SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-21263
INTEGRATED LIVING COMMUNITIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 52-1967027
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
24850 Old 41 Road Suite 10
Bonita Springs, FL 34135
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 941-947-7200
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if the disclosure of delinquent filer pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
Aggregate market value of Registrant's Common Stock held by non-affiliates at
March 14, 1997 (based on the closing sale price for such shares as reported by
Nasdaq: $32,025,000
Common Shares outstanding as of March 14, 1997: 6,697,900 shares
Documents Incorporated by Reference:
Portions of the Registrant's Definitive Proxy Statement for its 1997 annual
meeting of stockholders are
incorporated by reference into Part III of this report
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PART I
ITEM 1. BUSINESS
GENERAL OVERVIEW
Integrated Living Communities, Inc. (the "Company" or "ILC") 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 23 assisted living and other senior housing
facilities containing 2,466 beds in 10 states. 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 assisted living
facilities per year in each of the next three years. As part of this strategy,
ILC is currently developing 29 new assisted living facilities, of which 20 are
scheduled to open in 1997.
INDUSTRY BACKGROUND
Assisted living has emerged 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 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.
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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 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.
COMPANY 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 assisted living facilities per year
in each of the next three years. The Company is currently developing 29 assisted
living facilities. 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.
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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
has developed, in conjunction with three developers with which the Company has a
relationship, 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 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 ACQUISITIONS; MANAGEMENT SERVICES
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 intends to develop assisted living facilities
generally ranging in size from 35 to 80 units, consisting of an aggregate of
approximately 23,000 to 54,000 square feet, which are located on sites typically
ranging from 2.5 to 5 acres. Unit size is expected to range from 325 to 500
square feet. The Company estimates that the development cost of most of its
assisted living facilities will generally range from approximately $68,000 to
$83,000 per unit, depending on local variations in land and construction costs,
with an overall average development cost of approximately $72,000 per unit. The
Company estimates that it will require approximately six months from the date of
land acquisition to develop its 40 unit facilities and approximately nine months
from the date of land acquisition to develop its 80 unit facilities. The Company
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 four 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.
The Company is currently pursuing the development of 29 new assisted living
facilities, 20 of which are scheduled to open in 1997, and expects to develop 20
new facilities in each of 1998 and 1999. However, 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
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schedule is delayed, the Company's business, operating results and financial
condition could be adversely affected. In addition, the Company estimates that
it will take approximately six to 12 months for a newly developed assisted
living facilities to achieve a stabilized level of occupancy (i.e., an occupancy
level in excess of 90%) and that each new facility will incur start-up losses
for at least eight months after commencing operations. Because, however, of
uncertainties associated with development of assisted living facilities,
including zoning and other governmental limitations, not all of the facilities
currently under development may in fact be developed, and there can be no
assurance that the Company will be successful in meeting scheduled opening dates
for the facilities which are developed.
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 $68,000 to $83,000 per unit, although the cost of any particular
facility may vary considerably based on a variety of site-specific factors.
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 three of 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 prototype design.
The flexibility feature allows the facility to quickly and cost effectively
reconfigure its assisted living and Alzheimer's bed allotment based on changing
market demand. The expandability feature allows the prototype buildings to be
easily and cost-effectively expanded with little or no disruption to current
operations. Facility expansion is often more cost-effective than constructing or
acquiring a new facility because of lower incremental capital, operating and
fixed costs. The Company believes that the use of a small number of developers
working with prototype designs will allow the Company to: (a) save time and
money on architectural and engineering work, because only minor modifications
will be required at each location to site adapt the prototype; (b) ensure better
construction quality control, because the Company's third-party developers will
gain experience by constructing the same facility design, rather than a
different facility design, at each site; and (c) save time and money with bulk
purchasing of materials and fixtures at a lower cost, because each facility
will, for example, utilize the same kitchen equipment and windows. In addition,
once a development site is identified, the Company will be able to move quickly
to obtain zoning approvals, since only limited architectural and engineering
work will be required. All of these factors should contribute to faster and
cost-effective development and construction schedules. See "-- Company
Strategy."
The Company has very limited experience in developing new assisted living
facilities and its ability to achieve growth through development of new
facilities will be dependent to a great extent upon the experience and abilities
of the third-party developers with which the Company has established relation-
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ships. To date, the Company has opened only one newly developed facility and
there can be no assurance that it will be successful in opening more facilities.
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 20 newly developed 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
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 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.
Acquisitions. 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.
The Company's growth strategy depends significantly upon the rapid
acquisition (through purchase, lease or management contract) of existing
assisted living facilities and other properties that it believes it can
efficiently reposition as assisted living facilities. 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 numbers factors, including the Company's
ability to identify suitable acquisition candidates, competition for such
acquisitions, the ability of the Company to obtain financing on acceptable
terms, the purchase price, the financial performance of the facilities after
acquisition and the ability of the Company to integrate effectively the
operations of the acquired facilities. 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.
Management Agreements. 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. The Company currently manages four assisted living
facilities with an aggregate of 442 beds. The Company is responsible for all
personnel, marketing, nursing, resident care and dietary services, accounting
and data processing reports and services for these facilities at the facility
owner's expense. The facility owner is required to pay for all facility 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 the gross revenue 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 three years, with
the right to
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renew under certain circumstances. The management agreements expire at various
times between October 1997 and July 1999, although all can be terminated earlier
under certain circumstances. Certain of the management agreements provide the
Company with the 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
develop or acquire a facility.
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 or that such
strategy will ultimately be profitable. If the Company is unable to implement is
rapid growth strategy or to manage its growth effectively, its business,
operating results and financial condition could be adversely affected.
RESIDENT SERVICES
The Company's assisted living facilities offer residents a supportive,
"home-like" setting and assistance with activities of daily living. Residents of
the Company's facilities are typically unable to live alone, but do not require
the 24-hour nursing care provided in skilled nursing facilities. Services
provided to the Company's residents are designed to respond to their individual
needs and to improve their quality of life, are available 24 hours a day to meet
resident needs, and generally include three meals per day, housekeeping and
groundskeeping and building maintenance services. Available support services
include nursing care and health-related services, social and recreational
services, transportation and special services (such as banking and shopping).
Personal services include bathing, dressing, personal hygiene, grooming,
ambulating and eating assistance. Health-related services, which are made
available and provided according to the resident's individual needs and in
accordance with state regulatory requirements, may include assistance with
taking medication, skin care and injections, as well as healthcare monitoring.
By providing programs that are designed to offer residents a range of service
options as their needs change, the Company seeks to achieve greater continuity
of care, enabling seniors to age in place and thereby maintain their residency
for a longer time period.
Clinical Assessment. Each resident is clinically assessed upon admission to
determine his/her health status including functional abilities, need for
personal care services and assistance with the activities of daily living
(ADL's) as well as likes and dislikes. The goal of the clinical assessment is to
determine the care needs of residents as well as their lifestyle preferences. A
current physician's report is also utilized to further ascertain the health
status and needs of the resident. From these assessments a plan of care is
developed for each resident to help ensure that all staff who render care and
services meet the specific needs and preferences of each resident. Residents are
reassessed periodically and when there is a significant change in a resident's
condition to be sure the care plan reflects their current needs. The care plan,
as the document which reflects the needs of the resident, is the basis for
determining the monthly charges for care and services.
Healthcare Services. The Company fosters wellness by offering health
screenings such as blood pressure checks, periodic special services such as
influenza inoculations, chronic disease management (such as diabetes with its
attendant blood glucose monitoring), dietary and similar programs as well as
ongoing exercise and fitness classes. Classes are given by healthcare
professionals to keep residents informed about disease management.
Regulations differ by state regarding the type of care that can be rendered
as well as the personnel allowed to provide such care. The Company utilizes
licensed nurses, certified and/or trained staff to meet the healthcare needs of
its residents. Staff administer or assist with medications, observe and
intervene
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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.
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.
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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. Additionally, the Company is developing its
infrastructure to manage its anticipated growth. Key infrastructure components
include standardized policies and procedures, computer systems, management
information systems, staff training and education programs and staff recruitment
and retention systems. See "-- Executive Officers of the Company."
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. 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
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<PAGE>
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. Approximately
99% of the revenues from the Company's assisted living facilities were derived
from private-pay sources in 1996. 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. 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.
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. In general, regulatory and other barriers to
competitive entry into the assisted living industry are not presently
substantial. 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. 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 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. 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.
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
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<PAGE>
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.
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.
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 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 recover the costs of the Company's
assisted living services. Depending in part on the results of the Company's
acquisition and development program, net revenues from governmental
reimbursement 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.
Twelve of the Company's nursing beds are currently certified to receive
benefits as a skilled nursing facility provider 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
11
<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 limit 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.
EMPLOYEES
As of February 28, 1997, the Company had approximately 1,100 employees, of
which 61 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.
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. Further, the Company's ability to attract and retain
12
<PAGE>
management personnel for its facilities will be critical to the success of the
Company's rapid growth strategy. 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.
COMPANY HISTORY
GENERAL
The Company was formed in November 1995 as a wholly-owned subsidiary of
Integrated Health Services, Inc. ("IHS") to operate the assisted living and
other senior housing facilities owned, leased and managed by IHS. Following the
Company's formation, IHS transferred to the Company as a capital contribution
its ownership interest in the Waterside and the Homestead at Denton facilities,
sublet to the Company The Shores and Cheyenne Place facilities, and leased to
the Company the assisted living and related portions of the Treemont Retirement
Community and Heron's Run facilities. IHS also transferred to the Company
agreements to manage nine facilities (of which four are currently managed). The
Company's principal executive offices are located at Bernwood Centre, 24850 Old
41 Road, Suite 10, Bonita Springs, Florida 34135, and its telephone number is
941-947-7200.
The Company completed its initial public offering in October 1996. The effect
of this offering was to reduce IHS' ownership of the Company from 100% to 37%.
Robert N. Elkins, M.D., the Chairman of the Board of the Company, and Lawrence
P. Cirka, a director of the Company, are the Chairman of the Board and Chief
Executive Officer and President, Chief Operating Officer and a director,
respectively, of IHS and, as a result, may have conflicts of interest in
addressing business opportunities and strategies with respect to which the
Company's and IHS' interests differ. The Company and IHS have not adopted any
formal procedures designed to assure that conflicts of interest will not occur
or to resolve any such conflicts. Dr. Elkins is also a director and principal
stockholder of Community Care of America, Inc. ("CCA"), which operates long-term
care and assisted living facilities, and is a director of Capstone Capital
Corporation, a real estate investment trust from which the Company expects to
receive financing. IHS will continue to operate Alzheimer's units in certain of
its skilled nursing facilities, including the skilled nursing facilities located
in the condominiums in which the Company's Treemont and Heron's Run 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. IHS, Dr. Elkins and Mr.
Cirka beneficially own in aggregate approximately 40.3% of the Company's
outstanding Common Stock and IHS is the Company's largest stockholder.
ACQUISITION HISTORY
In January 1989, IHS acquired a leasehold interest in the Dallas at Treemont
facility, a skilled nursing facility with a 251 bed 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
Heron's Run skilled nursing and assisted living facility and a 60.5% partnership
interest in each of the Waterside and Lakehouse West continuing care retirement
communities. Effective October 31, 1995, IHS exchanged its 60.5% partnership
interest in the Lakehouse West facility for the 39.5% partnership interest in
the Waterside facility which it did not own. The Company received the Waterside
facility from IHS as a capital contribution and leased the assisted living
portion of the Heron's Run facility from IHS until June 1, 1996, when the
Company and IHS entered into a condominium agreement for the Heron's Run
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.
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<PAGE>
In March 1994, IHS acquired the Homestead at Denton, a 50 bed assisted living
and adult day care facility for a total cost of approximately $1.3 million,
adjusted for certain accrued liabilities, prepayments and deposits assumed by
IHS. Prior to the purchase IHS had managed the facility under a management
agreement with the prior owner. The Company received this facility from IHS as a
capital contribution.
In August 1994, IHS entered into separate facility operating leases for the
311 bed Shores and 95 bed 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. The loss of
these facilities, which accounted for approximately 27% and 39% of the Company's
revenues, and approximately 19% and 40% of the Company's earnings before loss
from impairment of long-lived assets, income taxes, and corporate administrative
and general expense in the years ended December 31, 1996 and 1995, respectively,
could have a material adverse effect on the Company's business, results of
operations and financial condition. There can be no assurance that IHS will be
able to meet such tests.
In December 1995, IHS acquired Carrington Pointe, a 172 bed congregate care
and assisted living facility. Prior to the acquisition, IHS had managed the
facility under a management agreement with the prior owner. Following the
acquisition, IHS transferred ownership of the facility to the Company as a
capital contribution.
In January 1996, IHS acquired Vintage Health Care Center, a skilled nursing
and assisted and independent living facility which it had previously managed
from April 1995. The Company leased the assisted and independent living portions
of the facility from IHS until June 1, 1996, when the Company and IHS entered
into a condominium agreement for the facility. In connection with the
condominium agreement, the Company received as a capital contribution from IHS
the condominium interest in the assisted living portion of the facility.
In July 1996 the Company acquired a leasehold interest in the Homestead of
Garden City and Homestead Wichita facilities from one of its third party
developers.
In August 1996 the Company acquired the Cabot Pointe facility for $2.8
million with funds borrowed from IHS. The Company sold and leased the facility
back from a real estate investment trust in October 1996.
In October 1996, the Company acquired the Terrace Gardens facility for $12.2
million with proceeds from its initial public offering.
In January 1997, the Company acquired four facilities in Virginia for $15.8
million with funds borrowed through a bridge loan from NationsBank. NationsBank
provided this loan in contemplation of the completion of a senior secured line
of credit. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
In February 1997, the Company acquired a leasehold interest in the West
Columbia facility.
In March 1997, the Company acquired leasehold interests in the Brantley and
Jaylene facilities.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
executive officers of the Company:
NAME AGE POSITION
- ---- --- --------
Robert N. Elkins,
M.D.................. 54 Chairman of the Board of Directors
Edward J. Komp....... 42 President, Chief Executive Officer and Director
Kayda A. Johnson .... 48 Senior Vice President--Chief Operating Officer
John B. Poole........ 45 Senior Vice President--Chief Financial Officer
Dan Hirschfield...... 39 Senior Vice President--Acquisitions and Development
14
<PAGE>
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 sole stockholder of the Company prior to October 1996, 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 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.
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.
Daniel A. Hirschfeld has served as Senior Vice President -- Acquisitions and
Development of the Company since February 1997. From January 1995 through
February 1997, he held the position of Vice President -- Health Care
Acquisitions for Manor Care Inc., a New York Stock Exchange listed company
involved in ownership, operation and development of assisted living, long term
care and hospitality facilities. From April 1994 through January 1995, Mr.
Hirschfeld was employed as President and Chief Operating Officer -Essential
Services Division for Mariner Health Care, Inc., a NASDAQ listed company, which
is engaged in providing post acute services for long term care residents. Mr.
Hirschfeld was responsible for the operation of all non-facility based services
including home health, pharmacy, therapies and medical supplies. From 1985
through 1994, Mr. Hirschfeld was employed by Meridian
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Health Care, Inc., (which was acquired by Genesis Health Ventures, Inc., a New
York Stock Exchange listed company, in October 1994), an owner and operator of
long term care facilities. Mr. Hirschfeld served in various positions including
Vice President -- Development and Planning, Vice President -- Pharmacy Services
and Chief Operating Officer for Staff Replacement Services. From 1979 until
1985, he was employed by Crown Central Petroleum, Inc. and Constellation
Services, Inc., a subsidiary of Baltimore Gas and Electric, Inc. (both companies
are listed on the New York Stock Exchange). His responsibilities included
treasury functions, strategic planning, financial analysis, acquisitions, and
accounting.
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<PAGE>
ITEM 2. PROPERTIES
The Company currently operates 23 assisted living facilities in 10 states,
containing 2,466 beds. Eleven of the facilities are owned, 8 are leased and the
remaining 4 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.
The following table presents certain information regarding the Company's
owned and leased facilities as of March 14, 1997.
<TABLE>
<CAPTION>
DATE
FACILITY/LOCATION ACQUIRED(1) BEDS OWNERSHIP
- ----------------------------- ----------- ------ ------------
<S> <C> <C> <C>
Brantley
Milledgeville, Georgia ..... 3/97 48 Leased
Cabot Pointe
Bradenton, Florida .......... 8/96 76 Leased
Carrington Pointe
Fresno, California .......... 12/95 172 Owned
Cheyenne Place
Colorado Springs, Colorado . 9/94 95 Sub-lease
Churchland House
Porstmouth, Virginia ........ 2/97 48 Owned
Garden City Homestead
Garden City, Kansas ......... 7/96 46 Leased
Ghent Arms
Norfolk, Virginia ........... 2/97 48 Owned
Gloucester House
Gloucester, Virginia ........ 2/97 48 Owned
Heron's Run(2)
West Palm Beach, Florida ... 12/93 34 Owned
Homestead of Denton
Denton, Maryland ............ 3/94 50 Owned
King's Grant House
Virginia Beach, Virginia ... 2/97 54 Owned
Jaylene
St. Petersburg, Florida .... 3/97 55 Leased
The Shores
Bradenton, Florida .......... 9/94 311 Sub-lease
Terrace Gardens
Wichita, Kansas ............. 10/96 317 Owned
Treemont(2)
Dallas, Texas ............... 2/89 251 Owned
The Vintage(2)
Denton, Texas ............... 1/96 106 Owned
Waterside Retirement Estates
Sarasota, Florida ........... 12/93 164 Owned
West Columbia
West Columbia, South
Carolina..................... 2/97 55 Leased
Wichita Homestead
Wichita, Kansas ............. 7/96 46 Leased
</TABLE>
- ----------
(1) Represents date operations commenced by IHS for facilities operated
prior to November 1995. See "Item 1. Business -- Company History."
(2) 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.
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A significant number of the 52 properties currently operated, managed, or
under development are located in California, Louisiana and Texas (7,8 and 11
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. 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.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings that are incidental to
the conduct of its business. The Company is not involved in any pending or
threatened legal proceedings which the Company believes could reasonably be
expected to have a material adverse effect on the Company's financial condition,
liquidity or results of operations.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market under the symbol
"ILCC". The Common Stock was initially offered to the public on October 3, 1996
at $8.00 per share. The following table sets forth for the periods indicated the
high and low last reported sale prices for the Common Stock as reported by the
Nasdaq National Market.
CALENDAR YEAR 1996 HIGH LOW
-------- -------
Fourth Quarter (beginning October 3)................. $ 8 1/2 4 3/4
As of March 14, 1997 there were 10 record holders of the Common Stock.
The Company has never declared or paid any cash dividends on its Common
Stock. The payment of any future dividends will be at the discretion of the
Company's Board of Directors and will depend upon, among other things, future
earnings, operations, capital requirements, the general financial condition of
the Company, contractual restrictions and general business conditions.
19
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following tables summarize certain selected consolidated financial data,
which should be read in conjunction with the Company's Consolidated Financial
Statements and related Notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein. The
selected data presented below under the captions "Statement of Operations Data"
and "Balance Sheet Data" as of December 31, 1994, 1995 and 1996 and for each of
the years in the four-year period ended December 31, 1996 are derived from
consolidated financial statements of the Company which have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. The selected
consolidated financial data as of December 31, 1992 and 1993 and for the year
ended December 31, 1992 are derived from unaudited consolidated financial
statements of the Company. The consolidated financial statements as of December
31, 1995 and 1996 and for each of the years in the three year period ended
December 31, 1996 and the report thereon, are included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data: (1)
Revenues:
Monthly service and entrance fees................. $4,681 $5,010 $10,906 $15,123 $23,047
Management services and other..................... 48 230 739 1,146 1,182
--------- --------- ---------- ---------- ----------
Total revenues................................... 4,729 5,240 11,645 16,269 24,229
--------- --------- ---------- ---------- ----------
Expenses:
Community operations.............................. 3,020 3,455 8,254 11,243 15,526
Corporate administrative and general.............. 284 315 726 1,005 3,884
Rent.............................................. 821 856 1,466 2,430 2,615
Depreciation and amortization..................... -- 24 369 415 1,220
Loss on impairment of long-lived assets (2)....... -- -- -- 5,126 --
--------- --------- ---------- ---------- ----------
Total expenses................................... 4,125 4,650 10,815 20,219 23,245
--------- --------- ---------- ---------- ----------
Operating income (loss) ........................... 604 590 830 (3,950) 984
Interest income ................................... -- -- -- -- 92
Interest expense................................... -- -- -- -- (349)
--------- --------- ---------- ---------- ----------
Earnings (loss) before income taxes and minority
interest.......................................... 604 590 830 (3,950) 727
Minority interest.................................. -- 10 (29) 37 --
--------- --------- ---------- ---------- ----------
Earnings (loss) before income taxes................ 604 580 859 (3,987) 727
Federal and state income taxes..................... 230 226 322 (643) 280
--------- --------- ---------- ---------- ----------
Net earnings (loss) ............................... $ 374 $ 354 $ 537 $(3,344) $ 447
========= ========= ========== ========== ==========
Earnings (loss) per common share .................. $ 0.10 $ 0.09 $ 0.14 $ (0.86) $ 0.10
========= ========= ========== ========== ==========
Weighted average shares outstanding................ 3,898 3,898 3,898 3,898 4,541
========= ========= ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents........................................ $ -- $ 1 $ 787 $ 413 $ 4,475
Working capital
(deficit).......................................... 26 (36) 208 (315) (1,349)
Total assets....................................... 26 15,834 18,300 25,774 75,575
Long term debt..................................... -- -- -- -- 1,579
Minority interest.................................. -- 2,400 2,371 -- --
Stockholders' equity .............................. 26 4,886 6,347 14,773 57,966
</TABLE>
- ----------
(1) The Company has grown substantially through acquisitions, which materially
affect 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 loss
on impairment of long-lived assets. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations."
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements in this Annual Report on Form 10-K concerning the Company's
business outlook or future economic performance; anticipated profitability,
revenues, expenses or other financial items; and product line growth, together
with other statements that are not historical facts, are "forward-looking
statements" as that term is defined under Federal Securities Laws.
Forward-looking statements are subject to risks, uncertainties and other factors
which could cause actual results to differ materially from those stated in such
statements. Such risks, uncertainties and factors include, but are not limited
to, the Company's rapid growth strategy, anticipated operating losses, limited
development experience, need for substantial additional capital, substantial
debt and lease obligations, competition, government regulation and general
economic conditions, as well as other risks detailed in the Company's filings
with the Securities and Exchange Commission, including this Annual Report on
Form 10-K.
OVERVIEW
The Company currently operates 23 assisted living and other senior housing
facilities containing 2,466 beds in 10 states. 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 assisted living
facilities per year in each of the next three years. Approximately 99% of ILC's
revenues from its owned and leased facilities in 1996 were derived from private
pay sources. The Company's historical results of operations are not necessarily
indicative of the Company's future financial performance because of the
Company's prior operation as a wholly-owned subsidiary of IHS and its strategy
to significantly expand its operating base over the next three years.
The Company's growth strategy focuses on the rapid acquisition and
development of assisted living facilities. The Company currently expects to open
20 newly developed assisted living facilities in 1997, all of which are expected
to incur start-up losses for at least eight months after commencing operations.
The Company estimates that it will take approximately six to 12 months for a
newly developed assisted living facility to achieve a stabilized level of
occupancy (i.e., an occupancy level in excess of 90%). As a result the Company
expects to incur start-up losses through 1997 and into 1998. 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 conditions 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.
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 20 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 of its initial public 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
21
<PAGE>
and its anticipated operating losses at least through the end of the first
quarter of 1998. There can be no assurance, however, that additional capital, if
needed, will be available at that time or that the Company will not be required
to seek additional capital earlier.
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.
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. 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
would be acceptable to the Company. Any payment or other default could cause the
lender to foreclose upon the facility 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.
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 1996 was 95.1% of total revenues. Resident fees typically are
paid monthly by residents, their families or other responsible parties. Resident
fees include revenue derived from basic care, entrance fees, healthcare services
provided by the Company, Alzheimer's care and other sources. Entrance fees are
one-time fees generally payable by a resident upon admission. Residents who
require personal care in excess of services provided under the basic care
program pay additional fees. Management services and other income, which in 1996
accounted for the remaining 4.9% of total revenue, consists of management fees
and other services provided to residents. 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.
From its inception in November 1995 through its initial public offering in
October 1996, the Company was operated as a wholly-owned subsidiary of
Integrated Health Services, Inc. Through September 30, 1996 IHS provided all
required financial, legal, accounting, human resources and information systems
services to the Company, and satisfied all the Company's capital requirements in
excess of internally generated funds. IHS charged the Company a flat fee of 6%
of total revenue for these services, except that with respect to the Waterside
facility prior to November 1995, IHS and the minority owner of the facility each
charged ILC a fee of 4.5% of monthly service fee revenue for these services. The
Company estimates that the cost of obtaining these services from third parties
would have been significantly higher
22
<PAGE>
than the fee charged by IHS. In addition, IHS provides certain building
maintenance, housekeeping, emergency call and resident meal services to the
Company's Treemont, Vintage and West Palm Beach facilities.
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 approximately 99% of its revenues from its
owned and leased facilities from private pay sources during 1996. However,
depending in part on the results of future acquisitions, this percentage could
change from time to time. The Company believes that, for the foreseeable future,
the level of governmental reimbursement for its services that will be available
to its residents who receive such reimbursement will be insufficient to cover
the costs of delivering the level of service that the Company currently
provides. As a result, the Company currently and for the foreseeable future
expects to rely primarily on its residents' ability to pay the Company's charges
from their own familial financial resources.
RESULTS OF OPERATIONS
The following table presents selected financial data as a percentage of total
revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
-------- --------- --------
<S> <C> <C> <C>
Revenues:
Monthly service and entrance fees...................... 93.7 % 93.0 % 95.1%
Management services and other.......................... 6.3 7.0 4.9
-------- --------- --------
Total revenue.......................................... 100.0 100.0 100.0
-------- --------- --------
Expenses:
Community operations................................... 70.9 69.1 64.1
Corporate administrative and general................... 6.2 6.2 16.0
Rent................................................... 12.6 14.9 10.8
Depreciation and amortization.......................... 3.2 2.6 5.0
Loss on impairment of long-lived assets................ 0.0 31.5 0.0
-------- --------- --------
Total expenses........................................ 92.9 124.3 95.9
-------- --------- --------
Operating Income........................................ 7.1 (24.3) 4.1
Interest Income......................................... 0.0 0.0 0.4
Interest Expense........................................ 0.0 0.0 (1.4)
-------- --------- --------
Earnings (loss) before income taxes and minority
interest............................................... 7.1 (24.3) 3.1
Minority interest....................................... (0.2) 0.3 0.0
-------- --------- --------
Earnings (loss) before income taxes..................... 7.3 (24.6) 3.1
Federal and state income taxes.......................... 2.7 (4.0) 1.3
-------- --------- --------
Net earnings (loss)..................................... 4.6 % (20.6)% 1.8%
======== ========= ========
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Revenues increased from $16.3 million in 1995 to $24.2 million in 1996,
representing a 48.9% increase. Substantially all of the increase in revenues
resulted from the acquisition of one facility in December 1995 and five
facilities in 1996. Average occupancy of the Company's owned and leased
facilities during the years ended December 31, 1996 and 1995 was 91%. Management
services and other revenue increased from $1.1 million in 1995 to $1.2 million
in 1996, representing a 3.1% increase.
Community operations expense increased from $11.2 million in 1995 to $15.5
million in 1996, representing a 38.1% increase. Substantially all of the
increase in community operations expense resulted from the addition of the six
facilities during 1995 and 1996. Community operations expense as a percentage of
revenue decreased from 69.1% of revenues in 1995 to 64.1% of revenues in 1996
primarily due to the improved operating results of facilities in operation in
both periods.
23
<PAGE>
Corporate administrative and general expense increased from $1.0 million in
1995 to $3.9 million in 1996, representing a 286.3% increase. Substantially all
of the increase in corporate administrative and general expense resulted from
the opening of the corporate office in Florida. Prior to September 30, 1996, IHS
had provided all of the corporate services for the Company for a fee of
approximately 6% of revenue. This arrangement was terminated in October 1996 and
now the Company provides all of its own corporate resources.
Rent increased from $2.4 million in 1995 to $2.6 million in 1996,
representing a 7.6% increase. The increase in rent expense primarily resulted
from the leasing of three facilities during 1996 partially offset by the
purchase of two facilities that were previously leased. Rent as a percentage of
revenues decreased from 14.9% in 1995 to 10.8% in 1996 due to the purchase of
facilities previously leased in addition to the purchase of two facilities
during 1995 and 1996.
Depreciation and amortization expense increased from $415,000 in 1995 to $1.2
million in 1996, representing a 194.4% increase. The increase in depreciation
and amortization expense primarily resulted from the acquisition of new
facilities and facilities that were previously leased during 1995 and 1996.
Depreciation and amortization increased as a percentage of revenue from 2.6% to
5.0% due to the acquisition of new facilities and facilities that were
previously leased during 1995 and 1996.
Earnings (loss) before income taxes and minority interest increased from a
loss of $3.9 million in 1995 to earnings of $727,000 in 1996. This increase was
primarily due to income from 1995 and 1996 acquisitions, the loss from
impairment of long-lived assets in 1995, partially offset by the increase in
corporate administrative and general costs.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Revenue 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 at Denton facility on April 1,
1994. Average occupancy of the Company's owned and leased facilities during the
year ended December 31, 1995 was 91% as compared to 80% 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.
Community 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 at Denton and The Shores facilities. Community
operations expense as a percentage of revenue decreased from 70.9% 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.
Corporate administrative and general expense increased from $726,000 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 at Denton and The Shores
facilities. Corporate administrative and general expenses as a percentage of
revenues remained constant in both periods at 6.2% of revenues.
Rent 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. Rent 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.
Depreciation and amortization expense increased from $369,000 in 1994 to
$415,000 in 1995, representing a 12.4% increase. The increase in depreciation
and amortization expense primarily resulted from the addition of the Homestead
at Denton 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.
24
<PAGE>
Loss on Impairment of Long-Lived Assets. In 1995, the Company implemented
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 121 in connection with IHS' implementation thereof. Through
evaluation of the recent financial performance and a recent appraisal of its
Waterside facility, the Company estimated the fair value of this facility and
determined that the carrying value of certain long-lived assets, including
goodwill and buildings and improvements, exceeded their fair value. The excess
carrying value of $5.1 million 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 11 of Notes to Consolidated Financial Statements.
Earnings (loss) before income taxes and minority interest decreased from
earnings of $830,000 in 1994 to loss of $3.9 million 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.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had a net working capital deficit of
$1,349,000 compared to a deficit of $315,000 at December 31, 1995.
On October 9, 1996, the Company completed its initial public offering. The
Company issued 2.8 million shares and Integrated Health Services issued 1.4
million shares at $8 per share. The net proceeds to the Company were
approximately $19.1 million; the net proceeds to IHS were approximately $10.4
million. IHS continues to hold 37% of the outstanding shares of the Company. The
Company used the proceeds of the offering to purchase the Terrace Gardens
facility and to repay certain indebtedness to IHS.
In October 1996, the Company borrowed $3.4 million from IHS. The note bears
interest at 14% and will be repaid over 24 equal monthly installments of
principal plus interest beginning on December 2, 1996.
The Company has obtained a commitment (the "Financing Commitment") from
Health Care Property Investors, Inc. ("HCPI"), a real estate investment trust,
to make available to ILC up to $100 million to develop, construct and acquire
facilities. No less than $40 million is to be invested in existing facilities
("Existing Facilities") through purchase and lease or sale/leaseback
transactions. Remaining funds (up to $60 million) may be invested in new
development projects ("New Facilities"). The Company will develop each New
Facility pursuant to a separate development agreement with HCPI and will lease
each New Facility and financed Existing Facility from HCPI pursuant to a
separate lease agreement. Each acquisition, development, lease and ancillary
agreement executed pursuant to the Financing Commitment will contain
representations and warranties, indemnities, affirmative covenants and
conditions precedent customary for real estate investment trust transactions. A
$200,000 deposit (the "Expense Deposit"), to ensure the payment of HCPI's
expenses in the event transactions contemplated pursuant to the Financing
Commitment are not completed, was paid upon the Company's execution of the
Financing Commitment. The Financing Commitment expires on June 30, 1997.
Each development agreement executed pursuant to the Financing Commitment will
require the Company, as developer, to arrange, coordinate and carry out all
services necessary to develop each New Facility. The Maximum Cost (as defined)
based on an appraisal of Fair Market Value (as defined) and a development budget
for each facility will be approved by HCPI and included in the development
agreement. Total Construction Cost (as defined) will equal land cost plus total
actual construction costs, one percent of Maximum Cost (accrued as a cost by
HCPI), all legal costs and fees (including in-house legal costs) incurred in
connection with the project, a construction administration fee to be accrued as
a cost by HCPI equal to $1,550 per month (subject to reduction) and an allowance
for HCPI's cost of money at 1.5% over the Bank of New York prime rate. The cost
of overruns, if any, including HCPI's carrying cost on overruns, are to be paid
by the Company. HCPI will not be required to pay a Total Construction Cost in
excess of Maximum Cost. The Company will guarantee the completion of a New
Facility within 12 months and will guarantee to make all payments in excess of
Maximum Cost to complete the facility. The Company may include in the Total
Construction Cost the amount of any actual development fee
25
<PAGE>
paid to an unrelated developer, up to a maximum of 5% of Maximum Cost. IHS has
agreed to guaranty certain of the Company's obligations to HCPI in connection
with the development of facilities, except that IHS is not required to guaranty
such obligations as long as the Company maintains stockholders' equity or net
worth in excess of $55 million and the Common Stock is publicly traded on a
national securities exchange or the Nasdaq National Market.
HCPI will pay fair market value, based on an appraisal, to purchase an
Existing Facility. All leases will be "triple net" (i.e., where the lessee is
obligated to pay, in addition to rent, all taxes, repairs and insurance in
respect of the facility) and HCPI will have the right to a higher lease rate on
facilities located in states that tax real estate investment trust income. The
primary term for each lease will be 15 years with two 10 year renewal options at
fair market value lease rates. All leases covering facilities financed under the
Financing Commitment must be renewed together as a group and not individually.
The base lease rate for Existing Facility leases executed under the Financing
Commitment will equal 325 basis points above the 10-year Treasury Note rate
published in The Wall Street Journal three business days prior to lease
commencement. The base rent under such leases will equal the base lease rate
multiplied by the Existing Facility purchase price. The base lease rate for New
Facility leases will equal 350 basis points above the 10-year Treasury Note rate
published in The Wall Street Journal three business days prior to lease
commencement. The base rent under New Facility leases will equal the base lease
rate multiplied by the lesser of Total Construction Cost or Maximum Cost.
Beginning in the second year of the lease, annual rent will be increased by an
amount equal to the annual change in the consumer price index multiplied by the
prior year's total rent. In no event will the rent increase be less than the sum
of (a) the additional rent paid for the previous year plus (b) one hundred
percent of the facility's Gross Revenues (as defined) in excess of Base Revenue
(as defined), up to but not exceeding an amount equal to two percent (2%) of the
prior year's total rent. In no event will the rent increase represent more than
a 5% increase over the prior year's total rent. In addition to the payment of
rent and the Expense Deposit, the Company is required to provide an annually
renewed letter of credit for each financed facility equal to four months total
lease payments to secure acquisition, development and lease obligations. All
leases under the Financing Commitment will be cross-defaulted and
cross-collateralized and all leases between HCPI and a subsidiary of the Company
will be guaranteed by the Company. The Company will be obligated to reimburse
HCPI for certain costs and expenses incurred in connection with transactions
completed pursuant to the Financing Commitment. In addition, a non-refundable
commitment fee, equal to one percent (1%) of the purchase price of each Existing
Facility, will be due and payable at the closing of the acquisition of each
Existing Facility.
In October 1996 the Company sold the Cabot Pointe facility to, and leased it
back from, HCPI for $2.7 million under the Financing Commitment. In March 1997
the Company leased the Brantley facility from HCPI under the Financing
Commitment.
The Company has also obtained a non-binding term sheet from Capstone Capital
Corporation ("Capstone") relating to the availability of up to $40 million in
financing through sale/leaseback transactions. An expense deposit of $100,000 is
payable by the Company within one business day of the execution of a commitment
agreement and a fee equal to 1% of total building cost is payable upon the
initial draw on the commitment relating to each facility purchased. As proposed,
leases executed with Capstone will have an initial term of 12 to 15 years and
three separate five year extension options. All leases funded under the proposed
commitment, however, will have the same initial term and no lease may be
extended unless all leases under the commitment are extended. Subject to a
minimum rate of 10%, the initial lease rate will be 350 basis points in excess
of the yield on U.S. Treasury bills with similar maturities/terms. Lease rates
during the first year of each extended period will be based upon fair market
rental values. Lease rates will be adjusted annually (except for the first year
of each renewal period) in an amount equal to the positive change in the
consumer price index; provided, however, in no event will the change be less
than 2% or more than 5% of the previous year's lease payment.
All leases under the proposed Capstone commitment will be cross-defaulted and
all leases between Capstone and a subsidiary of the Company will be guaranteed
by the Company. Each facility lease will contain minimum rent coverage
requirements and will require the Company to maintain a minimum net
26
<PAGE>
worth of $55 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.
In February and March of 1997 the Company leased the Jaylene and West
Columbia facilities, respectively, from Capstone.
In February 1997, the Company received commitment letters from NationsBank,
AmSouth, and SouthTrust for a total $50 million senior secured revolving credit
facility. Under the senior secured revolving credit facility, the Company can
borrow up to the lesser of 75% of the appraised value of the facilities secured
in the line or six times the total EBITDAR (as defined) of the secured
facilities. The facility will bear interest at a rate between libor plus 225
basis points and libor plus 300 basis points and have an initial term of two
years. Facilities may be put in and pulled out of the line at the Company's
discretion as long as the outstanding balance does not exceed the available
borrowings (calculated as discussed above). The proposed credit facility is
subject to completion of definitive documentation, and there can be no assurance
that the Company will obtain this facility on the proposed terms, on different
terms, or at all.
In anticipation of closing the above mentioned facility, NationsBank provided
the Company with a $15.8 million bridge loan to close the acquisition of four
facilities in February 1997. The loan matures on April 29, 1997 and bears
interest at a floating rate of libor plus 300 basis points. The Company will pay
interest only until maturity and expects to refinance the loan with the
revolving credit facility discussed above.
The Company intends to use the NationsBank line to fund future acquisitions.
However, under the facility, the Company may borrow up to $5 million for working
capital purposes. The NationsBank line is intended to enable the Company to
complete acquisitions without long financing delays. Once the acquisition is
closed, the Company will seek longer term financing for the facility either
through a mortgage or lease. Although there can be no assurance such long-term
financing will be available on acceptable terms or at all.
Net cash provided by operating activities was $4.8 million for the year ended
December 31, 1996 as compared with $2.4 million for the year ended December 31,
1995. Net cash from operations increased primarily due to improved cash flow at
existing facilities, acquisitions subsequent to January 1, 1994, and increases
in entrance fees received during 1996.
Net cash provided by financing activities was $18.8 million for the year
ended December 31, 1996 as compared to ($1.8) million for the year ended
December 31, 1995. The increase was primarily due to the proceeds from the
Company's initial public offering in October 1996 and net borrowings from IHS
during 1996.
Net cash used in investing activities was $19.5 million for the year ended
December 31, 1996 as compared to $1.0 million for the year ended December 31,
1995. The increase was primarily due to the purchase of the Terrace Gardens
facility and required cash outlays to implement the Company's development
program in 1996.
The Company has agreed to guaranty the indebtedness on two development sites
for one of its developers. There currently is no balance outstanding relating to
these two sites. However, the maximum amount of the guarantee on these two sites
is $4 million.
The Company currently has employment agreements with three of its officers
which provide annual base salaries aggregating $665,000.
27
<PAGE>
QUARTERLY RESULTS (UNAUDITED)
Set forth below is certain summary information with respect to the Company's
operations for the last eight fiscal quarters.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------
1995 1996
---------------------------------------- -----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
--------- --------- ---------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Monthly service and entrance fees . $3,756 $3,715 $3,820 $ 3,833 $5,164 $5,404 $5,534 $ 6,946
Management services and other ..... 166 381 277 321 451 276 293 161
--------- --------- ---------- --------- --------- --------- ---------- ----------
Total revenues .................... 3,922 4,096 4,097 4,154 5,615 5,680 5,827 7,107
--------- ---------- --------- --------- --------- ---------- ----------
Expenses:
Community operations .............. 2,759 2,817 2,826 2,841 3,513 3,625 3,790 4,598
Corporate administrative and
general .......................... 243 256 256 250 337 341 847 2,359
Rent .............................. 614 601 608 608 725 584 576 730
Depreciation and amortization ..... 104 102 102 106 248 232 353 387
Loss on impairment of long-lived
assets (1) ....................... -- -- -- 5,126 -- -- -- --
--------- --------- ---------- --------- --------- --------- ---------- ----------
Total expenses ................... 3,720 3,776 3,792 8,931 4,823 4,782 5,566 8,074
--------- --------- ---------- --------- --------- --------- ---------- ----------
Operating Income.................... 202 320 305 (4,777) 792 898 261 (967)
Interest Income ................... -- -- -- -- -- -- -- 93
Interest Expense................... -- -- -- -- -- -- (203) (147)
--------- --------- ---------- --------- --------- --------- ---------- ----------
Earnings (loss) before income taxes
and minority interest ............. 202 320 305 (4,777) 792 898 58 (1,021)
Minority interest................... 10 12 10 5 -- -- -- --
--------- --------- ---------- --------- --------- --------- ---------- ----------
Earnings (loss) before income taxes 192 308 295 (4,782) 792 898 58 (1,021)
Federal and state income taxes .... 74 119 114 (950) 305 346 22 (393)
--------- --------- ---------- --------- --------- --------- ---------- ----------
Net earnings (loss)................. 118 189 181 (3,832) 487 552 36 (628)
Earnings (loss) per common share .. $ 0.03 $ 0.05 $ 0.05 $ (0.98) $ 0.12 $ 0.14 $ 0.01 $ (0.10)
========= ========= ========== ========= ========= ========= ========== ==========
Shares outstanding.................. 3,898 3,898 3,898 3,898 3,898 3,898 3,898 6,454
========= ========= ========== ========= ========= ========= ========== ==========
</TABLE>
- ----------
(1) See note 11 to financial statements
28
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF INTEGRATED LIVING COMMUNITIES,
INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report......................................................... 30
Consolidated Balance Sheets -- December 31, 1995 and 1996 ........................... 31
Consolidated Statements of Operations -- Years ended December 31, 1994, 1995, and
1996 ................................................................................ 32
Consolidated Statements of Changes in Stockholders' Equity -- Years ended December
31, 1994, 1995, and 1996 ............................................................ 33
Consolidated Statements of Cash Flows -- Years ended December 31, 1994, 1995, and
1996 ................................................................................ 34
Notes to Consolidated Financial Statements .......................................... 35
Independent Auditors' Report......................................................... 48
Schedule II -- Valuation and Qualifying Accounts .................................... 49
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not required under the related instructions, are inapplicable or the
information has been provided in the Consolidated Financial Statements or Notes
thereto.
29
<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 (the Company) as of December 31, 1995
and 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We 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 as of December 31, 1995 and 1996 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Baltimore, Maryland KPMG PEAT MARWICK LLP
February 21, 1997
30
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................. $ 413,362 $ 4,474,786
Accounts receivable, net.............................. 525,555 719,212
Prepaid expenses and other current assets............. 187,294 272,830
-------------- --------------
Total current assets................................. 1,126,211 5,466,828
Property, plant, and equipment, net (note 3) .......... 23,751,175 68,560,932
Other assets........................................... 896,376 1,546,909
-------------- --------------
$25,773,762 $75,574,669
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable...................................... $ 510,353 $ 1,721,765
Accrued expenses (note 7)............................. 560,610 2,176,863
Refundable security deposits.......................... 370,331 1,194,377
Current portion of loan payable to affiliate (note 8). -- 1,722,512
-------------- --------------
Total current liabilities............................ 1,441,294 6,815,517
Loan payable to affiliate (note 8)..................... -- 1,578,969
Refundable deposits (note 10).......................... 5,243,332 5,079,837
Unearned entrance fees (note 10)....................... 4,316,391 4,134,126
-------------- --------------
Total liabilities.................................... 11,001,017 17,608,449
-------------- --------------
Commitments and contingencies (notes 3, 4, 10, 12, and 13)
Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 5,000,000
shares; none issued and outstanding .................
Common stock, $0.01 par value. Authorized 100,000,000
shares; issued and outstanding 3,897,900 shares in
1995 and 6,697,900 shares in 1996.................... 38,979 66,979
Additional paid-in capital............................ 17,840,414 60,558,963
Accumulated deficit................................... (3,106,648) (2,659,722)
-------------- --------------
Net stockholders' equity............................. 14,772,745 57,966,220
-------------- --------------
$25,773,762 $75,574,669
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
31
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Monthly service and entrance fees.................. $10,905,925 $15,123,557 $23,047,275
Management services and other...................... 738,558 1,145,734 1,181,345
-------------- -------------- --------------
Total revenues.................................... 11,644,483 16,269,291 24,228,620
-------------- -------------- --------------
Expenses:
Community operations............................... 8,253,851 11,242,938 15,526,292
Corporate administrative and general (note 6)...... 725,497 1,005,372 3,883,898
Rent............................................... 1,466,243 2,430,397 2,614,652
Depreciation and amortization...................... 368,657 414,401 1,219,911
Loss on impairment of long-lived assets (note 11).. -- 5,125,838 --
-------------- -------------- --------------
Total expenses.................................... 10,814,248 20,218,946 23,244,753
-------------- -------------- --------------
Operating income (loss)........................... 830,235 (3,949,655) 983,867
Other income (expense):
Interest income.................................... -- -- 92,329
Interest expense (including interest on loan
payable to affiliate)............................. -- -- (349,487)
-------------- -------------- --------------
Earnings (loss) before income taxes and minority
interest......................................... 830,235 (3,949,655) 726,709
Minority interest (note 2).......................... (28,682) 37,497 --
-------------- -------------- --------------
Earnings (loss) before income taxes............... 858,917 (3,987,152) 726,709
Federal and state income taxes (note 5)............. 322,094 (643,643) 279,783
-------------- -------------- --------------
Net earnings (loss)............................... $ 536,823 $(3,343,509) $ 446,926
============== ============== ==============
Earnings (loss) per common share.................... $ 0.14 $ (0.86) $ 0.10
============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
32
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL RETURNED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
---------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993........................... $38,979 $ 5,147,409 $ (299,962) $ 4,886,426
Net earnings........................................... -- -- 536,823 536,823
Net capital contributions from parent company ......... -- 924,139 -- 924,139
---------- -------------- -------------- -------------
Balance at December 31, 1994........................... 38,979 6,071,548 236,861 6,347,388
Net loss............................................... -- -- (3,343,509) (3,343,509)
Net capital contributions from parent company ......... -- 11,768,866 -- 11,768,866
---------- -------------- -------------- -------------
Balance at December 31, 1995........................... 38,979 17,840,414 (3,106,648) 14,772,745
Net earnings........................................... -- -- 446,926 446,926
Net capital contributions from parent company ......... -- 23,610,549 -- 23,610,549
Net proceeds from initial public offering of 2,800,000
shares of common stock............................... 28,000 19,108,000 -- 19,136,000
---------- -------------- -------------- -------------
Balance at December 31, 1996........................... $66,979 $60,558,963 $(2,659,722) $57,966,220
========== ============== ============== =============
</TABLE>
See accompanying notes to consolidated financial statements
33
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996
------------ -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ................................... $ 536,823 $(3,343,509) $ 446,926
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Deferred income taxes ................................ 162,871 (620,435) --
Minority interest .................................... (28,682) 37,497 --
Loss on impairment of long-lived assets .............. -- 5,125,838 --
Depreciation and amortization ........................ 368,657 414,401 1,219,911
Decrease (increase) in accounts receivable ........... 102,777 (335,601) (193,657)
Decrease (increase) in prepaid expenses and other
current assets ...................................... (170,051) 31,720 (85,536)
Earned entrance fees ................................. (679,319) (680,409) (812,187)
Entrance fees received ............................... 768,798 1,491,593 570,150
Increase in accounts payable and other current
liabilities ......................................... 532,662 264,869 3,651,711
------------ -------------- --------------
Net cash provided by operating activities .............. 1,594,536 2,385,964 4,797,318
------------ -------------- --------------
Cash flows from financing activities:
Net capital distribution to parent company ............ (416,371) (2,551,050) (3,559,451)
Net proceeds from initial public offering ............. -- -- 19,136,000
Borrowings on loan payable to affiliate ............... -- -- 10,879,990
Repayments of loan payable to affiliate ............... -- -- (7,578,509)
Refundable deposits received .......................... 505,865 1,456,709 415,350
Refunds of deposits and entrance fees ................. (370,769) (707,367) (519,073)
------------ -------------- --------------
Net cash provided by (used in) financing activities ... (281,275) (1,801,708) 18,774,307
------------ -------------- --------------
Cash flows from investing activities:
Property, plant, and equipment additions .............. (358,375) (843,902) (18,852,080)
Increase in other assets .............................. (169,503) (113,544) (658,121)
------------ -------------- --------------
Net cash (used in) investing activities ................ (527,878) (957,446) (19,510,201)
------------ -------------- --------------
Increase (decrease) in cash ............................ 785,383 (373,190) 4,061,424
Cash, beginning of the period .......................... 1,169 786,552 413,362
------------ -------------- --------------
Cash, end of period .................................... $ 786,552 $ 413,362 $ 4,474,786
============ ============== ==============
Noncash investing and financing
activities--acquisitions of facilities (note 2): ......
Assets of businesses acquired, net..................... $1,340,510 $11,911,391 $ 27,170,000
Capital contributed by parent company and minority
interest............................................. $1,340,510 $11,911,391 $ 27,170,000
============ ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
34
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994, 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. In
October 1996, the Company completed its initial public offering of 2,800,000
shares of common stock. This offering reduced IHS' ownership of ILC from 100% to
37%. The consolidated financial statements represent the operations of
Integrated Living Communities as a wholly owned subsidiary of IHS through
October 1996 and as an independent public company subsequent to the completion
of the initial public offering.
Three of the Company's facilities are located on campuses containing both
assisted-living facilities and skilled-nursing facilities which share certain
operating expenses. Prior to June 1, 1996, the facilities were owned by
subsidiaries of IHS and leased to the Company (see note 4). 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 2. For periods through May 31, 1996 allocations of various operating
expenses were 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 6). 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.
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. Security deposits on units
rented on a month to month basis are presented as current liabilities.
Residents of the Waterside Retirement Estates facility generally enter 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 deposits and presented as long-term
liabilities. The remaining amount of the entrance fees is accounted for as
deferred revenue under the caption
35
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Continued)
"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 $679,319 in 1994, $680,409 in 1995, and
$812,187 in 1996.
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.................... 3 - 10 years
Leasehold improvements....... Term of the lease
The Company capitalizes costs associated with acquiring assisted living
facilities and related interests therein. Pre-acquisition costs represent direct
costs of the investigation and negotiation of the acquisition of operating
facilities; indirect and general expenses related to such activities are
expensed as incurred. Pre-construction costs represent direct costs incurred to
secure control of the development site. Pre-acquisition and pre-construction
costs are transferred to construction in progress and depreciable asset
categories when the related tasks are completed.
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 until the completion of the initial public offering in
October 1996; however, under SFAS 109 the current and deferred tax expense were
allocated among the members of the IHS controlled corporate group including the
Company and its subsidiaries. Subsequent to the completion of the initial public
offering in October 1996, the Company will file its own consolidated federal
income tax return.
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. Prior to the Company's initial public
offering, a cash management facility was provided by the Parent Company, whereby
the Company's operating cash balances of the facilities were generally
transferred to a centralized account and applied to reduce additional paid-in
capital. The Company's cash needs for operating and other purposes were
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
was reflected in the cash and cash equivalents account as of December 31, 1994
and 1995. Subsequent to the initial public offering, this facility was
discontinued and the Company retained all excess cash from operations.
36
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Continued)
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 through October 9, 1996
retroactively reflect the stock split and related surrender of common shares
referred to in note 9.
STOCK OPTIONS
The Company applies APB No. 25 and related interpretations in accounting
for its stock options. No compensation expense has been recognized in
connection with its stock options.
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, accounts payable, refundable security deposits 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.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 amounts to conform with
the 1996 presentation.
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 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 asset to its estimated fair value. Estimated fair
value is determined through an evaluation of recent financial performance and
projected discounted cash flows of its facilities using standard industry
valuation techniques, including the use of independent appraisals
37
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Continued)
when considered necessary. If an asset tested for recoverability was acquired in
a business combination accounted for by using the purchase method, the related
goodwill is included as part of the carrying value and evaluated as described
above in determining the recoverability of that asset. Recoverability is
determined by estimating the projected undiscounted cash flows, excluding
interest, of the related business activities.
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
the affected assets is allocated over their 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.
Prior to adoption of SFAS No. 121 in 1995, the Company performed its analyses
of impairment of long-lived assets by consideration of the projected
undiscounted cash flows on an entity-wide basis, except for goodwill for which
the policy is unchanged.
The effect of the adoption of SFAS No. 121 in December 1995 required the
Company to perform this analysis on a facility-by-facility basis. This resulted
in the recognition of a loss on impairment of long-lived assets (see note 11).
If the facility-by-facility analysis had been adopted prior to December 1995,
the Company may have incurred the loss on impairment of long-lived assets prior
to December 1995.
(2) BUSINESS ACQUISITIONS
During the three-year period ended December 31, 1996, IHS or the Company
acquired nine of the twelve assisted-living and other senior living facilities
owned or leased by the Company which are included in the consolidated financial
statements at December 31, 1996. 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.
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 bed assisted-living
facility. The Company leased the assisted living portion of the facility from
IHS from December 1, 1993 through June 1, 1996. Effective June 1, 1996, the
Company obtained a condominium interest in the assisted living portion of this
facility. The facility was renamed Heron's Run in 1996.
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, effective October 31, 1995 an IHS subsidiary
became the sole owner of Lakehouse East (now known as Waterside Retirement
Estates) and the former minority partners became the sole partners of the
partnership which is the sole owner of Lakehouse West.
The financial statements have been presented including the Company's interest
in Lakehouse East and excluding the operations of Lakehouse West. The following
represents the summarized financial information of the Lakehouse West
partnership entity which is not included in the consolidated financial
statements of the Company (in thousands)
38
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Continued)
TEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, OCTOBER 31,
1994 1995
-------------- ----------------
Revenues .............. $3,214 $2,672
Operating Expenses.... 3,217 2,581
Earnings (loss) ...... $ (3) $ 91
1994 ACQUISITIONS
On March 18, 1994, IHS acquired the Homestead at Denton facility, a 50 bed
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 311 bed The
Shores and 95 bed 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 4.)
1995 ACQUISITIONS
On December 15, 1995, IHS acquired Carrington Pointe, a 172 bed 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.
1996 ACQUISITIONS
On January 29, 1996, IHS acquired the Vintage Healthcare Center, which
contained a 110 bed skilled nursing center and a 106 bed assisted living center.
The Company leased the assisted living portion from IHS from January 29, 1996
through June 1, 1996. Effective June 1, 1996, the Company obtained a condominium
interest in the assisted living portion of the facility from IHS.
Effective June 1, 1996, the Company and an IHS subsidiary entered into
separate condominium agreements and shared services agreements for the Heron's
Run, 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'
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 Heron's Run, $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. The shared services agreements between the Company and
IHS with respect to these facilities 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
39
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Continued)
these facilities 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 share the
services of the executive director; the Company reimburses IHS for 30% of the
executive director's salary, benefits and other expenses.
Effective July 1, 1996, the Company entered into a lease agreement for
Homestead of Garden City, a 46 bed assisted living facility in Garden City,
Kansas. Effective July 17, 1996, the Company entered into a lease agreement for
Homestead of Wichita, a 46 bed assisted living facility located in Wichita,
Kansas. The initial term of each lease is 15 years with three five-year renewal
options. Annual rent under each lease is $287,500, subject to increases based on
the consumer price index. (See Note 4).
The Company acquired the Cabot Pointe facility in August 1996 for
approximately $2.8 million with funds borrowed from IHS. The Company sold and
leased the facility back from Healthcare Property Investors, Inc. (HCPI) in
October for $2.7 million. The Company recognized a loss of $62,500 on the
transaction relating to closing costs on the original purchase. This loss is
included in the operating expenses of the Company.
Effective October 9, 1996, the Company acquired Terrace Gardens Healthcare
Center, a 317 unit skill nursing and assisted living facility. The purchase
price was $12.2 million. The Company financed the transaction from the proceeds
of its initial public offering.
The following unaudited pro forma statements of operations information gives
effect to the 1995 and 1996 acquisition transactions described above as though
they had occurred on January 1, 1995, after giving effect to 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. In addition, the pro
forma information entitled "1996 including subsequent acquisitions" gives effect
to the acquisitions described above and the acquisitions subsequent to December
31, 1996 discussed in note 13, as if such acquisitions had occurred on January
1, 1996, after giving effect to similar adjustments as referred to above.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1996 INCLUDING
1995 1996 SUBSEQUENT ACQUISITIONS
------------- ------------- ------------------------
<S> <C> <C> <C>
Revenues................. $27,452,000 $27,716,000 $33,912,000
Net loss................. (3,065,000) (263,000) (67,000)
Net loss per common
share.................... (.55) (.05) (.01)
</TABLE>
The unaudited pro forma results are not necessarily indicative of what might
actually 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.
40
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Continued)
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
-------------- --------------
<S> <C> <C>
Land and improvements............... $ 4,010,343 $ 6,264,844
Building and improvements........... 18,828,646 56,497,955
Equipment........................... 1,312,103 2,238,443
Leasehold improvements.............. 102,331 524,712
Pre-construction and construction
in progress......................... 214,332 4,442,519
Preacquisition costs................ -- 520,945
-------------- --------------
24,467,755 70,489,418
Less accumulated depreciation ...... 716,580 1,928,486
-------------- --------------
Total............................... $23,751,175 $68,560,932
============== ==============
</TABLE>
The Company makes advances to contractors and developers in connection with
the Company's development and construction of assisted living facilities.
Development and construction advances under development services agreements and
non-recourse revolving credit note and security agreements secured solely by
real estate of developers are classified as pre-construction and construction in
progress in the balance sheet. At December 31, 1996, the Company had 19
facilities in the pre-construction stage and 10 facilities under construction.
The Company has commitments to make advances under the aforementioned agreements
until such time as the developer obtains construction financing. The Company
estimates the outstanding amount of this commitment to be approximately
$5,700,000 at December 31, 1996. Under certain circumstances, the developer may
repay the Company's advances and enter into a lease or management agreement with
the Company with respect to some or all of the facilities.
The Company has agreed to guaranty the indebtedness on two development sites
for one of its developers. There is currently no balance outstanding relating to
these two sites. However, the maximum amount of the guarantee on these two sites
is $4,000,000.
(4) LEASES
Prior to June 1, 1996, the Company had leased five assisted-living facilities
from IHS, and at December 31, 1996, leased two assisted living facilities from
IHS. With respect to the Heron's Run, Treemont, and Vintage facilities, IHS
subsidiaries own the premises of both skilled nursing and assisted living
facilities, operate the respective skilled nursing facilities, and prior to June
1, 1996 leased the assisted living facilities to the Company. Rent expense
included in the financial statements under these three intercompany leases was
$999,152 in 1994, $1,029,126 in 1995 and $581,667 in 1996. The Company has
obtained condominium interests in these three facilities effective June 1, 1996.
Cheyenne Place and The Shores are leased from Litchfield Asset Management
Corporation by Integrated Health Services of Lester, Inc. (a subsidiary of IHS)
under separate leases. The Company entered into separate subleases for these
facilities with the IHS subsidiary effective June 1, 1996. The initial term of
the subleases is seven years and provide for various renewal terms at the option
41
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Continued)
of ILC at fair market rentals. Prior to June 1, 1996, the Company was allocated
rentals based on the lease between Litchfield Asset Management Corporation and
IHS. Rent expense included in the financial statements under these leases was
$467,091 in 1994 and $1,401,271 in 1995, and $1,588,769 in 1996. The Company has
also entered into operating leases for three additional facilities and the
Company's corporate office. Minimum rent payments under noncancellable leases
and subleases are summarized as follows for the years ended December 31:
<TABLE>
<CAPTION>
TOTAL IHS OTHER
------------- -------------- -------------
<S> <C> <C> <C>
1997.......... $ 2,753,236 $ 1,722,696 $ 1,030,540
1998.......... 2,753,236 1,722,696 1,030,540
1999.......... 2,753,236 1,722,696 1,030,540
2000.......... 2,753,236 1,722,696 1,030,540
2001.......... 2,664,136 1,722,696 941,440
Thereafter ... 10,607,051 2,440,486 8,166,565
------------- -------------- -------------
$24,284,131 $11,053,966 $13,230,165
============= ============== =============
</TABLE>
(5) INCOME TAXES
Through October 9, 1996 (the closing date of the Company's initial public
offering), the Company had been included in IHS' consolidated federal income tax
return. Beginning October 10, 1996 the Company will file its own consolidated
federal income tax return. The provision for income taxes is summarized below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ------------- -----------
<S> <C> <C> <C>
Current..... $159,223 $ (23,208) $279,783
Deferred ... 162,871 (620,435) --
----------- ------------- -----------
$322,094 $(643,643) $279,783
=========== ============= ===========
</TABLE>
The amount computed by applying the Federal corporate tax rate of 34% to
earnings before income taxes is reconciled to the provision for income taxes as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
----------- -------------- -----------
<S> <C> <C> <C>
Income tax computed at statutory rates ....... $292,032 $(1,355,632) $ 247,081
State income taxes, net of Federal tax
benefit....................................... 32,057 (176,920) 29,329
Allocation of NOL carryover benefit........... -- -- (420,000)
Other (net)................................... (1,995) (2,501) 3,373
Valuation allowance adjustment................ -- 891,410 420,000
----------- -------------- -----------
$322,094 $ (643,643) $ 279,783
=========== ============== ===========
</TABLE>
42
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Continued)
Deferred income tax liabilities (assets) are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Excess of book over tax basis of
assets................................. $ 2,032,363 $ 798,083 $ 172,577
Unearned entrance fees................. (1,382,890) (1,661,811) (1,591,638)
Accrued expenses....................... (29,038) (27,682) (144,303)
Allowances and other reserves.......... -- -- (219,635)
Net operating loss carryover........... -- -- (240,144)
Other.................................. -- -- (49,319)
------------- ------------- -------------
620,435 (891,410) (2,072,462)
Valuation allowance ................... -- 891,410 2,072,462
------------- ------------- -------------
Deferred income tax liability.......... $ 620,435 $ -- $ --
============= ============= =============
</TABLE>
The provision for Federal and state income taxes has been allocated by IHS
generally based on the overall effective tax rate of the consolidated group
applied to the Company's pre-tax earnings. Deferred income tax (assets)
liabilities are recorded for the Company's temporary differences using the same
effective tax rate. The difference between the total provision for income taxes
and the deferred income tax provision, both determined as discussed above,
represents income taxes currently payable to the Parent Company and has been
accounted for as additional paid-in capital. The provision for income taxes,
deferred income taxes and income taxes currently payable may vary from such
amounts that would have been computed on a stand-alone basis.
As a result of the Company's initial public offering of common stock,
effective October 10, 1996 the Company is no longer a member of the IHS
consolidated group for income tax purposes. The provision for income taxes in
1996 has been reduced by the Company's net operating loss carryovers realized by
IHS as a result of the Company no longer being a member of the IHS consolidated
group. The effect of this tax benefit allocated by IHS in 1996 was approximately
$420,000.
Also, the Company's net deferred tax asset and the related valuation
allowance increased by approximately $800,000 in 1996 as a result of the Company
no longer being a member of the IHS consolidated group.
At December 31, 1996, the Company has a net operating loss carryover of
approximately $624,000 for federal income tax purposes, which expires in 2011.
(6) OTHER RELATED PARTY TRANSACTIONS
Through September 1996, IHS provided all corporate administrative and general
services to the Company 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 December 1, 1993 to October 31, 1995 (of which approximately $224,000
was paid to an IHS subsidiary and $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' 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. Beginning October 1, 1996, this agreement was
terminated and the Company began providing all of its corporate administrative
and general services.
43
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Continued)
As discussed in note 2 the Company has agreements with IHS whereby IHS
subleases two facilities to the Company and provides services at three other
locations where the Company and IHS both operate the facilities. As of December
31, 1996, the Company owed IHS $256,000 under these agreements.
(7) ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
----------- -------------
<S> <C> <C>
Accrued salaries and
wages....................... $307,327 $1,305,881
Other accrued expenses ..... 253,283 870,982
----------- -------------
$560,610 $2,176,863
=========== =============
</TABLE>
(8) LONG TERM DEBT
Effective June 30, 1996, IHS made available to the Company a $75 million
revolving credit facility. After the Company's public offering, this facility
was replaced by a $3.4 million unsecured term loan in October, 1996. The term
loan bears interest at 14% and is to be repaid in 24 monthly installments plus
accrued interest.
(9) CAPITAL STOCK
From inception through June 1996, the Company was authorized to issue up to
1,000 shares of common stock of which 100 shares were issued, and outstanding.
All shares were held by IHS. 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). In August 1996, the Parent Company
surrendered 1,063,100 shares of common stock to the Company. Share and per share
data for all periods presented in the financial statements give retroactive
effect to the revised shares, the common stock split and the related surrender
of common shares referred to above. On October 3, 1996, the Company issued
2,800,000 common shares to the public at a price of $8 per share. IHS also sold
1,400,000 of its shares of the Company's common stock at $8 per share. This
reduced IHS' ownership in the Company to 37%.
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 adopted two stock options plans during 1996. 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
44
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Continued)
adopted a Stock 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
545,040 shares of common stock under the two plans. Options granted under the
Stock Incentive Plan vest over five years and expire at the end of ten years.
Options granted under the Stock Option Plan for Non-Employee Directors (none of
which have been granted through December 31, 1996) vest over three years and
expire at the end of ten years. In addition, during 1996, the Company granted
options to purchase an aggregate of 405,000 shares of common stock to six
directors. These options vest over three years and expire at the end of ten
years. Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
NON PLAN
DIRECTOR
STOCK INCENTIVE PLAN OPTIONS TOTAL
------------------------------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Granted................... 451,000 $8.00 405,000 $8.00 856,000 $8.00
Canceled.................. (56,500) 8.00 (28,000) 8.00 (84,500) 8.00
--------- ---------- ---------
Outstanding at end of
year...................... 394,500 8.00 377,000 8.00 771,500 8.00
========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
- --------------- ------------- ---------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$8.00 771,500 9.76 years $8.00 -- --
</TABLE>
The Company applies APB No. 25 and related interpretations in accounting for
its stock options. Accordingly, no compensation expense has been recognized in
connection with its stock options. Had compensation expense for the Company's
stock options been determined consistent with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", the Company's net
earnings and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1995 1996
------------ ----------
<S> <C> <C> <C>
Net earnings..................... As reported $(3,343,509) $446,926
Pro forma (3,343,509) 339,342
Earnings per share............... As reported (.86) .10
Pro forma (.86) .07
</TABLE>
The fair value of the options for purposes of the above pro forma disclosure
was calculated using the Black-Scholes option pricing model and the following
assumptions: risk free interest rate of 6.58%, expected life of 6.0 to 6.5
years, no dividend payments, and a volatility of 35.8%. The effects of applying
SFAS 123 in the earnings and earnings per share data for 1996 may not be
representative of the effects on such pro forma information in future years.
(10) 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, 1995 and 1996; accordingly, there was no future service
liability recorded in connection with the life-care contracts at December 31,
1995 and 1996.
45
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Continued)
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 $882,779 and $1,073,292 at December
31, 1995 and 1996, respectively, of which $215,627 and $200,248, respectively,
is included in refundable deposits; the remainder is included in unearned
entrance fees. Refunds paid were $370,769 in 1994, $707,367 in 1995, and
$519,073 in 1996, including minimum refunds of $343,819 in 1994, $553,213 in
1995, and $495,966 in 1996.
(11) 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. In connection with the adoption of SFAS No. 121, the
Company performed an evaluation of the financial performance and projected
undiscounted cash flows of each of its facilities. Using an independent
appraisal, the Company estimated the fair market value of its Waterside
(Lakehouse East) facility and determined that the carrying value of certain long
lived assets, including goodwill, land, buildings and improvements, exceeded the
fair values. 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. At the time the Company acquired the
controlling interest in the Waterside facility in December 1993, the Waterside
facility and Lakehouse West, a separate adjacent facility, were operated in a
manner whereby the facilities shared certain services and expenses. The December
1993 valuation assumed that these facilities would continue their existing
cross-referral and joint marketing relationship and would continue to enjoy
other corporate synergies. In 1995, the Company and the minority partners in the
Waterside facility and the Lakehouse West facility exchanged interests, such
that the Company became the sole owner of the Waterside facility and the
minority partners became the sole owner of the adjacent Lakehouse West facility
(see note 2). All joint arrangements were terminated. The December 1995
appraisal reflected that (i) the benefits discussed above no longer existed and
(ii) the other facility was now a competitor of the Waterside facility. As a
result, the December 1995 valuation of the Waterside facility was less than the
December 1993 valuation used for purchase accounting purposes.
(12) 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.
(13) EVENTS SUBSEQUENT TO DECEMBER 31, 1996
In January 1997, the Company purchased four facilities in Virginia totaling
198 beds for $15,750,000. The Company financed the transaction through a bridge
loan with NationsBank. The loan is dated January 29, 1997 and matures on April
29, 1997. The loan bears interest at a floating rate of libor plus 300 basis
points. The Company expects to refinance this loan with the revolving credit
facility discussed below.
In February and March 1997, the Company acquired a leasehold interest in one
facility in South Carolina totaling 55 beds, and two facilities in Florida and
Georgia totaling 103 beds.
46
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
(Continued)
In February 1997, the Company received commitment letters from NationsBank,
AmSouth, and SouthTrust for a total $50,000,000 senior secured revolving credit
facility. Under the senior secured revolving credit facility, the Company can
borrow up to the lesser of 75% of the appraised value of the facilities secured
in the line or six times the total EBITDAR (as defined) of the secured
facilities. The facility will bear interest at a rate between libor plus 225
basis points and libor plus 300 basis points and have an initial term of two
years. Facilities may be put in and pulled out of the line at the Company's
discretion as long as the outstanding balance does not exceed the available
borrowings (calculated as discussed above). The proposed credit facility is
subject to completion of definitive documentation, and there can be no assurance
that the Company will obtain this facility on the proposed terms, on different
terms, or at all.
The Company intends to use the NationsBank line to fund future acquisitions.
However, under the facility, the Company may borrow up to $5,000,000 for working
capital purposes. The NationsBank line will enable the Company to complete
acquisitions without long financing delays. Once the acquisition is closed, the
company will seek longer term financing for the community either through a
mortgage or lease.
47
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Integrated Living Communities, Inc.:
Under date of February 21, 1997, we reported on the consolidated balance
sheets of Integrated Living Communities, Inc. and subsidiaries (the Company) as
of December 31, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1996, as contained in the annual report on
Form 10-K for the year 1996. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule in the Form 10-K. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
Baltimore, Maryland KPMG PEAT MARWICK LLP
February 21, 1997
48
<PAGE>
INTEGRATED LIVING COMMUNITIES, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
--------------- -------------- ---------------
<S> <C> <C> <C>
Allowance for doubtful accounts
Balance at beginning of period.................... $ 0 $ 0 $ 0
Provisions for bad debts charged to operations.... -- -- 250,000
Acquired companies................................ -- -- 0
Accounts receivable written-off (net of
recoveries)...................................... -- -- 0
--------------- -------------- ---------------
Balance at end of period.......................... $ 0 $ 0 250,000
=============== ============== ===============
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
49
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The section entitled "Proposal No. 1 -- Election of Directors" in the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders is
incorporated herein by reference.
EXECUTIVE OFFICERS
See "Part I -- Item 1. Business -- Executive Officers of the Company".
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" in the Company's Proxy
Statement for the 1997 Annual Meeting of Stockholders in incorporated by
reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Beneficial Ownership of Common Stock" in the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders in
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The sections entitled "Executive Compensation -- Compensation Committee
Interlocks and Insider Participation" and "Certain Transactions" in the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders is
incorporated herein by reference.
50
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
(1) and (2) See "Index to Consolidated Financial Statements" as Item 8 of
this Annual Report of Form 10-K.
(3) Exhibits
Exhibit Nos. 10.23, 10.24, 10.25, 10.26, 10.27, 10.29, 10.31, and 10.32
are management contracts, compensatory plans, or arrangements.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------
<S> <C>
2.1......... ASSET PURCHASE AGREEMENT, DATED AS OF , 1996, BY AND AMONG TERRACE GARDENS, L.P., HERBERT L.
KRUMSICK, JOHN KARDATZKE, LOUIS WEISS, CHESTER WEST, ROSS G. TIDEMANN, NESTOR R. WEIGAND, Jr.,
and Integrated Living Communities of Terrace Gardes, Inc. *
2.2......... Asset Purchase Agreement, dated as of June 1, 1996, between Cabot Pointe I, Inc. and
Integrated Living Communities at Cabot Pointe, Inc. and Certain Shareholders of Cabot Pointe,
Inc. *
2.3......... Asset Purchase Agreement dated January 24, 1997, by and among Integrated Living Communities of
Portsmouth, Inc. and Retirement Home of Portsmouth Limited Partnership as Seller and Bullock
Corporation as general partner**
2.4......... Asset Purchase Agreement dated January 24, 1997 by and among Integrated Living Communities of
Redgate, Inc., and Ghent Arms Limited Partnership as Seller and Bullock Corporation as general
partner**
2.5......... Asset Purchase Agreement dated January 24, 1997, by and among Integrated Living Communities of
Gloucester, Inc. and American Retirement Homes as Seller and Bullock Corporation as successor
and former general partner of Retirement Homes of Gloucester Limited Partnership**
2.6......... Asset Purchase Agreement dated January 24, 1997 by and among Integrated Living Communities of
Virginia Beach, Inc. and Retirement Homes of Virginia Beach Limited Partnership as Seller and
Bullock Corporation as general partner.**
2.7......... Management Agreements Acquisition Agreement dated January 24, 1997 by and among Integrated
Living Communities of Redgate, Integrated Living Communities of Virginia Beach, Integrated
Living Communities of Gloucester, Integrated Living Communities of Portsmouth as buyers and
American Retirement Homes, Inc. as seller**
2.8......... Asset Purchase Agreement with Health Care Property Investors for Cabot Pointe, dated September
30, 1996***
3.1......... Restated Certificate of Incorporation (as amended)*
3.2......... Bylaws*
4.1......... Specimen Stock Certificate*
10.1........ Declaration of Condominium of West Palm Beach, a Condominium, dated as of June 3, 1996, by
Central Park Lodges of West Palm Beach and Integrated Living Communities of West Palm Beach
Inc.*
10.2........ Services Agreement, dated as of June 1, 1996, between Integrated Living Communities of West
Palm Beach, Inc. and Central Park Lodges of West Palm Beach, Inc.*
10.3........ Amendment to Services Agreement, dated as of June 1, 1996, between Integrated Living
Communities of West Palm Beach, Inc. and Central Park Lodges of West Palm Beach, Inc.*
51
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------
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.*
10.8........ Services Agreement, dated as of June 1, 1996, between Integrated Living Communities of Denton
(Texas), Inc. and Integrated Health Services at Great Bend, Inc.*
10.9........ Amendment to Services Agreement, dated as of June 1, 1996, between Integrated Living
Communities of Denton (Texas), Inc. and Integrated Health Services at Great Bend, Inc.*
10.10....... Administrative Services Agreement, effective June 1, 1996, by and between Integrated Living
Communities, Inc. and Integrated Health Services, Inc.*
10.11....... Lease Agreement, dated as of June 18, 1996, between The Hartmoor Homestead, L.C., as Landlord,
and Integrated Living Communities at Wichita, Inc., as Tenant.*
10.12....... Purchase Option Agreement, dated as of June 18, 1996, by and between The Hartmoor Homestead,
L.C., as Owner, and Integrated Living Communities at Wichita, Inc., as Optionee.*
10.13....... Right of First Refusal Agreement, dated as of June 18, 1996, by and between The Hartmoor
Homestead, L.C. and Integrated Living Communities at Wichita, Inc.*
10.14 ...... Lease Agreement, dated as of June 18, 1996, between The Homestead of Garden City, L.C., as
Landlord, and Integrated Living Communities at Garden City, Inc., as Tenant.*
10.15 ...... Purchase Option Agreement, dated as of June 18, 1996, by and between The Homestead of Garden
City, L.C., as owner, and Integrated Living Communities at Garden City, Inc., as Optionee.
10.16 ...... Right of First Refusal Agreement, dated as of June 18, 1996, by and between The Homestead of
Garden City, L.C. and Integrated Living Communities at Garden City, Inc.*
10.17 ...... Sublease, dated as of June 1, 1996, between Integrated Living Communities of Bradenton, Inc.
and Integrated Health Services of Lester, Inc. (relating to "The Shores").*
10.18 ...... Guaranty, dated as of June 1, 1996, by Integrated Living Communities, Inc. for the benefit of
Integrated Health Services of Lester, Inc. and Litchfield Asset Management Corp.*
10.19 ...... Sublease, dated as of June 1, 1996, between Integrated Living Communities of Bradenton, Inc.
and Integrated Health Services of Lester, Inc. (relating to "Cheyenne").*
10.20 ...... Registration Rights Agreement, dated as of June 1, 1996, between Integrated Living
Communities, Inc. and Integrated Health Services, Inc.*
10.21 ...... Purchase and Sale Agreement, dated as of October 4, 1995, between Liberty Carrington Pointe
Limited Partnership, as Seller, and Integrated Management-Carrington Pointe, Inc. as Buyer.*
10.22 ...... First Amendment to Purchase and Sale Agreement, dated as of December 15, 1995, between
Liberty/Carrington Pointe Limited Partnership, as Seller, and Integrated Management-Carrington
Pointe, Inc., as Buyer.*
10.23 ...... Employment Agreement, dated as of May 1, 1996, between the Company and Edward J. Komp.*
52
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------
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 ...... Form of Indemnification Agreement for officers and directors.*
10.27 ...... Stock Incentive Plan.*
10.28 ...... Form of Option Agreement under Stock Incentive Plan.*
10.29 ...... Non-Employee Director Stock Option Plan.*
10.30 ...... Form of Option Agreement under non-Employee Director Stock Option Plan.*
10.31 ...... Form of Non-Plan Director Option.*
10.32 ...... Integrated Living Communities, Inc. Supplemental Deferred Compensation Plan.*
10.33 ...... 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
Service Retirement Management, Inc. as Lender, as amended by Amendment No. 1 to Revolving
Credit and Security Agreement dated as of July 9, 1996.*
10.34 ...... Revolving Credit and Security Agreement, dated as of February 29, 1996, in the principal
amount of $750,000, between Lori Zito d/b/a Elderly Development Company, as Borrower, and
Integrated Health Services Retirement Management, Inc. as Lender, as amended by Amendment No.
1 to Revolving Credit and Security Agreement dated as of July 9, 1996.*
10.35 ...... Development Services Agreement, dated as of June 3, 1996, by and among Integrated Living
Communities, Inc. Integrated Health Services, Inc. and Aguirre, Inc.*
10.36 ...... Letter of Intent Agreement, dated August 23, 1996, among Integrated Living Communities, Inc.
and Capstone Capital Corporation.*
10.37 ...... Loan Commitment letter, dated June 11, 1996, from Health Care Property Investors, Inc. to the
Company.*
10.38 ...... Asset Purchase Agreement, dated as of January, 1996 among C.S. Denton partners, Ltd., Thomas
Scott and Integrated Health Services at Great Bend, Inc. *
10.39 ...... Letter Agreement Re: Options to Receive Assignments of Various Land Contracts dated March 27,
1996 between Integrated Living Communities, Inc. and The Homestead Company, L.C.*
10.40 ...... Letter Agreement Re: Options to Receive Assignments of Various Land Contracts dated March 21,
1996 between Integrated Living Communities, Inc. and Lori Zito d/b/a Elderly Development
Company.*
10.41 ...... Revolving Credit Note, dated June 30, 1996, in the principal amount of $75,000,000, between
Integrated Living Communities, Inc., as Maker, and Integrated Health Services, Inc., as
Lender.*
10.42 ...... Letter of Intent Agreement, dated as of March 18, 1996, among Integrated Living Communities,
Inc. and The Homestead Company, L.C.*
10.43 ...... Revolving Credit Note, dated March 18, 1996, in the principal amount of $800,000, between The
Homestead Company, L.C., as Borrower, and Integrated Health Services Retirement Management,
Inc., as amended by Allonge and Amendment of Revolving Credit Note dated as of July 12, 1996.*
10.44 ...... Revolving Credit and Security Agreement, dated as of March 18, 1996, between The Homestead
Company, L.C., as Borrower, and Integrated Health Services Retirement Management, Inc., as
Lender, as amended by Amendment No. 1 to Revolving Credit and Security Agreement dated as of
July 12, 1996.*
53
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------
10.45 ...... Indemnification Agreement dated August 15, 1996 by and between Integrated Health Services,
Inc. and Integrated Health Services, Inc. and Integrated Living Communities, Inc.*
10.46 ...... Ancillary Services Agreement dated as of June 3, 1996 by and among Integrated Living
Communities, Inc. Integrated Health Services, Inc. and Aquirre, Inc.*
10.47 ...... Partition Agreement, dated as of October 31, 1995, by and among Donald Ross, Fred Fiala, John
E. Rowe, Integrated Health Services, Inc., Central Park Lodges, Inc. Florida Life Care, Inc.
and FLC Lakehouse Inc. and Janice Blivas.*
10.48 ...... Letter of Agreement, dated August 23, 1996, between Health Care Property Investors, Inc. and
Integrated Living Communities, Inc., amending certain provisions of that certain Loan
commitment letter, dated June 11, 1996, from Health Care Property Investors, Inc. to the
Company.*
10.49 ...... Credit Agreement with Integrated Health Services, dated October 10, 1996***
10.50 ...... Lease Agreement with Healthcare Property Investors for Cabot Pointe, dated September 30,
1996***
10.51 ...... Promissory note made by Integrated Living Communities in favor of NationsBank, N.A. (South)
for $15,750,000 dated January 24, 1997.
10.52 ...... Lease Agreement between Capstone Capital Corporation and Integrated Living Communities of St.
Petersberg for Jaylene Retirement Center, dated March 4, 1997.
10.53 ...... Lease Agreement between Capsone Capital Corporation and Integrated Living Communities of West
Columbia for Jenni-Lynn Retirement Center, dated February 21, 1997.
10.54 ...... Lease Agreement with Health Care Property Investors and Integrated Living Communities of
Milledgeville for Brantely Retirement Center, dated March 17, 1997.
21.......... Subsidiaries of the Registrant.
23.1........ Consent of KPMG Peat Marwick LLP.*
27.......... Financial Data Schedule.
</TABLE>
- -------------
Previously filed with the Commission as Exhibits to, and incorporated by
reference from, the following documents:
* Registration statement on From S-1, (File No. 333-05877)
** Current Report of Form 8-K dated January 29, 1997
*** Quarterly Report on Form 10-Q for the quarter ended September 30, 1996
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exhange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
INTEGRATED LIVING COMMUNITIES, INC.
(Registrant)
By: /s/ JOHN B. POOLE
--------------------------------
John B. Poole
Senior Vice President -
Chief Financial Officer
(Principal Financial Officer)
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------- -------------------
<S> <C> <C>
/s/ EDWARD J. KOMP President, CEO and March 14, 1997
- --------------------------
(Edward J. Komp) Director
/s/ ROBERT N. ELKINS, M.D. Chairman of the Board March 14, 1997
- --------------------------
(Robert N. Elkins, M.D.) of Directors
/s/ LAWRENCE P. CIRKA March 14, 1997
- --------------------------
(Lawrence P. Cirka) Director
/s/ CHARLES A. LAVERTY March 14, 1997
- --------------------------
(Charles A. Laverty) Director
/s/ LISA K. MERRITT March 14, 1997
- --------------------------
(Lisa K. Merritt) Director
</TABLE>
55
PROMISSORY NOTE
$15,750,000 January 24, 1997
FOR VALUE RECEIVED, INTEGRATED LIVING COMMUNITIES, INC., a Delaware
corporation, INTEGRATED LIVING COMMUNITIES OF PORTSMOUTH, INC., a Delaware
corporation, INTEGRATED LIVING COMMUNITIES OF REDGATE, INC., a Delaware
corporation, INTEGRATED LIVING COMMUNITIES OF GLOUCESTER, INC., a Delaware
corporation, INTEGRATED LIVING COMMUNITIES OF VIRGINIA BEACH, INC., a Delaware
corporation and INTEGRATED MANAGEMENT-CARRINGTON POINTE, INC., a Delaware
corporation (collectively, the "Borrowers" and individually a "Borrower"),
jointly and severally, promise to pay to the order of
NATIONSBANK, N.A. (SOUTH), a national banking association (the "Bank"),
at its offices in Sarasota, Florida (or at such other place or places as the
Bank may designate) the principal sum of up to
FIFTEEN MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($15,750,000)
under the terms and conditions of this promissory note (as amended, modified,
supplemented, restated and/or replaced from time to time, the "Note").
DEFINITIONS. For purposes hereof:
(a) "Business Day" shall mean any day other than a Saturday, a Sunday,
a legal holiday or a day on which banking institutions are authorized or
required by law or other governmental action to close in Sarasota, Florida;
provided such day is also a day on which dealings between banks are carried on
in Dollar deposits in the London interbank market.
(b) "Dollars" shall mean dollars in lawful currency of the United
States of America.
