, resignation, disciplinary actions, terminations or
reasons therefor, training methods, performance, or other employee
information; and
(e) Customer Information, including but not limited to
information relating to past, existing or prospective customers' names,
addresses or backgrounds, records of agreements and prices, proposals
or agreements between customers and the Company, status of customers'
accounts or credit, or related information about actual or prospective
customers as well as customer lists.
All of the foregoing are hereinafter referred to as "Trade Secrets."
The Company and the Executive consider their relation one of confidence with
respect to Trade Secrets. Therefore, during and after the employment by the
Company, regardless of the reasons that such employment ends, the Executive
agrees:
(aa) To hold all Trade Secrets in confidence and not
discuss, communicate or transmit to others, or make any
unauthorized copy of or use the Trade Secrets in any capacity,
position or business except as it directly relates to the
Executive's employment by the Company;
(bb) To use the Trade Secrets only in furtherance of
proper employment related reasons of the Company to further
the interests of the Company;
(cc) To take all reasonable actions that the Company
deems necessary or appropriate, to prevent unauthorized use or
disclosure of or to protect the Company's interest in the
Trade Secrets; and
(dd) That any of the Trade Secrets, whether prepared
by the Executive or which may come into the Executive's
possession during the Executive's employment hereunder, are
and remain the property of the Company and its affiliates, and
all such Trade Secrets, including copies thereof, together
with all other property belonging
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to the Company or its affiliates, or used in their respective
businesses, shall be delivered to or left with the Company.
This Agreement does not apply to (i) information that by means other
than the Executive's deliberate or inadvertent disclosure becomes known to the
public; (ii) disclosure compelled by judicial or administrative proceedings
provided the Executive affords the Company the opportunity to obtain assurance
that compelled disclosures will receive confidential treatment; and (iii)
information independently developed by the Executive, the development of which
was not a breach of this Agreement.
4.2 Non-Competition. (a) During the Term and for a period of twelve
(12) months thereafter, the Executive agrees that he will not, without the
express written consent of the Company, for the Executive or on behalf of any
other person, firm, entity or other enterprise (i) directly or indirectly
solicit for employment or recommend to any subsequent employer of the Executive
the solicitation for employment of any person who, at the time of such
solicitation is employed by Company or any affiliate thereof, (ii) directly or
indirectly solicit, divert, or endeavor to entice away any customer of the
Company or any affiliate thereof, or otherwise engage in any activity intended
to terminate, disrupt, or interfere with the Company's or any affiliate's
relationship with a customer, supplier, lessor or other person, or (iii) be
employed by, be a director, officer 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 (1) healthcare facility or
business, including but not limited to, any subacute healthcare facility,
rehabilitation hospital, nursing home, home health care business, assisted
living, retirement housing,
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or congregate care facility or (2) any other business similar to a business
which is or was owned, operated or managed by the Company during the Term or
during the period that this Section 4.2 shall apply to the Executive, unless
such business comprises (and has during the preceding twelve (12) month period
comprised) less than five percent (5%) of the Company's gross revenues; and, in
the case of any facility or business described, in either case, which competes
with any such type of facility or business then operated by the Company or any
of its subsidiaries. This provision shall not be construed to prohibit the
Executive from owning up to 10% of the outstanding voting shares of the equity
securities of any company whose common stock is listed for trading on any
national securities exchange or on the NASDAQ System or serving as a director of
any such company. The provisions of this Section 4.2 shall only apply to
businesses and operations located in, or otherwise conducted in, the United
States.
4.3 Remedies For Breach of Article IV. In the event that the Executive
materially violates the covenants contained in this Article IV, after her
termination of employment under circumstances which entitle him to payments or
benefits under Section 3.4, the Company may, at its election, upon ten (10)
days' prior notice, terminate the Severance Period and cease providing the
Executive with such payments and benefits. In addition, the Executive
acknowledges and agrees that the amount of damages in the event of the
Executive's breach of this Article IV will be difficult, if not impossible, to
ascertain. The Executive therefore agrees that the Company, in addition to, and
without limiting any other remedy or right it may have, shall have the right to
an injunction enjoining any breach of the covenants made by the Executive in
this Article IV.
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ARTICLE V
AMENDMENT AND ASSIGNMENT
5.1 Right of the Executive to Assign. The Executive may not assign,
transfer, pledge or hypothecate or otherwise transfer her rights, obligations,
interests and benefits under this Agreement and any attempt to do so shall be
null and void.
5.2 Right of Company to Assign. This Agreement shall be assignable and
transferable by the Company and any such assignment or transfer shall inure to
the benefit of and be binding upon the Executive, the Executive's heirs and
personal representatives, and the Company and its successors and assigns. The
Executive agrees to execute all documents necessary to ratify and effectuate
such assignment. An assignment of this Agreement by the Company shall not
release the Company from its monetary obligations under this Agreement.
5.3 Amendment/Waiver. No change or modification of this Agreement shall
be valid unless it is in writing and signed by both parties hereto. No waiver of
any provisions of this Agreement shall be valid unless in writing and signed by
the person or party to be charged.
ARTICLE VI
GENERAL
6.1 Governing Law. This Agreement shall be subject to and governed by
the laws of the State of Florida.
6.2 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and the Executive and their respective heirs, legal
representatives, executors, administrators, successors and permitted assigns.
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6.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes the Prior Agreement and all other prior
agreements, either oral or written, between the parties hereto; provided,
however, that this Agreement does not supersede any agreements pertaining to
stock options which have been granted as of the Effective Date, except to the
extent that any such option agreement contains provisions which are contrary to
the provisions of this Agreement (including provisions regarding the
Acceleration of Equity Rights).
6.4 Mitigation. The Executive shall not be required to mitigate damages
or the amount of any payment provided for under this Agreement by seeking other
employment or otherwise nor may any payments provided for under this Section be
reduced by any amounts earned by the Executive, except as provided in Article
IV.
6.5 Survivorship. The respective rights and obligations of the parties
hereunder shall survive the termination of this Agreement to the extent
necessary to preserve the rights and obligations of the parties under this
Agreement.
6.6 Notices. All notices, demands, requests, consents, approvals or
other communications required or permitted hereunder shall be in writing and
shall be delivered by hand, registered or certified mail with return receipt
requested or by a nationally recognized overnight delivery service, in each case
with all postage or other delivery charges prepaid, and to the address of the
party to whom it is directed as indicated below, or to such other address as
such party may specify by giving notice to the other in accordance with the
terms hereof. Any such notice shall be deemed to be received (i) when delivered,
if by hand, (ii) on the next business day following timely deposit with a
nationally recognized overnight delivery service or (iii) on the date shown on
the
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<PAGE>
return receipt as received or refused or on the date the postal authorities
state that delivery cannot be accomplished, if sent by registered of certified
mail, return receipt requested.
If to the Company: Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attn: Chief Executive Officer
If to the Executive: Kayda Johnson
--------------------------------
--------------------------------
6.7 Indemnification. The Company agrees to maintain Director's and
Officer's liability insurance as determined by the Board of Directors; provided,
however, that the level of insurance may be decreased with the Executive's
consent. To the extent not covered by such liability insurance, the Company
shall indemnify and hold the Executive harmless to the fullest extent permitted
by Delaware law against any judgments, fines, amounts paid in settlement and
reasonable expenses (including reasonable attorneys' fees), and advance amounts
necessary to pay the foregoing at the earliest time and to the fullest extent
permitted by law, in connection with any claim, action or proceeding (whether
civil or criminal) against the Executive as a result of her serving as an
officer or director of the Company or in any capacity at the request of the
Company in or with regard to any other entity, employee benefit plan or
enterprise. This indemnification shall be in effect during the Term and
thereafter and shall be in addition to and not in lieu of any other
indemnification rights the Executive may otherwise have.
6.8 Attorneys' Fees. Upon presentation of an invoice, the Company shall
pay directly or reimburse the Executive for all reasonable attorneys' fees and
costs incurred by the Executive:
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(a) in connection with the negotiation, preparation and
execution of this Agreement; and
(b) in connection with any dispute brought by the Executive
over the terms of this Agreement unless there is a determination that
the Executive had no reasonable basis for her claim.
6.9 Arbitration. Except as otherwise provided in Section 4.3, any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three
arbitrators in Lee or Collier County, Florida, in accordance with the rules of
the American Arbitration Association then in effect, and judgement may be
entered on the arbitrators' award in any court having jurisdiction. The Company
shall pay all costs of the American Arbitration Association and the arbitrator.
In the event that the Executive loses on all claims within arbitration, then the
Executive shall reimburse the Company for the costs of the arbitration. Each
party shall select one arbitrator, and the two so designated shall select a
third arbitrator. If either party shall fail to designate an arbitrator within
seven (7) days after arbitration is requested, or if the two arbitrators shall
fail to select a third arbitrator within fourteen (14) days after arbitration is
requested, then an arbitrator shall be selected by the American Arbitration
Association upon application of either party. Notwithstanding the foregoing, the
Executive shall be entitled to seek specific performance from a court of the
Executive's right to be paid until the date of termination during the pendency
of any dispute or controversy arising under or in connection with this Agreement
and the Company shall have the right to obtain injunctive relief from a court.
6.10 Severability. No provision in this Agreement if held unenforceable
shall in any way invalidate any other provisions of this Agreement, all of which
shall remain in full force and effect.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized officers and its corporate seal to be hereunto affixed,
and the Executive has hereunto set the Executive's hand on the day and year
first above written.
COMPANY EXECUTIVE
Integrated Living Communities, Inc.,
a Delaware corporation
By: Name: Kayda Johnson
----------------------------- ---------------------
Title:
---------------------------
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<PAGE>
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of May 1, 1996 (the "Effective
Date"), by and between INTEGRATED LIVING COMMUNITIES, INC., a Delaware
corporation (hereinafter referred to as the "Company"), and JOHN POOLE
(hereinafter referred to as the "Executive").
W I T N E S S E T H:
WHEREAS, the Company wishes to employ the Executive and to ensure the
continued services of the Executive for the Term (as hereinafter defined), and
the Executive desires to be employed by the Company for such Term, upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premise and the
mutual agreements herein contained, the parties, intending to be legally bound,
hereby agree as follows:
ARTICLE I
EMPLOYMENT RELATIONSHIP
1.1 Employment. The Company hereby employs the Executive in the
position of Senior Vice President and Chief Financial Officer of the Company,
with such responsibilities as may be assigned to Executive from time to time by
the Company's President and Chief Executive Officer. Executive shall report to
and be responsible to the individual(s) who is/are President and Chief Executive
Officer of the Company for the period hereinafter set forth, and the Executive
hereby accepts such employment.
<PAGE>
During the Term, the Executive agrees to devote all such working time
as is reasonably required for the discharge of his duties hereunder and to
perform such services faithfully and to the best of his ability. Notwithstanding
the foregoing, nothing in this Agreement shall preclude the Executive from (a)
engaging in charitable and community affairs, so long as they are consistent
with his duties and responsibilities under this Agreement, (b) managing his
personal investments, and (c) serving on the boards of directors of other
companies with the consent of the President or the individual to whom the
Executive reports.
1.2 Term. Unless sooner terminated pursuant to Article III below, the
term of this Agreement (the "Term") shall commence on the Effective Date, and be
in effect for three (3) years, unless sooner terminated pursuant to the terms of
this Agreement.
ARTICLE II
COMPENSATION
2.1 Salary. The Executive shall receive a base salary at an initial
rate of One Hundred Fifty Thousand Dollars ($150,000.00) per year (the
"Salary"), payable in substantially equal installments in accordance with the
pay policy established by the Company from time to time, but not less frequently
than monthly. On each Anniversary Date, the Salary shall be increased or
decreased (but not below One Hundred Fifty Thousand Dollars ($150,000.00)) by a
percentage which is equal to the percentage increase or decrease, as applicable,
in the "Consumer Price Index for All Urban Consumers" published by the United
States Department of Labor's Bureau of Labor Statistics for the then most
recently ended twelve (12) month period as of the date of such adjustment, and
increased by such additional amounts as may be determined at the discretion of
the President or the Chief
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Executive Officer. Once adjusted, such adjusted amount shall constitute Salary
for purposes of this Agreement.
2.2 Bonuses.
If the Company meets or exceeds the goals as determined by the
Board (the "Target"), then the Company shall pay the Executive an annual bonus
("Bonus") based on the Executive's performance, benefit to the Company at large,
and the extent to which the Company equals or exceeds the Target, payable within
ninety (90) days of the end of the fiscal year. Such Bonus shall be
discretionary except that if the Company meets it Target then the Executive
shall receive a bonus of not less than thirty percent (30%) of his Salary.
Executive's bonus shall be prorated for the year 1996.
2.3 Executive Benefits and Perquisites. During the Term, the Company
shall provide and/or pay for employee benefits and perquisites including,
without limitation:
(a) comprehensive individual health insurance in accordance
with the Company's executive plan, including dental, vision and
dependent coverage;
(b) life insurance coverage in an amount equal to Five Hundred
Thousand Dollars ($500,000), any proceeds of which shall be payable to
the Executive's designated beneficiary or his estate;
(c) three (3) weeks paid noncumulative vacation annually;
(d) annual sick leave, personal leave and holiday leave in
accordance with Company policy;
(e) disability insurance coverage in a monthly benefit amount
equal to the sum of 100% of Executive's Salary plus "Bonus Amount" (as
defined in Section 3.4(a));
(f) an automobile allowance of $9,600.00 per year, and as
increased from time to time by an amount equal to the CPI increase set
forth in Section 2.1;
(g) accidental death and dismemberment insurance, pursuant to
Company policy;
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(h) personal umbrella (excess) insurance coverage in the
amount of Two Million Dollars ($2,000,000); and
(i) the Executive shall be eligible to participate in an
executive retirement program (SERP) that the Company shall establish
and maintain.
Once increased, the level of benefits and perquisites shall not be
decreased without the Executive's consent.
2.4 Equity-based Compensation. During the Term, the Compensation
Committee, in its complete discretion, may select the Executive to participate
in programs or enter into agreements which provide for the grant of certain
equity-based compensation or rights to the Executive.
2.5 Relocation Expenses. The Company has required the Executive to
relocate to the Naples\Ft. Myers, Florida as a condition of employment. The
Executive has agreed to relocate to a location acceptable to the Company (the
"Location") by September 30, 1996. The Company shall reimburse the Executive's
reasonable expenses for his relocation to the Location according the terms in
this Section 2.5 and with the appropriate documentation and prior approval of
the CEO or head of Human Resources. Reasonable relocation expenses shall include
(i) the expense to moving Executive's family, personal and household goods and
(ii) the travel and accommodation expenses for one trip to the Location to
search for a new residence. Executive shall obtain three (3) bids concerning the
moving of his personal property which bids shall be submitted to the CEO or head
of Human Resources for his review and prior approval. In the event that the
Executive is terminated or resigns within the first twelve (12) months of his
employment with the Company, Executive shall repay to the Company a prorated
portion of his relocation expenses. The prorated amount shall be calculated on a
monthly basis with one-twelfth (1/12) of the expenses being assigned to each
month.
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<PAGE>
Until Executive relocates to the Location, the Company agrees
to reimburse his travel costs to the Company's offices up to $1,000 per month,
such reimbursement subject to the provisions above.
ARTICLE III
TERMINATION AND SEVERANCE
3.1 Termination; Nonrenewal. The Company shall have the right to
terminate the Executive's employment, and the Executive shall have the right to
resign his employment with the Company, at any time during the Term, for any
reason or for no stated reason, upon no less than ninety (90) days prior written
notice (or such shorter notice to the extent provided for herein). Upon the
Executive's termination without "Cause" (as defined in Section 3.2) or
resignation for "Good Reason" (as defined in Section 3.3) or upon the expiration
of the Term following the Company's election not to renew this Agreement (in
accordance with Section 1.3), the Executive shall be entitled to severance as
set forth in Section 3.4. Upon the expiry of the term hereof, the Executive
shall be entitled to severance as set forth in Section 3.4. Upon the Executive's
termination for Cause or resignation without Good Reason, the Executive shall
not be entitled to severance. If the Executive's employment is terminated
because of a Permanent Disability (as defined in Section 3.5), the Executive
shall receive the benefits and payments described in Section 3.5.
3.2 Termination For Cause.
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(a) The Company may terminate this Agreement for Cause
following a determination by the Chief Executive Officer that Cause exists. For
purposes of this Agreement, Cause shall mean any or all of the following:
(i) the Executive materially fails to perform his
duties hereunder;
(ii) a material breach by the Executive of his
covenants under Sections 4.1 or 4.2;
(iii) Executive is convicted of any felony.
(iv) Executive commits theft, larceny or embezzlement
of Company's tangible or intangible property.
(b) Notwithstanding anything in Section 3.2(a) to the
contrary, a termination shall not be for Cause unless (i) the party to whom the
Executive reports notifies the Executive, in writing, of his intention to
terminate the Executive for Cause (which notice shall set forth the conduct
alleged to constitute Cause) (the "Cause Notice"); and (ii) the Executive does
not cure his conduct (to the reasonable satisfaction of the party to whom the
Executive reports), within sixty (60) days after the receipt of the Cause
Notice.
3.3 Termination for Good Reason. (a) The Executive may terminate this
Agreement for Good Reason, provided he gives the Company prior written notice
that Good Reason exists (the "Good Reason Notice"). For purposes of this
Agreement, Good Reason shall mean one or both of the following:
(1) a material breach of the Agreement by the Company
(including, without limitation, one or more of the following without
the Executive's prior written consent:
(i) a material diminution of the Executive's
responsibilities, title, authority or status,
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(ii) the failure of the Company to pay the Executive
amounts when due under this Agreement,
(iii) the Executive's removal or dismissal from, the
position set forth in Section 1.1 above, and
(iv) a reduction in Salary or a material reduction in
benefits (other than a reduction in Salary permitted by
Section 2.1).
(2) the resignation by the Executive within one (1) year of a
"Change of Control," as defined in Section 3.3(b).
Notwithstanding the foregoing, a termination on account of a reason described in
paragraph (1), shall be deemed not to be for Good Reason unless the Executive
(i) gives the Company the opportunity to cure the condition that purports to be
Good Reason, and (ii) the Company fails to cure that condition within sixty (60)
days after the receipt of the Good Reason Notice (or, with respect to the
failure to make any payment when due to the Executive within ten (10) days after
the receipt of such notice).
Notwithstanding any of the foregoing, if there is a "Change of Control"
as defined hereafter, the Company shall cause the Executive's outstanding
options which are not immediately exercisable to vest and become immediately
exercisable and the restrictions on equity held by the Executive which are
scheduled to lapse solely through the passage of time to lapse (such events
collectively referred to as "Acceleration of Equity Rights") and an immediate
vesting of all amounts in the Executive's SERP (any reference to the Executive's
Acceleration of Equity Rights shall also include the immediate vesting of all
amounts in the Executive's SERP).
(b) For purposes of this Agreement, a "Change of Control"
shall be deemed to occur if (i) there shall be consummated (x) any
consolidation, reorganization or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of
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<PAGE>
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) any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act, including any "group" (as defined in Section 13(d)(3) of the
Exchange Act) (other than the Executive or any group controlled by the
Executive)) shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of twenty percent (20%) 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) and such person discloses its intent to
effect a change in the control or ownership of the Company in any filing with
the Securities and Exchange Commission, or (iv) within any twenty-four (24)
month period beginning on or after the Effective Date, the persons who were
directors of the Company immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than death, disability
or retirement) to constitute at least a majority of the Board or the board of
directors of any successor to the Company, provided that, any director who was
not a director as of the Effective Date shall be deemed to be an Incumbent
Director if such director was elected to the Board by, or on the recommendation
of or with the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors either actually or by prior operation of this
Section 3.3(b)(iv) unless such election, recommendation or approval was the
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<PAGE>
result of any actual or threatened election contest of the type contemplated by
Regulation 14a-11 promulgated under the Exchange Act or any successor provision.