(c) "Environmental Laws" shall mean any and all lawful and applicable
Federal, state and local statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits or licenses relating to the environment or
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, toxic or hazardous substances or wastes into the environment
including, without limitation, ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, toxic or hazardous substances or wastes.
(d) "Events of Default" shall mean (i) failure by the Borrowers to pay
any part of the principal or interest when due on this Note, (ii) failure by any
of the Borrowers to comply with any of the terms of this Note, the Mortgage
Documents or any other agreement, document or instrument now or hereafter
existing relating to this Note, (iii) with respect to any other indebtedness
(other than the indebtedness outstanding under this Note) of any of the
Borrowers, (A) a default in any payment with respect to any such indebtedness,
(B) default in the observance or performance of any term, covenant or agreement
relating to such indebtedness or (C) any other event or condition shall occur or
exist, the effect of which is to cause, or permit, the holder or holders of such
indebtedness to cause any such indebtedness to become due prior to its stated
<PAGE>
maturity, or (iv) in the event that any bankruptcy or other insolvency
proceeding is filed by or against any of the Borrowers.
(e) "Floating LIBOR Rate" shall mean for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the London interbank offered rate
for deposits of Dollars at approximately 11:00 a.m. (London time) on such day,
or if such day is not a Business Day, on the immediately preceding Business Day,
for a one month term. If for any reason such rate is not available, the term
"Floating LIBOR Rate" shall mean for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen
LIBO Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) on such day, or if such day is not a
Business Day, on the immediately preceding Business Day, for a one month term;
provided, however, if more than one such rate is specified on the Reuters Screen
LIBO Page, the applicable rate shall be the arithmetic mean of all such rates.
The Floating LIBOR Rate shall be adjusted on a daily basis to reflect changes in
the rate determined in accordance with the foregoing, effective on the date the
change occurs.
(f) "GAAP" shall mean generally accepted accounting principles in the
United States applied on a consistent basis.
(g) "Governmental Authority" shall mean any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or regulatory
body.
(h) "LTV Ratio" shall mean the ratio of (i) the principal balance
outstanding under this Note to (ii) the consolidated appraised value of the real
property described in Exhibit A-1 through Exhibit A-5 attached hereto and
encumbered by the Mortgage Documents, as determined in accordance with the
appraisals provided to the Bank pursuant to the terms hereof.
"Materials of Environmental Concern" shall mean any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum products or
any hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Laws, including, without limitation,
asbestos, polychlorinated biphenyls and urea formaldehyde foam insulation.
"Mortgage Documents" shall mean collectively, (i) that certain Deed of
Trust, Fixture Filing and Security Agreement dated as of the date hereof by
Integrated Management-Carrington Pointe, Inc. (ii) that certain Deed of Trust
and Security Agreement dated as of the date hereof by Integrated Living
Communities of Portsmouth, Inc., (iii) that certain Deed of Trust and Security
Agreement dated as of the date hereof by Integrated Living Communities of
Redgate, Inc., (iv) that certain Deed of Trust and Security Agreement dated as
of the date hereof by Integrated Living Communities of Gloucester, Inc. and (v)
that certain Deed of Trust and Security Agreement dated as of the date hereof by
Integrated Living Communities of Virginia Beach, Inc.
"Requirement of Law" shall mean, as to any Borrower, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Borrower, and any law, treaty, rule or regulation or determination of any
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Borrower or to which any of its material property is
subject.
2
<PAGE>
REPRESENTATIONS AND WARRANTIES.
- -------------------------------
(a) Financial Condition. The financial statements provided to the Bank
by the Borrowers are complete and correct in all material respects and present
fairly the financial condition and results from operations of the Borrowers for
the periods specified.
(b) No Change. Since September 30, 1996 there has been no development
or event which has had a material adverse effect on the condition (financial or
otherwise), operations, business or prospects of the Borrowers and their
subsidiaries taken as a whole.
(c) Corporate Organization. Each of the Borrowers (i) is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, (ii) is qualified to do business in each jurisdiction where
failure to so qualify would have a material adverse effect on any of the
Borrowers and (iii) is in compliance with all Requirements of Law except to the
extent that the failure to comply therewith would not, in the aggregate, be
reasonably expected to have a material adverse effect on such Borrower.
(d) Enforceable Obligation. Each of the Borrowers has the power and
authority and legal right to enter into, deliver and perform under this Note and
the Mortgage Document to which it is a party and has taken all necessary
corporate action to authorize the execution, delivery and performance by it of
this Note and the Mortgage Document to which it is a party. No consent or
authorization of, filing with, notice to or other similar act by or in respect
of, any Governmental Authority or any other person or entity is required to be
obtained or made by or behalf of any Borrower in connection with the borrowings
hereunder or with the execution, delivery, or performance, validity or
enforceability of the Note or Mortgage Documents to which such Borrower is a
party. This Note constitutes a legal, valid and binding obligation of the each
of the Borrowers enforceable against them in accordance with its terms except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally or by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(e) No Default. No Events of Default or event or condition which with
notice or lapse of time, or both, would constitute an Event of Default,
presently exists.
(f) No Legal Bar. The execution, delivery and performance of the Note
and the Mortgage Documents by the Borrowers, the borrowings and other extensions
of credit hereunder and the use of the proceeds thereof (a) will not violate any
Requirement of Law or contractual obligation of any of the Borrowers or any of
their subsidiaries in any respect that would reasonably be expected to have a
material adverse effect on any of the Borrowers, (b) will not result in, or
require, the creation or imposition of any lien on any of the properties or
revenues of any of the Borrowers or any of their subsidiaries pursuant to any
such Requirement of Law or contractual obligation, and (c) will not violate or
conflict with any provision of any Borrower's articles of incorporation or
by-laws.
(g) No Material Litigation. No claim, litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the best knowledge of the Borrowers, threatened by or against any of the
Borrowers or any of their subsidiaries or against
3
<PAGE>
any of their respective properties or revenues which (a) would reasonably be
expected to relate to any of the Operative Documents or any of the transactions
contemplated hereby or thereby in any material adverse manner or (b) would be
reasonably expected to have a material adverse effect on any of the Borrowers.
(h) Taxes. Each of the Borrowers and their subsidiaries has filed or
caused to be filed all United States federal income tax returns and all other
material tax returns which, to the best knowledge of the Borrowers, are required
to be filed and has paid (a) all taxes shown to be due and payable on said
returns or (b) all taxes shown to be due and payable on any assessments of which
it has received notice made against it or any of its property and all other
taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority which are due and payable (other than any (i) taxes, fees
or other charges with respect to which the failure to pay, in the aggregate,
would not have a material adverse effect on any of the Borrowers or (ii) taxes,
fees or other charges the amount or validity of which are currently being
contested and with respect to which reserves in conformity with GAAP have been
provided on the books of such entity), and no tax lien has been filed, and, to
the best knowledge of the Borrowers, no claim is being asserted, with respect to
any such tax, fee or other charge.
(i) Ownership of Property. Each of the Borrowers and their subsidiaries
has good record and marketable title in fee simple to, or a valid leasehold
interest in, all its material real property, and good title to, or a valid
leasehold interest in, all its other material property.
(j) Purpose of Loan. The proceeds of the Loan shall be used solely in
connection with the acquisition of the land (and improvements located thereon)
described on Exhibit A-1 through A-4 attached hereto (the "Virginia Properties";
the Virginia Properties together with the land (and improvements located
thereon) described on Exhibit A-5 attached hereto may be referred to
collectively herein as the "Properties").
(k) Chief Executive Office. The chief executive office and principal
place of business of each of the Borrowers is 24850 Old 41 Road, Suite 10,
Bonita Springs, Florida 34135.
COVENANTS
- ---------
(a) Appraisals. The Borrowers hereby agree that they shall provide the
Bank (at the Borrowers' expense) with one (1) current appraisal for each of the
parcels of land described on Exhibit A-1 through A-5 attached hereto on or
before forty-five (45) days from the date hereof. Such appraisals shall be by a
qualified appraiser satisfactory to the Bank and must be satisfactory in form
and substance to the Bank, in its sole discretion.
(b) Environmental Assessment. The Borrowers hereby agree to provide the
Bank (at the Borrowers' expense) with a current environmental assessment report
or other reports requested by the Bank for each of the parcels of land described
on Exhibit A-1 through A-5 attached hereto on or before forty-five (45) days
from the date hereof. Such assessments shall be in a form and substance
satisfactory to the Bank in its sole discretion, and from an environmental
engineer or consultant reasonably satisfactory to the Bank.
(c) Environmental Indemnity. The Borrowers agree that they will
reimburse the Bank for and hereby hold the Bank harmless from all fines or
penalties made or levied against the
4
<PAGE>
Bank by any Governmental Authority as a result of or in connection with (i) the
use of Materials of Environmental Concern at the Properties, (ii) the use of
Materials of Environmental Concern at the facilities thereon, or (iii) the use,
generation, storage, transportation, discharge, release or handling of any
Materials of Environmental Concern at the Properties, or as a result of any
release of any Materials of Environmental Concern onto the ground or into the
water or air from or upon the Properties at any time. The Borrowers also agree
that they will reimburse the Bank for and indemnify and hold the Bank harmless
from any and all costs, expenses (including reasonably attorneys' fees) and for
all civil judgments or penalties incurred entered, assessed, or levied against
the Bank as a result of the Borrowers' use of Materials of Environmental Concern
at the Properties or as a result of any release of any Materials of
Environmental Concern on the ground or into the water or air by any of the
Borrowers from or upon the Properties. Such reimbursement or indemnification
shall include but not be limited to any and all judgments or penalties to
recover the costs of cleanup of any such release by any of the Borrowers from or
upon Properties and all reasonable expenses incurred by the Bank as a result of
such a civil action, including but not limited to reasonable attorneys' fees.
The Borrowers obligations under this section shall survive the repayment of the
Loan and any deed in lieu of foreclosure or any foreclosure of the Mortgage
Documents. The environmental indemnities set forth in this paragraph shall not
be extended to any claim or liability of the Bank arising from the gross
negligence or willful misconduct of the Bank occurring during the Bank's (i)
actual possession of the Properties prior to foreclosure or exercise of a power
of sale or (ii) ownership of the Properties after a foreclosure or exercise of
such power of sale.
RATE AND PAYMENT SCHEDULE
- -------------------------
Interest. The principal balance outstanding hereunder from time to time
shall bear interest at the Floating LIBOR Rate plus three percent (3%) per
annum. Interest shall be computed on the basis of a 360-day year on the actual
number of days the principal is outstanding.
Payment of Interest. Installments of interest for each calendar month
shall be due and payable in arrears on the fifteenth (15th) day of each month
beginning with the interest installment due on the fifteenth (15th) day of the
month next following the month in which the date hereof occurs, and continuing
on the fifteenth (15th) day of each month thereafter until the Maturity Date
Maturity Date. The outstanding principal balance plus all accrued but
unpaid interest on this Note shall be due and payable on April 27, 1997 (the
"Maturity Date").
Prepayment. This Note may be prepaid in whole or in part at any time
and from time to time without prepayment penalty or fee. Any such amount prepaid
may not be reborrowed. If the LTV Ratio shall be greater than 0.75 to 1.0, the
Borrowers shall immediately make a prepayment on the outstanding indebtedness
hereunder in an amount sufficient to make the LTV Ratio less than or equal to
0.75 to 1.0.
ADDITIONAL TERMS AND PROVISIONS
- -------------------------------
Defaults. Upon the occurrence and during the continuance of any of the
Events of Default, then this Note, and all other indebtedness of the Borrowers
to the Bank arising out of or
5
<PAGE>
in connection with this Note, shall immediately become due and payable at the
option of the Bank, without presentation, demand, protest or notice of any kind,
all of which are hereby waived by the Borrowers.
Acceleration. If payment of all sums due hereunder is accelerated under
the terms hereof, the then outstanding principal and all accrued but unpaid
interest shall bear interest at the rate provided for hereunder plus four
percent (4%) per annum until such principal and interest have been paid in full;
provided, however, that in no event shall this or any other provision herein
permit the collection of any interest which would be usurious under the law
governing this transaction, and if any such interest is collected, the amount
above the maximum rate permitted by law shall be deemed to be a principal
payment hereunder.
Late Charges. In the event any payment of interest or principal is
delinquent more than fifteen (15) days, the Borrowers will pay to the Bank a
late charge of two percent (2%) of the amount of the overdue payment. This
provision for late charges shall not be deemed to extend the time for payment or
be a "grace period" or "cure period" that gives the Borrowers a right to cure a
default hereunder. Imposition of late charges is not contingent upon the giving
of any notice or lapse of any cure period provided for herein.
Fees. The Borrowers will pay a non-refundable fee of $30,000 to the
Bank on the date hereof.
Application of Payments. All sums received by the Bank for application
to this Note may be applied by the Bank to late charges, fees, expenses, costs,
interest, principal and other amounts owing to the Bank in connection with this
Note in the order selected by the Bank in its sole discretion.
Expenses. The Borrowers shall pay all reasonable out-of-pocket costs,
fees and expenses of the Bank in connection with the negotiation, preparation,
execution, delivery and modification of this Note, and all related documents,
instruments and/or agreements including without limitation all reasonable
attorneys' fees and expenses. In addition, in the event this Note is not paid
when due at any stated or accelerated maturity, the Borrowers will pay, in
addition to principal and interest, all costs of collection, including without
limitation reasonable attorneys' fees and expenses.
Assignment. It is expressly recognized and agreed that the Bank may
assign this Note, in whole or in part, to any other person, firm, or legal
entity provided that all the provisions hereof shall continue in full force and
effect and, in the event of such assignment, the Bank shall thereafter be
relieved of all liabilities hereunder.
Severability. If any provision of this Note is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
Governing Law; Submission To Jurisdiction; Venue. This Note shall be
governed by, and construed in accordance with, the laws of the State of Florida.
In any litigation in connection with or to enforce this Note or any indorsement
or guaranty of this Note or any other document
6
<PAGE>
related thereto, the Borrowers irrevocably consent to and confer personal
jurisdiction on the courts of the State of Florida or the United States located
within the State of Florida and expressly waive any objections as to venue in
any such courts. Nothing contained herein shall, however, prevent the Bank from
bringing any action or exercising any rights within any other state or
jurisdiction or from obtaining personal jurisdiction by any other means
available under applicable law.
TRIAL BY JURY. TO THE EXTENT PERMITTED BY LAW, THE BORROWERS HEREBY
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS NOTE, ANY OF THE OTHER OPERATIVE
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.
ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
NOTE OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM
BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR
THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR
THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW, IN THE EVENT OF
ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS NOTE MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDINGS, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS NOTE APPLIES IN ANY
COURT HAVING JURISDICTION OVER SUCH ACTION.
SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS NOTE, OR IF THERE IS
REAL OR PERSONAL PROPERTY COLLATERAL, IN THE COUNTY WHERE SUCH REAL OR PERSONAL
PROPERTY IS LOCATED AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR:
IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION,
THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS
WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS NOTE OR ANY OTHER
DOCUMENTS RELATED THERETO; OR (II) BE A WAIVER BY THE BANK OF THE PROTECTION
AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW;
OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES
SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR
PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR
ANCILLARY REMEDIES SUCH
7
<PAGE>
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS NOTE
OR ANY OTHER DOCUMENTS RELATED THERETO. NEITHER THIS EXERCISE OF SELF HELP
REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
USURY SAVINGS PROVISION. IT IS THE INTENT OF THE BORROWERS AND THE BANK
TO CONFORM TO AND CONTRACT IN STRICT COMPLIANCE WITH APPLICABLE USURY LAW FROM
TIME TO TIME IN EFFECT. TO THE EXTENT ANY PAYMENTS HEREUNDER ARE HEREINAFTER
CHARACTERIZED BY ANY COURT OF COMPETENT JURISDICTION AS THE REPAYMENT OF
PRINCIPAL AND INTEREST THEREON, THIS USURY SAVINGS PROVISION SHALL APPLY. ANY
SUCH PAYMENTS SO CHARACTERIZED AS INTEREST MAY BE REFERRED TO HEREIN AS
"INTEREST." ALL AGREEMENTS AMONG THE BORROWERS AND THE BANK ARE HEREBY LIMITED
BY THE PROVISIONS OF THIS USURY SAVINGS PROVISION WHICH SHALL OVERRIDE AND
CONTROL ALL SUCH AGREEMENTS, WHETHER NOW EXISTING OR HEREAFTER ARISING AND
WHETHER WRITTEN OR ORAL. IN NO WAY, NOR IN ANY EVENT OR CONTINGENCY (INCLUDING
WITHOUT LIMITATION PREPAYMENT OR ACCELERATION OF THE MATURITY OF ANY
OBLIGATION), SHALL ANY INTEREST TAKEN, RESERVED, CONTRACTED FOR, CHARGED, OR
RECEIVED UNDER THIS NOTE OR OTHERWISE, EXCEED THE MAXIMUM NONUSURIOUS AMOUNT
PERMISSIBLE UNDER APPLICABLE LAW. TO THE EXTENT ANY POSSIBLE CONSTRUCTION OF ANY
OPERATIVE AGREEMENT (AS SUCH TERM IS HEREINAFTER DEFINED) PROVIDES FOR THE
PAYMENT OF INTEREST IN EXCESS OF THE MAXIMUM NONUSURIOUS AMOUNT, (A) ANY SUCH
CONSTRUCTION SHALL BE SUBJECT TO THE PROVISIONS OF THIS USURY SAVINGS PROVISION
AND (B) SUCH AMOUNTS UNDER SUCH DOCUMENTS OR AGREEMENTS SHALL BE AUTOMATICALLY
REDUCED TO THE MAXIMUM NONUSURIOUS AMOUNT PERMITTED UNDER APPLICABLE LAW,
WITHOUT THE NECESSITY OF EXECUTION OF ANY AMENDMENT OR NEW DOCUMENT OR
AGREEMENT. (FOR PURPOSES OF THIS NOTE, (X) "OPERATIVE AGREEMENTS" SHALL MEAN
THIS NOTE, THE MORTGAGE DOCUMENTS AND ANY AND ALL RELATED DOCUMENTS AND/OR
AGREEMENTS AND (Y) "OPERATIVE AGREEMENT" SHALL MEAN, INDIVIDUALLY, EACH OF THE
OPERATIVE AGREEMENTS.) IF THE BANK SHALL EVER RECEIVE ANYTHING OF VALUE WHICH IS
CHARACTERIZED AS INTEREST WITH RESPECT TO THE OBLIGATIONS OWED HEREUNDER OR
UNDER APPLICABLE LAW AND WHICH WOULD, APART FROM THIS USURY SAVINGS PROVISION,
BE IN EXCESS OF THE MAXIMUM LAWFUL AMOUNT, AN AMOUNT EQUAL TO THE AMOUNT WHICH
WOULD HAVE BEEN
8
<PAGE>
EXCESSIVE INTEREST SHALL, WITHOUT PENALTY, BE APPLIED TO THE REDUCTION OF THE
COMPONENT OF PAYMENTS DEEMED TO BE PRINCIPAL AND NOT TO THE PAYMENT OF INTEREST,
OR REFUNDED TO THE BORROWERS OR ANY OTHER PAYOR THEREOF, IF AND TO THE EXTENT
SUCH AMOUNT WHICH WOULD HAVE BEEN EXCESSIVE EXCEEDS THE COMPONENT OF PAYMENTS
DEEMED TO BE PRINCIPAL. THE RIGHT TO DEMAND PAYMENT OF ANY AMOUNTS EVIDENCED BY
ANY OF THE OPERATIVE AGREEMENTS DOES NOT INCLUDE THE RIGHT TO RECEIVE ANY
INTEREST WHICH HAS NOT OTHERWISE ACCRUED ON THE DATE OF SUCH DEMAND, AND THE
BANK DOES NOT INTEND TO CHARGE OR RECEIVE ANY UNEARNED INTEREST IN THE EVENT OF
SUCH DEMAND. ALL INTEREST PAID OR AGREED TO BE PAID TO THE BANK SHALL, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, BE AMORTIZED, PRORATED, ALLOCATED, AND
SPREAD THROUGHOUT THE FULL STATED TERM (INCLUDING WITHOUT LIMITATION ANY RENEWAL
OR EXTENSION) OF THIS NOTE SO THAT THE AMOUNT OF INTEREST ON ACCOUNT OF SUCH
PAYMENTS DOES NOT EXCEED THE MAXIMUM NONUSURIOUS AMOUNT PERMITTED BY APPLICABLE
LAW.
ENTIRE AGREEMENT. THIS NOTE REPRESENTS THE FINAL AGREEMENT OF THE
BORROWERS AND THE BANK AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN SUCH PARTIES.
[Signature page follows]
9
<PAGE>
IN WITNESS WHEREOF, the Borrowers have caused this Note to be duly
executed under seal as of the day and year first above written.
INTEGRATED LIVING COMMUNITIES, INC.,
a Delaware corporation
By: ---------------------------------------
Name: -------------------------------------
Title: ------------------------------------
INTEGRATED LIVING COMMUNITIES OF
PORTSMOUTH, INC., a Delaware corporation
By: ---------------------------------------
Name: -------------------------------------
Title: ------------------------------------
INTEGRATED LIVING COMMUNITIES OF
REDGATE, INC., a Delaware corporation
By: ---------------------------------------
Name: -------------------------------------
Title: ------------------------------------
INTEGRATED LIVING COMMUNITIES OF
GLOUCESTER, INC., a Delaware corporation
By: ---------------------------------------
Name: -------------------------------------
Title: ------------------------------------
INTEGRATED LIVING COMMUNITIES OF
VIRGINIA BEACH, INC., a Delaware corporation
By: ---------------------------------------
Name: -------------------------------------
Title: ------------------------------------
INTEGRATED MANAGEMENT-CARRINGTON
POINTE, INC., a Delaware corporation
By: ---------------------------------------
Name: -------------------------------------
Title: ------------------------------------
LEASE AGREEMENT
CAPSTONE CAPITAL CORPORATION
a Maryland corporation
("LESSOR")
AND
INTEGRATED LIVING COMMUNITIES OF ST. PETERSBURG, INC.,
a Delaware corporation
("LESSEE")
March 4, 1997
For
Integrated Communities Assisted Living Facility
of St. Petersburg
(Jaylene Retirement Center)
896 73rd Avenue North
St. Petersburg, Florida
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I LEASED PROPERTY; TERM.................................................................... 1
---------------------
ARTICLE II RENT..................................................................................... 2
----
2.1 Minimum Rent and Adjustments to Minimum Rent............................................. 2
2.2 Calculation of Increases to Minimum Rent................................................. 3
2.3 Additional Charges....................................................................... 4
2.4 Net Lease................................................................................ 4
ARTICLE III IMPOSITIONS.............................................................................. 4
-----------
3.1 Payment of Impositions................................................................... 4
3.2 Proration of Impositions................................................................. 5
3.3 Utility Charges.......................................................................... 5
3.4 Insurance Premiums....................................................................... 5
ARTICLE IV NO TERMINATION........................................................................... 5
--------------
ARTICLE V OWNERSHIP OF LEASED PROPERTY ............................................................ 6
-----------------------------
5.1 Ownership of the Property................................................................ 6
5.2 Personal Property........................................................................ 6
ARTICLE VI CONDITION AND USE OF LEASED PROPERTY..................................................... 6
------------------------------------
6.1 Condition of the Leased Property......................................................... 6
6.2 Use of the Leased Property............................................................... 7
6.3 Management of Facility................................................................... 8
6.4 Lessor to Grant Easements................................................................ 8
ARTICLE VII LEGAL, INSURANCE AND FINANCIAL REQUIREMENTS.............................................. 8
-------------------------------------------
7.1 Compliance with Legal and Insurance Requirements......................................... 8
7.2 Legal Requirement Covenants.............................................................. 9
7.3 Rent and Debt Service Coverage .......................................................... 9
7.4 Rent and Debt Service Coverage .......................................................... 10
ARTICLE VIII REPAIRS; RESTRICTIONS AND ANNUAL INSPECTIONS............................................. 10
--------------------------------------------
8.1 Maintenance and Repair................................................................... 10
8.2 Encroachments; Restrictions.............................................................. 11
8.3 Inspections.............................................................................. 12
ARTICLE IX CAPITAL ADDITIONS........................................................................ 12
-----------------
9.1 Construction of Capital Additions to the Leased Property................................. 12
9.2 Capital Additions Financed by Lessee..................................................... 13
9.3 Capital Additions Financed by Lessor..................................................... 13
9.4 Remodeling and Non-Capital Additions..................................................... 15
9.5 Salvage.................................................................................. 15
ARTICLE X LIENS.................................................................................... 16
-----
ARTICLE XI PERMITTED CONTESTS....................................................................... 16
------------------
ARTICLE XII INSURANCE................................................................................ 17
---------
12.1 General Insurance Requirements........................................................... 17
12.2 Replacement Cost......................................................................... 18
i
<PAGE>
12.3 Additional Insurance..................................................................... 18
12.4 Waiver of Subrogation.................................................................... 19
12.5 Form of Insurance........................................................................ 19
12.6 Change in Limits......................................................................... 19
12.7 Blanket Policy........................................................................... 19
12.8 No Separate Insurance.................................................................... 20
12.9 Insurance for Contractors................................................................ 20
ARTICLE XIII FIRE AND CASUALTY........................................................................ 20
-----------------
13.1 Insurance Proceeds....................................................................... 20
13.2 Reconstruction in the Event of Damage or Destruction Covered by Insurance................ 20
13.3 Reconstruction in the Event of Damage or Destruction Not Covered by Insurance............ 22
13.4 Lessee's Property........................................................................ 23
13.5 Restoration of Lessee's Property......................................................... 23
13.6 No Abatement of the Rent................................................................. 23
13.7 Damage Near End of Term.................................................................. 23
13.8 Purchase or Substitution................................................................. 23
13.9 Waiver................................................................................... 23
ARTICLE XIV CONDEMNATION............................................................................. 24
------------
14.1 Parties' Rights and Obligations.......................................................... 24
14.2 Total Taking............................................................................. 24
14.3 Partial Taking........................................................................... 24
14.4 Restoration.............................................................................. 24
14.5 Award Distribution....................................................................... 25
14.6 Temporary Taking......................................................................... 25
14.7 Purchase or Substitution................................................................. 25
ARTICLE XV DEFAULT.................................................................................. 25
-------
15.1 Events of Default........................................................................ 25
15.2 Remedies................................................................................. 26
15.3 Additional Expenses...................................................................... 28
15.4 Application of Funds..................................................................... 28
ARTICLE XVI LESSOR'S RIGHT TO CURE................................................................... 28
----------------------
ARTICLE XVII PURCHASE OF THE LEASED PROPERTY.......................................................... 29
-------------------------------
ARTICLE XVIII HOLDING OVER............................................................................. 30
------------
ARTICLE XIX ABANDONMENT.............................................................................. 30
-----------
19.1 Discontinuance of Operations on the Leased Property...................................... 30
19.2 Obsolescence of the Leased Property; Offer to Purchase................................... 30
19.3 Conveyance of Leased Property............................................................ 30
19.4 Option to Purchase....................................................................... 31
ARTICLE XX SUBSTITUTION OF PROPERTY................................................................. 31
------------------------
20.1 Substitution of Property for the Leased Property......................................... 31
20.2 Conditions to Substitution............................................................... 33
20.3 Conveyance to Lessee..................................................................... 34
20.4 Expenses................................................................................. 34
ii
<PAGE>
ARTICLE XXI RISK OF LOSS............................................................................. 34
------------
ARTICLE XXII INDEMNIFICATION.......................................................................... 35
---------------
ARTICLE XXIII SUBLETTING AND ASSIGNMENT................................................................ 35
-------------------------
23.1 Subletting and Assignment................................................................ 35
23.2 Non-Disturbance, Subordination and Attornment............................................ 36
ARTICLE XXIV OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS.......................................... 36
-----------------------------------------------
24.1 Estoppel Certificate..................................................................... 36
24.2 Financial Statements and Certificates.................................................... 37
ARTICLE XXV INSPECTION............................................................................... 38
----------
ARTICLE XXVI QUIET ENJOYMENT.......................................................................... 38
---------------
ARTICLE XXVII NOTICES.................................................................................. 38
-------
ARTICLE XXVIII APPRAISAL................................................................................ 40
---------
ARTICLE XXIX PURCHASE................................................................................. 41
--------
ARTICLE XXX DEFAULT BY LESSOR........................................................................ 41
-----------------
30.1 Default by Lessor........................................................................ 41
30.2 Lessee's Right to Cure................................................................... 42
ARTICLE XXXI ARBITRATION.............................................................................. 42
-----------
31.1 Controversies............................................................................ 42
31.2 Appointment of Arbitrators............................................................... 42
31.3 Third Arbitrator......................................................................... 43
31.4 Arbitration Procedure.................................................................... 43
31.5 Expenses................................................................................. 43
ARTICLE XXXII FINANCING OF THE LEASED PROPERTY......................................................... 43
--------------------------------
ARTICLE XXXIII SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE............................................ 44
---------------------------------------------
ARTICLE XXXIV EXTENDED TERMS........................................................................... 44
--------------
ARTICLE XXXV GUARANTY................................................................................. 45
--------
35.1 Guarantee................................................................................ 45
35.2 Obligations of Guarantor Upon Default.................................................... 45
35.3 Guarantee of Payment..................................................................... 45
ARTICLE XXXVI MISCELLANEOUS............................................................................ 45
-------------
36.1 No Waiver................................................................................ 45
36.2 Remedies Cumulative...................................................................... 46
36.3 Surrender................................................................................ 46
36.4 No Merger of Title....................................................................... 46
36.5 Transfers by Lessor...................................................................... 46
36.6 General.................................................................................. 46
36.7 Memorandum of Lease...................................................................... 47
iii
<PAGE>
36.8 Transfer of Licenses..................................................................... 47
ARTICLE XXXVII GLOSSARY OF TERMS.................................................................... 47
-----------------
</TABLE>
iv
<PAGE>
LEASE
THIS LEASE ("Lease") dated as of March 4, 1997 is entered into by and
between CAPSTONE CAPITAL CORPORATION, a Maryland corporation, having its
principal office at 1000 Urban Center Drive, Suite 630, Birmingham, Alabama
35242 ("Lessor") and INTEGRATED LIVING COMMUNITIES OF ST. PETERSBURG, INC., a
Delaware corporation ("Lessee"), and INTEGRATED LIVING COMMUNITIES, INC., a
Delaware corporation ("Guarantor"), each having its principal office at 24850
Old 41 Road, Suite 10, Bonita Springs, Florida 34135-7022.
ARTICLE I
LEASED PROPERTY; TERM
Upon and subject to the terms and conditions hereinafter set forth,
Lessor leases to Lessee and Lessee rents from Lessor all of Lessor's rights and
interest in and to the following real property (collectively, the "Leased
Property"):
(a) the real property more particularly described on Exhibit A attached
hereto together with all covenants, licenses, privileges and benefits thereto
belonging, and any easements, rights-of-way, rights of ingress and egress or
other interests of Lessor in, on or to any land, highway, street, road or
avenue, open or proposed, in, on, across, in front of, abutting or adjoining
such real property, including all strips and gores adjacent to or lying between
such real property and any adjacent real property (the "Land");
(b) all buildings, structures, Fixtures (as hereinafter defined) and
other improvements of every kind (including all alleyways and connecting
tunnels, crosswalks, sidewalks, landscaping, parking lots and structures and
roadways appurtenant to such buildings and structures presently or hereafter
situated upon the Land, and Capital Additions financed by Lessor (but
specifically excluding Capital Additions financed by Lessee), drainage and all
above-ground and underground utility structures) (collectively, the "Leased
Improvements");
(c) all permanently affixed equipment, machinery, fixtures and other
items of real and/or personal property, including all components thereof, now
and hereafter located in, on or used in connection with, and permanently affixed
to or incorporated into the Leased Improvements, including all furnaces,
boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution control, waste
disposal, air-cooling and air conditioning systems and apparatus, sprinkler
systems and fire and theft protection equipment, carpet, moveable or immoveable
walls or partitions and built-in oxygen and vacuum systems, all of which are
hereby deemed by the parties hereto to constitute real estate, together with all
replacements, modifications, alterations and additions thereto, but specifically
excluding all items included within the category of Personal Property
(collectively the "Fixtures");
(d) the Personal Property;
(e) to the extent permitted by law, all permits, approvals and other
intangible property or any interest therein now or hereafter owned or held by
Lessor in connection with the Leased Property or any business or businesses now
or hereafter conducted by Lessee or any Tenant or with the use thereof,
including all leases, contract rights, agreements, trade names, water rights and
reservations, zoning rights, business licenses and warranties (including those
relating to construction or fabrication) related to the Leased Property or any
part thereof, but specifically excluding the general corporate trademarks,
service marks, logos, insignia or books and records of Lessee; and
(f) all site plans, surveys, soil and substrata studies, architectural
drawings, plans and specifications, engineering plans and studies, floor plans,
landscape plans, and other plans and studies that relate to the Land or the
Leased Improvements and are in Lessor's possession or control.
SUBJECT, HOWEVER, to the matters set forth on Exhibit B attached hereto (the
"Permitted Exceptions"), to have and to hold for a fixed term of fifteen years
(the "Initial Term") commencing on the date hereof (the "Commencement Date") and
ending at midnight on the last day of the ________ month
<PAGE>
after the Commencement Date, unless sooner terminated pursuant to the terms
hereof.
ARTICLE II
RENT
II.1 Minimum Rent and Adjustments to Minimum Rent. Lessee shall pay to Lessor,
without notice, demand, set off (except as set forth in Section 30.2 or Article
XXXII hereof) or counterclaim, in advance in lawful money of the United States
of America, at Lessor's address set forth herein or at such other place or to
such other person, firms or corporations as Lessor from time to time may
designate in writing, Minimum Rent, as adjusted annually pursuant to Section
2.1(b) during the Term, as follows:
(a) Minimum Rent. Lessee will pay to Lessor as rent (as adjusted from
time to time in accordance with Sections 2.1(b) and 2.1(e), the "Minimum Rent")
for the Leased Property the annual sum equal to the product of (i) the Purchase
Amount times (ii) the greater of (X) ten percent and (Y) the Treasury Yield in
effect ten days prior to the Commencement Date with maturity periods
substantially equivalent to the Initial Term plus 3.5%. The Minimum Rent shall
be payable in advance in 12 equal, consecutive monthly installments on the first
day of each calendar month during the Term. The parties will execute an
acknowledgement of the initial Minimum Rent calculated pursuant to this Section
2.1(a) as soon as reasonably practicable after the Commencement Date. The
Minimum Rent shall be prorated for any partial month, and is subject to
adjustment as provided in Sections 2.1(b), 2.1(e) and 9.3(b)(iv) below. As used
herein, the term "Purchase Amount" means the total amount funded or to be funded
for the acquisition of the Leased Property by Lessor pursuant to the Purchase
Agreement, including legal fees and expenses, recording taxes and fees and
expenses related to or arising out of the title policy, structural and other
inspections, survey, environmental report and appraisal.
(b) Increases to Minimum Rent. On each anniversary of the Commencement
Date (each such annual date individually referred to as the "Adjustment Date")
throughout the Initial Term and any Extended Terms, the then-current Minimum
Rent shall be increased annually effective as of such Adjustment Date by the
increase in the Consumer Price Index from the Commencement Date to the first
Adjustment Date and, thereafter, from one Adjustment Date to the then-current
Adjustment Date; however, with the exception of the first year of each Extended
Term, in no event will the annual change in the Minimum Rent be less than two
percent nor more than five percent of the Minimum Rent for the prior year.
(c) Capital Replacement Account. Lessee will pay to Lessor for deposit
in a money market account in a federally insured bank in Birmingham, Alabama
acceptable to Lessor and Lessee the sums set forth on Exhibit C attached hereto,
which funds (the "Capital Replacement Account") shall be made available to
Lessee to make repairs and replacements for the Leased Property as approved by
Lessor (which approval shall not be unreasonably withheld, conditioned or
delayed), the costs of which according to generally accepted accounting
principles must be depreciated over periods greater than one year. The Capital
Replacement Account shall be in the name of Lessor, and interest earned on such
account shall be retained in the Capital Replacement Account. Lessee shall make
detailed requests for such funds in writing to Lessor in the same form as a
Request pursuant Section 9.3 hereof. Within 30 days of such Request, Lessor
shall reasonably approve the amount of requested funds and make mutually
agreeable arrangements for the disbursement of the funds, or provide Lessee with
written notice in reasonable detail specifying Lessor's objections to such
Request.
(d) Payment of Minimum Rent. All payments of Minimum Rent shall be made
in lawful money of the United States by wire transfer of same day funds to
Lessor's account #0000040999 at First Commercial Bank, Birmingham, Alabama, ABA
Routing #062003605, Attention: Todd Beard, with advice to Daryl D. McCombs at
(205) 967-2092 (or such other account or location specified by Lessor from time
to time in writing) on or before 2:00 p.m., Birmingham time, on any Business
Day.
2
<PAGE>
(e) Recalculation of Minimum Rent. The parties agree that the Purchase
Amount may be estimated as of the Commencement Date. As soon as reasonably
practicable after the determination of the final Purchase Amount, Lessor will
recalculate the Minimum Rent pursuant to Section 2.1(a) whereupon the parties
will execute an acknowledgement of the recalculated Minimum Rent.
II.2 Calculation of Increases to Minimum Rent. On or about each Adjustment Date,
Lessor will calculate the increase in the Minimum Rent pursuant to the
provisions of Section 2.1(b) and will provide Lessee with written notice of
same.
II.3 Additional Charges. Lessee will also pay and discharge as and when due (a)
all other amounts, liabilities, obligations and Impositions, which Lessee
assumes or agrees to pay under this Lease including, to the extent applicable,
any condominium association dues, assessments or other charges, and (b) in the
event of any failure on the part of Lessee to pay any of those items referred to
in clause (a) above, Lessee will also promptly pay and discharge every fine,
penalty, interest and cost which may be added for non-payment or late payment of
such items (the items referred to in clauses (a) and (b) above being referred to
herein collectively as the "Additional Charges"), and Lessor shall have all
legal, equitable and contractual rights, powers and remedies provided in this
Lease, by statute or otherwise, in the case of non-payment of the Additional
Charges, as well as the Minimum Rent. If any installment of Minimum Rent or
Additional Charges (but only as to those Additional Charges which are payable
directly to Lessor) shall not be paid within ten days after the date when due,
Lessee will pay Lessor on demand, as Additional Charges, interest (to the extent
permitted by law) computed at the Overdue Rate on the amount of such
installment, from the date when due to the date of payment in full thereof. In
the event Lessor provides Lessee with written notice of failure to timely pay
any installment of Minimum Rent or any Additional Charges pursuant to Section
15.1(b) more than three times within any twelve-month period, Lessee shall pay
an administrative fee to Lessor in the amount of $500.00 for each additional
written notice Lessor gives pursuant to Section 15.1(b) during the next twelve
months. To the extent that Lessee pays any Additional Charges to Lessor or the
Facility Mortgagee pursuant to any requirement of this Lease, Lessee shall be
relieved of its obligation to pay such Additional Charges to the entity to which
such Additional Charges would otherwise be due. Additional Charges shall be
deemed Rent hereunder.
II.4 Net Lease. The Rent shall be paid absolutely net to Lessor, so that this
Lease shall yield to Lessor the full amount of the installments of Minimum Rent
and the payments of Additional Charges throughout the Term but subject to any
provisions of this Lease which expressly provide for payments by Lessor or the
adjustment of the Rent or other charges.
ARTICLE III
IMPOSITIONS
III.1 Payment of Impositions. Subject to Article XI relating to permitted
contests, Lessee will pay, or cause to be paid, all Impositions before any fine,
penalty, interest or cost may be added for non-payment, such payments to be made
directly to the taxing authorities where feasible, and Lessee will promptly,
upon request, furnish to Lessor copies of official receipts or other
satisfactory proof evidencing such payments. If any such Imposition may lawfully
be paid in installments (whether or not interest shall accrue on the unpaid
balance of such Imposition), Lessee may exercise the option to pay the same (and
any accrued interest on the unpaid balance of such Imposition) in installments
and, in such event, shall pay such installments during the Term hereof as the
same become due and before any fine, penalty, premium, further interest or cost
may be added thereto. Lessor, at its expense, shall, to the extent permitted by
applicable law, prepare and file all tax returns and reports as may be required
by governmental authorities in respect of Lessor's net income, gross receipts,
franchise taxes and taxes on its capital stock. Lessee, at its expense, shall,
to the extent permitted by applicable laws and regulations, prepare and file all
other tax returns and reports in respect of any Imposition as may be required by
governmental authorities. If any refund shall be due from any taxing authority
in respect of any
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Imposition paid by Lessee, the same shall be paid over to or retained by Lessee
if no Event of Default shall have occurred hereunder and be continuing. Any such
funds retained by Lessor due to an Event of Default shall be applied as provided
in Article XV. Lessor and Lessee shall, upon request of the other, provide such
data as is maintained by the party to whom the request is made with respect to
the Leased Property as may be necessary to prepare any required returns and
reports. In the event governmental authorities classify any property covered by
this Lease as personal property, Lessee shall file all personal property tax
returns in such jurisdictions where filing is required. Lessor and Lessee will
provide the other party, upon request, with cost and depreciation records
necessary for filing returns for any property so classified as personal
property. Where Lessor is legally required to file personal property tax
returns, and Lessee is obligated for the same hereunder, Lessee will be provided
with copies of assessment notices in sufficient time for Lessee to file a
protest. Lessee may, upon giving 30 days' prior written notice to Lessor, at
Lessee's option and at Lessee's sole cost and expense, protest, appeal, or
institute such other proceedings as Lessee may deem appropriate to effect a
reduction of real estate or personal property assessments and Lessor, if
requested by Lessee and at Lessee's expense as aforesaid, shall fully cooperate
with Lessee in such protest, appeal, or other action. Billings for reimbursement
by Lessee to Lessor of personal property taxes shall be accompanied by copies of
an invoice therefor and payments thereof which identify the personal property
with respect to which such payments are made. Lessor will cooperate with Lessee
in order that Lessee may fulfill its obligations hereunder, including the
execution of any instruments or documents reasonably requested by Lessee.
III.2 Proration of Impositions. Impositions imposed in respect of the tax-fiscal
period during which the Term terminates shall be prorated between Lessor and
Lessee, whether or not such Imposition is imposed before or after such
termination, and Lessee's and Lessor's obligation to pay their respective
prorated shares thereof shall survive such termination.
III.3 Utility Charges. Lessee will, or will cause Tenants to, contract for, in
its own name, and will pay or cause to be paid all charges for, electricity,
power, gas, oil, water and other utilities used in the Leased Property during
the Term.
III.4 Insurance Premiums. Lessee will contract for, in its own name, and will
pay or cause to be paid all premiums for, the insurance coverage required to be
maintained by Lessee pursuant to Article XII during the Term.
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ARTICLE IV
NO TERMINATION
Except as provided in this Lease, Lessee shall remain bound by this
Lease in accordance with its terms and shall neither take any action without the
consent of Lessor to modify, surrender or terminate the same, nor seek nor be
entitled to any abatement, deduction, deferment or reduction of Rent, or set-off
against the Rent, nor shall the respective obligations of Lessor and Lessee be
otherwise affected by reason of (a) any damage to, or destruction of, the Leased
Property or any portion thereof from whatever cause or any Taking of the Leased
Property or any portion thereof, except as otherwise provided in Articles XIII
or XIV, (b) the lawful or unlawful prohibition of, or restriction upon, Lessee's
use of the Leased Property, or any portion thereof, or the interference with
such use by any person, corporation, partnership or other entity, or by reason
of eviction by paramount title, (c) any claim which Lessee has or might have
against Lessor or by reason of any default or breach of any warranty by Lessor
under this Lease or any other agreement between Lessor and Lessee or to which
Lessor and Lessee are parties, (d) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceedings affecting Lessor or any assignee or transferee of Lessor, or (e) for
any other cause whatsoever whether similar or dissimilar to any of the
foregoing. Lessee hereby specifically waives all rights arising from any
occurrence whatsoever which may now or hereafter be conferred upon it by law to
(i) modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof, or (ii) entitle Lessee to any abatement,
reduction, suspension or deferment of the Rent or other sums payable by Lessee
hereunder, except as otherwise specifically provided in this Lease. The
obligations of Lessor and Lessee hereunder shall be separate and independent
covenants and agreements and the Rent and all other sums payable by Lessee
hereunder shall continue to be payable in all events unless the obligations to
pay the same shall be terminated pursuant to the express provisions of this
Lease. Notwithstanding the foregoing, Lessee shall have the right by separate
and independent action to pursue any claim or seek any damages it may have
against Lessor as a result of a breach by Lessor of the terms of this Lease or
Lessor's willful misconduct.
ARTICLE V
OWNERSHIP OF LEASED PROPERTY
V.1 Ownership of the Property. Lessee acknowledges that the Leased Property is
the property of Lessor and that Lessee has only the right to the possession and
use of the Leased Property upon the terms and conditions of this Lease.
V.2 Personal Property. Lessee may (and shall as provided hereinbelow), at its
expense, install, affix or assemble or place on any parcels of the Land or in
any of the Leased Improvements any items of the Personal Property, and may
remove, replace or substitute for the same from time to time in the Ordinary
Course of Business with like property of equal or greater value. Lessee shall
provide and maintain during the entire Term all such Personal Property as shall
be necessary in order to operate the Facility in compliance with all licensure
and certification requirements, in compliance with all applicable Legal
Requirements and Insurance Requirements and otherwise in accordance with
customary practice in the industry for the Primary Intended Use in the state
where the Land is located.
ARTICLE VI
CONDITION AND USE OF LEASED PROPERTY
VI.1 Condition of the Leased Property. Lessee acknowledges receipt and delivery
of possession of the Leased Property and that Lessee has examined and otherwise
acquired knowledge of the condition of the Leased Property prior to the
execution and delivery of this Lease and has found the same to be in good order
and repair and satisfactory for its purpose hereunder. Lessee is leasing the
Leased Property "as is" in its condition at the time of occupancy. Lessee waives
any claim or action against
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Lessor in respect of the condition of the Leased Property. LESSOR MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED
PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, SUITABILITY,
DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING
AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT
THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT IN
ALL RESPECTS.
VI.2 Use of the Leased Property.Property
(a) After the Commencement Date and during the entire Term, Lessee
shall use or cause to be used the Leased Property and the improvements thereon
as a senior residential facility which may include congregate care services,
assisted living services, Alzheimer's care services or skilled nursing services,
or some combination of the foregoing services (at any time, the actual use or
combination of uses specified herein that is or are then being conducted at the
Leased Property, are referred to as the "Primary Intended Use"). Lessee shall
not use the Leased Property or any portion thereof for any other use without the
prior written consent of Lessor, which consent shall not be unreasonably
withheld or delayed.
(b) Lessee covenants that it will obtain and maintain, with Lessor's
cooperation but at Lessee's sole cost and expense, all material approvals needed
to use and operate the Leased Property and the Facility for the Primary Intended
Use in compliance with all applicable Legal Requirements.
(c) Lessee covenants and agrees that during the Term it will use its
reasonable best efforts to operate continuously the Leased Property in
accordance with its Primary Intended Use and to maintain its certifications for
reimbursement, if any, and licensure and its accreditation, with Lessor's
cooperation but at Lessee's sole cost and expense, if compliance with
accreditation standards is required to maintain the operations of the Facility
and if a failure to comply would adversely affect operations of the Facility.
(d) Lessee shall not commit or suffer to be committed any waste on the
Leased Property, or in the Facility or cause or permit any nuisance thereon.
(e) Lessee shall neither suffer nor permit the Leased Property or any
portion thereof, including any Capital Addition whether or not financed by
Lessor, to be used in such a manner as (i) reasonably likely to impair Lessor's
estate therein or in any portion thereof, or (ii) is reasonably likely to result
in a claim or claims of adverse usage or adverse possession by the public, as
such, or of implied dedication of the Leased Property or any portion thereof.
(f) Lessee will not utilize any Hazardous Materials on the Leased
Property except in accordance with applicable Legal Requirements and will not
permit any contamination which may require remediation under any applicable
Hazardous Materials Law. Lessee agrees not to dispose of any Hazardous Materials
or substances within the sewerage system of the Leased Property, and that it
will handle all "red bag" wastes in accordance with applicable Hazardous
Materials Laws.
VI.3 Management of Facility. Unless otherwise agreed to in writing by Lessor (i)
Lessee shall cause the Facility to be managed and leased to Tenants at all times
by Lessee or an Affiliate of Lessee, (ii) Lessee shall not enter into any
agreement (oral or written) with respect to such management and leasing
activities unless the terms thereof and the proposed manager or leasing agent
have been approved in writing by Lessor, (iii) all such management or leasing
agreements must be in writing, and (iv) all management or leasing agreements
with an Affiliate of Lessee must contain provisions to the effect that (A) the
obligation of Lessee to pay management fees is subordinate to its obligation to
pay the Rent, and (B) the manager shall not have the right to collect any
management fees during the continuance of an
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Event of Default.
VI.4 Lessor to Grant Easements. Lessor will, from time to time, at the request
of Lessee and at Lessee's cost and expense, but subject to the approval of
Lessor (a) grant easements and other rights in the nature of easements, (b)
release existing easements or other rights in the nature of easements which are
for the benefit of the Leased Property, (c) dedicate or transfer unimproved
portions of the Leased Property for road, highway or other public purposes, (d)
execute petitions to have the Leased Property annexed to any municipal
corporation or utility district, (e) execute amendments to any covenants and
restrictions affecting the Leased Property, and (f) execute and deliver to any
person such instruments as may be necessary or appropriate to confirm or effect
such grants, releases, dedications and transfers (to the extent of its interest
in the Leased Property), but only upon delivery to Lessor of an Officer's
Certificate stating (and such other information as Lessor may reasonably require
confirming) that such grant, release, dedication, transfer, petition or
amendment is required or beneficial for and not detrimental to the proper
conduct of the business of Lessee on the Leased Property and does not reduce the
value thereof.
ARTICLE VII
LEGAL, INSURANCE AND FINANCIAL REQUIREMENTS
VII.1 Compliance with Legal and Insurance Requirements. Subject to Article XI
relating to permitted contests, Lessee, at its expense, will promptly (a) comply
with all material Legal Requirements and Insurance Requirements in respect of
the use, operation, maintenance, repair and restoration of the Leased Property,
whether or not compliance therewith shall require structural change in any of
the Leased Improvements or interfere with the use and enjoyment of the Leased
Property, and (b) directly or indirectly with the cooperation of Lessor, but at
Lessee's sole cost and expense, procure, maintain and comply with all material
licenses, certificates of need, if any, and other authorizations required for
(i) any use of the Leased Property then being made, and for (ii) the proper
erection, installation, operation and maintenance of the Leased Improvements or
any part thereof, including any Capital Additions.
VII.2 Legal Requirement Covenants. Lessee covenants and agrees that the Leased
Property shall not be used for any unlawful purpose. Lessee shall, directly or
indirectly with the cooperation of Lessor, but at Lessee's sole cost and
expense, acquire and maintain all material licenses, certificates, permits and
other authorizations and approvals needed to operate the Leased Property in its
customary manner for the Primary Intended Use and any other use conducted on the
Leased Property as may be permitted from time to time hereunder. Lessee further
covenants and agrees that Lessee's use of the Leased Property and Lessee's
maintenance, alteration, and operation of the same, and all parts thereof, shall
at all times conform to all applicable Legal Requirements where the failure to
conform would have a material adverse effect on Lessee or the Leased Property.
VII.3 Rent and Debt Service Coverage - Consolidated. As used herein, the term
"Consolidated Coverage Ratio" means EBITDAR (as defined below) for Lessee and
Guarantor on a consolidated basis for the applicable period divided by the
principal (excluding any prepayments or principal at maturity), interest and
lease (capital and operating) payment obligations of Lessee and Guarantor on a
consolidated basis for the same period. As used herein, the term "EBITDAR"
means, for any period, the sum of (i) the income (or deficit) from all
operations before provision of income taxes for such period and without
deduction for actual management fees paid or incurred, plus (ii) the interest
charges paid or accrued during such period (including imputed interest on lease
(capital or operating) obligations (including this Lease), but excluding
amortization of debt discount and expense), plus (iii) all amounts in respect of
depreciation and amortization for such period, plus (iv) the rent due under all
leases (capital or operating, including this Lease) for such period. Lessee
agrees and covenants with Lessor that so long as this Lease is in effect, Lessee
will achieve and within 45 days after the end of each calendar quarter (or year)
specified below provide evidence to Lessor of the achievement of the following
Consolidated Coverage Ratio requirements:
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<TABLE>
<CAPTION>
Required Months Included
Period Consolidated Coverage Ratio in Calculation
------ --------------------------- --------------
<S> <C> <C> <C>
(i) Prior to date in (ii) No requirement No requirement
(ii) For calendar quarter 1.0 to 1.0 Three months ending
ending 12/31/97 with such date
(iii) For calendar quarter 1.0 to 1.0 Three months ending
ending 3/31/98 with such date
(iv) For calendar quarter 1.1 to 1.0 Three months ending
ending 6/30/98 with such date
(v) For calendar quarter 1.2 to 1.0 Three months ending
ending 9/30/98 with such date
(vi) For calendar year 1.2 to 1.0 Twelve months ending
ending on 12/31/98 with such date
(vii) For calendar quarter 1.25 to 1.0 Three months ending
ending 12/31/98 with such date
(viii) For calendar quarter 1.3 to 1.0 Three months ending
ending 3/31/99 and with such date
all subsequent calendar
quarters
(ix) For calendar year 1.3 to 1.0 Twelve months ending
ending 12/31/99 and with such date
all subsequent calendar
years
</TABLE>
VII.4 Rent and Debt Service Coverage - Facility. As used herein, the term
"Facility Coverage Ratio" means EBITDAR for the Facility only for the applicable
period minus assumed management fees of five percent of the total patient
revenues (regardless of the amount of the management fees actually paid or
incurred) earned from the Facility divided by the principal (excluding any
prepayments or principal at maturity), interest and lease payment obligations of
Lessee (including the Minimum Rent) for the same period. Lessee agrees and
covenants with Lessor that so long as this Lease is in effect, Lessee will
achieve and within 45 days after the end of each March, June, September or
December during the Term, beginning with the calendar quarter ending no sooner
than three months and no later than six months after the Commencement Date,
provide evidence to Lessor of the achievement of the Facility Coverage Ratio
equal to or greater than 1.25 to 1.0.
ARTICLE VIII
REPAIRS; RESTRICTIONS AND ANNUAL INSPECTIONS
VIII.1 Maintenance and Repair.
(a) Lessee, at its expense, will keep the Leased Property and all
private roadways, sidewalks and curbs appurtenant thereto in reasonably good
order and repair (whether or not the need for such repairs occurs as a result of
Lessee's use, any prior use, the elements, the age of the Leased Property or
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any portion thereof), and except as otherwise provided in Articles XIII and XIV,
with reasonable promptness will make all necessary and appropriate repairs
thereto of every kind and nature (including remodeling to the extent necessary
to maintain the Leased Property in a condition substantially the same as exists
on the date hereof), whether interior or exterior, structural or non-structural,
ordinary or extraordinary, foreseen or unforeseen or arising by reason of a
condition existing prior to or after the commencement of the Term of this Lease
(concealed or otherwise). All repairs and remodeling shall, to the extent
reasonably achievable, be at least equivalent in quality to the original work
and shall be accomplished by Lessee or a party selected by Lessee. Lessee will
not take or omit to take any action the taking or omission of which might
materially impair the value or usefulness of the Leased Property or any part
thereof for the Primary Intended Use. If Lessee fails to perform any of its
obligations hereunder, or if Lessor reasonably determines that action is
necessary and is not being taken, Lessor may, on giving 30 days' written notice
to Lessee (other than in a case reasonably deemed by Lessor to be an emergency,
in which case no such notice shall be required), without demand on Lessee,
perform any such obligations in such manner and to such extent and take such
other action as Lessor may deem appropriate in the event Lessee has not
commenced to perform such obligation or take such action during such 30-day
period, and all costs, expenses and charges of Lessor relating to any such
action shall constitute Additional Charges and shall be payable by Lessee to
Lessor in accordance with Section 2.3.
(b) Except for the use of any insurance proceeds (to the extent
required by Sections 13.1 and 13.2) and any Award (to the extent required by
Section 14.3) Lessor shall not under any circumstances be required to build or
rebuild any improvements on the Leased Property, or to make any repairs,
replacements, alterations, restorations, or renewals of any nature or
description to the Leased Property, whether ordinary or extraordinary,
structural or nonstructural, foreseen or unforeseen, or to make any expenditure
whatsoever with respect thereto in connection with this Lease, or to maintain
the Leased Property in any way.
(c) Nothing contained in this Lease and no action or inaction by Lessor
shall be construed as constituting the consent or request of Lessor, expressed
or implied, to any contractor, subcontractor, laborer, materialman or vendor to
or for the performance of any particular labor or services or the furnishing of
any particular materials or other property for the construction, alteration,
addition, repair or demolition of or to the Leased Property or any part thereof.
(d) Unless Lessor shall convey any of the Leased Property to Lessee
pursuant to the provisions of this Lease, Lessee will, upon the expiration or
prior termination of this Lease, vacate and surrender the Leased Property to
Lessor in the condition in which the Leased Property was originally received
from Lessor, except for ordinary wear and tear (subject to the obligation of
Lessee to maintain the Property in good order and repair during the entire
Term), damage caused by the gross negligence or willful acts of Lessor, and
damage or destruction described in Article XIII or resulting from a Taking
described in Article XIV which Lessee is not required by the terms of this Lease
to repair or restore, and except as repaired, rebuilt, restored, altered or
added to as permitted or required by the provisions of this Lease.
VIII.2 Encroachments; Restrictions. If any of the Improvements shall, at any
time, encroach upon any property, street or right-of-way adjacent to the Leased
Property, or shall violate the agreements or conditions contained in any
applicable Legal Requirement, lawful restrictive covenant or other agreement
affecting the Leased Property, or any part thereof, or shall impair the rights
of others under any easement or right-of-way to which the Leased Property is
subject, then promptly upon the request of Lessor, Lessee shall at its expense,
subject to its right to contest the existence of any such encroachment,
violation or impairment, (a) obtain valid and effective waivers or settlements
of all claims, liabilities and damages resulting from each such encroachment,
violation or impairment, whether the same shall affect Lessor or Lessee, or (b)
make such changes in the Improvements, and take such other actions, as Lessor in
the good faith exercise of its judgment deems reasonably practicable, to remove
such encroachment, or to end such violation or impairment, including, if
necessary, the alteration of any of the Leased
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Improvements, and in any event take all such actions as may be necessary in
order to be able to continue the operation of the Facility for the Primary
Intended Use substantially in the manner and to the extent the Facility was
operated prior to the assertion of such violation or encroachment. Any such
alteration shall be made in conformity with the applicable requirements of
Article IX. Lessee's obligations under this Section 8.2 shall be in addition to
and shall in no way discharge or diminish any obligation of any insurer under
any policy of title or other insurance and Lessee shall be entitled to a credit
for any sums recovered by Lessor under any such policy of title or other
insurance.
VIII.3 Inspections. From time to time during the Term, Lessor and its agents
shall have the right, subject to any rights of confidentiality of Tenants, to
inspect the Leased Property and all systems contained therein at any reasonable
time and upon two days advance notice to Lessee to determine Lessee's compliance
with its obligations under this Lease, including those obligations set forth in
Article VII and this Article VIII. Lessee shall be responsible for the costs of
such inspections, which costs shall not exceed the sum of $2,000.00 per year for
each year of the Term for an independent, third party inspection of the
Facility.
ARTICLE IX
CAPITAL ADDITIONS
IX.1 Construction of Capital Additions to the Leased Property.
(a) If no Event of Default shall have occurred and be continuing,
Lessee shall have the right, upon and subject to the terms and conditions set
forth below, to construct or install Capital Additions on the Leased Property
with the prior written consent of Lessor which consent shall not be unreasonably
withheld; provided that Lessee shall not be permitted to create any Encumbrance
on the Leased Property in connection with such Capital Addition without first
complying with Section 9.1(b) hereof. Prior to commencing construction of any
Capital Addition, Lessee shall submit to Lessor in writing a proposal setting
forth in reasonable detail any proposed Capital Addition and shall provide to
Lessor such plans and specifications, permits, licenses, contracts and other
information concerning the proposed Capital Addition as Lessor may reasonably
request. Without limiting the generality of the foregoing, such proposal shall
indicate the approximate projected cost of constructing such Capital Addition
and the use or uses to which it will be put.
(b) Prior to commencing construction of any Capital Addition, Lessee
shall first request Lessor to provide funds to pay for such Capital Addition in
accordance with the provisions of Section 9.3. If Lessor declines or is unable
to provide such financing on terms acceptable to Lessee and Lessee rejects
Lessor's offer of financing, Lessee may arrange or provide other financing,
subject to the provisions of Section 9.2. Lessor will reasonably cooperate with
Lessee regarding the grant of any consents or easements or the like necessary or
appropriate in connection with any Capital Addition; provided that no Capital
Addition shall be made which would tie in or connect any Leased Improvements on
the Leased Property with any other improvements on property adjacent to the
Leased Property (and not part of the Land covered by this Lease) including
tie-ins of buildings or other structures or utilities, unless Lessee shall have
obtained the prior written approval of Lessor, which approval shall not be
unreasonably withheld. All proposed Capital Additions shall be architecturally
integrated into and consistent with the Leased Property.
IX.2 Capital Additions Financed by Lessee. If Lessee finances or arranges to
finance any Capital Addition with a party other than Lessor or if Lessee pays
cash for any Capital Addition, this Lease shall be and hereby is amended to
provide as follows:
(a) There shall be no adjustment in the Minimum Rent by reason of any
such Capital Addition.
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<PAGE>
(b) Upon the expiration or earlier termination of this Lease, Lessor
shall compensate Lessee for all Capital Additions paid for or financed by Lessee
in any of the following ways:
(i) By purchasing all Capital Additions paid for by Lessee from
Lessee for cash in the amount of the Fair Market Added Value at the
time of purchase by Lessor of all such Capital Additions paid for or
financed by Lessee; or
(ii) Such other arrangement regarding such compensation as shall
be mutually acceptable to Lessor and Lessee.
Any amount owed by Lessee to Lessor under this Lease at such termination or
expiration may be deducted from any compensation for Capital Additions payable
by Lessor to Lessee under this Section 9.2.
IX.3 Capital Additions Financed by Lessor.
(a) Lessee shall request that Lessor provide or arrange financing for a
Capital Addition by providing to Lessor such information about the Capital
Addition as Lessor may reasonably request (a "Request"), including all
information referred to in Section 9.1 above. Lessor may, but shall be under no
obligation to provide or obtain the funds necessary to meet the Request. Within
30 days of receipt of a Request, Lessor shall notify Lessee as to whether it
will finance the proposed Capital Addition and, if so, the terms and conditions
upon which it would do so, including the terms of any amendment to this Lease.
In no event (i) shall the portion of the projected Capital Addition Cost
comprised of land (if any), materials, labor charges and fixtures be less than
100% of the total amount of such cost, or (ii) shall Lessee or any of its
Affiliates be entitled to any commission or development fee, directly or
indirectly, as a portion of the Capital Addition Cost. Any Capital Addition not
financed by Lessor must still be approved in writing by Lessor pursuant to the
terms of Section 9.1 hereof, which consent will not be unreasonably withheld.
Lessee may withdraw its Request by notice to Lessor at any time before or after
receipt of Lessor's terms and conditions.
(b) If Lessor agrees to finance the proposed Capital Addition, Lessor's
obligation to advance any funds shall be subject to receipt of all of the
following, in form and substance reasonably satisfactory to Lessor:
(i) such loan documentation as may be required by Lessor;
(ii) any information, certificates, licenses, permits or
documents requested by Lessor, or by any lender with whom Lessor has
agreed or may agree to provide financing, which are necessary or
appropriate to confirm that Lessee will be able to use the Capital
Addition upon completion thereof in accordance with the Primary
Intended Use, including all required federal, state or local government
licenses and approvals;
(iii) an Officer's Certificate and, if requested, a
certificate from Lessee's architect, setting forth in detail reasonably
satisfactory to Lessor the projected (or actual, if available) cost of
the proposed Capital Addition;
(iv) an amendment to this Lease, duly executed and
acknowledged, in form and substance satisfactory to Lessor and Lessee
(the "Lease Amendment"), containing such provisions as may be necessary
or appropriate due to the Capital Addition, including any appropriate
changes in the legal description of the Land and the Rent, all such
changes to be mutually agreed upon by Lessor and Lessee;
(v) if appropriate, a deed conveying title to Lessor to any
land and
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improvements or other rights acquired for the purpose of
constructing the Capital Addition, free and clear of any liens or
encumbrances except those approved in writing by Lessor and, both prior
to and following completion of the Capital Addition, an as-built survey
thereof reasonably satisfactory to Lessor;
(vi) if appropriate, endorsements to any outstanding policy of
title insurance covering the Leased Property or a supplemental policy
of title insurance covering the Leased Property reasonably satisfactory
in form and substance to Lessor (A) updating the same without any
additional exceptions, except as may be permitted by Lessor; and (B)
increasing the coverage thereof by an amount equal to the Fair Market
Value of the Capital Addition (except to the extent covered by the
owner's policy of title insurance referred to in subparagraph (vii)
below);
(vii) if required by Lessor, (A) an owner's policy of title
insurance insuring fee simple title to any land conveyed to Lessor
pursuant to subparagraph (v), free and clear of all liens and
encumbrances except those approved by Lessor and (B) a lender's policy
of title insurance satisfactory in form and substance to Lessor and the
Lending Institution advancing any portion of the Capital Addition Cost;
(viii) if required by Lessor upon completion of the Capital
Addition, an M.A.I appraisal of the Leased Property; and
(ix) such other certificates (including endorsements
increasing the insurance coverage, if any, at the time required by
Section 12.1), documents, customary opinions of Lessee's counsel,
appraisals, surveys, certified copies of duly adopted resolutions of
the Board of Directors of Lessee authorizing the execution and delivery
of the Lease Amendment and any other instruments or documents as may be
reasonably required by Lessor.
(c) Upon making a Request to finance a Capital Addition, whether or not
such financing is actually consummated, Lessee shall pay the reasonable costs
and expenses of Lessor and any Lending Institution which has committed to
finance such Capital Addition paid or incurred in connection with the financing
of the Capital Addition, including (i) the fees and expenses of their respective
counsel, (ii) the amount of any recording or transfer taxes and fees, (iii)
documentary stamp taxes, if any, (iv) title insurance charges, (v) appraisal
fees, if any, and (vi) commitment fees, if any.
IX.4 Remodeling and Non-Capital Additions. Lessee shall have the right and the
obligation to make additions, modifications or improvements to the Leased
Property which are not Capital Additions, including tenant improvements made in
connection with the Tenant Leases, from time to time as may reasonably be
necessary for its uses and purposes and to permit Lessee to comply fully with
its obligations set forth in this Lease; provided that such action will be
undertaken expeditiously, in a workmanlike manner and will not significantly
alter the character or purpose or detract from the value or operating efficiency
of the Leased Property and will not significantly impair the revenue producing
capability of the Leased Property or adversely affect the ability of Lessee to
comply with the provisions of this Lease. Title to all non-Capital Additions,
modifications and improvements shall, without payment by Lessor at any time, be
included under the terms of this Lease and, upon expiration or earlier
termination of this Lease, shall pass to and become the property of Lessor.
IX.5 Salvage. All materials which are scrapped or removed in connection with the
making of either Capital Additions permitted by Section 9.1 or repairs required
by Article VIII shall be or become the property of Lessor; provided that Lessor
may require Lessee to dispose of such materials and remit the net proceeds
thereof to Lessor within 15 days of such disposal.
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ARTICLE X
LIENS
Subject to the provisions of Article XI relating to permitted contests,
Lessee will not directly or indirectly create or suffer to exist and will
promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, not including, however, (a) this
Lease, (b) the matters, if any, set forth in Exhibit B attached hereto, (c)
restrictions, liens and other encumbrances which are consented to in writing by
Lessor, or any easements granted pursuant to the provisions of Section 6.4 of
this Lease, (d) liens for those taxes of Lessor which Lessee is not required to
pay hereunder, (e) subleases permitted by Article XXIII, (f) liens for
Impositions or for sums resulting from noncompliance with Legal Requirements so
long as (1) the same are not yet payable or are payable without the addition of
any fine or penalty or (2) such liens are in the process of being contested in
accordance with the provisions of Article XI, (g) liens of mechanics, laborers,
materialmen, suppliers or vendors for sums either disputed or not yet due,
provided that (1) the payment of such sums shall not be postponed for more than
60 days after the completion of the action (including any appeal from any
judgment rendered therein) giving rise to such lien and such reserve or other
appropriate provisions as shall be required by law or generally accepted
accounting principles shall have been made therefor or (2) any such liens are in
the process of being contested in accordance with the provisions of Article XI,
and (h) any Encumbrance placed on the Leased Property by Lessor.
ARTICLE XI
PERMITTED CONTESTS
Lessee, after ten days' prior written notice to Lessor, on its own or
on Lessor's behalf (or in Lessor's name), but at Lessee's expense, may contest,
by appropriate legal proceedings conducted in good faith and with due diligence,
the amount, validity or application, in whole or in part, of any Imposition,
Legal Requirement, Insurance Requirement, lien, attachment, levy, encumbrance,
charge or claim (collectively "Charge") not otherwise permitted by Article X,
which is required to be paid or discharged by Lessee or any Tenant; provided
that (a) in the case of an unpaid Charge, the commencement and continuation of
such proceedings, or the posting of a bond or certificate of deposit as may be
permitted by applicable law, shall suspend the collection thereof from Lessor
and from the Leased Property; (b) neither the Leased Property nor any Rent
therefrom nor any part thereof or interest therein would be in any immediate
danger of being sold, forfeited, attached or lost; (c) Lessor would not be in
any immediate danger of civil or criminal liability for failure to comply
therewith pending the outcome of such proceedings; (d) in the event that any
such contest shall involve a sum of money or potential loss in excess of
$50,000.00, then Lessee shall deliver to Lessor and its counsel an Officer's
Certificate as to the matters set forth in clauses (a), (b) and (c) and such
opinions of legal counsel as Lessor may reasonably request; (e) in the case of
an Insurance Requirement, the coverage required by Article XII shall be
maintained; and (f) if such contest be finally resolved against Lessor or
Lessee, Lessee shall, as Additional Charges due hereunder, promptly pay the
amount required to be paid, together with all interest and penalties accrued
thereon, or otherwise comply with the applicable Charge; provided further that
nothing contained herein shall be construed to permit Lessee to contest the
payment of the Rent, or any other sums payable by Lessee to Lessor hereunder.
Lessor, at Lessee's expense, shall execute and deliver to Lessee such
authorizations and other documents as may reasonably be required in any such
contest and, if reasonably requested by Lessee or if Lessor so desires and then
at its own expense, Lessor shall join as a party therein. Lessor shall do all
things reasonably requested by Lessee in connection with such action. Lessee
shall indemnify and save Lessor harmless against any liability, cost or expense
of any kind that may be imposed upon Lessor in connection with any such contest
and any loss resulting therefrom.
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ARTICLE XII
INSURANCE
XII.1 General Insurance Requirements. During the Term of this Lease, Lessee
shall at all times keep the Leased Property, and all property located in or on
the Leased Property insured with the kinds and amounts of insurance described
below and written by companies reasonably acceptable to Lessor authorized to do
insurance business in the state in which the Leased Property is located. The
policies must name Lessor as an additional insured and losses shall be payable
to Lessor and/or Lessee as provided in Article XIII. In addition, the policies
shall name as an additional insured the holder ("Facility Mortgagee") of any
mortgage, deed of trust or other security agreement securing any Encumbrance
placed on the Leased Property or any part thereof in accordance with the
provisions of Article XXXII ("Facility Mortgage"), if any, by way of a standard
form of mortgagee's loss payable endorsement. Any loss adjustment in excess of
$100,000.00 shall require the written consent of Lessor and each affected
Facility Mortgagee. Evidence of insurance shall be deposited with Lessor and, if
requested, with any Facility Mortgagee(s). If any provision of any Facility
Mortgage which constitutes a first lien on the Leased Property requires deposits
of insurance to be made with such Facility Mortgagee, Lessee shall pay to Lessor
monthly the amounts required and Lessor shall transfer such amounts to such
Facility Mortgagee. The policies on the Leased Property, including the Leased
Improvements, the Fixtures and the Personal Property, shall insure against the
following risks:
(a) Loss or damage by fire, vandalism and malicious mischief, extended
coverage perils commonly known as "All Risk" and all physical loss perils,
including sprinkler leakage and business interruption, in an amount not less
than the then Full Replacement Cost thereof (as defined below in Section 12.2)
after deductible with a replacement cost endorsement sufficient to prevent
Lessee from becoming a co-insurer together with an agreed value endorsement;
(b) Loss or damage by explosion of steam boilers, pressure vessels or
similar apparatus now or hereafter installed in the Facility, in such limits
with respect to any one accident as may be reasonably requested by Lessor from
time to time;
(c) Loss or damage by hurricane and earthquake in the amount of the
Full Replacement Cost, after deductible;
(d) Loss of rental under a business interruption insurance policy
covering risk of loss during the first 12 months of reconstruction necessitated
by the occurrence of any of the hazards described in Sections 12.1(a), 12.1(b)
or 12.1 (c), in an amount sufficient to prevent Lessee from becoming a
co-insurer; provided that in the event that Lessee shall not be in default
hereunder and Lessor shall receive any proceeds from such rental insurance
which, when added to rental amounts received with respect to the applicable time
period, exceed the amount of rental owed by Lessee hereunder, Lessor shall
immediately pay such excess to Lessee;
(e) Claims for personal injury or property damage under a policy of
comprehensive general public liability insurance including insurance against
assumed or contractual liability including indemnities under this Lease, with
amounts not less than $1,000,000.00 per occurrence in respect of bodily injury
and death, $5,000,000.00 in the aggregate and $1,000,000.00 for property damage;
provided that if it becomes customary for tenants occupying similar buildings in
the same City where the Leased Property is located to be required to provide
liability coverage with higher limits than the foregoing, then Lessee shall
provide Lessor with an insurance policy with coverage limits that are not less
than such customary limits; and
(f) Flood (when the Leased Property is located in whole or in part
within a designated flood plain area) and such other hazards and in such amounts
as may be customary for comparable properties in the area and if available from
insurance companies authorized to do business in the state in which the Leased
Property is located.
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XII.2 Replacement Cost. The term "Full Replacement Cost" as used herein shall
mean the actual replacement cost of the Facility from time to time, including
increased cost of construction endorsement, less exclusions provided in the
normal fire insurance policy. In the event Lessor or Lessee believes that the
Full Replacement Cost has increased or decreased at any time during the Term, it
shall have the right at its own expense to have such Full Replacement Cost
redetermined by an impartial insurance company reasonably acceptable to both
parties, hereinafter referred to as the "impartial appraiser"; provided that
such redetermination shall not occur more often than once every three years. The
party desiring to have the Full Replacement Cost so redetermined shall
forthwith, on receipt of such determination by the impartial appraiser, give
written notice thereof to the other party hereto. The determination of such
impartial appraiser shall be final and binding on the parties hereto, and Lessee
shall forthwith increase, or may decrease, the amount of the insurance carried
pursuant to this Article to the amount so determined by the impartial appraiser.
XII.3 Additional Insurance. In addition to the insurance described above, Lessee
shall maintain such additional insurance as may be reasonably required from time
to time by any Facility Mortgagee which is consistent with insurance coverage
for similar properties in the city, county and state where the Leased Property
is located, or required pursuant to any applicable Legal Requirement, and shall
at all times maintain or cause to be maintained adequate worker's compensation
insurance coverage for all persons employed by Lessee on the Leased Property, in
accordance with all applicable Legal Requirements.
XII.4 Waiver of Subrogation. All insurance policies (other than liability and
worker's compensation insurance) carried by either party covering the Leased
Property, the Fixtures, the Facility and/or the Personal Property, including
contents, fire and casualty insurance, shall expressly waive any right of
subrogation on the part of the insurer against the other party. The parties
hereto agree that their policies will include such a waiver clause or
endorsement so long as the same is obtainable without extra cost, and in the
event of such an extra charge the other party, at its election, may request and
pay the same, but shall not be obligated to do so. Each party waives any claim
it has against the other party to the extent such claim is covered by insurance.
XII.5 Form of Insurance. All of the policies of insurance referred to in this
Section shall be written in form reasonably satisfactory to Lessor by insurance
companies reasonably satisfactory to Lessor; provided that the deductibles for
insurance required by Sections 12.1(a) through 12.1 (d) shall be no greater than
$50,000.00 and the deductible for coverage required by Section 12.1(e) shall be
no greater than $100,000.00. Lessee shall pay all premiums therefor, and deliver
such policies or certificates thereof to Lessor prior to their effective date
(and, with respect to any renewal policy, at least 30 days prior to the
expiration of the existing policy). In the event of the failure of Lessee to
effect such insurance in the names herein called for or to pay the premiums
therefor, or to deliver such policies or certificates thereof to Lessor at the
times required, Lessor shall be entitled, but shall have no obligation, to enact
such insurance and pay the premiums therefor, which premiums shall be repayable
by Lessee to Lessor upon written demand therefor, and failure to repay the same
shall constitute an Event of Default within the meaning of Section 15.1(c). Each
insurer mentioned in this Section shall agree, by endorsement on the policy or
policies issued by it, or by independent instrument furnished to Lessor, that it
will give to Lessor prior written notice before the policy or policies in
question shall be altered, allowed to expire or canceled.
XII.6 Change in Limits. In the event that Lessor shall at any time reasonably
and in good faith believe the limits of the personal injury, property damage or
general public liability insurance then carried to be insufficient, the parties
shall endeavor to agree on the proper and reasonable limits for such insurance
to be carried and such insurance shall thereafter be carried with the limits
thus agreed on until further change pursuant to the provisions of this Section.
If the parties shall be unable to agree thereon, the proper and reasonable
limits for such insurance shall be determined by an impartial third party
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selected by the parties the costs of which shall be divided equally between the
parties. Such redeterminations, whether made by the parties or by arbitration,
shall be made no more frequently than every year. Nothing herein shall permit
the amount of insurance to be reduced below the amount or amounts reasonably
required by any Facility Mortgagee.
XII.7 Blanket Policy. Notwithstanding anything to the contrary contained in this
Section, Lessee's obligations to carry the insurance provided for herein may be
brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Lessee; provided that the coverage afforded
Lessor will not be reduced or diminished or otherwise be different from that
which would exist under separate policies meeting all other requirements of this
Lease; provided further that the requirements of this Article XII are otherwise
satisfied.
XII.8 No Separate Insurance. Without the prior written consent of Lessor, Lessee
shall not, on Lessee's own initiative or pursuant to the request or requirement
of any third party, take out separate insurance concurrent in form or
contributing in the event of loss with that required in this Article XII to be
furnished by, or which may reasonably be required by a Facility Mortgagee to be
furnished by, Lessee, or increase the amounts of any then-existing insurance
required under this Article XII by securing an additional policy or additional
policies, unless all parties having an insurable interest in the subject matter
of the insurance, including in all cases Lessor and all Facility Mortgagees, are
included therein as additional insureds and the loss is payable under said
insurance in the same manner as losses are required to be payable under this
Lease. Lessee shall immediately notify Lessor of the taking out of any such
separate insurance or of the increasing of any of the amounts of the
then-existing insurance required under this Article XII by securing an
additional policy or additional policies.
XII.9 Insurance for Contractors. If Lessee shall engage or cause to be engaged
any contractor to perform work on the Leased Property, Lessee shall require such
contractor to carry and maintain insurance coverage comparable to the foregoing
requirements, at no expense to Lessor; provided that in cases where such
coverage is excessive in relation to the work being done, Lessee may allow any
such contractor to carry or maintain alternative coverage in reasonable amounts
upon Lessor's prior written consent, which shall not be unreasonably withheld.
ARTICLE XIII
FIRE AND CASUALTY
XIII.1 Insurance Proceeds. All proceeds payable by reason of any loss or damage
to the Leased Property or any portion thereof, and insured under any policy of
insurance required by Article XII of this Lease shall be paid to Lessor and held
by Lessor in trust (subject to the provisions of Section 13.7) and shall be made
available for reconstruction or repair, as the case may be, of any damage to or
destruction of the Leased Property, or any portion thereof, and shall be paid
out by Lessor from time to time for the reasonable cost of such reconstruction
or repair in accordance with this Article XIII after Lessee has expended an
amount equal to or exceeding the deductible under any applicable insurance
policy. Any excess proceeds of insurance remaining after the completion of the
restoration or reconstruction of the Leased Property shall be retained by Lessee
free and clear upon completion of any such repair and restoration except as
otherwise specifically provided below in this Article XIII; provided that in the
event neither Lessor nor Lessee is required or elects to repair or restore the
Leased Property, then all such insurance proceeds shall be retained by Lessor.
All salvage resulting from any risk covered by insurance shall belong to Lessee,
including any salvage relating to Capital Additions paid for by Lessee.
XIII.2 Reconstruction in the Event of Damage or Destruction Covered by
Insurance.
(a) Facility Rendered Unsuitable for Its Primary Intended Use. Except
as provided in Section 13.7, if during the Term, the Facility is totally or
partially destroyed from a risk covered by the
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insurance described in Article XII and the Facility thereby is rendered
Unsuitable for its Primary Intended Use, such damage or destruction shall not
terminate this Lease and all of Lessee's obligations with respect to payment of
the Rent shall continue in full force and effect and shall not be affected
thereby and Lessee shall either:
(i) apply all proceeds payable with respect thereto to restore
the Facility to substantially the same condition as existed immediately
prior to such damage or destruction, or
(ii) offer either (A) to acquire the Leased Property from
Lessor for a purchase price equal to the Minimum Purchase Amount of the
Leased Property immediately prior to such damage or destruction or (B)
to substitute a new property or properties for the Leased Property
pursuant to and in accordance with the provisions of Article XX (which
offers Lessor may in its sole discretion refuse).
Lessee shall give written notice to Lessor within 60 days after the date of such
damage or destruction whether Lessee chooses option (i) or option (ii), and if
option (ii) is chosen, such notice shall be accompanied by the offer referred to
therein. In the event Lessee fails to give such notice or does not make an offer
under option (ii), Lessee shall promptly proceed to restore the Facility to
substantially the same condition as existed immediately prior to the damage or
destruction. If Lessor does not accept Lessee's offer to substitute for or
purchase the Leased Property within 30 days after the date of such offer,
Lessee's offer shall be deemed withdrawn on such 30th day and Lessee shall
promptly proceed to restore the Facility to substantially the same condition as
existed immediately prior to such damage for destruction.
(b) Facility Not Rendered Unsuitable for Its Primary Intended Use.
Except as provided in Section 13.7, if during the Term, the Facility is
partially destroyed from a risk covered by the insurance described in Article
XII, but the Facility is not thereby rendered Unsuitable for its Primary
Intended Use, Lessee shall restore the Facility to substantially the same
condition as existed immediately prior to the damage or destruction and such
damage or destruction shall not terminate this Lease and all of Lessee's
obligations hereunder, including Lessee's obligations with respect to the
payment of the Rent, shall continue in full force and effect and shall not be
affected thereby; provided that if Lessee cannot within a reasonable time obtain
all necessary governmental approvals, including building permits, licenses,
conditional use permits and any certificates of need, after diligent efforts to
do so, in order to be able to perform all required repair and restoration work
and to operate the Facility for its Primary Intended Use in substantially the
same manner as immediately prior to such damage or destruction, then Lessee
shall either:
(i) offer either (A) to acquire that Leased Property from
Lessor for a purchase price equal to the Minimum Purchase Amount
immediately prior to such damage or destruction, or (B) to substitute a
new property or properties for the Leased Property pursuant to and in
accordance with the provisions of Article XX (which offers Lessor in
its sole discretion may refuse), or
(ii) after the fourth anniversary of the Commencement Date,
offer to purchase the Leased Property from Lessor for a purchase price
equal to the Minimum Purchase Amount of the Leased Property immediately
prior to such damage or destruction.
Lessee shall give written notice to Lessor within 60 days after the date of such
damage or destruction whether Lessee chooses option (i)(A) or option (i)(B), and
if option (i)(B) or option (ii) is chosen, such notice shall be accompanied by
the offer referred to therein. In the event Lessee fails to give such notice or
does not make an offer under option (i) or option (ii), Lessee shall promptly
proceed to restore the
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Facility to substantially the same condition as existed immediately prior to the
damage or destruction. If Lessor does not accept Lessee's offer to substitute
for or purchase the Leased Property within 30 days after the date of such offer,
Lessee's offer shall be deemed withdrawn on such 30th day and Lessee shall
promptly proceed to restore the Facility to substantially the same condition as
existed immediately prior to such damage for destruction.
XIII.3 Reconstruction in the Event of Damage or Destruction Not Covered by
Insurance. Except as provided in Section 13.7, if during the Term the Facility
is totally or materially destroyed from a risk (including earthquake) not
covered by the insurance described in Article XII, whether or not such damage or
destruction renders the Facility Unsuitable for Its Primary Intended Use, Lessee
shall:
(i) restore the Facility to substantially the same condition
it was in immediately prior to such damage or destruction and such
damage or destruction shall not terminate this Lease, and all of
Lessee's obligations hereunder, including Lessee's obligations with
respect to the payment of the Rent, shall continue in full force and
effect and not be affected thereby, or
(ii) offer either (A) to acquire the Leased Property from
Lessor for a purchase price equal to the Minimum Purchase Amount
immediately prior to such damage or destruction, or (B) to substitute a
new property or properties for the Leased Property pursuant to and in
accordance with the provisions of Article XX (which offers Lessor in
its sole discretion may refuse); provided that if such damage or
destruction is not material in the reasonable opinion of Lessor, Lessee
shall restore the Facility to substantially the same condition as
existed immediately prior to any such damage or destruction.