3.4 Severance. (a) If the Executive resigns for Good Reason, or is
terminated without Cause or at the end of the term hereof, or if the Company
gives the Executive notice of its intention not to extend the Term, in
accordance with Article II, the Company shall cause an immediate Acceleration of
Equity Rights and the SERP in favor of the Executive. In addition, the Company
shall pay the Executive an amount (the "Severance Amount") equal to One and
One-half (1.5) times the sum of (1) his Salary in the year of Termination or the
immediately preceding year, whichever is greater; and (2) the Bonus Amount which
shall be the greater of i) the Executive's Bonus in the year of termination or
in the immediately preceding calendar year, whichever is greater. Such Severance
Amount shall be payable in cash as follows:
(x) no later than 10 days after the effective date of
Executive's termination, the Company shall pay the Executive one-half
(1/2) of the Severance Amount in a lump sum;
(y) commencing on the first day of the month following the
effective date of Executive's termination and on the first day of the
month thereafter for a period of eighteen (18) months, the Company
shall pay the remaining one-half (1/2) of the Severance Amount to the
Executive in equal monthly installments;
provided, however, that if the Executive's employment terminates other than for
Cause, within one (1) year following a Change of Control, the Company shall, in
lieu of the making the payments
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described in (x) and (y), pay the Executive the Severance Amount in one lump sum
cash payment within ten (10) days after the effective date of Executive's
termination.
In addition, for a period of eighteen (18) months following the
effective date of the Executive's termination, the Company shall provide
continued employee benefits and coverage for the Executive and his dependents of
the type and at a level of coverage comparable to the coverage in effect at the
time of termination or the preceding year, whichever is greater ("Continued
Benefits") including, but not limited to, those benefits and perquisites set
forth in Section 2.3 hereof. Such allowances, benefits and coverages, etc., to
be not less than those in effect on the Effective Date of Executive's
termination or the preceding year, whichever is greater. Notwithstanding the
foregoing, if any of the Continued Benefits or other benefits to be provided
hereunder have been decreased or otherwise negatively affected within twelve
(12) months prior to the effective date of the Executive's termination, the
reference for measuring such benefit shall be the date prior to such reduction
rather than the date of such termination.
3.5 Termination for Disability. (a) The Company may terminate the
Executive following a determination by the Chief Executive Officer or the Board
of Directors that the Executive has a Permanent Disability; provided, however,
that no such termination shall be effective (i) prior to the expiration of the
six (6) month period following the date the Executive first incurred the
condition which is the basis for the Permanent Disability or (ii) if the
Executive begins to substantially perform the significant aspects of his regular
duties prior to the proposed effective date of such termination. For purposes of
this Agreement, "Permanent Disability" shall mean the Executive's inability, by
reason of any physical or mental impairment, to substantially perform the
significant aspects of his regular duties, as contemplated by this Agreement,
which inability is reasonably contemplated to
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continue for at least one (1) year from its incurrence and at least ninety (90)
days from the effective date of the Executive's termination. Any question as to
the existence, extent, or potentiality of the Executive's Permanent Disability
shall be determined by a qualified independent physician selected by the
Executive (or, if the Executive is unable to make such selection, by an adult
member of the Executive's immediate family) and reasonably acceptable to the
Company.
(b) If the Executive is terminated because of his Permanent
Disability, the Company shall provide for the Acceleration of Equity Rights and,
the Company shall, (i) for a period of twelve (12) months following the
effective date of such termination (the "Disability Period") pay the Executive
one hundred (100%) percent of his Salary plus Bonus Amount, offset by the
amount, if any, paid to the Executive under the salary replacement portion of
disability benefits paid under a disability plan or policy paid for by the
Company; and (ii) provide him with Continued Benefits during the Disability
Period.
3.6 Death or Disability After Termination. Should the Executive die or
become disabled before receipt of any or all payments to which the Executive is
entitled to under Section 3.4 (or in the case of the Executive's death following
his termination on account of Permanent Disability, before receipt of all
payments under Section 3.5) then the balance of the payments to which the
Executive is entitled shall continue to be paid to the Executive (in the case of
his disability) or to the executors or administrators of the Executive's estate
(in the event of the Executive's death); provided, however, that the Company
may, at any time within its discretion, accelerate any payments and pay the
Executive or his estate the present value of such payments in a lump sum cash
payment. For purposes of determining the present value under this Section 3.6,
the interest rate shall be the prime rate of Citibank, N.A.
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ARTICLE IV
COVENANTS OF THE EXECUTIVE
4.1 Confidential Information. In connection with his employment at the
Company, the Executive will have access to confidential information consisting
of some or all of the following categories of information:
(a) Financial Information, including but not limited to
information relating to the Company's earnings, assets, debts, prices,
pricing structure, volume of purchases or sales or other financial data
whether related to the Company or generally, or to particular products,
services, geographic areas, or time periods;
(b) Supply and Service Information, including but not limited
to information relating to goods and services, suppliers' names or
addresses, terms of supply or service contracts or of particular
transactions, or related information about potential suppliers to the
extent that such information is not generally known to the public, and
the extent that the combination of suppliers or use of a particular
supplier, though generally known or available, yields advantages to the
Company details of which are not generally known;
(c) Marketing Information, including but not limited to
information relating to details about ongoing or proposed marketing
programs or agreements by or on behalf of the Company, sales forecasts,
advertising formats and methods or results of marketing efforts or
information about impending transactions;
(d) Personnel Information, including but not limited to
information relating to employees' personnel or medical histories,
compensation or other terms of employment, actual or proposed
promotions, hirings, resignation, disciplinary actions, terminations or
reasons therefor, training methods, performance, or other employee
information; and
(e) Customer Information, including but not limited to
information relating to past, existing or prospective customers' names,
addresses or backgrounds, records of agreements and prices, proposals
or agreements between customers and the Company, status of customers'
accounts or credit, or related information about actual or prospective
customers as well as customer lists.
All of the foregoing are hereinafter referred to as "Trade Secrets."
The Company and the Executive consider their relation one of confidence with
respect to Trade Secrets. Therefore, during
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and after the employment by the Company, regardless of the reasons that such
employment ends, the Executive agrees:
(aa) To hold all Trade Secrets in confidence and not
discuss, communicate or transmit to others, or make any
unauthorized copy of or use the Trade Secrets in any capacity,
position or business except as it directly relates to the
Executive's employment by the Company;
(bb) To use the Trade Secrets only in furtherance of
proper employment related reasons of the Company to further
the interests of the Company;
(cc) To take all reasonable actions that the Company
deems necessary or appropriate, to prevent unauthorized use or
disclosure of or to protect the Company's interest in the
Trade Secrets; and
(dd) That any of the Trade Secrets, whether prepared
by the Executive or which may come into the Executive's
possession during the Executive's employment hereunder, are
and remain the property of the Company and its affiliates, and
all such Trade Secrets, including copies thereof, together
with all other property belonging to the Company or its
affiliates, or used in their respective businesses, shall be
delivered to or left with the Company.
This Agreement does not apply to (i) information that by means other
than the Executive's deliberate or inadvertent disclosure becomes known to the
public; (ii) disclosure compelled by judicial or administrative proceedings
provided the Executive affords the Company the opportunity to obtain assurance
that compelled disclosures will receive confidential treatment; and (iii)
information independently developed by the Executive, the development of which
was not a breach of this Agreement.
4.2 Non-Competition. (a) During the Term and for a period of twelve
(12) months thereafter, the Executive agrees that he will not, without the
express written consent of the Company, for the Executive or on behalf of any
other person, firm, entity or other enterprise (i) directly or indirectly
solicit for employment or recommend to any subsequent employer of the Executive
the
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solicitation for employment of any person who, at the time of such solicitation
is employed by Company or any affiliate thereof, (ii) directly or indirectly
solicit, divert, or endeavor to entice away any customer of the Company or any
affiliate thereof, or otherwise engage in any activity intended to terminate,
disrupt, or interfere with the Company's or any affiliate's relationship with a
customer, supplier, lessor or other person, or (iii) be employed by, be a
director, officer 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 (1) healthcare facility or business, including
but not limited to, any subacute healthcare facility, rehabilitation hospital,
nursing home, home health care business, assisted living, retirement housing, or
congregate care facility or (2) any other business similar to a business which
is or was owned, operated or managed by the Company during the Term or during
the period that this Section 4.2 shall apply to the Executive, unless such
business comprises (and has during the preceding twelve (12) month period
comprised) less than five percent (5%) of the Company's gross revenues; and, in
the case of any facility or business described, in either case, which competes
with any such type of facility or business then operated by the Company or any
of its subsidiaries. This provision shall not be construed to prohibit the
Executive from owning up to 10% of the outstanding voting shares of the equity
securities of any company whose common stock is listed for trading on any
national securities exchange or on the NASDAQ System or serving as a director of
any such company. The provisions of this Section 4.2 shall only apply to
businesses and operations located in, or otherwise conducted in, the United
States.
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4.3 Remedies For Breach of Article IV. In the event that the Executive
materially violates the covenants contained in this Article IV, after his
termination of employment under circumstances which entitle him to payments or
benefits under Section 3.4, the Company may, at its election, upon ten (10)
days' prior notice, terminate the Severance Period and cease providing the
Executive with such payments and benefits. In addition, the Executive
acknowledges and agrees that the amount of damages in the event of the
Executive's breach of this Article IV will be difficult, if not impossible, to
ascertain. The Executive therefore agrees that the Company, in addition to, and
without limiting any other remedy or right it may have, shall have the right to
an injunction enjoining any breach of the covenants made by the Executive in
this Article IV.
ARTICLE V
AMENDMENT AND ASSIGNMENT
5.1 Right of the Executive to Assign. The Executive may not assign,
transfer, pledge or hypothecate or otherwise transfer his rights, obligations,
interests and benefits under this Agreement and any attempt to do so shall be
null and void.
5.2 Right of Company to Assign. This Agreement shall be assignable and
transferable by the Company and any such assignment or transfer shall inure to
the benefit of and be binding upon the Executive, the Executive's heirs and
personal representatives, and the Company and its successors and assigns. The
Executive agrees to execute all documents necessary to ratify and effectuate
such assignment. An assignment of this Agreement by the Company shall not
release the Company from its monetary obligations under this Agreement.
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5.3 Amendment/Waiver. No change or modification of this Agreement shall
be valid unless it is in writing and signed by both parties hereto. No waiver of
any provisions of this Agreement shall be valid unless in writing and signed by
the person or party to be charged.
ARTICLE VI
GENERAL
6.1 Governing Law. This Agreement shall be subject to and governed by
the laws of the State of Florida.
6.2 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and the Executive and their respective heirs, legal
representatives, executors, administrators, successors and permitted assigns.
6.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes the Prior Agreement and all other prior
agreements, either oral or written, between the parties hereto; provided,
however, that this Agreement does not supersede any agreements pertaining to
stock options which have been granted as of the Effective Date, except to the
extent that any such option agreement contains provisions which are contrary to
the provisions of this Agreement (including provisions regarding the
Acceleration of Equity Rights).
6.4 Mitigation. The Executive shall not be required to mitigate damages
or the amount of any payment provided for under this Agreement by seeking other
employment or otherwise nor may any payments provided for under this Section be
reduced by any amounts earned by the Executive, except as provided in Article
IV.
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6.5 Survivorship. The respective rights and obligations of the parties
hereunder shall survive the termination of this Agreement to the extent
necessary to preserve the rights and obligations of the parties under this
Agreement.
6.6 Notices. All notices, demands, requests, consents, approvals or
other communications required or permitted hereunder shall be in writing and
shall be delivered by hand, registered or certified mail with return receipt
requested or by a nationally recognized overnight delivery service, in each case
with all postage or other delivery charges prepaid, and to the address of the
party to whom it is directed as indicated below, or to such other address as
such party may specify by giving notice to the other in accordance with the
terms hereof. Any such notice shall be deemed to be received (i) when delivered,
if by hand, (ii) on the next business day following timely deposit with a
nationally recognized overnight delivery service or (iii) on the date shown on
the return receipt as received or refused or on the date the postal authorities
state that delivery cannot be accomplished, if sent by registered of certified
mail, return receipt requested.
If to the Company: Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attn: Chief Executive Officer
If to the Executive: John Poole
----------------------------------
----------------------------------
6.7 Indemnification. The Company agrees to maintain Director's and
Officer's liability insurance as determined by the Board of Directors; provided,
however, that the level of insurance may be decreased with the Executive's
consent. To the extent not covered by such liability insurance, the Company
shall indemnify and hold the Executive harmless to the fullest extent
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permitted by Delaware law against any judgments, fines, amounts paid in
settlement and reasonable expenses (including reasonable attorneys' fees), and
advance amounts necessary to pay the foregoing at the earliest time and to the
fullest extent permitted by law, in connection with any claim, action or
proceeding (whether civil or criminal) against the Executive as a result of his
serving as an officer or director of the Company or in any capacity at the
request of the Company in or with regard to any other entity, employee benefit
plan or enterprise. This indemnification shall be in effect during the Term and
thereafter and shall be in addition to and not in lieu of any other
indemnification rights the Executive may otherwise have.
6.8 Attorneys' Fees. Upon presentation of an invoice, the Company shall
pay directly or reimburse the Executive for all reasonable attorneys' fees and
costs incurred by the Executive:
(a) in connection with the negotiation, preparation and
execution of this Agreement; and
(b) in connection with any dispute brought by the Executive
over the terms of this Agreement unless there is a determination that
the Executive had no reasonable basis for his claim.
6.9 Arbitration. Except as otherwise provided in Section 4.3, any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three
arbitrators in Lee or Collier County, Florida, in accordance with the rules of
the American Arbitration Association then in effect, and judgement may be
entered on the arbitrators' award in any court having jurisdiction. The Company
shall pay all costs of the American Arbitration Association and the arbitrator.
In the event that the Executive loses on all claims within arbitration, then the
Executive shall reimburse the Company for the costs of the
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arbitration. Each party shall select one arbitrator, and the two so designated
shall select a third arbitrator. If either party shall fail to designate an
arbitrator within seven (7) days after arbitration is requested, or if the two
arbitrators shall fail to select a third arbitrator within fourteen (14) days
after arbitration is requested, then an arbitrator shall be selected by the
American Arbitration Association upon application of either party.
Notwithstanding the foregoing, the Executive shall be entitled to seek specific
performance from a court of the Executive's right to be paid until the date of
termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement and the Company shall have the right to obtain
injunctive relief from a court.
6.10 Severability. No provision in this Agreement if held unenforceable
shall in any way invalidate any other provisions of this Agreement, all of which
shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized officers and its corporate seal to be hereunto affixed,
and the Executive has hereunto set the Executive's hand on the day and year
first above written.
COMPANY EXECUTIVE
Integrated Living Communities, Inc.,
a Delaware corporation
By: Name:
------------------------------- ------------------------
John Poole
Title:
-----------------------------
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EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of May 1, 1996 (the "Effective
Date"), by and between INTEGRATED LIVING COMMUNITIES, INC., a Delaware
corporation (hereinafter referred to as the "Company"), and KYLE SHATTERLY
(hereinafter referred to as the "Executive").
W I T N E S S E T H:
WHEREAS, the Company wishes to employ the Executive and to ensure the
continued services of the Executive for the Term (as hereinafter defined), and
the Executive desires to be employed by the Company for such Term, upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premise and the
mutual agreements herein contained, the parties, intending to be legally bound,
hereby agree as follows:
ARTICLE I
EMPLOYMENT RELATIONSHIP
1.1 Employment. The Company hereby employs the Executive in the
position of Senior Vice President--Acquisitions and Development of the Company,
with such responsibilities as may be assigned to Executive from time to time by
the Company's President and Chief Executive Officer. Executive shall report to
and be responsible to the individual(s) who is/are President and Chief Executive
Officer of the Company for the period hereinafter set forth, and the Executive
hereby accepts such employment.
During the Term, the Executive agrees to devote all such working time
as is reasonably required for the discharge of his duties hereunder and to
perform such services faithfully and to the
<PAGE>
best of his ability. Notwithstanding the foregoing, nothing in this Agreement
shall preclude the Executive from (a) engaging in charitable and community
affairs, so long as they are consistent with his duties and responsibilities
under this Agreement, (b) managing his personal investments, and (c) serving on
the boards of directors of other companies with the consent of the President or
the individual to whom the Executive reports.
1.2 Term. Unless sooner terminated pursuant to Article III below, the
term of this Agreement (the "Term") shall commence on the Effective Date, and be
in effect for three (3) years, unless sooner terminated pursuant to the terms of
this Agreement.
ARTICLE II
COMPENSATION
2.1 Salary. The Executive shall receive a base salary at an initial
rate of One Hundred Thirty-five Thousand Dollars ($135,000.00) per year (the
"Salary"), payable in substantially equal installments in accordance with the
pay policy established by the Company from time to time, but not less frequently
than monthly. On each Anniversary Date, the Salary shall be increased or
decreased (but not below One Hundred Thirty-five Thousand Dollars ($135,000.00))
by a percentage which is equal to the percentage increase or decrease, as
applicable, in the "Consumer Price Index for All Urban Consumers" published by
the United States Department of Labor's Bureau of Labor Statistics for the then
most recently ended twelve (12) month period as of the date of such adjustment,
and increased by such additional amounts as may be determined at the discretion
of the President or the Chief Executive Officer. Once adjusted, such adjusted
amount shall constitute Salary for purposes of this Agreement.
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2.2 Bonuses.
If the Company meets or exceeds the goals as determined by the
Board (the "Target"), then the Company shall pay the Executive an annual bonus
("Bonus") based on the Executive's performance, benefit to the Company at large,
and the extent to which the Company equals or exceeds the Target, payable within
ninety (90) days of the end of the fiscal year. Such Bonus shall be
discretionary except that if the Company meets it Target then the Executive
shall receive a bonus of not less than thirty percent (30%) of his Salary.
Executive's bonus shall be prorated for the year 1996.
2.3 Executive Benefits and Perquisites. During the Term, the Company
shall provide and/or pay for employee benefits and perquisites including,
without limitation:
(a) comprehensive individual health insurance in accordance
with the Company's executive plan, including dental, vision and
dependent coverage;
(b) life insurance coverage in an amount equal to Five Hundred
Thousand Dollars ($500,000), any proceeds of which shall be payable to
the Executive's designated beneficiary or his estate;
(c) three (3) weeks paid noncumulative vacation annually;
(d) annual sick leave, personal leave and holiday leave in
accordance with Company policy;
(e) disability insurance coverage in a monthly benefit amount
equal to the sum of 100% of Executive's Salary plus "Bonus Amount" (as
defined in Section 3.4(a));
(f) an automobile allowance of $9,600.00 per year, and as
increased from time to time by an amount equal to the CPI increase set
forth in Section 2.1;
(g) accidental death and dismemberment insurance, pursuant to
Company policy;
(h) personal umbrella (excess) insurance coverage in the
amount of Two Million Dollars ($2,000,000.00); and
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(i) the Executive shall be eligible to participate in an
executive retirement program (SERP) that the Company shall establish
and maintain.
Once increased, the level of benefits and perquisites shall not be
decreased without the Executive's consent.
2.4 Equity-based Compensation. During the Term, the Compensation
Committee, in its complete discretion, may select the Executive to participate
in programs or enter into agreements which provide for the grant of certain
equity-based compensation or rights to the Executive.
2.5 Relocation Expenses. The Company has required the Executive to
relocate to the Naples\Ft. Myers, Florida as a condition of employment. The
Executive has agreed to relocate to a location acceptable to the Company (the
"Location") by September 30, 1996. The Company shall reimburse the Executive's
reasonable expenses for his relocation to the Location according the terms in
this Section 2.5 and with the appropriate documentation and prior approval of
the CEO or head of Human Resources. Reasonable relocation expenses shall include
(i) the expense to moving Executive's family, personal and household goods and
(ii) the travel and accommodation expenses for one trip to the Location to
search for a new residence. Executive shall obtain three (3) bids concerning the
moving of his personal property which bids shall be submitted to the CEO or head
of Human Resources for his review and prior approval. In the event that the
Executive is terminated or resigns within the first twelve (12) months of his
employment with the Company, Executive shall repay to the Company a prorated
portion of his relocation expenses. The prorated amount shall be calculated on a
monthly basis with one-twelfth (1/12) of the expenses being assigned to each
month.