Lessee shall give written notice to Lessor within 60 days after the date of such
damage or destruction whether Lessee chooses option (i) or option (ii), and if
option (ii) is chosen such notice shall be accompanied by the offer referred to
therein. If Lessor does not accept Lessee's offer to substitute for or purchase
the Leased Property within 30 days after the date of such offer, Lessee's offer
shall be deemed to be withdrawn on such 30th day. If such offer is so withdrawn,
or if Lessee fails to purchase the Leased Property or to provide a Substitute
Property in accordance with Article XX, then such damage and destruction shall
be deemed to be a total Taking of such Facility under Section 14.2, and the
provisions of said Section 14.2 shall apply to the rights of the parties and all
insurance proceeds payable in connection with such damage or destruction shall
be treated as if such proceeds constituted an "Award" under said Section 14.2.
XIII.4 Lessee's Property. Lessee shall use any insurance proceeds payable by
reason of any loss of or damage to any of the Personal Property to restore such
Personal Property to the Leased Property with items of substantially equivalent
value to the items being replaced.
XIII.5 Restoration of Lessee's Property. If Lessee is required or elects to
restore the Facility as provided in Sections 13.2 or 13.3, Lessee shall also
restore the Personal Property related thereto as required by Section 13.4 and
all Capital Additions paid for or financed by Lessor. Insurance proceeds payable
by reason of damage to Capital Additions paid for or financed by Lessor shall be
paid to Lessor and Lessor shall hold such insurance proceeds in trust to pay the
cost of repairing or replacing such Capital Additions in the event Lessee does
not purchase or substitute other property or properties for the Leased Property.
All other insurance proceeds shall be paid to Lessee to pay the cost of
replacing or restoring any Capital Additions paid for or financed by Lessee.
XIII.6 No Abatement of the Rent. This Lease shall remain in full force and
effect and Lessee's obligation to make rental payments and to pay all other
charges required by this Lease shall remain unabated during any period required
for repair and restoration.
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XIII.7 Damage Near End of Term. Notwithstanding any provisions of Sections 13.2
or 13.3 to the contrary, if damage to or destruction of the Facility occurs
during the last 12 months of the Term, and if such damage or destruction cannot
be fully repaired and restored within the lesser of (i) six months or (ii) the
period remaining in the Term immediately following the date of loss, then either
party shall have the right to terminate this Lease by giving notice of
termination to the other within 30 days after the date of such damage or
destruction, in which event Lessor shall be entitled to retain the insurance
proceeds and Lessee shall pay to Lessor on demand the amount of any deductible
or uninsured loss arising in connection therewith; provided that any such notice
given by Lessor shall be void and of no force and effect if Lessee exercises an
available option to extend the Term for one Extended Term, or one additional
Extended Term, as the case may be, within 30 days following receipt of such
termination notice.
XIII.8 Purchase or Substitution. In the event Lessor accepts any offer by Lessee
to purchase the Leased Property or to substitute a property or properties for
the Leased Property, this Lease shall terminate upon payment of the purchase
price and execution and delivery of all documentation in accordance with Article
XVII, or execution and delivery of all documents required in connection with a
Substitute Property under Article XX. Lessor shall remit to Lessee, or in the
case of a purchase allow Lessee a credit toward the purchase price, an amount
equal to all insurance proceeds being held in trust by Lessor.
XIII.9 Waiver. Lessee hereby knowingly and expressly waives any statutory or
common law rights of termination which may arise by reason of any damage or
destruction of the Facility.
ARTICLE XIV
CONDEMNATION
XIV.1 Parties' Rights and Obligations. If during the Term there is any Taking of
all or any part of the Leased Property or any interest in this Lease by
Condemnation, the rights and obligations of the parties shall be determined by
this Article XIV.
XIV.2 Total Taking. If there is a Taking of all of the Leased Property by
Condemnation, this Lease shall terminate on the Date of Taking, and the Minimum
Rent and all Additional Charges paid or payable hereunder shall be apportioned
and paid to the Date of Taking.
XIV.3 Partial Taking. If there is a Taking of a portion of the Leased Property
by Condemnation such that the Facility is not thereby rendered Unsuitable for
Its Primary Intended Use, this Lease shall not terminate and all of Lessee's
obligations hereunder, including Lessee's obligations with respect to the
payment of the Rent, shall continue in full force and effect and shall not be
affected thereby. If, however, the Facility is thereby rendered Unsuitable for
Its Primary Intended Use, Lessee shall either:
(i) at Lessee's expense, restore the Facility, to the extent
possible, to substantially the same condition as existed immediately
prior to the partial Taking, in which case the proceeds of any Award
shall be applied to such restoration to the extent necessary or
appropriate, or
(ii) offer either (A) to acquire the Leased Property from
Lessor for a purchase price equal to the Minimum Purchase Amount of the
Leased Property immediately prior to such partial Taking, or (B) to
substitute a new property or properties for the Leased Property
pursuant to and in accordance with the provisions of Article XX (which
offers Lessor may in its sole discretion refuse), or
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(iii) terminate this Lease effective upon the effective date
of such Taking.
Lessee will give written notice to Lessor within 60 days after Lessee receives
notice of the Taking whether Lessee chooses option (i), option (ii)(A) or option
(ii)(B) or option (iii), and if option (ii)(B) is chosen, such notice shall be
accompanied by the offer referred to therein. In the event Lessor does not
accept Lessee's offer to so purchase the Leased Property within 30 days after
receipt of the notice described in the preceding sentence, Lessee may either (a)
withdraw its offer to purchase the Leased Property and proceed to restore the
Facility, to the extent possible, to substantially the same condition as existed
immediately prior to the partial Taking, or (b) terminate the offer and this
Lease by written notice to Lessor.
XIV.4 Restoration. If there is a partial Taking of the Leased Property and this
Lease remains in full force and effect pursuant to any provision of this Article
XIV, Lessee shall accomplish all necessary restoration in order that the Leased
Property may continue to be used for its Primary Intended Use.
XIV.5 Award Distribution. In the event Lessee purchases the Leased Property
pursuant to Section 14.3 or Lessor accepts any offer by Lessee to purchase the
Leased Property or to provide a Substitute Property therefor pursuant to this
Article XIV, then the entire Award shall belong to Lessee and Lessor agrees to
assign to Lessee all of its rights thereto. Except as otherwise expressly
provided in this Article XIV, in any other event the entire Award shall belong
to and be paid to Lessor; provided that if this Lease is terminated in
accordance with Section 14.2(b) or 14.3(a), and subject to the rights of any
Facility Mortgagees, Lessee shall be entitled to receive from the Award any sum
attributable to any Capital Additions for which Lessee would be entitled to
reimbursement at the end of the Term pursuant to the provisions of Section
9.2(b), but only if and to the extent such Award expressly includes such items
and allocates a value thereto. If Lessee is required or elects to restore the
Facility, Lessor agrees that, subject to the rights of the Facility Mortgagees,
its portion of the Award shall be used for such restoration and it shall hold
such portion of the Award in trust, for application to the costs of the
restoration.
XIV.6 Temporary Taking. The Taking of the Leased Property, or any part thereof,
by military or other public authority shall constitute a Taking by Condemnation
only when the use and occupancy by the Taking authority has continued for longer
than six months. During any such six-month period all the provisions of this
Lease shall remain in full force and effect and the Rent shall not be abated or
reduced during such period of Taking; provided that to the extent any
compensation is paid by the Taking authority as a result of such temporary
Taking, Lessee will retain such compensation.
XIV.7 Purchase or Substitution. In the event Lessor accepts any offer by Lessee
to purchase the Leased Property or to substitute a property or properties for
the Leased Property, this Lease shall terminate upon payment of the purchase
price and execution and delivery of all appropriate documentation in accordance
with Article XVII, or execution and delivery of all documents required in
connection with a Substitute Property under Article XX.
ARTICLE XV
DEFAULT
XV.1 Events of Default. The occurrence of any one or more of the following
events shall constitute events of default (individually, an "Event of Default"
and, collectively, "Events of Default") hereunder:
(a) An event of default shall occur under any other lease (the "Related
Leases") between Lessor or any of its Affiliates and Lessee or any of its
Affiliates, which event of default is not cured within the applicable grace
period set forth therein;
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(b) Lessee shall fail to make a payment of the Rent payable by Lessee
under this Lease when the same becomes due and payable and such failure
continues for a period of ten calendar days after written notice from Lessor to
Lessee;
(c) Lessee shall fail to observe or perform any other term, covenant or
condition of this Lease or any document executed in connection herewith and such
failure is not cured by Lessee within a period of 30 days after receipt by
Lessee of notice thereof from Lessor, unless such failure cannot with due
diligence be cured within a period of 30 days, in which case such failure shall
not be deemed to continue if Lessee proceeds promptly and with due diligence to
cure the failure and diligently completes the curing thereof (as soon as
reasonably possible);
(d) Lessee shall:
(i) admit in writing its inability to pay its debts
generally as they become due,
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency law,
(iii) make an assignment for the benefit of its creditors,
(iv) consent to the appointment of a receiver of itself or
of the whole or any substantial part of its property,
(v) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any
state thereof;
(e) Lessee shall default beyond any applicable grace period contained
in one or more major credit facilities which by their terms would permit an
outstanding balance equal to or greater than $10,000,000.00 in the aggregate and
the same shall be accelerated by the lenders or other applicable parties; or
(f) Lessee's corporate parent company, Guarantor, fails to maintain a
Consolidated Tangible Net Worth of at least $50,000,000.00.
XV.2 Remedies. If an Event of Default shall have occurred, Lessor may, at its
election, then or at any time thereafter, pursue any one or more of the
following remedies, in addition to any remedies which may be permitted by law or
by other provisions of this Lease, without further notice or demand, except as
hereinafter provided:
(a) Without any notice or demand whatsoever, Lessor may take any one or
more actions permissible at law to ensure performance by Lessee of Lessee's
covenants and obligations under this Lease. In this regard, it is agreed that if
Lessee abandons or vacates the Leased Property, Lessor may enter upon and take
possession of such Leased Property in order to protect it from deterioration and
continue to demand from Lessee the monthly rentals and other charges provided in
this Lease. Lessor shall use reasonable efforts to relet on commercially
reasonable terms but shall have no absolute obligation to relet. If Lessor does,
at its sole discretion, elect to relet the Leased Property, such action by
Lessor shall not be deemed as an acceptance of Lessee's surrender of the Leased
Property unless Lessor expressly notifies Lessee of such acceptance in writing,
Lessee hereby acknowledging that Lessor shall otherwise be reletting as Lessee's
agent. It is further agreed in this regard that in the event of any Event of
Default described in this Article XV, Lessor shall have the right to enter upon
the Leased Property and do whatever Lessee is obligated to do under the terms of
this Lease. Lessee agrees to reimburse Lessor
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on demand for any reasonable expenses which Lessor may incur in thus effecting
compliance with Lessee's obligations under this Lease, and further agrees that
Lessor shall not be liable for any damages resulting to Lessee from such action,
except as may result from Lessor's gross negligence or willful misconduct.
(b) Lessor may terminate this Lease by written notice to Lessee, in
which event Lessee shall immediately surrender the Leased Property to Lessor,
and if Lessee fails to do so, Lessor may, without prejudice to any other remedy
which Lessor may have for possession or arrearage in rent (including any
interest which may have accrued pursuant to Section 2.3 of this Lease or
otherwise), to the extent permitted by applicable law enter upon and take
possession of the Leased Property and expel or remove Lessee and any other
person who may be occupying said premises or any part thereof other than Tenants
pursuant to Tenant Leases. In addition, Lessee agrees to pay to Lessor on demand
the amount of all loss and damage which Lessor may suffer by reason of any
termination effected pursuant to this subsection (b), said loss and damage to be
determined, at Lessor's option, by either of the following alternative measures
of damages:
(i) Although Lessor shall be under no absolute obligation to
attempt and shall be obligated only to use reasonable efforts, to relet
the Leased Property, until the Leased Property is relet Lessee shall
pay to Lessor on or before the first day of each calendar month the
monthly rentals and other charges provided in this Lease. After the
Leased Property has been relet by Lessor, Lessee shall pay to Lessor on
the 10th day of each calendar month the difference between the monthly
rentals and other charges provided in this Lease for the preceding
calendar month and that actually collected by Lessor for such month. If
it is necessary for Lessor to bring suit in order to collect any
deficiency, Lessor shall have a right to allow such deficiencies to
accumulate and to bring an action on several or all of the accrued
deficiencies at one time. Any such suit shall not prejudice in any way
the right of Lessor to bring a similar action for any subsequent
deficiency or deficiencies. Any amount collected by Lessor from
subsequent tenants for any calendar month in excess of the monthly
rentals and other charges provided in this Lease shall be credited to
Lessee in reduction of Lessee's liability for any calendar month for
which the amount collected by Lessor will be less than the monthly
rentals and other charges provided in this Lease, but Lessee shall have
no right to such excess other than the above described credit; or
(ii) When Lessor desires, Lessor may demand a final settlement
not to exceed the Minimum Purchase Amount at the time of such final
settlement. Upon demand for a final settlement, Lessor shall have a
right to, and Lessee hereby agrees to pay, the difference between the
total of all monthly rentals and other charges provided in this Lease
for the remainder of the Term and the reasonable rental value of the
Leased Property for such period (including a reasonable time to relet
the Leased Property), as determined pursuant to the provisions of
Article XXVIII hereof, such difference to be discounted to present
value at a rate equal to the Treasury Yield then in effect with
maturity periods substantially equivalent to the balance of the Initial
Term or any Extended Term exercised by Lessee pursuant to the terms of
Article XXXIV.
The rights and remedies of Lessor hereunder are cumulative, and pursuit
of any of the above remedies shall not preclude pursuit of any other remedies
prescribed in other sections of this Lease and any other remedies provided by
law or equity. Forbearance by Lessor to enforce one or more of the remedies
herein provided upon an Event of Default shall not be deemed or construed to
constitute a waiver of such Event of Default. Exercise by Lessor of any one or
more remedies shall not constitute an acceptance of surrender of the Leased
Property by Lessee, it being understood that such surrender can be effected only
by the prior written agreement of Lessor and Lessee.
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XV.3 Additional Expenses. In addition to payments required pursuant to
subsections (a) and (b) of Section 15.2 above, Lessee shall compensate Lessor
for all reasonable expenses incurred by Lessor in repossessing the Leased
Property (including any increase in insurance premiums caused by the vacancy of
the Leased Property), all reasonable expenses incurred by Lessor in reletting
(including repairs, remodeling, replacements, advertisements and brokerage
fees), all reasonable concessions granted to a new tenant upon reletting
(including renewal options previously granted by Lessee), all fees and expenses
incurred by Lessor as a direct or indirect result of any appropriate action by a
Facility Mortgagee, any expenses of Lessor incurred for the installation of
separate lines or meters for any public utilities not previously metered
separately from adjacent property of Lessee.
XV.4 Application of Funds. All payments otherwise payable to Lessee which are
received by Lessor under any of the provisions of this Lease during the
existence or continuance of any Event of Default shall be applied to Lessee's
obligations in the order which Lessor may reasonably determine or as may be
prescribed by the laws of the state in which the Facility is located.
ARTICLE XVI
LESSOR'S RIGHT TO CURE
If Lessee, without the prior written consent of Lessor, shall fail to
make any payment, or to perform any act required to be made or performed under
this Lease and to cure the same within the relevant time periods provided in
Section 15.1, Lessor, without waiving or releasing any obligation or Event of
Default, may (but shall be under no obligation to) make such payment or perform
such act for the account and at the expense of Lessee, and may, to the extent
permitted by law, enter upon the Leased Property for such purpose and take all
such action thereon as, in Lessor's opinion, may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of Lessee. All sums so paid
by Lessor, together with a late charge thereon (to the extent permitted by law)
at the Overdue Rate from the date on which such sums or expenses are paid or
incurred by Lessor, and all costs and expenses (including reasonable attorneys'
fees and expenses, in each case, to the extent permitted by law) so incurred
shall be paid by Lessee to Lessor on demand. The obligations of Lessee and
rights of Lessor contained in this Article shall survive the expiration or
earlier termination of this Lease.
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ARTICLE XVII
PURCHASE OF THE LEASED PROPERTY
In the event Lessee purchases the Leased Property from Lessor pursuant
to any of the terms of this Lease, Lessor shall, upon receipt from Lessee of the
applicable purchase price (after credit for the balance of the Capital
Replacement Account), together with full payment of any unpaid Rent due and
payable with respect to any period ending on or before the date of the purchase
and any other amounts owing to Lessor hereunder, deliver to Lessee an
appropriate special warranty deed (in substantially the same form used to convey
the Leased Property to Lessor) and any other documents reasonably requested by
Lessee to convey the interest of Lessor in and to the Leased Property to Lessee,
and such other standard documents usually and customarily prepared in connection
with such transfers, free and clear of all encumbrances other than (a) those
that Lessee has agreed hereunder to pay or discharge, (b) those mortgage liens,
if any, which Lessee has agreed in writing to accept and to take title subject
to, (c) any other Encumbrances permitted to be imposed on the Leased Property
under the provisions of Article XXXII which are assumable at no cost to Lessee,
and (d) any matters affecting the Leased Property on or as of the Commencement
Date. The difference between the applicable purchase price and the total of the
encumbrances assigned or taken subject to shall be paid in cash to Lessor, or as
Lessor may direct, in federal or other immediately available funds except as
otherwise mutually agreed by Lessor and Lessee. The closing of any such sale
shall be contingent upon and subject to Lessee obtaining all required
governmental consents and approvals for such transfer. If such sale shall fail
to be consummated by reason of the inability of Lessee to obtain all such
approvals and consents, any options to extend the Term which otherwise would
have expired during the period from the date when Lessee elected or became
obligated to purchase the Leased Property until Lessee's inability to obtain the
approvals and consents is confirmed shall be deemed to remain in effect for 30
days after the end of such period. The closing with respect to any such sale
shall be appropriately timed to accommodate the determination of the Minimum
Purchase Amount in accordance with Article XXVIII. All expenses of such
conveyance, including the cost of title examination or standard coverage title
insurance, reasonable attorneys' fees incurred by Lessor in connection with such
conveyance, transfer taxes and recording fees shall be paid by Lessee.
Additionally, any sale to Lessee shall be subject to delivery of an opinion of
Lessor's counsel confirming that (i) the sale will not result in ordinary
recapture income to Lessor pursuant to Code Section 1245 or 1250 or any other
Code provision, (ii) the sale will result in income, if any, to Lessor of a type
described in Code Section 856(c)(2) or 856(c)(3) and will not result in income
of the types described in Code Section 856(c)(4) or result in the tax imposed
under Code Section 857(b)(6), and (iii) the sale, together with all other
substitutions and sales made or requested by Lessee pursuant to any other leases
with Lessor of properties hereto or any other transfers of the Leased Property
or the properties leased under other such operating leases, during the relevant
time period, will not jeopardize the qualification of Lessor as a real estate
investment trust under Code Sections 856-860.
ARTICLE XVIII
HOLDING OVER
If Lessee shall for any reason remain in possession of the Leased
Property after the expiration of the Term or any earlier termination of the Term
hereof, such possession shall be as a tenancy at will during which time Lessee
shall pay as rental each month an amount equal to the sum of (a) 150% of the
aggregate of 1/12 of the aggregate Minimum Rent payable with respect to the last
complete year prior to the expiration of the Term, plus (b) all Additional
Charges accruing during such month, plus (c) all other sums, if any, payable
pursuant to the provisions of this Lease with respect to the Leased Property.
During such period of tenancy, Lessee and Lessor shall be obligated to perform
and observe all of the terms, covenants and conditions of this Lease and to
continue its occupancy and use of the Leased Property. Nothing contained herein
shall constitute the consent, express or implied, of Lessor to the holding over
of Lessee after the expiration or earlier termination of this Lease.
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ARTICLE XIX
ABANDONMENT
XIX.1 Discontinuance of Operations on the Leased Property; Offer of
Substitution. If Lessee has discontinued use of the Leased Property for its
Primary Intended Use for 90 consecutive days without Lessor's prior written
consent for alterations or remodeling pursuant to Article IX, repairs or
restoration pursuant to Article XIII or Article XIV or otherwise, then provided
Lessor has not terminated this Lease pursuant to Section 15.2, Lessee may offer
to substitute a new property or properties for the Leased Property pursuant to
and in accordance with the provisions of Article XX (which offers Lessor may in
its sole discretion refuse).
XIX.2 Obsolescence of the Leased Property; Offer to Purchase. If the Leased
Property becomes Unsuitable for its Primary Intended Use, all as set forth in an
Officer's Certificate delivered to Lessor. Lessee may on or after the fifteenth
anniversary of the Commencement Date (provided this Lease is still in effect),
purchase the Leased Property for the Minimum Purchase Amount on the first
Payment Date occurring not less than 120 days after the date of such Officer's
Certificate.
XIX.3 Conveyance of Leased Property. In the event Lessee elects to purchase the
Leased Property pursuant to Section 19.2, then on the first Payment Date
occurring not less than 120 days after the date of the Officer's Certificate
referred to in Section 19.2, Lessor shall, upon receipt from Lessee of the
Minimum Purchase Amount as of the date of such purchase and all Rent and or
other sums then due and payable under this Lease (excluding any installment of
Minimum Rent due on such Payment Date), convey the Leased Property to Lessee on
such date in accordance with the provisions of Article XVII and this Lease shall
thereupon terminate as to the Leased Property.
XIX.4 Option to Purchase. In return for the payment by Lessee to Lessor of the
amount of $500.00 as valuable consideration and other good and valuable
consideration, the adequacy, sufficiency, payment and receipt of which are
hereby acknowledged, within 180 days prior to the end of the Initial Term and
each Extended Term exercised by Lessee pursuant to the terms of Article XXXIV,
Lessee shall have the option to purchase the Leased Property upon written notice
to Lessor for a purchase price equal to the Minimum Purchase Amount. If not
sooner exercised, the option to purchase granted hereby will expire and be of no
further force and effect upon the expiration the Term or the termination of this
Lease pursuant to the terms of Article XV.
ARTICLE XX
SUBSTITUTION OF PROPERTY
XX.1 Substitution of Property for the Leased Property.
(a) In the event Lessor accepts an offer by Lessee to substitute other
property for the Leased Property under Article XIII, Article XIV or Article XIX,
and provided that no Event of Default shall have occurred and be continuing,
Lessee shall have the right (subject to the conditions set forth below in this
Article XX, and upon notice to Lessor) to substitute one or more properties
(collectively referred to as "Substitute Properties" or individually as a
"Substitute Property") for the Leased Property on a monthly Payment Date
specified in such notice (the "Substitution Date") occurring not less than 90
days after receipt by Lessor of such notice. The notice shall be in the form of
an Officer's Certificate and shall specify the reason(s) for the proposed
substitution and the proposed Substitution Date. Notwithstanding anything
contained herein to the contrary, any other substitution for the Leased Property
shall require the prior written consent of Lessor which shall be within the sole
discretion of Lessor.
(b) If Lessee gives the notice referred to in Section 20.1(a) above,
Lessee shall present to Lessor one or more properties (or groups of properties)
each of which property (or groups of properties)
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shall provide Lessor with a yield (i.e., an annual return on its equity in such
property) equal to or greater than the Current Yield (and the yield reasonably
expected to be received thereafter throughout the remainder of the term) from
the Leased Property at the time of such proposed substitution (or in the case of
a proposed substitution as a result of damage, destruction or Condemnation, the
Current Yield immediately prior to such damage, destruction or Condemnation) and
as reasonably projected over the remaining Term of this Lease and shall have a
Fair Market Value substantially equivalent to the Fair Market Value of the
Leased Property. Lessor shall have a period of 90 days within which to review
such information and either to accept or to reject the Substitute Property or
Substitute Properties so presented; provided that if Lessee is required by a
court order or administrative action to divest or otherwise dispose of the
Leased Property within a shorter time period, in which case the time period
shall be shortened appropriately to meet the reasonable needs of Lessee, but in
no event shall said period be less than 15 Business Days after Lessor's receipt
of said notice (subject to further extension for any period of time in which
Lessor is not timely provided with the information provided for in Section 20.2
and Section 20.3 below); provided that if Lessor shall contend that the
Substitute Properties fail to meet all the conditions for substitution set forth
in this Article XX, including the provisions of Sections 20.1(c), (d) and (e)
below, the matter shall be submitted to arbitration in accordance with Article
XXXI and the time periods for Lessor's approval or rejection shall be tolled
during the period of such arbitration.
(c) It shall be a condition to consummation of any substitution
hereunder that all of the conditions set forth in Section 20.2 below, shall have
been satisfied with respect to such substitution, and to the delivery of an
opinion of counsel for Lessor confirming that (i) the substitution of the
Substitute Property for the Leased Property will qualify as an exchange solely
of property of a like-kind under Section 1031 of the Code, in which, generally,
except for "boot" such as cash needed to equalize exchange values or discharge
indebtedness, no gain or loss is recognized to Lessor, (ii) the substitution or
sale will not result in ordinary recapture income to Lessor pursuant to Code
Section 1245 or 1250 or any other Code provision, (iii) the substitution or sale
will result in income, if any, to Lessor of a type described in Code Section
856(c)(2) or 856(c)(3) and will not result in income of the types described in
Code Section 856(c)(4) or result in the tax imposed under Code Section
857(b)(6), and (iv) the substitution or sale, together with all other
substitutions and sales made or requested by Lessee pursuant to any other leases
with Lessor of properties hereto or any other transfers of the Leased Property
or the properties leased under other such operating leases, during the relevant
time period, will not jeopardize the qualification of Lessor as a real estate
investment trust under Code Sections 856-860.
(d) In the event that the equity value of the Substitute Property or
group of Substitute Properties (i.e., the Fair Market Value of the Substitute
Property or group of Substitute Properties minus the encumbrances subject to
which Lessor will take the Substitute Property or group of Substitute
Properties) as of the Substitution Date is greater than the equity value of the
Leased Property (i.e., the Fair Market Value of the Leased Property minus the
encumbrances subject to which Lessee will take the Leased Property) as of the
Substitution Date (or in the case of damage destruction or Condemnation, the
Fair Market Value immediately prior to such damage, destruction or
Condemnation), Lessor shall pay to Lessee an amount equal to the difference,
subject to the limitation set forth below. In the event that said equity value
of the Substitute Property or group of Substitute Properties is less than said
equity value of the Leased Property, Lessee shall pay to Lessor an amount equal
to the difference, subject to the limitation set forth below. Notwithstanding
the foregoing, neither Lessor nor Lessee shall be obligated to consummate any
substitution if such party would be required to make a payment to the other in
excess of an amount equal to ten percent of said Fair Market Value of the Leased
Property (the amount of cash paid by one party to the other being hereinafter
referred to as the "Cash Adjustment").
(e) The Rent for such Substitute Property in all respects shall provide
Lessor with a yield at the time of such substitution (i.e., annual return on its
investment in such Substitute Property) not less than the Current Yield (and the
yield reasonably expected to be received thereafter throughout the remainder of
the Term) from the Leased Property prior to any damage, destruction or
Condemnation, taking into account the Cash Adjustment paid or received by Lessor
and any other relevant factors.
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(f) The Minimum Purchase Amount of any Substitute Property or
Substitute Properties shall be an amount equal to the Minimum Purchase Amount of
the Leased Property on the Substitution Date (i) increased by any Cash
Adjustment paid by Lessor pursuant to Section 20.1(d) above, or (ii) decreased
by any Cash Adjustment paid by Lessee pursuant to Section 20.1(d) above.
XX.2 Conditions to Substitution. On the Substitution Date, the Substitute
Property will become the Leased Property hereunder upon delivery by Lessee to
Lessor of the following items in form and substance reasonably satisfactory to
Lessor:
(a) an Officer's Certificate representing, warranting and certifying
that (i) the Substitute Property has been accepted by Lessee for all purposes of
this Lease and there has been no material damage to the improvements located on
the Substitute Property nor is any condemnation or eminent domain proceeding
pending with respect thereto; (ii) all permits, licenses and certificates
(including a permanent, unconditional certificate of occupancy and, to the
extent permitted by law, all certificates of need and licenses) which are
necessary to permit the use of the Substitute Property in accordance with the
provisions of this Lease have been obtained and are in full force and effect;
(iii) under applicable zoning and use laws, ordinances, rules and regulations
the Substitute Property may be used for the purposes contemplated by Lessee and
all necessary subdivision approvals have been obtained; (iv) there are no
mechanic's or materialmen's liens outstanding or threatened to the knowledge of
Lessee against the Substitute Property arising out of or in connection with the
construction of the improvements thereon, other than those being contested by
Lessee pursuant to Article XI; (v) any mechanic's or materialmen's liens being
contested by Lessee will be promptly paid by Lessee if such contest is resolved
in favor of the mechanic or materialman; (vi) to the best knowledge of Lessee,
there exists no Event of Default under this Lease, and no defense, offset or
claim exists with respect to any sums to be paid by Lessee hereunder; and (vii)
any exceptions to Lessor's title to the Substitute Property do not materially
interfere with the intended use of the Substitute Property by Lessee;
(b) a special warranty deed with warranties against claims arising
under Lessee conveying to Lessor title to the Substitute Property free and clear
of any liens and encumbrances except those approved in writing or assumed by
Lessor;
(c) a lease duly executed, acknowledged and delivered by Lessee,
containing the same terms and conditions as are contained herein, except that
(i) the legal description of the Land shall refer to the Substitute Property,
(ii) the Minimum Purchase Amount, Rent and any Additional Charges for the
Substitute Property shall be consistent with the requirements of Section 20.1
and (iii) such other changes therein as may be necessary or appropriate under
the circumstances shall be made;
(d) a standard owner's or lessee's (as applicable) policy of title
insurance covering the Substitute Property (or a valid, binding, unconditional
commitment therefor), dated the Substitution Date, in current form and including
mechanics' and materialmen's lien coverage, issued to Lessor by a title
insurance company reasonably satisfactory to Lessor. Such policy shall (i)
insure (A) Lessor's fee title to the Substitute Property, subject to no liens or
encumbrances except those approved or assumed by Lessor, and (B) that any
restrictions affecting the Substitute Property have not been violated and that a
further violation thereof will not result in a forfeiture or reversion of title,
(ii) be in an amount at least equal to the Fair Market Value of the Substitute
Property, and (iii) contain such endorsements as may be reasonably requested by
Lessor;
(e) certificates of insurance with respect to the Substitute Property
fulfilling the requirements of Article XII;
(f) current appraisals or other evidence satisfactory to Lessor, in its
sole discretion, as to the current Fair Market Values of such Substitute
Property;
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(g) all available revenue data relating to the Substitute Property for
the period from the date of opening for business of the Substitute Property to
the date of Lessee's most recent Fiscal-Year end, or for the most recent three
years, whichever is less; and
(h) such other certificates, documents, opinions of counsel (which may
be in-house counsel), and other instruments as may be reasonably required by
Lessor.
XX.3 Conveyance to Lessee. On the Substitution Date Lessor will convey the
Leased Property to Lessee in accordance with the provisions of Article XVII
(except as to payment of any expenses in connection therewith which shall be
governed by Section 20.4 below) upon either (a) payment in cash therefor or (b)
conveyance to Lessor of the Substitute Property, as appropriate.
XX.4 Expenses. Lessee shall pay or cause to be paid, on demand, all reasonable
costs and expenses paid or incurred by Lessor in connection with the
substitution and conveyance of the Leased Property and the Substitute Property,
including (a) fees and expenses of Lessor's counsel, (b) the amount of any
recording taxes and filing fees, (c) the cost of preparing and recording, if
appropriate, a release of the Leased Property from the lien of any mortgage, (d)
broker's fees and commissions for Lessee, if any, (e) documentary stamp and
transfer taxes, if any, (f) title insurance charges, and (g) escrow fees, if
any.
ARTICLE XXI
RISK OF LOSS
Except as otherwise provided in this Lease, during the Term of this
Lease, the risk of loss or of decrease in the enjoyment and beneficial use of
the Leased Property in consequence of the damage or destruction thereof by fire,
the elements, casualties, thefts, riots, wars or otherwise, or in consequence of
foreclosures, attachments, levies or executions (other than by Lessor and those
claiming from, through or under Lessor) is assumed by Lessee and, Lessor shall
in no event be answerable or accountable therefor nor shall any of the events
mentioned in this Section entitle Lessee to any abatement of the Rent except as
specifically provided in this Lease.
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ARTICLE XXII
INDEMNIFICATION
Notwithstanding the existence of any insurance or self insurance
provided for in Article XII, and without regard to the policy limits of any such
insurance or self insurance, Lessee will protect, indemnify, save harmless and
defend Lessor from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including reasonable attorneys'
fees and expenses), to the extent permitted by law, imposed upon or incurred by
or asserted against Lessor by reason of: (a) any accident, injury to or death of
persons or loss to property occurring on or about the Leased Property, including
any claims of malpractice, (b) any use, misuse, no use, condition, maintenance
or repair by Lessee of the Leased Property, (c) any Impositions (which are the
obligations of Lessee to pay pursuant to the applicable provisions of this
Lease), (d) any failure on the part of Lessee to perform or comply with any of
the terms of this Lease, (e) the non-performance of any of the terms and
provisions of any and all existing and future subleases of the Leased Property
to be performed by Lessee as landlord thereunder and (f) the violation of any
Hazardous Materials Law. Any amounts which become payable by Lessee under this
Section shall be paid within ten days after liability therefor on the part of
Lessor is finally determined by litigation or otherwise (including the
expiration of any time for appeals) and, if not timely paid, shall bear interest
(to the extent permitted by law) at the Overdue Rate from the date of such
determination to the date of payment. Lessee, at its expense, shall contest,
resist and defend any such claim, action or proceeding asserted or instituted
against Lessor or may compromise or otherwise dispose of the same as Lessee sees
fit. Lessor shall cooperate with Lessee in a reasonable manner to permit Lessee
to satisfy Lessee's obligations hereunder, including the execution of any
instruments or documents reasonably requested by Lessee. Nothing herein shall be
construed as indemnifying Lessor or its agents for their own negligent acts or
omissions or willful misconduct. Lessee's liability for a breach of the
provisions of this Article shall survive any termination of this Lease.
ARTICLE XXIII
SUBLETTING AND ASSIGNMENT
XXIII.1 Subletting and Assignment. Subject to the rights of Tenants under
existing Tenant Leases and subject to the provisions of Section 23.3 below and
any other express conditions or limitations set forth herein, Lessee may,
without the consent of Lessor, sublet all or any part of the Leased Property
consistently with the Primary Intended Use. Lessor shall not unreasonably
withhold its consent to any other or further subletting or assignment; provided
that (a) in the case of a subletting, the sublessee shall comply with the
provisions of Section 23.2, (b) in the case of an assignment, the assignee shall
assume in writing and agree to keep and perform all of the terms of this Lease
on the part of Lessee to be kept and performed and shall be and become jointly
and severally liable with Lessee for the performance thereof, (c) an original
counterpart of each such sublease and assignment and assumption, duly executed
by Lessee and such sublessee or assignee, as the case may be, in form and
substance reasonably satisfactory to Lessor, shall be delivered promptly to
Lessor, and (d) in case of either an assignment or subletting, Lessee shall
remain primarily liable, as principal rather than as surety, for the prompt
payment of the Rent and for the performance and observance of all of the
covenants and conditions to be performed by Lessee hereunder. In addition to
Lessee's rights to sublet and assign as provided in this section above, Lessee
shall also have the right (upon Lessor's prior consent, which consent shall not
unreasonably be withheld) to enter into Tenant Leases which extend beyond the
Term of this Lease. To the extent that any such Tenant Leases extend beyond the
Term of this Lease, Lessor shall receive the rents from, and be responsible for
any obligations on the part of the landlord or lessor under such Tenant Leases.
Any and all such Tenant Leases shall, to the extent applicable, be subject to
the provisions of this Section and Section 23.2.
XXIII.2 Non-Disturbance, Subordination and Attornment. Except for existing
Tenant Leases, Lessee shall insert in each written sublease permitted under
Section 23.1 provisions to the effect that (a)
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such sublease is subject and subordinate to all of the terms and provisions of
this Lease and to the rights of Lessor hereunder, (b) in the event this Lease
shall terminate before the expiration of such sublease, the sublessee thereunder
will, at Lessor's option, attorn to Lessor and waive any right the sublessee may
have to terminate the sublease or to surrender possession thereunder as a result
of the termination of this Lease and (c) in the event the sublessee receives a
written notice from Lessor or Lessor's assignees, if any, stating that Lessee is
in default under this Lease, the sublessee, shall thereafter be obligated to pay
all rentals accruing under said sublease directly to the party giving such
notice, or as such party may direct. All rentals received from the sublessee by
Lessor or Lessor's assignees, if any, shall be credited against amounts owing by
Lessee under this Lease. Lessor agrees that notwithstanding any default,
termination, expiration, sale, entry or other act or omission of Lessee pursuant
to the terms of this Lease, or at law or in equity, Tenant's possession shall
not be disturbed unless such possession may otherwise be terminated pursuant to
the terms of the applicable Tenant Lease. Lessor hereby agrees, upon Lessee's
request, to execute a nondisturbance agreement in favor of any Tenant or in
favor of any sublessee under any sublease permitted under Section 23.1 above;
provided that the Tenant or any such sublessee has acknowledged all of the
foregoing provisions and executed all documents required by this Section 23.2.
ARTICLE XXIV
OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS
XXIV.1 Estoppel Certificate. At any time and from time to time within 20 days
following written request by Lessor, Lessee will furnish to Lessor an Officer's
Certificate certifying that this Lease is unmodified and in full force and
effect (or that this Lease is in full force and effect as modified and setting
forth the modifications) and the dates to which the Rent has been paid. Any such
Officer's Certificate furnished pursuant to this Article may be relied upon by
Lessor, any prospective purchaser of the Leased Property and any third parties
who have an interest in the Leased Property, including any Lender or
professional advisor or Lessor.
XXIV.2 Financial Statements and Certificates. Lessee will furnish the following
statements to Lessor; provided that Lessor shall keep confidential items
furnished by Lessee which are not generally available to the public:
(i) within 120 days after the end of each Fiscal Year (A) a
copy of the Consolidated Financial Statements for such Fiscal Year; (B)
an Officer's Certificate stating (x) that no Event of Default, or event
which, with the giving of notice or the passage of time, or both, would
constitute an Event of Default, has occurred and is continuing and has
not been waived, or, if there shall have occurred and be continuing
such an Event of Default, specifying the nature thereof and the steps
being taken to remedy the same, and (y) that to the best of the
signer's knowledge and belief, Lessee is not in default in the
performance or observance of any of the terms of any loans or credit
facilities, which by their terms would permit an outstanding balance
equal to or greater than $10,000,000.00 in the aggregate, which default
would permit the holder thereof to accelerate its stated maturity; (C)
a current rent or lease roll for the Leased Property setting forth
rental information in reasonable detail regarding all of the Tenants
and Tenant Leases, including any space utilized by Lessee; (D) a
statement of revenues and expenses of the Leased Property for the
twelve-month period then ended in detail reasonably satisfactory to
Lessor; (E) a certificate in form acceptable to Lessor that the
required Consolidated Coverage Ratio and Facility Coverage Ratio for
the applicable period has been achieved;
(ii) within 15 days after request by Lessor, (A) a statement
of the number of beds available and the actual patient-days for the
most recent month, quarter and year, (B) census information for the
Facility in sufficient detail to show patient-mix on a daily average
basis for the prior quarter and year, and (C) an aged accounts
receivable report in sufficient detail to show
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amounts due from each class of patient-mix (such as private, Medicare,
Medicaid and V.A.) by the account age classifications of 30 days, 60
days, 90 days, 120 days, and over 120 days;
(iii) within 15 days after filing or receipt, as the case may
be, (A) all cost reports filed with any regulatory or licensing agency
and any amendments thereto, together with all responses, audit reports
or inquiries with respect to such cost reports, (B) copies of all
licensure and certification survey reports and statements of
deficiencies with respect to the Facility (with correction plans
attached thereto), (C) copies of the Medicaid rate calculation
worksheet (or equivalent thereof), if any, issued by the applicable
Medicaid Agency, (D) copies of all notices (regardless of form) from
any and all licensing and/or certifying agencies that the license or
applicable reimbursement certification for the Facility is being
downgraded to a substandard category, revoked or suspended or that
action is pending or being considered to downgrade to a substandard
category, revoke or suspend the Facility's license or certification,
and (E) evidence of the payment of any bed taxes or similar taxes;
(iv) within 30 days after filing, copies of the 10-Q and 10-K
Reports of Guarantor filed with the United States Securities and
Exchange Commission;
(v) within 45 days after the end of each quarter, a
certificate in form acceptable to Lessor that the required Consolidated
Coverage Ratio and Facility Coverage Ratio for the quarter then ended
has been achieved; and
(vi) with reasonable promptness, such other information
respecting the financial condition, affairs and properties of Lessee as
Lessor may reasonably request from time to time.
ARTICLE XXV
INSPECTION
Lessee shall permit Lessor and its authorized representatives to
inspect the Leased Property during usual business hours subject to any security,
health, safety or confidentiality requirements of Lessee, the rights of the
Tenants, any Insurance Requirements relating to the Leased Property, or any
other restrictions imposed by law or applicable regulations.
ARTICLE XXVI
QUIET ENJOYMENT
So long as Lessee shall pay all Rent as the same becomes due and shall
fully comply with all of the terms of this Lease and perform its obligations
hereunder, Lessee shall peaceably and quietly have, hold and enjoy the Leased
Property for the Term hereof, free of any claim or other action by Lessor or
anyone claiming by, through or under Lessor, but subject to all liens and
encumbrances of record as of the date hereof or hereafter consented to by
Lessee. No failure by Lessor to comply with the foregoing covenant shall give
Lessee any right to cancel or terminate this Lease, or to fail to pay any other
sum payable under this Lease, or to fail to perform any other obligation of
Lessee hereunder. Notwithstanding the foregoing, Lessee shall have the right by
separate and independent action to pursue any claim or seek any damages it may
have against Lessor as a result of a breach by Lessor of the covenant of quiet
enjoyment contained in this Article.
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ARTICLE XXVII
NOTICES
Any notices, demands, approvals and other communications provided for
herein shall be in writing and shall be delivered by telephonic facsimile,
overnight air courier, personal delivery or registered or certified U.S. Mail
with return receipt requested, postage paid, to the appropriate party at its
address as follows:
If to Lessor:
CAPSTONE CAPITAL CORPORATION
1000 Urban Center Drive
Suite 630
Birmingham, Alabama 35242
Attention: Mr. Daryl D. McCombs
Telephone: (205) 967-2092
Telecopy: (205) 967-9066
With a copy to:
Mr. Thomas A. Ansley
Sirote & Permutt, P.C.
2222 Arlington Avenue South
Birmingham, Alabama 35205
Telephone: (205) 930-5300
Telecopy: (205) 930-5301
If to Lessee or Guarantor:
INTEGRATED LIVING COMMUNITIES, INC.
Brentwood Centre
24850 Old 41 Road
Suite 10
Bonita Springs, Florida 34135-7022
Attention: Mr. John B. Poole
Telephone: (941) 947-7200
Telecopy: (941) 947-7201
With a copy to:
INTEGRATED LIVING COMMUNITIES, INC.
Brentwood Centre
24850 Old 41 Road
Suite 10
Bonita Springs, Florida 34135-7022
Attention: Ms. Geralyn Kidera
Telephone: (941) 947-7222
Telecopy: (941) 947-7201
Addresses for notice may be changed from time to time by written notice
to all other parties. Any communication given by mail will be effective (i) upon
the earlier of (a) five business days following deposit in a post office or
other official depository under the care and custody of the United States Postal
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Service or (b) actual receipt, as indicated by the return receipt; (ii) if given
by telephone facsimile, when sent; and (iii) if given by personal delivery or by
overnight air courier, when delivered to the appropriate address set forth.
ARTICLE XXVIII
APPRAISAL
In the event that it becomes necessary to determine the Fair Market
Value, Fair Market Value Purchase Amount, the Fair Market Added Value, the
Minimum Purchase Amount or the Fair Market Rental Value of the Leased Property
or a Substitute Property for any purpose of this Lease, the party required or
permitted to give notice of such required determination shall include in the
notice the name of a person selected to act as an appraiser on its behalf.
Within ten days after receipt of any such notice, Lessor (or Lessee, as the case
may be) shall by notice to Lessee (or Lessor, as the case may be) appoint a
second person as an appraiser on its behalf. The appraisers thus appointed (each
of whom must be a member of the American Institute of Real Estate Appraisers or
any successor organization thereto) shall, within 45 days after the date of the
notice appointing the first appraiser, proceed to appraise the Leased Property
or the Substitute Property, as the case may be, to determine any of the
foregoing values as of the relevant date (giving effect to the impact, if any,
of inflation from the date of their decision to the relevant date); provided
that if only one appraiser shall have been so appointed, or if two appraisers
shall have been so appointed but only one such appraiser shall have made such
determination within 50 days after the making of Lessee's or Lessor's request,
then the determination of such appraiser shall be final and binding upon the
parties. If two appraisers shall have been appointed and shall have made their
determinations within the respective requisite periods set forth above and if
the difference between the amounts so determined shall not exceed ten percent of
the lesser of such amounts, then the Fair Market Value or Fair Market Added
Value or the Fair Market Rental Value shall be an amount equal to 50% of the sum
of the amounts so determined. If the difference between the amounts so
determined shall exceed 10% of the lesser of such amounts, then such two
appraisers shall have 20 days to appoint a third appraiser, but if such
appraisers fail to do so, then either party may request the American Arbitration
Association or any successor organization thereto to appoint an appraiser within
20 days of such request, and both parties shall be bound by any appointment so
made within such 20-day period. If no such appraiser shall have been appointed
within such 20 days or within 90 days of the original request for a
determination of Fair Market Value or Fair Market Added Value or the Fair Market
Rental Value, whichever is earlier, either Lessor or Lessee may apply to any
court having jurisdiction to have appointment made by such court. Any appraiser
appointed, by the American Arbitration Association or by such court, shall be
instructed to determine the Fair Market Value or Fair Market Added Value or the
Fair Market Rental Value within 30 days after appointment of such appraiser. The
determination of the appraiser which differs most in terms of dollar amount from
the determinations of the other two appraisers shall be excluded, and 50% of the
sum of the remaining two determinations shall be final and binding upon Lessor
and Lessee as the Fair Market Value or Fair Market Added Value or the Fair
Market Rental Value for such interest. However, in the event that following the
appraisal performed by said third appraiser, the dollar amount of two of such
appraisals are higher and lower, respectively, than the dollar amount of the
remaining appraisal in equal degrees, the determinations of both the highest and
lowest appraisal, respectively, shall be rejected and the determination of the
remaining appraisal shall be final and binding upon Lessor and Lessee as the
Fair Market Value or Fair Market Added Value or the Fair Market Rental Value for
such interest. This provision for determination by appraisal shall be
specifically enforceable to the extent such remedy is available under applicable
law, and any determination hereunder shall be final and binding upon the parties
except as otherwise provided by applicable law. Lessor and Lessee shall each pay
the fees and expenses of the appraiser appointed by it and each shall pay
one-half of the fees and expenses of the third appraiser and one-half of all
other costs and expenses incurred in connection with each appraisal.
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ARTICLE XXIX
PURCHASE RIGHTS
During the Term hereof (provided that no Event of Default has occurred
and is continuing), Lessee shall have a first refusal option to purchase the
Leased Property upon the same terms and conditions as Lessor, or its successors
and assigns, shall have received an offer from a third party to purchase the
Leased Property, which Lessor intends to accept (or has accepted subject to
Lessee's right of first refusal granted herein). If, during the Term, Lessor
receives such an offer or reaches such agreement with a third party, Lessor
shall promptly notify Lessee of the purchase price for the Leased Property and
all other material terms and conditions of such agreement or proposed sale
together with a copy of such offer, and Lessee shall have 30 days after receipt
of such notice from Lessor within which time to exercise Lessee's option to
purchase. If Lessee exercises its option, then such purchase shall be
consummated within the time set forth in the third-party offer and in accordance
with the provisions of Article XVII hereof to the extent not inconsistent
herewith. If Lessee shall not exercise Lessee's option to purchase within said
30-day period after receipt of said notice from Lessor, Lessor shall be free for
a period of 90 days after the expiration of said 30-day period to sell the
Leased Property to the third party at the price and terms set forth in such
offer. Whether or not such sale is consummated, Lessee shall be entitled to
exercise its right of first refusal as provided in this Article, as to any
subsequent sale of the Leased Property during the Term of this Lease.
ARTICLE XXX
DEFAULT BY LESSOR
XXX.1 Default by Lessor. Lessor shall be in default of its obligations under
this Lease if Lessor shall fail to observe or perform any term, covenant or
condition of this Lease on its part to be performed and such failure shall
continue for a period of 30 days after written notice thereof is received by
Lessor, unless such failure cannot with due diligence be cured within a period
of 30 days, in which case such failure shall not be deemed to continue if
Lessor, within said 30-day period, proceeds promptly and with due diligence to
cure the failure and diligently completes the curing thereof. The time within
which Lessor shall be obligated to cure any such failure shall also be subject
to extension of time due to the occurrence of any Unavoidable Delay. In the
event Lessor fails to cure any such default, Lessee, without waiving or
releasing any obligations hereunder, and in addition to all other remedies
available to Lessee hereunder or at law or in equity, may purchase the Leased
Property from Lessor for a purchase price equal to the greater of the Fair
Market Value Purchase Amount or the Minimum Purchase Amount of the Leased
Property minus an amount equal to any damage suffered by Lessee by reason of
such default. In the event Lessee elects to purchase the Leased Property, it
shall deliver a notice thereof to Lessor specifying a Payment Date occurring no
less than 90 days subsequent to the date of such notice on which it shall
purchase the Leased Property, and the same shall be thereupon conveyed in
accordance with the provisions of Article XVII. Any sums owed Lessee by Lessor
hereunder shall bear interest at the Overdue Rate from the date due and payable
until the date paid.
XXX.2 Lessee's Right to Cure. Subject to the provisions of Section 30.1, if
Lessor shall breach any covenant to be performed by it under this Lease, Lessee,
after giving notice to and demand upon Lessor in accordance with Section 30.1,
without waiving or releasing any obligation of Lessor hereunder, and in addition
to all other remedies available to Lessee hereunder and at law or in equity,
Lessee may (but shall be under no obligation at any time thereafter to) make
such payment or perform such act for the account and at the expense of Lessor.
All sums so paid by Lessee and all costs and expenses (including reasonable
attorneys' fees) so incurred, together with interest thereon at the Overdue Rate
from the date on which such sums or expenses are paid or incurred by Lessee,
shall be paid by Lessor to Lessee on demand or set off against the Rent. The
rights of Lessee hereunder to cure and to secure payment from Lessor in
accordance with this Section 30.2 shall survive the termination of this Lease.
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ARTICLE XXXI
ARBITRATION
XXXI.1 Controversies. Except with respect to the payment of Minimum Rent
hereunder, in case any controversy shall arise between the parties hereto as to
any of the requirements of this Lease or the performance thereof which
controversy the parties shall be unable to settle by agreement or as otherwise
provided herein, such controversy shall be determined by arbitration to be
initiated and conducted as provided in this Article XXXI.
XXXI.2 Appointment of Arbitrators. The party or parties requesting arbitration
shall serve upon the other a written demand therefor specifying the matter to be
submitted to arbitration, and nominating an arbitrator who is a member in good
standing of the American Arbitration Association ("AAA"). Within 20 days after
receipt of such written demand and notification, the other party shall, in
writing, nominate a person who is a member in good standing with AAA and the two
arbitrators so designated shall, within ten days thereafter, select a third
arbitrator who is a person who is a member in good standing with AAA and give
immediate written notice of such selection to the parties and shall fix in said
notice a time and place for the first meeting of the arbitrators, which meeting
shall be held as soon as conveniently possible after the selection of all
arbitrators, at which time and place the parties to the controversy may appear
and be heard.
XXXI.3 Third Arbitrator. In case the notified party or parties shall fail to
make a selection upon notice, as aforesaid, or in case the first two arbitrators
selected shall fail to agree upon a third arbitrator within ten days after their
selection, then such arbitrator or arbitrators may, upon application made by
either of the parties to the controversy, after 20 days' written notice thereof
to the other party or parties, have a third arbitrator appointed by any judge of
any United States court of record having jurisdiction in the state in which the
Leased Property is located or, if such office shall not then exist, by a judge
holding an office most nearly corresponding thereto.
XXXI.4 Arbitration Procedure. Said arbitrators shall give each of the parties
not less than ten days' written notice of the time and place of each meeting at
which the parties or any of them may appear and be heard and after hearing the
parties in regard to the matter in dispute and taking such other testimony and
making such other examinations and investigations as justice shall require and
as the arbitrators may deem necessary, they shall decide the questions submitted
to them in accordance with the rules of AAA. The decision of said arbitrators in
writing signed by a majority of them shall be final and binding upon the parties
to such controversy. In rendering such decisions and award, the arbitrators
shall not add to, subtract from or otherwise modify the provisions of this
Lease.
XXXI.5 Expenses. The expenses of such arbitration shall be divided between
Lessor and Lessee unless otherwise specified in the decision of the arbitrators.
Each party in interest shall pay the fees and expenses of its own counsel.
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ARTICLE XXXII
FINANCING OF THE LEASED PROPERTY
Lessor agrees that it will not grant or create any mortgage, deed of
trust, lien, encumbrance or other title retention agreement upon the Leased
Property to secure any indebtedness of Lessor (an "Encumbrance"), unless each
holder of such an Encumbrance agrees (a) to give Lessee the same notice, if any,
given to Lessor of any default or acceleration of any obligation underlying any
such Encumbrance or any sale in foreclosure of such Encumbrance, (b) to permit
Lessee to appear with its representatives and to bid at any public foreclosure
sale with respect to any such Encumbrance, (c) agrees to release the Leased
Property from the Encumbrance upon the exercise by Lessee of a right to purchase
contained in this Lease and the payment by Lessee of the applicable purchase
price, and (d) enters into an agreement with Lessee containing the provisions
described in Article XXXIII of this Lease. Lessee agrees to execute and deliver
to Lessor or the holder of an Encumbrance any written agreement required by this
Article within ten days of written request thereof by Lessor or the holder of an
Encumbrance. Lessee hereby consents to the assignment of and grant of a security
interest and lien in this Lease together with the other documents and
instruments delivered to Lessor by Lessee and Guarantor pursuant hereto and in
connection herewith (collectively, the "Assigned Documents"), including all
rights of Lessor in, to and under each Assigned Document, by Lessor to any
Facility Mortgagee requesting same. Lessee hereby further agrees to execute a
Consent to Assignment in substantially the form attached hereto as Exhibit G.
ARTICLE XXXIII
SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE
At the request from time to time by one or more holders of an
Encumbrance that may hereafter be placed upon the Leased Property or any part
thereof, and any and all renewals, replacements, modifications, consolidations,
spreaders and extensions thereof, Lessee will subordinate this Lease and all of
Lessee's rights and estate hereunder to each such Encumbrance and will attorn to
and recognize such holder (or the purchaser at any foreclosure sale or any sale
under a power of sale contained in any such Encumbrance or a holder by a deed in
lieu of foreclosure, as the case may be) as Lessor under this Lease for the
balance of the Term then remaining, subject to all of the terms and provisions
of this Lease; provided that each such institutional holder simultaneously with
or prior to recording any such Encumbrance executes and delivers a written
agreement in recordable form (a) consenting to this Lease and agreeing that,
notwithstanding any such other lease, mortgage, deed of trust, right, title or
interest, or any default, expiration, termination, foreclosure, sale, entry or
other act or omission under, pursuant to or affecting any of the foregoing,
Lessee shall not be disturbed in peaceful enjoyment of the Leased Property nor
shall this Lease be terminated or canceled at any time, except in the event
Lessor shall have the right to terminate this Lease under the terms and
provisions expressly set forth herein; (b) agreeing that it will be bound by all
the terms of this Lease, perform and observe all of Lessor's obligations set
forth herein; and (c) agreeing that all proceeds of the casualty insurance
described in Article XIII of this Lease and all Awards described in Article XIV
will be made available to Lessor for restoration of the Leased Property as and
to the extent required by this Lease, subject only to reasonable regulation
regarding the manner of disbursement and application thereof. Lessee agrees to
execute and deliver to Lessor or the holder of an Encumbrance any written
agreement required by this Article within ten days of written request thereof by
Lessor or such holder of an Encumbrance. Lessee agrees to execute from time to
time, at the request of Lessor, an institutional investor of Lessor's or a
Facility Mortgagee, a certificate setting forth any defaults of Lessor hereunder
and the dates through which Rent has been paid and such other matters as may be
reasonably requested.
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ARTICLE XXXIV
EXTENDED TERMS
If no Event of Default shall have occurred and be continuing, Lessee is
hereby granted the right to extend the Term of this Lease for three additional,
consecutive five-year periods ("Extended Term") for a maximum possible Term of
approximately 30 years, by giving written notice to Lessor of each such
extension at least 180 days, prior to the expiration of the then-current Term;
subject, however, to the provisions of Section 13.7 hereof. Lessee may not
exercise its option for more than one Extended Term at a time and may exercise
the option to extend only if all of the Related Leases are simultaneously
extended by Lessee or its Affiliates. During each Extended Term, all of the
terms and conditions of this Lease shall continue in full force and effect,
except that the Minimum Rent for and during each of the Extended Terms shall be
the greater of (i) the Fair Market Rental Value on the first day of such
Extended Term or (ii) the Minimum Rent in effect immediately prior to the first
day of such Extended Term. In any event, the Minimum Rent shall continue to be
increased throughout the Extended Terms in accordance with the provisions of
Section 2.1(b) hereof.
ARTICLE XXXV
GUARANTY
XXXV.1 Guarantee. In consideration of Lessor's agreement to fund the Purchase
Amount for the purchase of the Leased Property pursuant to the Purchase
Agreement and in consideration of the execution of this Lease by Lessor, and
upon the terms and provisions hereof, Guarantor hereby irrevocably, absolutely
and unconditionally warrants and guarantees (the "Guaranty") to Lessor the
prompt and full payment and performance of all of Lessee's obligations under
this Lease (the "Guaranteed Obligations").
XXXV.2 Obligations of Guarantor Upon Default. Upon the occurrence of any Event
of Default under this Lease, Guarantor shall, upon demand of Lessor: (i)
immediately cure such failure to pay and/or perform the applicable part of the
Guaranteed Obligations; and (ii) pay Lessor all other costs and damages it
incurs as a result of such failure by any party to pay and/or perform the
Guaranteed Obligations, including without limitation, all reasonable attorneys'
fees and all other costs it incurs in enforcing the performance or the payment
of the Guaranteed Obligations with interest thereon at the Overdue Rate.
XXXV.3 Guarantee of Payment. The Guaranty of Guarantor is not a guarantee of
collection, but rather the Guaranty is an irrevocable, absolute and
unconditional guarantee of payment and performance. Guarantor hereby irrevocably
and unconditionally covenants and agrees that Guarantor is liable for the
Guaranteed Obligations as a primary obligor. Any Guaranteed Obligation may be
enforced by Lessor separately without enforcing compliance with any other
Guaranteed Obligation and without waiving the right to subsequently enforce any
other Guaranteed Obligation hereunder. Without notice to Guarantor or the
consent of Guarantor, and without affecting or limiting Guarantor's obligations
hereunder, Lessor may: (i) grant Lessee extensions of time for payment of the
Guaranteed Obligations or any part hereof; (ii) renew any of the Guaranteed
Obligations; (iii) grant Lessee extensions of time for performance of agreements
or other indulgences; and (iv) with Lessee's written consent, modify or amend
any obligation, covenant or agreement of Lessee set forth in this Lease.
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ARTICLE XXXVI
MISCELLANEOUS
XXXVI.1 No Waiver. No failure by Lessor or Lessee to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of the Rent during the continuance of any such breach, shall constitute a waiver
of any such breach or any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.
XXXVI.2 Remedies Cumulative. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Lessor or Lessee now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Lessor or Lessee of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Lessor or Lessee of any or all of such
other rights, powers and remedies.
XXXVI.3 Surrender. No surrender to Lessor of this Lease or of the Leased
Property or any part thereof, or of any interest therein, shall be valid or
effective unless agreed to and accepted in writing by Lessor and no act by
Lessor or any representative or agent of Lessor, other than such a written
acceptance by Lessor, shall constitute an acceptance of any such surrender.
XXXVI.4 No Merger of Title. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same person,
firm, corporation or other entity may acquire, own or hold, directly or
indirectly, (a) this Lease or the leasehold estate created hereby or any
interest in this Lease or (b) such leasehold estate and the fee estate in the
Leased Property.
XXXVI.5 Transfers by Lessor. If Lessor or any successor owner of the Leased
Property shall convey the Leased Property in accordance with the terms hereof,
other than as security for a debt, the grantee or transferee of the Leased
Property shall expressly assume all obligations of Lessor hereunder arising or
accruing from and after the date of such conveyance or transfer, and shall be
reasonably capable of performing the obligations of Lessor hereunder and Lessor
or such successor owner, as the case may be, shall thereupon be released from
all future liabilities and obligations of Lessor under this Lease arising or
accruing from and after the date of such conveyance or other transfer and all
such future liabilities and obligations shall thereupon be binding upon the new
owner.
XXXVI.6 General. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee and Lessor
against the other arising out of or relating to this Lease and arising prior to
any date of termination of this Lease shall survive such termination. If any
term or provision of this Lease or any application thereof shall be invalid or
unenforceable, the remainder of this Lease and any other application of such
term or provision shall not be affected thereby. If any late charges provided
for in any provision of this Lease are based upon a rate in excess of the
maximum rate permitted by applicable law, the parties agree that such charges
shall be fixed at the maximum permissible rate. Neither this Lease nor any
provision hereof may be changed, waived, discharged or terminated except by an
instrument in writing and in recordable form signed by Lessor and Lessee. All
the terms and provisions of this Lease shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. The
headings in this Lease are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof. This Lease shall be governed by and
construed in accordance with the laws of the state where the Land is located,
but not including its conflict of laws rules. This Lease may be executed in one
or more counterparts, each of which shall be an original but, when taken
together, shall constitute but one document.
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XXXVI.7 Memorandum of Lease. Lessor and Lessee shall, promptly upon the request
of either, enter into a short form memorandum of this Lease in form suitable for
recording under the laws of the state in which the Leased Property is located in
which reference to this Lease, and all options contained herein, shall be made.
XXXVI.8 Transfer of Licenses. Upon the expiration or earlier termination of the
Term, Lessee shall take all action necessary or appropriate to effect (or useful
in effecting) the transfer, to the extent permitted by any applicable Legal
Requirement, to Lessor or Lessor's nominee of all licenses, operating permits
and other governmental authorizations and all service contracts which may be
necessary or useful in the operation of the Facility and which relate
exclusively to the Facility which have not previously been transferred or
assigned to Lessor.
ARTICLE XXXVII
GLOSSARY OF TERMS
XXXVII.1 For purposes of this Lease, except as otherwise expressly
provided or unless the context otherwise requires, (a) the terms defined in this
Article XXXVII have the meanings assigned to them in this Article XXXVII and
include the plural as well as the singular, (b) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles as at the time applicable, (c) all
references in this Lease to designated "Articles", "Sections" and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Lease, and (d) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Lease as a whole and not to any particular
Article, Section or other subdivision, (e) the word "including" shall mean
"including without limitation," and (f) all consents required of Lessor
hereunder shall be in Lessor's sole and absolute discretion, unless otherwise
specifically set forth herein. For purposes of this Lease, the following terms
shall have the meanings indicated:
"AAA" means the American Arbitration Association.
"Additional Charges" has the meaning set forth in Section 2.3 hereof
together with all other items specifically included as "Additional Charges" in
this Agreement.
"Adjustment Date" has the meaning set forth in Section 2.1(b) hereof.
"Affiliate," when used with respect to Lessee, means any Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with Lessee, except for Integrated Health Services, Inc., a
Delaware corporation. For the purposes of this definition, "control", as used
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such Person, through the ownership of 50% or more of the voting securities,
partnership interests or other equity interests.
"Agent" has the meaning set forth in Article XXXII hereof.
"Assigned Documents" has the meaning set forth in Article XXXII hereof.
"Award" means all compensation, sums or anything of value awarded, paid
or received on a total or partial Condemnation.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which national banks in the City of Birmingham,
Alabama are closed.
"Capital Additions" means one or more new buildings or one or more
additional structures annexed to any portion of any of the Leased Improvements,
which are constructed on any parcel or
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portion of the Land during the Term, including the construction of a new wing or
new story, or the rebuilding of the existing Leased Improvements or any portion
thereof not normal, ordinary or recurring to maintain the Leased Property,
excluding, however, any construction governed by the provisions of Article XIII.
"Capital Addition Cost" means the cost of any Capital Additions
proposed to be made by Lessee whether paid for by Lessee or Lessor. Such cost
shall include and be limited to (a) the cost of construction of the Capital
Additions, including site preparation and improvement, materials, labor,
supervision and certain related design, engineering and architectural services
and the cost of any fixtures, construction financing and miscellaneous items
approved in writing by Lessor, (b) if agreed to by Lessor in writing in advance,
the cost of any land contiguous to the Leased Property purchased for the purpose
of placing thereon the Capital Additions or any portion thereof or for providing
means of access thereto, or parking facilities therefor, including the cost of
surveying the same, (c) the cost of insurance, real estate taxes, water and
sewage charges and other carrying charges for such Capital Additions during
construction, (d) the cost of title insurance, (e) reasonable fees and expenses
of legal counsel and accountants, (f) filing, registration and recording taxes
and fees, (g) documentary stamp taxes, if any, (h) environmental assessments and
boundary surveys and (i) all reasonable costs and expenses of Lessor and any
Lending Institution which has committed to finance the Capital Additions,
including, (A) the reasonable fees and expenses of their respective legal
counsel, (B) all printing expenses, (C) the amount of any filing, registration
and recording taxes and fees, (D) documentary stamp taxes, if any, (E) title
insurance charges, appraisal fees, if any, (F) rating agency fees, if any, and
(G) commitment fees, if any, charged by any Lending Institution advancing or
offering to advance any portion of the financing for such Capital Additions.
"Capital Replacement Account" has the meaning set forth in Section
2.1(c).
"Cash Adjustment" has the meaning set forth in Section 20.1(d).
"Charge" has the meaning set forth in Article XI hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commencement Date" has the meaning set forth in Article I.
"Condemnation" means the transfer of all or any part of the Leased
Property as a result of (i) the exercise of any governmental power, whether by
legal proceedings or otherwise, by a Condemnor or (ii) a voluntary sale or
transfer by Lessor to any Condemnor, either under threat of condemnation or
while legal proceedings for condemnation are pending.
"Condemnor" means any public or quasi-public authority, or private
corporation or individual, having the power of condemnation or eminent domain.
"Consolidated Coverage Ratio" has the meaning set forth in Section 7.3.
"Consolidated Financial Statements" means for any fiscal year or other
accounting period for Lessee, Guarantor and their respective consolidated
Affiliates, audited statements of earnings and retained earnings and of changes
in financial position for such period and for the period from the beginning of
the respective fiscal year of Lessee to the end of such period and the related
balance sheet as at the end of such period, together with the notes thereto, all
in reasonable detail and setting forth in comparative form the corresponding
figures for the corresponding period in the preceding fiscal year of Lessee, and
prepared in accordance with generally accepted accounting principles
consistently applied, except as noted.
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"Consolidated Tangible Net Worth" means at any time, the sum of the
following which would appear on a balance sheet of Lessee and Guarantor, on a
consolidated basis prepared in accordance with generally accepted accounting
principles:
(a) the amount of capital or stated capital (after deducting
the cost of any treasury shares or like interests), plus
(b) the amount of capital surplus and retained earnings (or,
in the case of a capital surplus or retained earnings deficit, minus
the amount of such deficit), minus
(c) the sum of the following (without duplication of
deductions in respect of items already deducted in arriving at capital
surplus and retained earnings): (i) any write-up in book value of
assets resulting from a revaluation thereof subsequent to the most
recent financial statement of Developer or Guarantor prior to the date
thereof, except any net write-up in value of foreign currency; (ii) any
write-up resulting from a reversal of a reserve for bad debts or
depreciation; and (iii) any write-up resulting from a change in methods
of accounting for inventory, minus
(d) the aggregate book value of Intangible Assets shown on
such balance sheet.
"Consumer Price Index" or "CPI" means the Consumer Price Index for All
Urban Consumers for the U.S. City Average for all Items (1982-1984=100) as
published by the United States Department of Labor, Bureau of Labor Statistics.
If the manner in which the Consumer Price Index is determined by the Bureau of
Labor Statistics shall be substantially revised (including a change in the base
index year), an adjustment shall be made by Lessor in such revised index which
would produce results equivalent, as nearly as possible, to those which would
have been obtained if the Consumer Price Index had not been so revised. If the
Consumer Price Index shall become unavailable to the public because publication
is discontinued or otherwise, or if equivalent data is not readily available to
enable Lessor to make the adjustment referred to in the preceding sentence,
Lessor will substitute therefor a comparable index based upon changes in the
cost of living or purchasing power of the consumer dollar published by any other
governmental agency, or if no such index shall be available, then a comparable
index published by a major bank or other financial institution or by a
university or a recognized financial publication.
"Credit Enhancements" means all cash collateral, security deposits,
security interests, letters of credit, pledges, prepaid rent or other sums,
deposits or interests held by Lessee, if any, to secure obligations with respect
to the Leased Property, the Tenant Leases or the Tenants.
"Current Yield" means as of any date the annual Minimum Rent, as
adjusted from time-to-time pursuant to the terms of this Lease, divided by the
sum of (i) the Purchase Amount plus (ii) all Capital Additions Costs paid for or
financed by Lessor which have not been repaid by Lessee.
"Date of Taking" means the date the Condemnor has the right to
possession of the property being condemned.
"EBITDAR" has the meaning set forth in Section 7.3.
"Encumbrance" has the meaning set forth in Article XXXII.
"Event of Default" has the meaning set forth in Section 15.1.
"Extended Term" has the meaning set forth in Section XXXIV.
"Facility" means the 13,650 square foot assisted living facility
located on the Leased Property, containing 55 licensed beds and the related
amenities.
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"Facility Coverage Ratio" has the meaning set forth in Section 7.4.
"Facility Mortgage" has the meaning set forth in Section 12.1.
"Facility Mortgagee" has the meaning set forth in Section 12.1.
"Fair Market Added Value" means the Fair Market Value (as hereinafter
defined) of the Leased Property (including all Capital Additions) less the Fair
Market Value of the Leased Property determined as if no Capital Additions paid
for by Lessee without financing by Lessor had been constructed.
"Fair Market Rental Value" means the fair market rental value of the
Leased Property or any Substitute Property, (a) assuming the same is
unencumbered by this Lease, (b) determined in accordance with the appraisal
procedures set forth in Article XXVIII or in such other manner as shall be
mutually acceptable to Lessor and Lessee, and (c) not taking into account any
reduction in value resulting from an indebtedness to which the Leased Property
or Substitute Property may be subject.
"Fair Market Value" means the fair market value of the Leased Property
or any Substitute Property, including all Capital Additions, (a) assuming the
same is unencumbered by this Lease, (b) determined in accordance with the
appraisal procedures set forth in Article XXVIII or in such other manner as
shall be mutually acceptable to Lessor and Lessee, and (c) not taking into
account any reduction in value resulting from any indebtedness to which the
Leased Property or such Substitute Property is subject or which encumbrance
Lessee or Lessor is otherwise required to remove pursuant to any provision of
this Lease or agrees to remove at or prior to the closing of the transaction as
to which such Fair Market Value determination is being made. The positive or
negative effect on the value of the Leased Property or Substitute Property
attributable to the interest rate, amortization schedule, maturity date,
prepayment penalty and other terms and conditions of any Encumbrance on the
Leased Property or any Substitute Property, as the case may be, which is not so
required or agreed to be removed shall be taken into account in determining such
Fair Market Value.
"Fair Market Value Purchase Amount" means the Fair Market Value less
the Fair Market Added Value.
"Fiscal Year" means the 12-month period from January 1 to December 31.
"Fixtures" has the meaning set forth in Article I.
"Full Replacement Cost" has the meaning set forth in Section 12.2.
"Guaranteed Obligations" has the meaning set forth in Section 35.1.
"Guarantor" means INTEGRATED LIVING COMMUNITIES, INC., a Delaware
corporation.
"Guaranty" has the meaning set forth in Section 35.1.
"Hazardous Materials" means any substance, including asbestos or any
substance containing asbestos, the group of organic compounds known as
polychlorinated biphenyls, flammable explosives, radioactive materials, medical
waste, chemicals, pollutants, effluents, contaminants, emissions or any other
related materials and items included in the definition of hazardous or toxic
wastes, materials or substances under any Hazardous Materials Law.
"Hazardous Materials Law" means any law, regulation or ordinance
relating to environmental conditions, medical waste and industrial hygiene,
including the Resource Conservation and Recovery Act
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of 1976 ("RCRA"), the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), the Hazardous Materials Transportation
Act, the Federal Water Pollution Control Act, the Clean Air Act, the Clean Water
Act, the Toxic Substances Control Act, the Safe Drinking Water Act, the Atomic
Energy Act and all similar federal, state and local environmental statutes and
ordinances, whether heretofore or hereafter enacted or effective and all
regulations, orders, or decrees heretofore or hereafter promulgated thereunder.
"Impositions" means, collectively, all taxes relating to the Leased
Property, including all ad valorem, sales and use, gross receipts, action,
privilege, rent (with respect to the Tenant Leases) or similar taxes,
assessments (including all assessments for public improvements or benefits,
whether or not commenced or completed prior to the date hereof and whether or
not to be completed within the Term), water, sewer or other rents and charges,
excises, tax levies, fees (including license, permit, inspection, authorization
and similar fees), and all other governmental charges, in each case whether
general or special, ordinary or extraordinary, or foreseen or unforeseen, of
every character in respect of the Leased Property and/or the Rent (including all
interest and penalties thereon due to any failure in payment by Lessee), which
at any time prior to, during or in respect of the Term hereof may be assessed or
imposed on or in respect of or be a lien upon (a) Lessor or Lessor's interest in
the Leased Property, (b) the Rent, the Leased Property or any part thereof or
any rent therefrom or any estate, right, title or interest therein, or (c) any
occupancy, operation, use or possession of, sales from, or activity conducted
on, or in connection with, the Leased Property or the Tenant Leases or use of
the Leased Property or any part thereof; provided that nothing contained in this
Lease shall be construed to require Lessee to pay (1) any tax based on net
income (whether denominated as a franchise or capital stock or other tax)
imposed on Lessor, (2) any transfer or net revenue tax of Lessor, (3) any tax
imposed with respect to the sale, exchange or other disposition by Lessor of any
portion of the Leased Property or the proceeds thereof, or (4) except as
expressly provided elsewhere in this Lease, any principal or interest on any
Encumbrance on the Leased Property, except to the extent that any tax,
assessment, tax levy or charge which Lessee is obligated to pay pursuant to this
definition and which is in effect at any time during the Term hereof is totally
or partially repealed, and a tax, assessment, tax levy or charge set forth in
clause (1), (2) or (3) is levied, assessed or imposed expressly in lieu thereof.
"Intangible Assets" means those assets which are (i) deferred assets,
other than prepaid insurance and prepaid taxes, (ii) patents, copyrights,
trademarks, trade names, franchises, good will, experimental expenses and other
similar assets which would be classified as intangible assets on a balance sheet
prepared in accordance with generally accepted accounting principles, (iii)
unamortized debt discount and expense, and (iv) assets located, and notes and
receivables due from obligors domiciled outside of the United States.
"Initial Term" has the meaning set forth in Article I.
"Insurance Requirements" means all terms of any insurance policy
required by this Lease and all requirements of the issuer of any such policy.
"Land" has the meaning set forth in Article I.
"Lease" means this Lease.
"Lease Amendment" has the meaning set forth in Section 9.3(b)(iv).
"Lease Assignment" means that certain Assignment of Rents and Leases,
substantially in the form attached hereto as Exhibit D, to be dated on or about
the date hereof executed by Lessee to Lessor, pursuant to the terms of which
Lessee assigns to Lessor each of the Tenant Leases and Credit Enhancements, if
any, as security for the obligations of Lessee under this Lease, and any other
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obligations of Lessee, or any Affiliate of Lessee to Lessor.
"Leased Improvements" and "Leased Property" have the meanings set forth
in Article I.
"Legal Requirements" means all federal, state, county, municipal and
other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting the Leased Property or the
construction, use or alteration thereof, whether now or hereafter enacted and in
force, including any which may (a) require repairs, modifications or alterations
of or to the Leased Property, or (b) in any way adversely affect the use and
enjoyment thereof, and all permits, licenses, authorizations and regulations
relating thereto, and all covenants, agreements, actions and encumbrances
contained in any instruments, either of record or known to Lessee (other than
encumbrances created by Lessor without the consent of Lessee), at any time in
force affecting the Leased Property.
"Lending Institution" means any insurance company, federally insured
commercial or savings bank, national banking association, savings and loan
association, employees' welfare, pension or retirement fund or system, corporate
profit-sharing or pension plan, college or university, or real estate investment
company including any corporation qualified to be treated for federal tax
purposes as a real estate investment trust having a net worth of at least
$50,000,000.
"Lessee" means INTEGRATED LIVING COMMUNITIES OF ST. PETERSBURG, INC., a
Delaware corporation, its successors and assigns.
"Lessor" means CAPSTONE CAPITAL CORPORATION, a Maryland corporation,
and its successors and assigns.
"Minimum Rent" has the meaning set forth in Section 2.1(a).
"Minimum Purchase Amount" means the greater of (i) the Fair Market
Value of the Leased Property at the time of purchase hereunder by Lessee or (ii)
the Purchase Amount (and in the case of a substitution pursuant to Article XX,
as adjusted pursuant to Section 20.1(f)) as such amount is increased at the rate
of three percent compounded annually for each year (to be prorated for partial
years) between the Commencement Date and the date of repurchase by Lessee, plus
the sum of all Capital Addition Costs relating to the Leased Property paid for
or financed by Lessor which as of the date of repurchase of the Leased Property
have not been repaid by Lessee, less the net amount (after deduction of all
reasonable legal fees and other costs and expenses, including expert witness
fees, incurred by Lessor in connection with obtaining any such award or
proceeds) of all Awards received by Lessor from Condemnation of the Leased
Property.
"Officer's Certificate" means a certificate of Lessee signed by the
Chairman of the Board of Directors, the President, any Vice President or another
officer authorized to so sign by the Board of Directors or By-Laws of Lessee, or
any other person whose power and authority to act has been authorized by
delegation in writing by any of the persons holding the foregoing offices.
"Optional Renewal Term" has the meaning set forth in Article I.
"Ordinary Course of Business" means the ordinary course of business for
Lessee consistent with past custom and practice (including quantity and
frequency).
"Overdue Rate" means as of any date, a rate per annum equal to the
Prime Rate as of such date, plus two percent, but in no event greater than the
maximum rate then permitted under applicable law.
"Payment Date" means any due date for the payment of the installments
of Minimum Rent under this Lease.
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"Permitted Exceptions" has the meaning set forth in Article I hereof.
"Permitted Liens" means (i) liens described on Exhibit E attached
hereto and the Permitted Exceptions, (ii) pledges or deposits made to secure
payments of worker's compensation insurance (or to participate in any fund in
connection with worker's compensation insurance), unemployment insurance,
pensions or social security programs, (iii) liens imposed by mandatory
provisions of law such as for materialmen, mechanics, warehousemen and other
like liens arising in the Ordinary Course of Business, securing indebtedness
whose payment is not yet due and payable, (iv) liens for taxes, assessments and
governmental charges or levies if the same are not yet due and payable or if the
same are being contested in good faith and as to which adequate cash reserves
have been provided, (v) liens arising from good faith deposits in connection
with tenders, leases, real estate bids or contracts (other than contracts
involving the borrowing of money), pledges or deposits to secure public or
statutory obligations and deposits to secure (or in lieu of) surety, stay,
appeal or customs bonds and deposits to secure the payment of taxes,
assessments, duties or other similar charges, (vi) liens to secure purchase
money indebtedness, so long as the indebtedness incurred to purchase the new
asset is secured only by such asset, or (vii) encumbrances consisting of zoning
restrictions, easements or other restrictions on the use of real property;
provided that such items do not impair the use of such property for the purposes
intended, none of which is violated by existing or proposed structures or land
use.
"Person" means a natural person, corporation, partnership, trust,
association, limited liability company or other entity.
"Personal Property" means all machinery, equipment, furniture,
furnishings, computers, signage, trade fixtures or other personal property and
consumable inventory and supplies used in the operation of the Leased Property
for its Primary Intended Use, together with all replacements and substitutions
therefor, except for any portion of the Leased Property, all as more
specifically set forth on Exhibit F attached hereto or to be attached once the
complete list is available.
"Primary Intended Use" has the meaning set forth in Section 6.2(a).
"Prime Rate" means the annual rate reported by The Wall Street Journal,
Eastern Edition (or, if The Wall Street Journal shall no longer be published or
shall cease to report such rates, then a publication or journal generally
acceptable in the financial industry as authoritative evidence of prevailing
commercial lending rates) from time to time as being the prevailing prime rate
(or, if more than one such rate shall be published in any given edition, the
arithmetic mean of such rates). The prime rate is an index rate used by The Wall
Street Journal to report prevailing lending rates and may not necessarily be the
most favorable lending rate available. Any change in the Prime Rate hereunder
shall take effect on the effective date of such change in the prime rate as
reported by The Wall Street Journal, without notice to Lessee or any other
action by Lessor. Interest shall be computed on the basis that each year
contains 360 days, by multiplying the principal amount by the per annum rate set
forth above, dividing the product so obtained by 360, and multiplying the
quotient thereof by the actual number of days elapsed.
"Purchase Agreement" means the Asset Purchase Agreement dated on or
about _____________ __, 1997, between Jaylene Retirement Center, Inc. and Barry
Eugene Wright, as "Seller," and Lessee as "Purchaser" relating to the
acquisition by Lessee of the Leased Property, which Asset Purchase Agreement was
assigned by Lessee to Lessor pursuant to that certain Assignment, Assumption and
Amendment Agreement for Asset Purchase Agreement of even date herewith among the
foregoing Seller, Lessee and Lessor.
"Purchase Amount" has the meaning set forth in Section 2.1(a).
"Related Leases" has the meaning set forth in Section 15.1(a).
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"Rent" means, collectively, the Minimum Rent and the Additional
Charges.
"Request" has the meaning set forth in Section 9.3(a).
"Security Agreement" means that certain Security Agreement of even date
herewith executed by Lessee to Lessor, pursuant to the terms of which Lessee has
granted to Lessor a first lien and security interest in and to all of the
Personal Property, including but not limited to, fixed and movable equipment,
including replacements and substitutions, as security for the obligations of
Lessee under this Lease, and any and all other obligations of Lessee.
"Substitution Date" has the meaning set forth in Section 20.1.
"Substitute Properties" has the meaning set forth in Section 20.1.
"Taking" means a taking or voluntary conveyance during the Term hereof
of all or part of the Leased Property, or any interest therein or right accruing
thereto or use thereof, as the result of, or in settlement of any Condemnation
or other eminent domain proceeding affecting the Leased Property whether or not
the same shall have actually been commenced.
"Tenant" means the lessees or tenants under the Tenant Leases, if any.
"Tenant Leases" means all leases, subleases, assignments and other
rental agreements (written or verbal, now or hereafter in effect), if any, that
grant a possessory interest in and to any space in the Improvements, or that
otherwise grant possessory or occupancy rights with regard to the Leased
Property, and all Credit Enhancements, if any, held in connection therewith.
"Term" means the Initial Term and any Extended Term as to which Lessee
has exercised its options to extend contained in Article XXXIV hereof unless
earlier terminated pursuant to the provisions hereof.
"Treasury Yield" means as of any date the weekly average yield on
United States Treasury Securities Constant Maturity Series issued by the United
States Government, as most recently published by the Federal Reserve Board in
Federal Reserve Statistical Release H.15(519). If, with respect to the Treasury
Yield, Lessor determines that the sale of Treasury Securities by the United
States Government has been suspended, or Treasury Securities are not being
offered for sale, or the weekly average yield is no longer printed by the
Federal Reserve Board in Federal Reserve Statistical Release H.15(519) or for
any other reason Lessor is not able to obtain a quotation from the Federal
Reserve for the sale of such Treasury Securities, then Lessor will promptly give
notice to Lessee and advise Lessee of a new index for determining the interest
rate to be used in connection with this Lease, which rate, in the good faith
judgment of Lessor, will be substantially equivalent to the Treasury Yield.
"Unavoidable Delays" means delays due to strikes, lockouts, inability
to procure materials after the exercise of reasonable efforts, power failure,
acts of God, governmental restrictions, enemy action, civil commotion, fire,
unavoidable casualty or other causes beyond the control of the party responsible
for performing an obligation hereunder, provided that lack of funds shall not be
deemed a cause beyond the control of either party hereto unless such lack of
funds is caused by the failure of the other party hereto to perform any
obligations of such other party under this Lease.
"Unsuitable for Its Primary Intended Use" as used anywhere in this
Lease, shall mean that, by reason of damage or destruction, or a partial Taking,
in the good faith judgment of Lessee, reasonably exercised, the Facility cannot
be profitably operated for its Primary Intended Use in the manner used prior to
such damage or destruction or Taking, taking into account, among other relevant
factors, the
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number of usable suites and number and diversity of Tenants affected by such
damage or destruction or partial Taking.
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IN WITNESS WHEREOF, the parties have caused this Lease to be executed
and their respective corporate seals to be hereunto affixed and attested by
their respective officers thereunto duly authorized as of the date first written
above.
LESSOR:
CAPSTONE CAPITAL CORPORATION
a Maryland corporation
By
Daryl D. McCombs
Assistant Vice President
LESSEE:
INTEGRATED LIVING COMMUNITIES
OF ST. PETERSBURG, INC.
a Delaware corporation
By
John B. Poole
Vice President
GUARANTOR:
INTEGRATED LIVING COMMUNITIES, INC.
a Delaware corporation
By
John B. Poole
Vice President and
Chief Financial Officer
48
<PAGE>
EXHIBIT A
PROPERTY DESCRIPTION
Schedule A
PARCEL I
Lots 1 and 2, Block 8, Glenside Subdivision, according to the Plat thereof on
file in the Office of the Clerk of the Circuit Court in and for Pinellas County,
Florida recorded in Plat Book 46, Page 55.
PARCEL II
Lot 3, Block 8, Glenside Subdivision, according to the plat thereof as recorded
in Plat Book 46, Page 55, Public Records of Pinellas County, Florida.
<PAGE>
EXHIBIT B
LIST OF PERMITTED EXCEPTIONS
1. Taxes and assessments which are not yet due and payable.
2. Subject to any and all matters as recited on the Plat of Glenside
Subdivision recorded in Plat Book 476, Page(s) 55, PINELLAS County Records.
3. Easement granted to City of St. Petersburg, Florida, from Flamingo Park
Village Incorporated, dated July 21, 1960, recorded October 6, 1960 in O.R.
Book 1008, Page 151, PINELLAS County Records.
<PAGE>
EXHIBIT C
SCHEDULE OF CONTRIBUTIONS BY LESSEE
TO CAPITAL REPLACEMENT ACCOUNT
Lessee shall fund the Capital Replacement Account annually in the
following amount:
(1) $50 per room per month,
commencing with the first payment on the first anniversary of the Commencement
Date and continuing on each anniversary of the Commencement Date thereafter.
<PAGE>
EXHIBIT D
ASSIGNMENT OF RENTS AND LEASES
STATE OF FLORIDA )
KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF PINELLAS)
THIS ASSIGNMENT OF RENTS AND LEASES (this "Assignment") is entered into
as of March ____, 1997, by and between INTEGRATED LIVING COMMUNITIES OF ST.
PETERSBURG, INC., a Delaware corporation ("Assignor" or "Lessee") whose address
for notice hereunder is 24850 Old 41 Road, Suite 10, Bonita Springs, Florida
34135-7022 and CAPSTONE CAPITAL CORPORATION, a Maryland corporation ("Assignee"
or "Lessor"), whose address for notice hereunder is 1000 Urban Center Drive,
Suite 630, Birmingham, Alabama 35242.
WITNESSETH
ARTICLE 1.
DEFINITIONS
As used herein, the following capitalized terms used herein shall have
the following meanings:
"Credit Enhancements" means all security deposits, security interests,
letters of credit, pledges, prepaid rent or other sums, deposits or interests,
if any, held by Lessee with respect to the Property, the Tenant Leases or the
tenants under the Tenant Leases.
"Engineering Documents" means all site plans, surveys, soil and
substrata studies, architectural drawings, plans and specifications, engineering
plans and studies, floor plans, landscape plans, and other plans and studies
that relate to the Land, the Improvements or the Fixtures and are in Lessee's
possession or control.
"Fixtures" means all permanently affixed equipment, machinery,
fixtures, and other items of real and/or personal property, including all
components thereof, now and hereafter located in, on or used in connection with,
and permanently affixed to or incorporated into the Improvements, including,
without limitation, all furnaces, boilers, heaters, electrical equipment,
heating, plumbing, lighting, ventilating, refrigerating, incineration, air and
water pollution control, waste disposal, air-cooling and air-conditioning
systems and apparatus, sprinkler systems and fire and theft protection
equipment, and built-in vacuum, cable transmission, oxygen and similar systems,
all of which, to the greatest extent permitted by law, are hereby deemed by the
parties hereto to constitute real estate, together with all replacements,
modifications, alterations and additions thereto, but specifically excluding any
of Tenant's trade fixtures or other fixtures that a Tenant is permitted to
remove pursuant to the applicable Tenant Lease.
"Improvements" means all buildings, improvements, structures and
Fixtures now or on the Closing Date located on the Land, including, without
limitation, landscaping, parking lots and structures, roads, drainage and all
above ground and underground utility structures, equipment systems and other
so-called "infrastructure" improvements.
"Land" means the real property more particularly described on Exhibit A
attached hereto and made a part hereof, together with all covenants, licenses,
privileges and benefits thereto belonging, and any easements, rights-of-way,
rights of ingress or egress or other interests of Lessee in, on, or to any land,
highway, street, road or avenue, open or proposed, in, on, across, in front of,
abutting or adjoining such real property including, without limitation, any
strips and gores adjacent to or lying between such real property and any
adjacent real property.
<PAGE>
"Lease" means that certain lease agreement of even date herewith
between Lessor and Lessee.
"License" has the meaning set forth in Section 3.1 hereof.
"Obligations" means any and all of the indebtedness, liabilities, and
other obligations made or undertaken by Lessee to Lessor or others as set forth
in the Security Documents (hereinafter defined), the Lease and any lease,
sublease or other form of conveyance or any other agreement pursuant to which
Lessee is granted a possessory interest in the Property.
"Obligation Documents" means any and all agreements, assignments and
instruments (including any renewals, extensions, modifications or amendments
thereof) evidencing, securing or pertaining to the Lease.
"Property" means, collectively, the Improvements, the Credit
Enhancements, the Engineering Documents and the Warranties.
"Rents" means the immediate, absolute and continuing right to collect
and receive all of the rents, income, receipts, revenues, proceeds, security and
other types of deposits, issues and profits now due or which may become due or
to which Lessee may now or shall hereafter (whether upon any applicable
redemption period or otherwise) become entitled or may demand or claim, arising
or issuing from or out of the Tenant Leases, or from or out of the Property or
any part thereof (subject only to the limited license granted herein by Lessor
to Lessee to so collect and receive the Rents), including, without limiting the
generality of the foregoing, minimum rents, additional rents, parking
maintenance charges or fees, tax and insurance contributions, proceeds of sale
of electricity, gas, chilled and heated water and other utilities and services,
deficiency rents and liquidated damages following default, premiums payable by
any Tenant upon the exercise of a cancellation privilege provided for in a
Tenant Lease and all proceeds payable under any policy of insurance covering
loss of rents resulting from untenantability caused by destruction or damage to
the Property.
"Security Documents" means this Assignment, and any and all other
documents now or hereafter executed by Lessee, or any other person or party, to
evidence or secure the payment or performance and discharge of the Obligations,
including, without limitation, the Lease.
"Tenant Leases" means all leases, subleases and other rental agreements
and guaranties thereof (written or verbal, now or hereafter in effect) that
grant a possessory interest in and to occupy and enjoy all or any portion of the
Property (save and except any and all leases, subleases or other agreements
pursuant to which Lessor or Lessee is granted a possessory interest in the
Land), together with all the rights, power and authority of Lessee to execute,
deliver, perform, enforce, alter, modify or supplement the terms of such leases
and agreements or to surrender, cancel or terminate such leases and agreements
without the prior written consent of Lessor, and together with any and all
guarantees of any of the tenant's obligations under any of such leases. Any of
the Tenant Leases are hereinafter referred to individually as a "Tenant Lease"
and collectively as the "Tenant Leases".
"Warranties" means all transferrable warranties, representations and
guaranties with respect to the Property, whether express or implied, which
Lessee now holds or under which Lessee is the beneficiary, including, without
limitation, all of the representations, warranties and guaranties given and/or
assigned to Lessee under the Tenant Leases.
ARTICLE 2.
ASSIGNMENT
Lessee, in consideration of the sum of $10.00, and other good and
valuable consideration, the
<PAGE>
receipt and sufficiency of which is hereby acknowledged, does hereby grant,
sell, convey, assign, transfer, set over and deliver the Tenant Leases and the
Rents unto this Lessor, to have and to hold the Tenant Leases and the Rents unto
Lessor, and Lessee does hereby bind itself, its successors and assigns to
warrant and defend the title to the Tenant Leases and the Rents unto Lessor
against every person whomsoever lawfully claiming or to claim the name or any
part thereof, by, through or under Lessee but not otherwise.
ARTICLE 3.
LIMITED LICENSE, CONTINUATION
AND TERMINATION OF ASSIGNMENT
3.1 Limited License. Lessee shall have the right under a limited
license (the "License") which may be revoked by Lessor pursuant to the terms of
Section 7.1, to collect upon, but not prior to accrual, all of the Rents and
Lessee shall receive the Rents and hold the same, as well as the right and
license to receive the Rents, as a trust fund to be applied, and Lessee hereby
covenants to apply the Rents, to the payment, satisfaction and discharge of the
Obligations then due, including specifically, but without limitation, to the
payment of taxes and assessments upon the Property before payment of penalty or
interest are due thereon, to the cost of such insurance then due, maintenance
and repairs as may be required by the terms of the Security Documents and in
satisfaction of all obligations under the Tenant Leases then due; all prior to
the application by Lessee of the Rents for any other purposes. The License shall
also include the right of Lessee to execute, deliver, perform, enforce, alter,
modify, change or supplement the terms of the Tenant Leases and to surrender,
cancel or terminate such Tenant Leases without the prior written consent of
Lessor except for any of the Tenant Leases executed, modified or supplemented
after the date hereof whose term (including any possible extensions on the part
of the applicable Tenant) extends beyond the Term of the Lease. Thereafter, so
long as there exists no Event of Default hereunder or under any of the Security
Documents, Lessee may use the Rents in any manner not inconsistent with the
Security Documents. Upon the sale and conveyance by Lessor or its successors or
assigns of the title to the Property, all right, title, interest and power
granted under the License granted herein shall be automatically continued
subject to the terms and conditions of the Lease and any of the other Security
Documents.
3.2 Continuation and Termination of Assignment. Upon final payment,
performance and discharge in full of the Obligations, this Assignment shall
become and be void and of no force or effect. Written demand by Lessor delivered
to any Tenant for payment of the Rents by reason of the occurrence of any Event
of Default claimed by Lessor, and the then existence thereof, shall be
sufficient evidence of each such Tenant's obligation and authority to make all
future payments of the Rents to Lessor without the necessity for further consent
by Lessee.
3.3 Permitted Contests. Lessee, after ten days' prior written notice to
Lessor, on its own or on Lessor's behalf (or in Lessor's name), but at Lessee's
expense, may contest, by appropriate legal proceedings conducted in good faith
and with due diligence, the amount, validity or application, in whole or in
part, of any of the Obligations which is required to be paid or discharged by
Lessee pursuant to the terms of Section 3.1 pursuant to the terms and conditions
of Article XI of the Lease; provided that nothing contained herein shall be
construed to permit Lessee to contest the payment of the rent or any other sums
payable by Lessee to Lessor under the Lease.
ARTICLE 4.
WARRANTIES AND REPRESENTATIONS
Lessee hereby unconditionally warrants and represents to Lessor as
follows:
4.1 Ownership of Tenant Leases and the Rents. Subject to the terms of
the Lease, Lessee has good title to the Tenant Leases not previously transferred
or assigned to Lessor and the Rents and has all
<PAGE>
requisite right, power and authority to assign such Tenant Leases and the Rents
to Lessor, and no other person, firm or corporation has any right, title or
interest therein.
4.2 No Default. Lessee has duly and punctually performed, all and
singular, the terms, covenants, conditions and warranties of the Tenant Leases
on Lessee's part to be kept, observed and performed; and, to the best of
Lessee's knowledge, the Tenants thereunder are not in material default of any of
the terms or provisions of the respective Tenant Leases.
4.3 No Modification of the Tenant Leases or Anticipation or
Hypothecation of the Rents. The Tenant Leases are valid and unmodified, except
as indicated herein, and remain in full force and effect; Lessee has not
previously sold, assigned, transferred, or pledged the Tenant Leases or the
Rents, or any part thereof, whether now due or hereafter to become due, except
for the sales, assignments, transfers, mortgages and pledges for which Lessee
has heretofore obtained a full release; the Rents now due, or to become due, for
any periods subsequent to the date hereof have not been collected and that
payment thereof has not been anticipated, waived or released, discounted, set
off or otherwise discharged or compromised; and Lessee has not received any
funds or deposits from any Tenant for which credit has not already been made on
account of the accrued Rents.
ARTICLE 5.
AFFIRMATIVE COVENANTS
Lessee hereby unconditionally covenants and agrees with Lessor as
follows:
5.1 Performance. Lessee shall observe, perform and discharge, duly and
punctually, all and singular, the obligations, terms, covenants, conditions and
warranties of the Tenant Leases to be observed, performed or discharged by
landlord thereunder; and Lessee shall promptly deliver to Lessor any notices
received with respect to the Tenant Leases alleging any failure on the part of
the Lessee to observe, perform and discharge the same.
5.2 Notification to Tenants. Upon written request by Lessor, Lessee
shall notify and direct, in writing, such and every present or future Tenant
that any Credit Enhancement delivered to Lessee by such Tenant shall be retained
by Lessee but assigned to Lessor.
5.3 Enforcement. Lessee shall enforce or secure in the name of Lessee
the performance of each and every obligation, term, covenant, condition and
agreement in the Tenant Leases by any Tenant to be performed, and Lessee shall
appear in and defend any action or proceeding arising under, occurring out of or
in any manner connected with the Tenant Leases or the obligations, duties or
liabilities of Lessee and any Tenant thereunder, and upon request by Lessor,
Lessee will do so in the name and on behalf of Lessor, but at the expense of
Lessee, and Lessee shall pay all costs and expenses of Lessor, including
reasonable attorneys' fees and disbursements, in any action or proceeding in
which Lessor may appear.
5.4 Anticipation or Hypothecation of the Rents. Lessee hereby covenants
and agrees (a) upon and after an Event of Default hereunder or under any of the
Security Documents and while the same shall continue, to give to Lessor
duplicate notice of each default by each Tenant and copies of any and all
notices and communications received from any Tenant promptly upon delivery or
receipt thereof; (b) to comply with the terms and provisions of each Tenant
Lease; (c) not to assign, transfer, pledge, mortgage or otherwise encumber any
Tenant Lease; (d) not to assign, transfer, pledge, mortgage or otherwise
encumber any Rents; (e) not to collect, accept from any Tenant, or permit any
Tenant to pay any Rents for more than one month in advance (whether in cash or
by evidence of indebtedness); (f) except in the ordinary course of business and
in accordance with past practice and custom, not to waive, excuse, condone,
discount, set-off, compromise or in any manner release or discharge any Tenant
of and from any obligations, covenants, conditions or agreements to be kept,
observed or performed by such Tenant, under and in accordance with the terms of
the respective Tenant Lease; and (g) not to enter
<PAGE>
into any Tenant Lease or amend, modify, extend or renew any Tenant Lease for a
time period extending beyond the term of the Lease, without prior written
approval of Lessor, which approval shall not be unreasonably withheld.
5.5 Delivery of the Tenant Leases; Further Acts and Assurance. Until
the Obligations secured hereby have been paid in full, performed and discharged,
Lessee shall enter into only leases of the Property in a form approved in
writing by Lessor and shall upon the written request of Lessor deliver executed
copies of all existing and all other and future Tenant Leases when executed upon
all or any part of the Property and will transfer and assign such other and
future Tenant Leases upon the same terms and conditions as herein contained, and
Lessee hereby covenants and agrees to make, execute and deliver to Lessor, upon
demand and at any time or times, any and all assignments and other documents and
instruments which Lessor may deem advisable to carry out the true purpose and
intent of this Assignment.
ARTICLE 6.
EVENTS OF DEFAULT
The term "Event of Default", as used herein, shall mean the occurrence
or happening, at any time and from time to time, of any one or more of the
following:
6.1 Performance of Obligations. If Lessee shall fail, refuse or neglect
to perform and discharge fully and timely any of its obligations hereunder and
such failure is not cured by Lessee within a period of 30 days after receipt by
Lessee of written notice thereof from Lessor, unless such failure cannot with
due diligence be cured within a period of 30 days, in which case such failure
shall not be deemed to continue if Lessee proceeds promptly and with due
diligence to cure the failure and diligently completes the curing thereof (as
soon as reasonably possible).
6.2 Security Documents. The occurrence of any Event of Default under
and as defined in the Lease or any other of the Security Documents.
ARTICLE 7.
REMEDIES
7.1 Remedies. Upon or any time after the occurrence, and during the
continuance thereof, of an Event of Default hereunder, Lessor, at its option,
shall have the complete right, power and authority hereunder, then or thereafter
until the Event of Default is cured, to exercise and enforce any or all of the
following rights and remedies set out in this Article 7:
(a) To terminate the License and then and thereafter, without taking
possession of the Property, to the extent permitted by law, in Lessee's own
name, to demand, collect, receive, sue for, attach and levy the Rents and give
proper receipts, releases and acquittances therefor, and after deducting all
necessary and proper costs and expenses of operation and collection, as
determined by Lessor, including reasonable attorneys' fees, and apply the net
proceeds thereof, together with any funds of Lessee deposited with Lessor, in
reduction or repayment of the Obligations in such order of priority as Lessor
may, in its sole discretion, determine in accordance with applicable law;
(b) To declare the Lease in default and, at its option, exercise all of
the rights and remedies contained in the Lease or any other of the Security
Documents;
(c) Without regard to the adequacy of the security, with or without any
action or proceeding through any person or by any agent, or by the trustee under
any deed of trust included among the Security Documents, or by a receiver to be
appointed by a court of competent jurisdiction, and irrespective of Lessee's
possession, then or thereafter to enter upon, take possession of, manage and
operate the Property or any part thereof; make, modify, enforce, cancel or
accept surrender of a Tenant Lease now in effect or
<PAGE>
hereafter in effect on the Property or any part thereof; remove and evict any
Tenant (subject to the provisions of any non-disturbance and attornment
agreement entered into by and between Lessor and any Tenant); increase or
decrease the Rents under a Tenant Lease; decorate, clean and repair, and
otherwise do any act or incur any cost or expense which Lessor may deem
reasonably necessary to protect the status and value of the Property as fully
and to the same extent as Lessee could do if in possession thereof; and in such
event, to apply the Rents so collected to the operation and management of the
Property, but in such order or priority as Lessor shall deem proper, and
including the payment of reasonable management, brokerage and attorneys' fees
and disbursements, and payment of the Obligations and to the establishment and
maintenance, without interest, of a reserve for replacements; and
(d) Any other remedy available to Lessor at law or in equity.
7.2 Exculpation of Lessor. The acceptance by Lessor of this Assignment,
with all of the rights, powers, privileges and authority created hereby, shall
not, prior to entry upon and taking possession of the Property by Lessor, be
deemed or construed to constitute Lessor a "mortgagee in possession", nor
thereafter or at any time or in any event obligate Lessor to take any action
hereunder or to expend any money or incur any expenses or perform or discharge
any obligation, duty or liability under a Tenant Lease or to assume any
obligation or responsibility for any security deposits or other deposits
delivered to Lessee by a Tenant and not assigned and delivered to Lessor, nor
shall Lessor be liable in any way for any injury or damage to persons or
property sustained by any person, firm or corporation in or about the Property
not attributable to the negligence or fault of Lessor, its agents or affiliates.
7.3 No Waiver or Election of Remedies.
(a) Waiver. Neither the collection of the Rents and application as
provided for in this Assignment nor the entry upon and taking possession of the
Property by Lessor shall be deemed to cure or waive any Event of Default or
waive, modify or affect any notice of default under any Security Document or
invalidate any act done pursuant to any such notice. If Lessor shall thereafter
elect to discontinue the exercise of any such right or remedy hereunder, such
right or remedy may be reasserted at any time and from time to time following
any subsequent Event of Default.
(b) Election of Remedies. The failure of Lessor to assert any of the
terms, covenants or conditions of this Assignment for any period of time or at
any time or times shall not be construed or deemed to be a waiver of any such
right, and nothing herein contained nor anything done or omitted to be done by
Lessor pursuant to this Assignment shall be deemed to be an election of remedies
or a waiver by Lessor of any of its rights and remedies under any other Security
Document or under the law. The right of the Lessor to collect and enforce the
payment and performance of the Obligations and to enforce any security therefor
may be exercised by the Lessor either prior to or simultaneously with or
subsequent to any action taken hereunder.
<PAGE>
7.4 Appointment of Attorney-in-Fact. Upon and following the occurrence
of an Event of Default remaining uncured, Lessee hereby constitutes and appoints
Lessor the true and lawful attorney-in-fact, coupled with an interest, of Lessee
and in the name, place and stead of Lessee to demand, sue for, attach, levy,
recover and receive any premium or penalty payable upon the exercise by a Tenant
under a Tenant Lease of a privilege of cancellation originally provided in such
Tenant Lease and to give proper receipts, releases and acquittances therefor
and, after deducting expenses of collection, to apply the net proceeds as a
credit upon any portion of the Obligations selected by Lessor, notwithstanding
the fact that such portion of the Obligations may not then be due and payable or
that such portion of the Obligations is otherwise adequately secured; and Lessee
does hereby authorize and direct any such Tenant to deliver such payment to
Lessor in accordance with this Assignment, and Lessee hereby ratifies and
confirms that Lessor, as attorney-in-fact, shall do or cause to be done by
virtue of the powers granted hereby. Under the circumstances referred to in this
Section 7.4, the foregoing appointment is irrevocable and continuing, and such
rights, powers and privileges shall be exclusive in Lessor, its successors and
assigns, so long as any part of the Obligations secured hereby remain unpaid and
undischarged.
ARTICLE 8.
MISCELLANEOUS
8.1 Performance at Lessee's Expense. The cost and expense o performing
or complying with any and all of the Obligations shall be borne solely by
Lessee, and no portion of such cost and expense shall be, in any way and to any
extent credited against any installment on or portion of the Obligations.
8.2 Survival of Obligations. Each and all of the Obligations shall
survive that execution and delivery of the Security Documents and the
consummation of the transaction called for therein, and shall continue in full
force and effect until the Obligations shall have been paid and performed in
full.
8.3 Further Assurances. Lessee, upon the request of Lessor, will
execute, acknowledge, deliver and record and/or file such further instruments
and do such further acts as may be necessary, desirable or proper to carry out
more effectively the purpose of the Security Documents and to subject to the
liens and security interests thereof any property intended by the terms thereof
to be covered thereby, including specifically, but without limitation, any
renewals, substitutions, replacements, modifications or amendments to the Tenant
Leases.
8.4 Recording and Filing. Lessee will cause the Security Documents and
all amendments and supplements thereto and substitutions therefor to be
recorded, filed, re-recorded and refiled in such manner and in such places as
Lessor shall reasonably request, and will pay all such recording, filing,
re-recording and refiling taxes, fees and other charges.
8.5 Notices. Any notices, demands, approvals and othe communications
provided for in this Assignment shall be in writing and shall be delivered by
telephonic facsimile, overnight air courier, personal delivery or registered or
certified U.S. Mail with return receipt requested, postage paid, to the
appropriate party at its address as follows:
<PAGE>
If to Lessor:
CAPSTONE CAPITAL CORPORATION
1000 Urban Center Drive
Suite 630
Birmingham, Alabama 35242
Attention: Mr. Daryl D. McCombs
Telephone: (205) 967-2092
Telecopy: (205) 967-9066
With a copy to:
Mr. Thomas A. Ansley
Sirote & Permutt, P.C.
2222 Arlington Avenue South
Birmingham, Alabama 35205
Telephone: (205) 930-5300
Telecopy: (205) 930-5301
If to Lessee or Guarantor:
INTEGRATED LIVING COMMUNITIES, INC.
Brentwood Centre
24850 Old 41 Road
Suite 10
Bonita Springs, Florida 34135-7022
Attention: Mr. John B. Poole
Telephone: (941) 947-7200
Telecopy: (941) 947-7201
With a copy to:
INTEGRATED LIVING COMMUNITIES, INC.
Brentwood Centre
24850 Old 41 Road
Suite 10
Bonita Springs, Florida 34135-7022
Attention: Ms. Geralyn Kidera
Telephone: (941) 947-7222
Telecopy: (941) 947-7201
Addresses for notice may be changed from time to time by written notice
to all other parties. Any communication given by mail will be effective (i) upon
the earlier of (a) three business days following deposit in a post office or
other official depository under the care and custody of the United States Postal
Service or (b) actual receipt, as indicated by the return receipt; (ii) if given
by telephone facsimile, when sent; and (iii) if given by personal delivery or by
overnight air courier, when delivered to the appropriate address set forth.
8.6 Successors and Assigns. All of the terms of the Security Documents
shall apply to, be binding upon and inure to the benefit of the parties hereto,
their successors, assigns, heirs and legal representatives, and all other
persons claiming by, through or under them.
<PAGE>
8.7 No Waiver; Severability. Any failure by Lessor to insist, or any
election by Lessor not to insist, upon strict performance by Lessee of any of
the terms, provisions or conditions of the Security Documents shall not be
deemed to be a waiver of same or any other terms, provisions or conditions
thereof, and Lessor shall have the right at any time or times thereafter to
insist upon strict performance by Lessee of any and all such terms, provisions
and conditions. The Security Documents are intended to be performed in
accordance with, and only to the extent permitted by, all applicable legal
requirements. If any provision of any of the Security Documents or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, then neither the remainder of the
instrument in which such provision to other persons or circumstances nor the
other instruments referred to herein shall be affected thereby, but rather,
shall be enforced to the greatest extent permitted by law.
8.8 Entire Agreement and Modification. This Assignment contains the
entire agreement between the parties relating to the subject matter hereof and
thereof, and all prior agreements relative thereto which are not contained
herein or therein are terminated. This Assignment may not be amended, revised,
waived, discharged, released or terminated orally, but only by a written
instrument or instruments executed by the party against which enforcement of the
amendment, revision, waiver, discharge, release or termination is asserted. Any
alleged amendment, revision, waiver, discharge, release or termination which is
not so documented shall not be effective as to any party.
8.9 Counterparts. This Assignment may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute but one instrument.
8.10 Applicable Law. The Security Documents shall be governed by and
construed according to the laws of the State of Alabama from time to time in
effect except to the extent preempted by United States federal law. It is
expressly stipulated and agreed to be the intent of Lessee and Lessor at all
times to comply with applicable law now or hereafter governing any interest
payable under the Lease, including any notes evidencing the Obligations or any
part thereof. If the applicable law is ever revised, repealed or judicially
interpreted so as to render usurious any amount called for under any of the
Security Documents, or if Lessor's exercise of the option to accelerate the
maturity of the Obligations or if any prepayment by Lessee results in Lessee
having paid any interest in excess of that permitted by law, then it is Lessee's
and Lessor's express intent that all excess amounts theretofore collected by
Lessor be credited on the principal balance of the Obligations (or, if the
Obligations have been paid in full, refunded to Lessee), and the provisions of
the Security Documents immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, so as to comply with the then
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder or thereunder. All sums paid or agreed to be paid to Lessor
for the use, forbearance or detention of the Obligations shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of the Obligations until payment in full so that the
rate or amount of interest on account of such Obligations does not exceed the
usury ceiling from time to time in effect and applicable to the Obligations so
long as debt is outstanding thereunder.
8.11 Headings. The Article, Paragraph and Subparagraph entitlements
hereof are inserted for convenience of reference only and shall in no way alter,
modify or define, or be used in construing, the text of such Articles,
Paragraphs or Subparagraphs.
EXECUTED as of the date first above written, to be effective as of the
date first above written.
<PAGE>
LESSOR:
CAPSTONE CAPITAL CORPORATION
a Maryland corporation
By
Daryl D. McCombs
Assistant Vice President
LESSEE:
INTEGRATED LIVING COMMUNITIES
OF ST. PETERSBURG, INC.
a Delaware corporation
By
John B. Poole
Vice President
STATE OF ALABAMA )
:
JEFFERSON COUNTY )
I, the undersigned authority, a Notary Public in and for said county in
said state, hereby certify that Daryl D. McCombs, whose name as Assistant Vice
President of CAPSTONE CAPITAL CORPORATION, a Maryland corporation, is signed to
the foregoing instrument and who is known to me, acknowledged before me on this
day that, being informed of the contents of the said instrument, he, as such
partner and with full authority, executed the same voluntarily for and as the
act of said partnership.
GIVEN under my hand and seal, this _____ day of ____________________,
1997.
[ NOTARIAL SEAL ]
Notary Public
My Commission Expires
<PAGE>
STATE OF FLORIDA )
:
LEE COUNTY )
I, the undersigned authority, a Notary Public in and for said county in
said state, hereby certify that John B. Poole, whose name as Vice President of
INTEGRATED LIVING COMMUNITIES OF ST. PETERSBURG, INC., a Delaware corporation,
is signed to the foregoing instrument and who is known to me, acknowledged
before me on this day that, being informed of the contents of the said
instrument, he, as such officer and with full authority, executed the same
voluntarily for and as the act of said corporation.
GIVEN under my hand and seal, this _____ day of ____________________,
1997.
[ NOTARIAL SEAL ]
-----------------------------------------
Notary Public
My Commission Expires
--------------------
<PAGE>
EXHIBIT A
PROPERTY DESCRIPTION
PARCEL I
Lots 1 and 2, Block 8, Glenside Subdivision, according to the Plat thereof on
file in the Office of the Clerk of the Circuit Court in and for Pinellas County,
Florida recorded in Plat Book 46, Page 55.
PARCEL II
Lot 3, Block 8, Glenside Subdivision, according to the plat thereof as recorded
in Plat Book 46, Page 55, Public Records of Pinellas County, Florida.
<PAGE>
EXHIBIT E
PERMITTED LIENS
NONE
<PAGE>
EXHIBIT F
PERSONAL PROPERTY
[All tangible personal property owned by Lessee and located upon and
used in connection with the Leased Improvements.]
<PAGE>
EXHIBIT G
CONSENT TO ASSIGNMENT
TO: ____________________________________
The undersigned corporation (the "Consenting Party") delivers this
Consent as of the _____ day of ________________________ ___, 1997, in connection
with the transactions contemplated by the Construction Loan Agreement dated
_______________________________________ (the "Loan Agreement") between
____________________________________________ ("Borrower") and
________________________________ ("Lender").
The Consenting Party hereby acknowledges and consents to:
(a) the Deed of Trust, Mortgage, Open-End Mortgage, Security Agreement,
Fixture Financing Statement, Assignment of Leases and Rents, and
Financing Statement (the "Deed of Trust") executed by the Borrower for
the benefit of the Lender in connection with the Loan Agreement; and
(b) the Assignment of Lease and Management Agreement (the "Assignment")
executed by the Borrower for the benefit of the Lender in connection
with the Loan Agreement.
The Consenting Party hereby acknowledges and consents to the Deed of
Trust and the Assignment, pursuant to which the Borrower has assigned and
granted to the Agent (for itself and the Lenders) a security interest and lien
in certain lease agreements, management agreements, guaranty agreements and
other property of the Borrower, including without limitation the rights of the
Borrower in, to and under each of the agreements listed on Exhibit A attached
hereto.
IN WITNESS WHEREOF, the Consenting Party has executed this Consent as
of the date first above written.
INTEGRATED LIVING COMMUNITIES
OF ST. PETERSBURG, INC.
a Delaware corporation
By
--------------------------------
John B. Poole
Vice President
<PAGE>
EXHIBIT A
ASSIGNED AGREEMENTS
1. Lease dated as of March _____, 1997, between the Borrower and the
Consenting Party.
THIS AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO
SECTION 15-48-10, CODE OF LAWS OF SOUTH CAROLINA (1976).
LEASE AGREEMENT
CAPSTONE CAPITAL CORPORATION
a Maryland corporation
("LESSOR")
AND
INTEGRATED LIVING COMMUNITIES OF WEST COLUMBIA, INC.,
a Delaware corporation
("LESSEE")
February 21, 1997
For
Integrated Communities Assisted
Living Facility of West Columbia
(Jenni-Lynn Retirement Center)
915 Hook Avenue
West Columbia, South Carolina
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE I LEASED PROPERTY; TERM.................................................................... 1
---------------------
ARTICLE II RENT..................................................................................... 2
----
2.1 Minimum Rent and Adjustments to Minimum Rent............................................. 2
2.2 Calculation of Increases to Minimum Rent................................................. 3
2.3 Additional Charges....................................................................... 4
2.4 Net Lease................................................................................ 4
ARTICLE III IMPOSITIONS.............................................................................. 4
-----------
3.1 Payment of Impositions................................................................... 4
3.2 Proration of Impositions................................................................. 5
3.3 Utility Charges.......................................................................... 5
3.4 Insurance Premiums....................................................................... 5
ARTICLE IV NO TERMINATION........................................................................... 5
--------------
ARTICLE V OWNERSHIP OF LEASED PROPERTY ............................................................ 6
-----------------------------
5.1 Ownership of the Property................................................................ 6
5.2 Personal Property........................................................................ 6
ARTICLE VI CONDITION AND USE OF LEASED PROPERTY..................................................... 6
------------------------------------
6.1 Condition of the Leased Property......................................................... 6
6.2 Use of the Leased Property............................................................... 7
6.3 Management of Facility................................................................... 8
6.4 Lessor to Grant Easements................................................................ 8
ARTICLE VII LEGAL, INSURANCE AND FINANCIAL REQUIREMENTS.............................................. 8
-------------------------------------------
7.1 Compliance with Legal and Insurance Requirements......................................... 8
7.2 Legal Requirement Covenants.............................................................. 9
7.3 Rent and Debt Service Coverage .......................................................... 9
7.4 Rent and Debt Service Coverage .......................................................... 10
ARTICLE VIII REPAIRS; RESTRICTIONS AND ANNUAL INSPECTIONS............................................. 10
--------------------------------------------
8.1 Maintenance and Repair................................................................... 10
8.2 Encroachments; Restrictions.............................................................. 11
8.3 Inspections.............................................................................. 12
ARTICLE IX CAPITAL ADDITIONS........................................................................ 12
-----------------
9.1 Construction of Capital Additions to the Leased Property................................. 12
9.2 Capital Additions Financed by Lessee..................................................... 13
9.3 Capital Additions Financed by Lessor..................................................... 13
9.4 Remodeling and Non-Capital Additions..................................................... 15
9.5 Salvage.................................................................................. 15
ARTICLE X LIENS.................................................................................... 16
-----
ARTICLE XI PERMITTED CONTESTS....................................................................... 16
------------------
ARTICLE XII INSURANCE................................................................................ 17
---------
12.1 General Insurance Requirements........................................................... 17
12.2 Replacement Cost......................................................................... 18
i
<PAGE>
12.3 Additional Insurance..................................................................... 18
12.4 Waiver of Subrogation.................................................................... 19
12.5 Form of Insurance........................................................................ 19
12.6 Change in Limits......................................................................... 19
12.7 Blanket Policy........................................................................... 19
12.8 No Separate Insurance.................................................................... 20
12.9 Insurance for Contractors................................................................ 20
ARTICLE XIII FIRE AND CASUALTY........................................................................ 20
-----------------
13.1 Insurance Proceeds....................................................................... 20
13.2 Reconstruction in the Event of Damage or Destruction Covered by Insurance................ 20
13.3 Reconstruction in the Event of Damage or Destruction Not Covered by Insurance............ 22
13.4 Lessee's Property........................................................................ 23
13.5 Restoration of Lessee's Property......................................................... 23
13.6 No Abatement of the Rent................................................................. 23
13.7 Damage Near End of Term.................................................................. 23
13.8 Purchase or Substitution................................................................. 23
13.9 Waiver................................................................................... 23
ARTICLE XIV CONDEMNATION............................................................................. 24
------------
14.1 Parties' Rights and Obligations.......................................................... 24
14.2 Total Taking............................................................................. 24
14.3 Partial Taking........................................................................... 24
14.4 Restoration.............................................................................. 24
14.5 Award Distribution....................................................................... 25
14.6 Temporary Taking......................................................................... 25
14.7 Purchase or Substitution................................................................. 25
ARTICLE XV DEFAULT.................................................................................. 25
-------
15.1 Events of Default........................................................................ 25
15.2 Remedies................................................................................. 26
15.3 Additional Expenses...................................................................... 28
15.4 Application of Funds..................................................................... 28
ARTICLE XVI LESSOR'S RIGHT TO CURE................................................................... 28
----------------------
ARTICLE XVII PURCHASE OF THE LEASED PROPERTY.......................................................... 29
-------------------------------
ARTICLE XVIII HOLDING OVER............................................................................. 30
------------
ARTICLE XIX ABANDONMENT.............................................................................. 30
-----------
19.1 Discontinuance of Operations on the Leased Property...................................... 30
19.2 Obsolescence of the Leased Property; Offer to Purchase................................... 30
19.3 Conveyance of Leased Property............................................................ 30
19.4 Option to Purchase....................................................................... 31
ARTICLE XX SUBSTITUTION OF PROPERTY................................................................. 31
------------------------
20.1 Substitution of Property for the Leased Property......................................... 31
20.2 Conditions to Substitution............................................................... 33
20.3 Conveyance to Lessee..................................................................... 34
20.4 Expenses................................................................................. 34
ii
<PAGE>
ARTICLE XXI RISK OF LOSS............................................................................. 34
------------
ARTICLE XXII INDEMNIFICATION.......................................................................... 35
---------------
ARTICLE XXIII SUBLETTING AND ASSIGNMENT................................................................ 35
-------------------------
23.1 Subletting and Assignment................................................................ 35
23.2 Non-Disturbance, Subordination and Attornment............................................ 36
ARTICLE XXIV OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS.......................................... 36
-----------------------------------------------
24.1 Estoppel Certificate..................................................................... 36
24.2 Financial Statements and Certificates.................................................... 37
ARTICLE XXV INSPECTION............................................................................... 38
----------
ARTICLE XXVI QUIET ENJOYMENT.......................................................................... 38
---------------
ARTICLE XXVII NOTICES.................................................................................. 38
-------
ARTICLE XXVIII APPRAISAL................................................................................ 40
---------
ARTICLE XXIX PURCHASE................................................................................. 41
--------
ARTICLE XXX DEFAULT BY LESSOR........................................................................ 41
-----------------
30.1 Default by Lessor........................................................................ 41
30.2 Lessee's Right to Cure................................................................... 42
ARTICLE XXXI ARBITRATION.............................................................................. 42
-----------
31.1 Controversies............................................................................ 42
31.2 Appointment of Arbitrators............................................................... 42
31.3 Third Arbitrator......................................................................... 43
31.4 Arbitration Procedure.................................................................... 43
31.5 Expenses................................................................................. 43
ARTICLE XXXII FINANCING OF THE LEASED PROPERTY......................................................... 43
--------------------------------
ARTICLE XXXIII SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE............................................ 44
---------------------------------------------
ARTICLE XXXIV EXTENDED TERMS........................................................................... 44
--------------
ARTICLE XXXV GUARANTY................................................................................. 45
--------
35.1 Guarantee................................................................................ 45
35.2 Obligations of Guarantor Upon Default.................................................... 45
35.3 Guarantee of Payment..................................................................... 45
ARTICLE XXXVI MISCELLANEOUS............................................................................ 45
-------------
36.1 No Waiver................................................................................ 45
36.2 Remedies Cumulative...................................................................... 46
36.3 Surrender................................................................................ 46
36.4 No Merger of Title....................................................................... 46
36.5 Transfers by Lessor...................................................................... 46
36.6 General...........................................................................,...... 46
36.7 Memorandum of Lease...............................................................,...... 47
iii
<PAGE>
36.8 Transfer of Licenses..................................................................... 47
ARTICLE XXXVII GLOSSARY OF TERMS.................................................................... 47
-----------------
</TABLE>
iv
<PAGE>
LEASE
THIS LEASE ("Lease") dated as of February 21, 1997, is entered into by
and between CAPSTONE CAPITAL CORPORATION, a Maryland corporation, having its
principal office at 1000 Urban Center Drive, Suite 630, Birmingham, Alabama
35242 ("Lessor") and INTEGRATED LIVING COMMUNITIES OF WEST COLUMBIA, INC., a
Delaware corporation ("Lessee"), and INTEGRATED LIVING COMMUNITIES, INC., a
Delaware corporation ("Guarantor"), each having its principal office at 24850
Old 41 Road, Suite 10, Bonita Springs, Florida 34135-7022.
ARTICLE I
LEASED PROPERTY; TERM
-------'--------------
Upon and subject to the terms and conditions hereinafter set forth,
Lessor leases to Lessee and Lessee rents from Lessor all of Lessor's rights and
interest in and to the following real property (collectively, the "Leased
Property"):
(a) the real property more particularly described on Exhibit A attached
hereto together with all covenants, licenses, privileges and benefits thereto
belonging, and any easements, rights-of-way, rights of ingress and egress or
other interests of Lessor in, on or to any land, highway, street, road or
avenue, open or proposed, in, on, across, in front of, abutting or adjoining
such real property, including all strips and gores adjacent to or lying between
such real property and any adjacent real property (the "Land");
(b) all buildings, structures, Fixtures (as hereinafter defined) and
other improvements of every kind (including all alleyways and connecting
tunnels, crosswalks, sidewalks, landscaping, parking lots and structures and
roadways appurtenant to such buildings and structures presently or hereafter
situated upon the Land, and Capital Additions financed by Lessor (but
specifically excluding Capital Additions financed by Lessee), drainage and all
above-ground and underground utility structures) (collectively, the "Leased
Improvements");
(c) all permanently affixed equipment, machinery, fixtures and other
items of real and/or personal property, including all components thereof, now
and hereafter located in, on or used in connection with, and permanently affixed
to or incorporated into the Leased Improvements, including all furnaces,
boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution control, waste
disposal, air-cooling and air conditioning systems and apparatus, sprinkler
systems and fire and theft protection equipment, carpet, moveable or immoveable
walls or partitions and built-in oxygen and vacuum systems, all of which are
hereby deemed by the parties hereto to constitute real estate, together with all
replacements, modifications, alterations and additions thereto, but specifically
excluding all items included within the category of Personal Property
(collectively the "Fixtures");
(d) the Personal Property;
(e) to the extent permitted by law, all permits, approvals and other
intangible property or any interest therein now or hereafter owned or held by
Lessor in connection with the Leased Property or any business or businesses now
or hereafter conducted by Lessee or any Tenant or with the use thereof,
including all leases, contract rights, agreements, trade names, water rights and
reservations, zoning rights, business licenses and warranties (including those
relating to construction or fabrication) related to the Leased Property or any
part thereof, but specifically excluding the general corporate trademarks,
service marks, logos, insignia or books and records of Lessee; and
(f) all site plans, surveys, soil and substrata studies, architectural
drawings, plans and specifications, engineering plans and studies, floor plans,
landscape plans, and other plans and studies that relate to the Land or the
Leased Improvements and are in Lessor's possession or control.
SUBJECT, HOWEVER, to the matters set forth on Exhibit B attached hereto (the
"Permitted Exceptions"), to have and to hold for a fixed term of fifteen years
(the "Initial Term") commencing on the date hereof (the "Commencement Date") and
ending at midnight on the last day of the ________ month
<PAGE>
after the Commencement Date, unless sooner terminated pursuant to the terms
hereof.
ARTICLE II
RENT
----
II.1 Minimum Rent and Adjustments to Minimum Rent. Lessee shall pay to
Lessor, without notice, demand, set off (except as set forth in Section 30.2 or
Article XXXII hereof) or counterclaim, in advance in lawful money of the United
States of America, at Lessor's address set forth herein or at such other place
or to such other person, firms or corporations as Lessor from time to time may
designate in writing, Minimum Rent, as adjusted annually pursuant to Section
2.1(b) during the Term, as follows:
(a) Minimum Rent. Lessee will pay to Lessor as rent (as adjusted from
time to time in accordance with Sections 2.1(b) and 2.1(e), the "Minimum Rent")
for the Leased Property the annual sum equal to the product of (i) the Purchase
Amount times (ii) the greater of (X) ten percent and (Y) the Treasury Yield in
effect ten days prior to the Commencement Date with maturity periods
substantially equivalent to the Initial Term plus 3.5%. The Minimum Rent shall
be, payable in advance in 12 equal, consecutive monthly installments on the
first day of each calendar month during the Term. The parties will execute an
acknowledgement of the initial Minimum Rent calculated pursuant to this Section
2.1(a) as soon as reasonably practicable after the Commencement Date. The
Minimum Rent shall be prorated for any partial month, and is subject to
adjustment as provided in Sections 2.1(b), 2.1(e) and 9.3(b)(iv) below. As used
herein, the term "Purchase Amount" means the total amount funded or to be funded
for the acquisition of the Leased Property by Lessor pursuant to the Purchase
Agreement, including legal fees and expenses, recording taxes and fees and
expenses related to or arising out of the title policy, structural and other
inspections, survey, environmental report and appraisal.
(b) Increases to Minimum Rent. On each anniversary of the Commencement
Date (each such annual date individually referred to as the "Adjustment Date")
throughout the Initial Term and any Extended Terms, the then-current Minimum
Rent shall be increased annually effective as of such Adjustment Date by the
increase in the Consumer Price Index from the Commencement Date to the first
Adjustment Date and, thereafter, from one Adjustment Date to the then-current
Adjustment Date; however, with the exception of the first year of each Extended
Term, in no event will the annual change in the Minimum Rent be less than two
percent nor more than five percent of the Minimum Rent for the prior year.
(c) Capital Replacement Account. Lessee will pay to Lessor for deposit
in a money market account in a federally insured bank in Birmingham, Alabama
acceptable to Lessor and Lessee the sums set forth on Exhibit C attached hereto,
which funds (the "Capital Replacement Account") shall be made available to
Lessee to make repairs and replacements for the Leased Property as approved by
Lessor (which approval shall not be unreasonably withheld, conditioned or
delayed), the costs of which according to generally accepted accounting
principles must be depreciated over periods greater than one year. The Capital
Replacement Account shall be in the name of Lessor, and interest earned on such
account shall be retained in the Capital Replacement Account. Lessee shall make
detailed requests for such funds in writing to Lessor in the same form as a
Request pursuant Section 9.3 hereof. Within 30 days of such Request, Lessor
shall reasonably approve the amount of requested funds and make mutually
agreeable arrangements for the disbursement of the funds, or provide Lessee with
written notice in reasonable detail specifying Lessor's objections to such
Request.
(d) Payment of Minimum Rent. All payments of Minimum Rent shall be made
in lawful money of the United States by wire transfer of same day funds to
Lessor's account #0000040999 at First Commercial Bank, Birmingham, Alabama, ABA
Routing #062003605, Attention: Todd Beard, with advice to Daryl D. McCombs at
(205) 967-2092 (or such other account or location specified by Lessor from time
to time in writing) on or before 2:00 p.m., Birmingham time, on any Business
Day.
2
<PAGE>
(e) Recalculation of Minimum Rent. The parties agree that the Purchase
Amount may be estimated as of the Commencement Date. As soon as reasonably
practicable after the determination of the final Purchase Amount, Lessor will
recalculate the Minimum Rent pursuant to Section 2.1(a) whereupon the parties
will execute an acknowledgement of the recalculated Minimum Rent.
II.2 Calculation of Increases to Minimum Rent. On or about each Adjustment
Date, Lessor will calculate the increase in the Minimum Rent pursuant to the
provisions of Section 2.1(b) and will provide Lessee with written notice of
same.
II.3 Additional Charges. Lessee will also pay and discharge as and when due
(a) all other amounts, liabilities, obligations and Impositions, which Lessee
assumes or agrees to pay under this Lease including, to the extent applicable,
any condominium association dues, assessments or other charges, and (b) in the
event of any failure on the part of Lessee to pay any of those items referred to
in clause (a) above, Lessee will also promptly pay and discharge every fine,
penalty, interest and cost which may be added for non-payment or late payment of
such items (the items referred to in clauses (a) and (b) above being referred to
herein collectively as the "Additional Charges"), and Lessor shall have all
legal, equitable and contractual rights, powers and remedies provided in this
Lease, by statute or otherwise, in the case of non-payment of the Additional
Charges, as well as the Minimum Rent. If any installment of Minimum Rent or
Additional Charges (but only as to those Additional Charges which are payable
directly to Lessor) shall not be paid within ten days after the date when due,
Lessee will pay Lessor on demand, as Additional Charges, interest (to the extent
permitted by law) computed at the Overdue Rate on the amount of such
installment, from the date when due to the date of payment in full thereof. In
the event Lessor provides Lessee with written notice of failure to timely pay
any installment of Minimum Rent or any Additional Charges pursuant to Section
15.1(b) more than three times within any twelve-month period, Lessee shall pay
an administrative fee to Lessor in the amount of $500.00 for each additional
written notice Lessor gives pursuant to Section 15.1(b) during the next twelve
months. To the extent that Lessee pays any Additional Charges to Lessor or the
Facility Mortgagee pursuant to any requirement of this Lease, Lessee shall be
relieved of its obligation to pay such Additional Charges to the entity to which
such Additional Charges would otherwise be due. Additional Charges shall be
deemed Rent hereunder.
II.4 Net Lease. The Rent shall be paid absolutely net to Lessor, so that
this Lease shall yield to Lessor the full amount of the installments of Minimum
Rent and the payments of Additional Charges throughout the Term but subject to
any provisions of this Lease which expressly provide for payments by Lessor or
the adjustment of the Rent or other charges.
ARTICLE III
IMPOSITIONS
-----------
III.1 Payment of Impositions. Subject to Article XI relating to permitted
contests, Lessee will pay, or cause to be paid, all Impositions before any fine,
penalty, interest or cost may be added for non-payment, such payments to be made
directly to the taxing authorities where feasible, and Lessee will promptly,
upon request, furnish to Lessor copies of official receipts or other
satisfactory proof evidencing such payments. If any such Imposition may lawfully
be paid in installments (whether or not interest shall accrue on the unpaid
balance of such Imposition), Lessee may exercise the option to pay the same (and
any accrued interest on the unpaid balance of such Imposition) in installments
and, in such event, shall pay such installments during the Term hereof as the
same become due and before any fine, penalty, premium, further interest or cost
may be added thereto. Lessor, at its expense, shall, to the extent permitted by
applicable law, prepare and file all tax returns and reports as may be required
by governmental authorities in respect of Lessor's net income, gross receipts,
franchise taxes and taxes on its capital stock. Lessee, at its expense, shall,
to the extent permitted by applicable laws and regulations, prepare and file all
other tax returns and reports in respect of any Imposition as may be required by
governmental authorities. If any refund shall be due from any taxing authority
in respect of any
3
<PAGE>
Imposition paid by Lessee, the same shall be paid over to or retained by Lessee
if no Event of Default shall have occurred hereunder and be continuing. Any such
funds retained by Lessor due to an Event of Default shall be applied as provided
in Article XV. Lessor and Lessee shall, upon request of the other, provide such
data as is maintained by the party to whom the request is made with respect to
the Leased Property as may be necessary to prepare any required returns and
reports. In the event governmental authorities classify any property covered by
this Lease as personal property, Lessee shall file all personal property tax
returns in such jurisdictions where filing is required. Lessor and Lessee will
provide the other party, upon request, with cost and depreciation records
necessary for filing returns for any property so classified as personal
property. Where Lessor is legally required to file personal property tax
returns, and Lessee is obligated for the same hereunder, Lessee will be provided
with copies of assessment notices in sufficient time for Lessee to file a
protest. Lessee may, upon giving 30 days' prior written notice to Lessor, at
Lessee's option and at Lessee's sole cost and expense, protest, appeal, or
institute such other proceedings as Lessee may deem appropriate to effect a
reduction of real estate or personal property assessments and Lessor, if
requested by Lessee and at Lessee's expense as aforesaid, shall fully cooperate
with Lessee in such protest, appeal, or other action. Billings for reimbursement
by Lessee to Lessor of personal property taxes shall be accompanied by copies of
an invoice therefor and payments thereof which identify the personal property
with respect to which such payments are made. Lessor will cooperate with Lessee
in order that Lessee may fulfill its obligations hereunder, including the
execution of any instruments or documents reasonably requested by Lessee.
III.2 Proration of Impositions. Impositions imposed in respect of the
tax-fiscal period during which the Term terminates shall be prorated between
Lessor and Lessee, whether or not such Imposition is imposed before or after
such termination, and Lessee's and Lessor's obligation to pay their respective
prorated shares thereof shall survive such termination.
III.3 Utility Charges. Lessee will, or will cause Tenants to, contract for,
in its own name, and will pay or cause to be paid all charges for, electricity,
power, gas, oil, water and other utilities used in the Leased Property during
the Term.
III.4 Insurance Premiums. Lessee will contract for, in its own name, and
will pay or cause to be paid all premiums for, the insurance coverage required
to be maintained by Lessee pursuant to Article XII during the Term.
4
<PAGE>
ARTICLE IV
NO TERMINATION
--------------
Except as provided in this Lease, Lessee shall remain bound by this
Lease in accordance with its terms and shall neither take any action without the
consent of Lessor to modify, surrender or terminate the same, nor seek nor be
entitled to any abatement, deduction, deferment or reduction of Rent, or set-off
against the Rent, nor shall the respective obligations of Lessor and Lessee be
otherwise affected by reason of (a) any damage to, or destruction of, the Leased
Property or any portion thereof from whatever cause or any Taking of the Leased
Property or any portion thereof, except as otherwise provided in Articles XIII
or XIV, (b) the lawful or unlawful prohibition of, or restriction upon, Lessee's
use of the Leased Property, or any portion thereof, or the interference with
such use by any person, corporation, partnership or other entity, or by reason
of eviction by paramount title, (c) any claim which Lessee has or might have
against Lessor or by reason of any default or breach of any warranty by Lessor
under this Lease or any other agreement between Lessor and Lessee or to which
Lessor and Lessee are parties, (d) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceedings affecting Lessor or any assignee or transferee of Lessor, or (e) for
any other cause whatsoever whether similar or dissimilar to any of the
foregoing. Lessee hereby specifically waives all rights arising from any
occurrence whatsoever which may now or hereafter be conferred upon it by law to
(i) modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof, or (ii) entitle Lessee to any abatement,
reduction, suspension or deferment of the Rent or other sums payable by Lessee
hereunder, except as otherwise specifically provided in this Lease. The
obligations of Lessor and Lessee hereunder shall be separate and independent
covenants and agreements and the Rent and all other sums payable by Lessee
hereunder shall continue to be payable in all events unless the obligations to
pay the same shall be terminated pursuant to the express provisions of this
Lease. Notwithstanding the foregoing, Lessee shall have the right by separate
and independent action to pursue any claim or seek any damages it may have
against Lessor as a result of a breach by Lessor of the terms of this Lease or
Lessor's willful misconduct.
ARTICLE V
OWNERSHIP OF LEASED PROPERTY
----------------------------
V.1 Ownership of the Property. Lessee acknowledges that the Leased Property
is the property of Lessor and that Lessee has only the right to the possession
and use of the Leased Property upon the terms and conditions of this Lease.
V.2 Personal Property. Lessee may (and shall as provided hereinbelow), at
its expense, install, affix or assemble or place on any parcels of the Land or
in any of the Leased Improvements any items of the Personal Property, and may
remove, replace or substitute for the same from time to time in the Ordinary
Course of Business with like property of equal or greater value. Lessee shall
provide and maintain during the entire Term all such Personal Property as shall
be necessary in order to operate the Facility in compliance with all licensure
and certification requirements, in compliance with all applicable Legal
Requirements and Insurance Requirements and otherwise in accordance with
customary practice in the industry for the Primary Intended Use in the state
where the Land is located.
ARTICLE VI
CONDITION AND USE OF LEASED PROPERTY
------------------------------------
VI.1 Condition of the Leased Property. Lessee acknowledges receipt and
delivery of possession of the Leased Property and that Lessee has examined and
otherwise acquired knowledge of the condition of the Leased Property prior to
the execution and delivery of this Lease and has found the same to be in good
order and repair and satisfactory for its purpose hereunder . Lessee is leasing
the Leased Property "as is" in its condition at the time of occupancy. Lessee
waives any claim or action against
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Lessor in respect of the condition of the Leased Property. LESSOR MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED
PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, SUITABILITY,
DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING
AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT
THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT IN
ALL RESPECTS.
VI.2 Use of the Leased Property.
(a) After the Commencement Date and during the entire Term, Lessee
shall use or cause to be used the Leased Property and the improvements thereon
as a senior residential facility which may include congregate care services,
assisted living services, Alzheimer's care services or skilled nursing services,
or some combination of the foregoing services (at any time, the actual use or
combination of uses specified herein that is or are then being conducted at the
Leased Property, are referred to as the "Primary Intended Use"). Lessee shall
not use the Leased Property or any portion thereof for any other use without the
prior written consent of Lessor, which consent shall not be unreasonably
withheld or delayed.
(b) Lessee covenants that it will obtain and maintain, with Lessor's
cooperation but at Lessee's sole cost and expense, all material approvals needed
to use and operate the Leased Property and the Facility for the Primary Intended
Use in compliance with all applicable Legal Requirements.
(c) Lessee covenants and agrees that during the Term it will use its
reasonable best efforts to operate continuously the Leased Property in
accordance with its Primary Intended Use and to maintain its certifications for
reimbursement, if any, and licensure and its accreditation, with Lessor's
cooperation but at Lessee's sole cost and expense, if compliance with
accreditation standards is required to maintain the operations of the Facility
and if a failure to comply would adversely affect operations of the Facility.
(d) Lessee shall not commit or suffer to be committed any waste on the
Leased Property, or in the Facility or cause or permit any nuisance thereon.
(e) Lessee shall neither suffer nor permit the Leased Property or any
portion thereof, including any Capital Addition whether or not financed by
Lessor, to be used in such a manner as (i) reasonably likely to impair Lessor's
estate therein or in any portion thereof, or (ii) is reasonably likely to result
in a claim or claims of adverse usage or adverse possession by the public, as
such, or of implied dedication of the Leased Property or any portion thereof.
(f) Lessee will not utilize any Hazardous Materials on the Leased
Property except in accordance with applicable Legal Requirements and will not
permit any contamination which may require remediation under any applicable
Hazardous Materials Law. Lessee agrees not to dispose of any Hazardous Materials
or substances within the sewerage system of the Leased Property, and that it
will handle all "red bag" wastes in accordance with applicable Hazardous
Materials Laws.
VI.3 Management of Facility. Unless otherwise agreed to in writing by
Lessor (i) Lessee shall cause the Facility to be managed and leased to Tenants
at all times by Lessee or an Affiliate of Lessee, (ii) Lessee shall not enter
into any agreement (oral or written) with respect to such management and leasing
activities unless the terms thereof and the proposed manager or leasing agent
have been approved in writing by Lessor, (iii) all such management or leasing
agreements must be in writing, and (iv) all management or leasing agreements
with an Affiliate of Lessee must contain provisions to the effect that (A) the
obligation of Lessee to pay management fees is subordinate to its obligation to
pay the Rent, and (B) the manager shall not have the right to collect any
management fees during the continuance of an
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Event of Default.
VI.4 Lessor to Grant Easements. Lessor will, from time to time, at the
request of Lessee and at Lessee's cost and expense, but subject to the approval
of Lessor (a) grant easements and other rights in the nature of easements, (b)
release existing easements or other rights in the nature of easements which are
for the benefit of the Leased Property, (c) dedicate or transfer unimproved
portions of the Leased Property for road, highway or other public purposes, (d)
execute petitions to have the Leased Property annexed to any municipal
corporation or utility district, (e) execute amendments to any covenants and
restrictions affecting the Leased Property, and (f) execute and deliver to any
person such instruments as may be necessary or appropriate to confirm or effect
such grants, releases, dedications and transfers (to the extent of its interest
in the Leased Property), but only upon delivery to Lessor of an Officer's
Certificate stating (and such other information as Lessor may reasonably require
confirming) that such grant, release, dedication, transfer, petition or
amendment is required or beneficial for and not detrimental to the proper
conduct of the business of Lessee on the Leased Property and does not reduce the
value thereof.
ARTICLE VII
LEGAL, INSURANCE AND FINANCIAL REQUIREMENTS
-------------------------------------------
VII.1 Compliance with Legal and Insurance Requirements. Subject to Article
XI relating to permitted contests, Lessee, at its expense, will promptly (a)
comply with all material Legal Requirements and Insurance Requirements in
respect of the use, operation, maintenance, repair and restoration of the Leased
Property, whether or not compliance therewith shall require structural change in
any of the Leased Improvements or interfere with the use and enjoyment of the
Leased Property, and (b) directly or indirectly with the cooperation of Lessor,
but at Lessee's sole cost and expense, procure, maintain and comply with all
material licenses, certificates of need, if any, and other authorizations
required for (i) any use of the Leased Property then being made, and for (ii)
the proper erection, installation, operation and maintenance of the Leased
Improvements or any part thereof, including any Capital Additions.
VII.2 Legal Requirement Covenants. Lessee covenants and agrees that the
Leased Property shall not be used for any unlawful purpose. Lessee shall,
directly or indirectly with the cooperation of Lessor, but at Lessee's sole cost
and expense, acquire and maintain all material licenses, certificates, permits
and other authorizations and approvals needed to operate the Leased Property in
its customary manner for the Primary Intended Use and any other use conducted on
the Leased Property as may be permitted from time to time hereunder. Lessee
further covenants and agrees that Lessee's use of the Leased Property and
Lessee's maintenance, alteration, and operation of the same, and all parts
thereof, shall at all times conform to all applicable Legal Requirements where
the failure to conform would have a material adverse effect on Lessee or the
Leased Property.
VII.3 Rent and Debt Service Coverage - Consolidated. As used herein, the
term "Consolidated Coverage Ratio" means EBITDAR (as defined below) for Lessee
and Guarantor on a consolidated basis for the applicable period divided by the
principal (excluding any prepayments or principal at maturity), interest and
lease (capital and operating) payment obligations of Lessee and Guarantor on a
consolidated basis for the same period. As used herein, the term "EBITDAR"
means, for any period, the sum of (i) the income (or deficit) from all
operations before provision of income taxes for such period and without
deduction for actual management fees paid or incurred, plus (ii) the interest
charges paid or accrued during such period (including imputed interest on lease
(capital or operating) obligations (including this Lease), but excluding
amortization of debt discount and expense), plus (iii) all amounts in respect of
depreciation and amortization for such period, plus (iv) the rent due under all
leases (capital or operating, including this Lease) for such period. Lessee
agrees and covenants with Lessor that so long as this Lease is in effect, Lessee
will achieve and within 45 days after the end of each calendar quarter (or year)
specified below provide evidence to Lessor of the achievement of the following
Consolidated Coverage Ratio requirements:
7
<PAGE>
<TABLE>
<CAPTION>
Required Months Included
Period Consolidated Coverage Ratio in Calculation
------ --------------------------- --------------
<S> <C> <C> <C>
(i) Prior to date in (ii) No requirement No requirement
(ii) For calendar quarter 1.0 to 1.0 Three months ending
ending 12/31/97 with such date
(iii) For calendar quarter 1.0 to 1.0 Three months ending
ending 3/31/98 with such date
(iv) For calendar quarter 1.1 to 1.0 Three months ending
ending 6/30/98 with such date
(v) For calendar quarter 1.2 to 1.0 Three months ending
ending 9/30/98 with such date
(vi) For calendar year 1.2 to 1.0 Twelve months ending
ending on 12/31/98 with such date
(vii) For calendar quarter 1.25 to 1.0 Three months ending
ending 12/31/98 with such date
(viii) For calendar quarter 1.3 to 1.0 Three months ending
ending 3/31/99 and with such date
all subsequent calendar
quarters
(ix) For calendar year 1.3 to 1.0 Twelve months ending
ending 12/31/99 and with such date
all subsequent calendar
years
</TABLE>
VII.4 Rent and Debt Service Coverage - Facility. As used herein, the term
"Facility Coverage Ratio" means EBITDAR for the Facility only for the applicable
period minus assumed management fees of five percent of the total patient
revenues (regardless of the amount of the management fees actually paid or
incurred) earned from the Facility divided by the principal (excluding any
prepayments or principal at maturity), interest and lease payment obligations of
Lessee (including the Minimum Rent) for the same period. Lessee agrees and
covenants with Lessor that so long as this Lease is in effect, Lessee will
achieve and within 45 days after the end of each March, June, September or
December during the Term, beginning with the calendar quarter ending no sooner
than three months and no later than six months after the Commencement Date,
provide evidence to Lessor of the achievement of the Facility Coverage Ratio
equal to or greater than 1.25 to 1.0.
ARTICLE VIII
REPAIRS; RESTRICTIONS AND ANNUAL INSPECTIONS
--------------------------------------------
VIII.1 Maintenance and Repair.d Repair
(a) Lessee, at its expense, will keep the Leased Property and all
private roadways, sidewalks and curbs appurtenant thereto in reasonably good
order and repair (whether or not the need for such repairs occurs as a result of
Lessee's use, any prior use, the elements, the age of the Leased Property or
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<PAGE>
any portion thereof), and except as otherwise provided in Articles XIII and XIV,
with reasonable promptness will make all necessary and appropriate repairs
thereto of every kind and nature (including remodeling to the extent necessary
to maintain the Leased Property in a condition substantially the same as exists
on the date hereof), whether interior or exterior, structural or non-structural,
ordinary or extraordinary, foreseen or unforeseen or arising by reason of a
condition existing prior to or after the commencement of the Term of this Lease
(concealed or otherwise). All repairs and remodeling shall, to the extent
reasonably achievable, be at least equivalent in quality to the original work
and shall be accomplished by Lessee or a party selected by Lessee. Lessee will
not take or omit to take any action the taking or omission of which might
materially impair the value or usefulness of the Leased Property or any part
thereof for the Primary Intended Use. If Lessee fails to perform any of its
obligations hereunder, or if Lessor reasonably determines that action is
necessary and is not being taken, Lessor may, on giving 30 days' written notice
to Lessee (other than in a case reasonably deemed by Lessor to be an emergency,
in which case no such notice shall be required), without demand on Lessee,
perform any such obligations in such manner and to such extent and take such
other action as Lessor may deem appropriate in the event Lessee has not
commenced to perform such obligation or take such action during such 30-day
period, and all costs, expenses and charges of Lessor relating to any such
action shall constitute Additional Charges and shall be payable by Lessee to
Lessor in accordance with Section 2.3.
(b) Except for the use of any insurance proceeds (to the extent
required by Sections 13.1 and 13.2) and any Award (to the extent required by
Section 14.3) Lessor shall not under any circumstances be required to build or
rebuild any improvements on the Leased Property, or to make any repairs,
replacements, alterations, restorations, or renewals of any nature or
description to the Leased Property, whether ordinary or extraordinary,
structural or nonstructural, foreseen or unforeseen, or to make any expenditure
whatsoever with respect thereto in connection with this Lease, or to maintain
the Leased Property in any way.
(c) Nothing contained in this Lease and no action or inaction by Lessor
shall be construed as constituting the consent or request of Lessor, expressed
or implied, to any contractor, subcontractor, laborer, materialman or vendor to
or for the performance of any particular labor or services or the furnishing of
any particular materials or other property for the construction, alteration,
addition, repair or demolition of or to the Leased Property or any part thereof.
(d) Unless Lessor shall convey any of the Leased Property to Lessee
pursuant to the provisions of this Lease, Lessee will, upon the expiration or
prior termination of this Lease, vacate and surrender the Leased Property to
Lessor in the condition in which the Leased Property was originally received
from Lessor, except for ordinary wear and tear (subject to the obligation of
Lessee to maintain the Property in good order and repair during the entire
Term), damage caused by the gross negligence or willful acts of Lessor, and
damage or destruction described in Article XIII or resulting from a Taking
described in Article XIV which Lessee is not required by the terms of this Lease
to repair or restore, and except as repaired, rebuilt, restored, altered or
added to as permitted or required by the provisions of this Lease.
VIII.2 Encroachments; Restrictions. If any of the Improvements shall, at
any time, encroach upon any property, street or right-of-way adjacent to the
Leased Property, or shall violate the agreements or conditions contained in any
applicable Legal Requirement, lawful restrictive covenant or other agreement
affecting the Leased Property, or any part thereof, or shall impair the rights
of others under any easement or right-of-way to which the Leased Property is
subject, then promptly upon the request of Lessor, Lessee shall at its expense,
subject to its right to contest the existence of any such encroachment,
violation or impairment, (a) obtain valid and effective waivers or settlements
of all claims, liabilities and damages resulting from each such encroachment,
violation or impairment, whether the same shall affect Lessor or Lessee, or (b)
make such changes in the Improvements, and take such other actions, as Lessor in
the good faith exercise of its judgment deems reasonably practicable, to remove
such encroachment, or to end such violation or impairment, including, if
necessary, the alteration of any of the Leased
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<PAGE>
Improvements, and in any event take all such actions as may be necessary in
order to be able to continue the operation of the Facility for the Primary
Intended Use substantially in the manner and to the extent the Facility was
operated prior to the assertion of such violation or encroachment. Any such
alteration shall be made in conformity with the applicable requirements of
Article IX. Lessee's obligations under this Section 8.2 shall be in addition to
and shall in no way discharge or diminish any obligation of any insurer under
any policy of title or other insurance and Lessee shall be entitled to a credit
for any sums recovered by Lessor under any such policy of title or other
insurance.
VIII.3 Inspections. From time to time during the Term, Lessor and its
agents shall have the right, subject to any rights of confidentiality of
Tenants, to inspect the Leased Property and all systems contained therein at any
reasonable time and upon two days advance notice to Lessee to determine Lessee's
compliance with its obligations under this Lease, including those obligations
set forth in Article VII and this Article VIII. Lessee shall be responsible for
the costs of such inspections, which costs shall not exceed the sum of $2,000.00
per year for each year of the Term for an independent, third party inspection of
the Facility.
ARTICLE IX
CAPITAL ADDITIONS
-----------------
IX.1 Construction of Capital Additions to the Leased Property.
(a) If no Event of Default shall have occurred and be continuing,
Lessee shall have the right, upon and subject to the terms and conditions set
forth below, to construct or install Capital Additions on the Leased Property
with the prior written consent of Lessor which consent shall not be unreasonably
withheld; provided that Lessee shall not be permitted to create any Encumbrance
on the Leased Property in connection with such Capital Addition without first
complying with Section 9.1(b) hereof. Prior to commencing construction of any
Capital Addition, Lessee shall submit to Lessor in writing a proposal setting
forth in reasonable detail any proposed Capital Addition and shall provide to
Lessor such plans and specifications, permits, licenses, contracts and other
information concerning the proposed Capital Addition as Lessor may reasonably
request. Without limiting the generality of the foregoing, such proposal shall
indicate the approximate projected cost of constructing such Capital Addition
and the use or uses to which it will be put.
(b) Prior to commencing construction of any Capital Addition, Lessee
shall first request Lessor to provide funds to pay for such Capital Addition in
accordance with the provisions of Section 9.3. If Lessor declines or is unable
to provide such financing on terms acceptable to Lessee and Lessee rejects
Lessor's offer of financing, Lessee may arrange or provide other financing,
subject to the provisions of Section 9.2. Lessor will reasonably cooperate with
Lessee regarding the grant of any consents or easements or the like necessary or
appropriate in connection with any Capital Addition; provided that no Capital
Addition shall be made which would tie in or connect any Leased Improvements on
the Leased Property with any other improvements on property adjacent to the
Leased Property (and not part of the Land covered by this Lease) including
tie-ins of buildings or other structures or utilities, unless Lessee shall have
obtained the prior written approval of Lessor, which approval shall not be
unreasonably withheld. All proposed Capital Additions shall be architecturally
integrated into and consistent with the Leased Property.
IX.2 Capital Additions Financed by Lessee. If Lessee finances or arranges
to finance any Capital Addition with a party other than Lessor or if Lessee pays
cash for any Capital Addition, this Lease shall be and hereby is amended to
provide as follows:
(a) There shall be no adjustment in the Minimum Rent by reason of any
such Capital Addition.
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<PAGE>
(b) Upon the expiration or earlier termination of this Lease, Lessor
shall compensate Lessee for all Capital Additions paid for or financed by Lessee
in any of the following ways:
(i) By purchasing all Capital Additions paid for by Lessee
from Lessee for cash in the amount of the Fair Market Added Value at
the time of purchase by Lessor of all such Capital Additions paid for
or financed by Lessee; or
(ii) Such other arrangement regarding such compensation as
shall be mutually acceptable to Lessor and Lessee.
Any amount owed by Lessee to Lessor under this Lease at such termination or
expiration may be deducted from any compensation for Capital Additions payable
by Lessor to Lessee under this Section 9.2.
IX.3 Capital Additions Financed by Lessor.
(a) Lessee shall request that Lessor provide or arrange financing for a
Capital Addition by providing to Lessor such information about the Capital
Addition as Lessor may reasonably request (a "Request"), including all
information referred to in Section 9.1 above. Lessor may, but shall be under no
obligation to provide or obtain the funds necessary to meet the Request. Within
30 days of receipt of a Request, Lessor shall notify Lessee as to whether it
will finance the proposed Capital Addition and, if so, the terms and conditions
upon which it would do so, including the terms of any amendment to this Lease.
In no event (i) shall the portion of the projected Capital Addition Cost
comprised of land (if any), materials, labor charges and fixtures be less than
100% of the total amount of such cost, or (ii) shall Lessee or any of its
Affiliates be entitled to any commission or development fee, directly or
indirectly, as a portion of the Capital Addition Cost. Any Capital Addition not
financed by Lessor must still be approved in writing by Lessor pursuant to the
terms of Section 9.1 hereof, which consent will not be unreasonably withheld.
Lessee may withdraw its Request by notice to Lessor at any time before or after
receipt of Lessor's terms and conditions.
(b) If Lessor agrees to finance the proposed Capital Addition, Lessor's
obligation to advance any funds shall be subject to receipt of all of the
following, in form and substance reasonably satisfactory to Lessor:
(i) such loan documentation as may be required by Lessor;
(ii) any information, certificates, licenses, permits or
documents requested by Lessor, or by any lender with whom Lessor has
agreed or may agree to provide financing, which are necessary or
appropriate to confirm that Lessee will be able to use the Capital
Addition upon completion thereof in accordance with the Primary
Intended Use, including all required federal, state or local government
licenses and approvals;
(iii) an Officer's Certificate and, if requested, a
certificate from Lessee's architect, setting forth in detail reasonably
satisfactory to Lessor the projected (or actual, if available) cost of
the proposed Capital Addition;
(iv) an amendment to this Lease, duly executed and
acknowledged, in form and substance satisfactory to Lessor and Lessee
(the "Lease Amendment"), containing such provisions as may be necessary
or appropriate due to the Capital Addition, including any appropriate
changes in the legal description of the Land and the Rent, all such
changes to be mutually agreed upon by Lessor and Lessee;
(v) if appropriate, a deed conveying title to Lessor to any
land and
11
<PAGE>
improvements or other rights acquired for the purpose of constructing
the Capital Addition, free and clear of any liens or encumbrances
except those approved in writing by Lessor and, both prior to and
following completion of the Capital Addition, an as-built survey
thereof reasonably satisfactory to Lessor;
(vi) if appropriate, endorsements to any outstanding policy of
title insurance covering the Leased Property or a supplemental policy
of title insurance covering the Leased Property reasonably satisfactory
in form and substance to Lessor (A) updating the same without any
additional exceptions, except as may be permitted by Lessor; and (B)
increasing the coverage thereof by an amount equal to the Fair Market
Value of the Capital Addition (except to the extent covered by the
owner's policy of title insurance referred to in subparagraph (vii)
below);
(vii) if required by Lessor, (A) an owner's policy of title
insurance insuring fee simple title to any land conveyed to Lessor
pursuant to subparagraph (v), free and clear of all liens and
encumbrances except those approved by Lessor and (B) a lender's policy
of title insurance satisfactory in form and substance to Lessor and the
Lending Institution advancing any portion of the Capital Addition Cost;
(viii) if required by Lessor upon completion of the Capital
Addition, an M.A.I appraisal of the Leased Property; and
(ix) such other certificates (including endorsements
increasing the insurance coverage, if any, at the time required by
Section 12.1), documents, customary opinions of Lessee's counsel,
appraisals, surveys, certified copies of duly adopted resolutions of
the Board of Directors of Lessee authorizing the execution and delivery
of the Lease Amendment and any other instruments or documents as may be
reasonably required by Lessor.
(c) Upon making a Request to finance a Capital Addition, whether or not
such financing is actually consummated, Lessee shall pay the reasonable costs
and expenses of Lessor and any Lending Institution which has committed to
finance such Capital Addition paid or incurred in connection with the financing
of the Capital Addition, including (i) the fees and expenses of their respective
counsel, (ii) the amount of any recording or transfer taxes and fees, (iii)
documentary stamp taxes, if any, (iv) title insurance charges, (v) appraisal
fees, if any, and (vi) commitment fees, if any.
IX.4 Remodeling and Non-Capital Additions. Lessee shall have the right and
the obligation to make additions, modifications or improvements to the Leased
Property which are not Capital Additions, including tenant improvements made in
connection with the Tenant Leases, from time to time as may reasonably be
necessary for its uses and purposes and to permit Lessee to comply fully with
its obligations set forth in this Lease; provided that such action will be
undertaken expeditiously, in a workmanlike manner and will not significantly
alter the character or purpose or detract from the value or operating efficiency
of the Leased Property and will not significantly impair the revenue producing
capability of the Leased Property or adversely affect the ability of Lessee to
comply with the provisions of this Lease. Title to all non-Capital Additions,
modifications and improvements shall, without payment by Lessor at any time, be
included under the terms of this Lease and, upon expiration or earlier
termination of this Lease, shall pass to and become the property of Lessor.
IX.5 Salvage. All materials which are scrapped or removed in connection
with the making of either Capital Additions permitted by Section 9.1 or repairs
required by Article VIII shall be or become the property of Lessor; provided
that Lessor may require Lessee to dispose of such materials and remit the net
proceeds thereof to Lessor within 15 days of such disposal.
12
<PAGE>
ARTICLE X
LIENS
-----
Subject to the provisions of Article XI relating to permitted contests,
Lessee will not directly or indirectly create or suffer to exist and will
promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, not including, however, (a) this
Lease, (b) the matters, if any, set forth in Exhibit B attached hereto, (c)
restrictions, liens and other encumbrances which are consented to in writing by
Lessor, or any easements granted pursuant to the provisions of Section 6.4 of
this Lease, (d) liens for those taxes of Lessor which Lessee is not required to
pay hereunder, (e) subleases permitted by Article XXIII, (f) liens for
Impositions or for sums resulting from noncompliance with Legal Requirements so
long as (1) the same are not yet payable or are payable without the addition of
any fine or penalty or (2) such liens are in the process of being contested in
accordance with the provisions of Article XI, (g) liens of mechanics, laborers,
materialmen, suppliers or vendors for sums either disputed or not yet due,
provided that (1) the payment of such sums shall not be postponed for more than
60 days after the completion of the action (including any appeal from any
judgment rendered therein) giving rise to such lien and such reserve or other
appropriate provisions as shall be required by law or generally accepted
accounting principles shall have been made therefor or (2) any such liens are in
the process of being contested in accordance with the provisions of Article XI,
and (h) any Encumbrance placed on the Leased Property by Lessor.
ARTICLE XI
PERMITTED CONTESTS
------------------
Lessee, after ten days' prior written notice to Lessor, on its own or
on Lessor's behalf (or in Lessor's name), but at Lessee's expense, may contest,
by appropriate legal proceedings conducted in good faith and with due diligence,
the amount, validity or application, in whole or in part, of any Imposition,
Legal Requirement, Insurance Requirement, lien, attachment, levy, encumbrance,
charge or claim (collectively "Charge") not otherwise permitted by Article X,
which is required to be paid or discharged by Lessee or any Tenant; provided
that (a) in the case of an unpaid Charge, the commencement and continuation of
such proceedings, or the posting of a bond or certificate of deposit as may be
permitted by applicable law, shall suspend the collection thereof from Lessor
and from the Leased Property; (b) neither the Leased Property nor any Rent
therefrom nor any part thereof or interest therein would be in any immediate
danger of being sold, forfeited, attached or lost; (c) Lessor would not be in
any immediate danger of civil or criminal liability for failure to comply
therewith pending the outcome of such proceedings; (d) in the event that any
such contest shall involve a sum of money or potential loss in excess of
$50,000.00, then Lessee shall deliver to Lessor and its counsel an Officer's
Certificate as to the matters set forth in clauses (a), (b) and (c) and such
opinions of legal counsel as Lessor may reasonably request; (e) in the case of
an Insurance Requirement, the coverage required by Article XII shall be
maintained; and (f) if such contest be finally resolved against Lessor or
Lessee, Lessee shall, as Additional Charges due hereunder, promptly pay the
amount required to be paid, together with all interest and penalties accrued
thereon, or otherwise comply with the applicable Charge; provided further that
nothing contained herein shall be construed to permit Lessee to contest the
payment of the Rent, or any other sums payable by Lessee to Lessor hereunder.
Lessor, at Lessee's expense, shall execute and deliver to Lessee such
authorizations and other documents as may reasonably be required in any such
contest and, if reasonably requested by Lessee or if Lessor so desires and then
at its own expense, Lessor shall join as a party therein. Lessor shall do all
things reasonably requested by Lessee in connection with such action. Lessee
shall indemnify and save Lessor harmless against any liability, cost or expense
of any kind that may be imposed upon Lessor in connection with any such contest
and any loss resulting therefrom.
ARTICLE XII
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INSURANCE
---------
XII.1 General Insurance Requirements. During the Term of this Lease, Lessee
shall at all times keep the Leased Property, and all property located in or on
the Leased Property insured with the kinds and amounts of insurance described
below and written by companies reasonably acceptable to Lessor authorized to do
insurance business in the state in which the Leased Property is located. The
policies must name Lessor as an additional insured and losses shall be payable
to Lessor and/or Lessee as provided in Article XIII. In addition, the policies
shall name as an additional insured the holder ("Facility Mortgagee") of any
mortgage, deed of trust or other security agreement securing any Encumbrance
placed on the Leased Property or any part thereof in accordance with the
provisions of Article XXXII ("Facility Mortgage"), if any, by way of a standard
form of mortgagee's loss payable endorsement. Any loss adjustment in excess of
$100,000.00 shall require the written consent of Lessor and each affected
Facility Mortgagee. Evidence of insurance shall be deposited with Lessor and, if
requested, with any Facility Mortgagee(s). If any provision of any Facility
Mortgage which constitutes a first lien on the Leased Property requires deposits
of insurance to be made with such Facility Mortgagee, Lessee shall pay to Lessor
monthly the amounts required and Lessor shall transfer such amounts to such
Facility Mortgagee. The policies on the Leased Property, including the Leased
Improvements, the Fixtures and the Personal Property, shall insure against the
following risks:
(a) Loss or damage by fire, vandalism and malicious mischief, extended
coverage perils commonly known as "All Risk" and all physical loss perils,
including sprinkler leakage and business interruption, in an amount not less
than the then Full Replacement Cost thereof (as defined below in Section 12.2)
after deductible with a replacement cost endorsement sufficient to prevent
Lessee from becoming a co-insurer together with an agreed value endorsement;
(b) Loss or damage by explosion of steam boilers, pressure vessels or
similar apparatus now or hereafter installed in the Facility, in such limits
with respect to any one accident as may be reasonably requested by Lessor from
time to time;
(c) Loss or damage by hurricane and earthquake in the amount of the
Full Replacement Cost, after deductible;
(d) Loss of rental under a business interruption insurance policy
covering risk of loss during the first 12 months of reconstruction necessitated
by the occurrence of any of the hazards described in Sections 12.1(a), 12.1(b)
or 12.1 (c), in an amount sufficient to prevent Lessee from becoming a
co-insurer; provided that in the event that Lessee shall not be in default
hereunder and Lessor shall receive any proceeds from such rental insurance
which, when added to rental amounts received with respect to the applicable time
period, exceed the amount of rental owed by Lessee hereunder, Lessor shall
immediately pay such excess to Lessee;
(e) Claims for personal injury or property damage under a policy of
comprehensive general public liability insurance including insurance against
assumed or contractual liability including indemnities under this Lease, with
amounts not less than $1,000,000.00 per occurrence in respect of bodily injury
and death, $5,000,000.00 in the aggregate and $1,000,000.00 for property damage;
provided that if it becomes customary for tenants occupying similar buildings in
the same City where the Leased Property is located to be required to provide
liability coverage with higher limits than the foregoing, then Lessee shall
provide Lessor with an insurance policy with coverage limits that are not less
than such customary limits; and
(f) Flood (when the Leased Property is located in whole or in part
within a designated flood plain area) and such other hazards and in such amounts
as may be customary for comparable properties in the area and if available from
insurance companies authorized to do business in the state in which the Leased
Property is located.
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XII.2 Replacement Cost. The term "Full Replacement Cost" as used herein
shall mean the actual replacement cost of the Facility from time to time,
including increased cost of construction endorsement, less exclusions provided
in the normal fire insurance policy. In the event Lessor or Lessee believes that
the Full Replacement Cost has increased or decreased at any time during the
Term, it shall have the right at its own expense to have such Full Replacement
Cost redetermined by an impartial insurance company reasonably acceptable to
both parties, hereinafter referred to as the "impartial appraiser"; provided
that such redetermination shall not occur more often than once every three
years. The party desiring to have the Full Replacement Cost so redetermined
shall forthwith, on receipt of such determination by the impartial appraiser,
give written notice thereof to the other party hereto. The determination of such
impartial appraiser shall be final and binding on the parties hereto, and Lessee
shall forthwith increase, or may decrease, the amount of the insurance carried
pursuant to this Article to the amount so determined by the impartial appraiser.
XII.3 Additional Insurance. In addition to the insurance described above,
Lessee shall maintain such additional insurance as may be reasonably required
from time to time by any Facility Mortgagee which is consistent with insurance
coverage for similar properties in the city, county and state where the Leased
Property is located, or required pursuant to any applicable Legal Requirement,
and shall at all times maintain or cause to be maintained adequate worker's
compensation insurance coverage for all persons employed by Lessee on the Leased
Property, in accordance with all applicable Legal Requirements.