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Until Executive relocates to the Location, the Company agrees
to reimburse his travel costs to the Company's offices up to $1,000 per month,
such reimbursement subject to the provisions above.
ARTICLE III
TERMINATION AND SEVERANCE
3.1 Termination; Nonrenewal. The Company shall have the right to
terminate the Executive's employment, and the Executive shall have the right to
resign his employment with the Company, at any time during the Term, for any
reason or for no stated reason, upon no less than ninety (90) days prior written
notice (or such shorter notice to the extent provided for herein). Upon the
Executive's termination without "Cause" (as defined in Section 3.2) or
resignation for "Good Reason" (as defined in Section 3.3) or upon the expiration
of the Term following the Company's election not to renew this Agreement (in
accordance with Section 1.3), the Executive shall be entitled to severance as
set forth in Section 3.4. Upon the expiry of the term hereof, the Executive
shall be entitled to severance as set forth in Section 3.4. Upon the Executive's
termination for Cause or resignation without Good Reason, the Executive shall
not be entitled to severance. If the Executive's employment is terminated
because of a Permanent Disability (as defined in Section 3.5), the Executive
shall receive the benefits and payments described in Section 3.5.
3.2 Termination For Cause.
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(a) The Company may terminate this Agreement for Cause
following a determination by the Chief Executive Officer that Cause exists. For
purposes of this Agreement, Cause shall mean any or all of the following:
(i) the Executive materially fails to perform his
duties hereunder;
(ii) a material breach by the Executive of his
covenants under Sections 4.1 or 4.2;
(iii) Executive is convicted of any felony.
(iv) Executive commits theft, larceny or embezzlement
of Company's tangible or intangible property.
(b) Notwithstanding anything in Section 3.2(a) to the
contrary, a termination shall not be for Cause unless (i) the party to whom the
Executive reports notifies the Executive, in writing, of his intention to
terminate the Executive for Cause (which notice shall set forth the conduct
alleged to constitute Cause) (the "Cause Notice"); and (ii) the Executive does
not cure his conduct (to the reasonable satisfaction of the party to whom the
Executive reports), within sixty (60) days after the receipt of the Cause
Notice.
3.3 Termination for Good Reason. (a) The Executive may terminate this
Agreement for Good Reason, provided he gives the Company prior written notice
that Good Reason exists (the "Good Reason Notice"). For purposes of this
Agreement, Good Reason shall mean one or both of the following:
(1) a material breach of the Agreement by the Company
(including, without limitation, one or more of the following without
the Executive's prior written consent:
(i) a material diminution of the Executive's
responsibilities, title, authority or status,
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(ii) the failure of the Company to pay the Executive
amounts when due under this Agreement,
(iii) the Executive's removal or dismissal from, the
position set forth in Section 1.1 above, and
(iv) a reduction in Salary or a material reduction in
benefits (other than a reduction in Salary permitted by
Section 2.1).
(2) the resignation by the Executive within one (1) year of a
"Change of Control," as defined in Section 3.3(b).
Notwithstanding the foregoing, a termination on account of a reason described in
paragraph (1), shall be deemed not to be for Good Reason unless the Executive
(i) gives the Company the opportunity to cure the condition that purports to be
Good Reason, and (ii) the Company fails to cure that condition within sixty (60)
days after the receipt of the Good Reason Notice (or, with respect to the
failure to make any payment when due to the Executive within ten (10) days after
the receipt of such notice).
Notwithstanding any of the foregoing, if there is a "Change of Control"
as defined hereafter, the Company shall cause the Executive's outstanding
options which are not immediately exercisable to vest and become immediately
exercisable and the restrictions on equity held by the Executive which are
scheduled to lapse solely through the passage of time to lapse (such events
collectively referred to as "Acceleration of Equity Rights") and an immediate
vesting of all amounts in the Executive's SERP (any reference to the Executive's
Acceleration of Equity Rights shall also include the immediate vesting of all
amounts in the Executive's SERP).
(b) For purposes of this Agreement, a "Change of Control"
shall be deemed to occur if (i) there shall be consummated (x) any
consolidation, reorganization or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of
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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) any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act, including any "group" (as defined in Section 13(d)(3) of the
Exchange Act) (other than the Executive or any group controlled by the
Executive)) shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of twenty percent (20%) 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) and such person discloses its intent to
effect a change in the control or ownership of the Company in any filing with
the Securities and Exchange Commission, or (iv) within any twenty-four (24)
month period beginning on or after the Effective Date, the persons who were
directors of the Company immediately before the beginning of such period (the
"Incumbent Directors") shall cease (for any reason other than death, disability
or retirement) to constitute at least a majority of the Board or the board of
directors of any successor to the Company, provided that, any director who was
not a director as of the Effective Date shall be deemed to be an Incumbent
Director if such director was elected to the Board by, or on the recommendation
of or with the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors either actually or by prior operation of this
Section 3.3(b)(iv) unless such election, recommendation or approval was the
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result of any actual or threatened election contest of the type contemplated by
Regulation 14a-11 promulgated under the Exchange Act or any successor provision.
3.4 Severance. (a) If the Executive resigns for Good Reason, or is
terminated without Cause or at the end of the term hereof, or if the Company
gives the Executive notice of its intention not to extend the Term, in
accordance with Article II, the Company shall cause an immediate Acceleration of
Equity Rights and the SERP in favor of the Executive. In addition, the Company
shall pay the Executive an amount (the "Severance Amount") equal to One and
One-half (1.5) times the sum of (1) his Salary in the year of Termination or the
immediately preceding year, whichever is greater; and (2) the Bonus Amount which
shall be the greater of i) the Executive's Bonus in the year of termination or
in the immediately preceding calendar year, whichever is greater. Such Severance
Amount shall be payable in cash as follows:
(x) no later than 10 days after the effective date of
Executive's termination, the Company shall pay the Executive one-half
(1/2) of the Severance Amount in a lump sum;
(y) commencing on the first day of the month following the
effective date of Executive's termination and on the first day of the
month thereafter for a period of eighteen (18) months, the Company
shall pay the remaining one-half (1/2) of the Severance Amount to the
Executive in equal monthly installments;
provided, however, that if the Executive's employment terminates other than for
Cause, within one (1) year following a Change of Control, the Company shall, in
lieu of the making the payments
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described in (x) and (y), pay the Executive the Severance Amount in one lump sum
cash payment within ten (10) days after the effective date of Executive's
termination.
In addition, for a period of eighteen (18) months following the
effective date of the Executive's termination, the Company shall provide
continued employee benefits and coverage for the Executive and his dependents of
the type and at a level of coverage comparable to the coverage in effect at the
time of termination or the preceding year, whichever is greater ("Continued
Benefits") including, but not limited to, those benefits and perquisites set
forth in Section 2.3 hereof. Such allowances, benefits and coverages, etc., to
be not less than those in effect on the Effective Date of Executive's
termination or the preceding year, whichever is greater. Notwithstanding the
foregoing, if any of the Continued Benefits or other benefits to be provided
hereunder have been decreased or otherwise negatively affected within twelve
(12) months prior to the effective date of the Executive's termination, the
reference for measuring such benefit shall be the date prior to such reduction
rather than the date of such termination.
3.5 Termination for Disability. (a) The Company may terminate the
Executive following a determination by the Chief Executive Officer or the Board
of Directors that the Executive has a Permanent Disability; provided, however,
that no such termination shall be effective (i) prior to the expiration of the
six (6) month period following the date the Executive first incurred the
condition which is the basis for the Permanent Disability or (ii) if the
Executive begins to substantially perform the significant aspects of his regular
duties prior to the proposed effective date of such termination. For purposes of
this Agreement, "Permanent Disability" shall mean the Executive's inability, by
reason of any physical or mental impairment, to substantially perform the
significant aspects of his regular duties, as contemplated by this Agreement,
which inability is reasonably contemplated to
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continue for at least one (1) year from its incurrence and at least ninety (90)
days from the effective date of the Executive's termination. Any question as to
the existence, extent, or potentiality of the Executive's Permanent Disability
shall be determined by a qualified independent physician selected by the
Executive (or, if the Executive is unable to make such selection, by an adult
member of the Executive's immediate family) and reasonably acceptable to the
Company.
(b) If the Executive is terminated because of his Permanent
Disability, the Company shall provide for the Acceleration of Equity Rights and,
the Company shall, (i) for a period of twelve (12) months following the
effective date of such termination (the "Disability Period") pay the Executive
one hundred (100%) percent of his Salary plus Bonus Amount, offset by the
amount, if any, paid to the Executive under the salary replacement portion of
disability benefits paid under a disability plan or policy paid for by the
Company; and (ii) provide him with Continued Benefits during the Disability
Period.
3.6 Death or Disability After Termination. Should the Executive die or
become disabled before receipt of any or all payments to which the Executive is
entitled to under Section 3.4 (or in the case of the Executive's death following
his termination on account of Permanent Disability, before receipt of all
payments under Section 3.5) then the balance of the payments to which the
Executive is entitled shall continue to be paid to the Executive (in the case of
his disability) or to the executors or administrators of the Executive's estate
(in the event of the Executive's death); provided, however, that the Company
may, at any time within its discretion, accelerate any payments and pay the
Executive or his estate the present value of such payments in a lump sum cash
payment. For purposes of determining the present value under this Section 3.6,
the interest rate shall be the prime rate of Citibank, N.A.
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ARTICLE IV
COVENANTS OF THE EXECUTIVE
4.1 Confidential Information. In connection with his employment at the
Company, the Executive will have access to confidential information consisting
of some or all of the following categories of information:
(a) Financial Information, including but not limited to
information relating to the Company's earnings, assets, debts, prices,
pricing structure, volume of purchases or sales or other financial data
whether related to the Company or generally, or to particular products,
services, geographic areas, or time periods;
(b) Supply and Service Information, including but not limited
to information relating to goods and services, suppliers' names or
addresses, terms of supply or service contracts or of particular
transactions, or related information about potential suppliers to the
extent that such information is not generally known to the public, and
the extent that the combination of suppliers or use of a particular
supplier, though generally known or available, yields advantages to the
Company details of which are not generally known;
(c) Marketing Information, including but not limited to
information relating to details about ongoing or proposed marketing
programs or agreements by or on behalf of the Company, sales forecasts,
advertising formats and methods or results of marketing efforts or
information about impending transactions;
(d) Personnel Information, including but not limited to
information relating to employees' personnel or medical histories,
compensation or other terms of employment, actual or proposed
promotions, hirings, resignation, disciplinary actions, terminations or
reasons therefor, training methods, performance, or other employee
information; and
(e) Customer Information, including but not limited to
information relating to past, existing or prospective customers' names,
addresses or backgrounds, records of agreements and prices, proposals
or agreements between customers and the Company, status of customers'
accounts or credit, or related information about actual or prospective
customers as well as customer lists.
All of the foregoing are hereinafter referred to as "Trade Secrets."
The Company and the Executive consider their relation one of confidence with
respec to Trade Secrets. Therefore, during
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and after the employment by the Company, regardless of the reasons that such
employment ends, the Executive agrees:
(aa) To hold all Trade Secrets in confidence and not
discuss, communicate or transmit to others, or make any
unauthorized copy of or use the Trade Secrets in any capacity,
position or business except as it directly relates to the
Executive's employment by the Company;
(bb) To use the Trade Secrets only in furtherance of
proper employment related reasons of the Company to further
the interests of the Company;
(cc) To take all reasonable actions that the Company
deems necessary or appropriate, to prevent unauthorized use or
disclosure of or to protect the Company's interest in the
Trade Secrets; and
(dd) That any of the Trade Secrets, whether prepared
by the Executive or which may come into the Executive's
possession during the Executive's employment hereunder, are
and remain the property of the Company and its affiliates, and
all such Trade Secrets, including copies thereof, together
with all other property belonging to the Company or its
affiliates, or used in their respective businesses, shall be
delivered to or left with the Company.
This Agreement does not apply to (i) information that by means other
than the Executive's deliberate or inadvertent disclosure becomes known to the
public; (ii) disclosure compelled by judicial or administrative proceedings
provided the Executive affords the Company the opportunity to obtain assurance
that compelled disclosures will receive confidential treatment; and (iii)
information independently developed by the Executive, the development of which
was not a breach of this Agreement.
4.2 Non-Competition. (a) During the Term and for a period of twelve
(12) months thereafter, the Executive agrees that he will not, without the
express written consent of the Company, for the Executive or on behalf of any
other person, firm, entity or other enterprise (i) directly or indirectly
solicit for employment or recommend to any subsequent employer of the Executive
the
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solicitation for employment of any person who, at the time of such solicitation
is employed by Company or any affiliate thereof, (ii) directly or indirectly
solicit, divert, or endeavor to entice away any customer of the Company or any
affiliate thereof, or otherwise engage in any activity intended to terminate,
disrupt, or interfere with the Company's or any affiliate's relationship with a
customer, supplier, lessor or other person, or (iii) be employed by, be a
director, officer 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 (1) healthcare facility or business, including
but not limited to, any subacute healthcare facility, rehabilitation hospital,
nursing home, home health care business, assisted living, retirement housing, or
congregate care facility or (2) any other business similar to a business which
is or was owned, operated or managed by the Company during the Term or during
the period that this Section 4.2 shall apply to the Executive, unless such
business comprises (and has during the preceding twelve (12) month period
comprised) less than five percent (5%) of the Company's gross revenues; and, in
the case of any facility or business described, in either case, which competes
with any such type of facility or business then operated by the Company or any
of its subsidiaries. This provision shall not be construed to prohibit the
Executive from owning up to 10% of the outstanding voting shares of the equity
securities of any company whose common stock is listed for trading on any
national securities exchange or on the NASDAQ System or serving as a director of
any such company. The provisions of this Section 4.2 shall only apply to
businesses and operations located in, or otherwise conducted in, the United
States.
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4.3 Remedies For Breach of Article IV. In the event that the Executive
materially violates the covenants contained in this Article IV, after his
termination of employment under circumstances which entitle him to payments or
benefits under Section 3.4, the Company may, at its election, upon ten (10)
days' prior notice, terminate the Severance Period and cease providing the
Executive with such payments and benefits. In addition, the Executive
acknowledges and agrees that the amount of damages in the event of the
Executive's breach of this Article IV will be difficult, if not impossible, to
ascertain. The Executive therefore agrees that the Company, in addition to, and
without limiting any other remedy or right it may have, shall have the right to
an injunction enjoining any breach of the covenants made by the Executive in
this Article IV.
ARTICLE V
AMENDMENT AND ASSIGNMENT
5.1 Right of the Executive to Assign. The Executive may not assign,
transfer, pledge or hypothecate or otherwise transfer his rights, obligations,
interests and benefits under this Agreement and any attempt to do so shall be
null and void.
5.2 Right of Company to Assign. This Agreement shall be assignable and
transferable by the Company and any such assignment or transfer shall inure to
the benefit of and be binding upon the Executive, the Executive's heirs and
personal representatives, and the Company and its successors and assigns. The
Executive agrees to execute all documents necessary to ratify and effectuate
such assignment. An assignment of this Agreement by the Company shall not
release the Company from its monetary obligations under this Agreement.
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5.3 Amendment/Waiver. No change or modification of this Agreement shall
be valid unless it is in writing and signed by both parties hereto. No waiver of
any provisions of this Agreement shall be valid unless in writing and signed by
the person or party to be charged.
ARTICLE VI
GENERAL
6.1 Governing Law. This Agreement shall be subject to and governed by
the laws of the State of Florida.
6.2 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and the Executive and their respective heirs, legal
representatives, executors, administrators, successors and permitted assigns.
6.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes the Prior Agreement and all other prior
agreements, either oral or written, between the parties hereto; provided,
however, that this Agreement does not supersede any agreements pertaining to
stock options which have been granted as of the Effective Date, except to the
extent that any such option agreement contains provisions which are contrary to
the provisions of this Agreement (including provisions regarding the
Acceleration of Equity Rights).
6.4 Mitigation. The Executive shall not be required to mitigate damages
or the amount of any payment provided for under this Agreement by seeking other
employment or otherwise nor may any payments provided for under this Section be
reduced by any amounts earned by the Executive, except as provided in Article
IV.
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6.5 Survivorship. The respective rights and obligations of the parties
hereunder shall survive the termination of this Agreement to the extent
necessary to preserve the rights and obligations of the parties under this
Agreement.
6.6 Notices. All notices, demands, requests, consents, approvals or
other communications required or permitted hereunder shall be in writing and
shall be delivered by hand, registered or certified mail with return receipt
requested or by a nationally recognized overnight delivery service, in each case
with all postage or other delivery charges prepaid, and to the address of the
party to whom it is directed as indicated below, or to such other address as
such party may specify by giving notice to the other in accordance with the
terms hereof. Any such notice shall be deemed to be received (i) when delivered,
if by hand, (ii) on the next business day following timely deposit with a
nationally recognized overnight delivery service or (iii) on the date shown on
the return receipt as received or refused or on the date the postal authorities
state that delivery cannot be accomplished, if sent by registered of certified
mail, return receipt requested.
If to the Company: Integrated Living Communities, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Attn: Chief Executive Officer
If to the Executive: Kyle Shatterly
----------------------------------
----------------------------------
6.7 Indemnification. The Company agrees to maintain Director's and
Officer's liability insurance as determined by the Board of Directors; provided,
however, that the level of insurance may be decreased with the Executive's
consent. To the extent not covered by such liability insurance, the Company
shall indemnify and hold the Executive harmless to the fullest extent
- 17 -
<PAGE>
permitted by Delaware law against any judgments, fines, amounts paid in
settlement and reasonable expenses (including reasonable attorneys' fees), and
advance amounts necessary to pay the foregoing at the earliest time and to the
fullest extent permitted by law, in connection with any claim, action or
proceeding (whether civil or criminal) against the Executive as a result of his
serving as an officer or director of the Company or in any capacity at the
request of the Company in or with regard to any other entity, employee benefit
plan or enterprise. This indemnification shall be in effect during the Term and
thereafter and shall be in addition to and not in lieu of any other
indemnification rights the Executive may otherwise have.
6.8 Attorneys' Fees. Upon presentation of an invoice, the Company shall
pay directly or reimburse the Executive for all reasonable attorneys' fees and
costs incurred by the Executive:
(a) in connection with the negotiation, preparation and
execution of this Agreement; and
(b) in connection with any dispute brought by the Executive
over the terms of this Agreement unless there is a determination that
the Executive had no reasonable basis for his claim.
6.9 Arbitration. Except as otherwise provided in Section 4.3, any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three
arbitrators in Lee or Collier County, Florida, in accordance with the rules of
the American Arbitration Association then in effect, and judgement may be
entered on the arbitrators' award in any court having jurisdiction. The Company
shall pay all costs of the American Arbitration Association and the arbitrator.
In the event that the Executive loses on all claims within arbitration, then the
Executive shall reimburse the Company for the costs of the
- 18 -
<PAGE>
arbitration. Each party shall select one arbitrator, and the two so designated
shall select a third arbitrator. If either party shall fail to designate an
arbitrator within seven (7) days after arbitration is requested, or if the two
arbitrators shall fail to select a third arbitrator within fourteen (14) days
after arbitration is requested, then an arbitrator shall be selected by the
American Arbitration Association upon application of either party.
Notwithstanding the foregoing, the Executive shall be entitled to seek specific
performance from a court of the Executive's right to be paid until the date of
termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement and the Company shall have the right to obtain
injunctive relief from a court.
6.10 Severability. No provision in this Agreement if held unenforceable
shall in any way invalidate any other provisions of this Agreement, all of which
shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized officers and its corporate seal to be hereunto affixed,
and the Executive has hereunto set the Executive's hand on the day and year
first above written.