XII.4 Waiver of Subrogation. All insurance policies (other than liability
and worker's compensation insurance) carried by either party covering the Leased
Property, the Fixtures, the Facility and/or the Personal Property, including
contents, fire and casualty insurance, shall expressly waive any right of
subrogation on the part of the insurer against the other party. The parties
hereto agree that their policies will include such a waiver clause or
endorsement so long as the same is obtainable without extra cost, and in the
event of such an extra charge the other party, at its election, may request and
pay the same, but shall not be obligated to do so. Each party waives any claim
it has against the other party to the extent such claim is covered by insurance.
XII.5 Form of Insurance. All of the policies of insurance referred to in
this Section shall be written in form reasonably satisfactory to Lessor by
insurance companies reasonably satisfactory to Lessor; provided that the
deductibles for insurance required by Sections 12.1(a) through 12.1 (d) shall be
no greater than $50,000.00 and the deductible for coverage required by Section
12.1(e) shall be no greater than $100,000.00. Lessee shall pay all premiums
therefor, and deliver such policies or certificates thereof to Lessor prior to
their effective date (and, with respect to any renewal policy, at least 30 days
prior to the expiration of the existing policy). In the event of the failure of
Lessee to effect such insurance in the names herein called for or to pay the
premiums therefor, or to deliver such policies or certificates thereof to Lessor
at the times required, Lessor shall be entitled, but shall have no obligation,
to enact such insurance and pay the premiums therefor, which premiums shall be
repayable by Lessee to Lessor upon written demand therefor, and failure to repay
the same shall constitute an Event of Default within the meaning of Section
15.1(c). Each insurer mentioned in this Section shall agree, by endorsement on
the policy or policies issued by it, or by independent instrument furnished to
Lessor, that it will give to Lessor prior written notice before the policy or
policies in question shall be altered, allowed to expire or canceled.
XII.6 Change in Limits. In the event that Lessor shall at any time
reasonably and in good faith believe the limits of the personal injury, property
damage or general public liability insurance then carried to be insufficient,
the parties shall endeavor to agree on the proper and reasonable limits for such
insurance to be carried and such insurance shall thereafter be carried with the
limits thus agreed on until further change pursuant to the provisions of this
Section. If the parties shall be unable to agree thereon, the proper and
reasonable limits for such insurance shall be determined by an impartial third
party
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selected by the parties the costs of which shall be divided equally between the
parties. Such redeterminations, whether made by the parties or by arbitration,
shall be made no more frequently than every year. Nothing herein shall permit
the amount of insurance to be reduced below the amount or amounts reasonably
required by any Facility Mortgagee.
XII.7 Blanket Policy. Notwithstanding anything to the contrary contained in
this Section, Lessee's obligations to carry the insurance provided for herein
may be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Lessee; provided that the coverage afforded
Lessor will not be reduced or diminished or otherwise be different from that
which would exist under separate policies meeting all other requirements of this
Lease; provided further that the requirements of this Article XII are otherwise
satisfied.
XII.8 No Separate Insurance. Without the prior written consent of Lessor,
Lessee shall not, on Lessee's own initiative or pursuant to the request or
requirement of any third party, take out separate insurance concurrent in form
or contributing in the event of loss with that required in this Article XII to
be furnished by, or which may reasonably be required by a Facility Mortgagee to
be furnished by, Lessee, or increase the amounts of any then-existing insurance
required under this Article XII by securing an additional policy or additional
policies, unless all parties having an insurable interest in the subject matter
of the insurance, including in all cases Lessor and all Facility Mortgagees, are
included therein as additional insureds and the loss is payable under said
insurance in the same manner as losses are required to be payable under this
Lease. Lessee shall immediately notify Lessor of the taking out of any such
separate insurance or of the increasing of any of the amounts of the
then-existing insurance required under this Article XII by securing an
additional policy or additional policies.
XII.9 Insurance for Contractors. If Lessee shall engage or cause to be
engaged any contractor to perform work on the Leased Property, Lessee shall
require such contractor to carry and maintain insurance coverage comparable to
the foregoing requirements, at no expense to Lessor; provided that in cases
where such coverage is excessive in relation to the work being done, Lessee may
allow any such contractor to carry or maintain alternative coverage in
reasonable amounts upon Lessor's prior written consent, which shall not be
unreasonably withheld.
ARTICLE XIII
FIRE AND CASUALTY
-----------------
XIII.1 Insurance Proceeds. All proceeds payable by reason of any loss or
damage to the Leased Property or any portion thereof, and insured under any
policy of insurance required by Article XII of this Lease shall be paid to
Lessor and held by Lessor in trust (subject to the provisions of Section 13.7)
and shall be made available for reconstruction or repair, as the case may be, of
any damage to or destruction of the Leased Property, or any portion thereof, and
shall be paid out by Lessor from time to time for the reasonable cost of such
reconstruction or repair in accordance with this Article XIII after Lessee has
expended an amount equal to or exceeding the deductible under any applicable
insurance policy. Any excess proceeds of insurance remaining after the
completion of the restoration or reconstruction of the Leased Property shall be
retained by Lessee free and clear upon completion of any such repair and
restoration except as otherwise specifically provided below in this Article
XIII; provided that in the event neither Lessor nor Lessee is required or elects
to repair or restore the Leased Property, then all such insurance proceeds shall
be retained by Lessor. All salvage resulting from any risk covered by insurance
shall belong to Lessee, including any salvage relating to Capital Additions paid
for by Lessee.
XIII.2 Reconstruction in the Event of Damage or Destruction Covered by
Insurance.
(a) Facility Rendered Unsuitable for Its Primary Intended Use.
Except as provided in Section 13.7, if during the Term, the Facility is totally
or partially destroyed from a risk covered by the
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insurance described in Article XII and the Facility thereby is rendered
Unsuitable for its Primary Intended Use, such damage or destruction shall not
terminate this Lease and all of Lessee's obligations with respect to payment of
the Rent shall continue in full force and effect and shall not be affected
thereby and Lessee shall either:
(i) apply all proceeds payable with respect thereto to restore
the Facility to substantially the same condition as existed immediately
prior to such damage or destruction, or
(ii) offer either (A) to acquire the Leased Property from
Lessor for a purchase price equal to the Minimum Purchase Amount of the
Leased Property immediately prior to such damage or destruction or (B)
to substitute a new property or properties for the Leased Property
pursuant to and in accordance with the provisions of Article XX (which
offers Lessor may in its sole discretion refuse).
Lessee shall give written notice to Lessor within 60 days after the date of such
damage or destruction whether Lessee chooses option (i) or option (ii), and if
option (ii) is chosen, such notice shall be accompanied by the offer referred to
therein. In the event Lessee fails to give such notice or does not make an offer
under option (ii), Lessee shall promptly proceed to restore the Facility to
substantially the same condition as existed immediately prior to the damage or
destruction. If Lessor does not accept Lessee's offer to substitute for or
purchase the Leased Property within 30 days after the date of such offer,
Lessee's offer shall be deemed withdrawn on such 30th day and Lessee shall
promptly proceed to restore the Facility to substantially the same condition as
existed immediately prior to such damage for destruction.
(b) Facility Not Rendered Unsuitable for Its Primary Intended Use.
Except as provided in Section 13.7, if during the Term, the Facility is
partially destroyed from a risk covered by the insurance described in Article
XII, but the Facility is not thereby rendered Unsuitable for its Primary
Intended Use, Lessee shall restore the Facility to substantially the same
condition as existed immediately prior to the damage or destruction and such
damage or destruction shall not terminate this Lease and all of Lessee's
obligations hereunder, including Lessee's obligations with respect to the
payment of the Rent, shall continue in full force and effect and shall not be
affected thereby; provided that if Lessee cannot within a reasonable time obtain
all necessary governmental approvals, including building permits, licenses,
conditional use permits and any certificates of need, after diligent efforts to
do so, in order to be able to perform all required repair and restoration work
and to operate the Facility for its Primary Intended Use in substantially the
same manner as immediately prior to such damage or destruction, then Lessee
shall either:
(i) offer either (A) to acquire that Leased Property from
Lessor for a purchase price equal to the Minimum Purchase Amount
immediately prior to such damage or destruction, or (B) to substitute a
new property or properties for the Leased Property pursuant to and in
accordance with the provisions of Article XX (which offers Lessor in
its sole discretion may refuse), or
(ii) after the fourth anniversary of the Commencement Date,
offer to purchase the Leased Property from Lessor for a purchase price
equal to the Minimum Purchase Amount of the Leased Property immediately
prior to such damage or destruction.
Lessee shall give written notice to Lessor within 60 days after the date of such
damage or destruction whether Lessee chooses option (i)(A) or option (i)(B), and
if option (i)(B) or option (ii) is chosen, such notice shall be accompanied by
the offer referred to therein. In the event Lessee fails to give such notice or
does not make an offer under option (i) or option (ii), Lessee shall promptly
proceed to restore the
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Facility to substantially the same condition as existed immediately prior to the
damage or destruction. If Lessor does not accept Lessee's offer to substitute
for or purchase the Leased Property within 30 days after the date of such offer,
Lessee's offer shall be deemed withdrawn on such 30th day and Lessee shall
promptly proceed to restore the Facility to substantially the same condition as
existed immediately prior to such damage for destruction.
XIII.3 Reconstruction in the Event of Damage or Destruction Not Covered by
Insurance. Except as provided in Section 13.7, if during the Term the Facility
is totally or materially destroyed from a risk (including earthquake) not
covered by the insurance described in Article XII, whether or not such damage or
destruction renders the Facility Unsuitable for Its Primary Intended Use, Lessee
shall:
(i) restore the Facility to substantially the same condition
it was in immediately prior to such damage or destruction and such
damage or destruction shall not terminate this Lease, and all of
Lessee's obligations hereunder, including Lessee's obligations with
respect to the payment of the Rent, shall continue in full force and
effect and not be affected thereby, or
(ii) offer either (A) to acquire the Leased Property from
Lessor for a purchase price equal to the Minimum Purchase Amount
immediately prior to such damage or destruction, or (B) to substitute a
new property or properties for the Leased Property pursuant to and in
accordance with the provisions of Article XX (which offers Lessor in
its sole discretion may refuse); provided that if such damage or
destruction is not material in the reasonable opinion of Lessor, Lessee
shall restore the Facility to substantially the same condition as
existed immediately prior to any such damage or destruction.
Lessee shall give written notice to Lessor within 60 days after the date of such
damage or destruction whether Lessee chooses option (i) or option (ii), and if
option (ii) is chosen such notice shall be accompanied by the offer referred to
therein. If Lessor does not accept Lessee's offer to substitute for or purchase
the Leased Property within 30 days after the date of such offer, Lessee's offer
shall be deemed to be withdrawn on such 30th day. If such offer is so withdrawn,
or if Lessee fails to purchase the Leased Property or to provide a Substitute
Property in accordance with Article XX, then such damage and destruction shall
be deemed to be a total Taking of such Facility under Section 14.2, and the
provisions of said Section 14.2 shall apply to the rights of the parties and all
insurance proceeds payable in connection with such damage or destruction shall
be treated as if such proceeds constituted an "Award" under said Section 14.2.
XIII.4 Lessee's Property. Lessee shall use any insurance proceeds payable
by reason of any loss of or damage to any of the Personal Property to restore
such Personal Property to the Leased Property with items of substantially
equivalent value to the items being replaced.
XIII.5 Restoration of Lessee's Property. If Lessee is required or elects to
restore the Facility as provided in Sections 13.2 or 13.3, Lessee shall also
restore the Personal Property related thereto as required by Section 13.4 and
all Capital Additions paid for or financed by Lessor. Insurance proceeds payable
by reason of damage to Capital Additions paid for or financed by Lessor shall be
paid to Lessor and Lessor shall hold such insurance proceeds in trust to pay the
cost of repairing or replacing such Capital Additions in the event Lessee does
not purchase or substitute other property or properties for the Leased Property.
All other insurance proceeds shall be paid to Lessee to pay the cost of
replacing or restoring any Capital Additions paid for or financed by Lessee.
XIII.6 No Abatement of the Rent. This Lease shall remain in full force and
effect and Lessee's obligation to make rental payments and to pay all other
charges required by this Lease shall remain unabated during any period required
for repair and restoration.
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XIII.7 Damage Near End of Term. Notwithstanding any provisions of Sections
13.2 or 13.3 to the contrary, if damage to or destruction of the Facility occurs
during the last 12 months of the Term, and if such damage or destruction cannot
be fully repaired and restored within the lesser of (i) six months or (ii) the
period remaining in the Term immediately following the date of loss, then either
party shall have the right to terminate this Lease by giving notice of
termination to the other within 30 days after the date of such damage or
destruction, in which event Lessor shall be entitled to retain the insurance
proceeds and Lessee shall pay to Lessor on demand the amount of any deductible
or uninsured loss arising in connection therewith; provided that any such notice
given by Lessor shall be void and of no force and effect if Lessee exercises an
available option to extend the Term for one Extended Term, or one additional
Extended Term, as the case may be, within 30 days following receipt of such
termination notice.
XIII.8 Purchase or Substitution. In the event Lessor accepts any offer by
Lessee to purchase the Leased Property or to substitute a property or properties
for the Leased Property, this Lease shall terminate upon payment of the purchase
price and execution and delivery of all documentation in accordance with Article
XVII, or execution and delivery of all documents required in connection with a
Substitute Property under Article XX. Lessor shall remit to Lessee, or in the
case of a purchase allow Lessee a credit toward the purchase price, an amount
equal to all insurance proceeds being held in trust by Lessor.
XIII.9 Waiver. Lessee hereby knowingly and expressly waives any statutory
or common law rights of termination which may arise by reason of any damage or
destruction of the Facility.
ARTICLE XIV
CONDEMNATION
------------
XIV.1 Parties' Rights and Obligations. If during the Term there is any
Taking of all or any part of the Leased Property or any interest in this Lease
by Condemnation, the rights and obligations of the parties shall be determined
by this Article XIV.
XIV.2 Total Taking. If there is a Taking of all of the Leased Property by
Condemnation, this Lease shall terminate on the Date of Taking, and the Minimum
Rent and all Additional Charges paid or payable hereunder shall be apportioned
and paid to the Date of Taking.
XIV.3 Partial Taking. If there is a Taking of a portion of the Leased
Property by Condemnation such that the Facility is not thereby rendered
Unsuitable for Its Primary Intended Use, this Lease shall not terminate and all
of Lessee's obligations hereunder, including Lessee's obligations with respect
to the payment of the Rent, shall continue in full force and effect and shall
not be affected thereby. If, however, the Facility is thereby rendered
Unsuitable for Its Primary Intended Use, Lessee shall either:
(i) at Lessee's expense, restore the Facility, to the extent
possible, to substantially the same condition as existed immediately
prior to the partial Taking, in which case the proceeds of any Award
shall be applied to such restoration to the extent necessary or
appropriate, or
(ii) offer either (A) to acquire the Leased Property from
Lessor for a purchase price equal to the Minimum Purchase Amount of the
Leased Property immediately prior to such partial Taking, or (B) to
substitute a new property or properties for the Leased Property
pursuant to and in accordance with the provisions of Article XX (which
offers Lessor may in its sole discretion refuse), or
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(iii) terminate this Lease effective upon the effective date
of such Taking.
Lessee will give written notice to Lessor within 60 days after Lessee receives
notice of the Taking whether Lessee chooses option (i), option (ii)(A) or option
(ii)(B) or option (iii), and if option (ii)(B) is chosen, such notice shall be
accompanied by the offer referred to therein. In the event Lessor does not
accept Lessee's offer to so purchase the Leased Property within 30 days after
receipt of the notice described in the preceding sentence, Lessee may either (a)
withdraw its offer to purchase the Leased Property and proceed to restore the
Facility, to the extent possible, to substantially the same condition as existed
immediately prior to the partial Taking, or (b) terminate the offer and this
Lease by written notice to Lessor.
XIV.4 Restoration. If there is a partial Taking of the Leased Property and
this Lease remains in full force and effect pursuant to any provision of this
Article XIV, Lessee shall accomplish all necessary restoration in order that the
Leased Property may continue to be used for its Primary Intended Use.
XIV.5 Award Distribution. In the event Lessee purchases the Leased Property
pursuant to Section 14.3 or Lessor accepts any offer by Lessee to purchase the
Leased Property or to provide a Substitute Property therefor pursuant to this
Article XIV, then the entire Award shall belong to Lessee and Lessor agrees to
assign to Lessee all of its rights thereto. Except as otherwise expressly
provided in this Article XIV, in any other event the entire Award shall belong
to and be paid to Lessor; provided that if this Lease is terminated in
accordance with Section 14.2(b) or 14.3(a), and subject to the rights of any
Facility Mortgagees, Lessee shall be entitled to receive from the Award any sum
attributable to any Capital Additions for which Lessee would be entitled to
reimbursement at the end of the Term pursuant to the provisions of Section
9.2(b), but only if and to the extent such Award expressly includes such items
and allocates a value thereto. If Lessee is required or elects to restore the
Facility, Lessor agrees that, subject to the rights of the Facility Mortgagees,
its portion of the Award shall be used for such restoration and it shall hold
such portion of the Award in trust, for application to the costs of the
restoration.
XIV.6 Temporary Taking. The Taking of the Leased Property, or any part
thereof, by military or other public authority shall constitute a Taking by
Condemnation only when the use and occupancy by the Taking authority has
continued for longer than six months. During any such six-month period all the
provisions of this Lease shall remain in full force and effect and the Rent
shall not be abated or reduced during such period of Taking; provided that to
the extent any compensation is paid by the Taking authority as a result of such
temporary Taking, Lessee will retain such compensation.
XIV.7 Purchase or Substitution. In the event Lessor accepts any offer by
Lessee to purchase the Leased Property or to substitute a property or properties
for the Leased Property, this Lease shall terminate upon payment of the purchase
price and execution and delivery of all appropriate documentation in accordance
with Article XVII, or execution and delivery of all documents required in
connection with a Substitute Property under Article XX.
ARTICLE XV
DEFAULT
-------
XV.1 Events of Default. The occurrence of any one or more of the following
events shall constitute events of default (individually, an "Event of Default"
and, collectively, "Events of Default") hereunder:
(a) An event of default shall occur under any other lease (the "Related
Leases") between Lessor or any of its Affiliates and Lessee or any of its
Affiliates, which event of default is not cured within the applicable grace
period set forth therein;
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(b) Lessee shall fail to make a payment of the Rent payable by Lessee
under this Lease when the same becomes due and payable and such failure
continues for a period of ten calendar days after written notice from Lessor to
Lessee;
(c) Lessee shall fail to observe or perform any other term, covenant or
condition of this Lease or any document executed in connection herewith and such
failure is not cured by Lessee within a period of 30 days after receipt by
Lessee of notice thereof from Lessor, unless such failure cannot with due
diligence be cured within a period of 30 days, in which case such failure shall
not be deemed to continue if Lessee proceeds promptly and with due diligence to
cure the failure and diligently completes the curing thereof (as soon as
reasonably possible);
(d) Lessee shall:
(i) admit in writing its inability to pay its debts generally
as they become due,
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency law,
(iii) make an assignment for the benefit of its creditors,
(iv) consent to the appointment of a receiver of itself or of
the whole or any substantial part of its property,
(v) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other applicable
law or statute of the United States of America or any state thereof;
(e) Lessee shall default beyond any applicable grace period contained
in one or more major credit facilities which by their terms would permit an
outstanding balance equal to or greater than $10,000,000.00 in the aggregate and
the same shall be accelerated by the lenders or other applicable parties; or
(f) Lessee's corporate parent company, Guarantor, fails to maintain a
Consolidated Tangible Net Worth of at least $50,000,000.00.
XV.2 Remedies. If an Event of Default shall have occurred, Lessor may, at
its election, then or at any time thereafter, pursue any one or more of the
following remedies, in addition to any remedies which may be permitted by law or
by other provisions of this Lease, without further notice or demand, except as
hereinafter provided:
(a) Without any notice or demand whatsoever, Lessor may take any one or
more actions permissible at law to ensure performance by Lessee of Lessee's
covenants and obligations under this Lease. In this regard, it is agreed that if
Lessee abandons or vacates the Leased Property, Lessor may enter upon and take
possession of such Leased Property in order to protect it from deterioration and
continue to demand from Lessee the monthly rentals and other charges provided in
this Lease. Lessor shall use reasonable efforts to relet on commercially
reasonable terms but shall have no absolute obligation to relet. If Lessor does,
at its sole discretion, elect to relet the Leased Property, such action by
Lessor shall not be deemed as an acceptance of Lessee's surrender of the Leased
Property unless Lessor expressly notifies Lessee of such acceptance in writing,
Lessee hereby acknowledging that Lessor shall otherwise be reletting as Lessee's
agent. It is further agreed in this regard that in the event of any Event of
Default described in this Article XV, Lessor shall have the right to enter upon
the Leased Property and do whatever Lessee is obligated to do under the terms of
this Lease. Lessee agrees to reimburse Lessor
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on demand for any reasonable expenses which Lessor may incur in thus effecting
compliance with Lessee's obligations under this Lease, and further agrees that
Lessor shall not be liable for any damages resulting to Lessee from such action,
except as may result from Lessor's gross negligence or willful misconduct.
(b) Lessor may terminate this Lease by written notice to Lessee, in
which event Lessee shall immediately surrender the Leased Property to Lessor,
and if Lessee fails to do so, Lessor may, without prejudice to any other remedy
which Lessor may have for possession or arrearage in rent (including any
interest which may have accrued pursuant to Section 2.3 of this Lease or
otherwise), to the extent permitted by applicable law enter upon and take
possession of the Leased Property and expel or remove Lessee and any other
person who may be occupying said premises or any part thereof other than Tenants
pursuant to Tenant Leases. In addition, Lessee agrees to pay to Lessor on demand
the amount of all loss and damage which Lessor may suffer by reason of any
termination effected pursuant to this subsection (b), said loss and damage to be
determined, at Lessor's option, by either of the following alternative measures
of damages:
(i) Although Lessor shall be under no absolute obligation to
attempt and shall be obligated only to use reasonable efforts, to relet
the Leased Property, until the Leased Property is relet Lessee shall
pay to Lessor on or before the first day of each calendar month the
monthly rentals and other charges provided in this Lease. After the
Leased Property has been relet by Lessor, Lessee shall pay to Lessor on
the 10th day of each calendar month the difference between the monthly
rentals and other charges provided in this Lease for the preceding
calendar month and that actually collected by Lessor for such month. If
it is necessary for Lessor to bring suit in order to collect any
deficiency, Lessor shall have a right to allow such deficiencies to
accumulate and to bring an action on several or all of the accrued
deficiencies at one time. Any such suit shall not prejudice in any way
the right of Lessor to bring a similar action for any subsequent
deficiency or deficiencies. Any amount collected by Lessor from
subsequent tenants for any calendar month in excess of the monthly
rentals and other charges provided in this Lease shall be credited to
Lessee in reduction of Lessee's liability for any calendar month for
which the amount collected by Lessor will be less than the monthly
rentals and other charges provided in this Lease, but Lessee shall have
no right to such excess other than the above described credit; or
(ii) When Lessor desires, Lessor may demand a final settlement
not to exceed the Minimum Purchase Amount at the time of such final
settlement. Upon demand for a final settlement, Lessor shall have a
right to, and Lessee hereby agrees to pay, the difference between the
total of all monthly rentals and other charges provided in this Lease
for the remainder of the Term and the reasonable rental value of the
Leased Property for such period (including a reasonable time to relet
the Leased Property), as determined pursuant to the provisions of
Article XXVIII hereof, such difference to be discounted to present
value at a rate equal to the Treasury Yield then in effect with
maturity periods substantially equivalent to the balance of the Initial
Term or any Extended Term exercised by Lessee pursuant to the terms of
Article XXXIV.
The rights and remedies of Lessor hereunder are cumulative, and pursuit
of any of the above remedies shall not preclude pursuit of any other remedies
prescribed in other sections of this Lease and any other remedies provided by
law or equity. Forbearance by Lessor to enforce one or more of the remedies
herein provided upon an Event of Default shall not be deemed or construed to
constitute a waiver of such Event of Default. Exercise by Lessor of any one or
more remedies shall not constitute an acceptance of surrender of the Leased
Property by Lessee, it being understood that such surrender can be effected only
by the prior written agreement of Lessor and Lessee.
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XV.3 Additional Expenses. In addition to payments required pursuant to
subsections (a) and (b) of Section 15.2 above, Lessee shall compensate Lessor
for all reasonable expenses incurred by Lessor in repossessing the Leased
Property (including any increase in insurance premiums caused by the vacancy of
the Leased Property), all reasonable expenses incurred by Lessor in reletting
(including repairs, remodeling, replacements, advertisements and brokerage
fees), all reasonable concessions granted to a new tenant upon reletting
(including renewal options previously granted by Lessee), all fees and expenses
incurred by Lessor as a direct or indirect result of any appropriate action by a
Facility Mortgagee, any expenses of Lessor incurred for the installation of
separate lines or meters for any public utilities not previously metered
separately from adjacent property of Lessee.
XV.4 Application of Funds. All payments otherwise payable to Lessee which
are received by Lessor under any of the provisions of this Lease during the
existence or continuance of any Event of Default shall be applied to Lessee's
obligations in the order which Lessor may reasonably determine or as may be
prescribed by the laws of the state in which the Facility is located.
ARTICLE XVI
LESSOR'S RIGHT TO CURE
----------------------
If Lessee, without the prior written consent of Lessor, shall fail to
make any payment, or to perform any act required to be made or performed under
this Lease and to cure the same within the relevant time periods provided in
Section 15.1, Lessor, without waiving or releasing any obligation or Event of
Default, may (but shall be under no obligation to) make such payment or perform
such act for the account and at the expense of Lessee, and may, to the extent
permitted by law, enter upon the Leased Property for such purpose and take all
such action thereon as, in Lessor's opinion, may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of Lessee. All sums so paid
by Lessor, together with a late charge thereon (to the extent permitted by law)
at the Overdue Rate from the date on which such sums or expenses are paid or
incurred by Lessor, and all costs and expenses (including reasonable attorneys'
fees and expenses, in each case, to the extent permitted by law) so incurred
shall be paid by Lessee to Lessor on demand. The obligations of Lessee and
rights of Lessor contained in this Article shall survive the expiration or
earlier termination of this Lease.
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ARTICLE XVII
PURCHASE OF THE LEASED PROPERTY
-------------------------------
In the event Lessee purchases the Leased Property from Lessor pursuant
to any of the terms of this Lease, Lessor shall, upon receipt from Lessee of the
applicable purchase price (after credit for the balance of the Capital
Replacement Account), together with full payment of any unpaid Rent due and
payable with respect to any period ending on or before the date of the purchase
and any other amounts owing to Lessor hereunder, deliver to Lessee an
appropriate special warranty deed (in substantially the same form used to convey
the Leased Property to Lessor) and any other documents reasonably requested by
Lessee to convey the interest of Lessor in and to the Leased Property to Lessee,
and such other standard documents usually and customarily prepared in connection
with such transfers, free and clear of all encumbrances other than (a) those
that Lessee has agreed hereunder to pay or discharge, (b) those mortgage liens,
if any, which Lessee has agreed in writing to accept and to take title subject
to, (c) any other Encumbrances permitted to be imposed on the Leased Property
under the provisions of Article XXXII which are assumable at no cost to Lessee,
and (d) any matters affecting the Leased Property on or as of the Commencement
Date. The difference between the applicable purchase price and the total of the
encumbrances assigned or taken subject to shall be paid in cash to Lessor, or as
Lessor may direct, in federal or other immediately available funds except as
otherwise mutually agreed by Lessor and Lessee. The closing of any such sale
shall be contingent upon and subject to Lessee obtaining all required
governmental consents and approvals for such transfer. If such sale shall fail
to be consummated by reason of the inability of Lessee to obtain all such
approvals and consents, any options to extend the Term which otherwise would
have expired during the period from the date when Lessee elected or became
obligated to purchase the Leased Property until Lessee's inability to obtain the
approvals and consents is confirmed shall be deemed to remain in effect for 30
days after the end of such period. The closing with respect to any such sale
shall be appropriately timed to accommodate the determination of the Minimum
Purchase Amount in accordance with Article XXVIII. All expenses of such
conveyance, including the cost of title examination or standard coverage title
insurance, reasonable attorneys' fees incurred by Lessor in connection with such
conveyance, transfer taxes and recording fees shall be paid by Lessee.
Additionally, any sale to Lessee shall be subject to delivery of an opinion of
Lessor's counsel confirming that (i) the sale will not result in ordinary
recapture income to Lessor pursuant to Code Section 1245 or 1250 or any other
Code provision, (ii) the sale will result in income, if any, to Lessor of a type
described in Code Section 856(c)(2) or 856(c)(3) and will not result in income
of the types described in Code Section 856(c)(4) or result in the tax imposed
under Code Section 857(b)(6), and (iii) the sale, together with all other
substitutions and sales made or requested by Lessee pursuant to any other leases
with Lessor of properties hereto or any other transfers of the Leased Property
or the properties leased under other such operating leases, during the relevant
time period, will not jeopardize the qualification of Lessor as a real estate
investment trust under Code Sections 856-860.
ARTICLE XVIII
HOLDING OVER
------------
If Lessee shall for any reason remain in possession of the Leased
Property after the expiration of the Term or any earlier termination of the Term
hereof, such possession shall be as a tenancy at will during which time Lessee
shall pay as rental each month an amount equal to the sum of (a) 150% of the
aggregate of 1/12 of the aggregate Minimum Rent payable with respect to the last
complete year prior to the expiration of the Term, plus (b) all Additional
Charges accruing during such month, plus (c) all other sums, if any, payable
pursuant to the provisions of this Lease with respect to the Leased Property.
During such period of tenancy, Lessee and Lessor shall be obligated to perform
and observe all of the terms, covenants and conditions of this Lease and to
continue its occupancy and use of the Leased Property. Nothing contained herein
shall constitute the consent, express or implied, of Lessor to the holding over
of Lessee after the expiration or earlier termination of this Lease.
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ARTICLE XIX
ABANDONMENT
-----------
XIX.1 Discontinuance of Operations on the Leased Property; Offer of
Substitution. If Lessee has discontinued use of the Leased Property for its
Primary Intended Use for 90 consecutive days without Lessor's prior written
consent for alterations or remodeling pursuant to Article IX, repairs or
restoration pursuant to Article XIII or Article XIV or otherwise, then provided
Lessor has not terminated this Lease pursuant to Section 15.2, Lessee may offer
to substitute a new property or properties for the Leased Property pursuant to
and in accordance with the provisions of Article XX (which offers Lessor may in
its sole discretion refuse).
XIX.2 Obsolescence of the Leased Property; Offer to Purchase. If the Leased
Property becomes Unsuitable for its Primary Intended Use, all as set forth in an
Officer's Certificate delivered to Lessor. Lessee may on or after the fifteenth
anniversary of the Commencement Date (provided this Lease is still in effect),
purchase the Leased Property for the Minimum Purchase Amount on the first
Payment Date occurring not less than 120 days after the date of such Officer's
Certificate.
XIX.3 Conveyance of Leased Property. In the event Lessee elects to purchase
the Leased Property pursuant to Section 19.2, then on the first Payment Date
occurring not less than 120 days after the date of the Officer's Certificate
referred to in Section 19.2, Lessor shall, upon receipt from Lessee of the
Minimum Purchase Amount as of the date of such purchase and all Rent and or
other sums then due and payable under this Lease (excluding any installment of
Minimum Rent due on such Payment Date), convey the Leased Property to Lessee on
such date in accordance with the provisions of Article XVII and this Lease shall
thereupon terminate as to the Leased Property.
XIX.4 Option to Purchase. In return for the payment by Lessee to Lessor of
the amount of $500.00 as valuable consideration and other good and valuable
consideration, the adequacy, sufficiency, payment and receipt of which are
hereby acknowledged, within 180 days prior to the end of the Initial Term and
each Extended Term exercised by Lessee pursuant to the terms of Article XXXIV,
Lessee shall have the option to purchase the Leased Property upon written notice
to Lessor for a purchase price equal to the Minimum Purchase Amount. If not
sooner exercised, the option to purchase granted hereby will expire and be of no
further force and effect upon the expiration the Term or the termination of this
Lease pursuant to the terms of Article XV.
ARTICLE XX
SUBSTITUTION OF PROPERTY
------------------------
XX.1 Substitution of Property for the Leased Property.
(a) In the event Lessor accepts an offer by Lessee to substitute other
property for the Leased Property under Article XIII, Article XIV or Article XIX,
and provided that no Event of Default shall have occurred and be continuing,
Lessee shall have the right (subject to the conditions set forth below in this
Article XX, and upon notice to Lessor) to substitute one or more properties
(collectively referred to as "Substitute Properties" or individually as a
"Substitute Property") for the Leased Property on a monthly Payment Date
specified in such notice (the "Substitution Date") occurring not less than 90
days after receipt by Lessor of such notice. The notice shall be in the form of
an Officer's Certificate and shall specify the reason(s) for the proposed
substitution and the proposed Substitution Date. Notwithstanding anything
contained herein to the contrary, any other substitution for the Leased Property
shall require the prior written consent of Lessor which shall be within the sole
discretion of Lessor.
(b) If Lessee gives the notice referred to in Section 20.1(a) above,
Lessee shall present to Lessor one or more properties (or groups of properties)
each of which property (or groups of properties)
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shall provide Lessor with a yield (i.e., an annual return on its equity in such
property) equal to or greater than the Current Yield (and the yield reasonably
expected to be received thereafter throughout the remainder of the term) from
the Leased Property at the time of such proposed substitution (or in the case of
a proposed substitution as a result of damage, destruction or Condemnation, the
Current Yield immediately prior to such damage, destruction or Condemnation) and
as reasonably projected over the remaining Term of this Lease and shall have a
Fair Market Value substantially equivalent to the Fair Market Value of the
Leased Property. Lessor shall have a period of 90 days within which to review
such information and either to accept or to reject the Substitute Property or
Substitute Properties so presented; provided that if Lessee is required by a
court order or administrative action to divest or otherwise dispose of the
Leased Property within a shorter time period, in which case the time period
shall be shortened appropriately to meet the reasonable needs of Lessee, but in
no event shall said period be less than 15 Business Days after Lessor's receipt
of said notice (subject to further extension for any period of time in which
Lessor is not timely provided with the information provided for in Section 20.2
and Section 20.3 below); provided that if Lessor shall contend that the
Substitute Properties fail to meet all the conditions for substitution set forth
in this Article XX, including the provisions of Sections 20.1(c), (d) and (e)
below, the matter shall be submitted to arbitration in accordance with Article
XXXI and the time periods for Lessor's approval or rejection shall be tolled
during the period of such arbitration.
(c) It shall be a condition to consummation of any substitution
hereunder that all of the conditions set forth in Section 20.2 below, shall have
been satisfied with respect to such substitution, and to the delivery of an
opinion of counsel for Lessor confirming that (i) the substitution of the
Substitute Property for the Leased Property will qualify as an exchange solely
of property of a like-kind under Section 1031 of the Code, in which, generally,
except for "boot" such as cash needed to equalize exchange values or discharge
indebtedness, no gain or loss is recognized to Lessor, (ii) the substitution or
sale will not result in ordinary recapture income to Lessor pursuant to Code
Section 1245 or 1250 or any other Code provision, (iii) the substitution or sale
will result in income, if any, to Lessor of a type described in Code Section
856(c)(2) or 856(c)(3) and will not result in income of the types described in
Code Section 856(c)(4) or result in the tax imposed under Code Section
857(b)(6), and (iv) the substitution or sale, together with all other
substitutions and sales made or requested by Lessee pursuant to any other leases
with Lessor of properties hereto or any other transfers of the Leased Property
or the properties leased under other such operating leases, during the relevant
time period, will not jeopardize the qualification of Lessor as a real estate
investment trust under Code Sections 856-860.
(d) In the event that the equity value of the Substitute Property or
group of Substitute Properties (i.e., the Fair Market Value of the Substitute
Property or group of Substitute Properties minus the encumbrances subject to
which Lessor will take the Substitute Property or group of Substitute
Properties) as of the Substitution Date is greater than the equity value of the
Leased Property (i.e., the Fair Market Value of the Leased Property minus the
encumbrances subject to which Lessee will take the Leased Property) as of the
Substitution Date (or in the case of damage destruction or Condemnation, the
Fair Market Value immediately prior to such damage, destruction or
Condemnation), Lessor shall pay to Lessee an amount equal to the difference,
subject to the limitation set forth below. In the event that said equity value
of the Substitute Property or group of Substitute Properties is less than said
equity value of the Leased Property, Lessee shall pay to Lessor an amount equal
to the difference, subject to the limitation set forth below. Notwithstanding
the foregoing, neither Lessor nor Lessee shall be obligated to consummate any
substitution if such party would be required to make a payment to the other in
excess of an amount equal to ten percent of said Fair Market Value of the Leased
Property (the amount of cash paid by one party to the other being hereinafter
referred to as the "Cash Adjustment").
(e) The Rent for such Substitute Property in all respects shall provide
Lessor with a yield at the time of such substitution (i.e., annual return on its
investment in such Substitute Property) not less than the Current Yield (and the
yield reasonably expected to be received thereafter throughout the remainder of
the Term) from the Leased Property prior to any damage, destruction or
Condemnation, taking into account the Cash Adjustment paid or received by Lessor
and any other relevant factors.
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(f) The Minimum Purchase Amount of any Substitute Property or
Substitute Properties shall be an amount equal to the Minimum Purchase Amount of
the Leased Property on the Substitution Date (i) increased by any Cash
Adjustment paid by Lessor pursuant to Section 20.1(d) above, or (ii) decreased
by any Cash Adjustment paid by Lessee pursuant to Section 20.1(d) above.
XX.2 Conditions to Substitution. On the Substitution Date, the Substitute
Property will become the Leased Property hereunder upon delivery by Lessee to
Lessor of the following items in form and substance reasonably satisfactory to
Lessor:
(a) an Officer's Certificate representing, warranting and certifying
that (i) the Substitute Property has been accepted by Lessee for all purposes of
this Lease and there has been no material damage to the improvements located on
the Substitute Property nor is any condemnation or eminent domain proceeding
pending with respect thereto; (ii) all permits, licenses and certificates
(including a permanent, unconditional certificate of occupancy and, to the
extent permitted by law, all certificates of need and licenses) which are
necessary to permit the use of the Substitute Property in accordance with the
provisions of this Lease have been obtained and are in full force and effect;
(iii) under applicable zoning and use laws, ordinances, rules and regulations
the Substitute Property may be used for the purposes contemplated by Lessee and
all necessary subdivision approvals have been obtained; (iv) there are no
mechanic's or materialmen's liens outstanding or threatened to the knowledge of
Lessee against the Substitute Property arising out of or in connection with the
construction of the improvements thereon, other than those being contested by
Lessee pursuant to Article XI; (v) any mechanic's or materialmen's liens being
contested by Lessee will be promptly paid by Lessee if such contest is resolved
in favor of the mechanic or materialman; (vi) to the best knowledge of Lessee,
there exists no Event of Default under this Lease, and no defense, offset or
claim exists with respect to any sums to be paid by Lessee hereunder; and (vii)
any exceptions to Lessor's title to the Substitute Property do not materially
interfere with the intended use of the Substitute Property by Lessee;
(b) a special warranty deed with warranties against claims arising
under Lessee conveying to Lessor title to the Substitute Property free and clear
of any liens and encumbrances except those approved in writing or assumed by
Lessor;
(c) a lease duly executed, acknowledged and delivered by Lessee,
containing the same terms and conditions as are contained herein, except that
(i) the legal description of the Land shall refer to the Substitute Property,
(ii) the Minimum Purchase Amount, Rent and any Additional Charges for the
Substitute Property shall be consistent with the requirements of Section 20.1
and (iii) such other changes therein as may be necessary or appropriate under
the circumstances shall be made;
(d) a standard owner's or lessee's (as applicable) policy of title
insurance covering the Substitute Property (or a valid, binding, unconditional
commitment therefor), dated the Substitution Date, in current form and including
mechanics' and materialmen's lien coverage, issued to Lessor by a title
insurance company reasonably satisfactory to Lessor. Such policy shall (i)
insure (A) Lessor's fee title to the Substitute Property, subject to no liens or
encumbrances except those approved or assumed by Lessor, and (B) that any
restrictions affecting the Substitute Property have not been violated and that a
further violation thereof will not result in a forfeiture or reversion of title,
(ii) be in an amount at least equal to the Fair Market Value of the Substitute
Property, and (iii) contain such endorsements as may be reasonably requested by
Lessor;
(e) certificates of insurance with respect to the Substitute
Property fulfilling the requirements of Article XII;
(f) current appraisals or other evidence satisfactory to Lessor, in
its sole discretion, as to the current Fair Market Values of such Substitute
Property;
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(g) all available revenue data relating to the Substitute Property for
the period from the date of opening for business of the Substitute Property to
the date of Lessee's most recent Fiscal-Year end, or for the most recent three
years, whichever is less; and
(h) such other certificates, documents, opinions of counsel (which may
be in-house counsel), and other instruments as may be reasonably required by
Lessor.
XX.3 Conveyance to Lessee. On the Substitution Date Lessor will convey the
Leased Property to Lessee in accordance with the provisions of Article XVII
(except as to payment of any expenses in connection therewith which shall be
governed by Section 20.4 below) upon either (a) payment in cash therefor or (b)
conveyance to Lessor of the Substitute Property, as appropriate.
XX.4 Expenses. Lessee shall pay or cause to be paid, on demand, all
reasonable costs and expenses paid or incurred by Lessor in connection with the
substitution and conveyance of the Leased Property and the Substitute Property,
including (a) fees and expenses of Lessor's counsel, (b) the amount of any
recording taxes and filing fees, (c) the cost of preparing and recording, if
appropriate, a release of the Leased Property from the lien of any mortgage, (d)
broker's fees and commissions for Lessee, if any, (e) documentary stamp and
transfer taxes, if any, (f) title insurance charges, and (g) escrow fees, if
any.
ARTICLE XXI
RISK OF LOSS
------------
Except as otherwise provided in this Lease, during the Term of this
Lease, the risk of loss or of decrease in the enjoyment and beneficial use of
the Leased Property in consequence of the damage or destruction thereof by fire,
the elements, casualties, thefts, riots, wars or otherwise, or in consequence of
foreclosures, attachments, levies or executions (other than by Lessor and those
claiming from, through or under Lessor) is assumed by Lessee and, Lessor shall
in no event be answerable or accountable therefor nor shall any of the events
mentioned in this Section entitle Lessee to any abatement of the Rent except as
specifically provided in this Lease.
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ARTICLE XXII
INDEMNIFICATION
---------------
Notwithstanding the existence of any insurance or self insurance
provided for in Article XII, and without regard to the policy limits of any such
insurance or self insurance, Lessee will protect, indemnify, save harmless and
defend Lessor from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including reasonable attorneys'
fees and expenses), to the extent permitted by law, imposed upon or incurred by
or asserted against Lessor by reason of: (a) any accident, injury to or death of
persons or loss to property occurring on or about the Leased Property, including
any claims of malpractice, (b) any use, misuse, no use, condition, maintenance
or repair by Lessee of the Leased Property, (c) any Impositions (which are the
obligations of Lessee to pay pursuant to the applicable provisions of this
Lease), (d) any failure on the part of Lessee to perform or comply with any of
the terms of this Lease, (e) the non-performance of any of the terms and
provisions of any and all existing and future subleases of the Leased Property
to be performed by Lessee as landlord thereunder and (f) the violation of any
Hazardous Materials Law. Any amounts which become payable by Lessee under this
Section shall be paid within ten days after liability therefor on the part of
Lessor is finally determined by litigation or otherwise (including the
expiration of any time for appeals) and, if not timely paid, shall bear interest
(to the extent permitted by law) at the Overdue Rate from the date of such
determination to the date of payment. Lessee, at its expense, shall contest,
resist and defend any such claim, action or proceeding asserted or instituted
against Lessor or may compromise or otherwise dispose of the same as Lessee sees
fit. Lessor shall cooperate with Lessee in a reasonable manner to permit Lessee
to satisfy Lessee's obligations hereunder, including the execution of any
instruments or documents reasonably requested by Lessee. Nothing herein shall be
construed as indemnifying Lessor or its agents for their own negligent acts or
omissions or willful misconduct. Lessee's liability for a breach of the
provisions of this Article shall survive any termination of this Lease.
ARTICLE XXIII
SUBLETTING AND ASSIGNMENT
-------------------------
XXIII.1 Subletting and Assignment. Subject to the rights of Tenants under
existing Tenant Leases and subject to the provisions of Section 23.3 below and
any other express conditions or limitations set forth herein, Lessee may,
without the consent of Lessor, sublet all or any part of the Leased Property
consistently with the Primary Intended Use. Lessor shall not unreasonably
withhold its consent to any other or further subletting or assignment; provided
that (a) in the case of a subletting, the sublessee shall comply with the
provisions of Section 23.2, (b) in the case of an assignment, the assignee shall
assume in writing and agree to keep and perform all of the terms of this Lease
on the part of Lessee to be kept and performed and shall be and become jointly
and severally liable with Lessee for the performance thereof, (c) an original
counterpart of each such sublease and assignment and assumption, duly executed
by Lessee and such sublessee or assignee, as the case may be, in form and
substance reasonably satisfactory to Lessor, shall be delivered promptly to
Lessor, and (d) in case of either an assignment or subletting, Lessee shall
remain primarily liable, as principal rather than as surety, for the prompt
payment of the Rent and for the performance and observance of all of the
covenants and conditions to be performed by Lessee hereunder. In addition to
Lessee's rights to sublet and assign as provided in this section above, Lessee
shall also have the right (upon Lessor's prior consent, which consent shall not
unreasonably be withheld) to enter into Tenant Leases which extend beyond the
Term of this Lease. To the extent that any such Tenant Leases extend beyond the
Term of this Lease, Lessor shall receive the rents from, and be responsible for
any obligations on the part of the landlord or lessor under such Tenant Leases.
Any and all such Tenant Leases shall, to the extent applicable, be subject to
the provisions of this Section and Section 23.2.
XXIII.2 Non-Disturbance, Subordination and Attornment.Except for existing
Tenant Leases, Lessee shall insert in each written sublease permitted under
Section 23.1 provisions to the effect that (a)
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such sublease is subject and subordinate to all of the terms and provisions of
this Lease and to the rights of Lessor hereunder, (b) in the event this Lease
shall terminate before the expiration of such sublease, the sublessee thereunder
will, at Lessor's option, attorn to Lessor and waive any right the sublessee may
have to terminate the sublease or to surrender possession thereunder as a result
of the termination of this Lease and (c) in the event the sublessee receives a
written notice from Lessor or Lessor's assignees, if any, stating that Lessee is
in default under this Lease, the sublessee, shall thereafter be obligated to pay
all rentals accruing under said sublease directly to the party giving such
notice, or as such party may direct. All rentals received from the sublessee by
Lessor or Lessor's assignees, if any, shall be credited against amounts owing by
Lessee under this Lease. Lessor agrees that notwithstanding any default,
termination, expiration, sale, entry or other act or omission of Lessee pursuant
to the terms of this Lease, or at law or in equity, Tenant's possession shall
not be disturbed unless such possession may otherwise be terminated pursuant to
the terms of the applicable Tenant Lease. Lessor hereby agrees, upon Lessee's
request, to execute a nondisturbance agreement in favor of any Tenant or in
favor of any sublessee under any sublease permitted under Section 23.1 above;
provided that the Tenant or any such sublessee has acknowledged all of the
foregoing provisions and executed all documents required by this Section 23.2.
ARTICLE XXIV
OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS
-----------------------------------------------
XXIV.1 Estoppel Certificate. At any time and from time to time within 20
days following written request by Lessor, Lessee will furnish to Lessor an
Officer's Certificate certifying that this Lease is unmodified and in full force
and effect (or that this Lease is in full force and effect as modified and
setting forth the modifications) and the dates to which the Rent has been paid.
Any such Officer's Certificate furnished pursuant to this Article may be relied
upon by Lessor, any prospective purchaser of the Leased Property and any third
parties who have an interest in the Leased Property, including any Lender or
professional advisor or Lessor.
XXIV.2 Financial Statements and Certificates. Lessee will furnish the
following statements to Lessor; provided that Lessor shall keep confidential
items furnished by Lessee which are not generally available to the public:
(i) within 120 days after the end of each Fiscal Year (A) a
copy of the Consolidated Financial Statements for such Fiscal Year; (B)
an Officer's Certificate stating (x) that no Event of Default, or event
which, with the giving of notice or the passage of time, or both, would
constitute an Event of Default, has occurred and is continuing and has
not been waived, or, if there shall have occurred and be continuing
such an Event of Default, specifying the nature thereof and the steps
being taken to remedy the same, and (y) that to the best of the
signer's knowledge and belief, Lessee is not in default in the
performance or observance of any of the terms of any loans or credit
facilities, which by their terms would permit an outstanding balance
equal to or greater than $10,000,000.00 in the aggregate, which default
would permit the holder thereof to accelerate its stated maturity; (C)
a current rent or lease roll for the Leased Property setting forth
rental information in reasonable detail regarding all of the Tenants
and Tenant Leases, including any space utilized by Lessee; (D) a
statement of revenues and expenses of the Leased Property for the
twelve-month period then ended in detail reasonably satisfactory to
Lessor; (E) a certificate in form acceptable to Lessor that the
required Consolidated Coverage Ratio and Facility Coverage Ratio for
the applicable period has been achieved;
(ii) within 15 days after request by Lessor, (A) a statement
of the number of beds available and the actual patient-days for the
most recent month, quarter and year, (B) census information for the
Facility in sufficient detail to show patient-mix on a daily average
basis for the prior quarter and year, and (C) an aged accounts
receivable report in sufficient detail to show
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amounts due from each class of patient-mix (such as private, Medicare,
Medicaid and V.A.) by the account age classifications of 30 days, 60
days, 90 days, 120 days, and over 120 days;
(iii) within 15 days after filing or receipt, as the case may
be, (A) all cost reports filed with any regulatory or licensing agency
and any amendments thereto, together with all responses, audit reports
or inquiries with respect to such cost reports, (B) copies of all
licensure and certification survey reports and statements of
deficiencies with respect to the Facility (with correction plans
attached thereto), (C) copies of the Medicaid rate calculation
worksheet (or equivalent thereof), if any, issued by the applicable
Medicaid Agency, (D) copies of all notices (regardless of form) from
any and all licensing and/or certifying agencies that the license or
applicable reimbursement certification for the Facility is being
downgraded to a substandard category, revoked or suspended or that
action is pending or being considered to downgrade to a substandard
category, revoke or suspend the Facility's license or certification,
and (E) evidence of the payment of any bed taxes or similar taxes;
(iv) within 30 days after filing, copies of the 10-Q and 10-K
Reports of Guarantor filed with the United States Securities and
Exchange Commission;
(v) within 45 days after the end of each quarter, a
certificate in form acceptable to Lessor that the required Consolidated
Coverage Ratio and Facility Coverage Ratio for the quarter then ended
has been achieved; and
(vi) with reasonable promptness, such other information
respecting the financial condition, affairs and properties of Lessee as
Lessor may reasonably request from time to time.
ARTICLE XXV
INSPECTION
----------
Lessee shall permit Lessor and its authorized representatives to
inspect the Leased Property during usual business hours subject to any security,
health, safety or confidentiality requirements of Lessee, the rights of the
Tenants, any Insurance Requirements relating to the Leased Property, or any
other restrictions imposed by law or applicable regulations.
ARTICLE XXVI
QUIET ENJOYMENT
---------------
So long as Lessee shall pay all Rent as the same becomes due and shall
fully comply with all of the terms of this Lease and perform its obligations
hereunder, Lessee shall peaceably and quietly have, hold and enjoy the Leased
Property for the Term hereof, free of any claim or other action by Lessor or
anyone claiming by, through or under Lessor, but subject to all liens and
encumbrances of record as of the date hereof or hereafter consented to by
Lessee. No failure by Lessor to comply with the foregoing covenant shall give
Lessee any right to cancel or terminate this Lease, or to fail to pay any other
sum payable under this Lease, or to fail to perform any other obligation of
Lessee hereunder. Notwithstanding the foregoing, Lessee shall have the right by
separate and independent action to pursue any claim or seek any damages it may
have against Lessor as a result of a breach by Lessor of the covenant of quiet
enjoyment contained in this Article.
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ARTICLE XXVII
NOTICES
-------
Any notices, demands, approvals and other communications provided for
herein shall be in writing and shall be delivered by telephonic facsimile,
overnight air courier, personal delivery or registered or certified U.S. Mail
with return receipt requested, postage paid, to the appropriate party at its
address as follows:
If to Lessor:
CAPSTONE CAPITAL CORPORATION
1000 Urban Center Drive
Suite 630
Birmingham, Alabama 35242
Attention: Mr. Daryl D. McCombs
Telephone: (205) 967-2092
Telecopy: (205) 967-9066
With a copy to:
Mr. Thomas A. Ansley
Sirote & Permutt, P.C.
2222 Arlington Avenue South
Birmingham, Alabama 35205
Telephone: (205) 930-5300
Telecopy: (205) 930-5301
If to Lessee or Guarantor:
INTEGRATED LIVING COMMUNITIES, INC.
Brentwood Centre
24850 Old 41 Road
Suite 10
Bonita Springs, Florida 34135-7022
Attention: Mr. John B. Poole
Telephone: (941) 947-7200
Telecopy: (941) 947-7201
With a copy to:
INTEGRATED LIVING COMMUNITIES, INC.
Brentwood Centre
24850 Old 41 Road
Suite 10
Bonita Springs, Florida 34135-7022
Attention: Ms. Geralyn Kidera
Telephone: (941) 947-7222
Telecopy: (941) 947-7201
Addresses for notice may be changed from time to time by written notice
to all other parties. Any communication given by mail will be effective (i) upon
the earlier of (a) five business days following deposit in a post office or
other official depository under the care and custody of the United States Postal
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Service or (b) actual receipt, as indicated by the return receipt; (ii) if given
by telephone facsimile, when sent; and (iii) if given by personal delivery or by
overnight air courier, when delivered to the appropriate address set forth.
ARTICLE XXVIII
APPRAISAL
---------
In the event that it becomes necessary to determine the Fair Market
Value, Fair Market Value Purchase Amount, the Fair Market Added Value, the
Minimum Purchase Amount or the Fair Market Rental Value of the Leased Property
or a Substitute Property for any purpose of this Lease, the party required or
permitted to give notice of such required determination shall include in the
notice the name of a person selected to act as an appraiser on its behalf.
Within ten days after receipt of any such notice, Lessor (or Lessee, as the case
may be) shall by notice to Lessee (or Lessor, as the case may be) appoint a
second person as an appraiser on its behalf. The appraisers thus appointed (each
of whom must be a member of the American Institute of Real Estate Appraisers or
any successor organization thereto) shall, within 45 days after the date of the
notice appointing the first appraiser, proceed to appraise the Leased Property
or the Substitute Property, as the case may be, to determine any of the
foregoing values as of the relevant date (giving effect to the impact, if any,
of inflation from the date of their decision to the relevant date); provided
that if only one appraiser shall have been so appointed, or if two appraisers
shall have been so appointed but only one such appraiser shall have made such
determination within 50 days after the making of Lessee's or Lessor's request,
then the determination of such appraiser shall be final and binding upon the
parties. If two appraisers shall have been appointed and shall have made their
determinations within the respective requisite periods set forth above and if
the difference between the amounts so determined shall not exceed ten percent of
the lesser of such amounts, then the Fair Market Value or Fair Market Added
Value or the Fair Market Rental Value shall be an amount equal to 50% of the sum
of the amounts so determined. If the difference between the amounts so
determined shall exceed 10% of the lesser of such amounts, then such two
appraisers shall have 20 days to appoint a third appraiser, but if such
appraisers fail to do so, then either party may request the American Arbitration
Association or any successor organization thereto to appoint an appraiser within
20 days of such request, and both parties shall be bound by any appointment so
made within such 20-day period. If no such appraiser shall have been appointed
within such 20 days or within 90 days of the original request for a
determination of Fair Market Value or Fair Market Added Value or the Fair Market
Rental Value, whichever is earlier, either Lessor or Lessee may apply to any
court having jurisdiction to have appointment made by such court. Any appraiser
appointed, by the American Arbitration Association or by such court, shall be
instructed to determine the Fair Market Value or Fair Market Added Value or the
Fair Market Rental Value within 30 days after appointment of such appraiser. The
determination of the appraiser which differs most in terms of dollar amount from
the determinations of the other two appraisers shall be excluded, and 50% of the
sum of the remaining two determinations shall be final and binding upon Lessor
and Lessee as the Fair Market Value or Fair Market Added Value or the Fair
Market Rental Value for such interest. However, in the event that following the
appraisal performed by said third appraiser, the dollar amount of two of such
appraisals are higher and lower, respectively, than the dollar amount of the
remaining appraisal in equal degrees, the determinations of both the highest and
lowest appraisal, respectively, shall be rejected and the determination of the
remaining appraisal shall be final and binding upon Lessor and Lessee as the
Fair Market Value or Fair Market Added Value or the Fair Market Rental Value for
such interest. This provision for determination by appraisal shall be
specifically enforceable to the extent such remedy is available under applicable
law, and any determination hereunder shall be final and binding upon the parties
except as otherwise provided by applicable law. Lessor and Lessee shall each pay
the fees and expenses of the appraiser appointed by it and each shall pay
one-half of the fees and expenses of the third appraiser and one-half of all
other costs and expenses incurred in connection with each appraisal.
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ARTICLE XXIX
PURCHASE RIGHTS
---------------
During the Term hereof (provided that no Event of Default has occurred
and is continuing), Lessee shall have a first refusal option to purchase the
Leased Property upon the same terms and conditions as Lessor, or its successors
and assigns, shall have received an offer from a third party to purchase the
Leased Property, which Lessor intends to accept (or has accepted subject to
Lessee's right of first refusal granted herein). If, during the Term, Lessor
receives such an offer or reaches such agreement with a third party, Lessor
shall promptly notify Lessee of the purchase price for the Leased Property and
all other material terms and conditions of such agreement or proposed sale
together with a copy of such offer, and Lessee shall have 30 days after receipt
of such notice from Lessor within which time to exercise Lessee's option to
purchase. If Lessee exercises its option, then such purchase shall be
consummated within the time set forth in the third-party offer and in accordance
with the provisions of Article XVII hereof to the extent not inconsistent
herewith. If Lessee shall not exercise Lessee's option to purchase within said
30-day period after receipt of said notice from Lessor, Lessor shall be free for
a period of 90 days after the expiration of said 30-day period to sell the
Leased Property to the third party at the price and terms set forth in such
offer. Whether or not such sale is consummated, Lessee shall be entitled to
exercise its right of first refusal as provided in this Article, as to any
subsequent sale of the Leased Property during the Term of this Lease.
ARTICLE XXX
DEFAULT BY LESSOR
-----------------
XXX.1 Default by Lessor. Lessor shall be in default of its obligations
under this Lease if Lessor shall fail to observe or perform any term, covenant
or condition of this Lease on its part to be performed and such failure shall
continue for a period of 30 days after written notice thereof is received by
Lessor, unless such failure cannot with due diligence be cured within a period
of 30 days, in which case such failure shall not be deemed to continue if
Lessor, within said 30-day period, proceeds promptly and with due diligence to
cure the failure and diligently completes the curing thereof. The time within
which Lessor shall be obligated to cure any such failure shall also be subject
to extension of time due to the occurrence of any Unavoidable Delay. In the
event Lessor fails to cure any such default, Lessee, without waiving or
releasing any obligations hereunder, and in addition to all other remedies
available to Lessee hereunder or at law or in equity, may purchase the Leased
Property from Lessor for a purchase price equal to the greater of the Fair
Market Value Purchase Amount or the Minimum Purchase Amount of the Leased
Property minus an amount equal to any damage suffered by Lessee by reason of
such default. In the event Lessee elects to purchase the Leased Property, it
shall deliver a notice thereof to Lessor specifying a Payment Date occurring no
less than 90 days subsequent to the date of such notice on which it shall
purchase the Leased Property, and the same shall be thereupon conveyed in
accordance with the provisions of Article XVII. Any sums owed Lessee by Lessor
hereunder shall bear interest at the Overdue Rate from the date due and payable
until the date paid.
XXX.2 Lessee's Right to Cure. Subject to the provisions of Section 30.1, if
Lessor shall breach any covenant to be performed by it under this Lease, Lessee,
after giving notice to and demand upon Lessor in accordance with Section 30.1,
without waiving or releasing any obligation of Lessor hereunder, and in addition
to all other remedies available to Lessee hereunder and at law or in equity,
Lessee may (but shall be under no obligation at any time thereafter to) make
such payment or perform such act for the account and at the expense of Lessor.
All sums so paid by Lessee and all costs and expenses (including reasonable
attorneys' fees) so incurred, together with interest thereon at the Overdue Rate
from the date on which such sums or expenses are paid or incurred by Lessee,
shall be paid by Lessor to Lessee on demand or set off against the Rent. The
rights of Lessee hereunder to cure and to secure payment from Lessor in
accordance with this Section 30.2 shall survive the termination of this Lease.
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ARTICLE XXXI
ARBITRATION
-----------
XXXI.1 Controversies. Except with respect to the payment of Minimum Rent
hereunder, in case any controversy shall arise between the parties hereto as to
any of the requirements of this Lease or the performance thereof which
controversy the parties shall be unable to settle by agreement or as otherwise
provided herein, such controversy shall be determined by arbitration to be
initiated and conducted as provided in this Article XXXI.
XXXI.2 Appointment of Arbitrators. The party or parties requesting
arbitration shall serve upon the other a written demand therefor specifying the
matter to be submitted to arbitration, and nominating an arbitrator who is a
member in good standing of the American Arbitration Association ("AAA"). Within
20 days after receipt of such written demand and notification, the other party
shall, in writing, nominate a person who is a member in good standing with AAA
and the two arbitrators so designated shall, within ten days thereafter, select
a third arbitrator who is a person who is a member in good standing with AAA and
give immediate written notice of such selection to the parties and shall fix in
said notice a time and place for the first meeting of the arbitrators, which
meeting shall be held as soon as conveniently possible after the selection of
all arbitrators, at which time and place the parties to the controversy may
appear and be heard.
XXXI.3 Third Arbitrator. In case the notified party or parties shall fail
to make a selection upon notice, as aforesaid, or in case the first two
arbitrators selected shall fail to agree upon a third arbitrator within ten days
after their selection, then such arbitrator or arbitrators may, upon application
made by either of the parties to the controversy, after 20 days' written notice
thereof to the other party or parties, have a third arbitrator appointed by any
judge of any United States court of record having jurisdiction in the state in
which the Leased Property is located or, if such office shall not then exist, by
a judge holding an office most nearly corresponding thereto.
XXXI.4 Arbitration Procedure. Said arbitrators shall give each of the
parties not less than ten days' written notice of the time and place of each
meeting at which the parties or any of them may appear and be heard and after
hearing the parties in regard to the matter in dispute and taking such other
testimony and making such other examinations and investigations as justice shall
require and as the arbitrators may deem necessary, they shall decide the
questions submitted to them in accordance with the rules of AAA. The decision of
said arbitrators in writing signed by a majority of them shall be final and
binding upon the parties to such controversy. In rendering such decisions and
award, the arbitrators shall not add to, subtract from or otherwise modify the
provisions of this Lease.
XXXI.5 Expenses. The expenses of such arbitration shall be divided between
Lessor and Lessee unless otherwise specified in the decision of the arbitrators.
Each party in interest shall pay the fees and expenses of its own counsel.
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ARTICLE XXXII
FINANCING OF THE LEASED PROPERTY
--------------------------------
Lessor agrees that it will not grant or create any mortgage, deed of
trust, lien, encumbrance or other title retention agreement upon the Leased
Property to secure any indebtedness of Lessor (an "Encumbrance"), unless each
holder of such an Encumbrance agrees (a) to give Lessee the same notice, if any,
given to Lessor of any default or acceleration of any obligation underlying any
such Encumbrance or any sale in foreclosure of such Encumbrance, (b) to permit
Lessee to appear with its representatives and to bid at any public foreclosure
sale with respect to any such Encumbrance, (c) agrees to release the Leased
Property from the Encumbrance upon the exercise by Lessee of a right to purchase
contained in this Lease and the payment by Lessee of the applicable purchase
price, and (d) enters into an agreement with Lessee containing the provisions
described in Article XXXIII of this Lease. Lessee agrees to execute and deliver
to Lessor or the holder of an Encumbrance any written agreement required by this
Article within ten days of written request thereof by Lessor or the holder of an
Encumbrance. Lessee hereby consents to the assignment of and grant of a security
interest and lien in this Lease together with the other documents and
instruments delivered to Lessor by Lessee and Guarantor pursuant hereto and in
connection herewith (collectively, the "Assigned Documents"), including all
rights of Lessor in, to and under each Assigned Document, by Lessor to any
Facility Mortgagee requesting same. Lessee hereby further agrees to execute a
Consent to Assignment in substantially the form attached hereto as Exhibit G.
ARTICLE XXXIII
SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE
---------------------------------------------
At the request from time to time by one or more holders of an
Encumbrance that may hereafter be placed upon the Leased Property or any part
thereof, and any and all renewals, replacements, modifications, consolidations,
spreaders and extensions thereof, Lessee will subordinate this Lease and all of
Lessee's rights and estate hereunder to each such Encumbrance and will attorn to
and recognize such holder (or the purchaser at any foreclosure sale or any sale
under a power of sale contained in any such Encumbrance or a holder by a deed in
lieu of foreclosure, as the case may be) as Lessor under this Lease for the
balance of the Term then remaining, subject to all of the terms and provisions
of this Lease; provided that each such institutional holder simultaneously with
or prior to recording any such Encumbrance executes and delivers a written
agreement in recordable form (a) consenting to this Lease and agreeing that,
notwithstanding any such other lease, mortgage, deed of trust, right, title or
interest, or any default, expiration, termination, foreclosure, sale, entry or
other act or omission under, pursuant to or affecting any of the foregoing,
Lessee shall not be disturbed in peaceful enjoyment of the Leased Property nor
shall this Lease be terminated or canceled at any time, except in the event
Lessor shall have the right to terminate this Lease under the terms and
provisions expressly set forth herein; (b) agreeing that it will be bound by all
the terms of this Lease, perform and observe all of Lessor's obligations set
forth herein; and (c) agreeing that all proceeds of the casualty insurance
described in Article XIII of this Lease and all Awards described in Article XIV
will be made available to Lessor for restoration of the Leased Property as and
to the extent required by this Lease, subject only to reasonable regulation
regarding the manner of disbursement and application thereof. Lessee agrees to
execute and deliver to Lessor or the holder of an Encumbrance any written
agreement required by this Article within ten days of written request thereof by
Lessor or such holder of an Encumbrance. Lessee agrees to execute from time to
time, at the request of Lessor, an institutional investor of Lessor's or a
Facility Mortgagee, a certificate setting forth any defaults of Lessor hereunder
and the dates through which Rent has been paid and such other matters as may be
reasonably requested.
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ARTICLE XXXIV
EXTENDED TERMS
--------------
If no Event of Default shall have occurred and be continuing, Lessee is
hereby granted the right to extend the Term of this Lease for three additional,
consecutive five-year periods ("Extended Term") for a maximum possible Term of
approximately 30 years, by giving written notice to Lessor of each such
extension at least 180 days, prior to the expiration of the then-current Term;
subject, however, to the provisions of Section 13.7 hereof. Lessee may not
exercise its option for more than one Extended Term at a time and may exercise
the option to extend only if all of the Related Leases are simultaneously
extended by Lessee or its Affiliates. During each Extended Term, all of the
terms and conditions of this Lease shall continue in full force and effect,
except that the Minimum Rent for and during each of the Extended Terms shall be
the greater of (i) the Fair Market Rental Value on the first day of such
Extended Term or (ii) the Minimum Rent in effect immediately prior to the first
day of such Extended Term. In any event, the Minimum Rent shall continue to be
increased throughout the Extended Terms in accordance with the provisions of
Section 2.1(b) hereof.
ARTICLE XXXV
GUARANTY
--------
XXXV.1 Guarantee. In consideration of Lessor's agreement to fund the Purchase
Amount for the purchase of the Leased Property pursuant to the Purchase
Agreement and in consideration of the execution of this Lease by Lessor, and
upon the terms and provisions hereof, Guarantor hereby irrevocably, absolutely
and unconditionally warrants and guarantees (the "Guaranty") to Lessor the
prompt and full payment and performance of all of Lessee's obligations under
this Lease (the "Guaranteed Obligations").
XXXV.2 Obligations of Guarantor Upon Default. Upon the occurrence of any Event
of Default under this Lease, Guarantor shall, upon demand of Lessor: (i)
immediately cure such failure to pay and/or perform the applicable part of the
Guaranteed Obligations; and (ii) pay Lessor all other costs and damages it
incurs as a result of such failure by any party to pay and/or perform the
Guaranteed Obligations, including without limitation, all reasonable attorneys'
fees and all other costs it incurs in enforcing the performance or the payment
of the Guaranteed Obligations with interest thereon at the Overdue Rate.
XXXV.3 Guarantee of Payment. The Guaranty of Guarantor is not a guarantee of
collection, but rather the Guaranty is an irrevocable, absolute and
unconditional guarantee of payment and performance. Guarantor hereby irrevocably
and unconditionally covenants and agrees that Guarantor is liable for the
Guaranteed Obligations as a primary obligor. Any Guaranteed Obligation may be
enforced by Lessor separately without enforcing compliance with any other
Guaranteed Obligation and without waiving the right to subsequently enforce any
other Guaranteed Obligation hereunder. Without notice to Guarantor or the
consent of Guarantor, and without affecting or limiting Guarantor's obligations
hereunder, Lessor may: (i) grant Lessee extensions of time for payment of the
Guaranteed Obligations or any part hereof; (ii) renew any of the Guaranteed
Obligations; (iii) grant Lessee extensions of time for performance of agreements
or other indulgences; and (iv) with Lessee's written consent, modify or amend
any obligation, covenant or agreement of Lessee set forth in this Lease.
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ARTICLE XXXVI
MISCELLANEOUS
-------------
XXXVI.1 No Waiver. No failure by Lessor or Lessee to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of the Rent during the continuance of any such breach, shall constitute a waiver
of any such breach or any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.
XXXVI.2 Remedies Cumulative. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Lessor or Lessee now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Lessor or Lessee of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Lessor or Lessee of any or all of such
other rights, powers and remedies.
XXXVI.3 Surrender. No surrender to Lessor of this Lease or of the Leased
Property or any part thereof, or of any interest therein, shall be valid or
effective unless agreed to and accepted in writing by Lessor and no act by
Lessor or any representative or agent of Lessor, other than such a written
acceptance by Lessor, shall constitute an acceptance of any such surrender.
XXXVI.4 No Merger of Title. There shall be no merger of this Lease or of
the leasehold estate created hereby by reason of the fact that the same person,
firm, corporation or other entity may acquire, own or hold, directly or
indirectly, (a) this Lease or the leasehold estate created hereby or any
interest in this Lease or (b) such leasehold estate and the fee estate in the
Leased Property.
XXXVI.5 Transfers by Lessor. If Lessor or any successor owner of the Leased
Property shall convey the Leased Property in accordance with the terms hereof,
other than as security for a debt, the grantee or transferee of the Leased
Property shall expressly assume all obligations of Lessor hereunder arising or
accruing from and after the date of such conveyance or transfer, and shall be
reasonably capable of performing the obligations of Lessor hereunder and Lessor
or such successor owner, as the case may be, shall thereupon be released from
all future liabilities and obligations of Lessor under this Lease arising or
accruing from and after the date of such conveyance or other transfer and all
such future liabilities and obligations shall thereupon be binding upon the new
owner.
XXXVI.6 General. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee and Lessor
against the other arising out of or relating to this Lease and arising prior to
any date of termination of this Lease shall survive such termination. If any
term or provision of this Lease or any application thereof shall be invalid or
unenforceable, the remainder of this Lease and any other application of such
term or provision shall not be affected thereby. If any late charges provided
for in any provision of this Lease are based upon a rate in excess of the
maximum rate permitted by applicable law, the parties agree that such charges
shall be fixed at the maximum permissible rate. Neither this Lease nor any
provision hereof may be changed, waived, discharged or terminated except by an
instrument in writing and in recordable form signed by Lessor and Lessee. All
the terms and provisions of this Lease shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. The
headings in this Lease are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof. This Lease shall be governed by and
construed in accordance with the laws of the state where the Land is located,
but not including its conflict of laws rules. This Lease may be executed in one
or more counterparts, each of which shall be an original but, when taken
together, shall constitute but one document.
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XXXVI.7 Memorandum of Lease. Lessor and Lessee shall, promptly upon the
request of either, enter into a short form memorandum of this Lease in form
suitable for recording under the laws of the state in which the Leased Property
is located in which reference to this Lease, and all options contained herein,
shall be made.
XXXVI.8 Transfer of Licenses. Upon the expiration or earlier termination
of the Term, Lessee shall take all action necessary or appropriate to effect (or
useful in effecting) the transfer, to the extent permitted by any applicable
Legal Requirement, to Lessor or Lessor's nominee of all licenses, operating
permits and other governmental authorizations and all service contracts which
may be necessary or useful in the operation of the Facility and which relate
exclusively to the Facility which have not previously been transferred or
assigned to Lessor.
ARTICLE XXXVII
GLOSSARY OF TERMS
-----------------
XXXVII.1 For purposes of this Lease, except as otherwise expressly
provided or unless the context otherwise requires, (a) the terms defined in this
Article XXXVII have the meanings assigned to them in this Article XXXVII and
include the plural as well as the singular, (b) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles as at the time applicable, (c) all
references in this Lease to designated "Articles", "Sections" and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Lease, and (d) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Lease as a whole and not to any particular
Article, Section or other subdivision, (e) the word "including" shall mean
"including without limitation," and (f) all consents required of Lessor
hereunder shall be in Lessor's sole and absolute discretion, unless otherwise
specifically set forth herein. For purposes of this Lease, the following terms
shall have the meanings indicated:
"AAA" means the American Arbitration Association.
"Additional Charges" has the meaning set forth in Section 2.3 hereof
together with all other items specifically included as "Additional Charges" in
this Agreement.
"Adjustment Date" has the meaning set forth in Section 2.1(b) hereof.
"Affiliate," when used with respect to Lessee, means any Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with Lessee, except for Integrated Health Services, Inc., a
Delaware corporation. For the purposes of this definition, "control", as used
with respect to any Person, shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such Person, through the ownership of 50% or more of the voting securities,
partnership interests or other equity interests.
"Agent" has the meaning set forth in Article XXXII hereof.
"Assigned Documents" has the meaning set forth in Article XXXII hereof.
"Award" means all compensation, sums or anything of value awarded, paid
or received on a total or partial Condemnation.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which national banks in the City of Birmingham,
Alabama are closed.
"Capital Additions" means one or more new buildings or one or more
additional structures annexed to any portion of any of the Leased Improvements,
which are constructed on any parcel or
39
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portion of the Land during the Term, including the construction of a new wing or
new story, or the rebuilding of the existing Leased Improvements or any portion
thereof not normal, ordinary or recurring to maintain the Leased Property,
excluding, however, any construction governed by the provisions of Article XIII.
"Capital Addition Cost" means the cost of any Capital Additions
proposed to be made by Lessee whether paid for by Lessee or Lessor. Such cost
shall include and be limited to (a) the cost of construction of the Capital
Additions, including site preparation and improvement, materials, labor,
supervision and certain related design, engineering and architectural services
and the cost of any fixtures, construction financing and miscellaneous items
approved in writing by Lessor, (b) if agreed to by Lessor in writing in advance,
the cost of any land contiguous to the Leased Property purchased for the purpose
of placing thereon the Capital Additions or any portion thereof or for providing
means of access thereto, or parking facilities therefor, including the cost of
surveying the same, (c) the cost of insurance, real estate taxes, water and
sewage charges and other carrying charges for such Capital Additions during
construction, (d) the cost of title insurance, (e) reasonable fees and expenses
of legal counsel and accountants, (f) filing, registration and recording taxes
and fees, (g) documentary stamp taxes, if any, (h) environmental assessments and
boundary surveys and (i) all reasonable costs and expenses of Lessor and any
Lending Institution which has committed to finance the Capital Additions,
including, (A) the reasonable fees and expenses of their respective legal
counsel, (B) all printing expenses, (C) the amount of any filing, registration
and recording taxes and fees, (D) documentary stamp taxes, if any, (E) title
insurance charges, appraisal fees, if any, (F) rating agency fees, if any, and
(G) commitment fees, if any, charged by any Lending Institution advancing or
offering to advance any portion of the financing for such Capital Additions.
"Capital Replacement Account" has the meaning set forth in Section
2.1(c).
"Cash Adjustment" has the meaning set forth in Section 20.1(d).
"Charge" has the meaning set forth in Article XI hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commencement Date" has the meaning set forth in Article I.
"Condemnation" means the transfer of all or any part of the Leased
Property as a result of (i) the exercise of any governmental power, whether by
legal proceedings or otherwise, by a Condemnor or (ii) a voluntary sale or
transfer by Lessor to any Condemnor, either under threat of condemnation or
while legal proceedings for condemnation are pending.
"Condemnor" means any public or quasi-public authority, or private
corporation or individual, having the power of condemnation or eminent domain.
"Consolidated Coverage Ratio" has the meaning set forth in Section 7.3.
"Consolidated Financial Statements" means for any fiscal year or other
accounting period for Lessee, Guarantor and their respective consolidated
Affiliates, audited statements of earnings and retained earnings and of changes
in financial position for such period and for the period from the beginning of
the respective fiscal year of Lessee to the end of such period and the related
balance sheet as at the end of such period, together with the notes thereto, all
in reasonable detail and setting forth in comparative form the corresponding
figures for the corresponding period in the preceding fiscal year of Lessee, and
prepared in accordance with generally accepted accounting principles
consistently applied, except as noted.
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"Consolidated Tangible Net Worth" means at any time, the sum of the
following which would appear on a balance sheet of Lessee and Guarantor, on a
consolidated basis prepared in accordance with generally accepted accounting
principles:
(a) the amount of capital or stated capital (after deducting
the cost of any treasury shares or like interests), plus
(b) the amount of capital surplus and retained earnings (or,
in the case of a capital surplus or retained earnings deficit, minus
the amount of such deficit), minus
(c) the sum of the following (without duplication of
deductions in respect of items already deducted in arriving at capital
surplus and retained earnings): (i) any write-up in book value of
assets resulting from a revaluation thereof subsequent to the most
recent financial statement of Developer or Guarantor prior to the date
thereof, except any net write-up in value of foreign currency; (ii) any
write-up resulting from a reversal of a reserve for bad debts or
depreciation; and (iii) any write-up resulting from a change in methods
of accounting for inventory, minus
(d) the aggregate book value of Intangible Assets shown on
such balance sheet.
"Consumer Price Index" or "CPI" means the Consumer Price Index for All
Urban Consumers for the U.S. City Average for all Items (1982-1984=100) as
published by the United States Department of Labor, Bureau of Labor Statistics.
If the manner in which the Consumer Price Index is determined by the Bureau of
Labor Statistics shall be substantially revised (including a change in the base
index year), an adjustment shall be made by Lessor in such revised index which
would produce results equivalent, as nearly as possible, to those which would
have been obtained if the Consumer Price Index had not been so revised. If the
Consumer Price Index shall become unavailable to the public because publication
is discontinued or otherwise, or if equivalent data is not readily available to
enable Lessor to make the adjustment referred to in the preceding sentence,
Lessor will substitute therefor a comparable index based upon changes in the
cost of living or purchasing power of the consumer dollar published by any other
governmental agency, or if no such index shall be available, then a comparable
index published by a major bank or other financial institution or by a
university or a recognized financial publication.
"Credit Enhancements" means all cash collateral, security deposits,
security interests, letters of credit, pledges, prepaid rent or other sums,
deposits or interests held by Lessee, if any, to secure obligations with respect
to the Leased Property, the Tenant Leases or the Tenants.
"Current Yield" means as of any date the annual Minimum Rent, as
adjusted from time-to-time pursuant to the terms of this Lease, divided by the
sum of (i) the Purchase Amount plus (ii) all Capital Additions Costs paid for or
financed by Lessor which have not been repaid by Lessee.
"Date of Taking" means the date the Condemnor has the right to
possession of the property being condemned.
"EBITDAR" has the meaning set forth in Section 7.3.
"Encumbrance" has the meaning set forth in Article XXXII.
"Event of Default" has the meaning set forth in Section 15.1.
"Extended Term" has the meaning set forth in Section XXXIV.
"Facility" means the 21,426 square foot assisted living facility
located on the Leased Property,
41
<PAGE>
containing 55 licensed beds and the related amenities.
"Facility Coverage Ratio" has the meaning set forth in Section 7.4.
"Facility Mortgage" has the meaning set forth in Section 12.1.
"Facility Mortgagee" has the meaning set forth in Section 12.1.
"Fair Market Added Value" means the Fair Market Value (as hereinafter
defined) of the Leased Property (including all Capital Additions) less the Fair
Market Value of the Leased Property determined as if no Capital Additions paid
for by Lessee without financing by Lessor had been constructed.
"Fair Market Rental Value" means the fair market rental value of the
Leased Property or any Substitute Property, (a) assuming the same is
unencumbered by this Lease, (b) determined in accordance with the appraisal
procedures set forth in Article XXVIII or in such other manner as shall be
mutually acceptable to Lessor and Lessee, and (c) not taking into account any
reduction in value resulting from an indebtedness to which the Leased Property
or Substitute Property may be subject.
"Fair Market Value" means the fair market value of the Leased Property
or any Substitute Property, including all Capital Additions, (a) assuming the
same is unencumbered by this Lease, (b) determined in accordance with the
appraisal procedures set forth in Article XXVIII or in such other manner as
shall be mutually acceptable to Lessor and Lessee, and (c) not taking into
account any reduction in value resulting from any indebtedness to which the
Leased Property or such Substitute Property is subject or which encumbrance
Lessee or Lessor is otherwise required to remove pursuant to any provision of
this Lease or agrees to remove at or prior to the closing of the transaction as
to which such Fair Market Value determination is being made. The positive or
negative effect on the value of the Leased Property or Substitute Property
attributable to the interest rate, amortization schedule, maturity date,
prepayment penalty and other terms and conditions of any Encumbrance on the
Leased Property or any Substitute Property, as the case may be, which is not so
required or agreed to be removed shall be taken into account in determining such
Fair Market Value.
"Fair Market Value Purchase Amount" means the Fair Market Value less
the Fair Market Added Value.
"Fiscal Year" means the 12-month period from January 1 to December 31.
"Fixtures" has the meaning set forth in Article I.
"Full Replacement Cost" has the meaning set forth in Section 12.2.
"Guaranteed Obligations" has the meaning set forth in Section 35.1.
"Guarantor" means INTEGRATED LIVING COMMUNITIES, INC., a Delaware
corporation.
"Guaranty" has the meaning set forth in Section 35.1.
"Hazardous Materials" means any substance, including asbestos or any
substance containing asbestos, the group of organic compounds known as
polychlorinated biphenyls, flammable explosives, radioactive materials, medical
waste, chemicals, pollutants, effluents, contaminants, emissions or any other
related materials and items included in the definition of hazardous or toxic
wastes, materials or substances under any Hazardous Materials Law.
"Hazardous Materials Law" means any law, regulation or ordinance
relating to environmental
42
<PAGE>
conditions, medical waste and industrial hygiene, including the Resource
Conservation and Recovery Act of 1976 ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), as amended by the
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Hazardous
Materials Transportation Act, the Federal Water Pollution Control Act, the Clean
Air Act, the Clean Water Act, the Toxic Substances Control Act, the Safe
Drinking Water Act, the Atomic Energy Act and all similar federal, state and
local environmental statutes and ordinances, whether heretofore or hereafter
enacted or effective and all regulations, orders, or decrees heretofore or
hereafter promulgated thereunder.
"Impositions" means, collectively, all taxes relating to the Leased
Property, including all ad valorem, sales and use, gross receipts, action,
privilege, rent (with respect to the Tenant Leases) or similar taxes,
assessments (including all assessments for public improvements or benefits,
whether or not commenced or completed prior to the date hereof and whether or
not to be completed within the Term), water, sewer or other rents and charges,
excises, tax levies, fees (including license, permit, inspection, authorization
and similar fees), and all other governmental charges, in each case whether
general or special, ordinary or extraordinary, or foreseen or unforeseen, of
every character in respect of the Leased Property and/or the Rent (including all
interest and penalties thereon due to any failure in payment by Lessee), which
at any time prior to, during or in respect of the Term hereof may be assessed or
imposed on or in respect of or be a lien upon (a) Lessor or Lessor's interest in
the Leased Property, (b) the Rent, the Leased Property or any part thereof or
any rent therefrom or any estate, right, title or interest therein, or (c) any
occupancy, operation, use or possession of, sales from, or activity conducted
on, or in connection with, the Leased Property or the Tenant Leases or use of
the Leased Property or any part thereof; provided that nothing contained in this
Lease shall be construed to require Lessee to pay (1) any tax based on net
income (whether denominated as a franchise or capital stock or other tax)
imposed on Lessor, (2) any transfer or net revenue tax of Lessor, (3) any tax
imposed with respect to the sale, exchange or other disposition by Lessor of any
portion of the Leased Property or the proceeds thereof, or (4) except as
expressly provided elsewhere in this Lease, any principal or interest on any
Encumbrance on the Leased Property, except to the extent that any tax,
assessment, tax levy or charge which Lessee is obligated to pay pursuant to this
definition and which is in effect at any time during the Term hereof is totally
or partially repealed, and a tax, assessment, tax levy or charge set forth in
clause (1), (2) or (3) is levied, assessed or imposed expressly in lieu thereof.