COMPANY EXECUTIVE
Integrated Living Communities, Inc.,
a Delaware corporation
By: Name: Kyle Shatterly
----------------------------- -----------------------------
Title:
----------------------------
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<PAGE>
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT made and entered into as of May
__, 1996, by and between Integrated Living Communities, Inc., a Delaware
corporation (the "Company"), and __________________ (the "Indemnitee");
WHEREAS, highly competent persons are becoming more reluctant
to serve corporations as directors, officers or in other capacities unless they
are provided with adequate protection through insurance and indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the Company; and
WHEREAS, the current difficulties of obtaining adequate
insurance have increased the difficulty of attracting and retaining such
persons; and
WHEREAS, the Board of Directors has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's stockholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the
Company contractually to obligate itself to indemnify such persons to the
fullest extent permitted by applicable law so that they will serve or continue
to serve the Company free from undue concern that they will not be so
indemnified; and
WHEREAS, the Indemnitee is willing to serve, continue to serve
and take on additional service for or on behalf of the Company on the condition
that he be so indemnified.
NOW, THEREFORE, in consideration of the premises and the
covenants contained herein, the Company and the Indemnitee do hereby covenant
and agree as follows:
SECTION 1. Indemnification. The Company shall indemnify the
Indemnitee to the fullest extent permitted by applicable law in effect on the
date hereof or as such laws may from time to time be amended. Without
diminishing the scope of the indemnification provided by this Section 1, the
rights of indemnification of the Indemnitee provided hereunder shall include but
shall not be limited to those rights hereinafter set forth, except that no
indemnification shall be paid to the Indemnitee:
(a) on account of any suit in which judgment is
rendered against the Indemnitee for an accounting of profits
made from the purchase or sale by the Indemnitee of securities
of the Company pursuant to the provisions of Section 16(b) of
the Securities Exchange Act of 1934 and
<PAGE>
amendments thereto or similar provisions of any federal, state
or local statutory law;
(b) on account of the Indemnitee's conduct which is
finally adjudged to have been knowingly fraudulent or
deliberately dishonest, or to constitute willful misconduct;
(c) to the extent expressly prohibited by applicable
law;
(d) for which payment is actually made to the
Indemnitee under a valid and collectible insurance policy or
under a valid and enforceable indemnity clause, by-law or
agreement, except in respect of any excess beyond payment
under such insurance, clause, by-law or agreement;
(e) if a final decision by a court having
jurisdiction in the matter shall determine that such
indemnification is not lawful (and, in this respect, both the
Company and the Indemnitee have been advised that the
Securities and Exchange Commission believes that
indemnification for liabilities arising under the federal
securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be
submitted to the appropriate court for adjudication); or
(f) in connection with any proceeding (or part
thereof) initiated by the Indemnitee, or any proceeding by the
Indemnitee against the Company or its directors, officers,
employees or other Indemnitees, unless (i) such
indemnification is expressly required to be made by law, (ii)
the proceeding was authorized by the Board of Directors of the
Company, (iii) such indemnification is provided by the
Company, in its sole discretion, pursuant to the powers vested
in the Company under applicable law, or (iv) except as
provided in Sections 11 and 12 hereof.
SECTION 2. Action or Proceeding Other Than an Action by or in
the Right of the Company. The Indemnitee shall be entitled to the
indemnification rights provided in this Section if he 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 in
nature, other than an action by or in the right of the Company, by reason of the
fact that he is or was a director, officer, employee, agent or fiduciary of the
Company, or is or was serving at the request of the Company as a director,
officer, employee, agent or fiduciary of any other entity, including, but not
limited to, another corporation, partnership, joint venture, trust or other
enterprise, or by reason of anything done or not done by him in any such
capacity. Pursuant to this Section, the Indemnitee shall be indemnified against
all expenses (including attorneys' fees), costs, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding (including, but not limited to, the
investigation, defense or appeal thereof), if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the
-2-
<PAGE>
best interests of the Company, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
SECTION 3. Actions by or in the Right of the Company. The
Indemnitee shall be entitled to the indemnification rights provided in this
Section if he is a 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 brought
by or in the right of the Company to procure a judgment in its favor by reason
of the fact that he is or was a director, officer, employee, agent or fiduciary
of the Company, or is or was serving at the request of the Company as a
director, officer, employee, agent or fiduciary of another entity, including,
but not limited to, another corporation, partnership, joint venture or other
enterprise, trust, or by reason of anything done or not done by him in any such
capacity. Pursuant to this Section, the Indemnitee shall be indemnified against
all expenses (including attorneys' fees), costs and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding (including, but not limited to, the investigation, defense or appeal
thereof) 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 Company; provided, however, that
no such indemnification shall be made in respect of any claim, issue, or matter
as to which the Indemnitee shall have been adjudged to be liable to the Company
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, the Indemnitee is fairly and reasonably entitled
to indemnity for such expenses and costs which the Court of Chancery or such
other court shall deem proper.
SECTION 4. Indemnification for Costs, Charges and Expenses of
Successful Party. Notwithstanding the other provisions of this Agreement, to the
extent that the Indemnitee has served as a witness on behalf of the Company or
has been successful, on the merits or otherwise, in defense of any action, suit
or proceeding referred to in Sections 2 and 3 hereof, or in defense of any
claim, issue or matter therein, including, without limitation, the dismissal of
any action without prejudice, he shall be indemnified against all costs, charges
and expenses (including attorneys' fees) actually and reasonably incurred by him
in connection therewith.
SECTION 5. Partial Indemnification. If the Indemnitee is
entitled under any provision of this Agreement to indemnification by the Company
for some or a portion of the expenses (including attorneys' fees), costs,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with the investigation, defense, appeal or settlement of
such suit, action, investigation or proceeding described in Section 2 or 3
hereof, but not, however, for all of the total amount thereof, the Company shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including reasonable attorneys' fees), costs, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him to which the
Indemnitee is entitled.
-3-
<PAGE>
SECTION 6. Determination of Entitlement to Indemnification.
Upon written request by the Indemnitee for indemnification pursuant to Section 2
or 3 hereof, the entitlement of the Indemnitee to indemnification pursuant to
the terms of this Agreement shall be determined by the following person or
persons who shall be empowered to make such determination: (a) by a majority
vote of Disinterested Directors (as defined in Section 18 below), even though
less than a quorum; (b) if there are no Disinterested Directors, or if a
majority of Disinterested Directors so directs, by Independent Counsel (as
defined in Section 18 below) in a written opinion to the Board of Directors, a
copy of which shall be delivered to the Indemnitee; or (c) by the stockholders;
provided, however, that notwithstanding the foregoing, following the occurrence
of a Change in Control of the Company (as defined in Section 18 below), the
determination as to whether or not the Indemnitee has met the applicable
standard for indemnification set forth in Section 2 or 3 hereof, which shall be
applicable, shall in all events be made by Independent Counsel. Such Independent
Counsel shall be selected by the Board of Directors and approved by the
Indemnitee. Upon failure of the Board to so select such Independent Counsel or
upon failure of the Indemnitee to so approve, such Independent Counsel shall be
selected by the Chancellor of the State of Delaware or such other person as the
Chancellor shall designate to make such selection. Such determination of
entitlement to indemnification shall be made not later than 45 days after
receipt by the Company of a written request for indemnification. Such request
shall include documentation or information which is necessary for such
determination and which is reasonably available to the Indemnitee. Any costs or
expenses (including attorneys' fees) incurred by the Indemnitee in connection
with his request for indemnification hereunder shall be borne by the Company.
The Company hereby indemnifies and agrees to hold the Indemnitee harmless
therefrom irrespective of the outcome of the determination of the Indemnitee's
entitlement to indemnification. If the person making such determination shall
determine that the Indemnitee is entitled to indemnification as part (but not
all) of the application for indemnification, such person shall reasonably
prorate such partial indemnification among such claims, issues or matters.
SECTION 7. Presumptions and Effect of Certain Proceedings. The
Secretary of the Company shall, promptly upon receipt of the Indemnitee's
request for indemnification, advise in writing the Board of Directors or such
other person or persons empowered to make the determination as provided in
Section 6 that the Indemnitee has made such request for indemnification. Upon
making such request for indemnification, the Indemnitee shall be presumed to be
entitled to indemnification hereunder and the Company shall have the burden of
proof in the making of any determination contrary to such presumption. If the
person or persons so empowered to make such determination shall have failed to
make the requested indemnification within 45 days after receipt by the Company
of such request, the requisite determination of entitlement to indemnification
shall be deemed to have been made and the Indemnitee shall be absolutely
entitled to such indemnification, absent actual and material fraud in the
request for indemnification. The termination of any action, suit, investigation
or proceeding described in Section 2 or 3 hereof by judgment, order, settlement
or conviction, or upon a plea of nolo contendere or its equivalent, shall not,
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<PAGE>
of itself: (a) create a presumption that the Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, that the Indemnitee had reasonable cause to believe that his conduct
was unlawful; or (b) otherwise adversely affect the rights of the Indemnitee to
indemnification except as may be provided herein.
SECTION 8. Advancement of Expenses and Costs. All reasonable
expenses and costs incurred by the Indemnitee (including attorneys' fees,
retainers and advances of disbursements required of the Indemnitee) shall be
paid by the Company in advance of the final disposition of such action, suit or
proceeding at the request of the Indemnitee within twenty days after the receipt
by the Company of a statement or statements from the Indemnitee requesting such
advance or advances from time to time. The Indemnitee's entitlement to such
expenses shall include those incurred in connection with any proceeding by the
Indemnitee seeking an adjudication or award in arbitration pursuant to this
Agreement. Such statement or statements shall reasonably evidence the expenses
and costs incurred by him in connection therewith and shall include or be
accompanied by an undertaking by or on behalf of the Indemnitee to repay such
amount if it is ultimately determined that the Indemnitee is not entitled to be
indemnified against such expenses and costs by the Company as provided by this
Agreement or otherwise.
SECTION 9. Remedies of the Indemnitee in Cases of
Determination not to Indemnify or to Advance Expenses. In the event that a
determination is made that the Indemnitee is not entitled to indemnification
hereunder or if payment has not been timely made following a determination of
entitlement to indemnification pursuant to Sections 6 and 7, or if expenses are
not advanced pursuant to Section 8, the Indemnitee shall be entitled to a final
adjudication in an appropriate court of the State of Delaware or any other court
of competent jurisdiction of his entitlement to such indemnification or advance.