"Intangible Assets" means those assets which are (i) deferred assets,
other than prepaid insurance and prepaid taxes, (ii) patents, copyrights,
trademarks, trade names, franchises, good will, experimental expenses and other
similar assets which would be classified as intangible assets on a balance sheet
prepared in accordance with generally accepted accounting principles, (iii)
unamortized debt discount and expense, and (iv) assets located, and notes and
receivables due from obligors domiciled outside of the United States.
"Initial Term" has the meaning set forth in Article I.
"Insurance Requirements" means all terms of any insurance policy
required by this Lease and all requirements of the issuer of any such policy.
"Land" has the meaning set forth in Article I.
"Lease" means this Lease.
"Lease Amendment" has the meaning set forth in Section 9.3(b)(iv).
"Lease Assignment" means that certain Assignment of Rents and Leases,
substantially in the form attached hereto as Exhibit D, to be dated on or about
the date hereof executed by Lessee to Lessor, pursuant to the terms of which
Lessee assigns to Lessor each of the Tenant Leases and Credit
43
<PAGE>
Enhancements, if any, as security for the obligations of Lessee under this
Lease, and any other obligations of Lessee, or any Affiliate of Lessee to
Lessor.
"Leased Improvements" and "Leased Property" have the meanings set forth
in Article I.
"Legal Requirements" means all federal, state, county, municipal and
other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting the Leased Property or the
construction, use or alteration thereof, whether now or hereafter enacted and in
force, including any which may (a) require repairs, modifications or alterations
of or to the Leased Property, or (b) in any way adversely affect the use and
enjoyment thereof, and all permits, licenses, authorizations and regulations
relating thereto, and all covenants, agreements, actions and encumbrances
contained in any instruments, either of record or known to Lessee (other than
encumbrances created by Lessor without the consent of Lessee), at any time in
force affecting the Leased Property.
"Lending Institution" means any insurance company, federally insured
commercial or savings bank, national banking association, savings and loan
association, employees' welfare, pension or retirement fund or system, corporate
profit-sharing or pension plan, college or university, or real estate investment
company including any corporation qualified to be treated for federal tax
purposes as a real estate investment trust having a net worth of at least
$50,000,000.
"Lessee" means INTEGRATED LIVING COMMUNITIES OF WEST COLUMBIA, INC., a
Delaware corporation, its successors and assigns.
"Lessor" means CAPSTONE CAPITAL CORPORATION, a Maryland corporation,
and its successors and assigns.
"Minimum Rent" has the meaning set forth in Section 2.1(a).
"Minimum Purchase Amount" means the greater of (i) the Fair Market
Value of the Leased Property at the time of purchase hereunder by Lessee or (ii)
the Purchase Amount (and in the case of a substitution pursuant to Article XX,
as adjusted pursuant to Section 20.1(f)) as such amount is increased at the rate
of three percent compounded annually for each year (to be prorated for partial
years) between the Commencement Date and the date of repurchase by Lessee, plus
the sum of all Capital Addition Costs relating to the Leased Property paid for
or financed by Lessor which as of the date of repurchase of the Leased Property
have not been repaid by Lessee, less the net amount (after deduction of all
reasonable legal fees and other costs and expenses, including expert witness
fees, incurred by Lessor in connection with obtaining any such award or
proceeds) of all Awards received by Lessor from Condemnation of the Leased
Property.
"Officer's Certificate" means a certificate of Lessee signed by the
Chairman of the Board of Directors, the President, any Vice President or another
officer authorized to so sign by the Board of Directors or By-Laws of Lessee, or
any other person whose power and authority to act has been authorized by
delegation in writing by any of the persons holding the foregoing offices.
"Optional Renewal Term" has the meaning set forth in Article I.
"Ordinary Course of Business" means the ordinary course of business for
Lessee consistent with past custom and practice (including quantity and
frequency).
"Overdue Rate" means as of any date, a rate per annum equal to the
Prime Rate as of such date, plus two percent, but in no event greater than the
maximum rate then permitted under applicable law.
"Payment Date" means any due date for the payment of the installments
of Minimum Rent under
44
<PAGE>
this Lease.
"Permitted Exceptions" has the meaning set forth in Article I hereof.
"Permitted Liens" means (i) liens described on Exhibit E attached
hereto and the Permitted Exceptions, (ii) pledges or deposits made to secure
payments of worker's compensation insurance (or to participate in any fund in
connection with worker's compensation insurance), unemployment insurance,
pensions or social security programs, (iii) liens imposed by mandatory
provisions of law such as for materialmen, mechanics, warehousemen and other
like liens arising in the Ordinary Course of Business, securing indebtedness
whose payment is not yet due and payable, (iv) liens for taxes, assessments and
governmental charges or levies if the same are not yet due and payable or if the
same are being contested in good faith and as to which adequate cash reserves
have been provided, (v) liens arising from good faith deposits in connection
with tenders, leases, real estate bids or contracts (other than contracts
involving the borrowing of money), pledges or deposits to secure public or
statutory obligations and deposits to secure (or in lieu of) surety, stay,
appeal or customs bonds and deposits to secure the payment of taxes,
assessments, duties or other similar charges, (vi) liens to secure purchase
money indebtedness, so long as the indebtedness incurred to purchase the new
asset is secured only by such asset, or (vii) encumbrances consisting of zoning
restrictions, easements or other restrictions on the use of real property;
provided that such items do not impair the use of such property for the purposes
intended, none of which is violated by existing or proposed structures or land
use.
"Person" means a natural person, corporation, partnership, trust,
association, limited liability company or other entity.
"Personal Property" means all machinery, equipment, furniture,
furnishings, computers, signage, trade fixtures or other personal property and
consumable inventory and supplies used in the operation of the Leased Property
for its Primary Intended Use, together with all replacements and substitutions
therefor, except for any portion of the Leased Property, all as more
specifically set forth on Exhibit F attached hereto or to be attached once the
complete list is available.
"Primary Intended Use" has the meaning set forth in Section 6.2(a).
"Prime Rate" means the annual rate reported by The Wall Street Journal,
Eastern Edition (or, if The Wall Street Journal shall no longer be published or
shall cease to report such rates, then a publication or journal generally
acceptable in the financial industry as authoritative evidence of prevailing
commercial lending rates) from time to time as being the prevailing prime rate
(or, if more than one such rate shall be published in any given edition, the
arithmetic mean of such rates). The prime rate is an index rate used by The Wall
Street Journal to report prevailing lending rates and may not necessarily be the
most favorable lending rate available. Any change in the Prime Rate hereunder
shall take effect on the effective date of such change in the prime rate as
reported by The Wall Street Journal, without notice to Lessee or any other
action by Lessor. Interest shall be computed on the basis that each year
contains 360 days, by multiplying the principal amount by the per annum rate set
forth above, dividing the product so obtained by 360, and multiplying the
quotient thereof by the actual number of days elapsed.
"Purchase Agreement" means the Asset Purchase Agreement dated on or
about ____________________, 1997, between Sundance, Inc., as "Seller," J. Fred
Barton, III and Hazel H. Barton, as "Shareholders of Seller" and Lessee as
"Purchaser" relating to the acquisition by Lessor of the Leased Property, which
Asset Purchase Agreement was assigned by Lessee to Lessor pursuant to that
certain Assignment, Assumption and Amendment Agreement for Asset Purchase
Agreement dated February ___, 1997, among the foregoing Seller, Shareholders,
Lessee and Lessor.
"Purchase Amount" has the meaning set forth in Section 2.1(a).
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<PAGE>
"Related Leases" has the meaning set forth in Section 15.1(a).
"Rent" means, collectively, the Minimum Rent and the Additional
Charges.
"Request" has the meaning set forth in Section 9.3(a).
"Security Agreement" means that certain Security Agreement of even date
herewith executed by Lessee to Lessor, pursuant to the terms of which Lessee has
granted to Lessor a first lien and security interest in and to all of the
Personal Property, including but not limited to, fixed and movable equipment,
including replacements and substitutions, as security for the obligations of
Lessee under this Lease, and any and all other obligations of Lessee.
"Substitution Date" has the meaning set forth in Section 20.1.
"Substitute Properties" has the meaning set forth in Section 20.1.
"Taking" means a taking or voluntary conveyance during the Term hereof
of all or part of the Leased Property, or any interest therein or right accruing
thereto or use thereof, as the result of, or in settlement of any Condemnation
or other eminent domain proceeding affecting the Leased Property whether or not
the same shall have actually been commenced.
"Tenant" means the lessees or tenants under the Tenant Leases, if any.
"Tenant Leases" means all leases, subleases, assignments and other
rental agreements (written or verbal, now or hereafter in effect), if any, that
grant a possessory interest in and to any space in the Improvements, or that
otherwise grant possessory or occupancy rights with regard to the Leased
Property, and all Credit Enhancements, if any, held in connection therewith.
"Term" means the Initial Term and any Extended Term as to which Lessee
has exercised its options to extend contained in Article XXXIV hereof unless
earlier terminated pursuant to the provisions hereof.
"Treasury Yield" means as of any date the weekly average yield on
United States Treasury Securities Constant Maturity Series issued by the United
States Government, as most recently published by the Federal Reserve Board in
Federal Reserve Statistical Release H.15(519). If, with respect to the Treasury
Yield, Lessor determines that the sale of Treasury Securities by the United
States Government has been suspended, or Treasury Securities are not being
offered for sale, or the weekly average yield is no longer printed by the
Federal Reserve Board in Federal Reserve Statistical Release H.15(519) or for
any other reason Lessor is not able to obtain a quotation from the Federal
Reserve for the sale of such Treasury Securities, then Lessor will promptly give
notice to Lessee and advise Lessee of a new index for determining the interest
rate to be used in connection with this Lease, which rate, in the good faith
judgment of Lessor, will be substantially equivalent to the Treasury Yield.
"Unavoidable Delays" means delays due to strikes, lockouts, inability
to procure materials after the exercise of reasonable efforts, power failure,
acts of God, governmental restrictions, enemy action, civil commotion, fire,
unavoidable casualty or other causes beyond the control of the party responsible
for performing an obligation hereunder, provided that lack of funds shall not be
deemed a cause beyond the control of either party hereto unless such lack of
funds is caused by the failure of the other party hereto to perform any
obligations of such other party under this Lease.
"Unsuitable for Its Primary Intended Use" as used anywhere in this
Lease, shall mean that, by reason of damage or destruction, or a partial Taking,
in the good faith judgment of Lessee, reasonably exercised, the Facility cannot
be profitably operated for its Primary Intended Use in the manner used
46
<PAGE>
prior to such damage or destruction or Taking, taking into account, among other
relevant factors, the number of usable suites and number and diversity of
Tenants affected by such damage or destruction or partial Taking.
End of Page 47
47
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease to be executed
and their respective corporate seals to be hereunto affixed and attested by
their respective officers thereunto duly authorized as of the date first written
above.
LESSOR:
CAPSTONE CAPITAL CORPORATION
a Maryland corporation
By
----------------------------------------
Daryl D. McCombs
Assistant Vice President
LESSEE:
INTEGRATED LIVING COMMUNITIES
OF WEST COLUMBIA, INC.
a Delaware corporation
By
----------------------------------------
John B. Poole
Vice President
GUARANTOR:
INTEGRATED LIVING COMMUNITIES, INC.
a Delaware corporation
By
----------------------------------------
John B. Poole
Vice President and
Chief Financial Officer
48
<PAGE>
EXHIBIT A
PROPERTY DESCRIPTION
<PAGE>
EXHIBIT B
LIST OF PERMITTED EXCEPTIONS
1. Taxes and assessments which are not yet due and payable.
2.
<PAGE>
EXHIBIT C
SCHEDULE OF CONTRIBUTIONS BY LESSEE
TO CAPITAL REPLACEMENT ACCOUNT
Lessee shall fund the Capital Replacement Account annually in the
following amounts:
(1) $25 per room per month for years 1-6 of the Lease; and
(2) $40 per room per month thereafter,
commencing with the first payment on the first anniversary of the Commencement
Date and continuing on each anniversary of the Commencement Date thereafter.
<PAGE>
EXHIBIT D
ASSIGNMENT OF RENTS AND LEASES
STATE OF __________ )
KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF __________ )
THIS ASSIGNMENT OF RENTS AND LEASES (this "Assignment") is entered into
as of February ___, 1997, by and between INTEGRATED LIVING COMMUNITIES OF WEST
COLUMBIA, INC., a Delaware corporation ("Assignor" or "Lessee") whose address
for notice hereunder is 24850 Old 41 Road, Suite 10, Bonita Springs, Florida
34135-7022 and CAPSTONE CAPITAL CORPORATION, a Maryland corporation ("Assignee"
or "Lessor"), whose address for notice hereunder is 1000 Urban Center Drive,
Suite 630, Birmingham, Alabama 35242.
WITNESSETH
ARTICLE 1.
DEFINITIONS
-----------
As used herein, the following capitalized terms used herein shall have
the following meanings:
"Credit Enhancements" means all security deposits, security interests,
letters of credit, pledges, prepaid rent or other sums, deposits or interests,
if any, held by Lessee with respect to the Property, the Tenant Leases or the
tenants under the Tenant Leases.
"Engineering Documents" means all site plans, surveys, soil and
substrata studies, architectural drawings, plans and specifications, engineering
plans and studies, floor plans, landscape plans, and other plans and studies
that relate to the Land, the Improvements or the Fixtures and are in Lessee's
possession or control.
"Fixtures" means all permanently affixed equipment, machinery,
fixtures, and other items of real and/or personal property, including all
components thereof, now and hereafter located in, on or used in connection with,
and permanently affixed to or incorporated into the Improvements, including,
without limitation, all furnaces, boilers, heaters, electrical equipment,
heating, plumbing, lighting, ventilating, refrigerating, incineration, air and
water pollution control, waste disposal, air-cooling and air-conditioning
systems and apparatus, sprinkler systems and fire and theft protection
equipment, and built-in vacuum, cable transmission, oxygen and similar systems,
all of which, to the greatest extent permitted by law, are hereby deemed by the
parties hereto to constitute real estate, together with all replacements,
modifications, alterations and additions thereto, but specifically excluding any
of Tenant's trade fixtures or other fixtures that a Tenant is permitted to
remove pursuant to the applicable Tenant Lease.
"Improvements" means all buildings, improvements, structures and
Fixtures now or on the Closing Date located on the Land, including, without
limitation, landscaping, parking lots and structures, roads, drainage and all
above ground and underground utility structures, equipment systems and other
so-called "infrastructure" improvements.
"Land" means the real property more particularly described on Exhibit A
attached hereto and made a part hereof, together with all covenants, licenses,
privileges and benefits thereto belonging, and any easements, rights-of-way,
rights of ingress or egress or other interests of Lessee in, on, or to any land,
highway, street, road or avenue, open or proposed, in, on, across, in front of,
abutting or adjoining such real property including, without limitation, any
strips and gores adjacent to or lying between such real property and any
adjacent real property.
<PAGE>
"Lease" means that certain lease agreement of even date herewith
between Lessor and Lessee.
"License" has the meaning set forth in Section 3.1 hereof.
"Obligations" means any and all of the indebtedness, liabilities, and
other obligations made or undertaken by Lessee to Lessor or others as set forth
in the Security Documents (hereinafter defined), the Lease and any lease,
sublease or other form of conveyance or any other agreement pursuant to which
Lessee is granted a possessory interest in the Property.
"Obligation Documents" means any and all agreements, assignments and
instruments (including any renewals, extensions, modifications or amendments
thereof) evidencing, securing or pertaining to the Lease.
"Property" means, collectively, the Improvements, the Credit
Enhancements, the Engineering Documents and the Warranties.
"Rents" means the immediate, absolute and continuing right to collect
and receive all of the rents, income, receipts, revenues, proceeds, security and
other types of deposits, issues and profits now due or which may become due or
to which Lessee may now or shall hereafter (whether upon any applicable
redemption period or otherwise) become entitled or may demand or claim, arising
or issuing from or out of the Tenant Leases, or from or out of the Property or
any part thereof (subject only to the limited license granted herein by Lessor
to Lessee to so collect and receive the Rents), including, without limiting the
generality of the foregoing, minimum rents, additional rents, parking
maintenance charges or fees, tax and insurance contributions, proceeds of sale
of electricity, gas, chilled and heated water and other utilities and services,
deficiency rents and liquidated damages following default, premiums payable by
any Tenant upon the exercise of a cancellation privilege provided for in a
Tenant Lease and all proceeds payable under any policy of insurance covering
loss of rents resulting from untenantability caused by destruction or damage to
the Property.
"Security Documents" means this Assignment, and any and all other
documents now or hereafter executed by Lessee, or any other person or party, to
evidence or secure the payment or performance and discharge of the Obligations,
including, without limitation, the Lease.
"Tenant Leases" means all leases, subleases and other rental agreements
and guaranties thereof (written or verbal, now or hereafter in effect) that
grant a possessory interest in and to occupy and enjoy all or any portion of the
Property (save and except any and all leases, subleases or other agreements
pursuant to which Lessor or Lessee is granted a possessory interest in the
Land), together with all the rights, power and authority of Lessee to execute,
deliver, perform, enforce, alter, modify or supplement the terms of such leases
and agreements or to surrender, cancel or terminate such leases and agreements
without the prior written consent of Lessor, and together with any and all
guarantees of any of the tenant's obligations under any of such leases. Any of
the Tenant Leases are hereinafter referred to individually as a "Tenant Lease"
and collectively as the "Tenant Leases".
"Warranties" means all transferrable warranties, representations and
guaranties with respect to the Property, whether express or implied, which
Lessee now holds or under which Lessee is the beneficiary, including, without
limitation, all of the representations, warranties and guaranties given and/or
assigned to Lessee under the Tenant Leases.
ARTICLE 2.
ASSIGNMENT
----------
Lessee, in consideration of the sum of $10.00, and other good and
valuable consideration, the
<PAGE>
receipt and sufficiency of which is hereby acknowledged, does hereby grant,
sell, convey, assign, transfer, set over and deliver the Tenant Leases and the
Rents unto this Lessor, to have and to hold the Tenant Leases and the Rents unto
Lessor, and Lessee does hereby bind itself, its successors and assigns to
warrant and defend the title to the Tenant Leases and the Rents unto Lessor
against every person whomsoever lawfully claiming or to claim the name or any
part thereof, by, through or under Lessee but not otherwise.
ARTICLE 3.
LIMITED LICENSE, CONTINUATION
AND TERMINATION OF ASSIGNMENT
-----------------------------
3.1 Limited License. Lessee shall have the right under a limited
license (the "License") which may be revoked by Lessor pursuant to the terms of
Section 7.1, to collect upon, but not prior to accrual, all of the Rents and
Lessee shall receive the Rents and hold the same, as well as the right and
license to receive the Rents, as a trust fund to be applied, and Lessee hereby
covenants to apply the Rents, to the payment, satisfaction and discharge of the
Obligations then due, including specifically, but without limitation, to the
payment of taxes and assessments upon the Property before payment of penalty or
interest are due thereon, to the cost of such insurance then due, maintenance
and repairs as may be required by the terms of the Security Documents and in
satisfaction of all obligations under the Tenant Leases then due; all prior to
the application by Lessee of the Rents for any other purposes. The License shall
also include the right of Lessee to execute, deliver, perform, enforce, alter,
modify, change or supplement the terms of the Tenant Leases and to surrender,
cancel or terminate such Tenant Leases without the prior written consent of
Lessor except for any of the Tenant Leases executed, modified or supplemented
after the date hereof whose term (including any possible extensions on the part
of the applicable Tenant) extends beyond the Term of the Lease. Thereafter, so
long as there exists no Event of Default hereunder or under any of the Security
Documents, Lessee may use the Rents in any manner not inconsistent with the
Security Documents. Upon the sale and conveyance by Lessor or its successors or
assigns of the title to the Property, all right, title, interest and power
granted under the License granted herein shall be automatically continued
subject to the terms and conditions of the Lease and any of the other Security
Documents.
3.2 Continuation and Termination of Assignment. Upon final payment,
performance and discharge in full of the Obligations, this Assignment shall
become and be void and of no force or effect. Written demand by Lessor delivered
to any Tenant for payment of the Rents by reason of the occurrence of any Event
of Default claimed by Lessor, and the then existence thereof, shall be
sufficient evidence of each such Tenant's obligation and authority to make all
future payments of the Rents to Lessor without the necessity for further consent
by Lessee.
3.3 Permitted Contests. Lessee, after ten days' prior written notice to
Lessor, on its own or on Lessor's behalf (or in Lessor's name), but at Lessee's
expense, may contest, by appropriate legal proceedings conducted in good faith
and with due diligence, the amount, validity or application, in whole or in
part, of any of the Obligations which is required to be paid or discharged by
Lessee pursuant to the terms of Section 3.1 pursuant to the terms and conditions
of Article XI of the Lease; provided that nothing contained herein shall be
construed to permit Lessee to contest the payment of the rent or any other sums
payable by Lessee to Lessor under the Lease.
ARTICLE 4.
WARRANTIES AND REPRESENTATIONS
------------------------------
Lessee hereby unconditionally warrants and represents to Lessor as
follows:
4.1 Ownership of Tenant Leases and the Rents. Subject to the terms of
the Lease, Lessee has good title to the Tenant Leases not previously transferred
or assigned to Lessor and the Rents and has all
<PAGE>
requisite right, power and authority to assign such Tenant Leases and the Rents
to Lessor, and no other person, firm or corporation has any right, title or
interest therein.
4.2 No Default. Lessee has duly and punctually performed, all and
singular, the terms, covenants, conditions and warranties of the Tenant Leases
on Lessee's part to be kept, observed and performed; and, to the best of
Lessee's knowledge, the Tenants thereunder are not in material default of any of
the terms or provisions of the respective Tenant Leases.
4.3 No Modification of the Tenant Leases or Anticipation or
Hypothecation of the Rents. The Tenant Leases are valid and unmodified, except
as indicated herein, and remain in full force and effect; Lessee has not
previously sold, assigned, transferred, or pledged the Tenant Leases or the
Rents, or any part thereof, whether now due or hereafter to become due, except
for the sales, assignments, transfers, mortgages and pledges for which Lessee
has heretofore obtained a full release; the Rents now due, or to become due, for
any periods subsequent to the date hereof have not been collected and that
payment thereof has not been anticipated, waived or released, discounted, set
off or otherwise discharged or compromised; and Lessee has not received any
funds or deposits from any Tenant for which credit has not already been made on
account of the accrued Rents.
ARTICLE 5.
AFFIRMATIVE COVENANTS
---------------------
Lessee hereby unconditionally covenants and agrees with Lessor as
follows:
5.1 Performance. Lessee shall observe, perform and discharge, duly and
punctually, all and singular, the obligations, terms, covenants, conditions and
warranties of the Tenant Leases to be observed, performed or discharged by
landlord thereunder; and Lessee shall promptly deliver to Lessor any notices
received with respect to the Tenant Leases alleging any failure on the part of
the Lessee to observe, perform and discharge the same.
5.2 Notification to Tenants. Upon written request by Lessor, Lessee
shall notify and direct, in writing, such and every present or future Tenant
that any Credit Enhancement delivered to Lessee by such Tenant shall be retained
by Lessee but assigned to Lessor.
5.3 Enforcement. Lessee shall enforce or secure in the name of Lessee
the performance of each and every obligation, term, covenant, condition and
agreement in the Tenant Leases by any Tenant to be performed, and Lessee shall
appear in and defend any action or proceeding arising under, occurring out of or
in any manner connected with the Tenant Leases or the obligations, duties or
liabilities of Lessee and any Tenant thereunder, and upon request by Lessor,
Lessee will do so in the name and on behalf of Lessor, but at the expense of
Lessee, and Lessee shall pay all costs and expenses of Lessor, including
reasonable attorneys' fees and disbursements, in any action or proceeding in
which Lessor may appear.
5.4 Anticipation or Hypothecation of the Rents. Lessee hereby covenants
and agrees (a) upon and after an Event of Default hereunder or under any of the
Security Documents and while the same shall continue, to give to Lessor
duplicate notice of each default by each Tenant and copies of any and all
notices and communications received from any Tenant promptly upon delivery or
receipt thereof; (b) to comply with the terms and provisions of each Tenant
Lease; (c) not to assign, transfer, pledge, mortgage or otherwise encumber any
Tenant Lease; (d) not to assign, transfer, pledge, mortgage or otherwise
encumber any Rents; (e) not to collect, accept from any Tenant, or permit any
Tenant to pay any Rents for more than one month in advance (whether in cash or
by evidence of indebtedness); (f) except in the ordinary course of business and
in accordance with past practice and custom, not to waive, excuse, condone,
discount, set-off, compromise or in any manner release or discharge any Tenant
of and from any obligations, covenants, conditions or agreements to be kept,
observed or performed by such Tenant, under and in accordance with the terms of
the respective Tenant Lease; and (g) not to enter
<PAGE>
into any Tenant Lease or amend, modify, extend or renew any Tenant Lease for a
time period extending beyond the term of the Lease, without prior written
approval of Lessor, which approval shall not be unreasonably withheld.
5.5 Delivery of the Tenant Leases; Further Acts and Assurance. Until
the Obligations secured hereby have been paid in full, performed and discharged,
Lessee shall enter into only leases of the Property in a form approved in
writing by Lessor and shall upon the written request of Lessor deliver executed
copies of all existing and all other and future Tenant Leases when executed upon
all or any part of the Property and will transfer and assign such other and
future Tenant Leases upon the same terms and conditions as herein contained, and
Lessee hereby covenants and agrees to make, execute and deliver to Lessor, upon
demand and at any time or times, any and all assignments and other documents and
instruments which Lessor may deem advisable to carry out the true purpose and
intent of this Assignment.
ARTICLE 6.
EVENTS OF DEFAULT
-----------------
The term "Event of Default", as used herein, shall mean the occurrence
or happening, at any time and from time to time, of any one or more of the
following:
6.1 Performance of Obligations. If Lessee shall fail, refuse or neglect
to perform and discharge fully and timely any of its obligations hereunder and
such failure is not cured by Lessee within a period of 30 days after receipt by
Lessee of written notice thereof from Lessor, unless such failure cannot with
due diligence be cured within a period of 30 days, in which case such failure
shall not be deemed to continue if Lessee proceeds promptly and with due
diligence to cure the failure and diligently completes the curing thereof (as
soon as reasonably possible).
6.2 Security Documents. The occurrence of any Event of Default under
and as defined in the Lease or any other of the Security Documents.
ARTICLE 7.
REMEDIES
--------
7.1 Remedies. Upon or any time after the occurrence, and during the
continuance thereof, of an Event of Default hereunder, Lessor, at its option,
shall have the complete right, power and authority hereunder, then or thereafter
until the Event of Default is cured, to exercise and enforce any or all of the
following rights and remedies set out in this Article 7:
(a) To terminate the License and then and thereafter, without taking
possession of the Property, to the extent permitted by law, in Lessee's own
name, to demand, collect, receive, sue for, attach and levy the Rents and give
proper receipts, releases and acquittances therefor, and after deducting all
necessary and proper costs and expenses of operation and collection, as
determined by Lessor, including reasonable attorneys' fees, and apply the net
proceeds thereof, together with any funds of Lessee deposited with Lessor, in
reduction or repayment of the Obligations in such order of priority as Lessor
may, in its sole discretion, determine in accordance with applicable law;
(b) To declare the Lease in default and, at its option, exercise all of
the rights and remedies contained in the Lease or any other of the Security
Documents;
(c) Without regard to the adequacy of the security, with or without any
action or proceeding through any person or by any agent, or by the trustee under
any deed of trust included among the Security Documents, or by a receiver to be
appointed by a court of competent jurisdiction, and irrespective of Lessee's
possession, then or thereafter to enter upon, take possession of, manage and
operate the Property or any part thereof; make, modify, enforce, cancel or
accept surrender of a Tenant Lease now in effect or
<PAGE>
hereafter in effect on the Property or any part thereof; remove and evict any
Tenant (subject to the provisions of any non-disturbance and attornment
agreement entered into by and between Lessor and any Tenant); increase or
decrease the Rents under a Tenant Lease; decorate, clean and repair, and
otherwise do any act or incur any cost or expense which Lessor may deem
reasonably necessary to protect the status and value of the Property as fully
and to the same extent as Lessee could do if in possession thereof; and in such
event, to apply the Rents so collected to the operation and management of the
Property, but in such order or priority as Lessor shall deem proper, and
including the payment of reasonable management, brokerage and attorneys' fees
and disbursements, and payment of the Obligations and to the establishment and
maintenance, without interest, of a reserve for replacements; and
(d) Any other remedy available to Lessor at law or in equity.
7.2 Exculpation of Lessor. The acceptance by Lessor of this Assignment,
with all of the rights, powers, privileges and authority created hereby, shall
not, prior to entry upon and taking possession of the Property by Lessor, be
deemed or construed to constitute Lessor a "mortgagee in possession", nor
thereafter or at any time or in any event obligate Lessor to take any action
hereunder or to expend any money or incur any expenses or perform or discharge
any obligation, duty or liability under a Tenant Lease or to assume any
obligation or responsibility for any security deposits or other deposits
delivered to Lessee by a Tenant and not assigned and delivered to Lessor, nor
shall Lessor be liable in any way for any injury or damage to persons or
property sustained by any person, firm or corporation in or about the Property
not attributable to the negligence or fault of Lessor, its agents or affiliates.
7.3 No Waiver or Election of Remedies.
(a) Waiver. Neither the collection of the Rents and application as
provided for in this Assignment nor the entry upon and taking possession of the
Property by Lessor shall be deemed to cure or waive any Event of Default or
waive, modify or affect any notice of default under any Security Document or
invalidate any act done pursuant to any such notice. If Lessor shall thereafter
elect to discontinue the exercise of any such right or remedy hereunder, such
right or remedy may be reasserted at any time and from time to time following
any subsequent Event of Default.
(b) Election of Remedies. The failure of Lessor to assert any of the
terms, covenants or conditions of this Assignment for any period of time or at
any time or times shall not be construed or deemed to be a waiver of any such
right, and nothing herein contained nor anything done or omitted to be done by
Lessor pursuant to this Assignment shall be deemed to be an election of remedies
or a waiver by Lessor of any of its rights and remedies under any other Security
Document or under the law. The right of the Lessor to collect and enforce the
payment and performance of the Obligations and to enforce any security therefor
may be exercised by the Lessor either prior to or simultaneously with or
subsequent to any action taken hereunder.
<PAGE>
7.4 Appointment of Attorney-in-Fact. Upon and following the occurrence
of an Event of Default remaining uncured, Lessee hereby constitutes and appoints
Lessor the true and lawful attorney-in-fact, coupled with an interest, of Lessee
and in the name, place and stead of Lessee to demand, sue for, attach, levy,
recover and receive any premium or penalty payable upon the exercise by a Tenant
under a Tenant Lease of a privilege of cancellation originally provided in such
Tenant Lease and to give proper receipts, releases and acquittances therefor
and, after deducting expenses of collection, to apply the net proceeds as a
credit upon any portion of the Obligations selected by Lessor, notwithstanding
the fact that such portion of the Obligations may not then be due and payable or
that such portion of the Obligations is otherwise adequately secured; and Lessee
does hereby authorize and direct any such Tenant to deliver such payment to
Lessor in accordance with this Assignment, and Lessee hereby ratifies and
confirms that Lessor, as attorney-in-fact, shall do or cause to be done by
virtue of the powers granted hereby. Under the circumstances referred to in this
Section 7.4, the foregoing appointment is irrevocable and continuing, and such
rights, powers and privileges shall be exclusive in Lessor, its successors and
assigns, so long as any part of the Obligations secured hereby remain unpaid and
undischarged.
ARTICLE 8.
MISCELLANEOUS
-------------
8.1 Performance at Lessee's Expense. The cost and expense of performing
or complying with any and all of the Obligations shall be borne solely by
Lessee, and no portion of such cost and expense shall be, in any way and to any
extent credited against any installment on or portion of the Obligations.
8.2 Survival of Obligations. Each and all of the Obligations shall
survive that execution and delivery of the Security Documents and the
consummation of the transaction called for therein, and shall continue in full
force and effect until the Obligations shall have been paid and performed in
full.
8.3 Further Assurances. Lessee, upon the request of Lessor, will
execute, acknowledge, deliver and record and/or file such further instruments
and do such further acts as may be necessary, desirable or proper to carry out
more effectively the purpose of the Security Documents and to subject to the
liens and security interests thereof any property intended by the terms thereof
to be covered thereby, including specifically, but without limitation, any
renewals, substitutions, replacements, modifications or amendments to the Tenant
Leases.
8.4 Recording and Filing. Lessee will cause the Security Documents and
all amendments and supplements thereto and substitutions therefor to be
recorded, filed, re-recorded and refiled in such manner and in such places as
Lessor shall reasonably request, and will pay all such recording, filing,
re-recording and refiling taxes, fees and other charges.
8.5 Notices. Any notices, demands, approvals and other communications
provided for in this Assignment shall be in writing and shall be delivered by
telephonic facsimile, overnight air courier, personal delivery or registered or
certified U.S. Mail with return receipt requested, postage paid, to the
appropriate party at its address as follows:
<PAGE>
If to Lessor:
CAPSTONE CAPITAL CORPORATION
1000 Urban Center Drive
Suite 630
Birmingham, Alabama 35242
Attention: Mr. Daryl D. McCombs
Telephone: (205) 967-2092
Telecopy: (205) 967-9066
With a copy to:
Mr. Thomas A. Ansley
Sirote & Permutt, P.C.
2222 Arlington Avenue South
Birmingham, Alabama 35205
Telephone: (205) 930-5300
Telecopy: (205) 930-5301
If to Lessee or Guarantor:
INTEGRATED LIVING COMMUNITIES, INC.
Brentwood Centre
24850 Old 41 Road
Suite 10
Bonita Springs, Florida 34135-7022
Attention: Mr. John B. Poole
Telephone: (941) 947-7200
Telecopy: (941) 947-7201
With a copy to:
INTEGRATED LIVING COMMUNITIES, INC.
Brentwood Centre
24850 Old 41 Road
Suite 10
Bonita Springs, Florida 34135-7022
Attention: Ms. Geralyn Kidera
Telephone: (941) 947-7222
Telecopy: (941) 947-7201
Addresses for notice may be changed from time to time by written notice
to all other parties. Any communication given by mail will be effective (i) upon
the earlier of (a) three business days following deposit in a post office or
other official depository under the care and custody of the United States Postal
Service or (b) actual receipt, as indicated by the return receipt; (ii) if given
by telephone facsimile, when sent; and (iii) if given by personal delivery or by
overnight air courier, when delivered to the appropriate address set forth.
8.6 Successors and Assigns. All of the terms of the Security Documents
shall apply to, be binding upon and inure to the benefit of the parties hereto,
their successors, assigns, heirs and legal representatives, and all other
persons claiming by, through or under them.
<PAGE>
8.7 No Waiver; Severability. Any failure by Lessor to insist, or any
election by Lessor not to insist, upon strict performance by Lessee of any of
the terms, provisions or conditions of the Security Documents shall not be
deemed to be a waiver of same or any other terms, provisions or conditions
thereof, and Lessor shall have the right at any time or times thereafter to
insist upon strict performance by Lessee of any and all such terms, provisions
and conditions. The Security Documents are intended to be performed in
accordance with, and only to the extent permitted by, all applicable legal
requirements. If any provision of any of the Security Documents or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, then neither the remainder of the
instrument in which such provision to other persons or circumstances nor the
other instruments referred to herein shall be affected thereby, but rather,
shall be enforced to the greatest extent permitted by law.
8.8 Entire Agreement and Modification. This Assignment contains the
entire agreement between the parties relating to the subject matter hereof and
thereof, and all prior agreements relative thereto which are not contained
herein or therein are terminated. This Assignment may not be amended, revised,
waived, discharged, released or terminated orally, but only by a written
instrument or instruments executed by the party against which enforcement of the
amendment, revision, waiver, discharge, release or termination is asserted. Any
alleged amendment, revision, waiver, discharge, release or termination which is
not so documented shall not be effective as to any party.
8.9 Counterparts. This Assignment may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute but one instrument.
8.10 Applicable Law. The Security Documents shall be governed by and
construed according to the laws of the State of Alabama from time to time in
effect except to the extent preempted by United States federal law. It is
expressly stipulated and agreed to be the intent of Lessee and Lessor at all
times to comply with applicable law now or hereafter governing any interest
payable under the Lease, including any notes evidencing the Obligations or any
part thereof. If the applicable law is ever revised, repealed or judicially
interpreted so as to render usurious any amount called for under any of the
Security Documents, or if Lessor's exercise of the option to accelerate the
maturity of the Obligations or if any prepayment by Lessee results in Lessee
having paid any interest in excess of that permitted by law, then it is Lessee's
and Lessor's express intent that all excess amounts theretofore collected by
Lessor be credited on the principal balance of the Obligations (or, if the
Obligations have been paid in full, refunded to Lessee), and the provisions of
the Security Documents immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, so as to comply with the then
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder or thereunder. All sums paid or agreed to be paid to Lessor
for the use, forbearance or detention of the Obligations shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of the Obligations until payment in full so that the
rate or amount of interest on account of such Obligations does not exceed the
usury ceiling from time to time in effect and applicable to the Obligations so
long as debt is outstanding thereunder.
8.11 Headings. The Article, Paragraph and Subparagraph entitlements
hereof are inserted for convenience of reference only and shall in no way alter,
modify or define, or be used in construing, the text of such Articles,
Paragraphs or Subparagraphs.
EXECUTED as of the date first above written, to be effective as of the
date first above written.
LESSOR:
CAPSTONE CAPITAL CORPORATION
a Maryland corporation
<PAGE>
By
----------------------------------------
Daryl D. McCombs
Assistant Vice President
LESSEE:
INTEGRATED LIVING COMMUNITIES
OF WEST COLUMBIA, INC.
a Delaware corporation
By
----------------------------------------
John B. Poole
Vice President
STATE OF ALABAMA )
:
JEFFERSON COUNTY )
I, the undersigned authority, a Notary Public in and for said county in
said state, hereby certify that Daryl D. McCombs, whose name as Assistant Vice
President of CAPSTONE CAPITAL CORPORATION, a Maryland corporation, is signed to
the foregoing instrument and who is known to me, acknowledged before me on this
day that, being informed of the contents of the said instrument, he, as such
partner and with full authority, executed the same voluntarily for and as the
act of said partnership.
GIVEN under my hand and seal, this _____ day of ____________________,
1997.
[ NOTARIAL SEAL ]
-----------------------------------------
Notary Public
My Commission Expires
--------------------
STATE OF __________ )
:
__________ COUNTY )
I, the undersigned authority, a Notary Public in and for said county in
said state, hereby certify that John B. Poole, whose name as Vice President of
Integrated Living Communities of West Columbia, Inc., a Delaware corporation, is
signed to the foregoing instrument and who is known to me, acknowledged before
me on this day that, being informed of the contents of the said instrument, he,
as such officer and with full authority, executed the same voluntarily for and
as the act of said corporation.
GIVEN under my hand and seal, this _____ day of ____________________,
1997.
[ NOTARIAL SEAL ]
-----------------------------------------
Notary Public
My Commission Expires
--------------------
<PAGE>
EXHIBIT A
PROPERTY DESCRIPTION
<PAGE>
EXHIBIT E
PERMITTED LIENS
NONE
<PAGE>
EXHIBIT F
PERSONAL PROPERTY
<PAGE>
EXHIBIT G
CONSENT TO ASSIGNMENT
TO:
The undersigned corporation (the "Consenting Party") delivers this
Consent as of the _____ day of ________________________ ___, 1997, in connection
with the transactions contemplated by the Construction Loan Agreement dated
__________________________________________ (the "Loan Agreement") between
______________________________________________________________ ("Borrower") and
________________________________ ("Lender").
The Consenting Party hereby acknowledges and consents to:
(a) the Deed of Trust, Mortgage, Open-End Mortgage, Security Agreement,
Fixture Financing Statement, Assignment of Leases and Rents, and
Financing Statement (the "Deed of Trust") executed by the Borrower for
the benefit of the Lender in connection with the Loan Agreement; and
(b) the Assignment of Lease and Management Agreement (the "Assignment")
executed by the Borrower for the benefit of the Lender in connection
with the Loan Agreement.
The Consenting Party hereby acknowledges and consents to the Deed of
Trust and the Assignment, pursuant to which the Borrower has assigned and
granted to the Agent (for itself and the Lenders) a security interest and lien
in certain lease agreements, management agreements, guaranty agreements and
other property of the Borrower, including without limitation the rights of the
Borrower in, to and under each of the agreements listed on Exhibit A attached
hereto.
IN WITNESS WHEREOF, the Consenting Party has executed this Consent as
of the date first above written.
INTEGRATED LIVING COMMUNITIES
OF WEST COLUMBIA, INC.
a Delaware corporation
By
-----------------------------------
John B. Poole
Vice President
<PAGE>
EXHIBIT A
ASSIGNED AGREEMENTS
1. Lease dated as of February ___, 1997, between the Borrower and the
Consenting Party.
[Milledgeville, GA]
================================================================================
L E A S E
HEALTH CARE PROPERTY INVESTORS, INC.,
as Lessor
AND
INTEGRATED LIVING COMMUNITIES OF MILLEDGEVILLE, INC.,
as Lessee
Dated as of February 28, 1997
================================================================================
<PAGE>
LEASE
THIS LEASE ("Lease") is dated as of the 28th day of February,
1997, and is between HEALTH CARE PROPERTY INVESTORS, INC., a Maryland
corporation ("Lessor") and INTEGRATED LIVING COMMUNITIES OF MILLEDGEVILLE, INC.,
a Delaware corporation ("Lessee").
ARTICLE I.
----------
1. Leased Property; Term
Upon and subject to the terms and conditions hereinafter set
forth, Lessor leases to Lessee and Lessee leases from Lessor all of Lessor's
rights and interest in and to the following (collectively the "Leased
Property"):
(a) the real property described in Exhibit A attached
hereto (collectively, the "Land");
(b) all buildings, structures, Fixtures and other
improvements of every kind now or hereafter located on the Land
including, alleyways and connecting tunnels, sidewalks, utility pipes,
conduits and lines (on-site and off-site to the extent Lessor has
obtained any interest in the same), parking areas and roadways
appurtenant to such buildings and structures and Capital Additions
funded by Lessor (collectively, the "Leased Improvements");
(c) all easements, rights and appurtenances relating
to the Land and 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 and hereafter located in, on or used in connection with
and permanently affixed to or incorporated into the Leased
Improvements, including all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal,
air-cooling and air-conditioning systems, apparatus, sprinkler systems,
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 to constitute real estate, together with all
replacements, modifications, alterations and additions thereto
(collectively, the "Fixtures"); and
(e) the machinery, equipment, furniture and other
personal property described on Exhibit B attached hereto, together with
all replacements and substitutes therefor (collectively, "Lessor's
Personal Property").
SUBJECT, HOWEVER, to the easements, encumbrances, covenants,
conditions and restrictions and other matters which affect the Leased Property
as of the date hereof or the Commencement Date or created thereafter as
permitted hereunder to have and to hold for (1) a fixed term (the "Fixed Term")
commencing on the Commencement Date, as defined below, and ending at 11:59 p.m.
Los Angeles time on the later of (A) the expiration of the fifteenth (15th)
Lease Year and (B) the expiration of the "Fixed Term" of the Newest Facility
Group Lease (as defined below), but in no event later than the expiration of the
20th Lease Year and
1
<PAGE>
(2) the Extended Terms provided for in Article XIX unless this Lease is earlier
terminated as hereinafter provided. Following the Commencement Date, the parties
shall execute an amendment to this Lease in substantially the form attached
hereto as Exhibit C to confirm certain matters, including the Commencement Date
of this Lease and the Minimum Rent determined pursuant to Section 3.1 below.
Upon any change in the Minimum Rent in accordance with the provisions of Section
3.1 below or otherwise pursuant to this Lease, at Lessor's request, the parties
shall similarly execute an amendment to this Lease confirming such matters. In
addition, upon the "Commencement Date" of any Facility Group Lease (as defined
below) following the Commencement Date of this Lease (if any), including the
Newest Facility Group Lease, Lessor may prepare and, if prepared, Lessor and
Lessee shall execute and deliver an amendment to this Lease confirming that (x)
such Facility Group Lease is a "Facility Group Lease" for purposes of this
Lease, and (y) the extension of the Fixed Term of this Lease to be coterminous
with the "Fixed Term" of the Newest Facility Group Lease, as applicable.
Notwithstanding the foregoing, the failure of Lessor to prepare and/or the
failure of Lessee to so execute and deliver any such amendment shall not, absent
manifest error, affect Lessor's determination of the matters to be confirmed
thereby.
ARTICLE II.
-----------
2. Definitions. For all purposes of this Lease, except as
otherwise expressly provided or unless the context otherwise requires, (i) the
terms defined in this Article have the meanings assigned to them in this Article
and include the plural as well as the singular; (ii) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
GAAP as at the time applicable; (iii) all references in this Lease to designated
"Articles," "Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of this Lease; (iv) the word "including" shall
have the same meaning as the phrase "including, without limitation," and other
similar phrases; and (v) the words "herein," "hereof" and "hereunder" and other
similar words refer to this Lease as a whole and not to any particular Article,
Section or other subdivision:
ACH: As defined in Section 3.1.
---
Additional Charges: As defined in Article III.
------------------
Additional Rent: As defined in Article III.
---------------
Affiliate: Any Person which, directly or indirectly, controls
or is controlled by or is under common control with any other Person. For
purposes of this definition, "control" (including the correlative meanings of
the terms "controlled by" and "under common control with"), as used with respect
to any Person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
through the ownership of fifty percent (50%) or more of the voting securities,
partnership interests or other equity interests, including any Subsidiary of a
Person. Notwithstanding the foregoing, when used with respect to any
corporation, the term "Affiliate" shall mean (i) any Person which owns, directly
or indirectly (including through one or more intermediaries), fifty percent
(50%) or more of any class of voting security of such corporation, which class
has the power to elect a majority of the Board of Directors, (ii) any Subsidiary
of such corporation and (iii) any Subsidiary of a Person described in clause
(i).
Appraiser: As defined in Article XXXIV.
---------
Award: All compensation, sums or anything of value awarded,
paid or received
2
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on a total or partial Condemnation.
Bankruptcy Code: The United Stated Bankruptcy Code (11 U.S.C.
ss. 101 et seq.), and any successor statute or legislation thereto.
Base Gross Revenues: (i) For the Fixed Term, Fifty Percent
(50%) of the Gross Revenues for the second Lease Year of the Fixed Term and (ii)
for each Extended Term, if any, Fifty Percent (50%) of the Gross Revenues for
the first Lease Year of such Extended Term. In determining Additional Rent for
any partial Lease Year, Base Gross Revenues for such partial Lease Year shall be
determined by multiplying the applicable Base Gross Revenues by a fraction, the
numerator of which is the number of days in the partial Lease Year and the
denominator of which is 365.
BLS: Bureau of Labor Statistics, U.S. Department of Labor.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which national banks in the City of New York, New
York are authorized, or obligated, by law or executive order, to close.
Capital Additions: One or more new buildings, or one or more
additional structures annexed to any portion of any of the Leased Improvements,
or the material expansion of existing improvements, which are constructed on any
parcel or portion of the Land, during the Term, including construction of a new
wing or new story, or the renovation of existing improvements on the Leased
Property in order to provide a functionally new facility needed to provide
services not previously offered. The Capital Addition Project shall be treated
for all purposes of this Lease as a "Capital Addition," and all amounts advanced
to Lessee, or otherwise expended by Lessor with respect thereto shall be treated
as "Capital Addition Costs" funded by Lessor.
Capital Addition Costs: The costs of any Capital Addition made
to the Leased Property whether paid for by Lessee or Lessor, including (i) all
permit fees and other costs imposed by any governmental authority, the cost of
site preparation, the cost of construction including materials and labor, the
cost of supervision and related design, engineering and architectural services,
the cost of any fixtures, and if and to the extent approved by Lessor, the cost
of construction financing; (ii) fees paid to obtain necessary licenses and
certificates; (iii) if and to the extent approved by Lessor in writing and in
advance, the cost of any land contiguous to the Leased Property which is to
become a part of the Leased Property purchased for the purpose of placing
thereon the Capital Addition or any portion thereof or for providing means of
access thereto, or parking facilities therefor, including the cost of surveying
the same; (iv) the cost of insurance, real estate taxes, water and sewage
charges and other carrying charges for such Capital Addition during
construction; (v) the cost of title insurance; (vi) reasonable fees and expenses
of legal counsel; (vii) filing, registration and recording taxes and fees;
(viii) documentary stamp and similar taxes; and (ix) all reasonable costs and
expenses of Lessor and any Person which has committed to finance the Capital
Addition, including (a) the reasonable fees and expenses of their respective
legal counsel; (b) printing expenses; (c) filing, registration and recording
taxes and fees; (d) documentary stamp and similar taxes; (e) title insurance
charges and appraisal fees; (f) rating agency fees; and (g) commitment fees
charged by any Person advancing or offering to advance any portion of the
financing for such Capital Addition.
Capital Addition Project: As defined in Section 10.3.
------------------------
3
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Cash Flow: The net income from the Facility, determined on the
basis of GAAP applied on a consistent basis, plus the sum of (i) depreciation
and amortization expense; (ii) Rent and other expenses payable hereunder,
excluding, however, Impositions; (iii) management fees; and (iv) income taxes
paid by Lessee; less the sum of (x) a management fee allowance of five percent
(5%) of Gross Revenues for the corresponding period plus (y) an annual Two
Hundred Dollar ($200) per unit reserve, pro-rated for the corresponding period.
Cash Flow Coverage: For any period, calculated as of the last
day of the period, the ratio of Cash Flow attributable to such period to total
Rent payable for such period under the Lease.
Closing Date: As defined in the Contract of Acquisition.
------------
Code: The Internal Revenue Code of 1986, as amended.
----
Commencement Date: The Closing Date.
-----------------
Commercial Occupancy Arrangement: Any commercial (as opposed
to resident or patient) Occupancy Arrangement.
Competing Facility: Any facility or institution providing
services or goods similar to those provided or to be provided at the time in
question in connection with the Facility and the Primary Intended Use or similar
to those provided in connection with any other Permitted Use hereunder as to
which Lessee then desires to change the Facility's Primary Intended Use.
Condemnation: The exercise of any governmental power, whether
by legal proceedings or otherwise, by a Condemnor or a voluntary sale or
transfer by Lessor to any Condemnor, either under threat of condemnation or
while legal proceedings for condemnation are pending.
Condemnor: Any public or quasi-public authority, or private
corporation or individual, having the power of Condemnation.
Consolidated Financials: For any fiscal year or other
accounting period for Lessee and its consolidated Subsidiaries, statements of
earnings and retained earnings and of changes in financial position for such
period and for the period from the beginning of the respective fiscal year to
the end of such period and the related balance sheet as at the end of such
period, together with the notes thereto, all in reasonable detail and setting
forth in comparative form the corresponding figures for the corresponding period
in the preceding fiscal year, and prepared in accordance with GAAP.
Consolidated Net Worth: At any time, with respect to a Person,
the sum of the following for such Person and its consolidated Subsidiaries, as
the case may be, on a consolidated basis determined in accordance with GAAP:
(i) the amount of capital or stated capital (after
deducting the cost of any shares held in its treasury), plus
(ii)the amount of capital surplus and retained
earnings (or, in the case of a capital surplus or retained earnings
deficit, minus the amount of such deficit), minus
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(iii) the sum of the following (without duplication
of deductions in respect of items already deducted in arriving at
surplus and retained earnings): (a) unamortized debt discount and
expense; and (b) any write-up in book value of assets resulting from a
revaluation thereof subsequent to the most recent Consolidated
Financials prior to the date hereof, excluding, however, any (i) net
write-up in value of foreign currency in accordance with GAAP, (ii)
write-up resulting from a reversal of a reserve for bad debts or
depreciation, and (iii) write-up resulting from a change in methods of
accounting for inventory.
Contract of Acquisition: The agreement of even date herewith
by and among Lessor and Lessee relative to the acquisition by Lessor of the
Leased Property.
Cost of Living Index: The Consumer Price Index for All Urban
Consumers, U.S. City Average (1982-1984 = 100), published by the BLS, or such
other renamed index. If the BLS changes the publication frequency of the Cost of
Living Index so that a Cost of Living Index is not available to make a
cost-of-living adjustment as specified herein, the cost-of-living adjustment
shall be based on the percentage difference between the Cost of Living Index for
the closest preceding month for which a Cost of Living Index is available and
the Cost of Living Index for the comparison month as required by this Lease. If
the BLS changes the base reference period for the Cost of Living Index from
1982-84 = 100, the cost-of-living adjustment shall be determined with the use of
such conversion formula or table as may be published by the BLS. If the BLS
otherwise substantially revises, or ceases publication of the Cost of Living
Index, then a substitute index for determining cost-of-living adjustments,
issued by the BLS or by a reliable governmental or other nonpartisan
publication, shall be reasonably selected by Lessor.
County: The County or Township in which the Leased Property is
located.
CPI Increase: The percentage increase (but not decrease) in
(i) the Cost of Living Index published for the beginning of the first Quarter of
each Lease Year, over (ii) the Cost of Living Index published for the beginning
of the first Quarter of the immediately prior Lease Year.
CPI Rent: An amount equal to the sum of (i) the product of (y)
the sum of the prior Lease Year's Minimum Rent and Additional Rent, times (z)
the current CPI Increase and (ii) the prior Lease Year's Additional Rent.
Date of Taking: The date the Condemnor has the right to
possession of the property being condemned.
Environmental Costs: As defined in Article XXXVI.
Environmental Laws: Environmental Laws shall mean any and all
federal, state, municipal and local laws, statutes, ordinances, rules,
regulations, guidances, policies, orders, decrees, judgments, whether statutory
or common law, as amended from time to time, now or hereafter in effect, or
promulgated, pertaining to the environment, public health and safety and
industrial hygiene, including the use, generation, manufacture, production,
storage, release, discharge, disposal, handling, treatment, removal,
decontamination, clean-up, transportation or regulation of any Hazardous
Substance, including the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Comprehensive Environmental Response Compensation
and Liability Act, the Resource Conservation and Recovery Act, the
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Federal Insecticide, Fungicide, Rodenticide Act, the Safe Drinking Water Act and
the Occupational Safety and Health Act.
Event of Default: As defined in Article XVI.
----------------
Extended Term(s): As defined in Article XIX.
---------------
Facility: The current 40-unit, approximately 21,000 square
foot assisted-living care facility being operated on the Leased Property.
Facility Group Leases: Those certain other leases described on
Exhibit E attached hereto and incorporated herein by this reference, together
with all other leases hereinafter entered into between Lessor or an Affiliate of
Lessor and Lessee or an Affiliate of Lessee which recite that they are "Facility
Group Leases". This Lease shall be deemed a "Facility Group Lease" for purposes
of each other Facility Group Lease. Notwithstanding the foregoing, the following
shall apply:
(i) If the Leased Property is transferred or conveyed
by Lessor to any Person (other than an Affiliate of Lessor) this Lease
shall be deemed a "Facility Group Lease" only with respect to each
other Facility Group Lease which is also transferred or conveyed by
Lessor or an Affiliate of Lessor to the same Person and/or its
Affiliate(s); and
(ii) If the "Leased Property" of any other Facility
Group Lease is transferred or conveyed by Lessor or any Affiliate of
Lessor to any Person (other than Lessor or an Affiliate of Lessor),
such Facility Group Lease shall be deemed a "Facility Group Lease" with
respect to this Lease only to the extent that the Leased Property is
also transferred or conveyed to the same Person and/or its
Affiliate(s).
Facility Mortgage: As defined in Article XIII.
-----------------
Facility Mortgagee: As defined in Article XIII.
------------------
Facility Operating Deficiency: A deficiency in the conduct of
the operation of the Facility which, in the reasonable determination of Lessor,
if not corrected within a reasonable time, would jeopardize the Facility's
licensure or certification under government reimbursement programs, to the
extent applicable.
Fair Market Rental: The fair market rental value of the Leased
Property, or applicable portion thereof, including any periodic increases
therein, determined in accordance with the appraisal procedures set forth in
Articles XXXIV. Notwithstanding the foregoing, if Lessee shall enter into a
Master Sublease in accordance with the applicable provisions of Article XXIV in
a bona fide, arms-length transaction with any Person (other than an Affiliate of
Lessee), then the Fair Market Rental of the Leased Property, or the applicable
portion thereof, for purposes of Section 24.2(b) shall be the rent (however
denominated and paid) payable under such Master Sublease, unless in connection
with the transaction(s) as to which such Master Sublease is a part (including
any step, tiered or indirect transactions), additional or other rent or
consideration is payable to Lessee or any Affiliate of Lessee in addition to the
rent payable under the Master Sublease, in which event the appraisers appointed
pursuant to the appraisal procedures set forth in Article XXXIV shall determine
whether the rent payable to Lessee or any Affiliate of Lessee under the Master
Sublease is reasonably related to the Fair Market Rental of the Leased Property,
or applicable portion thereof, as also determined
6
<PAGE>
pursuant to this definition and the appraisal procedures set forth in Article
XXXIV. If so reasonably related, the Fair Market Rental of the Leased Property
for purposes of Section 24.2(b) shall be deemed the rent payable under such
Master Sublease. Otherwise, the Fair Market Rental of the Leased Property, or
applicable portion thereof, for purposes of such Section 24.2(b) shall be
determined pursuant to this definition and the appraisal procedures set forth in
Article XXXIV, but in no event greater than the total rent and other
consideration payable to Lessee or any Affiliate of Lessee in connection with
such Master Sublease and the other transaction(s) as to which such Master
Sublease is a part. As used in this definition, the term "rent" shall mean all
consideration paid or given, directly or indirectly, to Lessee or any Affiliate
of Lessee under the Master Sublease and/or in connection with the transaction(s)
or to which such Master Sublease is a part. For purposes of this definition, the
definition of "Fair Market Value" below and the provisions of Section 24.8
below, the term "consideration" shall mean and include money, services, property
and other things of value, including payment of costs, cancellation of
indebtedness, discounts, rebates, barter and the like. For purposes of Section
24.2 below and the payment of "Transfer Consideration" to Lessor as provided
therein, if any rent or other consideration is payable to Lessee or any
Affiliate of Lessee in a form other than cash, Lessor shall be entitled to
receive the applicable "Transfer Consideration" on account thereof in cash based
upon the fair market value of such consideration.
Fair Market Value: The fair market value of the Leased
Property, and all Capital Additions, determined in accordance with the appraisal
procedures set forth in Article XXXIV or Section 35.1, as applicable. Fair
Market Value shall be the higher value obtained by assuming that the Leased
Property is unencumbered by this Lease or encumbered by this Lease. Further, in
determining Fair Market Value the positive or negative effect on the value of
the Leased Property attributable to the interest rate, amortization schedule,
maturity date, prepayment penalty and other terms and conditions of any
encumbrance which will not be removed at or prior to the date as of which such
Fair Market Value determination is being made shall be taken into account. The
Leased Property shall be valued at its highest and best use which shall be
presumed to be as a fully-permitted Facility operated in accordance with the
provisions of this Lease. Fair market value of the Leased Property shall not
include "going concern" or "business enterprise" value attributable to factors
other than the highest and best use of the Leased Property. In addition, in
determining Fair Market Value, the negative value of (a) any deferred
maintenance or other items of repair or replacement of the Leased Property, (b)
any then current or prior licensure or certification violations and/or
admissions holds and (c) any other breach or failure of Lessee to perform or
observe its obligations hereunder shall not be taken into account; rather, the
Leased Property, and every part thereof, shall be deemed to be in the condition
required by this Lease (i.e., good order and repair) and Lessee shall at all
times be deemed to have operated the Facility in compliance with and to have
performed all obligations of the Lessee under this Lease. Notwithstanding the
foregoing, in the event of a bona fide, arms-length Transfer with any Person
(other than an Affiliate of Lessee and other than pursuant to a Master
Sublease), the Fair Market Value of the Leased Property for purposes of Section
24.2(c) below shall be the gross consideration (as defined above) payable to
Lessee or any Affiliate of Lessee in connection with such Transfer for Lessee's
leasehold interest in the Leased Property created under this Lease, unless in
connection with the transaction(s) as to which such Transfer is a part
(including any step, tiered or indirect transactions), additional or other gross
consideration is payable to Lessee or any Affiliate of Lessee in addition to the
gross consideration allocated by the parties thereto to the leasehold interest
created hereby, in which event the appraisers appointed pursuant to the
appraisal procedures set forth in Article XXXIV shall determine whether the
portion of such gross consideration payable to Lessee or any Affiliate of Lessee
in such transaction(s) and allocated for the leasehold estate created hereby as
initially determined by the parties thereto is
7
<PAGE>
reasonably related to the Fair Market Value of the Leased Property, as also
determined pursuant to this definition and the appraisal procedures set forth in
such Article XXXIV. If so reasonably related, the Fair Market Value of the
Leased Property for purposes of such Section 24.2(c) shall be deemed the portion
of the gross consideration so allocated by the parties. Otherwise, the Fair
Market Value of the Leased Property for purposes of such Section 24.2(c) shall
be determined pursuant to this definition and the appraisal procedures set forth
in such Article XXXIV, but in no event greater than the gross consideration
payable to Lessee or any Affiliate of Lessee in connection with such Transfer
and the other transaction(s) as to which such Transfer is a part.
Fixed Term: As defined in Article I.
----------
Fixtures: As defined in Article I.
--------
GAAP: Generally accepted accounting principles.
----
Gross Revenues: All revenues received or receivable from or by
reason of the operation of the Facility or any other use of the Leased Property,
Lessee's Personal Property and all Capital Additions including all revenues
received or receivable for the use of or otherwise attributable to units, rooms,
beds and other facilities provided, meals served, services performed (including
ancillary services), space or facilities subleased or goods sold on or from the
Leased Property and all Capital Additions; provided, however, that Gross
Revenues shall not include:
(i) non-operating revenues such as interest income (including
interest earned on sinking funds, Special Security Accounts or any bond
funds originally and specifically formulated as a requirement of any
bond issue utilized to finance Lessee's business operations) or income
from the sale of assets not sold in the ordinary course of business;
(ii) bad debt in accordance with GAAP;
(iii) refunds made to patients, customers or clients;
(iv) federal, state or local excise or sales taxes and any tax
based upon or measured by such revenues which is added to or made a
part of the amount billed to the patient or other recipient of such
services or goods, whether included in the billing or stated
separately; and
(v) refunds or credits on account of taxes paid by Lessee.
Gross Revenues for each Lease Year shall include all cost report
settlement amounts received in or payable during such Lease Year in accordance
with GAAP relating to health care accounting, regardless of the year that such
settlement amounts are applicable to; provided, however, that to the extent
settlement amounts are applicable to years, or portions thereof, prior to the
Commencement Date, such settlement amounts shall not be included in Gross
Revenues for the Lease Year in which such settlement amounts are received or
paid. Gross Revenues shall also include the Gross Revenues of any Occupant under
a Commercial Occupancy Arrangement, i.e., the Gross Revenues generated from the
operations conducted on or from such subleased, licensed or other used or
occupied portion of the Leased Property shall be included directly in the Gross
Revenues; provided, however, that the rent received or receivable by Lessee from
or under such Commercial Occupancy Arrangement shall be
8
<PAGE>
excluded from Gross Revenues for such purpose.
Guarantor: ILC.
---------
Guaranty: The Guaranty of even date herewith executed by
Guarantor.
Handling: As defined in Article XXXVII.
--------
Hazardous Substances: Collectively, any petroleum, petroleum
product or byproduct or any substance, material or waste regulated or listed
pursuant to any Environmental Law.
HCPI: Health Care Property Investors, Inc., a Maryland
corporation.
ILC: Integrated Living Communities, Inc., a Delaware
corporation.
Impositions: Collectively, all taxes, including capital stock,
franchise and other state taxes of Lessor (or, if Lessor is not HCPI, of HCPI as
a result of its investment in Lessor), ad valorem, sales, use, single business,
gross receipts, transaction privilege, rent or similar taxes; assessments
including assessments for public improvements or benefits, whether or not
commenced or completed prior to the date hereof and whether or not to be
completed within the Term; ground rents; water, sewer and other utility levies
and charges; excise tax levies; fees including license, permit, inspection,
authorization and similar fees; and all other governmental charges, in each case
whether general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character in respect of the Leased Property and/or the Rent
and all interest and penalties thereon attributable to any failure in payment by
Lessee which at any time prior to, during or in respect of the Term hereof may
be assessed or imposed on or in respect of or be a lien upon (i) Lessor or
Lessor's interest in the Leased Property, (ii) the Leased Property or any part
thereof or any rent therefrom or any estate, right, title or interest therein,
or (iii) any occupancy, operation, use or possession of, or sales from or
activity conducted on or in connection with the Leased Property or the leasing
or use of the Leased Property or any part thereof; provided, however, that
nothing contained in this Lease shall be construed to require Lessee to pay (a)
any tax based on net income (whether denominated as a franchise or capital stock
or other tax) imposed on Lessor or any other Person, (b) any transfer, or net
revenue tax of Lessor or any other Person except Lessee and its successors, (c)
any tax imposed with respect to the sale, exchange or other disposition by
Lessor of any Leased Property or the proceeds thereof, or (d) except as
expressly provided elsewhere in this Lease, any principal or interest on any
indebtedness on the Leased Property for which Lessor is the obligor, except to
the extent that any such tax, assessment, tax levy or charge of the type
described in clause (a), (b) or (c) above is levied, assessed or imposed in lieu
thereof or as a substitute for any tax which is otherwise included in this
definition.
Incremental Gross Revenues: The positive amount, if any, by
which the Gross Revenues for the current Lease Year or partial Lease Year
exceeds the Base Gross Revenues.
Insurance Requirements: The terms of any insurance policy
required by this Lease and all requirements of the issuer of any such policy and
of any insurance board, association, organization or company necessary for the
maintenance of any such policy.
Intangible Property: All accounts, proceeds of accounts,
rents, profits, income or revenues derived from the use of rooms or other space
within the Leased Property or the providing of services in or from the Leased
Property; documents, chattel paper, instruments, contract rights, deposit
accounts, general intangibles, causes of action, now owned or hereafter
9
<PAGE>
acquired by Lessee (including any right to any refund of any Impositions)
arising from or in connection with Lessee's operation or use of the Leased
Property; all licenses and permits now owned or hereinafter acquired by Lessee,
which are necessary or desirable for Lessee's use of the Leased Property for its
Primary Intended Use or any other Permitted Use, including, if applicable, any
certificate of need or similar certificate; the right to use any trade name or
other name associated with the Facility; and any and all third-party provider
agreements (including Medicare and Medicaid).
Land: As defined in Article I.
----
Lease: As defined in the preamble.
-----
Lease Rate: Nine and Seventy-Nine Hundredths Percent (9.79%).
----------
Lease Year: Each period of twelve (12) full calendar months
from and after the Commencement Date, unless the Commencement Date is a day
other than the first (1st) day of a calendar month, in which case the first
Lease Year shall be the period commencing on the Commencement Date and ending on
the last day of the twelfth (12th) full month following the month in which the
Commencement Date occurs and each subsequent Lease Year shall be each period of
twelve (12) full calendar months after the last day of the prior Lease Year;
provided, however, that the last Lease Year during the Term may be a period of
less than twelve (12) full calendar months and shall end on the last day of the
Term.
Leased Improvements; Leased Property: Each as defined in
Article I.
------------------------------------
Leasehold FMV: As defined in Article XXIV.
-------------
Legal Requirements: All federal, state, county, municipal and
other governmental statutes, laws (including common law and Environmental Laws),
rules, policies, guidance, codes, orders, regulations, ordinances, permits,
licenses, covenants, conditions, restrictions, judgments, decrees and
injunctions affecting either the Leased Property, Lessee's Personal Property and
all Capital Additions or the construction, use or alteration thereof, whether
now or hereafter enacted and in force, including any which may (i) require
repairs, modifications or alterations in or to the Leased Property, Lessee's
Personal Property and all Capital Additions, (ii) in any way adversely affect
the use and enjoyment thereof, or (iii) regulate the transport, handling, use,
storage or disposal or require the cleanup or other treatment of any Hazardous
Substance.
Lessee: As defined in the preamble.
------
Lessee's Personal Property: The Personal Property other than
Lessor's Personal Property.
Lessor: As defined in the preamble.
------
Lessor's Personal Property: As defined in Article I.
--------------------------
Letter of Credit Date: As defined in Section 21.2.
---------------------
Master Sublease: As defined in Article XXIV.
---------------
Minimum Rent: As defined in Article III.
------------
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Minimum Repurchase Price: At any given time, the sum of (i)
the "Purchase Price" of the Leased Property at the time of acquisition of the
Leased Property by Lessor, together with any closing costs incurred by Lessor in
connection therewith in excess of the amount reimbursed to Lessor, all as more
particularly provided in the Contract of Acquisition plus (ii) any Capital
Addition Costs funded by Lessor.
Newest Facility Group Lease. At any given time, that certain
Facility Group Lease the "Commencement Date" of which has occurred later than
the "Commencement Date" of any other Facility Group Lease.
Occupancy Arrangement: Any sublease, license or other
arrangement with a Person for the right to use, occupy or possess any portion of
the Leased Property and/or any Capital Additions.
Occupant: Any Person under an Occupancy Arrangement.
--------
Offer: As defined in Article XXXV.
-----
Officer's Certificate: A certificate of Lessee signed by an
officer authorized to so sign by its board of directors or by-laws.
Overdue Rate: On any date, a rate equal to 2% above the Prime
Rate, but in no event greater than the maximum rate then permitted under
applicable law.
Payment Date: Any due date for the payment of the installments
of Minimum Rent, Additional Rent or any other sums payable under this Lease.
Permitted Use: Alzheimer care, congregate care,
assisted-living, or skilled nursing facility and such other uses necessary or
incidental to such use. Without limiting the specificity of the foregoing
"Permitted Use(s)," in no event shall Lessee use the Facility, or any portion
thereof, as independent apartments for seniors.
Person: Any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other form of
entity.
Personal Property: All machinery, furniture and equipment,
including phone systems and computers, trade fixtures, inventory, supplies and
other personal property used in connection with the operation of the Leased
Property for its Primary Intended Use, other than Fixtures.
Primary Intended Use: The specific Permitted Use for which the
Facility is being operated at any time during the Term in accordance with this
definition. Initially, the Primary Intended Use shall be an Alzheimer's
assisted-living care facility. Lessee shall give to Lessor not less than thirty
(30) days prior written notice of any change in the Primary Intended Use to any
other Permitted Use hereunder. Lessee shall not be entitled to change the
Primary Intended Use to any other Permitted Use (i) without first providing such
notice to Lessor or (ii) at any time after the occurrence of an Event of Default
hereunder which remains uncured (if applicable). In addition, without Lessor's
prior written consent, which consent may be given or withheld in Lessor's sole
and absolute discretion, Lessee shall not be entitled to change the Primary
Intended Use to any other Permitted Use if Lessee or any Affiliate of Lessee
then
11
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owns, operates or manages or has a material interest (including a controlling
interest) in a Competing Facility within the Ten Mile Area or, if such change in
use is to occur after the eighth (8th) Lease Year of the Fixed Term or after the
Third (3rd) Lease Year of either Extended Term, as applicable, within either the
Ten Mile Area or the Ten-Fifteen Mile Area.
Prime Rate: On any date, a rate equal to the annual rate on
such date announced by the Bank of New York to be its prime, base or reference
rate for 90-day unsecured loans to its corporate borrowers of the highest credit
standing but in no event greater than the maximum rate then permitted under
applicable law. If the Bank of New York discontinues its use of such prime, base
or reference rate or ceases to exist, Lessor shall designate the prime, base or
reference rate of another state or federally chartered bank based in New York to
be used for the purpose of calculating the Prime Rate hereunder.
Put Event: An Event of Default hereunder which results in a
material reduction (i.e., 5% or more) in the Fair Market Value of the Leased
Property, provided that the Fair Market Value of the Leased Property taking into
account the occurrence of such Event of Default is less than the Minimum
Repurchase Price. In determining the Fair Market Value of the Leased Property
following an Event of Default, the appraisers appointed pursuant to Article
XXXIV shall determine such Fair Market Value for the Leased Property (i) taking
into account such Event of Default and (ii) as though such Event of Default had
not occurred. Notwithstanding that Lessor and Lessee have specifically defined a
"Put Event," in no event shall the same be deemed to derogate the materiality of
an Event of Default as provided in Section 16.1 below (including an Event of
Default which does not constitute a Put Event) or otherwise limit Lessor's
rights and remedies upon the occurrence of an Event of Default, including those
rights and remedies set forth in Sections 16.2, 16.3 and 16.4 below.
Quarter: During each Lease Year, the first three (3) calendar
month period commencing on the first (1st) day of such Lease Year and each
subsequent three (3) calendar month period within such Lease Year; provided,
however, that (i) the first Quarter during the Term may be a period of more than
three (3) months and shall commence on the Commencement Date and end upon the
expiration of the third (3rd) full calendar month following the Commencement
Date and (ii) the last Quarter during the Term may be a period of less than
three (3) calendar months and shall end on the last day of the Term.
Related Lessee Persons: Any Person(s) which controls Lessee
and would be deemed an Affiliate of Lessee, including any partners,
shareholders, principals or trustees of Lessee or any partners, shareholders,
principals or trustees of any such Person(s) to the extent the same control
Lessee and would be deemed an Affiliate of Lessee.
Removable Personal Property: Any item of Lessee's Personal
Property which (i) does not constitute a replacement (whether or not an upgrade
thereof), modification, alteration or substitution of or to any of Lessor's
Personal Property or (ii) is not required in order to operate the Facility in
compliance with all licensure and certification requirements and all other Legal
Requirements and Insurance Requirements for the Primary Intended Use.
Rent: Collectively, the Minimum Rent, Additional Rent and
Additional Charges.
SEC: Securities and Exchange Commission.
---
State: The State or Commonwealth in which the Leased Property
is located.
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Subsidiaries: Corporations, partnerships, limited liability
companies, business trusts or other legal entities with respect to which a
Person owns, directly or indirectly, 50% or more of the voting stock or
partnership, membership or other equity interest, respectively.
Ten Mile Area: As defined in Section 6.4.1.
Ten-Fifteen Mile Area: As defined in Section 6.4.1.
Term: Collectively, the Fixed Term and any Extended Term(s),
as the context may require, unless earlier terminated.
Transfer: As defined in Article XXIV.
Transfer Consideration: As defined in Article XXIV.
Unavoidable Delays: To the extent specifically applicable to
any provision of this Lease, delays resulting from a cause beyond the reasonable
control of a party responsible for performing an obligation hereunder. For
purposes of this definition, cause shall be beyond the reasonable control of a
party when such cause would affect any person similarly situated (such as
strike, lockout, power failure, act of God, governmental restriction, enemy
action, civil commotion, fire or unavoidable casualty) but shall not be beyond
the reasonable control of such party when peculiar to such party (such as
financial inability, lack of funds or failure to order long lead time materials
sufficiently in advance). To the extent applicable to a particular provision
herein, in the event of any occurrence which a party believes constitutes a
cause beyond the reasonable control of such party and which will delay any
performance by such party hereunder, such party shall promptly in writing notify
the other party of the occurrence and nature of such cause, the anticipated
period of delay and the steps being taken by such party to mitigate the effects
of such delay.
Unsuitable for Its Primary Intended Use: A state or condition
of the Facility such that by reason of damage or destruction or Condemnation, in
the good faith judgment of Lessor and Lessee, the Facility cannot be operated on
a commercially practicable basis for its Primary Intended Use.
ARTICLE III.
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3.1 Rent. Lessee will pay to Lessor in lawful money of the
United States of America which shall be legal tender for the payment of public
and private debts, without offset or deduction, the amounts set forth
hereinafter as Minimum Rent and Additional Rent during the Term. Payments of
Minimum Rent shall be made by a prearranged payment deposit through the
Electronic Automated Clearing House Network ("ACH") initiated by Lessee to
Lessor's account at an ACH member bank on or before the fifth (5th) day of each
calendar month. Payments of Additional Rent shall be made at Lessor's address
set forth in Article XXXIII or at such other place or to such other Person as
Lessor from time to time may designate in writing.
3.1.1 Minimum Rent. Subject to upward adjustment(s) with
respect to the Capital Addition Project funded by Lessor as described in Section
10.3 below, for the period from the Commencement Date through the expiration of
the Fixed Term, Lessee shall pay to Lessor "Minimum Rent" monthly, in advance on
or before the first day of each calendar month, an amount equal to $18,764.17
(i.e., one-twelfth (1/12) of the product of (i) the Lease
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Rate times (ii) the Minimum Repurchase Price as of the Commencement Date). The
first monthly payment of Minimum Rent shall be payable on the Commencement Date
(prorated as to any partial calendar month at the beginning of the Term). Such
monthly Minimum Rent shall be increased from time to time on the date of any
payment or funding by Lessor on account of the Capital Addition Project pursuant
to the provisions of Section 10.3 by one-twelfth (1/12th) of the product of (a)
the amount of the particular payment or funding by Lessor, times (b) Three and
Twenty-Five Hundredths Percent (3.25%) above the ten-year U.S. Treasury Note
Rate, published in the Wall Street Journal on the date of such payment or
funding by Lessor and quoting the rate for the immediately prior Business Day.
If the ten-year U.S. Treasury Note Rate is discontinued prior to any such
payment or funding by Lessor, then such calculation shall be made instead to a
substitute rate selected by Lessor that is comparable with the ten-year U.S.
Treasury Note rate, and such substitute rate shall be compared to ten-year U.S.
Treasury Note rate, published in the Wall Street Journal as of the date hereof.
Similarly, if the Wall Street Journal is discontinued, a substitute publication
selected by Lessor shall be used. Such monthly Minimum Rent payable for any
month(s) during which an increase in the Minimum Rent occurs by reason of any
payments or funding by Lessor on account of the Capital Addition Project, shall
be prorated based upon the number of days for which such adjusted rental amounts
apply. From time to time at Lessor's request, Lessor and Lessee shall enter into
an amendment of this Lease in form acceptable to Lessor to reflect the
adjustment in the monthly Minimum Rent payable hereunder by reason of any such
payments or fundings by Lessor on account of the Capital Addition Project.
Failure of Lessee to so execute and deliver any such amendment shall not,
however, affect the determination of the monthly Minimum Rent payable hereunder.
Minimum Rent for the Extended Terms, if any, shall be determined in accordance
with the provisions of Article XIX.
3.1.2 Additional Rent. In addition to the Minimum Rent, Lessee
shall, commencing with (x) the first (1st) Quarter of the second (2nd) Lease
Year of the Fixed Term and continuing through the expiration of the Fixed Term
and (y) the first (1st) Quarter of the second (2nd) Lease Year of each Extended
Term, if any, and continuing through the expiration of the applicable Extended
Term, pay to Lessor annual "Additional Rent" in an amount equal to the CPI Rent;
provided, however, that in no event shall the sum of the Minimum Rent and
Additional Rent paid or payable by Lessee for (1) any Lease Year during the
Fixed Term commencing with the second (2nd) Lease year of the Fixed Term or (2)
any Lease Year during the applicable Extended Term, if any, commencing with any
second (2nd) Lease Year of such Extended Term, be:
(a) less than the lesser of (i) One Hundred Two Percent
(102%) of the sum of the Minimum Rent and Additional Rent paid or payable by
Lessee for the immediately prior Lease Year of the applicable Term (taking into
account the annualized increase in the Minimum Rent resulting from any payments
or funding by Lessor on account of the Capital Addition Project pursuant to
Section 10.3) and (ii) the sum of (A) the Minimum Rent and Additional Rent paid
or payable for the immediately prior Lease Year, plus (B) One Hundred Percent
(100%) of Incremental Gross Revenues; nor
(b) more than One Hundred Five Percent (105%) of the sum
of Minimum Rent and Additional Rent paid or payable by Lessee for the
immediately prior Lease Year of the applicable Term (taking into account the
annualized increase in the Minimum Rent resulting from any payments made by
Lessor on account of the Capital Addition Project pursuant to Section 10.3).
3.2 Quarterly Calculation and Payment of Additional Rent;
Annual Reconciliation.
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3.2.1 Lessee shall calculate and pay Additional Rent
quarterly, in arrears, for the portion of the entire Lease Year, on a cumulative
basis, up to the end of the Quarter then most recently ended, less the
Additional Rent already paid and attributable to such Lease Year. If at the time
any calculation on account of Additional Rent is to be made the applicable Gross
Revenues are not yet available (if applicable) Lessee shall use its best
estimate of the applicable Gross Revenues. Each quarterly payment of Additional
Rent shall be delivered to Lessor, together with an Officer's Certificate
setting forth the calculation thereof, on or before the last Business Day of the
calendar month immediately following the end of the corresponding Quarter.
3.2.2 Within ninety (90) days after the end of each Lease
Year, Lessee shall deliver to Lessor either (a) an Officer's Certificate setting
forth the Gross Revenues for such Lease Year or (b) an Officer's Certificate
stating that Incremental Gross Revenues for such Lease Year exceed Two Percent
(2%) of the sum of Minimum Rent and Additional Rent paid or payable by Lessee
for the immediately prior Lease Year. Following receipt by Lessor of such
Certificate, Lessor shall, if applicable, determine the Additional Rent for such
Lease Year based upon Gross Revenues and give Lessee notice of the same together
with the calculations upon which the Additional Rent was based. If such
Additional Rent based upon Gross Revenues exceeds the sum of the quarterly
payments of Additional Rent previously paid by Lessee with respect to such Lease
Year, Lessee shall forthwith pay such deficiency to Lessor. If such Additional
Rent based upon Gross Revenues for such Lease Year is less than the amount
previously paid by Lessee with respect thereto, Lessor shall, at Lessee's
option, either (i) remit to Lessee its check in an amount equal to such
difference, or (ii) credit such difference against the quarterly payments of
Additional Rent next coming due.
3.2.3 Any difference between the annual Additional Rent for
any Lease Year as shown in said Officer's Certificate and the total amount of
quarterly payments for such Lease Year previously paid by Lessee, whether in
favor of Lessor or Lessee, shall bear interest at a rate equal to the rate
payable on 90-day U.S. Treasury Bills as of the last Business Day of such Lease
Year until the amount of such difference shall be paid or otherwise discharged.
3.2.4 If the expiration or earlier termination of the Term is
a day other than the last day of a Lease Year, then the amount of the last
quarterly installment of Additional Rent shall be paid pro rata on the basis of
the actual number of days in such Lease Year.
3.2.5 As soon as practicable after the expiration or earlier
termination of the Term, a final reconciliation of Additional Rent shall be made
taking into account, among other relevant adjustments, any unresolved
contractual allowances which relate to Gross Revenues accrued prior to such
expiration or termination; provided that if the final reconciliation has not
been made within six (6) months of such expiration or termination, then a final
reconciliation shall be made at that time based on all available relevant
information, including Lessee's good faith best estimate of the amount of any
unresolved contractual allowances.
3.3 Confirmation of Gross Revenues. Lessee shall utilize, or
cause to be utilized, an accounting system for the Leased Property in accordance
with its usual and customary practices and in accordance with GAAP which will
accurately record all Gross Revenues and Lessee shall retain for at least five
(5) years after the expiration of each Lease Year reasonably adequate records
conforming to such accounting system showing all Gross Revenues for such Lease
Year. Lessor, at its own expense except as provided hereinbelow,
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shall have the right from time to time (but in no event more than one time per
Lease Year or partial Lease Year) by its accountants or representatives, to
review and/or audit the information set forth in the Officer's Certificate
referred to in Section 3.2(a) and in connection with such review and/or audit to
examine Lessee's records with respect thereto (including supporting data and
sales tax returns) subject to any prohibitions or limitations on disclosure of
any such data under applicable law or regulations including any duly enacted
"Patients' Bill of Rights" or similar legislation, or as may be necessary to
preserve the confidentiality of the Facility-patient relationship and the
physician-patient privilege. If any such review and/or audit discloses a
deficiency in the payment of Additional Rent on account thereof (if applicable),
Lessee shall forthwith pay to Lessor the amount of the deficiency together with
interest thereon at the Overdue Rate compounded monthly from the date when said
payment should have been made to the date of payment thereof. If any such review
and/or audit discloses that the Gross Revenues actually received by Lessee for
any Lease Year exceed those reported by Lessee by more than Two Percent (2%),
Lessee shall pay the costs of such review and/or audit (whether or not
Additional Rent is based upon Gross Revenues). Any proprietary information
obtained by Lessor pursuant to such review and/or audit shall be treated as
confidential, except that such information may, subject to appropriate
confidentiality safeguards, be used in any litigation or arbitration proceedings
between the parties or disclosed to prospective lenders or purchasers.
3.4 Additional Charges. In addition to the Minimum Rent and
Additional Rent, (i) Lessee shall, subject to the provisions of Article XII of
this Lease, also pay and discharge as and when due and payable all other
amounts, liabilities, obligations and Impositions which Lessee assumes or agrees
to pay under this Lease prior to the date on which such items may be paid
without interest, fine, penalty or forfeiture or such other date as may be
specified in this Lease; and (ii) in the event of any failure on the part of
Lessee to pay any of those items referred to in clause (i) above, Lessee shall
also promptly pay and discharge every fine, penalty, interest and cost which may
be added for non-payment or late payment of such items (the items referred to in
clauses (i) and (ii) above being referred to herein collectively as the
"Additional Charges").
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3.5 Late Payment of RentLate. LESSEE HEREBY ACKNOWLEDGES THAT
LATE PAYMENT BY LESSEE TO LESSOR OF RENT WILL CAUSE LESSOR TO INCUR COSTS NOT
CONTEMPLATED HEREUNDER, THE EXACT AMOUNT OF WHICH IS PRESENTLY ANTICIPATED TO BE
EXTREMELY DIFFICULT TO ASCERTAIN. SUCH COSTS MAY INCLUDE PROCESSING AND
ACCOUNTING CHARGES AND LATE CHARGES WHICH MAY BE IMPOSED ON LESSOR BY THE TERMS
OF ANY LOAN AGREEMENT AND OTHER EXPENSES OF A SIMILAR OR DISSIMILAR NATURE.
ACCORDINGLY, IF ANY INSTALLMENT OF RENT OTHER THAN ADDITIONAL CHARGES PAYABLE TO
A PERSON OTHER THAN LESSOR SHALL NOT BE PAID WITHIN FIVE (5) BUSINESS DAYS AFTER
ITS DUE DATE, LESSEE WILL PAY LESSOR ON DEMAND A LATE CHARGE EQUAL TO THE LESSER
OF (I) THREE PERCENT (3%) OF THE AMOUNT OF SUCH INSTALLMENT OR (II) THE MAXIMUM
AMOUNT PERMITTED BY LAW. THE PARTIES AGREE THAT THIS LATE CHARGE REPRESENTS A
FAIR AND REASONABLE ESTIMATE OF THE COSTS THAT LESSOR WILL INCUR BY REASON OF
LATE PAYMENT BY LESSEE. THE PARTIES FURTHER AGREE THAT SUCH LATE CHARGE IS RENT
AND NOT INTEREST AND SUCH ASSESSMENT DOES NOT CONSTITUTE A LENDER OR
BORROWER/CREDITOR RELATIONSHIP BETWEEN LESSOR AND LESSEE. IN ADDITION, THE
AMOUNT UNPAID, INCLUDING ANY LATE CHARGES, SHALL BEAR INTEREST AT THE OVERDUE
RATE COMPOUNDED MONTHLY FROM THE DUE DATE OF SUCH INSTALLMENT TO THE DATE OF
PAYMENT THEREOF, AND LESSEE SHALL PAY SUCH INTEREST TO LESSOR ON DEMAND. THE
PAYMENT OF SUCH LATE CHARGE OR SUCH INTEREST SHALL NOT CONSTITUTE WAIVER OF, NOR
EXCUSE OR CURE, ANY DEFAULT UNDER THIS LEASE, NOR PREVENT LESSOR FROM EXERCISING
ANY OTHER RIGHTS AND REMEDIES AVAILABLE TO LESSOR.
Lessor's Initials:
----------------
Lessee's Initials:
----------------
3.6 Net LeaseNet Lease. This Lease is and is intended to be
what is commonly referred to as a "net, net, net" or "triple net" lease. The
Rent shall be paid absolutely net to Lessor, so that this Lease shall yield to
Lessor the full amount of the installments of Minimum Rent, Additional Rent and
Additional Charges throughout the Term.
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ARTICLE IV.
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4.1 Impositions.
4.1.1. Subject to Article XII relating to permitted
contests, Lessee shall pay, or cause to be paid, all Impositions before any
fine, penalty, interest or cost may be added for non-payment. Lessee shall make
such payments directly to the taxing authorities where feasible, and promptly
furnish to Lessor copies of official receipts or other satisfactory proof
evidencing such payments. Except as provided in the last sentence of this
Section 4.1.1 and in Section 4.1.7 below, Lessee's obligation to pay Impositions
shall be absolutely fixed upon the date such Impositions become a lien upon the
Leased Property or any part thereof. If any Imposition may, at the option of the
taxpayer, lawfully be paid in installments, whether or not interest shall accrue
on the unpaid balance of such Imposition, Lessee may pay the same, and any
accrued interest on the unpaid balance of such Imposition, in installments as
the same respectively become due and before any fine, penalty, premium, further
interest or cost may be added thereto. In such event, Lessee shall only be
responsible for those installments on account of such Impositions which are
assessed during the Term.
4.1.2 Lessor shall prepare and file all tax returns
and reports as may be required by Legal Requirements with respect to Lessor's
net income, gross receipts, franchise taxes and taxes on its capital stock.
Lessee shall prepare and file all tax returns and reports as may be required by
Legal Requirements with respect to Lessee or the Leased Property.
4.1.3 Any refund due from any taxing authority in
respect of any Imposition paid by Lessee shall be paid over to or retained by
Lessee if no Event of Default shall have occurred hereunder and be continuing.
Any other refund shall be paid over to or retained by Lessor to offset any
amounts payable by Lessee to Lessor hereunder.
4.1.4 Lessor and Lessee shall, upon the reasonable
request of the other, provide such data as is maintained by the party to whom
the request is made with respect to the Leased Property as may be reasonably
necessary to prepare any required returns and reports. If any property covered
by this Lease is classified as personal property for tax purposes, Lessee shall
file all personal property tax returns in such jurisdictions where it must
legally so file. Lessor, to the extent it possesses the same, and Lessee, to the
extent it possesses the same, shall provide the other party, upon request, with
cost and depreciation records necessary for filing returns for any property so
classified as personal property. Where Lessor is legally required to file
personal property tax returns and to the extent practicable, Lessee shall be
provided with copies of assessment notices indicating a value in excess of the
reported value in sufficient time for Lessee to file a protest.
4.1.5 Lessee may, upon notice to Lessor, at Lessee's
option and at Lessee's sole cost and expense, protest, appeal, or institute such
other proceedings as Lessee may deem appropriate to effect a reduction of real
estate or personal property assessments and Lessor, at Lessee's expense as
aforesaid, shall reasonably cooperate with Lessee in such protest, appeal, or
other action but at no cost or expense to Lessor. Billings for reimbursement by
Lessee to Lessor of personal property or real property taxes shall be
accompanied by copies of a bill therefor and payments thereof which identify the
personal property or real property with respect to which such payments are made.
4.1.6 Lessor shall give prompt notice to Lessee of
all Impositions payable by Lessee hereunder of which Lessor has knowledge, but
Lessor's failure to give any such notice shall in no way diminish Lessee's
obligations hereunder to pay such Impositions.
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4.1.7 Impositions imposed in respect of the
tax-fiscal period during which the Term terminates shall be adjusted and
prorated between Lessor and Lessee, whether or not such Imposition is imposed
before or after such termination.
4.2 Utilities. Lessee shall pay or cause to be paid all
charges for electricity, power, gas, oil, water and other utilities used in the
Leased Property and all Capital Additions thereto. Lessee shall also pay or
reimburse Lessor for all costs and expenses of any kind whatsoever which at any
time with respect to the Term hereof may be imposed against Lessor by reason of
any of the covenants, conditions and/or restrictions affecting the Leased
Property or any portion thereof, or with respect to easements, licenses or other
rights over, across or with respect to any adjacent or other property which
benefits the Leased Property, including any and all costs and expenses
associated with any utility, drainage and parking easements which were (a) in
effect as of the Commencement Date, (ii) imposed upon the Land after the
Commencement Date in accordance with the terms of this Lease or (iii) otherwise
consented to in writing by Lessee.
4.3 Insurance. Lessee shall pay or cause to be paid all
premiums for the insurance coverage required to be maintained by Lessee
hereunder.
4.4 Impound Account. If Lessee, at any time during the Term,
does not timely make payment of any Impositions or insurance premiums required
pursuant to Section 4.1 or Section 4.3, Lessor may, at any time thereafter, at
its option to be exercised by thirty (30) days' written notice to Lessee,
require Lessee to deposit, at the time of any payment of Minimum Rent, an amount
equal to one-twelfth of Lessee's estimated annual taxes, of every kind and
nature, required pursuant to Section 4.1 plus one-twelfth of Lessee's estimated
annual insurance premiums required pursuant to Section 4.3 into an impound
account as directed by Lessor. Such amounts shall be applied to the payment of
the obligations in respect of which said amounts were deposited in such order of
priority as Lessor shall determine, on or before the respective dates on which
the same or any of them would become delinquent. The cost of administering such
impound account shall be paid by Lessee. Nothing in this Section 4.4 shall be
deemed to affect any right or remedy of Lessor hereunder.
4.5 Tax Service. If, on two (2) or more occasions during the
Term, Lessee fails to provide Lessor with reasonable documentation demonstrating
that Impositions imposed upon the Leased Property have been paid within ten (10)
days after written request therefor by Lessor, then if requested by Lessor,
Lessee shall, at its sole cost and expense, engage the services of a tax
reporting company, to be designated by Lessor, and cause such company to issue
to Lessor reports covering the Leased Property.
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ARTICLE V.
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5. No Termination, Abatement, etc. Except as otherwise
specifically provided in this Lease, Lessee shall remain bound by this Lease in
accordance with its terms and shall not seek or be entitled to any abatement,
deduction, deferment or reduction of Rent, or set-off against the Rent. The
respective obligations of Lessor and Lessee shall not be affected by reason of
(i) any damage to or destruction of the Leased Property or any portion thereof
from whatever cause or any Condemnation of the Leased Property or any portion
thereof; (ii) the lawful or unlawful prohibition of, or restriction upon,
Lessee's use of the Leased Property, or any portion thereof, the interference
with such use by any Person or by reason of eviction by paramount title; (iii)
any claim that Lessee has or might have against Lessor by reason of any default
or breach of any warranty by Lessor hereunder or under any other agreement
between Lessor and Lessee or to which Lessor and Lessee are parties; (iv) any
bankruptcy, insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding up or other proceedings affecting Lessor or any assignee or
transferee of Lessor; or (v) for any other cause, whether similar or dissimilar
to any of the foregoing, other than a discharge of Lessee from any such
obligations as a matter of law. Lessee hereby specifically waives all rights
arising from any occurrence whatsoever which may now or hereafter be conferred
upon it by law (a) to modify, surrender or terminate this Lease or quit or
surrender the Leased Property or any portion thereof; or (b) which may entitle
Lessee to any abatement, reduction, suspension or deferment of the Rent or other
sums payable by Lessee hereunder, except as otherwise specifically provided in
this Lease. The obligations of Lessor and Lessee hereunder shall be separate and
independent covenants and agreements and the Rent and all other sums payable by
Lessee hereunder shall continue to be payable in all events unless the
obligations to pay the same shall be terminated pursuant to the express
provisions of this Lease or by termination of this Lease other than by reason of
an Event of Default.
ARTICLE VI.
-----------
6.1 Ownership of the Leased Property. Lessee acknowledges that
the Leased Property is the property of Lessor and that Lessee has only the right
to the exclusive possession and use of the Leased Property upon the terms and
conditions of this Lease. Lessee shall, at its expense, restore the Leased
Property to the condition required by Section 9.1.4.
6.2 Personal PropertyPersonal Property. During the Term,
Lessee shall, as necessary and at its expense, install, affix or assemble or
place on any parcels of the Land or in any of the Leased Improvements, any items
of Lessee's Personal Property and replacements thereof which shall be the
property of and owned by Lessee. Except as provided in Sections 6.3 and 16.10,
Lessor shall have no rights to Lessee's Personal Property. Lessee shall provide
and maintain during the entire Term all Personal Property necessary in order to
operate the Facility in compliance with all licensure and certification
requirements, all Legal Requirements and all Insurance Requirements and
otherwise in accordance with customary practice in the industry for the Primary
Intended Use.
6.3 Transfer of Personal Property and Capital Additions to
LessorTransfer of Personal Property and Capital Additions to Lessor. Upon the
expiration or earlier termination of this Lease, all Capital Additions not owned
by Lessor and Lessee's Personal Property shall become the property of Lessor,
free of any encumbrance and Lessee shall execute all documents and take any
other actions reasonably necessary to evidence such ownership and discharge any
encumbrance thereon; provided, however, that subject to Section 6.4 below,
Lessee shall be entitled to remove all Removable Personal Property from the
Leased Property at the end of the Term so long as Lessee repairs any damage to
the Leased Property caused by such removal.
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6.4 Option to Purchase Removable Personal Property.
Notwithstanding anything to the contrary in this Lease, Lessor shall have the
option, exercisable by written notice to the Lessee, not less than thirty (30)
days prior to the end of the Term or within thirty (30) days after the earlier
termination of this Lease, to purchase all or any portion of the Removable
Personal Property at the then book value of each item of Removable Property as
reflected on Lessee's books and records maintained in accordance with GAAP, or
if no book value, then for an amount equal to the then unamortized original cost
thereof. Such amortization rate, if applicable, shall be in accordance with the
useful life of the particular item of Removable Personal Property as reasonably
determined by Lessee in accordance with GAAP. Upon payment of the purchase price
therefor, Lessee shall convey the Removable Personal Property free of any
encumbrance and shall execute all documents and take any other actions
reasonably necessary to evidence the transfer and conveyance of ownership of the
Removable Personal Property to Lessor and the discharge of any encumbrance
thereon.
ARTICLE VII.
------------
7.1 Condition of the Leased Property. Lessee acknowledges
receipt and delivery of possession of the Leased Property and that Lessee has
examined and otherwise has knowledge of the condition of the Leased Property
prior to the execution and delivery of this Lease and has found the same to be
in good order and repair, free from Hazardous Substances not in compliance with
Legal Requirements, and satisfactory for its purposes hereunder. Regardless,
however, of any examination or inspection made by Lessee and whether or not any
patent or latent defect or condition was revealed or discovered thereby, Lessee
is leasing the Leased Property "AS IS" in its present condition. Lessee waives
any claim or action against Lessor in respect of the condition of the Leased
Property including any defects or adverse conditions not discovered or otherwise
known by Lessee as of the date hereof. LESSOR MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY
PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY
PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO THE NATURE OR QUALITY OF THE
MATERIAL OR WORKMANSHIP THEREIN, OR THE EXISTENCE OF ANY HAZARDOUS SUBSTANCE, IT
BEING AGREED THAT ALL SUCH RISKS, LATENT OR PATENT, ARISING FROM EVENTS,
CONDITIONS OR CIRCUMSTANCES OCCURRING PRIOR TO OR DURING THE TERM ARE TO BE
BORNE SOLELY BY LESSEE INCLUDING ALL RESPONSIBILITY AND LIABILITY FOR ANY
ENVIRONMENTAL REMEDIATION AND COMPLIANCE WITH ALL ENVIRONMENTAL LAWS.
7.2 Use of the Leased Property
7.2.1 Lessee covenants that it will obtain and
maintain all authorizations and approvals needed to use and operate the Leased
Property and the Facility for the Primary Intended Use in accordance with Legal
Requirements including applicable licenses, provider agreements, permits, and
Medicare and/or Medicaid certification.
7.2.2 Lessee shall use or cause to be used the Leased
Property and the improvements thereon for its Primary Intended Use. Except as
otherwise set forth in the definition of Primary Intended Use, Lessee shall not
use the Leased Property or any portion thereof or any Capital Addition thereto
for any other use without the prior written consent of Lessor, which consent
Lessor may withhold in its sole discretion.
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7.2.3 Except as a result of (a) damage, destruction
or Condemnation and such reasonable period of time to effect repairs
necessitated thereby, or (b) any other occurrence of the nature and type of an
Unavoidable Delay, Lessee shall operate continuously the entire Leased Property
and all Capital Additions thereto in accordance with its Primary Intended Use.
Lessee shall devote the entire Facility and all Capital Additions thereto to the
Primary Intended Use, except for areas reasonably required for office or storage
space uses incidental to the Primary Intended Use. Lessee shall be deemed in
violation of the foregoing provision if, except for medically appropriate
reasons or as a result of (i) damage, destruction or Condemnation, or (ii) any
other occurrence of the nature and type of an Unavoidable Delay, Lessee
voluntarily transfers, in the aggregate during any twelve (12) month period, ten
percent (10%) or more of the patients or residents located in the Facility
without replacing such patients or residents within such 12-month period.
7.2.4 Subject to Legal Requirements and Insurance
Requirements, Lessee shall conduct its business at the Facility in conformity
with the standards of patient and/or resident care practice currently provided
in similar facilities in the State which are owned, operated or managed by
Lessee or any Affiliate of Lessee, or if no such other similar facilities are so
owned, operated or managed by Lessee or any Affiliate of Lessee in the State
then consistent with the current standards provided in similar facilities in
other states (such standards to be adjusted to take into account the effect of
any Legal Requirements and/or Insurance Requirements applicable in such other
states compared to those applicable in the State) which are owned, operated or
managed by Lessee or any Affiliate of Lessee.
7.2.5 Lessee shall not commit or suffer to be
committed any waste to the Leased Property or any Capital Addition thereto or
cause or permit any nuisance to be maintained thereon.
7.2.6 Lessee shall neither suffer nor permit the
Leased Property or any portion thereof or any Capital Addition thereto, or
Lessee's Personal Property, to be used in such a manner that (a) impairs
Lessor's title thereto or to any portion thereof or (b) results in a claim of
adverse use or possession, or an implied dedication of the Leased Property or
any portion thereof or any Capital Addition thereto.
7.2.7 To the extent applicable for purposes of
determining the Additional Rent payable by Lessee hereunder, for purposes of
computing Incremental Gross Revenues for any Lease Year or other period during
which Lessee is in breach or violation of any of the covenants set forth in
Sections 7.2.1 through 7.2.4 shall be deemed to be the greater of Lessee's Gross
Revenues for (i) such Lease Year or other period, or (ii) 100% of the highest
Gross Revenues for any prior Lease Year or any corresponding period of any prior
Lease Year, as applicable, as determined by Lessor.
7.3 Lessor to Grant Easements, etc. Lessor shall, from time to
time so long as no Event of Default has occurred and is continuing, at the
request of Lessee and at Lessee's cost and expense, but subject to the approval
of Lessor, which approval shall not be unreasonably withheld or delayed (i)
grant easements and other rights in the nature of easements; (ii) release
existing easements or other rights in the nature of easements which are for the
benefit of the Leased Property; (iii) dedicate or transfer unimproved portions
of the Leased Property for road, highway or other public purposes; (iv) execute
petitions to have the Leased Property annexed to any municipal corporation or
utility district; (v) execute amendments to any covenants, conditions and
restrictions affecting the Leased Property; and (vi) execute and deliver to any
Person any instrument appropriate to confirm or effect such grants, releases,
dedications and transfers to the extent of its interest in the Leased Property,
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but only upon delivery to Lessor of an Officer's Certificate stating that such
grant release, dedication, transfer, petition or amendment is not detrimental to
the proper conduct of the business of Lessee on the Leased Property and does
not, in Lessee's reasonable business judgment, materially reduce the value of
the Leased Property.
7.4 Preservation of Value and Utility of Leased Property.
Lessee acknowledges that a fair return to Lessor on its investment in the Leased
Property is dependent, in part, on the concentration on the Leased Property
during the Term of the business of Lessee and its Affiliates (i.e., the
operation of the Facility for its Primary Intended Use) in the geographical area
of the Leased Property. Lessee further acknowledges that diversion of residents
and/or patients, as applicable, from the Facility to other facilities or
institutions owned, operated or managed, whether directly or indirectly, by
Lessee or its Affiliates could have a material adverse impact on the value and
utility of the Leased Property. Accordingly, Lessor and Lessee agree as follows:
7.4.1 During the Term and for a period of two (2)
years thereafter, neither Lessee nor any of its Affiliates, directly or
indirectly, shall operate, own, manage or have any interest in or otherwise
participate in or receive revenues from any Competing Facility (whether now or
hereafter in operation), within a ten (10) mile radius from the outside boundary
of the Leased Property (the "Ten Mile Area"). By its signature hereto, Lessee
represents and warrants to Lessor that neither Lessee nor any of its Affiliates
currently has any such interest in any such Competing Facility within such Ten
Mile Area. In addition, the following shall apply:
(a) Lessee or any of its Affiliates may at
anytime directly or indirectly, operate, own, manage or have any
interest in or otherwise participate in or receive revenues from any
Competing Facility outside of a radius of fifteen (15) miles from the
outside boundary of the Leased Property.
(b) Prior to the expiration of the eighth
(8th) Lease Year of the Fixed Term, and prior to the expiration of the
third (3rd) Lease Year of each Extended Term, if any, Lessee or any of
its Affiliates may acquire and may directly or indirectly, operate,
own, manage or have an interest in or otherwise participate in or
receive revenues from any Competing Facility (whether now or hereafter
in operation) within a radius from ten (10) to fifteen (15) miles from
the outside boundary of the Leased Property (the "Ten-Fifteen Mile
Area").
(c) From and after the expiration of the
eighth (8th) Lease Year of the Fixed Term, and from and after the
expiration of the third (3rd) Lease Year of each Extended Term, if any,
if Lessee or any of its Affiliates shall acquire, directly or
indirectly, any material interest (including any controlling interest)
in any Competing Facility, including in the operation or management
thereof, within the Ten-Fifteen Mile Area, then Lessor may by written
notice to Lessee given at anytime after the date Lessee or any
Affiliate of Lessee acquires the same, extend the then Term of this
Lease for the next subsequent Extended Term (i.e., ten (10) Lease
Years). In such event, the applicable Extended Term shall be upon all
the terms and conditions as provided for in Article XIX as though
Lessee was entitled to and had exercised the same; provided, however,
that in no event shall (i) the Term of this Lease be extended beyond
the second Extended Term pursuant to this subsection (c) or (ii) an
extension of the Term of this Lease for any such Extended Term pursuant
to this subsection (c) extend the "Term" of any other Facility Group
Lease. The provisions of this subsection (c) (i.e., Lessor's right to
extend the Term) shall not apply with respect to any Competing
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Facility which is operated, managed or owned by Lessee or any Affiliate
of Lessee prior to the expiration of the eighth (8th) Lease Year of the
Fixed Term, or the third (3rd) Lease Year of any Extended Term, as
applicable.
(d) Without limiting Lessor's rights as provided in
subsection (c) above, during the Term (including the Extended Terms, if
any) Lessor shall have a first refusal to finance (and/or refinance)
any Competing Facility now or hereafter owned or proposed to be owned,
directly or indirectly, by Lessee or any Affiliate of Lessee within the
Ten-Fifteen Mile Area upon the same terms and conditions of any
financing (or refinancing) from any third party which Lessee or any
Affiliate of Lessee intends to accept (or has accepted subject to
Lessor's right of first refusal herein), including any financing
(and/or refinancing) of such Competing Facility together with any other
facilities owned or proposed to be owned, directly or indirectly, by
Lessee or any Affiliate of Lessee (whether or not such other facilities
are located within the Ten-Fifteen Mile Area). If, during the Term
(including the Extended Terms, if any), Lessee or any Affiliate of
Lessee reaches such agreement or a tentative agreement with respect to
the terms and conditions of any such third party financing (or
refinancing) for any such Competing Facility within the Ten-Fifteen
Mile Area (whether by itself or with one or more other facilities),
Lessee shall promptly notify Lessor of the material terms thereof,
including the principal balance, purchase price, interest, lease rate,
amortization rate or term, as applicable. Lessor shall have fifteen
(15) days after receipt of such notice from Lessee within which to
exercise Lessor's right of first refusal and agree to provide such
financing (or refinancing) upon the same material terms as described in
the notice to Lessor, which agreement shall include, if applicable,
Lessor's agreement to provide such financing or refinancing with
respect to any such other facilities which are included in the same
financing (or refinancing) package with such Competing Facility within
the Ten-Fifteen Mile Area. If Lessor shall not exercise Lessor's right
of first refusal within said fifteen (15) day period and within the
manner herein provided, Lessee shall be free for a period of one (1)
year after the expiration of said fifteen (15) day period to obtain
financing (or refinancing) with respect to such Competing Facility
within the Ten-Fifteen Mile Area (and any such other facilities
described in such notice to Lessor) from any third party upon terms no
less favorable than those so offered to Lessor. If such financing (or
refinancing) is not consummated, Lessor's right of first refusal as
provided in this subsection (d) with respect to any such Competing
Facility shall be re-instituted, as to any subsequent proposed
financing (or refinancing) of the same by Lessee or any Affiliate of
Lessee. As used in this subsection (d), "financing (or refinancing)"
shall mean and include a loan (including a loan secured by the real
estate and other collateral of a Competing Facility) and any
sale-leaseback or similar transaction. Notwithstanding anything to the
contrary in this subsection (d), Lessor shall not have a right of first
refusal with respect to (i) any seller/transferor take-back financing
provided to Lessee or an Affiliate of Lessee in connection with the
acquisition of a Competing Facility within the Ten-Fifteen Mile Area,
so long as such take-back financing was required by such
seller/transferor as a condition to such acquisition, (ii) the
assumption by Lessee or any Affiliate of Lessee of any financing
encumbering a Competing Facility within the Ten-Fifteen Mile Area which
financing existed prior to the date of acquisition of such Competing
Facility by Lessee or any Affiliate of Lessee or (iii) any financing
(or refinancing) of any non-competing facilities or Competing
Facilities located outside of the Ten-Fifteen Mile Area which are owned
or proposed to be owned by Lessee or an Affiliate of Lessee, unless
such facilities (or some of them) are included in a proposed financing
(and/or refinancing) package with a Competing Facility within the
Ten-Fifteen Mile Area as to which Lessor has a right of first refusal
hereunder.
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All distances provided for in this Section 7.4.1 shall be measured on a straight
line rather than driving distance basis. In the event that any portion of a
Competing Facility is located within the Ten Mile Area or the Ten-Fifteen Mile
Area, as the case may be, then the entire Competing Facility shall be deemed
located within such area.
7.4.2 For a period of one (1) year following the
Term, neither Lessee nor any of its Affiliates shall, without the prior written
consent of Lessor, which consent may be given or withheld in Lessor's sole
discretion, hire, engage or otherwise employ any management or supervisory
personnel working on or in connection with the Leased Property.
7.4.3 Except for medically appropriate reasons or as
a result of damage, destruction or Condemnation, prior to and for a period of
two (2) years after the expiration or earlier termination of this Lease, Lessee
shall not recommend or actively solicit (e.g., through direct mailers, telephone
solicitation or other forms of communication directed at patients or residents
of the Facility or their relatives) the removal or transfer of any resident or
patient from the Leased Property to any other Competing Facility owned, operated
or managed by Lessee or any Affiliate of Lessee or in which Lessee or any
Affiliate of Lessee has an interest (financial or otherwise).
ARTICLE VIII.
-------------
8. Compliance with Legal and Insurance Requirements,
Instruments, etc. Subject to Article XII regarding permitted contests, and
without limiting the specific provisions of Article XXXVII below, Lessee, at its
expense, shall promptly (i) comply with all Legal Requirements and Insurance
Requirements regarding the use, operation, maintenance, repair and restoration
of the Leased Property, Lessee's Personal Property and all Capital Additions
whether or not compliance therewith may require structural changes in any of the
Leased Improvements or Capital Additions thereto or interfere with the use and
enjoyment of the Leased Property and (ii) procure, maintain and comply with all
licenses, certificates of need, provider agreements and other authorizations
required for the use of the Leased Property, Lessee's Personal Property and all
Capital Additions for the Primary Intended Use and any other use of the Leased
Property, Lessee's Personal Property and all Capital Additions then being made,
and for the proper erection, installation, operation and maintenance of the
Leased Property, Lessee's Personal Property and all Capital Additions. Lessor
may, but shall not be obligated to, enter upon the Leased Property and all
Capital Additions thereto and take such actions and incur such costs and
expenses to effect such compliance as it deems advisable to protect its interest
in the Leased Property and Capital Additions thereto, and Lessee shall reimburse
Lessor for all costs and expenses incurred by Lessor in connection with such
actions. Lessee covenants and agrees that the Leased Property, Lessee's Personal
Property and all Capital Additions shall not be used for any unlawful purpose.
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ARTICLE IX.
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9.1 Maintenance and Repair
9.1.1 Lessee, at its expense, shall maintain the
Leased Property, and every portion thereof, Lessee's Personal Property (other
than the Removable Personal Property) and all Capital Additions, and all private
roadways, sidewalks and curbs appurtenant to the Leased Property, and which are
under Lessee's control in good order and repair whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of the Leased Property, Lessee's Personal Property and all Capital
Additions, and, with reasonable promptness, make all necessary and appropriate
repairs thereto of every kind and nature, including those necessary to comply
with changes in any Legal Requirements, whether interior or exterior, structural
or non-structural, ordinary or extraordinary, foreseen or unforeseen or arising
by reason of a condition existing prior to the Commencement Date. Lessee, at its
expense, shall maintain all Removable Personal Property in a safe condition. All
repairs shall be at least equivalent in quality to the original work. Lessee
will not take or omit to take any action the taking or omission of which might
materially impair the value of the Leased Property or the ability to use the
Leased Property or any part thereof or any Capital Addition thereto for its
Primary Intended Use.
9.1.2 Lessor shall not under any circumstances be
required to (i) build or rebuild any improvements on the Leased Property; (ii)
make any repairs, replacements, alterations, restorations or renewals of any
nature to the Leased Property, whether ordinary or extraordinary, structural or
non-structural, foreseen or unforeseen, or to make any expenditure whatsoever
with respect thereto, unless the need therefor was caused by the gross
negligence or willful misconduct of Lessor, its employees, agents or
contractors; or (iii) maintain the Leased Property in any way. Lessee hereby
waives, to the extent permitted by law, the right to make repairs at the expense
of Lessor pursuant to any law in effect at the time of the execution of this
Lease or hereafter enacted.
9.1.3 Nothing contained in this Lease and no action
or inaction by Lessor shall be construed as (i) constituting the consent or
request of Lessor, expressed or implied, to any contractor, subcontractor,
laborer, materialman or vendor to or for the performance of any labor or
services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to the Leased
Property or any part thereof or any Capital Addition thereto; or (ii) giving
Lessee any right, power or permission to contract for or permit the performance
of any labor or services or the furnishing of any materials or other property in
such fashion as would permit the making of any claim against Lessor in respect
therefor or create any right, title, interest, lien, claim or other encumbrance
upon the estate of Lessor in the Leased Property, or any portion thereof or any
Capital Addition thereto.
9.1.4 Unless Lessor shall convey any of the Leased
Property to Lessee pursuant to the provisions of this Lease, Lessee shall, upon
the expiration or earlier termination of the Term, vacate and surrender the
Leased Property, Lessee's Personal Property (other than the Removable Personal
Property) and all Capital Additions to Lessor in the condition in which the
Leased Property was originally received from Lessor and Lessee's Personal
Property and Capital Additions were originally introduced to the Facility,
except as repaired, rebuilt, restored, altered or added to as permitted or
required by the provisions of this Lease and except for ordinary wear and tear.
9.2 Encroachments, Restrictions, Mineral Leases, etc. If any
of the Leased
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Improvements or Capital Additions shall, at any time, encroach upon any
property, street or right-of-way, or shall violate any restrictive covenant or
other agreement affecting the Leased Property, or any part thereof or any
Capital Addition thereto, or shall impair the rights of others under any
easement or right-of-way to which the Leased Property is subject, or the use of
the Leased Property or any Capital Addition thereto is impaired, limited or
interfered with by reason of the exercise of the right of surface entry or any
other provision of a lease or reservation of any oil, gas, water or other
minerals, then promptly upon the request of Lessor or any Person affected by any
such encroachment, violation or impairment, Lessee, at its sole cost and
expense, but subject to its right to contest the existence of any such
encroachment, violation or impairment, shall protect, indemnify, save harmless
and defend Lessor from and against all losses, liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including reasonable
attorneys', consultants' and experts' fees and expenses) based on or arising by
reason of any such encroachment, violation or impairment. In the event of an
adverse final determination with respect to any such encroachment, violation or
impairment, Lessee shall either (i) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, whether the same shall affect Lessor or
Lessee; or (ii) make such changes in the Leased Improvements and any Capital
Addition thereto, and take such other actions, as Lessee in the good faith
exercise of its judgment deems reasonably practicable, to remove such
encroachment or to end such violation or impairment, including, if necessary,
the alteration of any of the Leased Improvements or any Capital Addition
thereto, and in any event take all such actions as may be necessary in order to
be able to continue the operation of the Leased Improvements and any Capital
Addition thereto for the Primary Intended Use substantially in the manner and to
the extent the Leased Improvements and Capital Additions were operated prior to
the assertion of such encroachment, violation or impairment. Lessee's
obligations under this Section 9.2 shall be in addition to and shall in no way
discharge or diminish any obligation of any insurer under any policy of title or
other insurance and, to the extent the recovery thereof is not necessary to
compensate Lessor for any damages incurred by any such encroachment, violation
or impairment, Lessee shall be entitled to a credit for any sums recovered by
Lessor under any such policy of title or other insurance.
9.3 Repairs to be Performed by Lessee. Lessee shall, at its
own expense, on or before June 1, 1997, perform certain deferred maintenance and
repairs to the Facility based on the recommendations of Barge, Waggoner, Sumner
and Cannon, Inc. as described in the Building Condition Evaluation Report dated
February 25, 1997 (the "Building Report") and summarized as follows:
(a) Site:
----
(i) Remove and replace concrete parking
lot/drives where severely cracked -- approximately 4,500
square feet of concrete.
(ii) Provide parking lot striping at the
front and rear of the Facility.
(iii) Provide erosion control and drainage
improvements to the two (2) designated areas specified in the
Building Report.
(b) Building Exterior:
(i) Provide maintenance/painting of
foundations, window frames, porches, steps and handrails.
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(ii) Provide termite inspection and
treatment.
(c) Building Interior:
(i) Provide repairs or replacement to
skylight and to water damaged ceiling in apartment.
(d) ADA Compliance:
(i) Install compliant signage and faucet for
the existing public toilet.
(ii) Install compliant panic hardware at
fire doors.
Upon completion of the aforementioned deferred maintenance and
repairs, Lessee shall provide to Lessor copies of all invoices, work orders,
contracts, receipts, cancelled checks (front and back), an Officer's Certificate
and other documentation reasonably requested by Lessor to show that such work
was completed.
ARTICLE X.
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Construction of Capital Additions to the Leased Property. Without the prior
written consent of Lessor which consent may be withheld or granted by Lessor in
its sole and absolute discretion, Lessee shall (a) make no Capital Additions on
or structural alterations to the Leased Property and (b) not enlarge or reduce
the size of the Facility or otherwise alter or affect any main Facility systems,
including any main plumbing, electrical or heating, ventilating and air
conditioning systems of the Facility; provided, however, that Lessor hereby
agrees not to unreasonably withhold its consent to any Capital Additions or
structural alterations to the Leased Property which, for any single project,
costs less than $100,000, or when aggregated with all other projects (other than
the Capital Addition Project described in Section 10.3 below) during the Term,
costs less than $200,000.
General Requirements for all Approved Capital Additions. For all Capital
Additions which Lessee desires to make and which Lessor has approved pursuant to
Section 10.1 above or 10.3 below, the following shall apply:
(a) Such construction shall not commence until Lessee
has delivered to Lessor and Lessor has approved detailed plans and
specifications in form acceptable to Lessor with respect to such Capital
Addition. There shall be no changes to any such plans and specifications once
approved by Lessor without Lessor's written consent.
(b) Such construction shall not commence to and until
Lessee has delivered to Lessor and Lessor has approved a detailed budget of all
costs projected to be incurred in connection with the planning, permitting and
construction of the Capital Addition, including an allowance for costs to be
incurred by Lessor in connection with its review, approval and monitoring of the
project. Such allowance shall be paid to Lessor as an Additional Charge
hereunder or, in connection with the Capital Additions Project described in
Section 10.3 below, accrued by Lessor and deemed part of the Capital Additions
Costs funded by Lessor.
(c) Such construction shall not commence until Lessee
has procured and paid for all municipal and other governmental permits and
authorizations required
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therefor. Lessor shall join in the application for any such permits or
authorizations whenever such action is necessary; provided, however, that (i)
any such joinder shall be at no cost or expense to Lessor (except as provided in
Section 10.3); and (ii) any plans and specifications required to be filed in
connection with any such application shall have been approved by Lessor.
(d) Lessee shall have procured or caused to be
procured a payment and performance bond for the full value of such construction,
which bond shall name Lessor as an additional obligee and otherwise be in form
and substance and issued by a Person reasonably satisfactory to Lessor.
(e) Such construction shall not, and a licensed
architect or engineer selected by Lessee and approved by Lessor, shall certify
to Lessor that such construction shall not, impair the structural strength of
any component of the Facility or overburden the main electrical, water,
plumbing, HVAC or other building systems of the Facility or any component
thereof.
(f) Lessee's licensed architect or engineer approved
by Lessor shall certify to Lessor that the detailed plans and specifications
conform to and comply with all applicable building, subdivision and zoning
codes, laws, ordinances, regulations and other Legal Requirements imposed by all
governmental authorities having jurisdiction over the Leased Property, all
Insurance Requirements and all private covenants, conditions and restrictions
affecting all or any portion of the Leased Property.
(g) Such construction shall, when completed, be of
such a character as not to decrease the value or utility of the Leased Property
as it was immediately before such Capital Addition.
(h) During and following completion of such
construction, the parking which is located at the Facility or on the Land shall
remain adequate for the operation of the Facility for its Primary Intended Use
and in no event shall such parking be less than that (i) which was or is
required by all Legal Requirements or (ii) which was located at the Facility or
on the Land prior to such construction.
(i) All work done in connection with such
construction shall be done promptly and in a good and workmanlike manner using
first-class materials and in conformity with all Legal Requirements.
(j) Promptly following the completion of such
construction, Lessee shall deliver to Lessor "as built" drawings of such
addition, certified as accurate by the licensed architect or engineer selected
by Lessee and approved by Lessor to supervise such work.
(k) If by reason of the construction of any such
Capital Addition a new Certificate of Occupancy for any component of the
Facility is required, Lessee shall obtain and furnish a copy of the same to
Lessor promptly upon completion of the Capital Addition.
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10.3 Funding of Capital Addition Project. Capital Addition
Project
10.3.1 Provided that no Event of Default exists and
no event or condition exists which with notice and/or passage of time would
constitute an Event of Default, Lessor shall fund (or accrue, as applicable) an
amount not to exceed $275,000.00 for the "Capital Addition Project"; provided,
however, that groundbreaking for such Capital Addition Project commences within
180 days of the Commencement Date and provided further that Lessor shall not be
required to fund any advance requested after the expiration of the 545th day
following the Commencement Date. As used herein, the term "Capital Addition
Project" shall mean at a minimum the construction of not less than ten (10) new
resident/patient units to the Facility and may include such other improvements
to the Facility as Lessee may propose subject to Lessor's approval as provided
in Section 10.1 above. The modification to the Minimum Rent attributable to any
funds advanced or accrued by Lessor on account of the Capital Addition Project
shall be as set forth in Article III.
10.3.2 Lessor shall advance the funds agreed to be
funded by Lessor pursuant to Section 10.3.1 upon completion of the entire
Capital Addition Project and Lessor's receipt of the following:
(a) Any information, certificates, licenses, permits
or documents requested by Lessor which are necessary to confirm that Lessee will
be able to use the Capital Addition Project upon completion thereof in
accordance with the Primary Intended Use, including all required federal, state
or local government licenses and approvals;
(b) An Officer's Certificate and, if requested, a
certificate from Lessee's licensed architect or engineer approved by Lessor,
setting forth in reasonable detail the actual costs for the Capital Addition
Project;
(c) A deed conveying title to Lessor to any land
acquired for the purpose of constructing the Capital Addition Project free and
clear of any liens or encumbrances except those approved by Lessor, and
accompanied by a final as-built survey thereof satisfactory to Lessor;
(d) Endorsements to any then existing policy of title
insurance covering the Leased Property or commitments therefor satisfactory in
form and substance to Lessor updating the same without any additional exception
except as may be approved by Lessor;
(e) If appropriate, a new owner's policy of title
insurance insuring fee simple title to any land conveyed to Lessor free and
clear of all liens and encumbrances except as may be approved by Lessor;
(f) If requested by Lessor, a M.A.I. appraisal of the
Leased Property indicating that the value of the Leased Property upon completion
of the Capital Addition Project will exceed the Fair Market Value of the Leased
Property immediately prior thereto by an amount not less than ninety-five
percent (95%) of the total cost of the Capital Addition Project; and
(g) Such other billing statements, invoices,
certificates, endorsements, opinions, site assessments, surveys, resolutions,
ratifications, lien releases and waivers and other instruments and information
reasonably required by Lessor.
Notwithstanding the foregoing, upon Lessor's receipt and approval of the
detailed budget for
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the Capital Addition Project as provided in Section 10.2(b) above, Lessor may,
in its sole discretion and at the request of Lessee, agree to fund the Capital
Addition Project based upon periodic disbursements, but in no event more
frequently than once per month. In such event, such periodic disbursements shall
be made on such basis as Lessor and Lessee may agree, provided that prior to any
such disbursement Lessor shall receive, to the extent applicable, the items
described in subparagraphs (a) through (g) above with respect to each such
disbursement.
ARTICLE XI.
-----------
11. Liens. Subject to the provisions of Article XII relating
to permitted contests, Lessee will not directly or indirectly create or allow to
remain and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon the Leased Property or any
Capital Addition thereto or any attachment, levy, claim or encumbrance in
respect of the Rent, excluding, however, (i) this Lease; (ii) the matters that
existed as of the Commencement Date; (iii) restrictions, liens and other
encumbrances which are consented to in writing by Lessor, or any easements
granted pursuant to the provisions of Section 7.3; (iv) liens for Impositions
which Lessee is not required to pay hereunder; (v) subleases permitted by
Article XXIV; (vi) liens for Impositions not yet delinquent; (vii) liens of
mechanics, laborers, materialmen, suppliers or vendors for amounts not yet due;
and (viii) any liens which are the responsibility of Lessor pursuant to the
provisions of Article XXXVI.
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ARTICLE XII.
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12. Permitted Contests. Lessee, upon prior written notice to
Lessor, on its own or in Lessor's name, at Lessee's expense, may contest, by
appropriate legal proceedings conducted in good faith and with due diligence,
the amount, validity or application, in whole or in part, of any licensure or
certification decision, Imposition, Legal Requirement, Insurance Requirement,
lien, attachment, levy, encumbrance, charge or claim; subject, however, to the
further requirement that (i) in the case of an unpaid Imposition, lien,
attachment, levy, encumbrance, charge or claim, the commencement and
continuation of such proceedings shall suspend the collection thereof from
Lessor and from the Leased Property or any Capital Addition thereto; (ii)
neither the Leased Property or any Capital Addition thereto, the Rent therefrom
nor any part or interest in either thereof would be in any danger of being sold,
forfeited, attached or lost pending the outcome of such proceedings; (iii) in
the case of a Legal Requirement, neither Lessor nor Lessee would be in any
danger of civil or criminal liability for failure to comply therewith pending
the outcome of such proceedings; (iv) if any such contest shall involve a sum of
money or potential loss in excess of Fifty Thousand Dollars ($50,000), Lessee
shall deliver to Lessor and its counsel an opinion of legal counsel reasonably
acceptable to Lessor to the effect set forth in clauses (i), (ii) and (iii)
above, to the extent applicable; (v) in the case of a Legal Requirement,
Imposition, lien, encumbrance or charge, Lessee shall give such reasonable
security as may be reasonably required by Lessor to insure ultimate payment of
the same and to prevent any sale or forfeiture of the Leased Property or any
Capital Addition thereto or the Rent by reason of such non-payment or
noncompliance; and (vi) in the case of an Insurance Requirement, the coverage
required by Article XIII shall be maintained. If any such contest be finally
resolved against Lessor or Lessee, Lessee shall promptly pay the amount required
to be paid, together with all interest and penalties accrued thereon, or comply
with the applicable Legal Requirement or Insurance Requirement. Lessor, at
Lessee's expense, shall execute and deliver to Lessee such authorizations and
other documents as may reasonably be required in any such contest, and, if
reasonably requested by Lessee or if Lessor so desires, Lessor shall join as a
party therein. The provisions of this Article XII shall not be construed to
permit Lessee to contest the payment of Rent or any other amount payable by
Lessee to Lessor hereunder. Lessee shall indemnify, defend, protect and save
Lessor harmless from and against any liability, cost or expense of any kind that
may be imposed upon Lessor in connection with any such contest and any loss
resulting therefrom.
ARTICLE XIII.
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13.1 General Insurance Requirements. During the Term, Lessee
shall at all times keep the Leased Property, and all property located in or on
the Leased Property, including Capital Additions, the Fixtures and the Personal
Property, insured with the kinds and amounts of insurance described below. This
insurance shall be written by companies authorized to do insurance business in
the State in which the Leased Property is located. All liability type policies
must name Lessor as an "additional insured." All property, loss of rental and
business interruption type policies shall name Lessor as "loss payee." Losses
shall be payable to Lessor and/or Lessee as provided in Article XIV. In
addition, the policies, as appropriate, shall name as an "additional insured" or
"loss payee" the holder of any mortgage, deed of trust or other security
agreement ("Facility Mortgagee") securing any indebtedness or any other
Encumbrance placed on the Leased Property in accordance with the provisions of
Article XXXVI ("Facility Mortgage") by way of a standard form of mortgagee's
loss payable endorsement. Any loss adjustment shall require the written consent
of Lessor, Lessee, and each Facility Mortgagee. Evidence of insurance shall be
deposited with Lessor and, if requested, with any Facility Mortgagee(s). The
policies shall insure against the following risks:
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13.1.1 Loss or damage by fire, vandalism and
malicious mischief, extended coverage perils commonly known as special form
perils, earthquake (including earth movement), sinkhole and windstorm in an
amount not less than the insurable value on a replacement cost basis (as defined
below in Section 13.2) and including a building ordinance coverage endorsement;
13.1.2 Loss or damage by explosion of steam boilers,
pressure vessels or similar apparatus, now or hereafter installed in the
Facility, in such limits with respect to any one accident as may be reasonably
requested by Lessor from time to time;
13.1.3 Flood (when the Leased Property is located in
whole or in part within a designated 100-year flood plain area) and such other
hazards and in such amounts as may be customary for comparable properties in the
area;
13.1.4 Loss of rental value in an amount not less
than twelve (12) months' Rent payable hereunder or business interruption in an
amount not less than twelve (12) months of income and normal operating expenses
including payroll and Rent payable hereunder with an endorsement extending the
period of indemnity by at least ninety (90) days (Building Ordinance - Increased
Period of Restoration Endorsement) necessitated by the occurrence of any of the
hazards described in Sections 13.1.1, 13.1.2 or 13.1.3;
13.1.5 Claims for bodily injury or property damage
under a policy of commercial general liability insurance with amounts not less
than One Million and No/100 Dollars ($1,000,000.00) combined single limit and
Three Million No/100 Dollars ($3,000,000.00) in the annual aggregate; and
13.1.6 Medical professional liability with amounts
not less than One Million Dollars ($1,000,000) combined single limit and Three
Million Dollars ($3,000,000) in the annual aggregate.
13.2 Replacement Cost. The term "replacement cost" shall mean
the actual replacement cost of the insured property from time to time with new
materials and workmanship of like kind and quality. If either party believes
that the replacement cost has increased or decreased at any time during the
Term, it shall have the right to have such replacement cost redetermined by an
impartial national insurance company reasonably acceptable to both parties (the
"impartial appraiser"); provided, however, that in no event shall such
redetermination occur more frequently than one time every three (3) Lease Years
without the mutual consent of the parties. The party desiring to have the
replacement cost so redetermined shall forthwith, on receipt of such
determination by the impartial appraiser, give written notice thereof to the
other party hereto. The determination of the impartial appraiser shall be final
and binding on the parties hereto, and Lessee shall forthwith increase or
decrease the amount of the insurance carried pursuant to this Article to the
amount so determined by the impartial appraiser. Each party shall pay one-half
(1/2) of the fee, if any, of the impartial appraiser. If Lessee has made
improvements to the Leased Property, Lessor may at Lessee's expense have the
replacement cost redetermined at any time after such improvements are made,
regardless of when the replacement cost was last determined.
13.3 Additional Insurance. In addition to the insurance
described above, Lessee shall maintain such additional insurance as may be
reasonably required from time to time by any Facility Mortgagee and shall
further at all times maintain adequate workers' compensation coverage and any
other coverage required by Legal Requirements for all Persons employed by Lessee
on the Leased Property and any Capital Addition thereto in accordance with Legal
Requirements.
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13.4 Waiver of Subrogation. All insurance policies carried by
either party covering the Leased Property and any Capital Addition thereto and
Lessee's Personal Property including contents, fire and casualty insurance,
shall expressly waive any right of subrogation on the part of the insurer
against the other party. Each party waives any claims it has against the other
party to the extent such claim is covered by insurance.
13.5 Policy Requirements. All of the policies of insurance
referred to in this Article shall be written in form reasonably satisfactory to
Lessor and by insurance companies with a policyholder rating of "A" and a
financial rating of "X" in the most recent version of Best's Key Rating Guide.
Lessee shall pay all of the premiums therefor as and when due (whether in
installments or otherwise), and deliver such policies or certificates thereof to
Lessor prior to their effective date (and with respect to any renewal policy, at
least thirty (30) days prior to the expiration of the existing policy), and in
the event of the failure of Lessee either to effect such insurance in the names
herein called for or to pay the premiums therefor as and when due, or to deliver
such policies or certificates thereof to Lessor, at the times required, Lessor
shall be entitled, but shall have no obligation, to effect such insurance and
pay the premiums therefor, in which event the cost thereof, together with
interest thereon at the Overdue Rate, shall be repayable to Lessor upon demand
therefor. Each insurer shall agree, by endorsement on the policy or policies
issued by it, or by independent instrument furnished to Lessor, that it will
give to Lessor thirty (30) days' written notice before the policy or policies in
question shall be altered, allowed to expire or cancelled. Each policy shall
have a deductible or deductibles, if any, which are no greater than those
normally maintained for similar facilities in the State.
13.6 Increase in Limits. If either party shall at any time
believe the limits of the insurance required hereunder to be either excessive or
insufficient, the parties shall endeavor to agree in writing on the proper and
reasonable limits for such insurance to be carried and such insurance shall
thereafter be carried with the limits thus agreed on until further change
pursuant to the provisions of this Section; provided, however, that such changes
shall not occur more frequently than one time per Lease Year without the mutual
consent of the parties. If the parties shall be unable to agree thereon, the
proper and reasonable limits for such insurance to be carried shall be
determined by an impartial third party reasonably selected by Lessor. Nothing
herein shall permit the amount of insurance to be reduced below the amount or
amounts required by any of the Facility Mortgagee.
13.7 Blanket Policies and Policies Covering Multiple
Locations. Notwithstanding anything to the contrary contained in this Article,
Lessee's obligations to carry the casualty insurance provided for herein may be
brought within the coverage of a blanket policy or policies of insurance carried
and maintained by Lessee or its Affiliate; provided, however, that the coverage
afforded Lessor will not be reduced or diminished or otherwise be different from
that which would exist under a separate policy meeting all other requirements of
this Lease by reason of the use of such blanket policy of insurance, and
provided further that the requirements of this Article XIII are otherwise
satisfied. For any liability policies covering facilities in addition to the
Leased Property, Lessor may require excess limits as Lessor reasonably
determines.
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13.8 No Separate Insurance. Lessee shall not, on Lessee's own
initiative or pursuant to the request or requirement of any third party, (i)
take out separate insurance concurrent in form or contributing in the event of
loss with that required in this Article to be furnished by, or which may
reasonably be required to be furnished by, Lessee or (ii) increase the amounts
of any then existing insurance by securing an additional policy or additional
policies, unless all parties having an insurable interest in the subject matter
of the insurance as to which Lessee has notice or actual knowledge, including in
all cases Lessor and all Facility Mortgagees, are included therein as additional
insured and the loss is payable under such insurance in the same manner as
losses are payable under this Lease. Lessee shall immediately notify Lessor of
the taking out of any such separate insurance or of the increasing of any of the
amounts of the then existing insurance by securing an additional policy or
additional policies.
ARTICLE XIV.
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14.1 Insurance Proceeds. All proceeds payable by reason of any
loss or damage to the Leased Property, or any portion thereof, under any policy
of insurance required to be carried hereunder shall be paid to Lessor and made
available, subject to reasonable conditions and requirements, by Lessor to
Lessee from time to time upon request of Lessee as work progresses, for the
reasonable costs of reconstruction or repair, as the case may be, of any damage
to or destruction of the Leased Property, or any portion thereof; provided,
however, that so long as no Event of Default has occurred hereunder, if the
proceeds of any such insurance are less than $50,000.00, then Lessee shall be
entitled to receive such proceeds directly from the insurer. Any excess proceeds
of insurance remaining after the completion of the restoration or reconstruction
of the Leased Property (or in the event neither Lessor nor Lessee is required or
elects to repair and restore, all such insurance proceeds) shall be retained by
or paid over to Lessor, as the case may be, except as otherwise specifically
provided below in this Article XIV. All salvage resulting from any risk covered
by insurance shall belong to Lessor. In the event of any insured casualty,
Lessee's obligation to commence reconstruction or repair of the Leased Property
as provided herein, if applicable, shall accrue upon the earlier of (i) the date
of settlement of any insurance claim with respect to such casualty and (ii) one
hundred twenty (120) days following the date of such casualty. In the event of
an uninsured casualty, Lessee's obligation to commence restoration or repair of
the Leased Property as provided herein, if applicable, shall accrue ten (10)
days following the date of such casualty. Lessee shall commence any such
restoration or repair work which Lessee is required to perform hereunder
promptly after its obligation hereunder first accrues and thereafter shall
diligently prosecute such work to completion.
14.2 Insured Casualty
----------------
14.2.1 If the Leased Property is damaged or destroyed
from a risk covered by insurance carried by Lessee such that the Facility
thereby is rendered Unsuitable for its Primary Intended Use, Lessee shall either
(i) restore the Leased Property to substantially the same condition as existed
immediately before such damage or destruction in accordance with the provisions
of Section 14.1, or (ii) offer to acquire the Leased Property from Lessor for a
purchase price equal to the greater of (y) the Minimum Repurchase Price or (z)
the Fair Market Value immediately prior to such damage or destruction. If Lessor
does not accept Lessee's offer to so purchase the Leased Property, Lessee may
either withdraw such offer and proceed to restore the Leased Property in
accordance with the provisions of Section 14.1 to substantially the same
condition as existed immediately before such damage or destruction or terminate
the Lease in which event Lessor shall be entitled to retain the insurance
proceeds.
14.2.2 If the Leased Property is damaged from a risk
covered by
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insurance carried by Lessee, but the Facility is not thereby rendered Unsuitable
for its Primary Intended Use, Lessee shall restore the Leased Property to
substantially the same condition as existed immediately before such damage in
accordance with the provisions of Section 14.1. Such damage shall not terminate
this Lease; provided, however, that if Lessee cannot within a reasonable time
after diligent efforts obtain the necessary government approvals needed to
restore and operate the Facility for its Primary Intended Use, Lessee may offer
to purchase the Leased Property for a purchase price equal to the greater of the
Minimum Repurchase Price or the Fair Market Value immediately prior to such
damage. If Lessee shall make such offer and Lessor does not accept the same,
Lessee may either withdraw such offer and proceed to restore the Leased Property
to substantially the same condition as existed immediately before such damage or
destruction in accordance with the provisions of Section 14.1, or terminate the
Lease, in which event Lessor shall be entitled to retain the insurance proceeds.
14.2.3 If the cost of the repair or restoration
exceeds the amount of proceeds received by Lessor from the insurance required to
be carried hereunder, Lessee shall contribute any excess amounts needed to
restore the Facility. Such difference shall be paid by Lessee to Lessor together
with any other insurance proceeds, for application to the cost of repair and
restoration.
14.2.4 If Lessor accepts Lessee's offer to purchase
the Leased Property, this Lease shall terminate as to the Leased Property upon
payment of the purchase price and Lessor shall remit to Lessee all insurance
proceeds pertaining to the Leased Property then held by Lessor. The provisions
of Section 44.6 below shall apply with respect to any such termination of the
Lease pursuant to this Section 14.2.4.
14.3 Uninsured Casualty
------------------
(a) If the Leased Property is damaged or destroyed
from a risk not covered by insurance carried by Lessee, such that the Facility
is thereby rendered Unsuitable for its Primary Intended Use, Lessee shall either
(i) restore the Leased Property to substantially the same condition as existed
immediately prior to such damage or destruction in accordance with the
provisions of Section 14.1, or (ii) offer to acquire the Leased Property from
Lessor for a purchase price equal to the greater of (y) the Minimum Repurchase
Price or (z) the Fair Market Value immediately prior to such damage or
destruction. If Lessor does not accept Lessee's offer to so purchase the Leased
Property, which Lessor shall have the right to accept or reject in its sole and
absolute discretion, Lessee shall immediately proceed to restore the Leased
Property to substantially the same condition as existed immediately prior to
such damage or destruction in accordance with the provisions of Section 14.1.
(b) If the Leased Property is damaged from a risk not
covered by insurance carried by Lessee, but the Facility is not thereby rendered
Unsuitable for its Primary Intended Use, Lessee shall restore the Leased
Property to substantially the same condition that existed before such damage in
accordance with the provisions of Section 14.1. Such damage shall not terminate
this Lease; provided, however, that if Lessee cannot within a reasonable time
after diligent efforts obtain the necessary government approvals needed to
restore and operate the Facility for its Primary Intended Use, Lessee may offer
to purchase the Leased Property for a purchase price equal to the greater of (y)
the Minimum Repurchase Price or (z) the Fair Market Value immediately prior to
such damage. If Lessor does not accept Lessee's offer to so purchase the Leased
Property, which Lessor shall have the right to accept or reject in its sole and
absolute discretion, Lessee shall immediately proceed to restore the Leased
Property to substantially the same condition that existed immediately before
such damage or destruction in accordance with the provisions of Section 14.1.
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(c) If Lessor accepts Lessee's offer to purchase the
Leased Property pursuant to either of Sections 14.3.1 or 14.3.2, as applicable,
this Lease shall terminate as to the Leased Property upon payment of the
applicable purchase price.
14.4 No Abatement of Rent. This Lease shall remain in full
force and effect and Lessee's obligation to pay the Rent and all other charges
required by this Lease shall remain unabated during the period required for
adjusting insurance, satisfying Legal Requirements, repair and restoration.
14.5 Waiver. Lessee waives any statutory rights of termination
which may arise by reason of any damage or destruction of the Leased Property.
ARTICLE XV.
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15. Condemnation
15.1 Total Taking. If the Leased Property is totally
and permanently taken by Condemnation, this Lease shall terminate as of the day
before the Date of Taking, and the provisions of Section 44.6 below shall apply.
15.2 Partial TakingPartial Taking. If a portion of
the Leased Property is taken by Condemnation, this Lease shall remain in effect
if the Facility is not thereby rendered Unsuitable for Its Primary Intended Use,
but if the Facility is thereby rendered Unsuitable for its Primary Intended Use,
this Lease shall terminate as of the day before the Date of Taking.
15.3 RestorationRestoration. If there is a partial
taking of the Leased Property and this Lease remains in full force and effect
pursuant to Section 15.2, Lessor shall make available to Lessee the portion of
the Award necessary and specifically identified for restoration of the Leased
Property and Lessee shall accomplish all necessary restoration whether or not
the amount provided by the condemnor for restoration is sufficient.
15.4 Award-DistributionAward-Distribution. The entire
Award shall belong to and be paid to Lessor, except that, subject to the rights
of the Facility Mortgagees, Lessee shall be entitled to receive from the Award
the value of Lessee's Personal Property and any Capital Additions not funded or
accrued by Lessor and, if and to the extent such Award specifically includes
such items, lost profits value and moving expenses; provided, however, that in
any event Lessor shall receive from the Award, subject to the rights of the
Facility Mortgagees, no less than the greater of (a) the Fair Market Value prior
to the institution of the Condemnation and (b) the Minimum Repurchase Price.
15.5 Temporary TakingTemporary Taking. The taking of
the Leased Property, or any part thereof, shall constitute a taking by
Condemnation only when the use and occupancy by the taking authority has
continued for longer than 180 consecutive days. During any shorter period, which
shall be a temporary taking, all the provisions of this Lease shall remain in
full force and effect and the Award allocable to the Term shall be paid to
Lessee.
15.6 Sale Under Threat of CondemnationSale Under
Threat of Condemnation. A sale by Lessor to any Condemnor, either under threat
of Condemnation or while Condemnation proceedings are pending, shall be deemed a
Condemnation for purposes of this Lease. Lessor may, without any obligation to
Lessee, agree to sell and/or convey to any Condemnor all or any portion of the
Leased Property free from this Lease and the rights of Lessee hereunder without
first requiring that any action or proceeding be instituted or pursued to
judgment; provided, however, that no such agreement to sell and/or convey shall
affect Lessee's rights pursuant to
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Section 15.4 above.
ARTICLE XVI.
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16.1 Events of DefaultEvents of Default. Any one or more of
the following shall constitute an "Event of Default":
(a) a default shall occur under any other lease or
other agreement or instrument, including the Contract of Acquisition and any
other Facility Group Lease, with or in favor of Lessor or any Affiliate of
Lessor and made by or with Lessee or any Affiliate of Lessee where the default
is not cured within any applicable grace period set forth therein;
(b) Lessee shall fail to pay any installment of Rent
when the same becomes due and payable and such failure is not cured by Lessee
within a period of five (5) business days after notice thereof from Lessor;
provided, however, that such notice shall be in lieu of and not in addition to
any notice which under applicable law may be required in order to declare an
Event of Default;
(c) Lessee shall fail to obtain a letter of credit as
required by Article XXI;
(d) if Lessee shall fail to observe or perform any
other term, covenant or condition of this Lease and such failure is not cured by
Lessee within thirty (30) days after notice thereof from Lessor, unless such
failure cannot with due diligence be cured within a period of thirty (30) days,
in which case such failure shall not be deemed to be an Event of Default if
Lessee proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof; provided, however, that such notice
shall be in lieu of and not in addition to any notice which under applicable law
may be required in order to declare an Event of Default;
(e) Lessee or any Guarantor shall:
(i) admit in writing its inability to pay
its debts generally as they become due,
(ii) file a petition in bankruptcy or a
petition to take advantage of any insolvency act,
(iii) make an assignment for the benefit of
its creditors,
(iv) consent to the appointment of a
receiver of itself or of the whole or any substantial part of its Property, or
(v) file a petition or answer seeking
reorganization or arrangement under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any state thereof;
(f) Lessee or any Guarantor shall be adjudicated as
bankrupt or a court of competent jurisdiction shall enter an order or decree
appointing, without the consent of Lessee, a receiver of Lessee or of the whole
or substantially all of its property, or approving a petition filed against it
seeking reorganization or arrangement of Lessee under the Federal bankruptcy
laws or any other applicable law or statute of the United States of America or
any state thereof, and such judgment, order or decree shall not be vacated or
set aside or stayed
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within ninety (90) days from the date of the entry thereof;
(g) Lessee or any Guarantor shall be liquidated or
dissolved, or shall begin proceedings toward such liquidation or dissolution, or
shall, in any manner, permit the sale or divestiture of substantially all its
assets;
(h) the estate or interest of Lessee in the Leased
Property or any part thereof shall be levied upon or attached in any proceeding
and the same shall not be vacated or discharged within the later of ninety (90)
days after commencement thereof or thirty (30) days after receipt by Lessee of
notice thereof from Lessor; provided, however, that such notice shall be in lieu
of and not in addition to any notice which under applicable law may be required
in order to declare an Event of Default;
(i) any Transfer which requires Lessor's consent
occurs without Lessor's consent in accordance with the provisions of Article
XXIV and such Transfer remains in effect and is not cancelled or unwound within
thirty (30) days after written notice thereof from Lessor; provided, however,
that such notice shall be in lieu of and not in addition to any notice which
under applicable law may be required in order to declare an Event of Default;
(j) any of the representations or warranties made by
Lessee in the Contract of Acquisition during any applicable survival period
therefor or by any Guarantor in the Guaranty proves to be untrue when made in
any material respect which materially and adversely affects Lessor and which
remains uncured for thirty (30) days after written notice thereof from Lessor;
provided, however, that such notice shall be in lieu of and not in addition to
any notice which under applicable law may be required in order to declare an
Event of Default;
(k) except for medically appropriate reasons or as a
result of (i) damage, destruction or Condemnation or (ii) any other occurrence
of the nature and type of an Unavoidable Delay, any local, state or federal
agency having jurisdiction over the operation of the Facility removes, in the
aggregate during any twelve (12) month period, ten percent (10%) or more of the
patients or residents located in the Facility, unless within thirty (30) days
after notice from Lessor, Lessee shall have cured or corrected the cause or
condition which resulted in such removal and within forty-five (45) days after
such cure shall have replaced such patients or residents so removed;
(l) Lessee fails to give notice to Lessor not later
than fifteen (15) Business Days after Lessee's receipt thereof of any Class A or
equivalent fine notice from any governmental authority or officer acting on
behalf thereof relating to the Facility;
(m) Lessee fails to notify Lessor within fifteen (15)
Business Days after receipt of any notice from any governmental agency
terminating or suspending or threatening termination or suspension, of any
material license or certification relating to the Facility;
(n) Lessee fails to give notice to Lessor not later
than fifteen (15) Business Days after any notice, claim or demand from any
governmental authority or any officer acting on behalf thereof, of any violation
of any law, order, ordinance, rule or regulation with respect to the operation
of the Facility, which violation would have a material adverse effect on Lessor,
the Facility or the operation thereof for its Primary Intended Use;
(o) Lessee fails to cure or abate any Class A or
equivalent violation occurring during the Term that is claimed by any
governmental authority, or any officer acting
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on behalf thereof, of any law, order, ordinance, rule or regulation pertaining
to the operation of the Facility, and within the time permitted by such
authority for such cure or abatement, unless (i) said violation has no material
effect on Lessor, the Facility or the operation thereof for its Primary Intended
Use and Lessee thereafter diligently and in good faith proceeds to cure such
violation or (ii) Lessee is reasonably and in good faith contesting such
violation;
(p) any proceedings are instituted against Lessee by
any governmental authority which are reasonably likely to result in (i) the
revocation of any material license granted to Lessee which is necessary for the
operation of the Facility for the Primary Intended Use, or (ii) to the extent
applicable, the decertification of the Facility from participation in the
Medicare or Medicaid reimbursement program or the issuance of a stop placement
order against Lessee, and such proceedings are not vacated, set aside or stayed
within sixty (60) days after the institution thereof, but in any event prior to
the revocation of any such license and/or decertification of the Facility, as
applicable;
(q) any acceleration of any indebtedness or other
monetary obligations of (i) Lessee in the sum of $1 Million or more has occurred
or (ii) any Guarantor has occurred where the amount of such indebtedness or
obligation is in excess of the lesser of (A) $10 Million (as adjusted by the
Consumer Price Index to equate to constant 1996 dollars) and (B) Twenty-Five
Percent (25%) of the Consolidated Net Worth of such Guarantor; or
(r) any default shall occur under any guaranty of
Lessee's obligations under this Lease (including the Guaranty) where such
default is not cured within any applicable grace period set forth therein.
16.2 Certain Remedies. If an Event of Default shall have
occurred, Lessor may terminate this Lease by giving Lessee notice of such
termination and the Term shall terminate and all rights of Lessee under this
Lease shall cease. Lessor shall have all rights at law and in equity available
to Lessor as a result of any Event of Default. Lessee shall pay as Additional
Charges all costs and expenses incurred by or on behalf of Lessor, including
reasonable attorneys' fees and expenses, as a result of any Event of Default
hereunder. If an Event of Default shall have occurred and be continuing, whether
or not this Lease has been terminated pursuant to this Section 16.2, Lessee
shall, to the extent permitted by law, if required by Lessor so to do,
immediately surrender to Lessor possession of the Leased Property and any
Capital Additions thereto and quit the same and Lessor may enter upon and
repossess the Leased Property and any Capital Addition thereto by reasonable
force, summary proceedings, ejectment or otherwise, and may remove Lessee and
all other Persons and any of Lessee's Personal Property from the Leased Property
and any Capital Addition thereto.
16.3 Damages. (a) The termination of this Lease; (b) the
repossession of the Leased Property and any Capital Addition thereto; (c) the
failure of Lessor, notwithstanding reasonable good faith efforts, to relet the
Leased Property; (d) the reletting of all or any portion of the Leased Property;
or (e) the failure or inability of Lessor to collect or receive any rentals due
upon any such reletting, shall not relieve Lessee of its liabilities and
obligations hereunder, all of which shall survive any such termination,
repossession or reletting. If any such termination occurs, Lessee shall
forthwith pay to Lessor all Rent due and payable with respect to the Leased
Property to and including the date of such termination. Thereafter, following
any such termination, Lessee shall forthwith pay to Lessor, at Lessor's option,
as and for liquidated and agreed current damages for an Event of Default by
Lessee, the sum of:
(i) the worth at the time of award of the unpaid Rent
which had been earned at the time of termination,
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(ii) the worth at the time of award of the amount by
which the unpaid Rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss that
Lessee proves could have been reasonably avoided,
(iii) the worth at the time of award of the amount by
which the unpaid Rent for the balance of the Term after the time of
award exceeds the amount of such rental loss that Lessee proves could
be reasonably avoided, plus
(iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom.
As used in clauses (i) and (ii) above, the "worth at the time of award"
shall be computed by allowing interest at the Overdue Rate. As used in
clause (iii) above, the "worth at the time of award" shall be computed
by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus two percent (2%). For
purposes of determining the worth at the time of the award, Additional
Rent that would have been payable for the remainder of the Term shall
be deemed to be the greater of (y) the same as the Additional Rent for
the then current Lease Year or, if not determinable, the immediately
preceding Lease Year; and (z) such other amount as Lessor shall
demonstrate could reasonably have been earned.
Alternatively, if Lessor does not elect to terminate this Lease, then
without termination of Lessee's right to possession of the Leased Property,
Lessee shall pay to Lessor, at Lessor's option, as and for agreed damages for an
Event of Default, each installment of said Rent and other sums payable by Lessee
to Lessor under the Lease as the same becomes due and payable, together with
interest at the Overdue Rate from the date when due until paid, and Lessor may
enforce, by action or otherwise, any other term or covenant of this Lease.
16.4 Receiver. Upon the occurrence of an Event of Default, and
upon commencement of proceedings to enforce the rights of Lessor hereunder,
Lessor shall be entitled, as a matter of right, to the appointment of a receiver
or receivers acceptable to Lessor of the Leased Property and any Capital
Addition thereto of the revenues, earnings, income, products and profits
thereof, pending the outcome of such proceedings, with such powers as the court
making such appointment shall confer.
16.5 Lessee's Obligation to Purchase. If a Put Event shall
have occurred, then Lessor may require Lessee to purchase the Leased Property on
the first Minimum Rent Payment Date occurring not less than thirty (30) days
after the date specified in a notice from Lessor requiring such purchase for an
amount equal to the greater of (i) the Fair Market Value, or (ii) the Minimum
Repurchase Price, plus, in either event, all Rent then due and payable
(excluding the installment of Minimum Rent due on the purchase date). If Lessor
exercises such right, Lessor shall convey the Leased Property to Lessee on the
date fixed therefor in accordance with the provisions of Article XVIII upon
receipt of the purchase price therefor and this Lease shall thereupon terminate.
Any purchase by Lessee of the Leased Property pursuant to this Section shall be
in lieu of the damages specified in Section 16.3 and in lieu of any right to
recover actual damages under the Contract of Acquisition for breach of any
covenant, representation or warranty thereunder.
16.6 Waiver. If Lessor initiates judicial proceedings or if
this Lease is terminated by Lessor pursuant to this Article, Lessee waives, to
the extent permitted by applicable law, (i) any right of redemption, re-entry or
repossession; and (ii) the benefit of any laws now or hereafter in force
exempting property from liability for rent or for debt.
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16.7 Application of Funds. Any payments received by Lessor
under any of the provisions of this Lease during the existence or continuance of
any Event of Default which are made to Lessor rather than Lessee due to the
existence of an Event of Default shall be applied to Lessee's obligations in the
order which Lessor may determine or as may be prescribed by the laws of the
State.
16.8 Facility Operating Deficiencies. On notice or request
therefor by Lessor to Lessee, upon the occurrence of a Facility Operating
Deficiency specified with particularity in Lessor's notice, and for a period
equal to the greater of six (6) months or the time necessary fully to remedy the
Facility Operating Deficiency, Lessee shall engage the services of a management
consultant, unaffiliated with Lessee and approved by Lessor, to review the
management of the Facility for the purpose of making recommendations to remedy
the Facility Operating Deficiency(ies). The management consultant shall have
complete access to the Facility, its records, offices and facilities, in order
that it may carry out its duties. Lessee shall cause such management consultant
to prepare and deliver to Lessor and Lessee a written report of its
recommendations within thirty (30) days after its engagement. If Lessee shall
fail to designate a management consultant acceptable to Lessor within five (5)
days after receipt of the notice of request therefor, Lessor may designate such
management consultant by further notice to Lessee. Lessee shall be responsible
for payment of all fees and expenses reasonably charged and incurred by the
management consultant in carrying out its duties. Lessee shall promptly
implement any and all reasonable recommendations made by such management
consultant in order to promptly correct or cure such Facility Operating
Deficiency; provided, however, that in no event shall Lessee implement any such
recommendations if the same would otherwise cause an Event of Default hereunder
(e.g., a Transfer or change in use of the Leased Property), without Lessor's
prior written consent, which consent may be given or withheld in Lessor's sole
and absolute discretion.
16.9 [Reserved]
---------
16.10 Lessor's Security Interest. The parties intend that if
an Event of Default occurs under this Lease and this Lease is terminated by
Lessor pursuant to Section 16.2, Lessor will control Lessee's Personal Property
and the Intangible Property so that Lessor or its designee or nominee can
operate or re-let the Leased Property intact for its Primary Intended Use.
Accordingly, to implement such intention, and for the purpose of securing the
payment and performance obligations of Lessee hereunder, Lessor and Lessee agree
as follows:
16.10.1 Lessee, as debtor, hereby grants to Lessor,
as secured party, a security interest and an express contractual lien upon all
of Lessee's right, title and interest in and to Lessee's Personal Property and
in and to the Intangible Property and any and all products, rents, proceeds and
profits thereof in which Lessee now owns or hereafter acquires an interest or
right, including any leased Lessee's Personal Property. This Lease constitutes a
security agreement covering all such Lessee's Personal Property and the
Intangible Property. The security interest granted to Lessor with respect to
Lessee's Personal Property in this Section 16.10 is intended by Lessor and
Lessee to be subordinate to any security interest granted in connection with the
financing or leasing of all or any portion of the Lessee's Personal Property so
long as the lessor or financier of such Lessee's Personal Property agrees to
give Lessor written notice of any default by Lessee under the terms of such
lease or financing arrangement, to give Lessor a reasonable time following such
notice to cure any such default and consents to Lessor's written assumption of
such lease or financing arrangement upon Lessor's curing of any such defaults.
This security agreement and the security interest created herein shall survive
the expiration or earlier termination of this Lease.
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16.10.2 If required by Lessor at any time during the
Term, Lessee shall execute and deliver to Lessor, in form reasonably
satisfactory to Lessor, additional security agreements, financing statements,
fixture filings and such other documents as Lessor may reasonably require to
perfect or continue the perfection of Lessor's security interest in Lessee's
Personal Property and the Intangible Property and any and all products and
proceeds thereof now owned or acquired by Lessee. In the event Lessee fails to
execute any financing statement or other documents for the perfection or
continuation of Lessor's security interest, such failure shall, after any
applicable notice and cure period set forth in Section 16.1 above, be deemed an
Event of Default hereunder.
16.10.3 Upon the occurrence of an Event of Default,
Lessor shall be entitled to exercise any and all rights or remedies available to
a secured party under the Uniform Commercial Code, or available to a lessor
under the laws of the State, with respect to Lessee's Personal Property and the
Intangible Property, including the right to sell the same at public or private
sale.
ARTICLE XVII.
-------------
17. Lessor's Right to Cure Lessee's Default. If Lessee shall
fail to make any payment or to perform any act required to be made or performed
hereunder, Lessor, without waiving or releasing any obligation or default, may
after written notice to Lessee, but shall be under no obligation to, make such
payment or perform such act for the account and at the expense of Lessee, and
may, to the extent permitted by law, enter upon the Leased Property and any
Capital Addition thereto for such purpose and take all such action thereon as,
in Lessor's opinion, may be necessary or appropriate therefor. No such entry
shall be deemed an eviction of Lessee. All sums so paid by Lessor and all costs
and expenses, including reasonable attorneys' fees and expenses, so incurred,
together with interest thereon at the Overdue Rate from the date on which such
sums or expenses are paid or incurred by Lessor, shall be paid by Lessee to
Lessor on demand.
ARTICLE XVIII.
--------------
18. Purchase of the Leased Property. If Lessee purchases the
Leased Property from Lessor, Lessor shall, upon receipt from Lessee of the
applicable purchase price, together with full payment of any unpaid Rent due and
payable with respect to any period ending on or before the date of the purchase,
deliver to Lessee an appropriate deed or other conveyance conveying the entire
interest of Lessor in and to the Leased Property to Lessee free and clear of all
encumbrances other than (i) those that Lessee has agreed hereunder to pay or
discharge; (ii) those mortgage liens, if any, which Lessee has agreed in writing
to accept and to take title subject to; (iii) those liens and encumbrances which
were in effect on the date of conveyance of the Leased Property to Lessor; and
(iv) any other encumbrances permitted hereunder to be imposed on the Leased
Property which are assumable at no cost to Lessee or to which Lessee may take
subject without cost to Lessee. Lessee shall receive a credit against the
applicable purchase price for the total of the encumbrances assumed or taken
subject to and the difference between the applicable purchase price and the
total of such encumbrances assumed or taken subject to shall be paid to Lessor
or as Lessor may direct in immediately available funds. All expenses of such
conveyance, including the cost of title insurance, reasonable attorneys' fees
incurred by Lessor in connection with such conveyance and release, transfer
taxes and recording and escrow fees, shall be paid by Lessee.
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ARTICLE XIX.
------------
19.1 Renewal TermsRenewal Terms. Provided that no Event of
Default, or event which, with notice or lapse of time or both, would constitute
an Event of Default, has occurred and is continuing, either at the date of
exercise or upon the commencement of an Extended Term (as hereunder defined),
then Lessee shall have the right to renew this Lease for two (2) ten-year
renewal terms (each, an "Extended Term), upon (i) giving written notice to
Lessor of such renewal not less than eighteen (18) months and not more than
twenty-one (21) months prior to the expiration of the then current Term and (ii)
the Lessee under each other Facility Group Lease concurrently therewith
exercises its right to renew such Facility Group Lease for the corresponding
Extended Term in the manner and within the time provided in Article XIX of such
Facility Group Lease. During each Extended Term, all of the terms and conditions
of this Lease shall continue in full force and effect except that the annual
Minimum Rent for and during such Extended Term shall be the greater of (a) the
then current annual Fair Market Rental for the Leased Property and (b) the
annual Minimum Rent and Additional Rent payable for the last Lease Year of the
immediately preceding Term.
Notwithstanding anything to the contrary in this Section 19.1,
Lessor, in its sole discretion, may waive the condition to Lessee's right to
renew this Lease that no Event of Default, or event which, with notice or lapse
of time or both, would constitute an Event of Default, have occurred or be
continuing, and the same may not be used by Lessee as a means to negate the
effectiveness of Lessee's exercise of its renewal right for such Extended Term.
19.2 Lessor's Rights of Renewal and Early Termination. In
order to facilitate the transfer of the operations of the Facility to a third
party and/or to locate a replacement lessee, Lessor shall have the one time
right to either (i) terminate this Lease up to four (4) months early or (ii)
extend the Term of this Lease for up to four (4) months. Such right of early
termination shall be exercised by Lessor, if at all, by written notice from
Lessor to Lessee given not less than ninety (90) days prior to the date Lessor
desires to terminate this Lease and stating the date of such termination (which
date shall not be earlier than four (4) months prior to the expiration of the
Term). In the event that Lessor shall exercise such right of early termination
within the time and in the manner herein provided, this Lease shall terminate on
the date of termination specified in Lessor's notice. Such right of extension
shall be exercised by Lessor, if at all, by written notice from Lessor to Lessee
given not less than four (4) months prior to the expiration of the Term and
stating the date through which Lessor is extending the Term of this Lease (which
date shall not be later than four (4) months after the originally scheduled
expiration date). In the event that Lessor shall exercise such right of
extension, all of the terms and conditions of this Lease shall continue in full
force and effect and Lessee shall continue to pay Rent for and during such
extension period at the same Minimum Rent and Additional Rent rates as were in
effect upon the expiration of the originally scheduled Term; provided, however,
that Lessor shall have the right to terminate this Lease during any such
extension period upon not less than thirty (30) days prior written notice to
Lessee. In such event, this Lease, as previously extended, shall terminate upon
the date specified in Lessor's notice of termination.
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ARTICLE XX.
-----------
20. Holding Over. Except as provided in Section 19.2, if
Lessee shall for any reason remain in possession of the Leased Property after
the expiration or earlier termination of the Term, such possession shall be as a
month-to-month tenant during which time Lessee shall pay as Minimum Rent each
month twice the sum of (i) monthly Minimum Rent applicable to the prior Lease
Year, plus (ii) one-twelfth of the aggregate Additional Rent payable applicable
to the prior Lease Year, together with all Additional Charges and all other sums
payable by Lessee pursuant to this Lease. During such period of month-to-month
tenancy, Lessee shall be obligated to perform and observe all of the terms,
covenants and conditions of this Lease, but shall have no rights hereunder other
than the right, to the extent given by law to month-to-month tenancies, to
continue its occupancy and use of the Leased Property. Nothing contained herein
shall constitute the consent, express or implied, of Lessor to the holding over
of Lessee after the expiration or earlier termination of this Lease.
ARTICLE XXI.
------------
21.1 Letters of Credit. During the entire Term and for sixty
(60) days after the expiration or earlier termination of this Lease, Lessee
shall have obtained letters of credit from a financial institution satisfactory
to Lessor but in any event with (a) not less than $100 Million in net assets,
(b) a financial rating of not less than 60 as rated by Sheshonoff Information
Services, Inc. (or any equivalent rating thereto from any successor or
substitute rating service selected by Lessor) and (c) an investment grade rating
from each of Standard and Poors Corporation and Moody's Investors Service,
naming Lessor as beneficiary to secure Lessee's obligations hereunder and
Lessee's and any Affiliate of Lessee's obligations under any other lease or
other agreement or instrument with or in favor of Lessor or any Affiliate of
Lessor (including any other Facility Group Lease), at the times, in the amounts
and for the purposes set forth below. Each letter of credit shall be in
substantially the form of Exhibit D hereto. Each letter of credit shall be for a
term of not less than one (1) year and irrevocable during that term. Each letter
of credit shall provide that it will be honored upon a signed statement by
Lessor that Lessor is entitled to draw upon the letter of credit under this
Lease, and shall require no signature or statement from any party other than
Lessor. No notice to Lessee shall be required to enable Lessor to draw upon the
letter of credit. Each letter of credit shall also provide that following the
honor of any drafts in an amount less than the aggregate amount of the letter of
credit, the financial institution shall return the original letter of credit to
Lessor and Lessor's rights as to the remaining amount of the letter of credit
will not be extinguished. In the event of a transfer of Lessor's interest in the
Leased Property, Lessor shall have the right to transfer the letter of credit to
the transferee and thereupon shall, without any further agreement between the
parties, be released by Lessee from all liability therefor, and it is agreed
that the provisions hereof shall apply to every transfer or assignment of the
letter of credit to a new Lessor. The letter of credit may be assigned as
security in connection with a Facility Mortgage. If the financial institution
from which Lessee has obtained a letter of credit shall admit in writing its
inability to pay its debts generally as they become due, file a petition in
bankruptcy or a petition to take advantage of any insolvency act, make an
assignment for the benefit of its creditors consent to the appointment of a
receiver of itself or of the whole or any substantial part of its property, or
file a petition or answer seeking reorganization or arrangement under the
Federal bankruptcy laws or any other applicable law or statute of the United
States of America or any state thereof, then Lessee shall obtain a replacement
letter of credit within thirty (30) days of such act from another financial
institution satisfactory to Lessor.
21.2 Times for Obtaining Letters of CreditTimes for Obtaining
Letters of Credit. The initial letter of credit shall be obtained and delivered
to Lessor prior to or contemporaneous with the Commencement Date.
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The letters of credit covering subsequent periods shall be obtained and
delivered to Lessor not less than thirty (30) days prior to the expiration of
the then existing letter of credit ("Letter of Credit Date"). The term for each
such letter of credit shall begin no later than the expiration date of the
previous letter of credit.
21.3 Amounts for Letters of Credit. Letters of credit covering
the first Lease Year shall be in an amount equal to one-third (1/3) of the
annual Minimum Rent payable by Lessee under this Lease for the applicable Lease
Year. The letters of credit covering subsequent Lease Years shall be in an
amount equal to one-third (1/3) of the sum of the annual Minimum Rent plus
Lessor's reasonable estimate of the Additional Rent to be payable by Lessee for
the applicable Lease Year.
21.4 Uses of Letters of Credit. Lessor shall have the right to
draw upon a letter of credit up to its full amount whenever an Event of Default
has occurred or an event of default under any other lease or agreement between
Lessor or an Affiliate of Lessor and Lessee or an Affiliate of Lessee (including
under any other Facility Group Lease) or under any other letter of credit,
guaranty, mortgage, deed of trust, or other instrument executed by Lessee or an
Affiliate of Lessee in favor of Lessor or an Affiliate of Lessor has occurred;
provided further, if Lessee fails to obtain a satisfactory letter of credit
prior to the applicable Letter of Credit Date, Lessor may draw upon the full
amount of the then existing letter of credit without giving any notice or time
to cure to Lessee. No such draw shall (i) cure or constitute a waiver of an
Event of Default, (ii) be deemed to fix or determine the amounts to which Lessor
is entitled to recover under this Lease or otherwise, or (iii) be deemed to
limit or waive Lessor's right to pursue any remedies provided for in this Lease.
If all or any portion of a letter of credit is drawn against by Lessor, Lessee
shall, within two (2) business days after demand by Lessor, cause the issuer of
such letter of credit to issue Lessor, at Lessee's expense, a replacement or
supplementary letter of credit in substantially the form attached hereto as
Exhibit D such that at all times during the Term, Lessor shall have the ability
to draw on one or more letters of credit totalling, in the aggregate, the amount
required pursuant to Section 21.3.
ARTICLE XXII.