Alternatively, the Indemnitee at his option may seek an award in arbitration to
be conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association, such award to be made within sixty days following the
filing of the demand for arbitration. The Company shall not oppose the
Indemnitee's right to seek any such adjudication or award in arbitration or any
other claim. Such judicial proceeding or arbitration shall be made de novo and
the Indemnitee shall not be prejudiced by reason of a determination (if so made)
that he is not entitled to indemnification. If a determination is made or deemed
to have been made pursuant to the terms of Section 6 or Section 7 hereof that
the Indemnitee is entitled to indemnification, the Company shall be bound by
such determination and is precluded from asserting that such determination has
not been made or that the procedure by which such determination was made is not
valid, binding and enforceable. The Company further agrees to stipulate in any
such court or before any such arbitrator that the Company is bound by all the
provisions of this Agreement and is precluded from making any assertions to the
contrary. If the court or arbitrator shall determine that the Indemnitee is
entitled to any indemnification hereunder, the Company shall pay all reasonable
expenses (including attorneys' fees) and costs actually incurred by
-5-
<PAGE>
the Indemnitee in connection with such adjudication or award in arbitration
(including, but not limited to, any appellant proceedings).
SECTION 10. Notification and Defense of Claim. Promptly after
receipt by the Indemnitee of notice of the commencement of any action, suit or
proceeding, the Indemnitee will, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company in writing of the
commencement thereof; but the omission to so notify the Company will not relieve
it from any liability that it may have to the Indemnitee otherwise than under
this Agreement. Notwithstanding any other provision of this Agreement, with
respect to any such action, suit or proceeding as to which the Indemnitee
notifies the Company of the commencement thereof:
(a) The Company will be entitled to participate
therein at its own expense; and
(b) Except as otherwise provided in this Section
10(b), to the extent that it may wish, the Company, jointly
with any other indemnifying party similarly notified, shall be
entitled to assume the defense thereof, with counsel
satisfactory to the Indemnitee. After notice from the Company
to the Indemnitee of its election to so assume the defense
thereof, the Company shall not be liable to the Indemnitee
under this Agreement for any legal or other expenses
subsequently incurred by the Indemnitee in connection with the
defense thereof other than reasonable costs of investigation
or as otherwise provided below. The Indemnitee shall have the
right to employ his own counsel in such action, suit or
proceeding, but the fees and expense of such counsel incurred
after notice from the Company of its assumption of the defense
thereof shall be at the expense of the Indemnitee unless (i)
the employment of counsel by the Indemnitee has been
authorized by the Company, (ii) the Indemnitee shall have
reasonably concluded that there may be a conflict of interest
between the Company and the Indemnitee in the conduct of the
defense of such action or (iii) the Company shall not in fact
have employed counsel to assume the defense of the action, in
each of which cases the fees and expenses of counsel shall be
at the expense of the Company. The Company shall not be
entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Company or as to
which the Indemnitee shall have made the conclusion provided
for in (ii) above.
(c) The Company shall not be liable to indemnify the
Indemnitee under this Agreement for any amounts paid in
settlement of any action or claim effected without its written
consent. The Company shall not settle any action or claim in
any manner that would impose any penalty or limitation on the
Indemnitee without the Indemnitee's written consent. Neither
the Company nor the Indemnitee will unreasonably withhold
their consent to any proposed settlement.
-6-
<PAGE>
SECTION 11. Other Rights to Indemnification. The
indemnification and advancement of expenses (including attorneys' fees) and
costs provided by this Agreement shall not be deemed exclusive of any other
rights to which the Indemnitee may now or in the future
be entitled under any provision of the By-Laws, agreement, provision of the
Certificate of Incorporation of the Company, vote of stockholders or
Disinterested Directors, provision of law or otherwise.
SECTION 12. Certain Agreements of Indemnitee. (i) Indemnitee
agrees to do all things reasonably requested by the Board of Directors to enable
the Company to coordinate Indemnitee's defense with, if applicable, the
Company's defense, provided, however, that Indemnitee shall not be required to
take any action that would in any way prejudice his or her defense or waive any
defense or position available to him or her in connection with any action; and
(ii) Indemnitee agrees to cooperate with the Company and its counsel and
maintain any confidences revealed to him or her by the Company in connection
with the Company's defense of any action. The Company agrees to cooperate with
Indemnitee and his or her counsel and maintain any confidences revealed to it by
Indemnitee in connection with Indemnitee's defense of any action.
SECTION 13. Attorneys' Fees and Other Expenses to Enforce
Agreement. In the event that the Indemnitee is subject to or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce his rights under, or
to recover damages for breach of, this Agreement, the Indemnitee, if he prevails
in whole or in part in such action, shall be entitled to recover from the
Company and shall be indemnified by the Company against any actual expenses for
attorneys' fees and disbursements reasonably incurred by him.
SECTION 14. Duration of Agreement. This Agreement shall
continue until and terminate upon the later of: (a) ten years after the
Indemnitee has ceased to occupy any of the positions or have any relationships
described in Sections 2 and 3 of this Agreement; and (b) the final termination
of all pending or threatened actions, suits, proceedings or investigations to
which the Indemnitee may be subject by reason of the fact that he is or was a
director, officer, employee, agent or fiduciary of the Company or is or was
serving at the request of the Company as a director, officer, employee, agent or
fiduciary of any other entity, including, but not limited to, another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of anything done or not done by him in any such capacity. The indemnification
provided under this Agreement shall continue as to the Indemnitee even though he
may have ceased to be a director or officer of the Company. This Agreement shall
be binding upon the Company and its successors and assigns and shall inure to
the benefit of the Indemnitee and his spouse, assigns, heirs, devises,
executors, administrators or other legal representatives. Nothing in this
Agreement shall confer upon the Indemnitee the right to continue in the employ
of the Company or affect the right of the Company to terminate the Indemnitee's
employment at any time in the sole discretion of the Company, with or without
cause.
-7-
<PAGE>
SECTION 15. Severability. If any provision or provisions of
this Agreement shall be held invalid, illegal or unenforceable for any reason
whatsoever, (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, all portions of any
paragraphs of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby, and (b) to
the fullest extent possible, the provisions of this Agreement (including,
without limitation, all portions of any paragraph of this Agreement containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifest by the provision held invalid, illegal or
unenforceable.
SECTION 16. Identical Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall for all purposes be
deemed to be an original but all of which together shall constitute one and the
same Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
SECTION 17. Headings. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
SECTION 18. Definitions. For purposes of this Agreement:
(a) A "Change in Control of the Company" shall be
deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended), who is not currently a stockholder
of the Company, other than a trustee or other fiduciary
holding securities under an employee benefit plan of the
Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
said Act), directly or indirectly, of securities of the
Company representing 20% or more of the total voting power of
the then outstanding shares of capital stock of the Company
entitled to vote generally in the election of directors (the
"Voting Stock"), or (ii) during any period of two consecutive
years, individuals, who at the beginning of such period
constitute the Board of Directors of the Company, and any new
director, whose election by the Board of Directors or
nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at
the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason
to constitute a majority thereof, or (iii) the stockholders of
the Company approve a merger or consolidation with any other
corporation, other than a merger or consolidation which would
result in the Voting Stock outstanding
-8-
<PAGE>
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the total
voting power represented by the Voting Stock or the voting
securities of such surviving entity outstanding immediately
after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company
or an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets.
(b) "Disinterested Director" shall mean a director of
the Company who is not or was not a party to the action, suit,
investigation or proceeding in respect of which
indemnification is being sought by the Indemnitee.
(c) "Independent Counsel" shall mean a law firm or a
member of a law firm that neither is presently nor in the past
five years has been retained to represent: (i) the Company or
the Indemnitee in any matter material to either such party, or
(ii) any other party to the action, suit, investigation or
proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under
the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing
either the Company or the Indemnitee in an action to determine
the Indemnitee's right to indemnification under this
Agreement.
SECTION 19. Modification and Waiver. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
SECTION 20. Notices. All notices, requests, demands or other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand or courier, on the date of delivery, or (ii)
if mailed by certified or registered mail with postage prepaid, on the third
business day after the date on which it is so mailed:
(a) If to the Indemnitee, to:
[ ]
[ ]
[ ]
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<PAGE>
(b) If to the Company, to:
Integrated Living Communities, Inc.
Attention: President
with a copy to:
Carl E. Kaplan, Esq.
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
or to such other address as may be furnished to the Indemnitee by the Company or
to the Company by the Indemnitee, as the case may be.
SECTION 21. Governing Law. The parties hereto agree that this
Agreement shall be governed by, construed and enforced in accordance with, the
laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
INTEGRATED LIVING COMMUNITIES, INC.
By:
---------------------------
-------------------------------
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<PAGE>
EXHIBIT 21
INTEGRATED LIVING COMMUNITIES, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
Name Under Which
Company State of Incorporation Subsidiary Does Business
- ------- ---------------------- ------------------------
<S> <C> <C>
Integrated Living Communities Retirement Managment, Inc. ... Delaware *
Integrated Living Communities of Maryland (Denton), Inc. ... Delaware The Homestead
Integrated Management-Carrington Pointe, Inc................ Delaware Carrington Pointe
Integrated Living Communities of Colorado Springs, Inc. .... Delaware *
Integrated Living Communities of Bradenton, Inc. ........... Delaware *
Integrated Living Communities of Sarasota, Inc.............. Florida Waterside Retirement Estates
Integrated Living Communities of West Palm Beach, Inc. ..... Delaware *
Integrated Living Communities of Dallas, Inc................ Delaware *
Integrated Living Communities of Denton (Texas), Inc. ...... Delaware *
Integrated Living Communities at Wichita, Inc............... Delaware *
Integrated Living Communities at Garden City, Inc. ......... Delaware *
Integrated Living Communities at Terrace Gardens, Inc. .... Delaware *
Integrated Living Communities at Cabot Pointe, Inc. ........ Delaware Cabot Pointe
</TABLE>
* Subsidiary does business under its corporate name
<PAGE>
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
June 11, 1996
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Integrated Living
Communities, Inc. on Form S-1 of our report dated May 15, 1995, on the financial
statements of F.L.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 this heading "Experts" in such
Prospectus.
/s/Deloitte & Touche LLP
- --------------------------
DELOITTE & TOUCHE LLP
Tampa, Florida
June 6, 1996
<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<PAGE>
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