-------------
22. Risk of Loss. The risk of loss or of decrease in the
enjoyment and beneficial use of the Leased Property as a consequence of the
damage or destruction thereof by fire, the elements, casualties, thefts, riots,
wars or otherwise, or in consequence of foreclosures, attachments, levies or
executions (other than by Lessor and Persons claiming from, through or under
Lessor) is assumed by Lessee, and no such event shall entitle Lessee to any
abatement of Rent.
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ARTICLE XXIII.
--------------
23. General Indemnification. In addition to the other
indemnities contained herein, and notwithstanding the existence of any insurance
carried by or for the benefit of Lessor or Lessee, and without regard to the
policy limits of any such insurance, Lessee shall protect, indemnify, save
harmless and defend Lessor from and against all liabilities, obligations,
claims, damages, penalties, causes of action, costs and expenses, including
reasonable attorneys', consultants' and experts' fees and expenses, imposed upon
or incurred by or asserted against Lessor by reason of: (i) any accident, injury
to or death of Persons or loss of or damage to property occurring on or about
the Leased Property or adjoining sidewalks; (ii) any use, misuse, non-use,
condition, maintenance or repair by Lessee of the Leased Property; (iii) any
failure on the part of Lessee to perform or comply with any of the terms of this
Lease; (iv) the non-performance of any of the terms and provisions of any and
all existing and future subleases of the Leased Property entered into during the
Term to be performed by any party thereunder; (v) any claim for malpractice,
negligence or misconduct committed by any Person on or working from the Leased
Property; and (vi) the violation of any Legal Requirement.
Notwithstanding the existence of any insurance carried by or
for the benefit of Lessor or Lessee, and without regard to the policy limits of
any such insurance, Lessor shall protect, indemnify, save harmless and defend
Lessee from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses, including reasonable
attorneys', consultants' and experts' fees and expenses imposed upon or incurred
by or asserted against Lessee as a result of the gross negligence or willful
misconduct of Lessor, its employees, agents or contractors.
Any amounts which become payable by Lessee or Lessor under
this Article shall be paid within ten (10) days after liability therefor is
determined by litigation or otherwise, and if not timely paid shall bear
interest at the Overdue Rate from the date of such determination to the date of
payment. Lessee, at its sole cost and expense, shall contest, resist and defend
any such claim, action or proceeding asserted or instituted against Lessor for
which Lessee is obligated to indemnity Lessor hereunder or may compromise or
otherwise dispose of the same as Lessee sees fit; provided, however, that any
legal counsel selected by Lessee to defend Lessor shall be reasonably
satisfactory to Lessor. Lessor, at its sole cost and expense, shall contest,
resist and defend any such claim, action or proceeding asserted or instituted
against Lessee for which Lessor is obligated to indemnify Lessee hereunder or
may compromise or otherwise dispose of the same as Lessor sees fit; provided,
however, that any legal counsel selected by Lessor to defend Lessee shall be
reasonably satisfactory to Lessee. All indemnification covenants are intended to
apply to losses, damages, injuries, claims, etc. incurred directly by the
indemnified parties and their property, as well as by the indemnifying party or
third party, and their property. For purposes of this Article XXIII, any acts or
omissions of Lessee, or by employees, agents, assignees, contractors,
subcontractors or others acting for or on behalf of Lessee (whether or not they
are negligent, intentional, willful or unlawful), shall be strictly attributable
to Lessee. It is understood and agreed that payment shall not be a condition
precedent to enforcement of the foregoing indemnification obligations.
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ARTICLE XXIV.
-------------
24. Transfers.
---------
24.1 Prohibition. Except as provided in Section 24.9
below, Lessee shall not, without Lessor's prior written consent, which may be
withheld in Lessor's sole and absolute discretion, either directly or indirectly
or through one or more step transactions or tiered transactions, voluntarily or
by operation of law, (i) assign, convey, sell, pledge, mortgage, hypothecate or
otherwise encumber, transfer or dispose of all or any part of this Lease or
Lessee's leasehold estate hereunder, (ii) Master Sublease all or any part of the
Leased Property and/or any Capital Additions, (iii) engage the services of any
Person for the management or operation of all or any part of the Leased Property
and/or any Capital Additions, (iv) convey, sell, assign, transfer or dispose of
any stock or partnership, membership or other interests (whether equity or
otherwise) in Lessee (which shall include any conveyance, sale, assignment,
transfer or disposition of any stock or partnership, membership or other
interests (whether equity or otherwise) in any Related Lessee Persons), if such
conveyance, sale, assignment, transfer or other disposition results in a change
in control of Lessee (or any Related Lessee Person) from the Person(s) owning
fifty percent (50%) or more of the voting securities, partnership interests or
other equity interests in Lessee (or any Related Lessee Person) prior thereto,
(v) dissolve, merge or consolidate Lessee (which shall include any dissolution,
merger or consolidation of any Related Lessee Person) with any other Person, if
such dissolution, merger or consolidation, directly or indirectly or through one
or more step transactions or tiered transactions, results in a change in control
of Lessee (or in any Related Lessee Person) from the Person(s) owning fifty
percent (50%) or more of the voting securities, partnership interests or other
equity interests in Lessee (or any Related Lessee Person) prior thereto, or (vi)
sell, convey, assign or otherwise transfer all or substantially all of the
assets of Lessee (which shall include any sale, conveyance, assignment or other
transfer of all or substantially all of the assets of any Related Lessee Person)
(each of the aforesaid acts referred to in clauses (i) through (vi) being
referred to herein as a "Transfer"). Any Occupancy Arrangement with respect to
more than fifteen percent (15%) of the Facility to any Person or its Affiliates,
directly or indirectly, or through one or more step transactions or tiered
transactions, shall be deemed to be a "Master Sublease" hereunder. For any
Occupancy Arrangement transaction not requiring the consent of Lessor hereunder
(i.e., an Occupancy Arrangement not constituting a Master Sublease), Lessee
shall, within ten (10) days of entering into any such Occupancy Arrangement,
notify Lessor of the existence of such Occupancy Arrangement and the identity of
the Occupant and supply Lessor with a copy of the agreement relating to such
Occupancy Arrangement and any other related documentation, materials or
information reasonably requested by Lessor.
24.2 Consent. Prior to any Transfer, Lessee shall first notify
Lessor of its desire to do so and shall submit in writing to Lessor: (i) the
name of the proposed Occupant, assignee, manager or other transferee; (ii) the
terms and provisions of the Transfer, including any agreements in connection
therewith; and (iii) such financial information as Lessor reasonably may request
concerning the proposed Occupant, assignee, manager or other transferee. Without
limiting Lessor's absolute and unequivocal right to impose any other conditions
to granting its consent to a Transfer hereunder, Lessor may:
(a) require that the obligations of any
Occupant, assignee, manager or other transferee which is an Affiliate of another
Person be guaranteed by its parent or controlling Person and that any Guaranty
of this Lease be reaffirmed by any Guarantor notwithstanding such Transfer.
(b) with respect to any such Transfer constituting a
Master
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Sublease, require Lessee to pay to Lessor one hundred percent (100%) of all
Transfer Consideration (defined below). "Transfer Consideration" shall mean the
positive difference, if any, between the Fair Market Rental and the Rent payable
by Lessee determined on a monthly basis, prorating the Rent, as appropriate, if
less than all of the Facility is Master Subleased. The difference for each month
shall be paid by Lessee to Lessor monthly when the Minimum Rent is due.
(c) with respect to any other Transfer (i.e., a
Transfer other than pursuant to a Master Sublease), require Lessee to pay to
Lessor one hundred percent (100%) of the gross fair market value of Lessee's
leasehold interest (the "Leasehold FMV"), determined by appraisal in accordance
with the appraisal procedures set forth in Article XXXIV, excluding any business
value in excess of real estate value.
The consent by Lessor to any Transfer shall not constitute a consent to any
subsequent Transfer or to any subsequent or successive Transfer. Any purported
or attempted Transfer contrary to the provisions of this Article shall be void.
24.3 Attornment and Related Matters Any Occupancy
Arrangement (whether or not the same constitutes a Master Sublease) shall be
expressly subject and subordinate to all applicable terms and conditions of this
Lease and provide that Lessor, at its option and without any obligation to do
so, may require any Occupant to attorn to Lessor, in which event Lessor shall
undertake the obligations of Lessee, as sublessor, licensor or otherwise under
such Occupancy Arrangement from the time of the exercise of such option to the
termination of such Occupancy Arrangement and in such case Lessor shall not be
liable for any prepaid rents, fees or other charges or for any prepaid security
deposits paid by such Occupant to Lessee or for any other prior defaults of
Lessee under such Occupancy Arrangement. In the event that Lessor shall not
require such attornment with respect to any Occupancy Arrangement, then such
Occupancy Arrangement shall automatically terminate upon the expiration or
earlier termination of this Lease, including any early termination by mutual
agreement of Lessor and Lessee. Furthermore, any Occupancy Arrangement or other
agreement regarding a Transfer shall expressly provide that the Occupant,
assignee, manager or other transferee shall furnish Lessor with such financial
and operational information and information about the physical condition of the
Facility, including the information required by Section 25.2 herein, as Lessor
may request from time to time.
24.4 [Reserved]
24.5 Costs. Lessee shall reimburse Lessor for
Lessor's reasonable costs and expenses incurred in conjunction with the
processing and documentation of any request to Transfer, including attorneys',
architects', engineers' or other consultants' fees whether or not such Transfer
is actually consummated.
24.6 No Release of Lessee's Obligations. No Transfer
shall relieve Lessee of its obligation to pay the Rent and to perform all of the
other obligations to be performed by Lessee hereunder. The liability of Lessee
named herein and any immediate and remote successor in interest of Lessee (i.e.,
by means of any Transfer), and the due performance of the obligations of this
Lease on Lessee's part to be performed or observed, shall not in any way be
discharged, released or impaired by any (i) agreement which modifies any of the
rights or obligations of the parties under this Lease (provided, however, that
the same shall not be binding upon Lessee unless agreed or consented to in
writing by Lessee) (ii) stipulation which extends the time within which an
obligation under this Lease is to be performed, (iii) waiver of the performance
of an obligation required under this Lease, or (iv) failure to enforce any of
the obligations set forth in this Lease. If any Occupant, assignee,
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manager or other transferee defaults in any performance due hereunder, Lessor
may proceed directly against the Lessee named herein and/or any immediate and
remote successor in interest of Lessee without exhausting its remedies against
such Occupant, assignee, manager or other transferee.
24.7 REIT Protection. Anything contained in this
Lease to the contrary notwithstanding, (i) no Transfer shall be consummated on
any basis such that the rental or other amounts to be paid by the Occupant,
assignee, manager or other transferee thereunder would be based, in whole or in
part, on the income or profits derived by the business activities of the
Occupant, assignee, manager or other transferee; (ii) Lessee shall not furnish
or render any services to the Occupant, assignee, manager or other transferee or
manage or operate the Leased Property so Transferred; (iii) Lessee shall not
Transfer to any Person in which Lessor owns an interest, directly or indirectly
(by applying constructive ownership rules set forth in Section 856(d)(5) of the
Code); or (iv) Lessee shall not Transfer in any other manner which could cause
any portion of the amounts received by Lessor pursuant to this Lease or any
Occupancy Arrangement to fail to qualify as "rents from real property" within
the meaning of Section 856(d) of the Code, or any similar or successor provision
thereto or which could cause any other income of Lessor to fail to qualify as
income described in Section 856(c)(2) of the Code.
24.8 Transfers In Bankruptcy. In the event of a
Transfer pursuant to the provisions of the Bankruptcy Code, all consideration
payable or otherwise to be delivered in connection with such Transfer shall be
paid or delivered to Lessor, shall be and remain the exclusive property of
Lessor and shall not constitute property of Lessee or of the estate of Lessee
within the meaning of the Bankruptcy Code. Any consideration constituting
Lessor's property pursuant to the immediately preceding sentence and not paid or
delivered to Lessor shall be held in trust for the benefit of Lessor and be
promptly paid or delivered to Lessor. For purposes of this Section 24.8, the
term "consideration" shall have the same meaning given to such term in the
definition of Fair Market Rental as provided in Article I above. In the event
any such consideration is other than cash, the fair market value of such
consideration shall be paid or delivered to Lessor in cash.
24.9 Special Transactions.
24.9.1 Transfer to Affiliate.
Notwithstanding anything to the contrary in Section 24.1, but subject to the
provisions of Section 24.7 above, Lessor's consent shall not be required in
connection with and the provisions of Section 24.2 above shall not apply to, any
Transfer to an Affiliate of Lessee, including any assignment of this Lease or
any Master Sublease of the Leased Property to any Affiliate of Lessee, so long
as in connection therewith, each of the following conditions is met:
(a) In connection with such Transfer, there is no
change in the use of the Leased Property from the Primary Intended Use except
for a change in use to another Permitted Use as herein provided;
(b) Except in the case of a Transfer resulting from
merger or consolidation as to which Lessee is not the surviving party and in
which the transferee assumes the obligations of Lessee hereunder as a matter of
law, any Affiliate-transferee shall assume all of the obligations of Lessee
hereunder accruing subsequent to the effective date of such Transfer and by an
instrument in writing in form and substance reasonably satisfactory to Lessor. A
copy of such executed assumption shall be delivered to Lessor along with the
notice specified in clause (e) below;
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(c) Any Master Subletting shall be subject to the
provisions of Section 24.3 above.
(d) Neither the original Lessee nor any Guarantor
shall be released from any of the obligations of the Lessee hereunder or
Guarantor under the Guaranty (or any other guaranty), as applicable, whether
occurring prior to or after the effective date of such Transfer;
(e) Within ten (10) days after the effectiveness of
such Transfer, Lessee shall notify Lessor in writing of the occurrence of such
event, the effective date thereof, the facts placing the same within the
provisions of this Section 24.9.1 (including the relationship between Lessee and
such Affiliate-transferee) and any other change in the address for billings and
notices to Lessee pursuant to this Lease, accompanied by an executed copy of the
assumption or Master Sublease (if any) required pursuant to this Lease.
24.9.2 Public Offering; Public Trading.
Notwithstanding anything to the contrary in Section 24.1, Lessor's consent shall
not be required in connection with and the provisions of Section 24.2 shall not
apply to any transfer of any stock of Lessee or ILC as a result of a public
offering of Lessee's or ILC's stock which (a) constitutes a bona fide public
distribution of such stock pursuant to a firm commitment underwriting or a plan
of distribution registered under the Securities Act of 1933 and (b) results in
such stock being listed for trading on the American Stock Exchange or the New
York Stock Exchange or authorized for quotation on the NASDAQ National Market
immediately upon the completion of such public offering. In addition, so long as
such stock is listed for trading on any such exchange or authorized for
quotation on such market, the transfer or exchange of such stock over such
exchange or market shall not be deemed a Transfer hereunder unless the same
(whether in one transaction or in any step or series of transactions) results in
a change in control of Lessee or ILC (including pursuant to a tender or similar
offer to acquire the outstanding and issued securities of such entity).
24.9.3 ILC. Notwithstanding anything to the contrary
in Section 24.1, but subject to the provisions of Section 24.7 above, Lessor
shall consent to any Transfer resulting from (a) a sale or transfer of all or
substantially all of the outstanding capital stock of ILC or a sale or transfer
of all or substantially all of the assets of ILC, in each case to a single
purchaser or transferee in a single transaction or (b) a merger, consolidation
or stock exchange to which ILC is a party, so long as each of the following
conditions is met:
(i) The Consolidated Net Worth of
the purchaser or transferee resulting from a Transfer pursuant to clause (a)
above or the surviving party resulting from a Transfer pursuant to clause (b)
above, as the case may be, immediately following the effectiveness of such event
shall be equal to or greater than the greater of (A) $55 Million (as adjusted
pursuant to the Cost of Living Index to equate to constant 1996 dollars) and (B)
the lesser of (1) the Consolidated Net Worth of ILC immediately prior to the
effectiveness of such event and (2) $100 Million (as adjusted pursuant to the
Cost of Living Index to equate to constant 1996 dollars).
(ii) The debt to equity ratio of the
purchaser or transferee resulting from a Transfer pursuant to clause (a) above
or the surviving party resulting from a Transfer pursuant to clause (b) above,
as the case may be, immediately following the effectiveness of such event shall
not be greater than the debt to equity ratio of ILC immediately prior to the
effectiveness of such event. For purposes of this clause (ii), "debt" shall
include the capitalized value of any operating leases to which ILC and/or such
transferee or surviving entity (and/or their consolidated Subsidiaries) are
parties and the same
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shall be demonstrated by financial statements prepared in accordance with GAAP
and reasonably satisfactory to Lessor.
(iii) The purchaser or transferee
resulting from a Transfer pursuant to clause (a) above or the other party(s) to
the Transfer pursuant to clause (b) above, as the case may be, shall have
sufficient operating experience and history with respect to a business of the
nature, type and size of the business of ILC as the same exists immediately
prior to the effectiveness of such event, as reasonably determined by Lessor.
Such purchaser or transferee or other party to such Transfer, as the case may
be, shall be deemed to have "sufficient operating experience and history" if,
(A) immediately prior to the effectiveness of such Transfer, such purchaser or
transferee or other party, as the case may be, operated or managed (whether
directly or through its operating Subsidiary(ies)), facilities of the type and
of a number equal to or greater than the number of the facilities operated
and/or managed by ILC and its Subsidiary(ies), or fifty (50) whichever is less
and has been in the business of operating or managing such facilities for a
period not less than the period in which ILC has been in business, or three (3)
years whichever is less, or (B) such transferee or purchaser or surviving
entity, as the case may be, shall immediately following the effectiveness of
such Transfer, and for a period of not less than one (1) year thereafter, retain
and/or hire in a full-time management or consulting capacity at least one-half
(1/2) of the principal officers of ILC who were in the employment of ILC prior
to the effectiveness of Transfer. For purposes of this clause (iii), ILC shall
be deemed to have been in business since June 30, 1996.
(iv) Except in the case of a
Transfer as to which such transferee or purchaser or surviving party, as the
case may be, assumes the obligations of ILC under the Guaranty as a matter of
law, such transferee or purchaser or surviving party shall execute a new
guaranty for this Lease consistent in form and substance with the Guaranty, in
which event ILC shall automatically be relieved of any of its obligations under
the Guaranty accruing after the effective date of such Transfer.
(v) No Event of Default shall have
occurred and be continuing hereunder.
(vi) Lessor shall receive the
applicable information required by Section 24.2 with respect to each such
proposed Transfer and the proposed purchaser or transferee resulting therefrom.
(vii) In connection with such
Transfer, Lessor shall receive one hundred percent (100%) of the Transfer
Consideration or one hundred percent (100%) of the Leasehold FMV, as applicable,
as set forth in subsections (b) and (c) of Section 24.2 above.
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ARTICLE XXV.
------------
25. Officer's Certificates and Financial Statements
-----------------------------------------------
25.1 Officer's Certificate. At any time and from time to time
upon Lessee's receipt of not less than twenty (20) days' prior written request
by Lessor, Lessee shall furnish to Lessor an Officer's Certificate certifying
(i) that this Lease is unmodified and in full force and effect, or that this
Lease is in full force and effect as modified and setting forth the
modifications; (ii) the dates to which the Rent has been paid; (iii) whether or
not, to the best knowledge of Lessee, Lessor is in default in the performance of
any covenant, agreement or condition contained in this Lease and, if so,
specifying each such default of which Lessee may have knowledge; and (iv)
responses to such other questions or statements of fact as Lessor, any ground or
underlying lessor, any purchaser or any current or prospective Facility
Mortgagee shall reasonably request. Lessee's failure to deliver such statement
within such time shall constitute an acknowledgement by Lessee that (x) this
Lease is unmodified and in full force and effect except as may be represented to
the contrary by Lessor; (y) Lessor is not in default in the performance of any
covenant, agreement or condition contained in this Lease; and (z) the other
matters set forth in such request, if any, are true and correct. Any such
certificate furnished pursuant to this Article may be relied upon by Lessor and
any current or prospective Facility Mortgagee, ground or underlying lessor or
purchaser of the Leased Property. Lessee shall not be required to deliver such
certificate more than four (4) times per Lease Year.
25.2 Statements. Lessee shall furnish the following
statements to Lessor:
(a) within 150 days after the end of each of
Lessee's and Guarantor's fiscal years, a copy of the audited
consolidated balance sheets of Lessee, its consolidated Subsidiaries
and Guarantor as of the end of such fiscal year, and related audited
consolidated statements of income, changes in common stock and other
stockholders' equity and changes in the financial position of Lessee,
its consolidated Subsidiaries and Guarantor for such fiscal year,
prepared in accordance with GAAP applied on a basis consistently
maintained throughout the period involved, such consolidated financial
statements to be certified by nationally recognized certified public
accountants;
(b) within 150 days after the end of each of
Lessee's and Guarantor's fiscal years, and together with the annual
audit report furnished in accordance with clause (a) above, an
Officer's Certificate stating that to the best of the signer's
knowledge and belief after making due inquiry, Lessee is not in default
in the performance or observance of any of the terms of this Lease, or
if Lessee shall be in default, specifying all such defaults, the nature
thereof, and the steps being taken to remedy the same;
(c) within forty-five (45) days after the
end of each month for those months occurring from the Commencement Date
to three months after the first month in which the average Cash Flow
Coverage for the Facility equals or exceeds 1.3 for such month, all
consolidated financial reports Lessee produces for reporting purposes
and detailed statements of income and detailed operational statistics
regarding occupancy rates, patient and resident mix and patient and
resident rates by type for the Facility; and thereafter within ninety
(90) days after the end of each of Lessee's quarters, all quarterly
consolidated financial reports Lessee produces for reporting purposes
and detailed statements of income and detailed operational statistics
regarding occupancy rates, patient and resident mix and patient and
resident rates by type for the
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Facility;
(d) within 150 days after the end of each of
Lessee's fiscal years, a copy of each cost report filed with the
appropriate governmental agency for the Facility;
(e) within thirty (30) days after they are
required to be filed with the SEC, copies of any annual reports and of
information, documents and other reports, or copies of such portions of
any of the foregoing as the SEC may prescribe, which Lessee or any
Guarantor is required to file with the SEC pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934;
(f) within five (5) Business Days after
Lessee's receipt thereof, copies of all written communications received
by Lessee from any regulatory agency relating to (i) surveys of the
Facility for purposes of licensure, Medicare and Medicaid certification
and accreditation and (ii) any proceeding, formal or informal, with
respect to cited deficiencies with respect to services and activities
provided and performed at the Facility, including patient and resident
care, patient and resident activities, patient and resident therapy,
dietary, medical records, drugs and medicines, supplies, housekeeping
and maintenance, or the condition of the Facility, and involving an
actual or threatened warning, imposition of a fine or a penalty, or
suspension, termination or revocation of the Facility's license to be
operated in accordance with its Primary Intended Use;
(g) to the extent available to customers,
depositors, shareholders or the public, within 150 days after the end
of each fiscal year of the financial institution issuing the letter of
credit required under Article XXI, a copy of the audited consolidated
balance sheets of such financial institution as of the end of such
fiscal year, and related unaudited consolidated statements of income,
changes in common stock and other stockholders equity and changes in
the financial position of such financial institution and its
consolidated subsidiaries for each such fiscal year, prepared in
accordance with generally accepted accounting principles applied on a
basis consistently maintained throughout the period involved, such
consolidated financial statements to be certified by nationally
recognized certified public accountants. Lessee shall be deemed to have
satisfied its obligations under this clause (g) if Lessee shall request
in writing to such financial institution that Lessor be placed on the
distribution list of such financial institution for delivery of such
financial statements;
(h) within five (5) Business Days after
Lessee's receipt thereof, copies of all claims, reports, complaints,
notices, warnings or asserted violations relating in any way to the
Leased Property or Lessee's use thereof; and
(i) with reasonable promptness, such other
information respecting (i) the financial and operational condition and
affairs of Lessee and the Facility, (ii) the physical condition of the
Leased Property and any Capital Addition thereto and (iii) any
suspected Transfer, including the then equity or voting ownership in
Lessee or in any Related Lessee Person (as defined in Article XXIV), in
each case as Lessor may reasonably request, in the form of a
questionnaire or otherwise, from time to time.
25.3 Charges. Lessee acknowledges that the failure to
furnish Lessor with any of the certificates or statements required by
this Article XXV will cause Lessor to incur costs and expenses not
contemplated hereunder, the exact amount of which is presently
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anticipated to be extremely difficult to ascertain. Accordingly, if Lessee fails
to furnish Lessor with any of the certificates or statements required by this
Article XXV, Lessee shall pay to Lessor upon demand $1,000 for each such failure
as Additional Charges. The parties agree that this charge represents a fair and
reasonable estimate of the costs that Lessor will incur by reason of Lessee's
failure to furnish Lessor with such certificates and statements; provided,
however, that with respect to the first (only) occurrence when Lessee fails to
furnish Lessor with any such certificate or statement required by Article XXV
during any Lease Year, Lessee shall not be required to pay such $1,000
additional charge thereon if Lessee delivers the certificate or statement
required within five (5) Business Days after receipt of written notice from
Lessor of Lessee's failure to deliver the same.
ARTICLE XXVI.
-------------
26. Lessor's Right to Inspect and Show the Leased Property.
Upon not less than twenty-four (24) hours' prior written notice to Lessee,
Lessee shall permit Lessor and its authorized representatives to (i) inspect the
Leased Property and any Capital Addition thereto and (ii) exhibit the same to
prospective purchasers and lenders, and during the last twelve (12) months of
the Term, to prospective lessees or managers, in each instance during usual
business hours and subject to any reasonable security, health, safety or
confidentiality requirements of Lessee or any Legal Requirement or Insurance
Requirement. Lessee shall reasonably cooperate with Lessor in exhibiting the
Leased Property and any Capital Additions thereto to prospective purchasers,
lenders, lessees and managers. Any such access to the Leased Property by Lessor
pursuant to this Article shall be conducted by Lessor in a manner that shall
interfere with Lessee's business at the Leased Property as little as
practicable.
ARTICLE XXVII.
--------------
27. No Waiver. No failure by Lessor to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
hereunder and no acceptance of full or partial payment of Rent during the
continuance of any default or Event of Default shall constitute a waiver of any
such breach or of any such term. No waiver of any breach shall affect or alter
this Lease, which shall continue in full force and effect with respect to any
other then existing or subsequent breach.
ARTICLE XXVIII.
---------------
28. Remedies Cumulative. Each legal, equitable or contractual
right, power and remedy of Lessor now or hereafter provided either in this Lease
or by statute or otherwise shall be cumulative and concurrent and shall be in
addition to every other right, power and remedy and the exercise or beginning of
the exercise by Lessor of any one or more of such rights, powers and remedies
shall not preclude the simultaneous or subsequent exercise by Lessor of any or
all of such other rights, powers and remedies.
ARTICLE XXIX.
-------------
29. Acceptance of Surrender. No surrender to Lessor of this
Lease or of the Leased Property, or any part thereof or of any interest therein,
shall be valid or effective unless agreed to and accepted in writing by Lessor
and no act by Lessor or any representative or agent of Lessor, other than such a
written acceptance by Lessor, shall constitute an acceptance of any such
surrender.
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ARTICLE XXX.
------------
30. No Merger. There shall be no merger of this Lease or of
the leasehold estate created hereby by reason of the fact that the same Person
may acquire, own or hold, directly or indirectly, (i) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (ii) the fee estate in the Leased Property.
ARTICLE XXXI.
-------------
31. Conveyance by Lessor. If Lessor or any successor owner of
the Leased Property shall convey the Leased Property other than as security for
a debt, Lessor or such successor owner, as the case may be, shall thereupon be
released from all future liabilities and obligations of the Lessor under this
Lease arising or accruing from and after the date of such conveyance or other
transfer and all such future liabilities and obligations shall thereupon be
binding upon the new owner.
ARTICLE XXXII.
--------------
32. Quiet Enjoyment. So long as Lessee shall pay the Rent as
the same becomes due and shall comply with all of the terms of this Lease and
perform its obligations hereunder, Lessee shall peaceably and quietly have, hold
and enjoy the Leased Property for the Term, free of any claim or other action by
Lessor or anyone claiming by, through or under Lessor, but subject to all liens
and encumbrances of record as of the date hereof, or the Commencement Date or
created thereafter as permitted hereunder or thereafter consented to by Lessee.
No failure by Lessor to comply with the foregoing covenant shall give Lessee any
right to cancel or terminate this Lease or abate, reduce or make a deduction
from or offset against the Rent or any other sum payable under this Lease, or to
fail to perform any other obligation of Lessee hereunder. Notwithstanding the
foregoing, Lessee shall have the right, by separate and independent action to
pursue any claim it may have against Lessor as a result of a breach by Lessor of
the covenant of quiet enjoyment contained in this Article.
ARTICLE XXXIII.
---------------
33. Notices. Any notice, consent, approval, demand or other
communication required or permitted to be given hereunder (a "notice") must be
in writing and may be served personally or by U.S. Mail. If served by U.S. Mail,
it shall be addressed as follows:
If to Lessor: Health Care Property Investors, Inc.
10990 Wilshire Boulevard
Suite 1200
Los Angeles, California 90024
Phone: (310) 473-1990
Fax: (310) 444-7817
Attn: Legal Department
with a copy to: Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Phone: (213) 485-1234
Fax: (213) 891-8763
Attn: David H. Vena, Esq.
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If to Lessee: Integrated Living Communities of Milledgeville, Inc.
24850 Old 41 Road
Bonita Springs, Florida 34135
Phone: (941) 947-7200
Fax: (941) 495-0711
Attn: President and CEO
with a copy to: Integrated Living Communities, Inc.
24850 Old 41 Road
Bonita Springs, Florida 34135
Phone: (941) 947-7200
Fax: (941) 495-0711
Attn: General Counsel
Any notice which is personally served shall be effective upon the date of
service; any notice given by U.S. Mail shall be deemed effectively given, if
deposited in the United States Mail, registered or certified with return receipt
requested, postage prepaid and addressed as provided above, on the date of
receipt, refusal or non-delivery indicated on the return receipt. In addition,
either party may send notices by a nationally recognized overnight courier
service provides written proof of delivery (such as U.P.S. or Federal Express).
Any notice sent by a nationally recognized overnight courier shall be effective
on the date of delivery to the party at its address specified above as set forth
in the courier's delivery receipt. Either party may, by notice to the other from
time to time in the manner herein provided, specify a different address for
notice purposes. The foregoing facsimile numbers are for convenience only.
Notice by facsimile shall not be considered an effective manner of giving notice
for purposes of this Lease.
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ARTICLE XXXIV.
--------------
34. Appraiser. If it becomes necessary to determine the Fair
Market Value, Fair Market Rental or Leasehold FMV for any purpose of this Lease,
the party required or permitted to give notice of such required determination
shall include in the notice the name of a Person selected to act as appraiser on
its behalf. Within ten (10) days after receipt of any such notice, Lessor (or
Lessee, as the case may be) shall by notice to Lessee (or Lessor, as the case
may be) appoint a second Person as appraiser on its behalf. The appraisers thus
appointed, each of whom must be a member of the American Institute of Real
Estate Appraisers (or any successor organization thereto), shall, within
forty-five (45) days after the date of the notice appointing the first
appraiser, proceed to determine the Fair Market Value, Fair Market Rental or
Leasehold FMV as of the relevant date (giving effect to the impact, if any, of
inflation from the date of their decision to the relevant date) provided,
however that if only one appraiser shall have been so appointed, or if two
appraisers shall have been so appointed but only one such appraiser shall have
made such determination within fifty (50) days after the making of Lessee's or
Lessor's request, then the determination of such appraiser shall be final and
binding upon the parties. If the Facility had reached stabilized operations
prior to the Commencement Date, to the extent consistent with sound appraisal
practice as then existing at the time of any such appraisal, an appraisal for
Fair Market Value shall be made on a basis consistent with the basis on which
the Leased Property was appraised for purposes of determining its fair market
value at the time the Leased Property was acquired by Lessor. If two appraisers
shall have been appointed and shall have made their determinations within the
respective requisite periods set forth above and if the difference between the
amounts so determined shall not exceed ten percent (10%) of the lesser of such
amounts then the Fair Market Value, Fair Market Rental or Leasehold FMV shall be
an amount equal to fifty percent (50%) of the sum of the amounts so determined.
If the difference between the amounts so determined shall exceed ten percent
(10%) of the lesser of such amounts, then such two appraisers shall have twenty
(20) days to appoint a third appraiser, but if such appraisers fail to do so,
then either party may request the American Arbitration Association or any
successor organization thereto to appoint an appraiser within twenty (20) days
of such request, and both parties shall be bound by any appointment so made
within such twenty (20) day period. If no such appraiser shall have been
appointed within such twenty (20) days or within ninety (90) days of the
original request for a determination of Fair Market Value, Fair Market Rental or
Leasehold FMV, whichever is earlier, either Lessor or Lessee may apply to any
court having jurisdiction to have such appointment made by such court. Any
appraiser appointed by the original appraisers, by the American Arbitration
Association or by such court shall be instructed to determine the Fair Market
Value, Fair Market Rental or Leasehold FMV within thirty (30) days after
appointment of such appraiser. The determination of the appraiser which differs
most in terms of dollar amount from the determinations of the other two
appraisers shall be excluded, and fifty percent (50%) of the sum of the
remaining two determinations shall be final and binding upon Lessor and Lessee
as the Fair Market Value, Fair Market Rental or Leasehold FMV. This provision
for determination by appraisal shall be specifically enforceable to the extent
such remedy is available under applicable law, and any determination hereunder
shall be final and binding upon the parties except as otherwise provided by
applicable law. Lessor and Lessee shall each pay the fees and expenses of the
appraiser appointed by it and each shall pay one-half of the fees and expenses
of the third appraiser and one-half of all other cost and expenses incurred in
connection with each appraisal.
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ARTICLE XXXV.
-------------
35.1 First Refusal to Purchase. Provided no Event of Default
has occurred and is continuing hereunder, Lessee shall have a right of first
refusal to purchase the Leased Property upon the same terms and conditions of
any offer or counter offer from a third party to purchase the Leased Property
which Lessor intends to accept (or has accepted subject to Lessee's right of
first refusal herein) (the "Offer"); provided, however that such right of first
refusal shall not apply to (a) any sale, transfer or other conveyance of the
Leased Property or any interest therein by Lessor to an Affiliate of Lessor, (b)
a sale or transfer of all or substantially all of the outstanding capital stock
of Lessor or a sale or transfer of all or substantially all of the assets of
Lessor, in each case to a single purchaser or transferee in a single transaction
or (c) a merger, consolidation or stock exchange to which Lessor is a party; and
provided further that in no event shall Lessor be required to make or provide to
Lessee any representations or warranties with respect to the Leased Property,
notwithstanding the terms of any such Offer. If, during the Term, Lessor desires
to accept (or has accepted subject to Lessee's right of first refusal herein) an
Offer, Lessor shall promptly notify Lessee of the same, which notice shall set
forth all of the material terms and conditions of such Offer, including the
purchase price for the Leased Property. Lessee shall have fifteen (15) days
after receipt of such notice from Lessor within which time to exercise Lessee's
right of first refusal. Lessee may exercise such right of first refusal by (i)
delivering written notice to Lessor stating that Lessee unequivocally accepts
the terms and conditions of the Offer applicable to Lessee as herein provided
within such fifteen (15) day period and (ii) delivering to Lessor concurrent
with such notice a reaffirmation of the Guaranty executed by Guarantor. If
Lessee exercises its right of first refusal within the time and in the manner
herein provided, then such transaction shall be consummated on or before the
date specified for closing in the terms of the Offer at the price and otherwise
in accordance with (A) the terms and conditions of such Offer applicable to
Lessee as herein provided and (B) the provisions of Article XVIII and Section
35.2 to the extent not inconsistent therewith. If Lessee shall not exercise
Lessee's right of first refusal in the manner and within the time period herein
provided, Lessor shall be free for a period of one (1) year after the expiration
of said fifteen (15) day period to sell the Leased Property to any third party
at a price and upon terms no less favorable to Lessor than those so offered to
Lessee pursuant to the Offer. If such sale is consummated, Lessee's right of
first refusal hereunder shall automatically terminate and the same shall not
apply to any subsequent sale of the Leased Property or any interest therein to
any subsequent purchaser or transferee. If such sale is not consummated,
Lessee's right of first refusal as provided in this Section shall be
reinstituted as to any subsequent sale of the Leased Property during the Term of
this Lease.
Notwithstanding anything to the contrary herein in this
Section 35.1, except with respect to transactions of the type described in
clauses (a) through (c) above as to which Lessee shall not have a right of first
refusal, if and only if, (1) the Offer includes property in addition to the
Leased Property or (2) in connection with the proposed sale of the Leased
Property as set forth in the Offer, Lessor or an Affiliate of Lessor is also
proposing to sell concurrent or substantially concurrent with the sale of the
Leased Property other property of Lessor or an Affiliate of Lessor to the same
third-party and/or its Affiliates, then the following shall apply:
(x) Lessee's right of first refusal as herein provided, shall
apply only with respect to the Leased Property.
(y) With respect to the circumstances described in clause (1),
if the Offer does not specifically allocate a purchase price to the Leased
Property, Lessor shall reasonably determine the same and include such allocation
in Lessor's written notice to Lessee of the
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Offer.
(z) If Lessee shall timely and properly exercise its right of
first refusal to purchase the Leased Property as provided in this Section 35.1,
the purchase price payable by Lessee shall be the price set forth in the Offer
(or the amount allocated to the Leased Property as provided in clause (y) above,
as the case may be), unless concurrent with Lessee's exercise of such Offer,
Lessee shall deliver written notice to Lessor that Lessee objects to the
purchase price for the Leased Property as set forth in the Offer (or the amount
so allocated to the Leased Property as provided in clause (y)), then the
purchase price payable by Lessee for the Leased Property shall be the lesser of
(aa) the purchase price for the Leased Property set forth in the Offer (or the
amount so allocated to the Leased Property as provided in clause (y)) and (bb)
the Fair Market Value of the Leased Property determined in accordance with the
appraisal procedures set forth in this clause (z). Within forty-five (45) days
after Lessee's timely exercise of its right of first refusal and objection to
the purchase price for the Leased Property, Lessor shall cause a nationally
recognized appraisal firm selected by Lessor, in which one or more of the
members, officers or principals of such firm are members of the American
Institute of Real Estate Appraisers (or any successor organization thereto), to
determine the Fair Market Value of the Leased Property as of the relevant date
(giving effect to the impact, if any, of inflation from the date of such
appraiser's decision to the relevant date) and to deliver to Lessor and Lessee a
written report of the same. The determination of such appraiser shall be final
and binding upon the parties. This provision for determination by appraisal
shall be specifically enforceable to the extent such remedy is available under
applicable law, and any determination hereunder shall be final and binding upon
the parties except as otherwise provided by applicable law. Lessor and Lessee
shall each pay one-half of the fees and expenses of such appraiser and one-half
of all other costs and expenses incurred in connection with such appraisal,
unless the Fair Market Value of the Leased Property as determined by such
appraisal is greater than the purchase price for the Leased Property as set
forth in the Offer (or so allocated to the Leased Property as provided in clause
(y)), in which case Lessee shall pay all of the fees and expenses of such
appraiser and any other costs and expenses incurred in connection with such
appraisal.
35.2 Other Defaults. A default under any other lease or other
agreement or instrument, including any purchase contract formed upon exercise of
any other right of first refusal or option to purchase, with or in favor of
Lessor or any Affiliate of Lessor and made by or with Lessee or any Affiliate of
Lessee where such default is not cured within the applicable time period, if
any, shall be deemed a default under this Article XXXV and the purchase contract
formed upon proper exercise by Lessee of the right of first refusal contained
herein, entitling Lessor, as seller, at its option, to terminate such purchase
contract and any escrow established thereby.
ARTICLE XXXVI.
--------------
36.1 Lessor May Grant Liens. Without the consent of Lessee,
Lessor may, from time to time, directly or indirectly, create or otherwise cause
to exist any ground lease, mortgage, trust deed, lien, encumbrance or title
retention agreement (collectively, an "encumbrance") upon the Leased Property
and any Capital Addition thereto, or any portion thereof or interest therein.
This Lease is and at all times shall be subject and subordinate to any such
encumbrance which may now or hereafter affect the Leased Property and to all
renewals, modifications, consolidations, replacements and extensions thereof.
This clause shall be self-operative and no further instrument of subordination
shall be required; provided, however, that in confirmation of such
subordination, Lessee shall execute promptly any certificate or document that
Lessor or any ground or underlying lessor, mortgagee or beneficiary may request
for such purposes; provided further, however, that any such subjection
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and subordination of this Lease or Lessee's leasehold interest hereunder to any
such encumbrance imposed after the Commencement Date shall be conditioned upon
the execution by the holder of such encumbrance and delivery to Lessee of a
non-disturbance and attornment agreement which provides, in substance, that so
long as no Event of Default has occurred, the holder of such encumbrance shall
not disturb either Lessee's leasehold interest or possession of the Leased
Property in accordance with the terms thereof or other rights under this Lease.
If, in connection with obtaining financing or refinancing for the Leased
Property, a Facility Mortgagee or prospective Facility Mortgagee shall request
reasonable modifications to this Lease as a condition to such financing or
refinancing, Lessee shall not withhold or delay its consent thereto, so long as
such modifications do not increase Lessee's monetary obligations hereunder or
adversely affect Lessee's rights or non-monetary obligations under this Lease.
36.2 Attornment. If Lessor's interest in the Leased Property
is sold or conveyed upon the exercise of any remedy provided for in any Facility
Mortgage, or otherwise by operation of law: (i) at the new owner's option,
Lessee shall attorn to and recognize the new owner as Lessee's Lessor under this
Lease or enter into a new lease substantially in the form of this Lease with the
new owner, and Lessee shall take such actions to confirm the foregoing within
ten (10) days after request; and (ii) the new owner shall not be (a) liable for
any act or omission of Lessor under this Lease occurring prior to such sale or
conveyance, or (b) subject to any offset, abatement or reduction of rent because
of any default of Lessor under this Lease occurring prior to such sale or
conveyance.
ARTICLE XXXVII.
---------------
37.1 Hazardous Substances. Lessee shall not allow any
Hazardous Substance to be located in, on, under or about the Leased Property or
incorporated in the Facility; provided, however, that Hazardous Substances may
be brought, kept, used or disposed of in, on or about the Leased Property in
quantities and for purposes similar to those brought, kept, used or disposed of
in, on or about similar facilities used for purposes similar to the Primary
Intended Use and which are brought, kept, used and disposed of in strict
compliance with Legal Requirements. Lessee shall not allow the Leased Property
to be used as a waste disposal site or, except as permitted in the immediately
preceding sentence, for the manufacturing, handling, storage, distribution or
disposal of any Hazardous Substance.
37.2 Notices. Lessee shall provide to Lessor promptly, and in
any event within seventy-two (72) hours after Lessee's receipt thereof, a copy
of any notice, or notification with respect to, (i) any violation of a Legal
Requirement relating to Hazardous Substances located in, on, or under the Leased
Property or any adjacent property; (ii) any enforcement, cleanup, removal, or
other governmental or regulatory action instituted, completed or threatened with
respect to the Leased property; (iii) any claim made or threatened by any Person
against Lessee or the Leased Property relating to damage, contribution, cost
recovery, compensation, loss, or injury resulting from or claimed to result from
any Hazardous Substance; and (iv) any reports made to any federal, state or
local environmental agency arising out of or in connection with any Hazardous
Substance in, on, under or removed from the Leased Property, including any
complaints, notices, warnings or asserted violations in connection therewith.
37.3 Remediation. If Lessee becomes aware of a violation of
any Legal Requirement relating to any Hazardous Substance in, on, under or about
the Leased Property or any adjacent property, or if Lessee, Lessor or the Leased
Property becomes subject to any
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order of any federal, state or local agency to repair, close, detoxify,
decontaminate or otherwise remediate the Leased Property, Lessee shall
immediately notify Lessor of such event and, at its sole cost and expense, cure
such violation or effect such repair, closure, detoxification, decontamination
or other remediation. If Lessee fails to implement and diligently pursue any
such cure, repair, closure, detoxification, decontamination or other
remediation, Lessor shall have the right, but not the obligation, to carry out
such action and to recover from Lessee all of Lessor's costs and expenses
incurred in connection therewith.
37.4 Indemnity. Lessee shall indemnify, defend, protect, save,
hold harmless, and reimburse Lessor for, from and against any and all costs,
losses (including, losses of use or economic benefit or diminution in value),
liabilities, damages, assessments, lawsuits, deficiencies, demands, claims and
expenses (collectively, "Environmental Costs") (whether or not arising out of
third-party claims and regardless of whether liability without fault is imposed,
or sought to be imposed, on Lessor) incurred in connection with, arising out of,
resulting from or incident to, directly or indirectly, before or during the Term
(i) the production, use, generation, storage, treatment, transporting, disposal,
discharge, release or other handling or disposition of any Hazardous Substances
from, in, on or about the Leased Property (collectively, "Handling"), including
the effects of such Handling of any Hazardous Substances on any Person or
property within or outside the boundaries of the Leased Property, (ii) the
presence or release of any Hazardous Substances in, on, under or about the
Leased Property and (iii) the violation of any Legal Requirements (including
Environmental Laws). "Environmental Costs" include interest, costs of response,
removal, remedial action, containment, cleanup, investigation, design,
engineering and construction, damages (including actual, consequential and
punitive damages) for personal injuries and for injury to, destruction of or
loss of property or natural resources, relocation or replacement costs,
penalties, fines, charges or expenses, attorney's fees, expert fees,
consultation fees, and court costs, and all amounts paid in investigating,
defending or settling any of the foregoing.
Without limiting the scope or generality of the foregoing,
Lessee expressly agrees to reimburse Lessor for any and all costs and expenses
incurred by Lessor:
(a) In investigating any and all matters relating to the
Handling of any Hazardous Substances, in, on, from, under or about the
Leased Property;
(b) In bringing the Leased Property into compliance with all
Legal Requirements; and
(c) Removing, treating, storing, transporting, cleaning-up
and/or disposing of any Hazardous Substances used, stored, generated,
released or disposed of in, on, from, under or about the Leased
Property or offsite.
If any claim is made hereunder, Lessee agrees to pay such
claim promptly, and in any event to pay such claim within sixty (60) calendar
days after receipt by Lessee of notice thereof. If any such claim is not so paid
and Lessor is ultimately found or agrees to be responsible therefore, Lessee
agrees also to pay interest on the amount paid from the date of the first notice
of such claim, at the Overdue Rate.
37.5 Environmental Inspection. Lessor shall have the right,
from time to time, and upon not less than five (5) days written notice to
Lessee, except in the case of an emergency in which event no notice shall be
required, to conduct an inspection of the Leased
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Property to determine the existence or presence of Hazardous Substances on or
about the Leased Property. Upon prior written notice to Lessee, Lessor shall
have the right to enter and inspect the Leased Property, conduct any testing,
sampling and analyses it deems reasonably necessary and shall have the right to
inspect materials brought into the Leased Property. Lessor may, in its
discretion, retain such experts to conduct the inspection, perform the tests
referred to herein, and to prepare a written report in connection therewith. If
any such inspections or tests indicate the presence or existence of Hazardous
Substances not previously disclosed to Lessor, then all reasonable costs and
expenses incurred by Lessor under this Section shall be paid on demand as
Additional Charges by Lessee to Lessor. Failure to conduct an environmental
inspection or to detect unfavorable conditions if such inspection is conducted
shall in no fashion be intended as a release of any liability for environmental
conditions subsequently determined to be associated with or to have occurred
during Lessee's tenancy. Lessee shall remain liable for any environmental
condition related to or having occurred during its tenancy regardless of when
such conditions are discovered and regardless of whether or not Lessor conducts
an environmental inspection at the termination of the Lease. The obligations set
forth in this Article shall survive the expiration or earlier termination of the
Lease.
ARTICLE XXXVIII.
----------------
38. Memorandum of Lease. Lessor and Lessee shall, promptly
upon the request of either, enter into a short form memorandum of this Lease, in
form suitable for recording under the laws of the State. Lessee shall pay all
costs and expenses of recording any such memorandum and shall fully cooperate
with Lessor in removing from record any such memorandum upon the expiration or
earlier termination of the Term.
ARTICLE XXXIX.
--------------
39. Sale of Assets. Notwithstanding any other provision of
this Lease, Lessor shall not be required to (i) sell or transfer the Leased
Property, or any portion thereof, which is a real estate asset as defined in
Section 856(c)(6)(B), or functionally equivalent successor provision, of the
Code, to Lessee if Lessor's counsel advises Lessor that such sale or transfer
may not be a sale of property described in Section 857(b)(6)(C), or functionally
equivalent successor provision, of the Code or (ii) sell or transfer the Leased
Property, or any portion thereof, to Lessee if Lessor's counsel advises Lessor
that such sale or transfer could result in an unacceptable amount of gross
income for purposes of the ninety five percent (95%) gross income test contained
in Section 856(c)(2), or functionally equivalent successor provision, of the
Code. If Lessee has the right or obligation to purchase the property pursuant to
the terms herein, and if Lessor determines not to sell such property pursuant to
the above sentence, then Lessee shall purchase such property, upon and subject
to all applicable terms and conditions set forth in this Lease, including the
provisions of Article XXXV, at such time as the transaction, upon the advice of
Lessor's counsel, would be a sale of property (to the extent the Leased Property
is a real estate asset) described in Section 857(b)(6)(C), or functionally
equivalent successor provision, of the Code, and would not result in an
unacceptable amount of gross income for purposes of the ninety five percent
(95%) gross income test contained in Section 856(c)(2), or functionally
equivalent successor provision of the Code and until such time Lessee shall
lease the Leased Property from Lessor at the Fair Market Rental determined in
accordance with Article XXXIV.
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ARTICLE XL.
-----------
[INTENTIONALLY OMITTED]
ARTICLE XLI.
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41. Authority. If Lessee is a corporation, trust, or
partnership, Lessee, and each individual executing this Lease on behalf of
Lessee, represent and warrant that each is duly authorized to execute and
deliver this Lease on behalf of Lessee and shall within thirty (30) days after
execution of this Lease deliver to Lessor evidence of such authority
satisfactory to Lessor.
ARTICLE XLII.
-------------
42. Attorneys' Fees. If Lessor or Lessee brings an action or
other proceeding against the other to enforce any of the terms, covenants or
conditions hereof or any instrument executed pursuant to this Lease, or by
reason of any breach or default hereunder or thereunder, the party prevailing in
any such action or proceeding and any appeal thereupon shall be paid all of its
costs and reasonable attorneys' fees incurred therein. In addition to the
foregoing and other provisions of this Lease that specifically require Lessee to
reimburse, pay or indemnify against Lessor's attorneys' fees, Lessee shall pay,
as Additional Charges, all of Lessor's reasonable attorneys' fees incurred in
connection with the enforcement of this Lease, including attorneys' fees
incurred in connection with Lessee's exercise of its right to renew this Lease
for any Extended Term, the review of any letters of credit, the review,
negotiation or documentation of any subletting, assignment, or management
arrangement or any consent requested in connection therewith, and the collection
of past due Rent.
ARTICLE XLIII.
--------------
43. Brokers. Lessee warrants that it has not had any contact
or dealings with any Person or real estate broker which would give rise to the
payment of any fee or brokerage commission in connection with this Lease, and
Lessee shall indemnify, protect, hold harmless and defend Lessor from and
against any liability with respect to any fee or brokerage commission arising
out of any act or omission of Lessee. Lessor warrants that it has not had any
contact or dealings with any Person or real estate broker which would give rise
to the payment of any fee or brokerage commission in connection with this Lease,
and Lessor shall indemnify, protect, hold harmless and defend Lessee from and
against any liability with respect to any fee or brokerage commission arising
out of any act or omission of Lessor.
ARTICLE XLIV.
-------------
44. Miscellaneous
44.1 . Anything contained in this Lease to the
contrary notwithstanding, all claims against, and liabilities and indemnities
of, Lessee or Lessor arising prior to the expiration or earlier termination of
the Term shall survive such expiration or termination. In addition, all claims
against, and all liabilities and indemnities hereunder of Lessee shall continue
in full force and effect and in favor of the Lessor named herein and its
successors and assigns, notwithstanding any conveyance of the Leased Property to
Lessee.
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44.2 Severability. If any term or provision of this
Lease or any application thereof shall be held invalid or unenforceable, the
remainder of this Lease and any other application of such term or provision
shall not be affected thereby.
44.3 Non-Recourse. Lessee specifically agrees to look
solely to the Leased Property for recovery of any judgment from Lessor;
provided, however, that if Lessor's equity in the Leased Property is less than
$1 Million, then other assets of Lessor shall be available to satisfy any
judgment against Lessor as provided herein, but only to the extent of the
difference between the then amount of Lessor's equity in the Leased Property and
such $1 Million. It is specifically agreed that no constituent partner in Lessor
or officer, director or employee of Lessor shall ever be personally liable for
any such judgment or for the payment of any monetary obligation to Lessee. The
provision contained in the foregoing sentence is not intended to, and shall not,
limit any right that Lessee might otherwise have to obtain injunctive relief
against Lessor, or any other action not involving the personal liability of
Lessor. Furthermore, except as otherwise expressly provided herein, in no event
shall Lessor ever be liable to Lessee for any indirect or consequential damages
suffered by Lessee from whatever cause.
44.4 Licenses. Upon the expiration or earlier
termination of the Term, Lessee shall transfer to Lessor or Lessor's nominee a
fully operational Facility and shall cooperate with Lessor or Lessor's designee
or nominee in connection with the processing by Lessor or Lessor's designee or
nominee of any applications for all licenses, operating permits and other
governmental authorization, all contracts, including contracts with governmental
or quasi-governmental entities, business records, data, patient and resident
records, and patient and resident trust accounts, which may be necessary or
useful for the operation of the Facility; provided that the costs and expenses
of any such transfer or the processing of any such application shall be paid by
Lessor or Lessor's designee or nominee. Lessee shall not commit any act or be
remiss in the undertaking of any act that would jeopardize the licensure or
certification of the Facility, and Lessee shall comply with all reasonable
requests for an orderly transfer of the same upon the expiration or early
termination of the Term. In addition, upon request, Lessee shall promptly
deliver copies of all non-confidential books and records relating to the Leased
Property and its operation to Lessor or Lessor's designee or nominee.
44.5 Successors and Assigns. Subject to the
provisions of Article XXIV, this Lease shall be binding upon Lessor and its
successors and assigns and upon Lessee and its successors and assigns.
44.6 Termination Date. If this Lease is terminated by
Lessor or Lessee under any provision hereof, and upon the expiration of the Term
(collectively, the "termination date"), the following shall pertain:
(i) Lessee shall vacate and surrender the
Leased Property, Lessee's Personal Property (other than the Removable Personal
Property, which is subject to the option granted to Lessor pursuant to Section
6.4) and all Capital Additions to Lessor in the condition required by Section
9.1.4. Prior to such vacation and surrender, Lessee shall remove any items which
Lessee is permitted or required to remove hereunder. Lessee shall, at Lessee's
cost, repair any damage to the Leased Property, Lessee's Personal Property and
any Capital Additions caused by such vacation and/or removal of any items which
Lessee is required or permitted hereunder to remove. Any items which Lessee is
permitted to remove but fails to remove prior to the surrender to Lessor of the
Leased Property, Lessee's Personal
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Property and any Capital Additions shall be deemed abandoned by Lessee, and
Lessor may retain or dispose of the same as Lessor sees fit without claim by
Lessee thereto or to any proceeds thereof. If, after written notice to Lessee,
Lessor elects to remove and dispose of any such items abandoned by Lessee, the
cost of such removal and disposal shall be an Additional Charge payable by
Lessee to Lessor upon demand. Lessee shall pay all amounts payable by it through
the termination date and any costs charged pursuant to the immediately preceding
sentence, each of the parties shall bear their own costs and fees incurred
(including all costs incurred in performing their respective obligations
hereunder) through the termination date and from and after the termination date
neither party shall have any further obligations to the other, except for those
obligations set forth in this clause (i), those obligations hereunder which are
intended to survive the expiration or earlier termination of this Lease and
those specific obligations set forth in clause (ii) below.
(ii) Notwithstanding the provisions of
clause (i), upon any such termination or expiration of this Lease, the following
shall pertain:
(a) Lessee agrees to defend, protect,
indemnify, defend and hold harmless Lessor from and against any and all claims,
costs, losses, expenses, damages, actions, and causes of action for which Lessee
is responsible under this Lease (including Lessee's indemnification obligations
under Articles XXIII and XXXVII) and which accrue or have accrued on or before
the termination date. Lessor agrees to use reasonable efforts to give Lessee
prompt written notice of any such claim, cost, loss, etc.; provided, however,
that failure to give such notice shall not relieve Lessee of the foregoing
indemnification of obligations unless Lessor's failure to give such notice
and/or to take action with respect thereto results in any default judgment
against Lessor or Lessee.
(b) Lessee shall remain liable for
the cost of all utilities used in or at the Leased Property and any Capital
Additions through the termination date and accrued and unpaid, whether or not
then billed, as of the termination date until full payment thereof by Lessee.
Lessee shall obtain directly from the companies providing such services closing
statements for all services rendered through the termination date and shall
promptly pay the same. If any utility statement with respect to the Leased
Property and any Capital Additions includes charges for a period partially prior
to and partially subsequent to the termination date, such charges shall be
prorated as between Lessor and Lessee, with Lessee responsible for the portion
thereof (based upon a fraction the numerator of which is the number of days of
service on such statement through the termination date and the denominator of
which is the total number of days of service on such statement) through the
termination date and Lessor shall be responsible for the balance. The party
receiving any such statement which requires proration hereunder shall promptly
pay such statement and the other party shall, within ten (10) days after receipt
of a copy of such statement, remit to the party paying the statement any amount
for which such other party is responsible hereunder.
(c) Subject to the provisions of
Sections 4.1.1, Lessee shall remain responsible for any and all Impositions
imposed against the Leased Property, the Personal Property and any Capital
Additions with a lien date prior to the termination date (irrespective of the
date of billing therefor) and for its pro rata share of any Impositions imposed
in respect of the tax-fiscal period during which the Term terminates as provided
in Section 4.1.7, and Lessee shall indemnify and hold Lessor harmless with
respect to any claims for such Impositions or resulting from non-payment
thereof.
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(d) Lessee shall (y) execute all
documents and take any actions reasonably necessary to (1) cause the transfer of
all of Lessee's Personal Property (other than the Removable Personal Property
which is subject to the option granted to Lessor pursuant to Section 6.4) and
any Capital Additions not owned by Lessor to Lessor, in each case free of any
encumbrance, as provided in Section 6.3 and (2) remove this Lease and/or any
memorandum hereof as a matter affecting title to the Leased Property as provided
in Article XXVIII and (z) comply with its covenants set forth in Section 44.4.
(e) Lessee shall continue to observe
the covenants of Lessee set forth in Sections 7.4.2 and 7.4.3.
44.7 Governing LawGoverning Law. THIS LEASE (AND ANY
AGREEMENT FORMED PURSUANT TO THE TERMS HEREOF) SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
(WITHOUT REGARD OF PRINCIPLES OR CONFLICTS OF LAW) AND ANY APPLICABLE LAWS OF
THE UNITED STATES OF AMERICA.
44.8 Waiver of Trial by JuryWaiver of Trial by Jury.
EACH OF LESSOR AND LESSEE ACKNOWLEDGES THAT IT HAS HAD THE ADVICE OF COUNSEL OF
ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY UNDER THE CONSTITUTION OF
THE UNITED STATES AND THE STATE. EACH OF LESSOR AND LESSEE HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (i) ARISING UNDER THIS LEASE (OR ANY AGREEMENT FORMED PURSUANT TO THE
TERMS HEREOF) OR (ii) IN ANY MANNER CONNECTED WITH OR RELATED OR INCIDENTAL TO
THE DEALINGS OF LESSOR AND LESSEE WITH RESPECT TO THIS LEASE (OR ANY AGREEMENT
FORMED PURSUANT TO THE TERMS HEREOF) OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREINAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; EACH OF LESSOR
AND LESSEE HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY, AND THAT
EITHER PARTY MAY FILE A COPY OF THIS SECTION WITH ANY COURT AS CONCLUSIVE
EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL
BY JURY.
LESSOR'S INITIALS: _______
LESSEE'S INITIALS: _______
44.9 Lessee's Equitable RemediesLessee's Equitable
Remedies. In the event that Lessee claims or asserts that Lessor has violated or
failed to perform a covenant of Lessor not to unreasonably withhold or delay
Lessor's consent or approval hereunder, or in any case where Lessor's
reasonableness in exercising its judgment is in issue, Lessee's sole remedy
shall be an action for specific performance, declaratory judgment or injunction,
and (a) in no event shall Lessee be entitled to any monetary damages for a
breach of such covenant and (b) Lessee hereby specifically waives the right to
any monetary damages or other remedies in connection with any such claim or
assertion; provided, however, that if Lessee establishes in a court of competent
jurisdiction that Lessor has acted maliciously or in bad faith in withholding
its
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consent in any instance where Lessor has agreed hereunder not to unreasonably
withhold or delay its consent, then the foregoing limitations shall not apply
and Lessee shall be entitled to seek any remedies available at law or in equity
by reason of Lessor's actions.
44.10 Entire Agreement. This Lease, together with the
other Lessee Documents, as defined in the Contract of Acquisition, the Exhibits
hereto and thereto and such other documents as are contemplated hereunder or
thereunder, constitutes the entire agreement of the parties with respect to the
subject matter hereof, and may not be changed or modified except by an agreement
in writing signed by the parties. Lessor and Lessee hereby agree that all prior
or contemporaneous oral understandings, agreements or negotiations relative to
the leasing of the Leased Property are merged into and revoked by this Lease.
44.11 Headings. All titles and headings to sections,
subsections, paragraphs or other divisions of this Lease are only for the
convenience of the parties and shall not be construed to have any effect or
meaning with respect to the other contents of such sections, subsections,
paragraphs or other divisions, such other content being controlling as to the
agreement among the parties hereto.
44.12 Counterparts. This Lease may be executed in any
number of counterparts, each of which shall be a valid and binding original, but
all of which together shall constitute one and the same instrument.
44.13 Joint and Several. If more than one Person is
the Lessee under this Lease, the liability of such Persons under this Lease
shall be joint and several.
44.14 Interpretation. Both Lessor and Lessee have
been represented by counsel and this Lease and every provision hereof has been
freely and fairly negotiated. Consequently, all provisions of this Lease shall
be interpreted according to their fair meaning and shall not be strictly
construed against any party.
44.15 Further Assurances. The parties agree to
promptly sign all documents reasonably requested to give effect to the
provisions of this Lease.
IN WITNESS WHEREOF, the parties have caused this Lease to be
executed and attested by their respective officers thereunto duly authorized.
HEALTH CARE PROPERTY INTEGRATED LIVING COMMUNITIES
INVESTORS, INC., a Maryland OF MILLEDGEVILLE, INC., a Delaware
corporation corporation
By: By:
----------------------------- ------------------------------
Its: Its:
----------------------------- ------------------------------
68
<PAGE>
EXHIBIT A
---------
Legal Description of the Land
The land referred to is situated in the City of Milledgeville, Baldwin
County, State of Georgia and is described as follows:
All that tract or parcel of land lying and being in the 318th G.M.
District within the corporate limits of the City of Milledgeville, Baldwin
County, Georgia, being a part of Lot 42, Valley Hill Estates Subdivision,
containing 2.37 acres, more or less, according to a plat of a property survey
for James and Mimi H. Brantley, made by James E. Smith, Jr., a Georgia
Registered Surveyor No. 1895, dated December 16, 1986, and recorded in Plat Book
3, Page 139, Baldwin County, Georgia Records, which plat by this reference
thereto is incorporated herein for a more particular and accurate description of
said property.
This is the same property described in a warranty deed from Linda W.
Waddell to James Brantley and Mimi H. Brantley dated December 30, 1986, and
recorded in Deed Book 223, Page 556, Baldwin County, Georgia Records.
TOGETHER WITH a 10-foot wide utility easement beginning at the
southwest corner of the above-described property and running thence in a
westerly direction with equal width to its intersection with an existing
sanitary sewer line. The southern line of said easement is the southern line of
the remainder portion of said Lot No. 42; the western line is the existing sewer
line; the northern line is 10 feet north of and parallel to the southern line;
and the eastern line is part of the western boundary of the above-described
property. This easement is for the purpose of the installation and maintenance
of a sanitary sewer line to service the above-described property.
A-1
<PAGE>
EXHIBIT B
---------
List of Lessor's Personal Property
All machinery, equipment, furniture, furnishings, moveable
walls or partitions, computers or trade fixtures or other
tangible personal property used or useful in Lessee's business
on the Leased Property, excluding items, if any, included
within the definition of Fixtures, but specifically including
those items described in Schedule 1 hereto.
A-1
<PAGE>
Schedule 1
----------
Itemization of Lessor's Personal Property
-----------------------------------------
39 Bedroom dressers 1 Desk with glass top
36 Dresser mirrors 3 Desks with chairs
33 Night stands 2 File cabinets
30 Beds with mattress & box springs 1 Bookcase
28 Resident room lamps 1 Podium
35 Resident room chairs 1 Buffet with mirror
22 Resident room pictures 6 Extra mattresses and box springs
5 Living room sofas 2 Maid carts
13 Living room chairs 17 Folding chairs
9 End tables 24 Porch rocking chairs
5 Living room lamps 3 Refrigerators
1 Coffee table 3 Stoves
15 Living room pictures 2 Freezers
10 Floor lamps 3 Washing machines
16 Dining room tables 3 Dryers
42 Dining room chairs 350 lb. capacity ice maker
1 Beauty shop styling chair 35 lb. capacity ice maker
1 Hairdryer and chair Kitchen utensils
1 Entertainment cabinet Pots/pans
1 Television Plates/cups/glasses
1 Sofa table 1 Wheelchair
1 Piano with stool
1 Bridge table with 4 chairs
1-1
<PAGE>
EXHIBIT C
---------
Form of Amendment to Lease
--------------------------
This First Amendment to Lease ("Amendment") is dated as of
_________________, 199__ by and between HEALTH CARE PROPERTY INVESTORS, INC., a
Maryland corporation ("Lessor"), and INTEGRATED LIVING COMMUNITIES OF
MILLEDGEVILLE, INC., a Delaware corporation ("Lessee").
RECITALS
A. Lessor and Lessee entered into a Lease dated as of _______ __, 199_
(the "Lease") for the _________________ facility located in
________________________________________.
B. Lessor and Lessee desire to memorialize their understanding
regarding certain provisions of the Lease.
AGREEMENT
Capitalized terms not otherwise defined herein shall have the meaning
ascribed to them in the Lease. Lessor and Lessee hereby agree as follows:
1. The Commencement Date of the Lease is_____________;
2. Subject to extension to be co-terminous with the Facility Group
Leases, the Fixed Term of the Lease shall end on _______________;
3. The first Lease Year for the Lease commences on ____________, 199__
and ends on ____________, 199__;
4. The first Quarter for which Additional Rent shall be due shall be
_____________________________.
Except as amended above, the Lease between Lessor and Lessee shall
remain in full force and effect. This Amendment may be executed in any number of
counterparts, all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
HEALTH CARE PROPERTY INTEGRATED LIVING COMMUNITIES
INVESTORS, INC., a Maryland OF MILLEDGEVILLE, INC., a Delaware
corporation corporation
By: By:
----------------------------- -------------------------------
Its: Its:
---------------------------- ------------------------------
1-2
<PAGE>
EXHIBIT D
---------
FORM OF
IRREVOCABLE STANDBY LETTER OF CREDIT
Health Care Property Investors, Inc.
10990 Wilshire Boulevard, Suite 1200
Los Angeles, California 90024
Date: _______________ Letter of Credit No.: ___________
Expiration Date: ________________
GENTLEMEN:
We hereby establish our irrevocable letter of credit in your favor for the
account of __________________________ available by your draft(s) on us payable
at sight not to exceed a total of
- --------------------------------------------------------------------------------
- ------------------------------(---------------------) when accompanied by this
letter of credit and the following documents.
1) A certificate purported to be executed by a representative of Health
Care Property Investors, Inc. ("Lessor") stating that (a) Integrated
Living Communities of Milledgeville, Inc., (Lessee"), as lessee, has
committed an Event of Default under the lease dated as of February 28,
1997, between Lessor, as lessor, and Lessee, as lessee, or (b) Lessee
or an affiliate of Lessee has committed an event of default under any
other lease or agreement or other instrument with or in favor of Lessor
or an affiliate of Lessor and stating the amount for which a draw under
this letter of credit is made; or (c) a certificate purported to be
executed by a representative of Lessor stating that a replacement
letter of credit for this instrument has not been supplied prior to
thirty (30) days in advance of the expiration of this instrument for
the account of Lessor.
2) The original letter of credit must accompany all drafts unless a
partial draw is presented, in which case the original must accompany
the final draft.
Partial drawings are permitted, with the letter of credit being reduced,
without amendment, by the amount(s) drawn hereunder.
This letter of credit shall expire at 2:00 p.m. at the office of
________________________________________ on the expiration date.
This letter of credit may be transferred or assigned by the beneficiary hereof
to any successor or assign of such beneficiary's interest in any such lease or
other agreement or to any lender obtaining a lien or security interest in the
property covered by any such lease. Each draft hereunder by any assignee or
successor shall be accompanied by a copy of the fully executed documents or
judicial orders evidencing such encumbrance, assignment or transfer.
D-1
69
<PAGE>
Any draft drawn hereunder must bear the legend "Drawn under
______________________________ Letter of Credit Number __________ dated
____________________. Except so far as otherwise expressly stated, this letter
of credit is subject to the "Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Brochure No. 500." We
hereby agree with you and all persons negotiating such drafts that all drafts
drawn and negotiated in compliance with the terms of this letter of credit will
be duly honored upon presentment and delivery of the documents specified above
by certified or registered mail to _________________________________ located at
- ---------------------------------------------------------------
______________________________________________ if negotiated not later that 2:00
pm on or before the expiration date shown above.
Very truly yours,
By
--------------------------------------
Its
-------------------------------------
D-2
<PAGE>
EXHIBIT E
---------
FACILITY GROUP LEASES
The following leases between Lessor, or an Affiliate of Lessor, and Lessee, or
an Affiliate of Lessee, shall be deemed "Facility Group Leases" for purposes of
this Lease:
(a) That certain lease dated as of September 30, 1996 between Lessor, as
"Lessor," and Lessee's Affiliate, Integrated Living Communities at
Cabot Pointe, Inc., a Delaware corporation, as "Lessee," covering
certain "Leased Property" located in the unincorporated area of the
County of Manatee, State of Florida;
(b) That certain lease dated as of February 21, 1997 between Lessor, as
"Lessor," and Lessee's Affiliate, Integrated Living Communities of Lake
Charles, Inc., a Delaware corporation, as "Lessee," covering certain
"Leased Property" located in the City of Lake Charles, State of
Louisiana;
(c) That certain lease dated as of February 21, 1997 between Lessor, as
"Lessor," and Lessee's Affiliate, Integrated Living Communities of
Alexandria, Inc., a Delaware corporation, as "Lessee," covering certain
"Leased Property" located in the City of Alexandria, State of
Louisiana; and
(d) That certain lease dated as of February 21, 1997 between Lessor, as
"Lessor," and Lessee's Affiliate, Integrated Living Communities of
Lafayette, Inc., a Delaware corporation, as "Lessee," covering certain
"Leased Property" located in the City of Lafayette, State of Louisiana;
together with any lease entered into after the date hereof between Lessor or an
Affiliate of Lessor and Lessee or an Affiliate of Lessee which recites that it
is a "Facility Group Lease."
E-1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C> <C>
ARTICLE I.............................................................................................. 1
1. Leased Property; Term................................................................ 1
ARTICLE II............................................................................................. 2
2. Definitions.......................................................................... 2
ARTICLE III............................................................................................ 15
3.1 Rent................................................................................. 15
3.2 Quarterly Calculation and Payment of Additional Rent; Annual
Reconciliation....................................................................... 17
3.3 Confirmation of Gross Revenues....................................................... 18
3.4 Additional Charges................................................................... 18
3.5 Late Payment of Rent................................................................. 18
3.6 Net Lease............................................................................ 19
ARTICLE IV............................................................................................. 19
4.1 Impositions.......................................................................... 19
4.2 Utilities............................................................................ 20
4.3 Insurance............................................................................ 21
4.4 Impound Account...................................................................... 21
4.5 Tax Service.......................................................................... 21
ARTICLE V.............................................................................................. 21
5. No Termination, Abatement, etc....................................................... 21
ARTICLE VI............................................................................................. 22
6.1 Ownership of the Leased Property..................................................... 22
6.2 Personal Property.................................................................... 22
6.3 Transfer of Personal Property and Capital Additions to Lessor........................ 22
6.4 Option to Purchase Removable Personal Property....................................... 22
ARTICLE VII............................................................................................ 23
7.1 Condition of the Leased Property..................................................... 23
7.2 Use of the Leased Property........................................................... 23
7.3 Lessor to Grant Easements, etc....................................................... 24
7.4 Preservation of Value and Utility of Leased Property................................. 25
ARTICLE VIII........................................................................................... 28
8. Compliance with Legal and Insurance Requirements, Instruments,
etc.................................................................................. 28
ARTICLE IX............................................................................................. 28
9.1 Maintenance and Repair............................................................... 28
9.2 Encroachments, Restrictions, Mineral Leases, etc..................................... 29
9.3 Repairs to be Performed by Lessee.................................................... 30
ARTICLE X.............................................................................................. 31
10.1 Construction of Capital Additions to the Leased Property............................. 31
10.2 General Requirements for all Approved Capital Additions.............................. 31
10.3 Funding of Capital Addition Project.................................................. 33
i
<PAGE>
ARTICLE XI............................................................................................. 34
11. Liens................................................................................ 34
ARTICLE XII............................................................................................ 34
12. Permitted Contests................................................................... 34
ARTICLE XIII........................................................................................... 35
13.1 General Insurance Requirements....................................................... 35
13.2 Replacement Cost..................................................................... 36
13.3 Additional Insurance................................................................. 36
13.4 Waiver of Subrogation................................................................ 36
13.5 Policy Requirements.................................................................. 37
13.6 Increase in Limits................................................................... 37
13.7 Blanket Policies and Policies Covering Multiple Locations............................ 37
13.8 No Separate Insurance................................................................ 37
ARTICLE XIV............................................................................................ 38
14.1 Insurance Proceeds................................................................... 38
14.2 Insured Casualty..................................................................... 38
14.3 Uninsured Casualty................................................................... 39
14.4 No Abatement of Rent................................................................. 40
14.5 Waiver............................................................................... 40
ARTICLE XV............................................................................................. 40
15. Condemnation......................................................................... 40
15.1 Total Taking................................................................. 40
15.2 Partial Taking............................................................... 40
15.3 Restoration.................................................................. 40
15.4 Award-Distribution........................................................... 40
15.5 Temporary Taking............................................................. 41
15.6 Sale Under Threat of Condemnation............................................ 41
ARTICLE XVI............................................................................................ 41
16.1 Events of Default.................................................................... 41
16.2 Certain Remedies..................................................................... 44
16.3 Damages.............................................................................. 44
16.4 Receiver............................................................................. 45
16.5 Lessee's Obligation to Purchase...................................................... 45
16.6 Waiver............................................................................... 46
16.7 Application of Funds................................................................. 46
16.8 Facility Operating Deficiencies...................................................... 46
ARTICLE XVII........................................................................................... 47
17. Lessor's Right to Cure Lessee's Default.............................................. 47
ARTICLE XVIII.......................................................................................... 48
18. Purchase of the Leased Property...................................................... 48
ARTICLE XIX............................................................................................ 48
19.1 Renewal Terms........................................................................ 48
19.2 Lessor's Rights of Renewal and Early Termination..................................... 48
ARTICLE XX............................................................................................. 49
ii
<PAGE>
20. Holding Over......................................................................... 49
ARTICLE XXI............................................................................................ 49
21.1 Letters of Credit.................................................................... 49
21.2 Times for Obtaining Letters of Credit................................................ 50
21.3 Amounts for Letters of Credit........................................................ 50
21.4 Uses of Letters of Credit............................................................ 50
ARTICLE XXII........................................................................................... 51
22. Risk of Loss......................................................................... 51
ARTICLE XXIII.......................................................................................... 51
23. General Indemnification.............................................................. 51
ARTICLE XXIV........................................................................................... 52
24. Transfers............................................................................ 52
24.1 Prohibition.................................................................. 52
24.2 Consent...................................................................... 53
24.3 Attornment and Related Matters............................................... 53
24.4 [Reserved]................................................................... 54
24.5 Costs........................................................................ 54
24.6 No Release of Lessee's Obligations........................................... 54
24.7 REIT Protection.............................................................. 54
24.8 Transfers In Bankruptcy...................................................... 55
24.9 Special Transactions......................................................... 55
24.9.1 Transfer to Affiliate............................................... 55
24.9.2 Public Offering; Public Trading..................................... 56
24.9.3 ILC................................................................. 56
ARTICLE XXV............................................................................................ 58
25. Officer's Certificates and Financial Statements...................................... 58
25.1 Officer's Certificate........................................................ 58
25.2 Statements................................................................... 58
25.3 Charges...................................................................... 60
ARTICLE XXVI........................................................................................... 60
26. Lessor's Right to Inspect and Show the Leased Property............................... 60
ARTICLE XXVII.......................................................................................... 60
27. No Waiver............................................................................ 60
ARTICLE XXVIII......................................................................................... 61
28. Remedies Cumulative.................................................................. 61
ARTICLE XXIX........................................................................................... 61
29. Acceptance of Surrender.............................................................. 61
ARTICLE XXX............................................................................................ 61
30. No Merger............................................................................ 61
ARTICLE XXXI........................................................................................... 61
31. Conveyance by Lessor................................................................. 61
iii
<PAGE>
ARTICLE XXXII.......................................................................................... 61
32. Quiet Enjoyment...................................................................... 61
ARTICLE XXXIII......................................................................................... 62
33. Notices.............................................................................. 62
ARTICLE XXXIV.......................................................................................... 63
34. Appraiser............................................................................ 63
ARTICLE XXXV........................................................................................... 64
35.1 First Refusal to Purchase............................................................ 64
35.2 Other Defaults....................................................................... 66
ARTICLE XXXVI.......................................................................................... 66
36.1 Lessor May Grant Liens............................................................... 66
36.2 Attornment........................................................................... 66
ARTICLE XXXVII......................................................................................... 67
37.1 Hazardous Substances................................................................. 67
37.2 Notices.............................................................................. 67
37.3 Remediation.......................................................................... 67
37.4 Indemnity............................................................................ 67
37.5 Environmental Inspection............................................................. 68
iv
<PAGE>
ARTICLE XXXVIII........................................................................................ 69
38. Memorandum of Lease.................................................................. 69
ARTICLE XXXIX.......................................................................................... 69
39. Sale of Assets....................................................................... 69
ARTICLE XL. [INTENTIONALLY OMITTED]...................................................... 69
ARTICLE XLI............................................................................................ 70
41. Authority............................................................................ 70
ARTICLE XLII........................................................................................... 70
42. Attorneys' Fees...................................................................... 70
ARTICLE XLIII.......................................................................................... 70
43. Brokers.............................................................................. 70
ARTICLE XLIV........................................................................................... 70
44. Miscellaneous........................................................................ 70
44.1 Survival..................................................................... 70
44.2 Severability................................................................. 71
44.3 Non-Recourse................................................................. 71
44.4 Licenses..................................................................... 71
44.5 Successors and Assigns....................................................... 71
44.6 Termination Date............................................................. 72
44.7 Governing Law................................................................ 73
44.8 Waiver of Trial by Jury...................................................... 73
44.9 Lessee's Equitable Remedies.................................................. 74
44.10 Entire Agreement............................................................. 74
44.11 Headings..................................................................... 74
44.12 Counterparts................................................................. 75
44.13 Joint and Several............................................................ 75
44.14 Interpretation............................................................... 75
44.15 Further Assurances........................................................... 75
</TABLE>
EXHIBITS
- --------
Exhibit A Legal Description of the Land
Exhibit B List of Lessor's Personal Property
Exhibit C Form of Amendment
Exhibit D Form of Letter of Credit
Exhibit E Facility Group Leases
v
INTEGRATED LIVING COMMUNITIES, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
NAME UNDER WHICH
COMPANY STATE OF SUBSIDIARY DOES
INCORPORATION BUSINESS
<S> <C> <C>
Integrated Living Communities of Beth Avot, Inc. Delaware *
Integrated Living Communities of Castro Valley, Inc. Delaware *
Integrated Living Communities of Escondido, Inc. Delaware *
Integrated Living Communities of Hemet, Inc. Delaware *
Integrated Living Communities of Merced, Inc. Delaware *
Integrated Living Communities of Oakland, Inc. Delaware *
Integrated Living Communities of Rancho Bernardo Delaware *
Integrated Living Communities of San Bernadino, Inc. Delaware *
Integrated Living Communities of Walnut Creek, Inc. Delaware *
Integrated Living Communities of Yorba Linda, Inc. Delaware *
Integrated Management of Carrington Pointe, Inc. Delaware *
Integrated Living Communities of Colorado Springs, Inc. Delaware *
Integrated Living Communities at Cabot Pointe, Inc. Delaware *
Integrated Living Communities of Boynton Beach, Inc. Delaware *
Integrated Living Communities of Bradenton, Inc. Delaware *
Integrated Living Communities Holding, Inc. Delaware *
Integrated Living Communities of Jacksonville Beach, Inc. Delaware *
Integrated Living Communities of Sarasota, Inc. Florida *
Integrated Living Communities of St. Petersburg, Inc. Delaware *
Integrated Living Communities of TarponSprings, Inc. Delaware *
Integrated Living Communities of West Palm Beach, Inc. Delaware *
Integrated Living Communities Retirement Mgmt., Inc. Delaware *
West Palm Beach Condomiunium Association, Inc. Delaware *
Integrated Living Communities of Live Oak, Inc. Delaware *
Integrated Living Communities of Milledgeville, Inc. Delaware *
Integrated Living Communities of Barrington, Inc. Delaware *
Integrated Living Communities at Terrace Gardens, Inc. Delaware *
Integrated Living Communities at Wichita, Inc. Delaware *
Integrated Living Communities at Garden City, Inc. Delaware *
Integrated Living Communities of Great Bend, Inc. Delaware *
Integrated Living Communities of Hutchinson, Inc. Delaware *
Integrated Living Communities of Leavenworth, Inc. Delaware *
Integrated Living Communities of Manhattan, Inc. Delaware *
Integrated Living Communities of Alexandria, Inc. Delaware *
Integrated Living Communities of Baton Rouge, Inc. Delaware *
Integrated Living Communities of Bossier, Inc. Delaware *
Integrated Living Communities of Lafayette, Inc. Delaware *
Integrated Living Communities of Lake Charles, Inc. Delaware *
Integrated Living Communities of Quail Acres, Inc. Delaware *
Integrated Living Communities of Shreveport, Inc. Delaware *
Integrated Living Communities at Denton (MD), Inc. Delaware *
Integrated Living Communities of Missouri, Inc. Delaware *
Integrated Living Communities of Columbus, Inc. Delaware *
<PAGE>
Integrated Living Communities of Freemont, Inc. Delaware *
Integrated Living Communities of Grand Island, Inc. Delaware *
Integrated Living Communities of Hastings, Inc. Delaware *
Integrated Living Communities of Kearney, Inc. Delaware *
Integrated Living Communities of Norfolk, Inc. Delaware *
Integrated Living Communities of Lenior, Inc. Delaware *
Integrated Living Communities of Marion, Inc. Delaware *
Integrated Living Communities of Mt. Airy, Inc. Delaware *
Integrated Living Communities of North Carolina, Inc. Delaware *
Integrated Living Communities of Luzerne, Inc. Delaware *
Integrated Living Communities of South Carolina, Inc. Delaware *
Integrated Living Communities of West Columbia, Inc. Delaware *
Integrated Living Communities of Bedford, Inc. Delaware *
Integrated Living Communities of Brentwood, Inc. Delaware *
Integrated Living Communities of Dallas, Inc. Delaware *
Integrated Living Communities of Denton (Texas), Inc. Delaware *
Integrated Living Communities of Fort Worth, Inc. Delaware *
Integrated Living Communities of Grand Prairie, Inc. Delaware *
Integrated Living Communities of Henderson, Inc. Delaware *
Integrated Living Communities of McKinney, Inc. Delaware *
Integrated Living Communities of New Braunfels, Inc. Delaware *
Integrated Living Communities of Oakwell, Inc. Delaware *
Regency Assisted Living, Ltd. Delaware *
Riverchase Assisted Living, Ltd. Delaware *
Parc Chateau Assisted Living, Ltd. Delaware *
Integrated Living Communities of San Antonio Delaware *
Integrated Living Communities of Southlake, Inc. Delaware *
Integrated Living Communities of Gloucester, Inc. Delaware *
Integrated Living Communities of Portsmouth, Inc. Delaware *
Integrated Living Communities of Redgate, Inc. Delaware *
Integrated Living Communities of Virginia Beach, Inc. Delaware *
* Subsidiary does business under its corporate name
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,474,786
<SECURITIES> 0
<RECEIVABLES> 719,212
<ALLOWANCES> 250,000
<INVENTORY> 0
<CURRENT-ASSETS> 5,466,828
<PP&E> 68,560,932
<DEPRECIATION> 0
<TOTAL-ASSETS> 75,574,669
<CURRENT-LIABILITIES> 6,815,517
<BONDS> 0
0
0
<COMMON> 66,979
<OTHER-SE> 57,899,241
<TOTAL-LIABILITY-AND-EQUITY> 75,574,669
<SALES> 24,228,620
<TOTAL-REVENUES> 24,228,620
<CGS> 0
<TOTAL-COSTS> 23,244,753
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 257,158
<INCOME-PRETAX> 726,709
<INCOME-TAX> 279,783
<INCOME-CONTINUING> 446,926
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 446,926
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
